TAXATION II PART II

TRANSFER TAXES
(Secs. 84 to 104 of the NIRC as implemented by Revenue Regulations (RR) No. 2-03)

I. Nature of Transfer Taxes

II. Estate Tax
A. Nature of Estate Tax
1. Definition
2. Tax Exempt Net Estate (Sec. 84)
3. Minimum and Maximum Rates (Sec. 84)
SEC. 84. Rates of Estate Tax. - There shall be levied, assessed, collected and paid upon the transfer of the net estate as determined in accordance with Sections 85 and 86
of every decedent, whether resident or nonresident of the Philippines, a tax based on the value of such net estate, as computed in accordance with the following schedule:
If the net estate is:
OVER
P 200,000
500,000
2,000,000
5,000,000
10,000,000

BUT NOT OVER

P 200,000 Exempt
550,000
0
2,000,000 P 15,000
5,000,000 135,000
10,000,000 465,000
And Over 1,215,000

THE TAX SHALL BE

5%
8%
11%
15%
20%

PLUS

OF THE EXCESS OVER

P 200,000
500,000
2,000,000
5,000,000
10,000,000

4. Accrual of Estate Tax vs. Liability for Payment (Sec. 3 of RR No.

2-03)

B. Composition of the Gross Estate (Sec. 104) / (Sec. 4 of RR No. 2-03)

SEC. 3. THE LAW THAT GOVERNS THE IMPOSITION OF ESTATE TAX. It is

a well-settled rule that estate taxation is governed by the statute in force at the
time of death of the decedent. The estate tax accrues as of the death of the
decedent and the accrual of the tax is distinct from the obligation to pay the
same. Upon the death of the decedent, succession takes place and the right of
the State to tax the privilege to transmit the estate vests instantly upon death.
The application of the rates herein prescribed and the procedures in determining
the estate tax due shall apply to estate taxes falling due or have accrued
beginning January 1, 1998, the effectivity date of Republic Act No. 8424,
otherwise known as The Tax Reform Act of 1997.

SEC. 4. COMPOSITION OF THE GROSS ESTATE. The gross estate of a

decedent shall be comprised of the following properties and interest therein at
the time of his death, including revocable transfers and transfers for insufficient
consideration, etc.: A) Residents and citizens all properties, real or personal,
tangible or intangible, wherever situated. B) Non-resident aliens only
properties situated in the Philippines provided, that, with respect to intangible
personal property, its inclusion in the gross estate is subject to the rule of
reciprocity provided for under Section 104 of the Code.

1. Residents and Citizens

2. Non-resident aliens
a. Rule on Reciprocity

The decision of the Court of Tax Appeals, now under review, sets forth the
background facts as follows: "This is an appeal interposed by petitioner Antonio
Campos Rueda as administrator of the estate of the deceased Doa Maria de la
Estrella Soriano Vda. de Cerdeira, from the decision of the respondent Collector
of Internal Revenue, assessing against and demanding from the former the sum
P161,874.95 as deficiency estate and inheritance taxes, including interest and
penalties, on the transfer of intangible personal properties situated in the
Philippines and belonging to said Maria de la Estrella Soriano Vda. de Cerdeira.
Maria de la Estrella Soriano Vda. de Cerdeira (Maria Cerdeira for short) is a
Spanish national, by reason of her marriage to a Spanish citizen and was a
resident of Tangier, Morocco from 1931 up to her death on January 2, 1955. At
the time of her demise she left, among others, intangible personal properties in
the Philippines." 3 Then came this portion: "On September 29, 1955, petitioner
filed a provisional estate and inheritance tax return on all the properties of the
late Maria Cerdeira. On the same date, respondent, pending investigation,
issued an assessment for state and inheritance taxes in the respective amounts
of P111,592.48 and P157,791.48, or a total of P369,383.96 which tax liabilities
were paid by petitioner ... . On November 17, 1955, an amended return was filed
... wherein intangible personal properties with the value of P396,308.90 were
claimed as exempted from taxes. On November 23, 1955, respondent, pending
investigation, issued another assessment for estate and inheritance taxes in the
amounts of P202,262.40 and P267,402.84, respectively, or a total of
P469,665.24 ... . In a letter dated January 11, 1956, respondent denied the
request for exemption on the ground that the law of Tangier is not reciprocal to
Section 122 of the National Internal Revenue Code. Hence, respondent
demanded the payment of the sums of P239,439.49 representing deficiency
estate and inheritance taxes including ad valorem penalties, surcharges,
interests and compromise penalties ... . In a letter dated February 8, 1956, and
received by respondent on the following day, petitioner requested for the
reconsideration of the decision denying the claim for tax exemption of the

CIR vs. Campos Rueda (42 SCRA 23)

The basic issue posed by petitioner Collector of Internal Revenue in this appeal
from a decision of the Court of Tax Appeals as to whether or not the requisites of
statehood, or at least so much thereof as may be necessary for the acquisition
of an international personality, must be satisfied for a "foreign country" to fall
within the exemption of Section 122 of the National Internal Revenue Code 1 is
now ripe for adjudication. The Court of Tax Appeals answered the question in the
negative, and thus reversed the action taken by petitioner Collector, who would
hold respondent Antonio Campos Rueda, as administrator of the estate of the
late Estrella Soriano Vda. de Cerdeira, liable for the sum of P161,874.95 as
deficiency estate and inheritance taxes for the transfer of intangible personal
properties in the Philippines, the deceased, a Spanish national having been a
resident of Tangier, Morocco from 1931 up to the time of her death in 1955. In an
earlier resolution promulgated May 30, 1962, this Court on the assumption that
the need for resolving the principal question would be obviated, referred the
matter back to the Court of Tax Appeals to determine whether the alleged law of
Tangier did grant the reciprocal tax exemption required by the aforesaid Section
122. Then came an order from the Court of Tax Appeals submitting copies of
legislation of Tangier that would manifest that the element of reciprocity was not
lacking. It was not until July 29, 1969 that the case was deemed submitted for
decision. When the petition for review was filed on January 2, 1958, the basic
issue raised was impressed with an element of novelty. Four days thereafter,
however, on January 6, 1958, it was held by this Court that the aforesaid
provision does not require that the "foreign country" possess an international
personality to come within its terms. 2 Accordingly, we have to affirm.

intangible personal properties and the imposition of the 25% and 5% ad

valorem penalties ... . However, respondent denied request, in his letter dated
May 5, 1956 ... and received by petitioner on May 21, 1956. Respondent
premised the denial on the grounds that there was no reciprocity [with Tangier,
which was moreover] a mere principality, not a foreign country. Consequently,
respondent demanded the payment of the sums of P73,851.21 and P88,023.74
respectively, or a total of P161,874.95 as deficiency estate and inheritance taxes
including surcharges, interests and compromise penalties." 4
The matter was then elevated to the Court of Tax Appeals. As there was no
dispute between the parties regarding the values of the properties and the
mathematical correctness of the deficiency assessments, the principal question
as noted dealt with the reciprocity aspect as well as the insisting by the Collector
of Internal Revenue that Tangier was not a foreign country within the meaning of
Section 122. In ruling against the contention of the Collector of Internal
Revenue, the appealed decision states: "In fine, we believe, and so hold, that
the expression "foreign country", used in the last proviso of Section 122 of the
National Internal Revenue Code, refers to a government of that foreign power
which, although not an international person in the sense of international law,
does not impose transfer or death upon intangible person properties of our
citizens not residing therein, or whose law allows a similar exemption from such
taxes. It is, therefore, not necessary that Tangier should have been recognized
by our Government order to entitle the petitioner to the exemption benefits of the
proviso of Section 122 of our Tax. Code." 5
Hence appeal to this court by petitioner. The respective briefs of the parties duly
submitted, but as above indicated, instead of ruling definitely on the question,
this Court, on May 30, 1962, resolve to inquire further into the question of
reciprocity and sent back the case to the Court of Tax Appeals for the motion of
evidence thereon. The dispositive portion of such resolution reads as follows:
"While section 122 of the Philippine Tax Code aforequoted speaks of 'intangible
personal property' in both subdivisions (a) and (b); the alleged laws of Tangier
refer to 'bienes muebles situados en Tanger', 'bienes muebles radicantes en
Tanger', 'movables' and 'movable property'. In order that this Court may be able
to determine whether the alleged laws of Tangier grant the reciprocal tax
exemptions required by Section 122 of the Tax Code, and without, for the time
being, going into the merits of the issues raised by the petitioner-appellant, the
case is [remanded] to the Court of Tax Appeals for the reception of evidence or
proof on whether or not the words `bienes muebles', 'movables' and 'movable
properties as used in the Tangier laws, include or embrace 'intangible person
property', as used in the Tax Code." 6 In line with the above resolution, the Court
of Tax Appeals admitted evidence submitted by the administrator petitioner
Antonio Campos Rueda, consisting of exhibits of laws of Tangier to the effect
that "the transfers by reason of death of movable properties, corporeal or
incorporeal, including furniture and personal effects as well as of securities,
bonds, shares, ..., were not subject, on that date and in said zone, to the
payment of any death tax, whatever might have been the nationality of the
deceased or his heirs and legatees." It was further noted in an order of such
Court referring the matter back to us that such were duly admitted in evidence
during the hearing of the case on September 9, 1963. Respondent presented no
evidence." 7
The controlling legal provision as noted is a proviso in Section 122 of the
National Internal Revenue Code. It reads thus: "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 tax or death tax of any character in respect of
intangible person property 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." 8 The only
obstacle therefore to a definitive ruling is whether or not as vigorously insisted
upon by petitioner the acquisition of internal personality is a condition sine qua
non to Tangier being considered a "foreign country". Deference to the De Lara
ruling, as was made clear in the opening paragraph of this opinion, calls for an
affirmance of the decision of the Court of Tax Appeals.
It does not admit of doubt that if a foreign country is to be identified with a state,
it is required in line with Pound's formulation that it be a politically organized
sovereign community independent of outside control bound by penalties of

nationhood, legally supreme within its territory, acting through a government

functioning
under
a
regime
of
law. 9 It is thus a sovereign person with the people composing it viewed as an
organized corporate society under a government with the legal competence to
exact obedience to its commands. 10 It has been referred to as a body-politic
organized by common consent for mutual defense and mutual safety and to
promote the general welfare. 11 Correctly has it been described by Esmein as
"the juridical personification of the nation." 12 This is to view it in the light of its
historical development. The stress is on its being a nation, its people occupying
a definite territory, politically organized, exercising by means of its government
its sovereign will over the individuals within it and maintaining its separate
international personality. Laski could speak of it then as a territorial society
divided into government and subjects, claiming within its allotted area a
supremacy over all other institutions. 13 McIver similarly would point to the power
entrusted to its government to maintain within its territory the conditions of a
legal order and to enter into international relations. 14 With the latter requisite
satisfied, international law do not exact independence as a condition of
statehood. So Hyde did opine. 15
Even on the assumption then that Tangier is bereft of international personality,
petitioner has not successfully made out a case. It bears repeating that four
days after the filing of this petition on January 6, 1958 in Collector of Internal
Revenue v. De Lara, 16 it was specifically held by us: "Considering the State of
California as a foreign country in relation to section 122 of our Tax Code we
believe and hold, as did the Tax Court, that the Ancilliary Administrator is entitled
the exemption from the inheritance tax on the intangible personal property found
in the Philippines." 17 There can be no doubt that California as a state in the
American Union was in the alleged requisite of international personality.
Nonetheless, it was held to be a foreign country within the meaning of Section
122 of the National Internal Revenue Code. 18
What is undeniable is that even prior to the De Lara ruling, this Court did commit
itself to the doctrine that even a tiny principality, that of Liechtenstein, hardly an
international personality in the sense, did fall under this exempt category. So it
appears in an opinion of the Court by the then Acting Chief Justicem Bengson
who thereafter assumed that position in a permanent capacity, in Kiene v.
Collector of Internal Revenue. 19 As was therein noted: 'The Board found from
the documents submitted to it proof of the laws of Liechtenstein that said
country does not impose estate, inheritance and gift taxes on intangible property
of Filipino citizens not residing in that country. Wherefore, the Board declared
that pursuant to the exemption above established, no estate or inheritance taxes
were collectible, Ludwig Kiene being a resident of Liechtestein when he passed
away." 20 Then came this definitive ruling: "The Collector hereafter named the
respondent cites decisions of the United States Supreme Court and of this
Court, holding that intangible personal property in the Philippines belonging to a
non-resident foreigner, who died outside of this country is subject to the estate
tax, in disregard of the principle 'mobilia sequuntur personam'. Such property is
admittedly taxable here. Without the proviso above quoted, the shares of stock
owned here by the Ludwig Kiene would be concededly subject to estate and
inheritance taxes. Nevertheless our Congress chose to make an exemption
where conditions are such that demand reciprocity as in this case. And the
exemption must be honored." 21
WHEREFORE, the decision of the respondent Court of Tax Appeals of October
30, 1957 is affirmed. Without pronouncement as to costs.

CIR vs. Fisher (1 SCRA 93)

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) Cash, with the Chartered Bank of India, Australia & China

Total Gross Assets

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

4,870.88

851.97

P130,792.85

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
($5,000.00) P10,000.00

the

652.50

estate:

Plus: 4% int. p.a. from Feb. 2 to 22, 1951

Sub-Total

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

P10,000.00

22.47

10,022.47

P21,365.88

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, onehalf () 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
1241 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 13252 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

Total Deductions

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

2,052.55

P8,604.39

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

Total

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.

2,052.55

P9,256.89

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 ninetythree 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
section11 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;

any change through the exercise of a power (in whatever capacity exerciseable)
by the decedent alone or by the decedent in conjunction with any other person
(without regard to when or from what source the decedent acquired such
power), t o alter, amend, revoke, or terminate, or where any such power is

(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

relinquished in contemplation of the decedent's death.

(d) the P2,000.00 for funeral expenses should be deducted in the

determination of the net asset of the deceased Stevenson.

be considered to exist on the date of the decedent's death even though the

(2) For the purpose of this Subsection, the power to alter, amend or revoke shall
exercise of the power is subject to a precedent giving of notice or even though
the alteration, amendment or revocation takes effect only on the expiration of a

In all other respects, the decision of the Court of Tax Appeals is affirmed.

stated period after the exercise of the power, whether or not on or before the

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."

date of the decedent's death notice has been given or the power has been
exercised.
In such cases, proper adjustment shall be made representing the interests which
would have been excluded from the power if the decedent had lived, and for
such purpose if the notice has not been given or the power has not been

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.

exercised

on

or

before

the

date

of

his

death, such notice shall be considered to have been given, or the power
exercised, on the date of his death.
(D) Property Passing Under General Power of Appointment. - To the extent

3. Gross Estate (Secs. 85 and 104)

of any property passing under a general power of appointment exercised by the

decedent: (1) by will, or (2) by deed executed in contemplation of, or intended to
SEC. 85. Gross Estate. - the value of the gross estate of the decedent shall be

take effect in possession or enjoyment at, or after his death, or (3) by deed

determined by including the value at the time of his death of all property, real or

under which he has retained for his life or any period not ascertainable without

personal, tangible or intangible, wherever situated: Provided, however, that in

reference to his death or for any period which does not in fact end before his

the case of a nonresident decedent who at the time of his death was not a

death (a) the possession or enjoyment of, or the right to the income from, the

citizen of the Philippines, only that part of the entire gross estate which is

property, or (b) the right, either alone or in conjunction with any person, to

situated in the Philippines shall be included in his taxable estate.

designate the persons who shall possess or enjoy the property or the income
therefrom; except in case of a bona fide sale for an adequate and full

(A) Decedent's Interest. - To the extent of the interest therein of the decedent
at

the

time

of

his

consideration in money or money's worth.

death;
(E) Proceeds of Life Insurance. - To the extent of the amount receivable by the

(B) Transfer in Contemplation of Death. - To the extent of any interest therein

estate of the deceased, his executor, or administrator, as insurance under

of which the decedent has at any time made a transfer, by trust or otherwise, in

policies taken out by the decedent upon his own life, irrespective of whether or

contemplation of or intended to take effect in possession or enjoyment at or after

not the insured retained the power of revocation, or to the extent of the amount

death, or of which he has at any time made a transfer, by trust or otherwise,

receivable by any beneficiary designated in the policy of insurance, except when

under which he has retained for his life or for any period which does not in fact

it is expressly stipulated that the designation of the beneficiary is irrevocable.

end before his death (1) the possession or enjoyment of, or the right to the
income from the property, or (2) the right, either alone or in conjunction with any

(F) Prior Interests. - Except as otherwise specifically provided therein,

person, to designate the person who shall possess or enjoy the property or the

Subsections (B), (C) and (E) of this Section shall apply to the transfers, trusts,

income therefrom; except in case of a bonafide sale for an adequate and full

estates, interests, rights, powers and relinquishment of powers, as severally

consideration in money or money's worth.

enumerated and described therein, whether made, created, arising, existing,

exercised or relinquished before or after the effectivity of this Code.

(C) Revocable Transfer. - (1) To the extent of any interest therein, of which the
decedent has at any time made a transfer (except in case of a bona fide sale for

(G) Transfers of Insufficient Consideration. - If any one of the transfers,

an adequate and full consideration in money or money's worth) by trust or

trusts, interests, rights or powers enumerated and described in Subsections (B),

otherwise, where the enjoyment thereof was subject at the date of his death to

(C) and (D) of this Section is made, created, exercised or relinquished for a

10

consideration in money or money's worth, but is not a bona fide sale for an
adequate and full consideration in money or money's worth, there shall be

a. Valuation (Sec. 85 and 88) (Sec. 5 of RR No. 2-03)

included in the gross estate only the excess of the fair market value, at the time
of death, of the property otherwise to be included on account of such

SEC. 88. Determination of the Value of the Estate. -

transaction, over the value of the consideration received therefor by the

decedent.

(A) Usufruct. - To determine the value of the right of usufruct, use or habitation,
as well as that of annuity, there shall be taken into account the probable life of

(H) Capital of the Surviving Spouse. - The capital of the surviving spouse of a

the beneficiary in accordance with the latest Basic Standard Mortality Table, to

decedent shall not, for the purpose of this Chapter, be deemed a part of his or

be approved by the Secretary of Finance, upon recommendation of the

her gross estate.

Insurance Commissioner. cralaw

(B) Properties. - The estate shall be appraised at its fair market value as of the

SEC. 104. Definitions. - For purposes of this Title, the terms "gross
estate" and "gifts" include real and personal property, whether tangible or
intangible, or mixed, wherever situated: Provided, however, That where the
decedent or donor was a nonresident alien at the time of his death or donation,
as the case may be, his real and personal property so transferred but which are
situated outside the Philippines shall not be included as part of his "gross
estate" or "gross gift": Provided, further, That franchise which must be exercised
in the Philippines; shares, obligations or bonds issued by any corporation or
sociedad anonima organized or constituted in the Philippines in accordance with

time of death.
However, the appraised value of real property as of the time of death shall be,
whichever is higher of:
(1) The fair market value as determined by the Commissioner, or
(2) The fair market value as shown in the schedule of values fixed by the
Provincial and City Assessors.

its laws; shares, obligations or bonds by any foreign corporation eighty-five

percent (85%) of the business of which is located in the Philippines; shares,
obligations or bonds issued by any foreign corporation if such shares,
obligations or bonds have acquired a business situs in the Philippines; shares or
rights in any partnership, business or industry established in the Philippines,
shall be considered as situated in the Philippines: Provided, still 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 or the donor at the time of the
donation was a citizen and resident of a foreign country which at the time of his
death or donation did not impose a transfer 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 or
donor was a citizen and resident at the time of his death or donation allows a
similar exemption from transfer or death taxes of every character or description
in respect of intangible personal property owned by citizens of the Philippines
not residing in that foreign country.
The term "deficiency" means: (a) the amount by which tax imposed by this
Chapter exceeds the amount shown as the tax by the donor upon his return; but

SEC. 5. VALUATION OF THE GROSS ESTATE. The properties comprising

the gross estate shall be valued based on their fair market value as of the time
of death. If the property is a real property, the fair market value shall be the fair
market value as determined by the Commissioner or the fair market value as
shown in the schedule of values fixed by the provincial and city assessors,
whichever is higher. For purposes of prescribing real property values, the
Commissioner is authorized to divide the Philippines into different zones or
areas and shall, upon consultation with competent appraisers, both from the
private and public sectors, determine the fair market value of real properties
located in each zone or area. In the case of shares of stocks, the fair market
value shall depend on whether the shares are listed or unlisted in the stock
exchanges. Unlisted common shares are valued based on their book value while
unlisted preferred shares are valued at par value. In determining the book value
of common shares, appraisal surplus shall not be considered as well as the
value assigned to preferred shares, if there are any. For shares which are listed
in the stock exchanges, the fair market value shall be the arithmetic mean
between the highest and lowest quotation at a date nearest the date of death, if
none is available on the date of death itself.
To determine the value of the right to usufruct, use or habitation, as well as that
of annuity, there shall be taken into account the probable life of the beneficiary in
accordance with the latest basic standard mortality table, to be approved by the
Secretary of Finance, upon recommendation of the Insurance Commissioner.
1. Real Property
2. Personal Property (applicability of RR No. 6-2013)

the amount so shown on the return shall first be increased by the amount

3. Shares of Stock
4. Usufruct

previously assessed (or collected without assessment) as a deficiency, and

decreased by the amounts previously abated, refunded or otherwise repaid in
respect of such tax, or (b) if no amount is shown as the tax by the donor, then
the amount by which the tax exceeds the amounts previously assessed, (or
collected without assessment) as a deficiency, but such amounts previously
assessed, or collected without assessment, shall first be decreased by the
amount previously abated, refunded or otherwise repaid in respect of such tax.

b.
c.
e.
f.
g.
h.
i.

Decedents Interest
Transfer in Contemplation of Death d. Revocable Transfer
Property Passing Under General Power of Appointment
Proceeds of Life Insurance
Prior Interest
Transfers for Insufficient Consideration
Capital of Surviving Spouse

11

C. Deductions from the Gross Estate (Sec. 86) (Sec. 6 of RR No. 2-03)

death;Eighty percent (80%) of the value, if the prior decedent died more than
one (1) year but not more than two (2) years prior to the death of the decedent,

SEC. 86. Computation of Net Estate. - For the purpose of the tax imposed in
this Chapter, the value of the net estate shall be determined:
(A) Deductions Allowed to the Estate of Citizen or a Resident. - In the case
of a citizen or resident of the Philippines, by deducting from the value of the
gross estate -.
(1) Expenses, Losses, Indebtedness, and taxes. - Such amounts: (a) For actual
funeral expenses or in an amount equal to five percent (5%) of the gross estate,
whichever is lower, but in no case to exceed Two hundred thousand pesos
(P200,000); (b) For judicial expenses of the testamentary or intestate
proceedings; (c) For claims against the estate: Provided, That at the time the
indebtedness was incurred the debt instrument was duly notarized and, if the
loan was contracted within three (3) years before the death of the decedent, the
administrator or executor shall submit a statement showing the disposition of the
proceeds of the loan; (d) For claims of the deceased against insolvent persons
where the value of decedent's interest therein is included in the value of the
gross estate; and (e) For unpaid mortgages upon, or any indebtedness in
respect to, property where the value of decedent's interest therein, undiminished
by such mortgage or indebtedness, is included in the value of the gross estate,
but not including any income tax upon income received after the death of the
decedent, or property taxes not accrued before his death, or any estate tax.
The deduction herein allowed in the case of claims against the estate, unpaid
mortgages or any indebtedness shall, when founded upon a promise or
agreement, be limited to the extent that they were contracted bona fide and for
an adequate and full consideration in money or money's worth.
There shall also be deducted losses incurred during the settlement of the estate
arising from fires, storms, shipwreck, or other casualties, or from robbery, theft
or embezzlement, when such losses are not compensated for by insurance or
otherwise, and if at the time of the filing of the return such losses have not been
claimed as a deduction for the income tax purposes in an income tax return, and
provided that such losses were incurred not later than the last day for the
payment of the estate tax as prescribed in Subsection (A) of Section 91.
(2) Property Previously Taxed. - An amount equal to the value specified below of
any property forming a part of the gross estate situated in the Philippines of any
person who died within five (5) years prior to the death of the decedent, or
transferred to the decedent by gift within five (5) years prior to his death, where
such property can be identified as having been received by the decedent from

or if the property was transferred to him by gift within the same period prior to his
death;Sixty percent (60%) of the value, if the prior decedent died more than two
(2) years but not more than three (3) years prior to the death of the decedent, or
if the property was transferred to him by gift within the same period prior to his
death;Forty percent (40%) of the value, if the prior decedent died more than
three (3) years but not more than four (4) years prior to the death of the
decedent, or if the property was transferred to him by gift within the same period
prior to his death;Twenty percent (20%) of the value, if the prior decedent died
more than four (4) years but not more than five (5) years prior to the death of the
decedent, or if the property was transferred to him by gift within the same period
prior to his death;These deductions shall be allowed only where a donor's tax or
estate tax imposed under this Title was finally determined and paid by or on
behalf of such donor, or the estate of such prior decedent, as the case may be,
and only in the amount finally determined as the value of such property in
determining the value of the gift, or the gross estate of such prior decedent, and
only to the extent that the value of such property is included in the decedent's
gross estate, and only if in determining the value of the estate of the prior
decedent, no deduction was allowable under paragraph (2) in respect of the
property or properties given in exchange therefor.
Where a deduction was allowed of any mortgage or other lien in determining the
donor's tax, or the estate tax of the prior decedent, which was paid in whole or in
part prior to the decedent's death, then the deduction allowable under said
Subsection shall be reduced by the amount so paid.
Such deduction allowable shall be reduced by an amount which bears the same
ratio to the amounts allowed as deductions under paragraphs (1) and (3) of this
Subsection as the amount otherwise deductible under said paragraph (2) bears
to the value of the decedent's estate.
Where the property referred to consists of two or more items, the aggregate
value of such items shall be used for the purpose of computing the deduction.
(3) Transfers for Public Use. - The amount of all the bequests, legacies, devises
or transfers to or for the use of the Government of the Republic of the
Philippines, or any political subdivision thereof, for exclusively public purposes.
(4) The Family Home. - An amount equivalent to the current fair market value of
the decedent's family home: Provided, however, That if the said current fair
market value exceeds One million pesos (P1,000,000), the excess shall be
subject to estate tax.

the donor by gift, or from such prior decedent by gift, bequest, devise or
inheritance, or which can be identified as having been acquired in exchange for
property so received:One hundred percent (100%) of the value, if the prior
decedent died within one (1) year prior to the death of the decedent, or if the

As a sine qua non condition for the exemption or deduction, said family home
must have been the decedent's family home as certified by the barangay captain
of the locality.

property was transferred to him by gift within the same period prior to his

12

(5) Standard Deduction. - An amount equivalent to One million pesos

Philippines; and only if, in determining the value of the net estate of the prior

(P1,000,000).

decedent, no deduction is allowable under paragraph (2) of Subsection (B) of

this Section, in respect of the property or properties given in exchange therefore.

(6) Medical Expenses. - Medical Expenses incurred by the decedent within one
(1) year prior to his death which shall be duly substantiated with

Where a deduction was allowed of any mortgage or other lien in determining the

receipts: Provided, That in no case shall the deductible medical expenses

donor's tax, or the estate tax of the prior decedent, which was paid in whole or in

exceed Five Hundred Thousand Pesos (P500,000).

part prior to the decedent's death, then the deduction allowable under said
paragraph shall be reduced by the amount so paid.

(7) Amount Received by Heirs Under Republic Act No. 4917. - Any amount
received by the heirs from the decedent - employee as a consequence of the

Such deduction allowable shall be reduced by an amount which bears the same

death of the decedent-employee in accordance with Republic Act No.

ratio to the amounts allowed as deductions under paragraphs (1) and (3) of this

4917: Provided, That such amount is included in the gross estate of the

Subsection as the amount otherwise deductible under paragraph (2) bears to

decedent.

the value of that part of the decedent's gross estate which at the time of his
death is situated in the Philippines.

(B) Deductions Allowed to Nonresident Estates. - In the case of a

nonresident not a citizen of the Philippines, by deducting from the value of that

Where the property referred to consists of two (2) or more items, the aggregate

part of his gross estate which at the time of his death is situated in the

value of such items shall be used for the purpose of computing the deduction.

Philippines: (1) Expenses, Losses, Indebtedness and Taxes. - That proportion of

the deductions specified in paragraph (1) of Subsection (A) of this Section which

(3) Transfers for Public Use. - The amount of all bequests, legacies, devises or

the value of such part bears to the value of his entire gross estate wherever

transfers to or for the use of the Government of the Republic of the Philippines

situated;(2) Property Previously Taxed. - An amount equal to the value specified

or any political subdivision thereof, for exclusively public purposes.

below of any property forming part of the gross estate situated in the Philippines
of any person who died within five (5) years prior to the death of the decedent,

(C) Share in the Conjugal Property. - the net share of the surviving spouse in

or transferred to the decedent by gift within five (5) years prior to his death,

the conjugal partnership property as diminished by the obligations properly

where such property can be identified as having been received by the decedent

chargeable to such property shall, for the purpose of this Section, be deducted

from the donor by gift, or from such prior decedent by gift, bequest, devise or

from the net estate of the decedent.

inheritance, or which can be identified as having been acquired in exchange for

property so received:One hundred percent (100%) of the value if the prior

(D) Miscellaneous Provisions. - No deduction shall be allowed in the case of a

decedent died within one (1) year prior to the death of the decedent, or if the

nonresident not a citizen of the Philippines, unless the executor, administrator, or

property was transferred to him by gift, within the same period prior to his

anyone of the heirs, as the case may be, includes in the return required to be

death;Eighty percent (80%) of the value, if the prior decedent died more than

filed under Section 90 the value at the time of his death of that part of the gross

one (1) year but not more than two (2) years prior to the death of the decedent,

estate of the nonresident not situated in the Philippines.

or if the property was transferred to him by gift within the same period prior to his
death;Sixty percent (60%) of the value, if the prior decedent died more than two

(E) Tax Credit for Estate Taxes paid to a Foreign Country. - (1) In General. -

(2) years but not more than three (3) years prior to the death of the decedent, or

The tax imposed by this Title shall be credited with the amounts of any estate

if the property was transferred to him by gift within the same period prior to his

tax imposed by the authority of a foreign country.

death;Forty percent (40%) of the value, if the prior decedent died more than
three (3) years but not more than four (4) years prior to the death of the

(2) Limitations on Credit. - The amount of the credit taken under this Section

decedent, or if the property was transferred to him by gift within the same period

shall be subject to each of the following limitations: (a) The amount of the credit

prior to his death; andTwenty percent (20%) of the value, if the prior decedent

in respect to the tax paid to any country shall not exceed the same proportion of

died more than four (4) years but not more than five (5) years prior to the death

the tax against which such credit is taken, which the decedent's net estate

of the decedent, or if the property was transferred to him by gift within the same

situated within such country taxable under this Title bears to his entire net

period prior to his death.These deductions shall be allowed only where a donor's

estate; and (b) The total amount of the credit shall not exceed the same

tax, or estate tax imposed under this Title is finally determined and paid by or on

proportion of the tax against which such credit is taken, which the decedent's net

behalf of such donor, or the estate of such prior decedent, as the case may be,

estate situated outside the Philippines taxable under this Title bears to his entire

and only in the amount finally determined as the value of such property in

net estate.

determining the value of the gift, or the gross estate of such prior decedent, and
only to the extent that the value of such property is included in that part of the
decedent's gross estate which at the time of his death is situated in the

SEC. 6. COMPUTATION OF THE NET ESTATE OF A DECEDENT WHO IS

EITHER A CITIZEN OR RESIDENT OF THE PHILIPPINES. - The value of the

13

net estate of a citizen or resident alien of the Philippines shall be determined by

deducting from the value of the gross estate the following items of deduction :
(A) Expenses, losses, indebtedness, and taxes- Such amounts for: (1) Actual
funeral expenses (whether paid or unpaid) up to the time of interment, or an
amount equal to five percent (5%) of the gross estate, whichever is lower, but in
no case to exceed P200,000. Any amount of funeral expenses in excess of the
P200,000 threshold, whether the same had actually been paid or still payable,
shall not be allowed as a deduction under this Subsection. Neither shall the
unpaid portion of the funeral expenses incurred which is in excess of the
P200,000 threshold be allowed to be claimed as a deduction under claims
against the estate provided under Subsection (C) hereof. The term "FUNERAL
EXPENSES" is not confined to its ordinary or usual meaning. They include: (a)
The mourning apparel of the surviving spouse and unmarried minor children of
the deceased bought and used on the occasion of the burial; (b) Expenses for
the deceaseds wake, including food and drinks; (c) Publication charges for
death notices; (d) Telecommunication expenses incurred in informing relatives of
the deceased; (e) Cost of burial plot, tombstones, monument or mausoleum but
not their upkeep. In case the deceased owns a family estate or several burial
lots, only the value corresponding to the plot where he is buried is deductible; (f)
Interment and/or cremation fees and charges; and (g) All other expenses
incurred for the performance of the rites and ceremonies incident to interment.
Expenses incurred after the interment, such as for prayers, masses,
entertainment, or the like are not deductible. Any portion of the funeral and burial
expenses borne or defrayed by relatives and friends of the deceased are not
deductible. Medical expenses as of the last illness will not form part of funeral
expenses but should be claimed under subsection (F) of this section.
Actual funeral expenses shall mean those which are actually incurred in
connection with the interment or burial of the deceased. The expenses must be
duly supported by receipts or invoices or other evidence to show that they were
actually incurred. Illustrations on how to determine the amount of allowable
funeral expenses - (a) If five percent (5%) of the gross estate is P70,000 and the
amount actually incurred is P50,000, only P50,000 will be allowed as deduction;
(b) If the expenses actually incurred amount to P90,000 and five percent (5%) of
the gross estate is P70,000, only P70,000 will be allowed as deduction;. (c) If
five percent (5%) of the gross estate is P220,000 and the amount actually
incurred is P215,000, the maximum amount that may be deducted is only
P200,000; (d) If five percent (5%) of the gross estate is P 100,000 and the total
amount incurred is P150,000 where P20,000 thereof is still unpaid, the only
amount that can be claimed as deduction for funeral expenses is P100,000. The
entire P50,000 excess amount consisting of P30,000 paid amount and P20,000
unpaid amount can no longer be claimed as FUNERAL EXPENSES. Neither can
the P20,000 unpaid portion be deducted from the gross estate as CLAIMS
AGAINST THE ESTATE under Subsection (C) hereof. (2) Judicial expenses of
the testamentary or intestate proceedings. - Expenses allowed as deduction
under this category are those incurred in the inventory-taking of assets
comprising the gross estate, their administration, the payment of debts of the
estate, as well as the distribution of the estate among the heirs. In short, these
deductible items are expenses incurred during the settlement of the estate but
not beyond the last day prescribed by law, or the extension thereof, for the filing
of the estate tax return. Judicial expenses may include: (a) Fees of executor or
administrator; (b) Attorneys fees; (c) Court fees; (d) Accountants fees; (e)
Appraisers fees; (f) Clerk hire; (g) Costs of preserving and distributing the
estate; (h) Costs of storing or maintaining property of the estate; and (i)
Brokerage fees for selling property of the estate. Any unpaid amount for the
aforementioned cost and expenses claimed under Judicial Expenses should
be supported by a sworn statement of account issued and signed by the
creditor.
(3) Claims against the estate. The word claims is generally construed to
mean debts or demands of a pecuniary nature which could have been enforced
against the deceased in his lifetime and could have been reduced to simple
money judgements. Claims against the estate or indebtedness in respect of
property may arise out of : (1) Contract; (2) Tort; or (3) Operation of Law. (i)
Requisites for Deductibility of Claims Against the Estate - (a) The liability
represents a personal obligation of the deceased existing at the time of his
death except unpaid obligations incurred incident to his death such as unpaid
funeral expenses (i.e., expenses incurred up to the time of interment) and
unpaid medical expenses which are classified under a different category of
deductions pursuant to these Regulations; (b) The liability was contracted in
good faith and for adequate and full consideration in money or moneys worth;
(c) The claim must be a debt or claim which is valid in law and enforceable in
court; (d) The indebtedness must not have been condoned by the creditor or the

action to collect from the decedent must not have prescribed. (ii) Substantiation
Requirements. - All unpaid obligations and liabilities of the decedent at the time
of his death (except unpaid funeral or medical expenses which are deductible
under a different category) are allowed as deductions from gross estate.
Provided, however, that the following requirements/documents are complied
with/submitted : (a) In case of simple loan (including advances): (1) The debt
instrument must be duly notarized at the time the indebtedness was incurred,
such as promissory note or contract of loan, except for loans granted by
financial institutions where notarization is not part of the business practice/policy
of the financial institution-lender; (2) Duly notarized Certification from the creditor
as to the unpaid balance of the debt, including interest as of the time of death. If
the creditor is a corporation, the sworn certification should be signed by the
President, or Vice-President, or other principal officer of the corporation. If the
creditor is a partnership, the sworn certification should be signed by any of the
general partners. In case the creditor is a bank or other financial institutions, the
Certification shall be executed by the branch manager of the bank/financial
institution which monitors and manages the loan of the decedent-debtor. If the
creditor is an individual, the sworn certification should be signed by him. In any
of these cases, the one who should certify must not be a relative of the borrower
within the fourth civil degree, either by consanguinity or affinity, except when the
requirement below is complied with. When the lender, or the President/Vicepresident /principal officer of the creditor-corporation, or the general partner of
the creditor-partnership is a relative of the debtor in the degree mentioned
above, a copy of the promissory note or other evidence of the indebtedness
must be filed with the RDO having jurisdiction over the borrower within fifteen
days from the execution thereof. (3) In accordance with the requirements as
prescribed in existing or prevailing internal revenue issuances, proof of financial
capacity of the creditor to lend the amount at the time the loan was granted, as
well as its latest audited balance sheet with a detailed schedule of its receivable
showing the unpaid balance of the decedent-debtor. In case the creditor is an
individual who is no longer required to file income tax returns with the Bureau, a
duly notarized Declaration by the creditor of his capacity to lend at the time
when the loan was granted without prejudice to verification that may be made by
the BIR to substantiate such declaration of the creditor. If the creditor is a nonresident, the executor/ administrator or any of the legal heirs must submit a duly
notarized declaration by the creditor of his capacity to lend at the time when the
loan was granted, authenticated or certified to as such by the tax authority of the
country where the non-resident creditor is a resident; (4) A statement under oath
executed by the administrator or executor of the estate reflecting the disposition
of the proceeds of the loan if said loan was contracted within three (3) years
prior to the death of the decedent; (b) If the unpaid obligation arose from
purchase of goods or services: (1) Pertinent documents evidencing the
purchase of goods or service, such as sales invoice/delivery receipt (for sale of
goods), or contract for the services agreed to be rendered (for sale of service),
as duly acknowledged, executed and signed by decedentdebtor and creditor,
and statement of account given by the creditor as duly received by the
decedentdebtor; (2) Duly notarized Certification from the creditor as to the
unpaid balance of the debt, including interest as of the time of death. If the
creditor is a corporation, the sworn Certification should be signed by the
President, or Vice-President, or other principal officer of the corporation. If the
creditor is a partnership, the sworn certification should be signed by any of the
general partners. If the creditor is a sole proprietorship, the sworn certification
should be signed by the owner of the business. In any of these cases, the one
who issues the certification must not be a relative of the decedent-debtor within
the fourth civil degree, either by consanguinity or affinity, except when the
requirement below is complied with. When the lender, or the
President/VicePresident/principal officer of the creditor-corporation, or the
general partner of the creditor-partnership is a relative of the debtor in the
degree mentioned above, a copy of the promissory note or other evidence of the
indebtedness must be filed with the RDO having jurisdiction over the borrower
within fifteen days from the execution thereof. (3) Certified true copy of the latest
audited balance sheet of the creditor with a detailed schedule of its receivable
showing the unpaid balance of the decedent-debtor. Moreover, a certified true
copy of the updated latest subsidiary ledger/records of the debt of the debtordecedent, (certified by the creditor, i.e., the officers mentioned in the preceding
paragraphs) should likewise be submitted. (c) Where the settlement is made
through the Court in a testate or intestate proceeding, pertinent documents filed
with the Court evidencing the claims against the estate, and the Court Order
approving the said claims, if already issued, in addition to the documents
mentioned in the preceding paragraphs. (4) Claims of the deceased against
insolvent persons where the value of the decedents interest therein is included
in the value of the gross estate; and, (5) Unpaid mortgages, taxes and casualty
losses (a) Unpaid mortgages upon, or any indebtedness in respect to, property

14

where the value of the decedents interest therein, undiminished by such

mortgage or indebtedness, is included in the value of the gross estate. The
deduction herein allowed in the case of claims against the estate, unpaid
mortgages or any indebtedness shall, when founded upon a promise or
agreement, be limited to the extent that they were contracted bona fide and for
an adequate and full consideration in money or moneys worth. (b) Taxes which
have accrued as of the death of the decedent which were unpaid as of the time
of death. This deduction will not include income tax upon income received after
death, or property taxes not accrued before his death, or the estate tax due from
the transmission of his estate. (c) There shall also be deducted losses incurred
during the settlement of the estate arising from fires, storms, shipwreck, or other
casualties, or from robbery, theft or embezzlement, when such losses are not
compensated for by insurance or otherwise, and if at the time of the filing of the
return such losses have not been claimed as a deduction for income tax
purposes in an income tax return, and provided that such losses were incurred
not later than the last day for the payment of the estate tax as prescribed in
Subsections (A) and (B) of Section 91. In case unpaid mortgage payable is
being claimed by the estate, verification must be made as to who was the
beneficiary of the loan proceeds. If the loan is found to be merely an
accommodation loan where the loan proceeds went to another person, the value
of the unpaid loan must be included as a receivable of the estate. If there is a
legal impediment to recognize the same as receivable of the estate, said unpaid
obligation/mortgage payable shall not be allowed as a deduction from the gross
estate. In all instances, the mortgaged property, TO THE EXTENT OF THE
DECEDENTS INTEREST THEREIN, should always form part of the gross
taxable estate. (B) Property previously taxed - xxx xxx xxx (C) Transfers for
public use - xxx xxx xxx (D) The family home - An amount equivalent to the
current fair market value of the decedents family home: Provided, however, That
if the said current fair market value exceeds One million pesos (P1,000,000), the
excess shall be subject to estate tax. As a sine qua non condition for the
exemption or deduction, said family home must have been the decedents family
home as certified by the barangay captain of the locality. a) Definition of
termsFamily home The dwelling house, including the land on which it is
situated, where the husband and wife, or a head of the family, and members of
their family reside, as certified to by the Barangay Captain of the locality. The
family home is deemed constituted on the house and lot from the time it is
actually occupied as a family residence and is considered as such for as long as
any of its beneficiaries actually resides therein. (Arts. 152 and 153, Family
Code) For purposes of these regulations, however, actual occupancy of the
house or house and lot as the family residence shall not be considered
interrupted or abandoned in such cases as the temporary absence from the
constituted family home due to travel or studies or work abroad, etc. In other
words, the family home is generally characterized by permanency, that is, the
place to which, whenever absent for business or pleasure, one still intends to
return. The family home must be part of the properties of the absolute
community or of the conjugal partnership, or of the exclusive properties of either
spouse depending upon the classification of the property (family home) and the
property relations prevailing on the properties of the husband and wife. It may
also be constituted by an unmarried head of a family on his or her own property.
(Art. 156, Ibid) For purposes of availing of a family home deduction to the extent
allowable, a person may constitute only one family home. (Art. 161, Ibid)
Husband and Wife Legally married man and woman. Unmarried Head of a
Family An unmarried or legally separated man or woman with one or both
parents, or with one or more brothers or sisters, or with one or more legitimate,
recognized natural or legally adopted children living with and dependent upon
him or her for their chief support, where such brothers or sisters or children are
not more than twenty one (21) years of age, unmarried and not gainfully
employed or where such children, brothers or sisters, regardless of age are
incapable of self-support because of mental or physical defect, or any of the
beneficiaries mentioned in Article 154 of the Family Code who is living in the
family home and dependent upon the head of the family for legal support. The
beneficiaries of a family home are: (1) The husband and wife, or the head of a
family; and (2) Their parents, ascendants, descendants including legally adopted
children, brothers and sisters, whether the relationship be legitimate or
illegitimate, who are living in the family home and who depend upon the head of
the family for legal support. (Art. 154, Ibid) b) Conditions for the allowance of
FAMILY HOME as deduction from the gross estate- 1. The family home must be
the actual residential home of the decedent and his family at the time of his
death, as certified by the Barangay Captain of the locality where the family home
is situated; 2. The total value of the family home must be included as part of the
gross estate of the decedent; and 3. Allowable deduction must be in an amount
equivalent to the current fair market value of the family home as declared or
included in the gross estate, or the extent of the decedents interest (whether

conjugal/community or exclusive property), whichever is lower, but not

exceeding P1,000,000. (E) Standard deduction. - A deduction in the amount of
One Million Pesos (P1,000,000) shall be allowed as an additional deduction
without need of substantiation. The full amount of P1,000,000 shall be allowed
as deduction for the benefit of the decedent. The presentation of such deduction
in the computation of the net taxable estate of the decedent is properly
illustrated in these Regulations. (F) Medical expenses. - All medical expenses
(cost of medicines, hospital bills, doctors fees, etc.) incurred (whether paid or
unpaid) within one (1) year before the death of the decedent shall be allowed as
a deduction provided that the same are duly substantiated with official receipts
for services rendered by the decedents attending physicians, invoices,
statements of account duly certified by the hospital, and such other documents
in support thereof and provided, further, that the total amount thereof, whether
paid or unpaid, does not exceed Five Hundred Thousand Pesos (P500,000).
Any amount of medical expenses incurred within one year from death in excess
of Five Hundred Thousand Pesos (P500,000) shall no longer be allowed as a
deduction under this subsection. Neither can any unpaid amount thereof in
excess of the P500,000 threshold nor any unpaid amount for medical expenses
incurred prior to the one-year period from date of death be allowed to be
deducted from the gross estate as claim against the estate. Illustrations on how
to determine the amount of allowable medical expenses given the P500,000
threshold amounta. If the actual amount of medical expenses incurred is
P250,000, then only P250,000 shall be allowed as deduction and not to the
extent of the P500,000 threshold amount; b. If the actual amount of medical
expenses incurred within the year prior to decedents death is P600,000, only
the maximum amount of P500,000 shall be allowed as deduction. If in case the
excess of P100,000 (P600,000-500,000) is still unpaid, such amount shall not be
allowed to be deducted from the gross estate as claims against the estate. (G)
Amount received by heirs under Republic Act No. 4917. - Any amount received
by the heirs from the decedents employer as a consequence of the death of the
decedent-employee in accordance with Republic Act No. 4917 is allowed as a
deduction provided that the amount of the separation benefit is included as part
of the gross estate of the decedent. (8) Net share of the surviving spouse in the
conjugal partnership or community property. - After deducting the allowable
deductions appertaining to the conjugal or community properties included in the
gross estate, the share of the surviving spouse must be removed to ensure that
only the decedents interest in the estate is taxed.
1. Allowed to Residents and Citizens
2. Allowed to Non-resident alien (See also Sec. 86 D)
(D) Miscellaneous Provisions. - No deduction shall be allowed in the case of a
nonresident 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 90 the value at the time of his death of that part of the gross
estate of the nonresident not situated in the Philippines.
a. Limitation (Sec. 7 RR No. 2-03)
SEC. 7. COMPUTATION OF THE NET ESTATE OF A DECEDENT WHO IS A
NON-RESIDENT ALIEN OF THE PHILIPPINES. - The value of the net estate of
a decedent who is a non-resident alien in the Philippines shall be determined by
deducting from the value of that part of his gross estate which at the time of his
death is situated in the Philippines the following items of deductions: (1)
Expenses, losses, indebtedness, and taxes That proportion of the total
expenses, losses, indebtedness, and taxes which the value of such part bears to
the value of his entire gross estate wherever situated. The allowable deduction
under this subsection shall be computed using the following formula:
Phil. Gross Estate X Expenses, Losses, = Allowable Deduction World Gross
Estate Indebtedness and Taxes (2) Property previously taxed - xxx xxx xxx (3)
Transfers for public use - xxx xxx xxx (4) Net share of the surviving spouse in
the conjugal property or community property. - xxx xxx xxx No deduction shall
be allowed in the case of a non-resident decedent 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 90 of the
Code the value at the time of the decedents death of that part of his gross
estate not situated in the Philippines
3. Allowable Deductions
a. Ordinary Deductions (Expenses, Losses, Indebtedness and Taxes)
1. Funeral Expenses
a. Limitation b. Examples

15

c. Items not deductible

d. Substantiation requirement
e. How computed
2. Judicial Expenses
a. Examples
b. Limitation
CIR vs. CA and Pajonar (GR No. 123206 dated March 22, 2000)
Facts: Private respondent Josefina Pajonar was the guardian of the person of
decedent Pedro Pajonar. The property of the decedent was put by the RTCDumaguete, under the guardianship of the Philippine National Bank via special
proceeding, wherein 50, 000 was spent therein for payment of attorney's fees.
When the decedent died, instead of filing a estate tax return, PNB advised
Josefina to extra-judicially settle the estate of his brother. The decedent's estate
was extra-judicially settled and the heirs paid an amount of 60, 753 for the
notarization of the deed of extra-judicial settlement of estate.
The private paid the estate tax, however, they were subsequently assessed of
deficiency taxes because the amount paid in the special proceeding [50, 000]
and the notarization fee [60, 753] cannot be claimed as a deduction to the
decedent's estate. Private respondent paid the said taxes under protest. While
the case is under review by the BIR, she filed a claim for refund in the CTA
which was granted.
Issue: whether or not the notarial fee paid for the extrajudicial settlement in the
amount of P60,753 and the attorney's fees in the guardianship proceedings in
the amount of P50,000 may be allowed as deductions from the gross estate of
decedent in order to arrive at the value of the net estate.
Held: Yes.
As to the deductibility of the amount spent for notarization of the deed of
extra-judicial settlement of estate- Explained the SC, administration
expenses, as an allowable deduction from the gross estate of the decedent for
purposes of arriving at the value of the net estate, have been construed by the
federal and state courts of the United States [which the law on allowable
deductions from gross estate was copied!] to include all expenses "essential to
the collection of the assets, payment of debts or the distribution of the property
to
the
persons
entitled
to
it."
In other words, the expenses must be essential to the proper settlement of the
estate. Expenditures incurred for the individual benefit of the heirs, devisees or
legatees are not deductible. This distinction has been carried over to our
jurisdiction. Thus, in Lorenzo v. Posadas the Court construed the phrase
"judicial expenses of the testamentary or intestate proceedings" as not including
the compensation paid to a trustee of the decedent's estate when it appeared
that such trustee was appointed for the purpose of managing the decedent's real
estate for the benefit of the testamentary heir. In another case, the Court
disallowed the premiums paid on the bond filed by the administrator as an
expense of administration since the giving of a bond is in the nature of a
qualification for the office, and not necessary in the settlement of the estate.
Neither may attorney's fees incident to litigation incurred by the heirs in
asserting their respective rights be claimed as a deduction from the gross
estate.
In this case, it is clear that the extrajudicial settlement was for the purpose of
payment of taxes and the distribution of the estate to the heirs. The execution of
the extrajudicial settlement necessitated the notarization of the same. It follows
then that the notarial fee of P60,753.00 was incurred primarily to settle the
estate of the deceased Pedro Pajonar. Said amount should then be considered
an administration expenses actually and necessarily incurred in the collection of
the assets of the estate, payment of debts and distribution of the remainder
among those entitled thereto. Thus, the notarial fee of P60,753 incurred for the
Extrajudicial Settlement should be allowed as a deduction from the gross
estate.
Deductible expenses of administration of the estate may include executor's or
administrator's fees, attorney's fees, court fees and charges, appraiser's fees,
clerk hire, costs of preserving and distributing the estate and storing or
maintaining it, brokerage fees or commissions for selling or disposing of the
estate, and the like. Deductible attorney's fees are those incurred by the

executor or administrator in the settlement of the estate or in defending or

prosecuting
claims
against
or
due
the
estate.
As to the deductibility of attorney's fees in the Special proceedings- As a rule
attorney's fees in order to be deductible from the gross estate must be essential
to the collection of assets, payment of debts or the distribution of the property to
the persons entitled to it. The services for which the fees are charged must
relate to the proper settlement of the estate. [34 Am. Jur. 2d 767.] In this case,
the guardianship proceeding was necessary for the distribution of the property of
the late Pedro Pajonar to his rightful heirs. It is noteworthy to point that PNB was
appointed the guardian over the assets of the deceased. Necessarily the assets
of the deceased formed part of his gross estate. Accordingly, all expenses
incurred in relation to the estate of the deceased will be deductible for estate tax
purposes provided these are necessary and ordinary expenses for
administration of the settlement of the estate. Hence the attorney's fees of 50,
000 is deductible from the gross estate of the decedent.
Full text
Assailed in this petition for review on certiorari is the December 21, 1995
Decision 1 of the Court of Appeals 2 in CA-G.R. Sp. No. 34399 affirming the
June 7, 1994 Resolution of the Court of Tax Appeals in CTA Case No. 4381
granting private respondent Josefina P. Pajonar, as administratrix of the estate
of Pedro P. Pajonar, a tax refund in the amount of P76,502.42, representing
erroneously
paid
estate
taxes
for
the
year
1988.
Pedro Pajonar, a member of the Philippine Scout, Bataan Contingent, during the
second World War, was a part of the infamous Death March by reason of which
he suffered shock and became insane. His sister Josefina Pajonar became the
guardian over his person, while his property was placed under the guardianship
of the Philippine National Bank (PNB) by the Regional Trial Court of Dumaguete
City, Branch 31, in Special Proceedings No. 1254. He died on January 10, 1988.
He was survived by his two brothers Isidro P. Pajonar and Gregorio Pajonar, his
sister Josefina Pajonar, nephews Concordio Jandog and Mario Jandog and
niece
Conchita
Jandog.
On May 11, 1988, the PNB filed an accounting of the decedents property under
guardianship valued at P3,037,672.09 in Special Proceedings No. 1254.
However, the PNB did not file an estate tax return, instead it advised Pedro
Pajonars heirs to execute an extrajudicial settlement and to pay the taxes on his
estate. On April 5, 1988, pursuant to the assessment by the Bureau of Internal
Revenue (BIR), the estate of Pedro Pajonar paid taxes in the amount of
P2,557.chanrobles
virtuallawlibrary
On May 19, 1988, Josefina Pajonar filed a petition with the Regional Trial Court
of Dumaguete City for the issuance in her favor of letters of administration of the
estate of her brother. The case was docketed as Special Proceedings No. 2399.
On July 18, 1988, the trial court appointed Josefina Pajonar as the regular
administratrix
of
Pedro
Pajonars
estate.
On December 19, 1988, pursuant to a second assessment by the BIR for
deficiency estate tax, the estate of Pedro Pajonar paid estate tax in the amount
of P1,527,790.98. Josefina Pajonar, in her capacity as administratrix and heir of
Pedro Pajonars estate, filed a protest on January 11, 1989 with the BIR praying
that the estate tax payment in the amount of P1,527,790.98, or at least some
portion
of
it,
be
returned
to
the
heirs.
3
However, on August 15, 1989, without waiting for her protest to be resolved by
the BIR, Josefina Pajonar filed a petition for review with the Court of Tax Appeals
(CTA), praying for the refund of P1,527,790.98, or in the alternative,
P840,202.06, as erroneously paid estate tax. 4 The case was docketed as CTA
Case
No.
4381.
On May 6, 1993, the CTA ordered the Commissioner of Internal Revenue to
refund Josefina Pajonar the amount of P252,585.59, representing erroneously
paid estate tax for the year 1988. 5 Among the deductions from the gross estate
allowed by the CTA were the amounts of P60,753 representing the notarial fee
for the Extrajudicial Settlement and the amount of P50,000 as the attorneys
fees in Special Proceedings No. 1254 for guardianship. 6
On June 15, 1993, the Commissioner of Internal Revenue filed a motion for
reconsideration 7 of the CTAs May 6, 1993 decision asserting, among others,
that the notarial fee for the Extrajudicial Settlement and the attorneys fees in the

16

guardianship

proceedings

are

not

deductible

expenses.

On June 7, 1994, the CTA issued the assailed Resolution 8 ordering the
Commissioner of Internal Revenue to refund Josefina Pajonar, as administratrix
of the estate of Pedro Pajonar, the amount of P76,502.42 representing
erroneously paid estate tax for the year 1988. Also, the CTA upheld the validity
of the deduction of the notarial fee for the Extrajudicial Settlement and the
attorneys
fees
in
the
guardianship
proceedings.
On July 5, 1994, the Commissioner of Internal Revenue filed with the Court of
Appeals a petition for review of the CTAs May 6, 1993 Decision and its June 7,
1994 Resolution, questioning the validity of the abovementioned deductions. On
December 21, 1995, the Court of Appeals denied the Commissioners petition. 9
Hence, the present appeal by the Commissioner of Internal Revenue.
The sole issue in this case involves the construction of section 79 10 of the
National Internal Revenue Code 11 (Tax Code) which provides for the allowable
deductions from the gross estate of the decedent. More particularly, the question
is whether the notarial fee paid for the extrajudicial settlement in the amount of
P60,753 and the attorneys fees in the guardianship proceedings in the amount
of P50,000 may be allowed as deductions from the gross estate of decedent in
order
to
arrive
at
the
value
of
the
net
estate.
We answer this question in the affirmative, thereby upholding the decisions of
the
appellate
courts.chanrobles
virtuallawlibrary:red
In its May 6, 1993 Decision, the Court of Tax Appeals ruled thus:chanrob1es
virtual
1aw
library
Respondent maintains that only judicial expenses of the testamentary or
intestate proceedings are allowed as a deduction to the gross estate. The
amount of P60,753.00 is quite extraordinary for a mere notarial fee.
This Court adopts the view under American jurisprudence that expenses
incurred in the extrajudicial settlement of the estate should be allowed as a
deduction from the gross estate. "There is no requirement of formal
administration. It is sufficient that the expense be a necessary contribution
toward the settlement of the case." [34 Am. Jur. 2d, p. 765; Nolledo, Bar
Reviewer
in
Taxation,
10th
Ed.
(1990),
p.
481]
x

The attorneys fees of P50,000.00, which were already incurred but not yet paid,
refers to the guardianship proceeding filed by PNB, as guardian over the ward of
Pedro Pajonar, docketed as Special Proceeding No. 1254 in the RTC (Branch
XXXI)
of
Dumaguete
City.
.
.
.
x

The guardianship proceeding had been terminated upon delivery of the

residuary estate to the heirs entitled thereto. Thereafter, PNB was discharged of
any
further
responsibility.
Attorneys fees in order to be deductible from the gross estate must be essential
to the collection of assets, payment of debts or the distribution of the property to
the persons entitled to it. The services for which the fees are charged must
relate to the proper settlement of the estate. [34 Am. Jur. 2d 767.] In this case,
the guardianship proceeding was necessary for the distribution of the property of
the
late
Pedro
Pajonar
to
his
rightful
heirs.
x

PNB was appointed as guardian over the assets of the late Pedro Pajonar, who,
even at the time of his death, was incompetent by reason of insanity. The
expenses incurred in the guardianship proceeding was but a necessary expense
in the settlement of the decedents estate. Therefore, the attorneys fee incurred
in the guardianship proceedings amounting to P50,000.00 is a reasonable and
necessary business expense deductible from the gross estate of the decedent.

12
Upon a motion for reconsideration filed by the Commissioner of Internal
Revenue, the Court of Tax Appeals modified its previous ruling by reducing the
refundable amount to P76,502.43 since it found that a deficiency interest should
be imposed and the compromise penalty excluded. 13 However, the tax court
upheld its previous ruling regarding the legality of the deductions
It is significant to note that the inclusion of the estate tax law in the codification
of all our national internal revenue laws with the enactment of the National
Internal Revenue Code in 1939 were copied from the Federal Law of the United
States. [UMALI, Reviewer in Taxation (1985), p. 285] The 1977 Tax Code,
promulgated by Presidential Decree No. 1158, effective June 3, 1977, reenacted
substantially all the provisions of the old law on estate and gift taxes, except the
sections relating to the meaning of gross estate and gift. [Ibid, p. 286.]
In the United States, [a]dministrative expenses, executors commissions and
attorneys fees are considered allowable deductions from the Gross Estate.
Administrative expenses are limited to such expenses as are actually and
necessarily incurred in the administration of a decedents estate. [PRENTICEHALL, Federal Taxes Estate and Gift Taxes (1936), p. 120, 533.] Necessary
expenses of administration are such expenses as are entailed for the
preservation and productivity of the estate and for its management for purposes
of liquidation, payment of debts and distribution of the residue among the
persons entitled thereto. [Lizarraga Hermanos v. Abada, 40 Phil. 124.] They
must be incurred for the settlement of the estate as a whole. [34 Am. Jur. 2d, p.
765. ] Thus, where there were no substantial community debts and it was
unnecessary to convert community property to cash, the only practical purpose
of administration being the payment of estate taxes, full deduction was allowed
for attorneys fees and miscellaneous expenses charged wholly to decedents
estate. [Ibid., citing Estate of Helis, 26 T.C. 143 (A).]
Petitioner stated in her protest filed with the BIR that "upon the death of the
ward, the PNB, which was still the guardian of the estate, (Annex Z), did not file
an estate tax return; however, it advised the heirs to execute an extrajudicial
settlement, to pay taxes and to post a bond equal to the value of the estate, for
which the estate paid P59,341.40 for the premiums. (See Annex K)." [p. 17,
CTA record. ] Therefore, it would appear from the records of the case that the
only practical purpose of settling the estate by means of an extrajudicial
settlement pursuant to Section 1 of Rule 74 of the Rules of Court was for the
payment of taxes and the distribution of the estate to the heirs. A fortiori, since
our estate tax laws are of American origin, the interpretation adopted by
American Courts has some persuasive effect on the interpretation of our own
estate tax laws on the subject.chanrobles.com : virtual law library
Anent the contention of respondent that the attorneys fees of P50,000.00
incurred in the guardianship proceeding should not be deducted from the Gross
Estate, We consider the same unmeritorious. Attorneys and guardians fees
incurred in a trustees accounting of a taxable inter vivos trust attributable to the
usual issues involved in such an accounting was held to be proper deductions
because these are expenses incurred in terminating an inter vivos trust that was
includible in the decedents estate. [Prentice Hall, Federal Taxes on Estate and
Gift, p. 120, 861] Attorneys fees are allowable deductions if incurred for the
settlement of the estate. It is noteworthy to point that PNB was appointed the
guardian over the assets of the deceased. Necessarily the assets of the
deceased formed part of his gross estate. Accordingly, all expenses incurred in
relation to the estate of the deceased will be deductible for estate tax purposes
provided these are necessary and ordinary expenses for administration of the
settlement
of
the
estate.
14
In upholding the June 7, 1994 Resolution of the Court of Tax Appeals, the Court
of
Appeals
held
that:chanrob1es
virtual
1aw
library
2. Although the Tax Code specifies "judicial expenses of the testamentary or
intestate proceedings," there is no reason why expenses incurred in the
administration and settlement of an estate in extrajudicial proceedings should
not be allowed. However, deduction is limited to such administration expenses
as are actually and necessarily incurred in the collection of the assets of the
estate, payment of the debts, and distribution of the remainder among those
entitled thereto. Such expenses may include executors or administrators fees,
attorneys fees, court fees and charges, appraisers fees, clerk hire, costs of
preserving and distributing the estate and storing or maintaining it, brokerage
fees or commissions for selling or disposing of the estate, and the like.

17

Deductible attorneys fees are those incurred by the executor or administrator in

the settlement of the estate or in defending or prosecuting claims against or due
the estate. (Estate and Gift Taxation in the Philippines, T. P. Matic, Jr., 1981
Edition,
p.
176).
x

It is clear then that the extrajudicial settlement was for the purpose of payment
of taxes and the distribution of the estate to the heirs. The execution of the
extrajudicial settlement necessitated the notarization of the same. Hence the
Contract of Legal Services of March 28, 1988 entered into between respondent
Josefina Pajonar and counsel was presented in evidence for the purpose of
showing that the amount of P60,753.00 was for the notarization of the
Extrajudicial Settlement. It follows then that the notarial fee of P60,753.00 was
incurred primarily to settle the estate of the deceased Pedro Pajonar. Said
amount should then be considered an administration expenses actually and
necessarily incurred in the collection of the assets of the estate, payment of
debts and distribution of the remainder among those entitled thereto. Thus, the
notarial fee of P60,753 incurred for the Extrajudicial Settlement should be
allowed
as
a
deduction
from
the
gross
estate.
3. Attorneys fees, on the other hand, in order to be deductible from the gross
estate must be essential to the settlement of the estate.
The amount of P50,000.00 was incurred as attorneys fees in the guardianship
proceedings in Spec. Proc. No. 1254. Petitioner contends that said amount are
not expenses of the testamentary or intestate proceedings as the guardianship
proceeding was instituted during the lifetime of the decedent when there was yet
no
estate
to
be
settled.
Again,

this

contention

must

fail.

The guardianship proceeding in this case was necessary for the distribution of
the property of the deceased Pedro Pajonar. As correctly pointed out by
respondent CTA, the PNB was appointed guardian over the assets of the
deceased, and that necessarily the assets of the deceased formed part of his
gross
estate.
.
.
.chanrobles
virtuallawlibrary:red
x

It is clear therefore that the attorneys fees incurred in the guardianship

proceeding in Spec. Proc. No. 1254 were essential to the distribution of the
property to the persons entitled thereto. Hence, the attorneys fees incurred in
the guardianship proceedings in the amount of P50,000.00 should be allowed as
a deduction from the gross estate of the decedent. 15
The deductions from the gross estate permitted under section 79 of the Tax
Code basically reproduced the deductions allowed under Commonwealth Act
No. 466 (CA 466), otherwise known as the National Internal Revenue Code of
1939, 16 and which was the first codification of Philippine tax laws. Section 89
Facts: Jose P. Fernandez died in November 7, 1987. Thereafter, a petition for
the probate of his will was filed. The probate court appointed Atty. Rafael
Arsenio P. Dizon as administrator of the Estate of Jose Fernandez.
An estate tax return was filed later on which showed ZERO estate tax
liability. BIR thereafter issued a deficiency estate tax assessment, demanding
payment of Php 66.97 million as deficiency estate tax. This was subsequently
reduced by CTA to Php 37.42 million. The CA affirmed the CTAs ruling, hence,
the instant petition.
The petitioner claims that in as much as the valid claims of creditors against the
Estate are in excess of the gross estate, no estate tax was due. On the other
hand, respondents argue that since the claims of the Estates creditors have
been condoned, such claims may no longer be deducted from the gross estate
of the decedent.
Issue: Whether the actual claims of creditors may be fully allowed as deductions
from the gross estate of Jose despite the fact that the said claims were reduced

(a) (1) (B) of CA 466 also provided for the deduction of the "judicial expenses of
the testamentary or intestate proceedings" for purposes of determining the value
of the net estate. Philippine tax laws were, in turn, based on the federal tax laws
of the United States. 17 In accord with established rules of statutory
construction, the decisions of American courts construing the federal tax code
are entitled to great weight in the interpretation of our own tax laws. 18
Judicial expenses are expenses of administration. 19 Administration expenses,
as an allowable deduction from the gross estate of the decedent for purposes of
arriving at the value of the net estate, have been construed by the federal and
state courts of the United States to include all expenses "essential to the
collection of the assets, payment of debts or the distribution of the property to
the persons entitled to it." 20 In other words, the expenses must be essential to
the proper settlement of the estate. Expenditures incurred for the individual
benefit of the heirs, devisees or legatees are not deductible. 21 This distinction
has been carried over to our jurisdiction. Thus, in Lorenzo v. Posadas 22 the
Court construed the phrase "judicial expenses of the testamentary or intestate
proceedings" as not including the compensation paid to a trustee of the
decedents estate when it appeared that such trustee was appointed for the
purpose of managing the decedents real estate for the benefit of the
testamentary heir. In another case, the Court disallowed the premiums paid on
the bond filed by the administrator as an expense of administration since the
giving of a bond is in the nature of a qualification for the office, and not
necessary in the settlement of the estate. 23 Neither may attorneys fees
incident to litigation incurred by the heirs in asserting their respective rights be
claimed
as
a
deduction
from
the
gross
estate.
24
Coming to the case at bar, the notarial fee paid for the extrajudicial settlement is
clearly a deductible expense since such settlement effected a distribution of
Pedro Pajonars estate to his lawful heirs. Similarly, the attorneys fees paid to
PNB for acting as the guardian of Pedro Pajonars property during his lifetime
should also be considered as a deductible administration expense. PNB
provided a detailed accounting of decedents property and gave advice as to the
proper settlement of the latters estate, acts which contributed towards the
collection of decedents assets and the subsequent settlement of the estate.
We find that the Court of Appeals did not commit reversible error in affirming the
questioned resolution of the Court of Tax Appeals.chanrobles.com : red
WHEREFORE, the December 21, 1995 Decision of the Court of Appeals is
AFFIRMED. The notarial fee for the extrajudicial settlement and the attorneys
fees in the guardianship proceedings are allowable deductions from the gross
estate of Pedro Pajonar.

a.
i.
ii.
iii.

3. Claims against the Estate

Requisites for deductibility
Simple Loan
Unpaid obligation from purchase of goods
Court Settlement

Dizon vs. CTA (GR No. 140944 dated April 30, 2008)
or condoned through compromise agreements entered into by the Estate with its
creditors
Held: YES. Following the US Supreme Courts ruling in Ithaca Trust Co. v.
United States, the Court held that post-death developments are not material in
determining the amount of deduction. This is because estate tax is a tax
imposed on the act of transferring property by will or intestacy and, because the
act on which the tax is levied occurs at a discrete time, i.e., the instance of
death, the net value of the property transferred should be ascertained, as nearly
as possible, as of the that time. This is the date-of-death valuation rule.
The Court, in adopting the date-of-death valuation principle, explained that:
First. There is no law, nor do we discern any legislative intent in our tax laws,
which disregards the date-of-death valuation principle and particularly provides
that post-death developments must be considered in determining the net value
of the estate. It bears emphasis that tax burdens are not to be imposed, nor
presumed to be imposed, beyond what the statute expressly and clearly imports,
tax statutes being construed strictissimi juris against the government. Second.
Such construction finds relevance and consistency in our Rules on Special

18

Proceedings wherein the term "claims" required to be presented against a

decedent's estate is generally construed to mean debts or demands of a
pecuniary nature which could have been enforced against the deceased in his
lifetime, or liability contracted by the deceased before his death. Therefore, the
claims existing at the time of death are significant to, and should be made the
basis of, the determination of allowable deductions.

Before this Court is a Petition for Review on Certiorari[1] under Rule 45 of the
Rules of Civil Procedure seeking the reversal of the Court of Appeals (CA)
Decision[2] dated April 30, 1999 which affirmed the Decision[3] of the Court of Tax
Appeals (CTA) dated June 17, 1997.[4]

FACTS:
On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition for
the probate of his will was filed with Branch 51 of the Regional Trial Court (RTC)
of Manila (probate court). The probate court then appointed retired Supreme
Court Justice Arsenio P. Dizon (Justice Dizon) and petitioner, Atty. Rafael
Arsenio P. Dizon (petitioner) as Special and Assistant Special Administrator,
respectively, of the Estate of Jose (Estate). Petitioner alleged that several
requests for extension of the period to file the required estate tax return were
granted by the BIR since the assets of the estate, as well as the claims against
it, had yet to be collated, determined and identified.
ISSUES:
1. Whether or not the CTA and the CA gravely erred in allowing the admission of
the pieces of evidence which were not formally offered by the BIR; and
2. Whether the actual claims of the aforementioned creditors may be fully
allowed as deductions from the gross estate of Jose despite the fact that the
said claims were reduced or condoned through compromise agreements
entered into by the Estate with its creditors Or Whether or not the CA erred in
affirming the CTA in the latter's determination of the deficiency estate tax
imposed against the Estate.
RULING:
1. Yes. While the CTA is not governed strictly by technical rules of evidence, as
rules of procedure are not ends in themselves and are primarily intended as
tools in the administration of justice, the presentation of the BIR's evidence is
not a mere procedural technicality which may be disregarded considering that it
is the only means by which the CTA may ascertain and verify the truth of BIR's
claims against the Estate. The BIR's failure to formally offer these pieces of
evidence, despite CTA's directives, is fatal to its cause

The Facts

On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition for

the probate of his will[5] was filed with Branch 51 of the Regional Trial Court
(RTC) of Manila (probate court).[6] The probate court then appointed retired
Supreme Court Justice Arsenio P. Dizon (Justice Dizon) and petitioner, Atty.
Rafael Arsenio P. Dizon (petitioner) as Special and Assistant Special
Administrator, respectively, of the Estate of Jose (Estate). In a
letter[7] dated October

13,

1988,

Justice

Dizon informed

respondent

Commissioner of the Bureau of Internal Revenue (BIR) of the special

proceedings for the Estate.

Petitioner alleged that several requests for extension of the period to file the
required estate tax return were granted by the BIR since the assets of the
estate, as well as the claims against it, had yet to be collated, determined and

2. Yes. The claims existing at the time of death are significant to, and should be
made the basis of, the determination of allowable deductions. Also, as held
in Propstra v. U.S., where a lien claimed against the estate was certain and
enforceable on the date of the decedent's death, the fact that the claimant
subsequently settled for lesser amount did not preclude the estate from
deducting the entire amount of the claim for estate tax purposes. This is called
the date-of-death valuation rule.

identified. Thus, in a letter [8] dated March 14, 1990, Justice Dizon authorized
Atty. Jesus M. Gonzales (Atty. Gonzales) to sign and file on behalf of the Estate
the required estate tax return and to represent the same in securing a Certificate
of Tax Clearance. Eventually, on April 17, 1990, Atty. Gonzales wrote a
letter[9] addressed to the BIR Regional Director for San Pablo City and filed the

Full text

estate tax return[10] with the same BIR Regional Office, showing therein a NIL
estate tax liability, computed as follows:

COMPUTATION OF TAX
Conjugal Real Property (Sch. 1) P10,855,020.00
Conjugal Personal Property (Sch.2) 3,460,591.34
Taxable Transfer (Sch. 3)
Gross Conjugal Estate 14,315,611.34
Less: Deductions (Sch. 4) 187,822,576.06
Net Conjugal Estate NIL
Less: Share of Surviving Spouse NIL .
Net Share in Conjugal Estate NIL
xxx
Net Taxable Estate NIL .
Estate Tax Due NIL .[11]

On April 27, 1990, BIR Regional Director for San Pablo City,
Osmundo G. Umali issued Certification Nos. 2052

[12]

and 2053

taxes due on the transfer of real and personal properties

[14]

[13]

stating that the

of Jose had been

fully paid and said properties may be transferred to his heirs. Sometime in
August 1990, Justice Dizon passed away. Thus, on October 22, 1990, the
probate court appointed petitioner as the administrator of the Estate.[15]

19

probate court since it had security over several real estate properties forming
Petitioner requested the probate court's authority to sell several

part of the Estate.[16]

properties forming part of the Estate, for the purpose of paying its creditors,
namely: Equitable Banking Corporation (P19,756,428.31), Banque de

However, on November 26, 1991, the Assistant Commissioner for

L'Indochine et. de Suez (US$4,828,905.90 as of January 31, 1988), Manila

Collection of the BIR, Themistocles Montalban, issued Estate Tax Assessment

Banking Corporation (P84,199,160.46 as of February 28, 1989) and State

Notice No. FAS-E-87-91-003269,[17] demanding the payment of P66,973,985.40

Investment House, Inc. (P6,280,006.21). Petitioner manifested that Manila Bank,

as deficiency estate tax, itemized as follows:

a major creditor of the Estate was not included, as it did not file a claim with the
Deficiency Estate Tax- 1987
Estate tax P31,868,414.48
25% surcharge- late filing 7,967,103.62
late payment 7,967,103.62
Interest 19,121,048.68
Compromise-non filing 25,000.00
non payment 25,000.00
no notice of death 15.00
no CPA Certificate 300.00
Total amount due & collectible P66,973,985.40[18]

In his letter[19] dated December 12, 1991, Atty. Gonzales moved for the
reconsideration of the said estate tax assessment. However, in her
letter[20] dated April 12, 1994, the BIR Commissioner denied the request and
reiterated that the estate is liable for the payment of P66,973,985.40 as
deficiency estate tax. On May 3, 1994, petitioner received the letter of denial.
On June 2, 1994, petitioner filed a petition for review[21] before respondent CTA.
Trial on the merits ensued.

As found by the CTA, the respective parties presented the following pieces of
evidence, to wit:
In the hearings conducted, petitioner did not present
testimonial evidence but merely documentary evidence
consisting of the following:
Nature of Document (sic) Exhibits
1. Letter dated October 13, 1988
from Arsenio P. Dizon addressed
to the Commissioner of Internal
Revenue informing the latter of
the special proceedings for the
settlement of the estate (p. 126,
BIR records); "A"
2. Petition for the probate of the
will and issuance of letter of
administration filed with the
Regional Trial Court (RTC) of
Manila, docketed as Sp. Proc.
No. 87-42980 (pp. 107-108, BIR
records); "B" & "B-1
3. Pleading entitled "Compliance"

filed with the probate Court

submitting the final inventory
of all the properties of the
deceased (p. 106, BIR records); "C"
4. Attachment to Exh. "C" which
is the detailed and complete
listing of the properties of
the deceased (pp. 89-105, BIR rec.); "C-1" to "C-17"
5. Claims against the estate filed
by Equitable Banking Corp. with
the probate Court in the amount
of P19,756,428.31 as of March 31,
1988, together with the Annexes
to the claim (pp. 64-88, BIR records); "D" to "D-24"
6. Claim filed by Banque de L'
Indochine et de Suez with the
probate Court in the amount of
US $4,828,905.90 as of January 31,
1988 (pp. 262-265, BIR records); "E" to "E-3"
7. Claim of the Manila Banking
Corporation (MBC) which as of
November 7, 1987 amounts to
P65,158,023.54, but recomputed
as of February 28, 1989 at a
total amount of P84,199,160.46;
together with the demand letter
from MBC's lawyer (pp. 194-197,
BIR records); "F" to "F-3"
8. Demand letter of Manila Banking
Corporation prepared by Asedillo,
Ramos and Associates Law Offices
addressed to Fernandez Hermanos,
Inc., represented by Jose P.
Fernandez, as mortgagors, in the
total amount of P240,479,693.17
as of February 28, 1989
(pp. 186-187, BIR records); "G" & "G-1"

20

9. Claim of State Investment

House, Inc. filed with the
RTC, Branch VII of Manila,
docketed as Civil Case No.
86-38599 entitled "State
Investment House, Inc.,
Plaintiff, versus Maritime
Company Overseas, Inc. and/or
Jose P. Fernandez, Defendants,"
(pp. 200-215, BIR records); "H" to "H-16"

Raymund S. Gallardo; Reviewed by

Maximino V. Tagle pp. 143-144

10. Letter dated March 14, 1990

of Arsenio P. Dizon addressed
to Atty. Jesus M. Gonzales,
(p. 184, BIR records); "I"

6. Signature of Raymund S.
Gallardo appearing at the
Lower portion on p. 2 of Exh. "2"; -do-

11. Letter dated April 17, 1990

from J.M. Gonzales addressed
to the Regional Director of
BIR in San Pablo City
(p. 183, BIR records); "J"
12. Estate Tax Return filed by
the estate of the late Jose P.
Fernandez through its authorized
representative, Atty. Jesus M.
Gonzales, for Arsenio P. Dizon,
with attachments (pp. 177-182,
BIR records); "K" to "K-5"

13. Certified true copy of the

Letter of Administration
issued by RTC Manila, Branch
51, in Sp. Proc. No. 87-42980
appointing Atty. Rafael S.
Dizon as Judicial Administrator
of the estate of Jose P.
Fernandez; (p. 102, CTA records)
and "L"
14. Certification of Payment of
estate taxes Nos. 2052 and
2053, both dated April 27, 1990,
issued by the Office of the
Regional Director, Revenue
Region No. 4-C, San Pablo
City, with attachments
(pp. 103-104, CTA records.). "M" to "M-5"
Respondent's [BIR] counsel presented on June 26,
1995 one witness in the person of Alberto Enriquez,
who was one of the revenue examiners who
conducted the investigation on the estate tax case
of the late Jose P. Fernandez. In the course of the
direct examination of the witness, he identified the
following:
Documents/
Signatures BIR Record
1. Estate Tax Return prepared by
the BIR; p. 138
2. Signatures of Ma. Anabella
Abuloc and Alberto Enriquez,
Jr. appearing at the lower
Portion of Exh. "1"; -do3. Memorandum for the Commissioner,
dated July 19, 1991, prepared by
revenue examiners, Ma. Anabella A.
Abuloc, Alberto S. Enriquez and

4. Signature of Alberto S.
Enriquez appearing at the
lower portion on p. 2 of Exh. "2"; -do5. Signature of Ma. Anabella A.
Abuloc appearing at the
lower portion on p. 2 of Exh. "2"; -do-

7. Signature of Maximino V.
Tagle also appearing on
p. 2 of Exh. "2"; -do8. Summary of revenue
Enforcement Officers Audit
Report, dated July 19, 1991; p. 139
9. Signature of Alberto
Enriquez at the lower
portion of Exh. "3"; -do10. Signature of Ma. Anabella A.
Abuloc at the lower
portion of Exh. "3"; -do11. Signature of Raymond S.
Gallardo at the lower
portion of Exh. "3"; -do12. Signature of Maximino
V. Tagle at the lower
portion of Exh. "3"; -do13. Demand letter (FAS-E-87-91-00),
signed by the Asst. Commissioner
for Collection for the Commissioner
of Internal Revenue, demanding
payment of the amount of
P66,973,985.40; and p. 169
14. Assessment Notice FAS-E-87-91-00 pp. 169-170[22]
The CTA's Ruling

On June 17, 1997, the CTA denied the said petition for review. Citing this Court's
ruling in Vda. de Oate v. Court of Appeals,[23]the CTA opined that the
aforementioned pieces of evidence introduced by the BIR were admissible in
evidence. The CTA ratiocinated:
Although the above-mentioned documents were not
formally offered as evidence for respondent,
considering that respondent has been declared to have
waived the presentation thereof during the hearing on
March 20, 1996, still they could be considered as
evidence for respondent since they were properly
identified during the presentation of respondent's
witness, whose testimony was duly recorded as part of
the records of this case. Besides, the documents
marked as respondent's exhibits formed part of the BIR
records of the case.[24]

21

Nevertheless, the CTA did not fully adopt the assessment made by the BIR and
it came up with its own computation of the deficiency estate tax, to wit:
Conjugal Real Property P 5,062,016.00
Conjugal Personal Prop. 33,021,999.93
Gross Conjugal Estate 38,084,015.93
Less: Deductions 26,250,000.00
Net Conjugal Estate P 11,834,015.93
Less: Share of Surviving Spouse 5,917,007.96
Net Share in Conjugal Estate P 5,917,007.96
Add: Capital/Paraphernal
Properties P44,652,813.66
Less: Capital/Paraphernal
Deductions 44,652,813.66
Net Taxable Estate P 50,569,821.62
============
Estate Tax Due P 29,935,342.97
Add: 25% Surcharge for Late Filing 7,483,835.74
Add: Penalties for-No notice of death 15.00
No CPA certificate 300.00
Total deficiency estate tax P 37,419,493.71
=============
exclusive of 20% interest from due date of its payment until full payment thereof
[Sec. 283 (b), Tax Code of 1987].[25]
Thus, the CTA disposed of the case in this wise:
WHEREFORE, viewed from all the foregoing, the Court
finds the petition unmeritorious and denies the same.
Petitioner and/or the heirs of Jose P. Fernandez are
hereby ordered to pay to respondent the amount
of P37,419,493.71 plus 20% interest from the due date
of its payment until full payment thereof as estate tax
liability of the estate of Jose P. Fernandez who died on
November 7, 1987.
SO ORDERED.[26]

Aggrieved, petitioner, on March 2, 1998, went to the CA via a petition for review.
[27]

The CA's Ruling

On April 30, 1999, the CA affirmed the CTA's ruling. Adopting in full the CTA's
findings, the CA ruled that the petitioner's act of filing an estate tax return with
the BIR and the issuance of BIR Certification Nos. 2052 and 2053 did not

Hence, the instant Petition raising the following issues:

1.

Whether or not the admission of evidence which

were not formally offered by the respondent BIR
by the Court of Tax Appeals which was
subsequently upheld by the Court of Appeals is
contrary to the Rules of Court and rulings of this
Honorable Court;

2. Whether or not the Court of Tax Appeals and the

Court of Appeals erred in recognizing/considering
the estate tax return prepared and filed by
respondent BIR knowing that the probate court
appointed administrator of the estate of Jose P.
Fernandez had previously filed one as in fact, BIR
Certification Clearance Nos. 2052 and 2053 had
been issued in the estate's favor;
3. Whether or not the Court of Tax Appeals and the
Court of Appeals erred in disallowing the valid and
enforceable claims of creditors against the estate,
as lawful deductions despite clear and convincing
evidence thereof; and
4. Whether or not the Court of Tax Appeals and the
Court of Appeals erred in validating erroneous
double imputation of values on the very same
estate properties in the estate tax return it
prepared and filed which effectively bloated the
estate's assets.[31]

deprive the BIR Commissioner of her authority to re-examine or re-assess the

said return filed on behalf of the Estate.[28]

The petitioner claims that in as much as the valid claims of creditors against the
Estate are in excess of the gross estate, no estate tax was due; that the lack of

On May 31, 1999, petitioner filed a Motion for Reconsideration [29] which the CA
denied in its Resolution[30] dated November 3, 1999.

a formal offer of evidence is fatal to BIR's cause; that the doctrine laid down
in Vda. de Oate has already been abandoned in a long line of cases in which the
Court held that evidence not formally offered is without any weight or value; that

22

Section 34 of Rule 132 of the Rules on Evidence requiring a formal offer of

The Petition is impressed with merit.

evidence is mandatory in character; that, while BIR's witness Alberto Enriquez

(Alberto) in his testimony before the CTA identified the pieces of evidence

Under Section 8 of RA 1125, the CTA is categorically described as a court of

aforementioned such that the same were marked, BIR's failure to formally offer

record. As cases filed before it are litigated de novo, party-litigants shall prove

said pieces of evidence and depriving petitioner the opportunity to cross-

every minute aspect of their cases. Indubitably, no evidentiary value can be

examine Alberto, render the same inadmissible in evidence; that

given the pieces of evidence submitted by the BIR, as the rules on documentary

assuming arguendo that the ruling in Vda. de Oate is still applicable, BIR failed

evidence require that these documents must be formally offered before the CTA.

to comply with the doctrine's requisites because the documents herein remained

[34]

simply part of the BIR records and were not duly incorporated in the court

reads:

Pertinent is Section 34, Rule 132 of the Revised Rules on Evidence which

records; that the BIR failed to consider that although the actual payments made
to the Estate creditors were lower than their respective claims, such were
compromise agreements reached long after the Estate's liability had been

SEC. 34. Offer of evidence. The court shall consider no

evidence which has not been formally offered. The
purpose for which the evidence is offered must be
specified.

settled by the filing of its estate tax return and the issuance of BIR Certification
Nos. 2052 and 2053; and that the reckoning date of the claims against the
Estate and the settlement of the estate tax due should be at the time the estate

The CTA and the CA rely solely on the case of Vda. de Oate, which

tax return was filed by the judicial administrator and the issuance of said BIR

reiterated this Court's previous rulings in People v. Napat-a[35] and People v.

Certifications and not at the time the aforementioned Compromise Agreements

Mate[36] on the admission and consideration of exhibits which were not formally

were entered into with the Estate's creditors.[32]

offered during the trial.Although in a long line of cases many of which were
decided after Vda. de Oate, we held that courts cannot consider evidence which

On the other hand, respondent counters that the documents, being part of the

has not been formally offered,[37] nevertheless, petitioner cannot validly assume

records of the case and duly identified in a duly recorded testimony are

that the doctrine laid down in Vda. de Oate has already been abandoned.

considered evidence even if the same were not formally offered; that the filing of

Recently, in Ramos v. Dizon,[38] this Court, applying the said doctrine, ruled that

the estate tax return by the Estate and the issuance of BIR Certification Nos.

the trial court judge therein committed no error when he admitted and

2052 and 2053 did not deprive the BIR of its authority to examine the return and

considered the respondents' exhibits in the resolution of the case,

assess the estate tax; and that the factual findings of the CTA as affirmed by the

notwithstanding

CA may no longer be reviewed by this Court via a petition for review. [33]

were not formally offered. Likewise, in Far East Bank & Trust Company v.

the

fact

that

the

same

Commissioner of Internal Revenue,[39] the Court made reference to said doctrine

The Issues

in resolving the issues therein. Indubitably, the doctrine laid down in Vda. De
Oate still subsists in this jurisdiction. In Vda. de Oate, we held that:

There are two ultimate issues which require resolution in this case:

First. Whether or not the CTA and the CA gravely erred in allowing the
admission of the pieces of evidence which were not formally offered by the BIR;
and

Second. Whether or not the CA erred in affirming the CTA in the latter's
determination of the deficiency estate tax imposed against the Estate.

The Courts Ruling

From the foregoing provision, it is clear that for

evidence to be considered, the same must be formally
offered. Corollarily, the mere fact that a particular
document is identified and marked as an exhibit does
not mean that it has already been offered as part of the
evidence of a party. In Interpacific Transit, Inc. v.
Aviles [186 SCRA 385], we had the occasion to make a
distinction between identification of documentary
evidence and its formal offer as an exhibit. We said that
the first is done in the course of the trial and is
accompanied by the marking of the evidence as an
exhibit while the second is done only when the party
rests its case and not before. A party, therefore, may
opt to formally offer his evidence if he believes that it
will advance his cause or not to do so at all. In the
event he chooses to do the latter, the trial court is not
authorized by the Rules to consider the same.

23

However, in People v. Napat-a [179 SCRA 403]

citing People v. Mate [103 SCRA 484], we relaxed the
foregoing rule and allowed evidence not formally
offered to be admitted and considered by the trial
court provided the following requirements are
present, viz.: first, the same must have been duly
identified by testimony duly recorded and, second,
the same must have been incorporated in the
records of the case.[40]

While the CTA is not governed strictly by technical rules of evidence, [45] as rules
of procedure are not ends in themselves and are primarily intended as tools in
the administration of justice, the presentation of the BIR's evidence is not a mere
procedural technicality which may be disregarded considering that it is the only
means by which the CTA may ascertain and verify the truth of BIR's claims
against the Estate.[46] The BIR's failure to formally offer these pieces of evidence,

From the foregoing declaration, however, it is clear that Vda. de

Oate is merely an exception to the general rule. Being an exception, it may be
applied only when there is strict compliance with the requisites mentioned

despite CTA's directives, is fatal to its cause. [47] Such failure is aggravated by the
fact that not even a single reason was advanced by the BIR to justify such fatal
omission. This, we take against the BIR.

therein; otherwise, the general rule in Section 34 of Rule 132 of the Rules of
Court should prevail.

Per the records of this case, the BIR was directed to present its evidence [48] in
the hearing of February 21, 1996, but BIR's counsel failed to appear. [49] The CTA

In this case, we find that these requirements have not been satisfied. The
assailed pieces of evidence were presented and marked during the trial
particularly when Alberto took the witness stand. Alberto identified these pieces
of evidence in his direct testimony. [41] He was also subjected to crossexamination and re-cross examination by petitioner. [42] But Albertos account and
the exchanges between Alberto and petitioner did not sufficiently describe the
contents of the said pieces of evidence presented by the BIR. In fact, petitioner
sought that the lead examiner, one Ma. Anabella A. Abuloc, be summoned to
testify, inasmuch as Alberto was incompetent to answer questions relative to the
working papers.[43] The lead examiner never testified. Moreover, while Alberto's
testimony identifying the BIR's evidence was duly recorded, the BIR documents
themselves were not incorporated in the records of the case.

A common fact threads through Vda. de Oate and Ramos that does not exist at
all in the instant case. In the aforementioned cases, the exhibits were marked at
the pre-trial proceedings to warrant the pronouncement that the same were duly
incorporated in the records of the case. Thus, we held in Ramos:
In this case, we find and so rule that these
requirements have been satisfied. The exhibits in
question were presented and marked during the
pre-trial of the case thus, they have been
incorporated into the records. Further, Elpidio himself
explained the contents of these exhibits when he was
interrogated by respondents' counsel...
xxxx
But what further defeats petitioner's cause on this issue
is that respondents' exhibits were marked and admitted
during the pre-trial stage as shown by the Pre-Trial
Order quoted earlier.[44]

denied petitioner's motion to consider BIR's presentation of evidence as waived,

with a warning to BIR that such presentation would be considered waived if
BIR's evidence would not be presented at the next hearing. Again, in the hearing
of March 20, 1996, BIR's counsel failed to appear.[50] Thus, in its
Resolution[51] dated March 21, 1996, the CTA considered the BIR to have waived
presentation of its evidence. In the same Resolution, the parties were directed to
file their respective memorandum. Petitioner complied but BIR failed to do so.
[52]

In all of these proceedings, BIR was duly notified. Hence, in this case, we are

constrained to apply our ruling in Heirs of Pedro Pasag v. Parocha:[53]

A formal offer is necessary because judges
are mandated to rest their findings of facts and their
judgment only and strictly upon the evidence offered by
the parties at the trial. Its function is to enable the trial
judge to know the purpose or purposes for which the
proponent is presenting the evidence. On the other
hand, this allows opposing parties to examine the
evidence and object to its admissibility. Moreover, it
facilitates review as the appellate court will not be
required to review documents not previously scrutinized
by the trial court.
Strict adherence to the said rule is not a trivial matter.
The Court in Constantino v. Court of Appeals ruled
that the formal offer of one's evidence is deemed
waived after failing to submit it within a
considerable period of time. It explained that the
court cannot admit an offer of evidence made after
a lapse of three (3) months because to do so would
"condone an inexcusable laxity if not noncompliance with a court order which, in effect,
would encourage needless delays and derail the
speedy administration of justice."
Applying the aforementioned principle in this case, we
find that the trial court had reasonable ground to
consider that petitioners had waived their right to make
a formal offer of documentary or object evidence.
Despite several extensions of time to make their formal
offer, petitioners failed to comply with their commitment
and allowed almost five months to lapse before finally
submitting it. Petitioners' failure to comply with the
rule on admissibility of evidence is anathema to the
efficient, effective, and expeditious dispensation of
justice.

24

Having disposed of the foregoing procedural issue, we proceed to discuss the

It is noteworthy that even in the United States, there is some dispute as to

merits of the case.

whether the deductible amount for a claim against the estate is fixed as of the
decedent's death which is the general rule, or the same should be adjusted to

Ordinarily, the CTA's findings, as affirmed by the CA, are entitled to

reflect post-death developments, such as where a settlement between the

the highest respect and will not be disturbed on appeal unless it is shown that

parties results in the reduction of the amount actually paid. [61] On one hand,

the lower courts committed gross error in the appreciation of facts. [54] In this

the U.S. court ruled that the appropriate deduction is the value that the claim

case, however, we find the decision of the CA affirming that of the CTA tainted

had at the date of the decedent's death. [62] Also, as held in Propstra v.

with palpable error.

U.S., [63] where a lien claimed against the estate was certain and enforceable on
the date of the decedent's death, the fact that the claimant subsequently settled

It is admitted that the claims of the Estate's aforementioned creditors have been

for lesser amount did not preclude the estate from deducting the entire amount

condoned. As a mode of extinguishing an obligation, [55] condonation or remission

of the claim for estate tax purposes. These pronouncements essentially confirm

of debt[56] is defined as:

the general principle that post-death developments are not material in

determining the amount of the deduction.

an act of liberality, by virtue of which, without receiving

any equivalent, the creditor renounces the enforcement
of the obligation, which is extinguished in its entirety or
in that part or aspect of the same to which the
remission refers. It is an essential characteristic of
remission that it be gratuitous, that there is no
equivalent received for the benefit given; once such
equivalent exists, the nature of the act changes. It may
become dation in payment when the creditor receives a
thing different from that stipulated; or novation, when
the object or principal conditions of the obligation
should be changed; or compromise, when the matter
renounced is in litigation or dispute and in exchange of
some concession which the creditor receives.[57]

On the other hand, the Internal Revenue Service (Service) opines

that post-death settlement should be taken into consideration and the claim
should be allowed as a deduction only to the extent of the amount actually paid.
[64]

Recognizing the dispute, the Service released Proposed Regulations in 2007

mandating that the deduction would be limited to the actual amount paid.[65]

In announcing its agreement with Propstra,[66] the U.S. 5th Circuit

Court of Appeals held:

Verily, the second issue in this case involves the construction of Section 79 [58] of
We are persuaded that the Ninth Circuit's
decision...in Propstra correctly
apply
the Ithaca
Trust date-of-death valuation principle to enforceable
claims against the estate. As we interpret Ithaca Trust,
when the Supreme Court announced the date-of-death
valuation principle, it was making a judgment about the
nature of the federal estate tax specifically, that it is a
tax imposed on the act of transferring property by will or
intestacy and, because the act on which the tax is
levied occurs at a discrete time, i.e., the instance of
death, the net value of the property transferred should
be ascertained, as nearly as possible, as of that time.
This analysis supports broad application of the date-ofdeath valuation rule.[67]

the National Internal Revenue Code [59] (Tax Code) which provides for the
allowable deductions from the gross estate of the decedent. The specific
question is whether the actual claims of the aforementioned creditors may be
fully allowed as deductions from the gross estate of Jose despite the fact that
the said claims were reduced or condoned through compromise agreements
entered into by the Estate with its creditors.

Claims against the estate, as allowable deductions from the gross estate under
Section 79 of the Tax Code, are basically a reproduction of the deductions
allowed under Section 89 (a) (1) (C) and (E) of Commonwealth Act No. 466 (CA

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

466), otherwise known as the National Internal Revenue Code of 1939, and

to the ruling of the U.S. Supreme Court in Ithaca Trust Co. v. United States.

which was the first codification of Philippine tax laws. Philippine tax laws were, in

[68]

turn, based on the federal tax laws of the United States. Thus, pursuant to

which disregards the date-of-death valuation principle and particularly provides

established rules of statutory construction, the decisions of American courts

that post-death developments must be considered in determining the net value

construing the federal tax code are entitled to great weight in the interpretation

of the estate. It bears emphasis that tax burdens are not to be imposed, nor

of our own tax laws.

presumed to be imposed, beyond what the statute expressly and clearly imports,

[60]

First. There is no law, nor do we discern any legislative intent in our tax laws,

25

tax statutes being construed strictissimi juris against the government.[69] Any
doubt on whether a person, article or activity is taxable is generally resolved
against taxation.[70] Second. Such construction finds relevance and consistency

distributing to such officials and employees the earnings and principal of the
fund thus accumulated, and wherein it is provided in said plan that at no time
shall any part of the corpus or income of the fund be used for, or be diverted to,
any purpose other than for the exclusive benefit of the said officials and
employees.

in our Rules on Special Proceedings wherein the term "claims" required to be

presented against a decedent's estate is generally construed to mean debts or

D. Exclusion from Net Estate and Exemptions (Secs. 86 C and 87)

demands of a pecuniary nature which could have been enforced against the

(C) Share in the Conjugal Property. - the net share of the surviving spouse in
the conjugal partnership property as diminished by the obligations properly
chargeable to such property shall, for the purpose of this Section, be deducted
from the net estate of the decedent.

deceased in his lifetime, or liability contracted by the deceased before his death.
[71]

Therefore, the claims existing at the time of death are significant to, and

should be made the basis of, the determination of allowable deductions.

WHEREFORE,

the

instant

Petition

is GRANTED.

Accordingly,

the

assailed Decision dated April 30, 1999 and the Resolution dated November 3,
1999

of

the

Court

of

Appeals

in

CA-G.R.

S.P.

No.

46947

are REVERSED and SET ASIDE. The Bureau of Internal Revenue's deficiency
estate tax assessment against the Estate of Jose P. Fernandez is

SEC. 87. Exemption of Certain Acquisitions and Transmissions. - The

following shall not be taxed: (A) The merger of usufruct in the owner of the
naked title;(B) The transmission or delivery of the inheritance or legacy by the
fiduciary heir or legatee to the fideicommissary;(C) The transmission from the
first heir, legatee or donee in favor of another beneficiary, in accordance with the
desire of the predecessor; and(D) All bequests, devises, legacies or transfers to
social welfare, cultural and charitable institutions, no part of the net income of
which insures to the benefit of any individual: Provided, however,That not more
than thirty percent (30%) of the said bequests, devises, legacies or transfers
shall be used by such institutions for administration purposes.
E. Foreign Estate Tax Credit/s (Sec. 86 E)

hereby NULLIFIED. No costs.

4. Claims against insolvent persons
5. Unpaid Mortgages, Taxes and Casualty Losses
a. Rules
b. Special Deductions
1. Vanishing Deduction
a. Requisites for deductibility

(E) Tax Credit for Estate Taxes paid to a Foreign Country. - (1) In General. The tax imposed by this Title shall be credited with the amounts of any estate
tax imposed by the authority of a foreign country.
(2) Limitations on Credit. - The amount of the credit taken under this Section

2. Transfers for Public Use

3. Family Home
4. Standard Deduction
5. Medical Expenses
a. Limitation
b. Substantiation requirement
c. How computed

shall be subject to each of the following limitations: (a) The amount of the credit

6. Amount Received by Heirs Under Republic Act No. 4917

AN ACT PROVIDING THAT RETIREMENT BENEFITS OF EMPLOYEES OF
PRIVATE FIRMS SHALL NOT BE SUBJECT TO ATTACHMENT, LEVY,
EXECUTION, OR ANY TAX WHATSOEVER.

proportion of the tax against which such credit is taken, which the decedent's net

Section 1. Any provision of law to the contrary notwithstanding, the retirement

benefits received by officials and employees of private firms, whether individual
or corporate, in accordance with a reasonable private benefit plan maintained by
the employer shall be exempt from all taxes and shall not be liable to
attachment, garnishment, levy or seizure by or under any legal or equitable
process whatsoever except to pay a debt of the official or employee concerned
to the private benefit plan or that arising from liability imposed in a criminal
action: Provided, That the retiring official or employee has been in the service of
the same employer for at least ten (10) years and is not less than fifty years of
age at the time of his retirement: Provided, further, That the benefits granted
under this Act shall be availed of by an official or employee only once: Provided,
finally, That in case of separation of an official or employee from the service of
the employer due to death, sickness or other physical disability or for any cause
beyond the control of the said official or employee, any amount received by him
or by his heirs from the employer as a consequence of such separation shall
likewise be exempt as hereinabove provided.
As used in this Act, the term "reasonable private benefit plan" means a pension,
gratuity, stock bonus or profit sharing plan maintained by an employer for the
benefit of some or all of his officials and employees, wherein contributions are
made by such employer or officials and employees, or both, for the purpose of

in respect to the tax paid to any country shall not exceed the same proportion of
the tax against which such credit is taken, which the decedent's net estate
situated within such country taxable under this Title bears to his entire net
estate; and (b) The total amount of the credit shall not exceed the same
estate situated outside the Philippines taxable under this Title bears to his entire
net estate.

F. Notice of Death (Sec. 89)

SEC. 89. Notice of Death to be Filed. - In all cases of transfers subject to tax,
or where, though exempt from tax, the gross value of the estate exceeds Twenty
thousand pesos (P20,000), the executor, administrator or any of the legal heirs,
as the case may be, within two (2) months after the decedent's death, or within a
like period after qualifying as such executor or administrator, shall give a written
notice thereof to the Commissioner.
G. Estate Tax Returns and Payment of Tax (Secs. 90 and 91)

SEC. 90. Estate Tax Returns. (A) Requirements. - In all cases of transfers subject to the tax imposed herein,
or where, though exempt from tax, the gross value of the estate exceeds Two
hundred thousand pesos (P200,000), or regardless of the gross value of the

26

estate, where the said estate consists of registered or registrable property such

tax or any part thereof not to exceed five (5) years, in case the estate is settled

as real property, motor vehicle, shares of stock or other similar property for

through the courts, or two (2) years in case the estate is settled extrajudicially.

which a clearance from the Bureau of Internal Revenue is required as a

condition precedent for the transfer of ownership thereof in the name of the

In such case, the amount in respect of which the extension is granted shall be

transferee, the executor, or the administrator, or any of the legal heirs, as the

paid on or before the date of the expiration of the period of the extension, and

case may be, shall file a return under oath in duplicate, setting forth: (1) The

the running of the Statute of Limitations for assessment as provided in Section

value of the gross estate of the decedent at the time of his death, or in case of a

203 of this Code shall be suspended for the period of any such

nonresident, not a citizen of the Philippines, of that part of his gross estate

extension. cralaw

situated in the Philippines;(2) The deductions allowed from gross estate in

determining the estate as defined in Section 86; and(3) Such part of such

Where the taxes are assessed by reason of negligence, intentional disregard of

information as may at the time be ascertainable and such supplemental data as

rules and regulations, or fraud on the part of the taxpayer, no extension will be

may be necessary to establish the correct taxes. Provided, however, That estate

granted by the Commissioner. cralaw

tax returns showing a gross value exceeding Two million pesos (P2,000,000)
shall be supported with a statement duly certified to by a Certified Public

If an extension is granted, the Commissioner may require the executor, or

Accountant containing the following: (a) Itemized assets of the decedent with

administrator, or beneficiary, as the case may be, to furnish a bond in such

their corresponding gross value at the time of his death, or in the case of a

amount, not exceeding double the amount of the tax and with such sureties as

nonresident, not a citizen of the Philippines, of that part of his gross estate

the Commissioner deems necessary, conditioned upon the payment of the said

situated in the Philippines; (b) Itemized deductions from gross estate allowed in

tax in accordance with the terms of the extension.

Section 86; and (c) The amount of tax due whether paid or still due and
outstanding.

(C) Liability for Payment.- The estate tax imposed by Section 84 shall be paid
by the executor or administrator before delivery to any beneficiary of his

(B) Time for Filing. - For the purpose of determining the estate tax provided for

distributive share of the estate.

in Section 84 of this Code, the estate tax return required under the preceding
Subsection (A) shall be filed within six (6) months from the decedent's death.

Such beneficiary shall to the extent of his distributive share of the estate, be
subsidiarily liable for the payment of such portion of the estate tax as his

A certified copy of the schedule of partition and the order of the court approving

distributive share bears to the value of the total net estate. cralaw

the same shall be furnished the Commissioner within thirty (30) after the
promulgation of such order.

For the purpose of this Chapter, the term "executor" or "administrator" means
the executor or administrator of the decedent, or if there is no executor or

(C) Extension of Time. - The Commissioner shall have authority to grant, in

administrator appointed, qualified, and acting within the Philippines, then any

meritorious cases, a reasonable extension not exceeding thirty (30) days for

person in actual or constructive possession of any property of the

filing the return.

decedent. cralaw

(D) Place of Filing. - Except in cases where the Commissioner otherwise

permits, the return required under Subsection (A) shall be filed with an
authorized agent bank, or Revenue District Officer, Collection Officer, or duly
authorized Treasurer of the city or municipality in which the decedent was
domiciled at the time of his death or if there be no legal residence in the

1.
2.
3.
4.
5.

When required and contents

Time of Filing / Extension of time to file
Place of Filing
Time of Payment / Extension of time to pay
CPA Certification

Philippines, with the Office of the Commissioner.

H. Other Matters
1. Who is liable to pay? [Sec. 91 (C)]

SEC. 91. Payment of Tax. -

Estate of Vda. De Gabriel vs. CIR (GR No. 155541 dated January 27, 2004)

(A) Time of Payment. - The estate tax imposed by Section 84 shall be paid at
the time the return is filed by the executor, administrator or the heirs.
(B) Extension of Time. - When the Commissioner finds that the payment on the
due date of the estate tax or of any part thereof would impose undue hardship
upon the estate or any of the heirs, he may extend the time for payment of such

Facts: During the lifetime of the decedent Juliana vda. De Gabriel, her business
affairs were managed by the Philippine Trust Company (PhilTrust). The
decedent died on April 3, 1979 but two days after her death, PhilTrust filed her
income tax return for 1978 not indicating that the decedent had died. The BIR
conducted an administrative investigation of the decedents tax liability and
found a deficiency income tax for the year 1997 in the amount of P318,233.93.
Thus, in November 18, 1982, the BIR sent by registered mail a demand letter
and assessment notice addressed to the decedent c/o PhilTrust, Sta. Cruz,
Manila, which was the address stated in her 1978 income tax return. On June
18, 1984, respondent Commissioner of Internal Revenue issued warrants of
distraint and levy to enforce the collection of decedents deficiency income tax

27

liability and serve the same upon her heir, Francisco Gabriel. On November 22,
1984, Commissioner filed a motion to allow his claim with probate court for the
deficiency tax. The Court denied BIRs claim against the estate on the ground
that no proper notice of the tax assessment was made on the proper party. On
appeal, the CA held that BIRs service on PhilTrust of the notice of assessment
was binding on the estate as PhilTrust failed in its legal duty to inform the
respondent of antecedents death. Consequently, as the estate failed to question
the assessment within the statutory period of thirty days, the assessment
became
final,
executory,
and
incontestable.

78-82-00501 addressed to the decedent "c/o Philippine Trust Company, Sta.

Cruz, Manila" which was the address stated in her 1978 Income Tax Return. No
response was made by Philtrust. The BIR was not informed that the decedent
had actually passed away.

Issue: (1) Whether or not the CA erred in holding that the service of deficiency
tax assessment on Juliana through PhilTrust was a valid service as to bind the
estate; (2) Whether or not the CA erred in holding that the tax assessment had
become final, executory, and incontestable.

On June 18, 1984, respondent Commissioner of Internal Revenue issued

warrants of distraint and levy to enforce collection of the decedents deficiency
income tax liability, which were served upon her heir, Francisco Gabriel. On
November 22, 1984, respondent filed a "Motion for Allowance of Claim and for
an Order of Payment of Taxes" with the court a quo. On January 7, 1985, Mr.
Ambrosio filed a letter of protest with the Litigation Division of the BIR, which
was not acted upon because the assessment notice had allegedly become final,
executory and incontestable.

Held: (1) Since the relationship between PhilTrust and the decedent was
automatically severed the moment of the taxpayers death, none of the
PhilTrusts acts or omissions could bind the estate of the taxpayer. Although the
administrator of the estate may have been remiss in his legal obligation to inform
respondent of the decedents death, the consequence thereof merely refer to the
imposition of certain penal sanction on the administrator. These do not include
the indefinite tolling of the prescriptive period for making deficiency tax
assessment or waiver of the notice requirement for such assessment.
(2) The assessment was served not even on an heir or the estate but on a
completely disinterested party. This improper service was clearly not binding on
the petitioner. The most crucial point to be remembered is that PhilTust had
absolutely no legal relationship with the deceased or to her Estate. There was
therefore no assessment served on the estate as to the alleged underpayment
of tax. Absent this assessment, no proceeding could be initiated in court for
collection of said tax; therefore, it could not have become final, executory and
incontestable. Respondents claim for collection filed with the court only on
November 22, 1984 was barred for having been made beyond the five-year
prescriptive period set by law.
Full text:
This petition for review on certiorari assails the decision of the Court of Appeals
in CA-G.R. CV No. 09107, dated September 30, 2002,1 which reversed the
November 19, 1995 Order of Regional Trial Court of Manila, Branch XXXVIII, in
Sp. Proc. No. R-82-6994, entitled "Testate Estate of Juliana Diez Vda. De
Gabriel". The petition was filed by the Estate of the Late Juliana Diez Vda. De
Gabriel, represented by Prudential Bank as its duly appointed and qualified
Administrator.
As correctly summarized by the Court of Appeals, the relevant facts are as
follows:
During the lifetime of the decedent, Juliana Vda. De Gabriel, her
business affairs were managed by the Philippine Trust Company
(Philtrust). The decedent died on April 3, 1979. Two days after her
death, Philtrust, through its Trust Officer, Atty. Antonio M. Nuyles,
filed her Income Tax Return for 1978. The return did not indicate
that the decedent had died.
On May 22, 1979, Philtrust also filed a verified petition for appointment as
Special Administrator with the Regional Trial Court of Manila, Branch XXXVIII,
docketed as Sp. Proc. No. R-82-6994. The court a quo appointed one of the
heirs as Special Administrator. Philtrusts motion for reconsideration was denied
by the probate court.
On January 26, 1981, the court a quo issued an Order relieving Mr. Diez of his
appointment, and appointed Antonio Lantin to take over as Special
Administrator. Subsequently, on July 30, 1981, Mr. Lantin was also relieved of
his appointment, and Atty. Vicente Onosa was appointed in his stead.
In the meantime, the Bureau of Internal Revenue conducted an administrative
investigation on the decedents tax liability and found a deficiency income tax for
the year 1977 in the amount of P318,233.93. Thus, on November 18, 1982, the
BIR sent by registered mail a demand letter and Assessment Notice No. NARD-

In an Order dated September 5, 1983, the court a quo appointed Antonio

Ambrosio as the Commissioner and Auditor Tax Consultant of the Estate of the
decedent.

On May 16, 1985, petitioner, the Estate of the decedent, through Mr. Ambrosio,
filed a formal opposition to the BIRs Motion for Allowance of Claim based on the
ground that there was no proper service of the assessment and that the filing of
the aforesaid claim had already prescribed. The BIR filed its Reply, contending
that service to Philippine Trust Company was sufficient service, and that the
filing of the claim against the Estate on November 22, 1984 was within the fiveyear prescriptive period for assessment and collection of taxes under Section
318 of the 1977 National Internal Revenue Code (NIRC).
On November 19, 1985, the court a quo issued an Order denying respondents
claim against the Estate,2 after finding that there was no notice of its tax
assessment on the proper party.3
On July 2, 1986, respondent filed an appeal with the Court of Appeals, docketed
as CA-G.R. CV No. 09107,4assailing the Order of the probate court dated
November 19, 1985. It was claimed that Philtrust, in filing the decedents 1978
income tax return on April 5, 1979, two days after the taxpayers death, had
"constituted itself as the administrator of the estate of the deceased at least
insofar as said return is concerned."5 Citing Basilan Estate Inc. v. Commissioner
of Internal Revenue,6 respondent argued that the legal requirement of notice
with respect to tax assessments7 requires merely that the Commissioner of
Internal Revenue release, mail and send the notice of the assessment to the
taxpayer at the address stated in the return filed, but not that the taxpayer
actually receive said assessment within the five-year prescriptive
period.8 Claiming that Philtrust had been remiss in not notifying respondent of
the decedents death, respondent therefore argued that the deficiency tax
assessment had already become final, executory and incontestable, and that
petitioner Estate was liable therefor.
On September 30, 2002, the Court of Appeals rendered a decision in favor of
the respondent. Although acknowledging that the bond of agency between
Philtrust and the decedent was severed upon the latters death, it was ruled that
the administrator of the Estate had failed in its legal duty to inform respondent of
the decedents death, pursuant to Section 104 of the National Internal Revenue
Code of 1977. Consequently, the BIRs service to Philtrust of the demand letter
and Notice of Assessment was binding upon the Estate, and, upon the lapse of
the statutory thirty-day period to question this claim, the assessment became
final, executory and incontestable. The dispositive portion of said decision reads:
WHEREFORE, finding merit in the appeal, the appealed decision is
REVERSED AND SET ASIDE. Another one is entered ordering the
Administrator of the Estate to pay the Commissioner of Internal
Revenue the following:
a. The amount of P318,223.93, representing the
deficiency income tax liability for the year 1978, plus
20% interest per annum from November 2, 1982 up to
November 2, 1985 and in addition thereto 10%
surcharge on the basic tax of P169,155.34 pursuant to
Section 51(e)(2) and (3) of the Tax Code as amended
by PD 69 and 1705; and

28

b. The costs of the suit.

SO ORDERED.9
Hence, the instant petition, raising the following issues:
1. Whether or not the Court of Appeals erred in holding that the
service of deficiency tax assessment against Juliana Diez Vda. de
Gabriel through the Philippine Trust Company was a valid service in
order to bind the Estate;
2. Whether or not the Court of Appeals erred in holding that the
deficiency tax assessment and final demand was already final,
executory and incontestable.
Petitioner Estate denies that Philtrust had any legal personality to represent the
decedent after her death. As such, petitioner argues that there was no proper
notice of the assessment which, therefore, never became final, executory and
incontestable.10 Petitioner further contends that respondents failure to file its
claim against the Estate within the proper period prescribed by the Rules of
Court is a fatal error, which forever bars its claim against the Estate. 11
Respondent, on the other hand, claims that because Philtrust filed the
decedents income tax return subsequent to her death, Philtrust was the de facto
administrator of her Estate.12 Consequently, when the Assessment Notice and
demand letter dated November 18, 1982 were sent to Philtrust, there was proper
service on the Estate.13Respondent further asserts that Philtrust had the legal
obligation to inform petitioner of the decedents death, which requirement is
found in Section 104 of the NIRC of 1977.14 Since Philtrust did not, respondent
contends that petitioner Estate should not be allowed to profit from this
omission.15 Respondent further argues that Philtrusts failure to protest the
aforementioned assessment within the 30-day period provided in Section 319-A
of the NIRC of 1977 meant that the assessment had already become final,
executory and incontestable.16
The resolution of this case hinges on the legal relationship between Philtrust and
the decedent, and, by extension, between Philtrust and petitioner Estate.
Subsumed under this primary issue is the sub-issue of whether or not service on
Philtrust of the demand letter and Assessment Notice No. NARD-78-82-00501
was valid service on petitioner, and the issue of whether Philtrusts inaction
thereon could bind petitioner. If both sub-issues are answered in the affirmative,
respondents contention as to the finality of Assessment Notice No. NARD-7882-00501 must be answered in the affirmative. This is because Section 319-A of
the NIRC of 1977 provides a clear 30-day period within which to protest an
assessment. Failure to file such a protest within said period means that the
assessment ipso jure becomes final and unappealable, as a consequence of
which legal proceedings may then be initiated for collection thereof.

Philtrusts motion to be thus appointed. As of November 18, 1982, the date of

the demand letter and Assessment Notice, the legal relationship between the
decedent and Philtrust had already been non-existent for three years.
Respondent claims that Section 104 of the National Internal Revenue Code of
1977 imposed the legal obligation on Philtrust to inform respondent of the
decedents death. The said Section reads:
SEC. 104. Notice of death to be filed. In all cases of transfers
subject to tax or where, though exempt from tax, the gross value of
the estate exceeds three thousand pesos, the executor,
administrator, or any of the legal heirs, as the case may be, within
two months after the decedents death, or within a like period after
qualifying as such executor or administrator, shall give written notice
thereof to the Commissioner of Internal Revenue.
The foregoing provision falls in Title III, Chapter I of the National
Internal Revenue Code of 1977, or the chapter on Estate Tax, and
pertains to "all cases of transfers subject to tax" or where the "gross
value of the estate exceeds three thousand pesos". It has
absolutely no applicability to a case for deficiency income tax, such
as the case at bar. It further lacks applicability since Philtrust
was never the executor, administrator of the decedents estate, and,
as such, never had the legal obligation, based on the above
provision, to inform respondent of her death.
Although the administrator of the estate may have been remiss in
his legal obligation to inform respondent of the decedents death,
the consequences thereof, as provided in Section 119 of the
National Internal Revenue Code of 1977, merely refer to the
imposition of certain penal sanctions on the administrator. These do
not include the indefinite tolling of the prescriptive period for making
deficiency tax assessments, or the waiver of the notice requirement
for such assessments.
Thus, as of November 18, 1982, the date of the demand letter and
Assessment Notice No. NARD-78-82-00501, there was absolutely
no legal obligation on the part of Philtrust to either (1) respond to
the demand letter and assessment notice, (2) inform respondent of
the decedents death, or (3) inform petitioner that it had received
said demand letter and assessment notice. This lack of legal
obligation was implicitly recognized by the Court of Appeals, which,
in fact, rendered its assailed decision on grounds of "equity".17
Since there was never any valid notice of this assessment, it could not have
become final, executory and incontestable, and, for failure to make the
assessment within the five-year period provided in Section 318 of the National
Internal Revenue Code of 1977, respondents claim against the petitioner Estate
is barred. Said Section 18 reads:

We find in favor of the petitioner.

The first point to be considered is that the relationship between the decedent
and Philtrust was one of agency, which is a personal relationship between agent
and principal. Under Article 1919 (3) of the Civil Code, death of the agent or
principal automatically terminates the agency. In this instance, the death of the
decedent on April 3, 1979 automatically severed the legal relationship between
her and Philtrust, and such could not be revived by the mere fact that Philtrust
continued to act as her agent when, on April 5, 1979, it filed her Income Tax
Return for the year 1978.
Since the relationship between Philtrust and the decedent was automatically
severed at the moment of the Taxpayers death, none of Philtrusts acts or
omissions could bind the estate of the Taxpayer. Service on Philtrust of the
demand letter and Assessment Notice No. NARD-78-82-00501 was improperly
done.
It must be noted that Philtrust was never appointed as the administrator of the
Estate of the decedent, and, indeed, that the court a quo twice rejected

SEC. 318. Period of limitation upon assessment and collection.

Except as provided in the succeeding section, internal revenue
taxes shall be assessed within five years after the return was filed,
and no proceeding in court without assessment for the collection of
such taxes shall be begun after the expiration of such period. For
the purpose of this section, a return filed before the last day
prescribed by law for the filing thereof shall be considered as filed
on such last day: Provided, That this limitation shall not apply to
cases already investigated prior to the approval of this Code.
Respondent argues that an assessment is deemed made for the purpose of
giving effect to such assessment when the notice is released, mailed or sent to
the taxpayer to effectuate the assessment, and there is no legal requirement
that the taxpayer actually receive said notice within the five-year period.18 It must
be noted, however, that the foregoing rule requires that the notice be sent to the
taxpayer, and not merely to a disinterested party. Although there is no specific
requirement that the taxpayer should receive the notice within the said period,
due process requires at the very least that such notice actually be received. In

29

Commissioner of Internal Revenue v. Pascor Realty and Development

Corporation,19 we had occasion to say:
An assessment contains not only a computation of tax liabilities, but
also a demand for payment within a prescribed period. It also
signals the time when penalties and interests begin to accrue
against the taxpayer. To enable the taxpayer to determine his
remedies thereon, due process requires that it must be served on
and received by the taxpayer.
In Republic v. De le Rama,20 we clarified that, when an estate is under
administration, notice must be sent to the administrator of the estate, since it is
the said administrator, as representative of the estate, who has the legal
obligation to pay and discharge all debts of the estate and to perform all orders
of the court. In that case, legal notice of the assessment was sent to two heirs,
neither one of whom had any authority to represent the estate. We said:

deceased, or to her Estate. There was therefore no assessment served on the

Estate as to the alleged underpayment of tax. Absent this assessment, no
proceedings could be initiated in court for the collection of said tax,21 and
respondents claim for collection, filed with the probate court only on November
22, 1984, was barred for having been made beyond the five-year prescriptive
period set by law.
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals
in CA-G.R. CV No. 09107, dated September 30, 2002, is REVERSED and SET
ASIDE. The Order of the Regional Trial Court of Manila, Branch XXXVIII, in Sp.
Proc. No. R-82-6994, dated November 19, 1985, which denied the claim of the
Bureau of Internal Revenue against the Estate of Juliana Diez Vda. De Gabriel
for the deficiency income tax of the decedent for the year 1977 in the amount of
P318,223.93, is AFFIRMED.

a. Discharge of Executor or Administrator from Personal Liability (Sec. 92)

The notice was not sent to the taxpayer for the purpose of giving
effect to the assessment, and said notice could not produce any
effect. In the case of Bautista and Corrales Tan v. Collector of
Internal Revenue this Court had occasion to state that "the
assessment is deemed made when the notice to this effect is
released, mailed or sent to the taxpayer for the purpose of giving
effect to said assessment." It appearing that the person liable for the
payment of the tax did not receive the assessment, the assessment
could not become final and executory. (Citations omitted, emphasis
supplied.)
In this case, the assessment was served not even on an heir of the Estate, but
on a completely disinterested third party. This improper service was clearly not
binding on the petitioner.
By arguing that (1) the demand letter and assessment notice were served on
Philtrust, (2) Philtrust was remiss in its obligation to respond to the demand letter
and assessment notice, (3) Philtrust was remiss in its obligation to inform
respondent of the decedents death, and (4) the assessment notice is therefore
binding on the Estate, respondent is arguing in circles. The most crucial point to
be remembered is that Philtrust had absolutely no legal relationship to the

b. Liability of Heirs
CIR vs. Pineda (21 SCRA 105)
FACTS:
BIR investigated the income tax liability of Anastacio Pinedas estate for the
years 1945, 1946, 1947, and 1948 and it found that the corresponding income
tax return were not filed. This resulted to a P760.28 deficiency income tax for
1945 and 1946 and real estate dealers fixed tax for the 4thquarter of 1946 and
for the whole year 1947. Manuel Pineda, eldest son of Anastacio, received the
assessment. He contested the same alleging that only a proportionate part
should be his liability. CTA ruled that Pineda is liable only for taxes
corresponding to his share in the estate. Hence, the present petition.
ISSUE:
Whether the Government can require Manuel Pineda to pay the full amount of
the tax assessed
RULING:
Yes. As a holder of property belonging to the estate, Pineda is liable for the tax
up to the amount of the property in his possession. The BIR is given the
discretion to avail of the most expeditious way to collect the tax. This is, of
course, without prejudice to Pinedas right of contribution for his co-heirs. Put
simply, the Supreme Court held that the rule on solidarity applies to taxes
because it is not an ordinary contract. Two persons liable for payment of estate
tax:

SEC. 92. Discharge of Executor or Administrator from Personal Liability.- If

the executor or administrator makes a written application to the Commissioner
for determination of the amount of the estate tax and discharge from personal
liability therefore, the Commissioner (as soon as possible, and in any event
within one (1) year after the making of such application, or if the application is
made before the return is filed, then within one (1) year after the return is filed,
but not after the expiration of the period prescribed for the assessment of the tax
in Section 203 shall not notify the executor or administrator of the amount of the
tax.
The executor or administrator, upon payment of the amount of which he is
notified, shall be discharged from personal liability for any deficiency in the tax
thereafter found to be due and shall be entitled to a receipt or writing showing
such discharge. cralaw

1.

Executor or administrator;

2.

Heirs up to the extent of their inheritance

Full text

On May 23, 1945 Atanasio Pineda died, survived by his wife, Felicisima Bagtas,
and 15 children, the eldest of whom is Manuel B. Pineda, a lawyer. Estate
proceedings were had in the Court of First Instance of Manila (Case No. 71129)
wherein the surviving widow was appointed administratrix. The estate was
divided among and awarded to the heirs and the proceedings terminated on
June 8, 1948. Manuel B. Pineda's share amounted to about P2,500.00.
After the estate proceedings were closed, the Bureau of Internal Revenue
investigated the income tax liability of the estate for the years 1945, 1946, 1947
and 1948 and it found that the corresponding income tax returns were not filed.
Thereupon, the representative of the Collector of Internal Revenue filed said
returns for the estate on the basis of information and data obtained from the
aforesaid estate proceedings and issued an assessment for the following:

30

1. Deficiency income tax

1945
P135.83
1946
436.95
1947
1,206.91
Add: 5% surcharge
1% monthly interest from November 30, 1953 to
April 15, 1957
Compromise for late filing
Compromise for late payment
Total amount due
2. Additional residence tax for 1945
3. Real Estate dealer's tax for the fourth quarter of 1946
and the whole year of 1947

P1,779.69
88.98
720.77
80.00
40.00
P2,707.44
===========
P14.50
===========
P207.50
===========

Manuel B. Pineda, who received the assessment, contested the same.

Subsequently, he appealed to the Court of Tax Appeals alleging that he was
appealing "only that proportionate part or portion pertaining to him as one of the
heirs."
After hearing the parties, the Court of Tax Appeals rendered judgment reversing
the decision of the Commissioner on the ground that his right to assess and
collect the tax has prescribed. The Commissioner appealed and this Court
affirmed the findings of the Tax Court in respect to the assessment for income
tax for the year 1947 but held that the right to assess and collect the taxes for
1945 and 1946 has not prescribed. For 1945 and 1946 the returns were filed on
August 24, 1953; assessments for both taxable years were made within five
years therefrom or on October 19, 1953; and the action to collect the tax was

filed within five years from the latter date, on August 7, 1957. For taxable year
1947, however, the return was filed on March 1, 1948; the assessment was
made on October 19, 1953, more than five years from the date the return was
filed; hence, the right to assess income tax for 1947 had prescribed. Accordingly,
We remanded the case to the Tax Court for further appropriate proceedings.1
In the Tax Court, the parties submitted the case for decision without additional
evidence.
On November 29, 1963 the Court of Tax Appeals rendered judgment holding
Manuel B. Pineda liable for the payment corresponding to his share of the
following taxes:

Deficiency income tax

1945
P135.83
1946
436.95
Real estate dealer's fixed tax 4th
quarter of 1946 and whole year of 1947 P187.50
The Commissioner of Internal Revenue has appealed to Us and has proposed
to hold Manuel B. Pineda liable for the payment of all the taxes found by the Tax
Court to be due from the estate in the total amount of P760.28 instead of only for
the amount of taxes corresponding to his share in the estate.1awphl.nt
Manuel B. Pineda opposes the proposition on the ground that as an heir he is
liable for unpaid income tax due the estate only up to the extent of and in
proportion to any share he received. He relies on Government of the Philippine
Islands v. Pamintuan2 where We held that "after the partition of an estate, heirs
and distributees are liable individually for the payment of all lawful outstanding
claims against the estate in proportion to the amount or value of the property
they have respectively received from the estate."
We hold that the Government can require Manuel B. Pineda to pay the full
amount of the taxes assessed.
Pineda is liable for the assessment as an heir and as a holder-transferee of
property belonging to the estate/taxpayer. As an heir he is individually
answerable for the part of the tax proportionate to the share he received from
the inheritance.3 His liability, however, cannot exceed the amount of his share.4
As a holder of property belonging to the estate, Pineda is liable for he tax up to
the amount of the property in his possession. The reason is that the Government
has a lien on the P2,500.00 received by him from the estate as his share in the
inheritance, for unpaid income taxes4a for which said estate is liable, pursuant to
the last paragraph of Section 315 of the Tax Code, which we quote hereunder:

If any person, corporation, partnership, joint-account (cuenta en

participacion), association, or insurance company liable to pay the
income tax, neglects or refuses to pay the same after demand, the
amount shall be a lien in favor of the Government of the Philippines
from the time when the assessment was made by the
Commissioner of Internal Revenue until paid with interest, penalties,
and costs that may accrue in addition thereto upon all property and
rights to property belonging to the taxpayer: . . .
By virtue of such lien, the Government has the right to subject the property in
Pineda's possession, i.e., the P2,500.00, to satisfy the income tax assessment
in the sum of P760.28. After such payment, Pineda will have a right of
contribution from his co-heirs,5 to achieve an adjustment of the proper share of
each heir in the distributable estate.
All told, the Government has two ways of collecting the tax in question. One, by
going after all the heirs and collecting from each one of them the amount of the
tax proportionate to the inheritance received. This remedy was adopted
in Government of the Philippine Islands v. Pamintuan, supra. In said case, the
Government filed an action against all the heirs for the collection of the tax. This
action rests on the concept that hereditary property consists only of that part
which remains after the settlement of all lawful claims against the estate, for the
settlement of which the entire estate is first liable.6 The reason why in case suit
is filed against all the heirs the tax due from the estate is levied proportionately
against them is to achieve thereby two results: first, payment of the tax; and
second, adjustment of the shares of each heir in the distributed estate
as lessened by the tax.

31

Another remedy, pursuant to the lien created by Section 315 of the Tax Code
upon all property and rights to property belonging to the taxpayer for unpaid
income tax, is by subjecting said property of the estate which is in the hands of
an heir or transferee to the payment of the tax due, the estate. This second
remedy is the very avenue the Government took in this case to collect the tax.
The Bureau of Internal Revenue should be given, in instances like the case at
bar, the necessary discretion to avail itself of the most expeditious way to collect
the tax as may be envisioned in the particular provision of the Tax Code above
quoted, because taxes are the lifeblood of government and their prompt and
certain availability is an imperious need.7 And as afore-stated in this case the
suit seeks to achieve only one objective: payment of the tax. The adjustment of
the respective shares due to the heirs from the inheritance, as lessened by the
tax, is left to await the suit for contribution by the heir from whom the
Government recovered said tax.

and made in good faith. The taxpayer has the duty of proving otherwise. In the
absence of proof of any irregularities in the performance of official duties, an
assessment will not be disturbed. Even an assessment based on estimates
is prima facie valid and lawful where it does not appear to have been arrived at
arbitrarily or capriciously. The burden of proof is upon the complaining party to
show clearly that the assessment is erroneous. Failure to present proof of error
in the assessment will justify the judicial affirmance of said assessment. In this
instance, petitioner has not pointed out one single provision in the Memorandum
of the Special Audit Team which gave rise to the questioned assessment, which
bears a trace of falsity. Indeed, the petitioner's attack on the assessment bears
mainly on the alleged improbable and unconscionable amount of the taxes
charged. But mere rhetoric cannot supply the basis for the charge of impropriety
of the assessments made.
Full text

WHEREFORE, the decision appealed from is modified. Manuel B. Pineda is

hereby ordered to pay to the Commissioner of Internal Revenue the sum of
P760.28 as deficiency income tax for 1945 and 1946, and real estate dealer's
fixed tax for the fourth quarter of 1946 and for the whole year 1947, without
prejudice to his right of contribution for his co-heirs. No costs. So ordered.

3.

In this Petition for Review on Certiorari, Government action is once again

assailed as precipitate and unfair, suffering the basic and oftly implored
requisites of due process of law. Specifically, the petition assails the
Decision[1] of the Court of Appeals dated November 29, 1994 in CA-G.R. SP No.
31363, where the said court held:

Payment Before Delivery by Executor Sec. 94

SEC. 94. Payment Before Delivery by Executor or Administrator. - No judge

shall authorize the executor or judicial administrator to deliver a distributive
share to any party interested in the estate unless a certification from the
Commissioner that the estate tax has been paid is shown. Cralaw
Marcos II vs. CA 273 SCRA 47
Facts: Ferdinand R. Marcos II assailed the decision of the Court of Appeals
declaring the deficiency income tax assessments and estate tax assessments
upon the estate and properties of his late father despite the pendency of the
probate proceedings of the will of the late President. On the other hand, the BIR
argued that the States authority to collect internal revenue taxes is paramount.
Petitioner further argues that "the numerous pending court cases questioning
the late president's ownership or interests in several properties (both real and
personal) make the total value of his estate, and the consequent estate tax due,
incapable of exact pecuniary determination at this time. Thus, respondents'
assessment of the estate tax and their issuance of the Notices of Levy and sale
are premature and oppressive." He points out the pendency of Sandiganbayan
Civil Case Nos. 0001-0034 and 0141, which were filed by the government to
question the ownership and interests of the late President in real and personal
properties located within and outside the Philippines. Petitioner, however, omits
to allege whether the properties levied upon by the BIR in the collection of estate
taxes upon the decedent's estate were among those involved in the said cases
pending in the Sandiganbayan. Indeed, the court is at a loss as to how these
cases are relevant to the matter at issue. The mere fact that the decedent has
pending cases involving ill-gotten wealth does not affect the enforcement of tax
assessments over the properties indubitably included in his estate.
Issue: Is the contention of Marcos correct?

"In view of all the foregoing, we rule that the deficiency income tax assessments
and estate tax assessment, are already final and (u)nappealable -and- the
subsequent levy of real properties is a tax remedy resorted to by the
government, sanctioned by Section 213 and 218 of the National Internal
Revenue Code. This summary tax remedy is distinct and separate from the
other tax remedies (such as Judicial Civil actions and Criminal actions), and is
not affected or precluded by the pendency of any other tax remedies instituted
by the government.
WHEREFORE, premises considered, judgment is hereby rendered
DISMISSING the petition for certiorari with prayer for Restraining Order and
Injunction.
No pronouncements as to costs.
SO ORDERED."
More than seven years since the demise of the late Ferdinand E.
Marcos, the former President of the Republic of the Philippines, the matter of the
settlement of his estate, and its dues to the government in estate taxes, are still
unresolved, the latter issue being now before this Court for
resolution. Specifically, petitioner Ferdinand R. Marcos II, the eldest son of the
decedent, questions the actuations of the respondent Commissioner of Internal
Revenue in assessing, and collecting through the summary remedy of Levy on
Real Properties, estate and income tax delinquencies upon the estate and
properties of his father, despite the pendency of the proceedings on probate of
the will of the late president, which is docketed as Sp. Proc. No. 10279 in the
Regional Trial Court of Pasig, Branch 156.

Held: No. The approval of the court, sitting in probate or as a settlement tribunal
over the deceaseds estate, is not a mandatory requirement in the collection of
estate taxes.

Petitioner had filed with the respondent Court of Appeals a Petition

for Certiorari and Prohibition with an application for writ of preliminary injunction
and/or temporary restraining order on June 28, 1993, seeking to -

There is nothing in the Tax Code, and in the pertinent remedial laws that implies
the necessity of the probate or estate settlement court's approval of the state's
claim for estate taxes, before the same can be enforced and collected.

I. Annul and set aside the Notices of Levy on real property dated February 22,
1993 and May 20, 1993, issued by respondent Commissioner of Internal
Revenue;

The enforcement of tax laws and the collection of taxes are of paramount
importance for the sustenance of government. Taxes are the lifeblood of
government and should be collected without unnecessary hindrance. However,
such collection should be made in accordance with law as any arbitrariness will
negate the existence of government itself.
It is not the Department of Justice which is the government agency tasked to
determine the amount of taxes due upon the subject estate, but the Bureau of
Internal Revenue whose determinations and assessments are presumed correct

II. Annul and set aside the Notices of Sale dated May 26, 1993;
III. Enjoin the Head Revenue Executive Assistant Director II (Collection Service),
from proceeding with the Auction of the real properties covered byNotices
of Sale.

32

After the parties had pleaded their case, the Court of Appeals rendered
its Decision[2] on November 29, 1994, ruling that the deficiency assessments for
estate and income tax made upon the petitioner and the estate of the deceased
President Marcos have already become final and unappealable, and may thus
be enforced by the summary remedy of levying upon the properties of the late
President, as was done by the respondent Commissioner of Internal Revenue.
"WHEREFORE, premises considered judgment is hereby rendered
DISMISSING the petition for Certiorari with prayer for Restraining Order and
Injunction.

"On September 29, 1989, former President Ferdinand Marcos died in Honolulu,
Hawaii, USA.
On June 27, 1990, a Special Tax Audit Team was created to conduct
investigations and examinations of the tax liabilities and obligations of the late
president, as well as that of his family, associates and "cronies". Said audit team
concluded its investigation with a Memorandum dated July 26, 1991. The
investigation disclosed that the Marcoses failed to file a written notice of the
death of the decedent, an estate tax returns [sic], as well as several income tax
returns covering the years 1982 to 1986, -all in violation of the National Internal
Revenue Code (NIRC).

No pronouncements as to cost.
SO ORDERED."
Unperturbed, petitioner is now before us assailing the validity of the
appellate court's decision, assigning the following as errors:
A. RESPONDENT COURT MANIFESTLY ERRED IN RULING THAT
THE SUMMARY TAX REMEDIES RESORTED TO BY THE GOVERNMENT
ARE NOT AFFECTED AND PRECLUDED BY THE PENDENCY OF THE
SPECIAL PROCEEDING FOR THE ALLOWANCE OF THE LATE
PRESIDENT'S ALLEGED WILL. TO THE CONTRARY, THIS PROBATE
PROCEEDING PRECISELY PLACED ALL PROPERTIES WHICH FORM PART
OF THE LATE PRESIDENT'S ESTATE IN CUSTODIA LEGIS OF THE
PROBATE COURT TO THE EXCLUSION OF ALL OTHER COURTS AND
ADMINISTRATIVE AGENCIES.
B. RESPONDENT COURT ARBITRARILY ERRED IN SWEEPINGLY
DECIDING THAT SINCE THE TAX ASSESSMENTS OF PETITIONER AND HIS
PARENTS HAD ALREADY BECOME FINAL AND UNAPPEALABLE, THERE
WAS NO NEED TO GO INTO THE MERITS OF THE GROUNDS CITED IN THE
PETITION. INDEPENDENT OF WHETHER THE TAX ASSESSMENTS HAD
ALREADY BECOME FINAL, HOWEVER, PETITIONER HAS THE RIGHT TO
QUESTION THE UNLAWFUL MANNER AND METHOD IN WHICH TAX
COLLECTION IS SOUGHT TO BE ENFORCED BY RESPONDENTS
COMMISSIONER AND DE GUZMAN. THUS, RESPONDENT COURT SHOULD
HAVE FAVORABLY CONSIDERED THE MERITS OF THE FOLLOWING
GROUNDS IN THE PETITION:
(1) The Notices of Levy on Real Property were issued beyond the period
provided in the Revenue Memorandum Circular No. 38-68.
(2) [a] The numerous pending court cases questioning the late
President's ownership or interests in several properties (both personal
and real) make the total value of his estate, and the consequent estate
tax due, incapable of exact pecuniary determination at this time. Thus,
respondents assessment of the estate tax and their issuance of the
Notices of Levy and Sale are premature, confiscatory and oppressive.
[b] Petitioner, as one of the late President's compulsory heirs, was never
notified, much less served with copies of the Notices of Levy, contrary to
the mandate of Section 213 of the NIRC. As such, petitioner was never
given an opportunity to contest the Notices in violation of his right to due
process of law.
C. ON ACCOUNT OF THE CLEAR MERIT OF THE PETITION,
RESPONDENT COURT MANIFESTLY ERRED IN RULING THAT IT HAD NO
POWER TO GRANT INJUNCTIVE RELIEF TO PETITIONER. SECTION 219 OF
THE NIRC NOTWITHSTANDING, COURTS POSSESS THE POWER TO
ISSUE A WRIT OF PRELIMINARY INJUNCTION TO RESTRAIN
RESPONDENTS COMMISSIONER'S AND DE GUZMAN'S ARBITRARY
METHOD OF COLLECTING THE ALLEGED DEFICIENCY ESTATE AND
INCOME TAXES BY MEANS OF LEVY.
The facts as found by the appellate court are undisputed, and are hereby
adopted:

Subsequently, criminal charges were filed against Mrs. Imelda R. Marcos before
the Regional Trial of Quezon City for violations of Sections 82, 83 and 84 (has
penalized under Sections 253 and 254 in relation to Section 252- a & b) of the
National Internal Revenue Code (NIRC).
The Commissioner of Internal Revenue thereby caused the preparation and
filing of the Estate Tax Return for the estate of the late president, the Income Tax
Returns of the Spouses Marcos for the years 1985 to 1986, and the Income Tax
Returns of petitioner Ferdinand 'Bongbong' Marcos II for the years 1982 to 1985.
On July 26, 1991, the BIR issued the following: (1) Deficiency estate tax
assessment no. FAC-2-89-91-002464 (against the estate of the late president
Ferdinand Marcos in the amount of P23,293,607,638.00 Pesos); (2) Deficiency
income tax assessment no. FAC-1-85-91-002452 and Deficiency income tax
assessment no. FAC-1-86-91-002451 (against the Spouses Ferdinand and
Imelda Marcos in the amounts of P149,551.70 and P184,009,737.40
representing deficiency income tax for the years 1985 and 1986); (3) Deficiency
income tax assessment nos. FAC-1-82-91-002460 to FAC-1-85-91-002463
(against petitioner Ferdinand 'Bongbong' Marcos II in the amounts of P258.70
pesos; P9,386.40 Pesos; P4,388.30 Pesos; and P6,376.60 Pesos representing
his deficiency income taxes for the years 1982 to 1985).
The Commissioner of Internal Revenue avers that copies of the deficiency
estate and income tax assessments were all personally and constructively
served on August 26, 1991 and September 12, 1991 upon Mrs. Imelda Marcos
(through her caretaker Mr. Martinez) at her last known address at No. 204Ortega
St., San Juan, M.M. (Annexes 'D' and 'E' of the Petition). Likewise, copies of the
deficiency tax assessments issued against petitioner Ferdinand 'Bongbong'
Marcos II were also personally and constructively served upon him (through his
caretaker) on September 12, 1991, at his last known address at Don Mariano
Marcos St. corner P. Guevarra St., San Juan, M.M. (Annexes 'J' and 'J-1' of the
Petition). Thereafter, Formal Assessment notices were served on October 20,
1992, upon Mrs. Marcos c/o petitioner, at his office, House of Representatives,
Batasan Pambansa, Quezon City. Moreover, a notice to Taxpayer inviting Mrs.
Marcos (or her duly authorized representative or counsel), to a conference, was
furnished the counsel of Mrs. Marcos, Dean Antonio Coronel - but to no avail.
The deficiency tax assessments were not protested administratively, by Mrs.
Marcos and the other heirs of the late president, within 30 days from service of
said assessments.
On February 22, 1993, the BIR Commissioner issued twenty-two notices of levy
on real property against certain parcels of land owned by the Marcoses - to
satisfy the alleged estate tax and deficiency income taxes of Spouses Marcos.
On May 20, 1993, four more Notices of Levy on real property were issued for the
purpose of satisfying the deficiency income taxes.
On May 26, 1993, additional four (4) notices of Levy on real property were again
issued. The foregoing tax remedies were resorted to pursuant to Sections 205
and 213 of the National Internal Revenue Code (NIRC).
In response to a letter dated March 12, 1993 sent by Atty. Loreto Ata (counsel of
herein petitioner) calling the attention of the BIR and requesting that they be duly
notified of any action taken by the BIR affecting the interest of their client
Ferdinand 'Bongbong Marcos II, as well as the interest of the late president -

33

copies of the aforesaid notices were served on April 7, 1993 and on June 10,
1993, upon Mrs. Imelda Marcos, the petitioner, and their counsel of record, 'De
Borja, Medialdea, Ata, Bello, Guevarra and Serapio Law Office'.
Notices of sale at public auction were posted on May 26, 1993, at the lobby of
the City Hall of Tacloban City. The public auction for the sale of the eleven (11)
parcels of land took place on July 5, 1993. There being no bidder, the lots were
declared forfeited in favor of the government.
On June 25, 1993, petitioner Ferdinand 'Bongbong' Marcos II filed the instant
petition for certiorari and prohibition under Rule 65 of the Rules of Court, with
prayer for temporary restraining order and/or writ of preliminary injunction."
It has been repeatedly observed, and not without merit, that the
enforcement of tax laws and the collection of taxes, is of paramount importance
for the sustenance of government. Taxes are the lifeblood of the government
and should be collected without unnecessary hindrance. However, such
collection should be made in accordance with law as any arbitrariness will
negate the very reason for government itself. It is therefore necessary to
reconcile the apparently conflicting interests of the authorities and the taxpayers
so that the real purpose of taxation, which is the promotion of the common good,
may be achieved."[3]
Whether or not the proper avenues of assessment and collection of the
said tax obligations were taken by the respondent Bureau is now the subject of
the Court's inquiry.
Petitioner posits that notices of levy, notices of sale, and subsequent sale
of properties of the late President Marcos effected by the BIR are null and void
for disregarding the established procedure for the enforcement of taxes due
upon the estate of the deceased. The case of Domingo vs. Garlitos [4] is
specifically cited to bolster the argument that "the ordinary procedure by which
to settle claims of indebtedness against the estate of a deceased, person, as in
an inheritance (estate) tax, is for the claimant to present a claim before the
probate court so that said court may order the administrator to pay the amount
therefor." This remedy is allegedly, exclusive, and cannot be effected through
any other means.
Petitioner goes further, submitting that the probate court is not precluded
from denying a request by the government for the immediate payment of taxes,
and should order the payment of the same only within the period fixed by the
probate court for the payment of all the debts of the decedent. In this regard,
petitioner cites the case of Collector of Internal Revenue vs. The Administratrix
of the Estate of Echarri (67 Phil 502), where it was held that:
"The case of Pineda vs. Court of First Instance of Tayabas and Collector of
Internal Revenue (52 Phil 803), relied upon by the petitioner-appellant is good
authority on the proposition that the court having control over the administration
proceedings has jurisdiction to entertain the claim presented by the government
for taxes due and to order the administrator to pay the tax should it find that the
assessment was proper, and that the tax was legal, due and collectible. And the
rule laid down in that case must be understood in relation to the case of
Collector of Customs vs. Haygood, supra., as to the procedure to be followed in
a given case by the government to effectuate the collection of the
tax. Categorically stated, where during the pendency of judicial administration
over the estate of a deceased person a claim for taxes is presented by the
government, the court has the authority to order payment by the administrator;
but, in the same way that it has authority to order payment or satisfaction, it also
has the negative authority to deny the same. While there are cases where courts
are required to perform certain duties mandatory and ministerial in character, the
function of the court in a case of the present character is not one of them; and
here, the court cannot be an organism endowed with latitude of judgment in one
direction, and converted into a mere mechanical contrivance in another
direction."
On the other hand, it is argued by the BIR, that the state's authority to
collect internal revenue taxes is paramount. Thus, the pendency of probate
proceedings over the estate of the deceased does not preclude the assessment
and collection, through summary remedies, of estate taxes over the

same. According to the respondent, claims for payment of estate and income
taxes due and assessed after the death of the decedent need not be presented
in the form of a claim against the estate. These can and should be paid
immediately. The probate court is not the government agency to decide whether
an estate is liable for payment of estate of income taxes. Well-settled is the rule
that the probate court is a court with special and limited jurisdiction.
Concededly, the authority of the Regional Trial Court, sitting, albeit with
limited jurisdiction, as a probate court over estate of deceased individual, is not
a trifling thing. The court's jurisdiction, once invoked, and made effective, cannot
be treated with indifference nor should it be ignored with impunity by the very
parties invoking its authority.
In testament to this, it has been held that it is within the jurisdiction of the
probate court to approve the sale of properties of a deceased person by his
prospective heirs before final adjudication; [5] to determine who are the heirs of
the decedent;[6] the recognition of a natural child;[7] the status of a woman
claiming to be the legal wife of the decedent; [8] the legality of disinheritance of an
heir by the testator;[9] and to pass upon the validity of a waiver of hereditary
rights.[10]
The pivotal question the court is tasked to resolve refers to the authority
of the Bureau of Internal Revenue to collect by the summary remedy of levying
upon, and sale of real properties of the decedent, estate tax deficiencies, without
the cognition and authority of the court sitting in probate over the supposed will
of the deceased.
The nature of the process of estate tax collection has been described as
follows:
"Strictly speaking, the assessment of an inheritance tax does not directly involve
the administration of a decedent's estate, although it may be viewed as an
incident to the complete settlement of an estate, and, under some statutes, it is
made the duty of the probate court to make the amount of the inheritance tax a
part of the final decree of distribution of the estate. It is not against the property
of decedent, nor is it a claim against the estate as such, but it is against the
interest or property right which the heir, legatee, devisee, etc., has in the
property formerly held by decedent. Further, under some statutes, it has been
held that it is not a suit or controversy between the parties, nor is it an adversary
proceeding between the state and the person who owes the tax on the
inheritance. However, under other statutes it has been held that the hearing and
determination of the cash value of the assets and the determination of the tax
are adversary proceedings. The proceeding has been held to be necessarily a
proceeding in rem.[11]
In the Philippine experience, the enforcement and collection of estate
tax, is executive in character, as the legislature has seen it fit to ascribe this task
to the Bureau of Internal Revenue. Section 3 of the National Internal Revenue
Code attests to this:
"Sec. 3. Powers and duties of the Bureau.-The powers and duties of the Bureau
of Internal Revenue shall comprehend the assessment and collection of all
national internal revenue taxes, fees, and charges, and the enforcement of all
forfeitures, penalties, and fines connected therewith, including the execution of
judgments in all cases decided in its favor by the Court of Tax Appeals and the
ordinary courts. Said Bureau shall also give effect to and administer the
supervisory and police power conferred to it by this Code or other laws."
Thus, it was in Vera vs. Fernandez [12] that the court recognized the liberal
treatment of claims for taxes charged against the estate of the decedent. Such
taxes, we said, were exempted from the application of the statute of non-claims,
and this is justified by the necessity of government funding, immortalized in the
maxim
that
taxes
are
the
lifeblood
of
the
government. Vectigalia nervi sunt rei publicae - taxes are the sinews of the state.
"Taxes assessed against the estate of a deceased person, after administration is
opened, need not be submitted to the committee on claims in the ordinary
course of administration. In the exercise of its control over the administrator, the

34

court may direct the payment of such taxes upon motion showing that the taxes
have been assessed against the estate."
Such liberal treatment of internal revenue taxes in the probate
proceedings extends so far, even to allowing the enforcement of tax obligations
against the heirs of the decedent, even after distribution of the estate's
properties.
"Claims for taxes, whether assessed before or after the death of the deceased,
can be collected from the heirs even after the distribution of the properties of the
decedent. They are exempted from the application of the statute of nonclaims. The heirs shall be liable therefor, in proportion to their share in the
inheritance."[13]
"Thus, the Government has two ways of collecting the taxes in question. One,
by going after all the heirs and collecting from each one of them the amount of
the tax proportionate to the inheritance received. Another remedy, pursuant to
the lien created by Section 315 of the Tax Code upon all property and rights to
property belong to the taxpayer for unpaid income tax, is by subjecting said
property of the estate which is in the hands of an heir or transferee to the
payment of the tax due the estate. (Commissioner of Internal Revenue vs.
Pineda, 21 SCRA 105, September 15, 1967.)
From the foregoing, it is discernible that the approval of the court, sitting
in probate, or as a settlement tribunal over the deceased is not a mandatory
requirement in the collection of estate taxes. It cannot therefore be argued that
the Tax Bureau erred in proceeding with the levying and sale of the properties
allegedly owned by the late President, on the ground that it was required to seek
first the probate court's sanction. There is nothing in the Tax Code, and in the
pertinent remedial laws that implies the necessity of the probate or estate
settlement court's approval of the state's claim for estate taxes, before the same
can be enforced and collected.
On the contrary, under Section 87 of the NIRC, it is the probate or
settlement court which is bidden not to authorize the executor or judicial
administrator of the decedent's estate to deliver any distributive share to any
party interested in the estate, unless it is shown a Certification by the
Commissioner of Internal Revenue that the estate taxes have been paid. This
provision disproves the petitioner's contention that it is the probate court which
approves the assessment and collection of the estate tax.
If there is any issue as to the validity of the BIR's decision to assess the
estate taxes, this should have been pursued through the proper administrative
and judicial avenues provided for by law.
Section 229 of the NIRC tells us how:
"Sec. 229. Protesting of assessment.-When the Commissioner of Internal
Revenue or his duly authorized representative finds that proper taxes should be
assessed, he shall first notify the taxpayer of his findings. Within a period to be
prescribed by implementing regulations, the taxpayer shall be required to
respond to said notice. If the taxpayer fails to respond, the Commissioner shall
issue an assessment based on his findings.
Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation in such form and manner as may be
prescribed by implementing regulations within (30) days from receipt of the
assessment; otherwise, the assessment shall become final and unappealable.
If the protest is denied in whole or in part, the individual, association or
corporation adversely affected by the decision on the protest may appeal to the
Court of Tax Appeals within thirty (30) days from receipt of said decision;
otherwise, the decision shall become final, executory and demandable. (As
inserted by P.D. 1773)"
Apart from failing to file the required estate tax return within the time
required for the filing of the same, petitioner, and the other heirs never

questioned the assessments served upon them, allowing the same to lapse into
finality, and prompting the BIR to collect the said taxes by levying upon the
properties left by President Marcos.
Petitioner submits, however, that "while the assessment of taxes may
have been validly undertaken by the Government, collection thereof may have
been done in violation of the law. Thus, the manner and method in which the
latter is enforced may be questioned separately, and irrespective of the finality of
the former, because the Government does not have the unbridled discretion to
enforce collection without regard to the clear provision of law."[14]
Petitioner specifically points out that applying Memorandum Circular No.
38-68, implementing Sections 318 and 324 of the old tax code (Republic Act
5203), the BIR's Notices of Levy on the Marcos properties, were issued beyond
the allowed period, and are therefore null and void:
"...the Notices of Levy on Real Property (Annexes 0 to NN of Annex C of this
Petition) in satisfaction of said assessments were still issued by respondents
well beyond the period mandated in Revenue Memorandum Circular No. 3868. These Notices of Levy were issued only on 22 February 1993 and 20 May
1993 when at least seventeen (17) months had already lapsed from the last
service of tax assessment on 12 September 1991. As no notices of distraint of
personal property were first issued by respondents, the latter should have
complied with Revenue Memorandum Circular No. 38-68 and issued these
Notices of Levy not earlier than three (3) months nor later than six (6) months
from 12 September 1991. In accordance with the Circular, respondents only had
until 12 March 1992 (the last day of the sixth month) within which to issue these
Notices of Levy. The Notices of Levy, having been issued beyond the period
allowed by law, are thus void and of no effect."[15]
We hold otherwise. The Notices of Levy upon real property were issued
within the prescriptive period and in accordance with the provisions of the
present Tax Code. The deficiency tax assessment, having already become final,
executory, and demandable, the same can now be collected through the
summary remedy of distraint or levy pursuant to Section 205 of the NIRC.
The applicable provision in regard to the prescriptive period for the
assessment and collection of tax deficiency in this instance is Article 223 of the
NIRC, which pertinently provides:
"Sec. 223. Exceptions as to a period of limitation of assessment and collection
of taxes.- (a) In the case of a false or fraudulent return with intent to evade tax or
of a failure to file a return, the tax may be assessed, or a proceeding in court for
the collection of such tax may be begun without assessment, at any time within
ten (10) years after the discovery of the falsity, fraud, or omission: Provided,
That, in a fraud assessment which has become final and executory, the fact of
fraud shall be judicially taken cognizance of in the civil or criminal action for the
collection thereof.
xxx
(c) Any internal revenue tax which has been assessed within the period of
limitation above prescribed, may be collected by distraint or levy or by a
proceeding in court within three years following the assessment of the tax.
xxx
The omission to file an estate tax return, and the subsequent failure to
contest or appeal the assessment made by the BIR is fatal to the petitioner's
cause, as under the above-cited provision, in case of failure to file a return, the
tax may be assessed at any time within ten years after the omission, and any
tax so assessed may be collected by levy upon real property within three years
following the assessment of the tax. Since the estate tax assessment had
become final and unappealable by the petitioner's default as regards protesting
the validity of the said assessment, there is now no reason why the BIR cannot
continue with the collection of the said tax. Any objection against the
assessment should have been pursued following the avenue paved in Section
229 of the NIRC on protests on assessments of internal revenue taxes.

35

Petitioner further argues that "the numerous pending court cases

questioning the late president's ownership or interests in several properties
(both real and personal) make the total value of his estate, and the consequent
estate tax due, incapable of exact pecuniary determination at this time. Thus,
respondents' assessment of the estate tax and their issuance of the Notices of
Levy and sale are premature and oppressive." He points out the pendency of
Sandiganbayan Civil Case Nos. 0001-0034 and 0141, which were filed by the
government to question the ownership and interests of the late President in real
and personal properties located within and outside the Philippines. Petitioner,
however, omits to allege whether the properties levied upon by the BIR in the
collection of estate taxes upon the decedent's estate were among those
involved in the said cases pending in the Sandiganbayan. Indeed, the court is at
a loss as to how these cases are relevant to the matter at issue. The mere fact
that the decedent has pending cases involving ill-gotten wealth does not affect
the enforcement of tax assessments over the properties indubitably included in
his estate.
Petitioner also expresses his reservation as to the propriety of the BIR's
total assessment of P23,292,607,638.00, stating that this amount deviates from
the findings of the Department of Justice's Panel of Prosecutors as per its
resolution of 20 September 1991.Allegedly, this is clear evidence of the
uncertainty on the part of the Government as to the total value of the estate of
the late President.
This is, to our mind, the petitioner's last ditch effort to assail the
assessment of estate tax which had already become final and unappealable.
It is not the Department of Justice which is the government agency
tasked to determine the amount of taxes due upon the subject estate, but the
Bureau of Internal Revenue[16] whose determinations and assessments are
presumed correct and made in good faith. [17] The taxpayer has the duty of
proving otherwise. In the absence of proof of any irregularities in the
performance of official duties, an assessment will not be disturbed. Even an
assessment based on estimates is prima facie valid and lawful where it does not
appear to have been arrived at arbitrarily or capriciously. The burden of proof is
upon the complaining party to show clearly that the assessment is
erroneous. Failure to present proof of error in the assessment will justify the
judicial affirmance of said assessment.[18] In this instance, petitioner has not
pointed out one single provision in the Memorandum of the Special Audit Team
which gave rise to the questioned assessment, which bears a trace of
falsity. Indeed, the petitioner's attack on the assessment bears mainly on the
alleged improbable and unconscionable amount of the taxes charged. But mere
rhetoric cannot supply the basis for the charge of impropriety of the
assessments made.

Even if we are to rule out the notices of assessments personally given to the
caretaker of Mrs. Marcos at the latter's last known address, on August 26, 1991
and September 12, 1991, as well as the notices of assessment personally given
to the caretaker of petitioner also at his last known address on September 12,
1991 - the subsequent notices given thereafter could no longer be ignored as
they were sent at a time when petitioner was already here in the Philippines, and
at a place where said notices would surely be called to petitioner's attention, and
received by responsible persons of sufficient age and discretion.
Thus, on October 20, 1992, formal assessment notices were served upon Mrs.
Marcos c/o the petitioner, at his office, House of Representatives, Batasan
Pambansa, Q.C. (Annexes "A", "A-1", "A-2", "A-3"; pp. 207-210,
Comment/Memorandum of OSG). Moreover, a notice to taxpayer dated October
8, 1992 inviting Mrs. Marcos to a conference relative to her tax liabilities, was
furnished the counsel of Mrs. Marcos - Dean Antonio Coronel (Annex "B", p.
211, ibid). Thereafter, copies of Notices were also served upon Mrs. Imelda
Marcos, the petitioner and their counsel "De Borja, Medialdea, Ata, Bello,
Guevarra and Serapio Law Office", on April 7, 1993 and June 10, 1993. Despite
all of these Notices, petitioner never lifted a finger to protest the assessments,
(upon which the Levy and sale of properties were based), nor appealed the
same to the Court of Tax Appeals.
There being sufficient service of Notices to herein petitioner (and his mother)
and it appearing that petitioner continuously ignored said Notices despite
several opportunities given him to file a protest and to thereafter appeal to the
Court of Tax Appeals, - the tax assessments subject of this case, upon which the
levy and sale of properties were based, could no longer be contested (directly or
indirectly) via this instant petition for certiorari."[20]
Petitioner argues that all the questioned Notices of Levy, however, must
be nullified for having been issued without validly serving copies thereof to the
petitioner. As a mandatory heir of the decedent, petitioner avers that he has an
interest in the subject estate, and notices of levy upon its properties should have
been served upon him.
We do not agree. In the case of notices of levy issued to satisfy the
delinquent estate tax, the delinquent taxpayer is the Estate of the decedent, and
not necessarily, and exclusively, the petitioner as heir of the deceased. In the
same vein, in the matter of income tax delinquency of the late president and his
spouse, petitioner is not the taxpayer liable. Thus, it follows that service of
notices of levy in satisfaction of these tax delinquencies upon the petitioner is
not required by law, as under Section 213 of the NIRC, which pertinently states:
"xxx

Moreover, these objections to the assessments should have been raised,

considering the ample remedies afforded the taxpayer by the Tax Code, with the
Bureau of Internal Revenue and the Court of Tax Appeals, as described earlier,
and cannot be raised now via Petition for Certiorari, under the pretext of grave
abuse of discretion. The course of action taken by the petitioner reflects his
disregard or even repugnance of the established institutions for governance in
the scheme of a well-ordered society. The subject tax assessments having
become final, executory and enforceable, the same can no longer be contested
by means of a disguised protest. In the main, Certiorari may not be used as a
substitute for a lost appeal or remedy. [19] This judicial policy becomes more
pronounced in view of the absence of sufficient attack against the actuations of
government.
On the matter of sufficiency of service of Notices of Assessment to the
petitioner, we find the respondent appellate court's pronouncements sound and
resilient to petitioner's attacks.
"Anent grounds 3(b) and (B) - both alleging/claiming lack of notice - We find,
after considering the facts and circumstances, as well as evidences, that there
was sufficient, constructive and/or actual notice of assessments, levy and sale,
sent to herein petitioner Ferdinand "Bongbong" Marcos as well as to his mother
Mrs. Imelda Marcos.

...Levy shall be effected by writing upon said certificate a description of the

property upon which levy is made. At the same time, written notice of the levy
shall be mailed to or served upon the Register of Deeds of the province or city
where the property is located and upon the delinquent taxpayer, or if he be
absent from the Philippines, to his agent or the manager of the business in
respect to which the liability arose, or if there be none, to the occupant of the
property in question.
xxx"
The foregoing notwithstanding, the record shows that notices of warrants
of distraint and levy of sale were furnished the counsel of petitioner on April 7,
1993, and June 10, 1993, and the petitioner himself on April 12, 1993 at his
office at the Batasang Pambansa. [21] We cannot therefore, countenance
petitioner's insistence that he was denied due process. Where there was an
opportunity to raise objections to government action, and such opportunity was
disregarded, for no justifiable reason, the party claiming oppression then
becomes the oppressor of the orderly functions of government. He who comes
to court must come with clean hands. Otherwise, he not only taints his name,
but ridicules the very structure of established authority.

36

IN VIEW WHEREOF, the Court RESOLVED to DENY the present

petition. The Decision of the Court of Appeals dated November 29, 1994 is
hereby AFFIRMED in all respects.

withdrawal from the said deposit account, unless the Commissioner has certified
that the taxes imposed thereon by this Title have been paid: Provided,
however, That the administrator of the estate or any one (1) of the heirs of the

3. Duties of Certain Officers (Sec. 95)

decedent may, upon authorization by the Commissioner, withdraw an amount

not exceeding Twenty thousand pesos (P20,000) without the said certification.

SEC. 95. Duties of Certain Officers and Debtors. - Registers of Deeds shall

For this purpose, all withdrawal slips shall contain a statement to the effect that

not register in the Registry of Property any document transferring real property

all of the joint depositors are still living at the time of withdrawal by any one of

or real rights therein or any chattel mortgage, by way of gifts inter vivos or mortis

the joint depositors and such statement shall be under oath by the said

causa, legacy or inheritance, unless a certification from the Commissioner that

depositors.

the tax fixed in this Title and actually due thereon had been paid is show, and
they shall immediately notify the Commissioner, Regional Director, Revenue

PNB vs. Santos, GR No. 208295 dated December 10, 2014

District Officer, or Revenue Collection Officer or Treasurer of the city or

municipality where their offices are located, of the non payment of the tax

III. Donors Tax

discovered by them.
A. Nature of Donors Tax
Lladoc vs. Vs. CIR ( 14 SCRA 292)
Any lawyer, notary public, or any government officer who, by reason of his
official duties, intervenes in the preparation or acknowledgment of documents
regarding partition or disposal of donation inter vivos or mortis causa, legacy or
inheritance, shall have the duty of furnishing the Commissioner, Regional
Director, Revenue District Officer or Revenue Collection Officer of the place
where he may have his principal office, with copies of such documents and any
information whatsoever which may facilitate the collection of the aforementioned

FACTS:
In 1957, MB Estate Inc. of Bacolod City donated P10,000 in cash to Reverend
Father Ruiz, then parish priest of Victorias, Negros Occidental for the
construction of a new Catholic Church. Under date of April 29, 1960, the
Commissioner of Internal Revenue issued an assessment amounting to P 1,370
for donees gift tax against the Catholic Parish of Victorias. Petitioner lodged a
protest to the assessment. CIR denied the protest which was substantially
affirmed by the Court of Tax Appeals. Hence, this petition.
ISSUE:

tax.
Neither shall a debtor of the deceased pay his debts to the heirs, legatee,

1.

(1) Whether petitioner should be liable for the assessed donees

gift tax on the P10,000 donation;

2.

(2) Who should be called upon to pay the tax?

executor or administrator of his creditor, unless the certification of the

Commissioner that the tax fixed in this Chapter had been paid is shown; but he
may pay the executor or judicial administrator without said certification if the
credit is included in the inventory of the estate of the deceased. cralaw

4. Restitution of Tax Upon Satisfaction of Outstanding Obligations

(Sec. 96)
SEC. 96. Restitution of Tax Upon Satisfaction of Outstanding
Obligations. - If after the payment of the estate tax, new obligations of the
decedent shall appear, and the persons interested shall have satisfied them by
order of the court, they shall have a right to the restitution of the proportional part
of the tax paid. Cralaw
5. Payment of Tax Antecedent to the Transfer of Shares, Bonds or
Rights (Sec. 97)

SEC. 97. Payment of Tax Antecedent to the Transfer of Shares, Bonds or

Rights.- There shall not be transferred to any new owner in the books of any
corporation, sociedad anonima, partnership, business, or industry organized or
established in the Philippines any share, obligation, bond or right by way of
giftinter vivos or mortis causa, legacy or inheritance, unless a certification from
the Commissioner that the taxes fixed in this Title and due thereon have been
paid is shownIf a bank has knowledge of the death of a person, who maintained
a bank deposit account alone, or jointly with another, it shall not allow any

RULING:
(1) The petitioner is liable. What the Collector assessed was a donees gift tax;
the assessment was not on the properties themselves and is thus, not subject to
the exemption in the Constitution. It did not rest upon general ownership; it was
an excise upon the use made of the properties, upon the exercise of the
privilege
of
receiving
the
properties.
(2) The Head of the Diocese, to which the parish Victorias pertains is liable for
the payment thereof.
FULL TEXT
Sometime in 1957, the M.B. Estate, Inc., of Bacolod City, donated P10,000.00 in
cash to Rev. Fr. Crispin Ruiz, then parish priest of Victorias, Negros Occidental,
and predecessor of herein petitioner, for the construction of a new Catholic
Church in the locality. The total amount was actually spent for the purpose
intended.
On March 3, 1958, the donor M.B. Estate, Inc., filed the donor's gift tax return.
Under date of April 29, 1960, the respondent Commissioner of Internal Revenue
issued an assessment for donee's gift tax against the Catholic Parish of
Victorias, Negros Occidental, of which petitioner was the priest. The tax
amounted to P1,370.00 including surcharges, interests of 1% monthly from May
15, 1958 to June 15, 1960, and the compromise for the late filing of the return.
Petitioner lodged a protest to the assessment and requested the withdrawal
thereof. The protest and the motion for reconsideration presented to the
Commissioner of Internal Revenue were denied. The petitioner appealed to the
Court of Tax Appeals on November 2, 1960. In the petition for review, the Rev.
Fr. Casimiro Lladoc claimed, among others, that at the time of the donation, he

37

was not the parish priest in Victorias; that there is no legal entity or juridical
person known as the "Catholic Parish Priest of Victorias," and, therefore, he
should not be liable for the donee's gift tax. It was also asserted that the
assessment of the gift tax, even against the Roman Catholic Church, would not
be valid, for such would be a clear violation of the provisions of the Constitution.
After hearing, the CTA rendered judgment, the pertinent portions of which are
quoted below:
... . Parish priests of the Roman Catholic Church under canon laws
are similarly situated as its Archbishops and Bishops with respect to
the properties of the church within their parish. They are the
guardians, superintendents or administrators of these properties,
with the right of succession and may sue and be sued.
xxx

xxx

xxx

The petitioner impugns the, fairness of the assessment with the

argument that he should not be held liable for gift taxes on donation
which he did not receive personally since he was not yet the parish
priest of Victorias in the year 1957 when said donation was given. It
is intimated that if someone has to pay at all, it should be
petitioner's predecessor, the Rev. Fr. Crispin Ruiz, who received the
donation in behalf of the Catholic parish of Victorias or the Roman
Catholic Church. Following petitioner's line of thinking, we should be
equally unfair to hold that the assessment now in question should
have been addressed to, and collected from, the Rev. Fr. Crispin
Ruiz to be paid from income derived from his present parish where
ever it may be. It does not seem right to indirectly burden the
present parishioners of Rev. Fr. Ruiz for donee's gift tax on a
donation to which they were not benefited.
xxx

xxx

xxx

We saw no legal basis then as we see none now, to include within

the Constitutional exemption, taxes which partake of the nature of
an excise upon the use made of the properties or upon the exercise
of the privilege of receiving the properties. (Phipps vs.
Commissioner of Internal Revenue, 91 F [2d] 627; 1938, 302 U.S.
742.)
It is a cardinal rule in taxation that exemptions from payment thereof
are highly disfavored by law, and the party claiming exemption must
justify his claim by a clear, positive, or express grant of such
privilege by law. (Collector vs. Manila Jockey Club, G.R. No. L8755, March 23, 1956; 53 O.G. 3762.)
The phrase "exempt from taxation" as employed in Section 22(3),
Article VI of the Constitution of the Philippines, should not be
interpreted to mean exemption from all kinds of taxes. Statutes
exempting charitable and religious property from taxation should be
construed fairly though strictly and in such manner as to give effect
to the main intent of the lawmakers. (Roman Catholic Church vs.
Hastrings 5 Phil. 701.)
xxx

xxx

xxx

WHEREFORE, in view of the foregoing considerations, the decision

of the respondent Commissioner of Internal Revenue appealed
from, is hereby affirmed except with regard to the imposition of the
compromise penalty in the amount of P20.00 (Collector of Internal
Revenue v. U.S.T., G.R. No. L-11274, Nov. 28, 1958); ..., and the
petitioner, the Rev. Fr. Casimiro Lladoc is hereby ordered to pay to
the respondent the amount of P900.00 as donee's gift tax, plus the
surcharge of five per centum (5%) as ad valorem penalty under
Section 119 (c) of the Tax Code, and one per centum (1%) monthly
interest from May 15, 1958 to the date of actual payment. The
surcharge of 25% provided in Section 120 for failure to file a return

may not be imposed as the failure to file a return was not due to
willful neglect.( ... ) No costs.
The above judgment is now before us on appeal, petitioner assigning two (2)
errors allegedly committed by the Tax Court, all of which converge on the
singular issue of whether or not petitioner should be liable for the assessed
donee's gift tax on the P10,000.00 donated for the construction of the Victorias
Parish Church.
Section 22 (3), Art. VI of the Constitution of the Philippines, exempts from
taxation cemeteries, churches and parsonages or convents, appurtenant
thereto, and all lands, buildings, and improvements used exclusively for religious
purposes. The exemption is only from the payment of taxes assessed on such
properties enumerated, as property taxes, as contra distinguished from excise
taxes. In the present case, what the Collector assessed was a donee's gift tax;
the assessment was not on the properties themselves. It did not rest upon
general ownership; it was an excise upon the use made of the properties, upon
the exercise of the privilege of receiving the properties (Phipps vs. Com. of Int.
Rec. 91 F 2d 627). Manifestly, gift tax is not within the exempting provisions of
the section just mentioned. A gift tax is not a property tax, but an excise tax
imposed on the transfer of property by way of gift inter vivos, the imposition of
which on property used exclusively for religious purposes, does not constitute an
impairment of the Constitution. As well observed by the learned respondent
Court, the phrase "exempt from taxation," as employed in the Constitution
(supra) should not be interpreted to mean exemption from all kinds of taxes. And
there being no clear, positive or express grant of such privilege by law, in favor
of petitioner, the exemption herein must be denied.
The next issue which readily presents itself, in view of petitioner's thesis, and
Our finding that a tax liability exists, is, who should be called upon to pay the gift
tax? Petitioner postulates that he should not be liable, because at the time of the
donation he was not the priest of Victorias. We note the merit of the above
claim, and in order to put things in their proper light, this Court, in its Resolution
of March 15, 1965, ordered the parties to show cause why the Head of the
Diocese to which the parish of Victorias pertains, should not be substituted in
lieu of petitioner Rev. Fr. Casimiro Lladoc it appearing that the Head of such
Diocese is the real party in interest. The Solicitor General, in representation of
the Commissioner of Internal Revenue, interposed no objection to such a
substitution. Counsel for the petitioner did not also offer objection thereto.
On April 30, 1965, in a resolution, We ordered the Head of the Diocese to
present whatever legal issues and/or defenses he might wish to raise, to which
resolution counsel for petitioner, who also appeared as counsel for the Head of
the Diocese, the Roman Catholic Bishop of Bacolod, manifested that it was
submitting itself to the jurisdiction and orders of this Court and that it was
presenting, by reference, the brief of petitioner Rev. Fr. Casimiro Lladoc as its
own and for all purposes.
In view here of and considering that as heretofore stated, the assessment at bar
had been properly made and the imposition of the tax is not a violation of the
constitutional provision exempting churches, parsonages or convents, etc. (Art
VI, sec. 22 [3], Constitution), the Head of the Diocese, to which the parish
Victorias Pertains, is liable for the payment thereof.
The decision appealed from should be, as it is hereby affirmed insofar as tax
liability is concerned; it is modified, in the sense that petitioner herein is not
personally liable for the said gift tax, and that the Head of the Diocese, herein
substitute petitioner, should pay, as he is presently ordered to pay, the said gift
tax, without special, pronouncement as to costs.
Pirovano vs. CIR (14 SCRA 232)
FACTS:
De la Rama Steamship Co. insured the life of Enrico Pirovano, who was then its
President and General Manager until the time of his death. The Company then
received the total sum of P643,000.00 as proceeds of the said life insurance
policies. The Company renounced all its rights on the money in favor of the
decendent's children.

38

After a case that marred Estefania Pirovano, the guardian and the Company
(see Pirovano vs. De la Rama Steamship Co., 96 Phil. 335.), the Company paid
in favor of the children.
The CIR then assessed donees' gift tax against Pirovano and donor's tax
against the Company. Pirovano contested with the CIR which she lost and thus
appealed with the CTA.
The CTA held that donees' gift tax were correctly assessed.

Enrico Pirovano was the father of the herein petitioners-appellants. Sometime in

the early part of 1941, De la Rama Steamship Co. insured the life of said Enrico
Pirovano, who was then its President and General Manager until the time of his
death, with various Philippine and American insurance companies for a total
sum of one million pesos, designating itself as the beneficiary of the policies,
obtained by it. Due to the Japanese occupation of the Philippines during the
second World War, the Company was unable to pay the premiums on the
policies issued by its Philippine insurers and these policies lapsed, while the
policies issued by its American insurers were kept effective and subsisting, the
New York office of the Company having continued paying its premiums from
year to year.

ISSUE: Whether Pirovano should pay the donees' gift tax.

RULING:
YES. Pirovano contends that the Court itself declared that the donation was
renumenatory and not simple and it was made for a full and adequate
compensation for the valuable services by decedent to the Company; hence, the
donation does not constitute a taxable gift under the provisions of Section 108 of
the National Internal Revenue Code (old law).
The Court states that it is a donation; that the consideration for the donation
was, therefore, the company's gratitude for his services, and not the services
themselves and whether the donation was simple or renumenatory, it was still a
gift taxable under the law.
Sec. 32[B] of the NIRC provides that Gifts, bequests and devises are excluded
from gross income liable to tax. Instead, such donations are subject to estate or
gift taxes. However, if the amount is received on account of services rendered,
whether constituting a demandable debt or not (such as remuneratory donations
under Civil Law), the donation is considered taxable income.
Facts: De la Rama Steamship Co. insured the life of Enrico Pirovano who was
then its President and General Manager. The company initially designated itself

During the Japanese occupation , or more particularly in the latter part of 1944,
said Enrico Pirovano died.
After the liberation of the Philippines from the Japanese forces, the Board of
Directors of De la Rama Steamship Co. adopted a resolution dated July 10,
1946 granting and setting aside, out of the proceeds expected to be collected on
the insurance policies taken on the life of said Enrico Pirovano, the sum of
P400,000.00 for equal division among the four (4) minor children of the
deceased, said sum of money to be convertible into 4,000 shares of stock of the
Company, at par, or 1,000 shares for each child. Shortly thereafter, the
Company received the total sum of P643,000.00 as proceeds of the said life
insurance policies obtained from American insurers.
Upon receipt of the last stated sum of money, the Board of Directors of the
Company modified, on January 6, 1947, the above-mentioned resolution by
renouncing all its rights title, and interest to the said amount of P643,000.00 in
favor of the minor children of the deceased, subject to the express condition that
said amount should be retained by the Company in the nature of a loan to it,
drawing interest at the rate of five per centum (5%) per annum, and payable to
the Pirovano children after the Company shall have first settled in full the
balance of its present remaining bonded indebtedness in the sum of
approximately P5,000,000.00. This latter resolution was carried out in a
Memorandum Agreement on January 10, 1947 and June 17, 1947., respectively,
executed by the Company and Mrs. Estefania R. Pirovano, the latter acting in
her capacity as guardian of her children (petitioners-appellants herein) find
pursuant to an express authority granted her by the court.

as the beneficiary of the policies but, after Pirovanos death, it renounced all its
rights, title and interest therein, in favor of Pirovanos heirs.
The CIR subjected the donation to gift tax. Pirovanos heirs contended that the
grant was not subject to such donees tax because it was not a simple donation,
as it was made for a full and adequate compensation for the valuable services
by the late Priovano (i.e. that it was remuneratory).
Issue: WON the donation is remuneratory and therefore not subject to donees
tax, but rather taxable as part of gross income.
Held: No. the donation is not remuneratory. There is nothing on record to show
that when the late Enrico Pirovano rendered services as President and General
Manager of the De la Rama Steamship Co. and was largely responsible for the
rapid and very successful development of the activities of the company", he was
not fully compensated for such services. The fact that his services contributed in
a large measure to the success of the company did not give rise to a
recoverable debt, and the conveyances made by the company to his heirs
remain a gift or a donation. The companys gratitude was the true consideration
for the donation, and not the services themselves.
FULL TEXT
This case is a sequel to the case of Pirovano vs. De la Rama Steamship Co., 96
Phil. 335.

On June 24, 1947, the Board of Directors of the Company further modified the
last mentioned resolution providing therein that the Company shall pay the
proceeds of said life insurance policies to the heirs of the said Enrico Pirovano
after the Company shall have settled in full the balance of its present remaining
bonded indebtedness, but the annual interests accruing on the principal shall be
paid to the heirs of the said Enrico Pirovano, or their duly appointed
representative, whenever the Company is in a position to meet said obligation.
On February 26, 1948, Mrs. Estefania R. Pirovano, in behalf of her children,
executed a public document formally accepting the donation; and, on the same
date, the Company through its Board of Directors, took official notice of this
formal acceptance.
On September 13, 1949, the stockholders of the Company formally ratified the
various resolutions hereinabove mentioned with certain clarifying modifications
that the payment of the donation shall not be effected until such time as the
Company shall have first duly liquidated its present bonded indebtedness in the
amount of P3,260,855.77 with the National Development Company, or fully
redeemed the preferred shares of stock in the amount which shall be issued to
the National Development Company in lieu thereof; and that any and all taxes,
legal fees, and expenses in any way connected with the above transaction shall
be chargeable and deducted from the proceeds of the life insurance policies
mentioned in the resolutions of the Board of Directors.
On March 8, 1951, however, the majority stockholders of the Company voted to
revoke the resolution approving the donation in favor of the Pirovano children.

Briefly, the facts of the aforestated case may be stated as follows:

As a consequence of this revocation and refusal of the Company to pay the
balance of the donation amounting to P564,980.90 despite demands therefor,
the herein petitioners-appellants represented by their natural guardian, Mrs.

39

Estefania R. Pirovano, brought an action for the recovery of said amount, plus
interest and damages against De la Rama Steamship Co., in the Court of First
Instance of Rizal, which case ultimately culminated to an appeal to this Court.
On December 29, 1954, this court rendered its decision in the appealed case
(96 Phil. 335) holding that the donation was valid and remunerative in nature,
the dispositive part of which reads:
Wherefore, the decision appealed from should be modified as
follows: (a) that the donation in favor of the children of the late
Enrico Pirovano of the proceeds of the insurance policies taken on
his life is valid and binding on the defendant corporation; (b) that
said donation, which amounts to a total of P583,813.59, including
interest, as it appears in the books of the corporation as of August
31, 1951, plus interest thereon at the rate of 5 per cent per annum
from the filing of the complaint, should be paid to the plaintiffs after
the defendant corporation shall have fully redeemed the preferred
shares issued to the National Development Company under the
terms and conditions stared in the resolutions of the Board of
Directors of January 6, 1947 and June 24, 1947, as amended by
the resolution of the stockholders adopted on September 13, 1949;
and (c) defendant shall pay to plaintiffs an additional amount
equivalent to 10 per cent of said amount of P583,813.59 as
damages by way of attorney's fees, and to pay the costs of action.
(Pirovano et al. vs. De la Rama Steamship Co., 96 Phil. 367-368)
The above decision became final and executory. In compliance therewith, De la
Rama Steamship Co. made, on April 6, 1955, a partial payment on the amount
of the judgment and paid the balance thereof on May 12, 1955.
On March 6, 1955, respondent Commissioner of Internal Revenue assessed the
amount of P60,869.67 as donees' gift tax, inclusive of surcharges, interests and
other penalties, against each of the petitioners-appellants, or for the total sum of
P243,478.68; and, on April 23, 1955, a donor's gift tax in the total amount of
P34,371.76 was also assessed against De la Rama Steamship Co., which the
latter paid.
Petitioners-appellants herein contested respondent Commissioner's assessment
and imposition of the donees' gift taxes and donor's gift tax and also made a
claim for refund of the donor's gift tax so collected. Respondent Commissioner
overruled petitioners' claims; hence, the latter presented two (2) petitions for
review against respondent's rulings before the Court of Tax Appeals, said
petitions having been docketed as CTA Cases Nos. 347 and 375. CTA Case No.
347 relates to the petition disputing the legality of the assessment of donees' gift
taxes and donor's gift tax while CTA Case No. 375 refers to the claim for refund
of the donor's gift tax already paid.
After the filing of respondent's usual answers to the petitions, the two cases,
being interrelated to each other, were tried jointly and terminated.
On January 31, 1962, the Court of Tax Appeals rendered its decision in the two
cases, the dispositive part of which reads:
In resume, we are of the opinion, that (1) the donor's gift tax in the
sum of P34,371.76 was erroneously assessed and collected,
hence, petitioners are entitled to the refund thereof; (2) the donees'
gift taxes were correctly assessed; (3) the imposition of the
surcharge of 25% is not proper; (4) the surcharge of 5% is legally
due; and (5) the interest of 1% per month on the deficiency donees'
gift taxes is due from petitioners from March 8, 1955 until the taxes
are paid.
IN LINE WITH THE FOREGOING OPINION, petitioners are hereby
ordered to pay the donees' gift taxes as assessed by respondent,
plus 5% surcharge and interest at the rate of 1% per month from
March 8, 1955 to the date of payment of said donees' gift taxes.
Respondent is ordered to apply the sum of P34,371.76 which is
refundable to petitioners, against the amount due from petitioners.
With costs against petitioners in Case No. 347.

Petitioners-appellants herein filed a motion to reconsider the above decision,

which the lower court denied. Hence, this appeal before us.
In the instant appeal, petitioners-appellants herein question only that portion of
the decision of the lower court ordering the payment of donees' gift taxes as
assessed by respondent as well as the imposition of surcharge and interest on
the amount of donees' gift taxes.
In their brief and memorandum, they dispute the factual finding of the lower
court that De la Rama Steamship Company's renunciation of its rights, title, and
interest over the proceeds of said life insurance policies in favor of the Pirovano
children "was motivated solely and exclusively by its sense of gratitude, an act
of pure liberality, and not to pay additional compensation for services
inadequately paid for." Petitioners now contend that the lower court's finding was
erroneous in seemingly considering the disputed grant as a simple donation,
since our previous decision (96 Phil. 335) had already declared that the transfer
to the Pirovano children was a remuneratory donation. Petitioners further
contend that the same was made not for an insufficient or inadequate
consideration but rather it a was made for a full and adequate compensation for
the valuable services rendered by the late Enrico Pirovano to the De la Rama
Steamship Co.; hence, the donation does not constitute a taxable gift under the
provisions of Section 108 of the National Internal Revenue Code.
The argument for petitioners-appellants fails to take into account the fact that
neither in Spanish nor in Anglo-American law was it considered that past
services, rendered without relying on a coetaneous promise, express or implied,
that such services would be paid for in the future, constituted cause or
consideration that would make a conveyance of property anything else but a gift
or donation. This conclusion flows from the text of Article 619 of the Code of
1889 (identical with Article 726 of the present Civil Code of the Philippines):
When a person gives to another a thing ... on account of the latter's
merits or of the services rendered by him to the donor, provided
they do not constitute a demandable debt, ..., there is also a
donation. ... .
There is nothing on record to show that when the late Enrico Pirovano rendered
services as President and General Manager of the De la Rama Steamship Co.
he was not fully compensated for such services, or that, because they were
"largely responsible for the rapid and very successful development of the
activities of the company" (Res. of July 10, 1946). Pirovano expected or was
promised further compensation over and in addition to his regular emoluments
as President and General Manager. The fact that his services contributed in a
large measure to the success of the company did not give rise to a recoverable
debt, and the conveyances made by the company to his heirs remain a gift or
donation. This is emphasized by the directors' Resolution of January 6, 1947,
that "out of gratitude" the company decided to renounce in favor of Pirovano's
heirs the proceeds of the life insurance policies in question. The true
consideration for the donation was, therefore, the company's gratitude for his
services, and not the services themselves.
That the tax court regarded the conveyance as a simple donation, instead of a
remuneratory one as it was declared to be in our previous decision, is but an
innocuous error; whether remuneratory or simple, the conveyance remained a
gift, taxable under Chapter 2, Title III of the Internal Revenue Code.
But then appellants contend, the entire property or right donated should not be
considered as a gift for taxation purposes; only that portion of the value of the
property or right transferred, if any, which is in excess of the value of the
services rendered should be considered as a taxable gift. They cite in support
Section 111 of the Tax Code which provides that
Where property is transferred for less, than an adequate and full
consideration in money or money's worth, then the amount by which
the value of the property exceeded the value of the consideration
shall, for the purpose of the tax imposed by this Chapter, be
deemed a gift, ... .

40

The flaw in this argument lies in the fact that, as copied from American law, the
term consideration used in this section refers to the technical "consideration"
defined by the American Law Institute (Restatement of Contracts) as "anything
that is bargained for by the promisor and given by the promisee in exchange for
the promise" (Also, Corbin on Contracts, Vol. I, p. 359). But, as we have seen,
Pirovano's successful activities as officer of the De la Rama Steamship Co.
cannot be deemed such consideration for the gift to his heirs, since the services
were rendered long before the Company ceded the value of the life policies to
said heirs; cession and services were not the result of one bargain or of a
mutual exchange of promises.
And the Anglo-American law treats a subsequent promise to pay for past
services (like one to pay for improvements already made without prior request
from the promisor) to be a nudum pactum (Roscorla vs. Thomas, 3 Q.B. 234;
Peters vs. Poro, 25 ALR 615; Carson vs. Clark, 25 Am. Dec. 79; Boston vs.
Dodge, 12 Am. Dec. 206), i.e., one that is unenforceable in view of the common
law rule that consideration must consist in a legal benefit to the promisee or
some legal detriment to the promisor.
What is more, the actual consideration for the cession of the policies, as
previously shown, was the Company's gratitude to Pirovano; so that under
section 111 of the Code there is no consideration the value of which can be
deducted from that of the property transferred as a gift. Like "love and affection,"
gratitude has no economic value and is not "consideration" in the sense that the
word is used in this section of the Tax Code.
As stated by Chief Justice Griffith of the Supreme Court of Mississippi in his
well-known book, "Outlines of the Law" (p. 204)
Love and affection are not considerations of value they are not estimable in
terms of value. Nor are sentiments of gratitude for gratuitous part favors or
kindnesses; nor are obligations which are merely moral. It has been well said
that if a moral obligation were alone sufficient it would remove the necessity for
any consideration at all, since the fact of making a promise impose, the moral
obligation to perform it."
It is of course perfectly possible that a donation or gift should at the same time
impose a burden or condition on the donee involving some economic liability for
him. A, for example, may donate a parcel of land to B on condition that the latter
assume a mortgage existing on the donated land. In this case the donee may
rightfully insist that the gift tax be computed only on the value of the land less
the value of the mortgage. This, in fact, is contemplated by Article 619 of the
Civil Code of 1889 (Art. 726 of the Tax Code) when it provides that there is also
a donation "when the gift imposes upon the donee a burden which is less than
the value of the thing given." Section 111 of the Tax Code has in view situations
of this kind, since it also prescribes that "the amount by which the value of the
property exceeded the value of the consideration" shall be deemed a gift for the
purpose of the tax. .
Petitioners finally contend that, even assuming that the donation in question is
subject to donees' gift taxes, the imposition of the surcharge of 5% and interest
of 1% per month from March 8, 1955 was not justified because the proceeds of
the life insurance policies were actually received on April 6, 1955 and May 12,
1955 only and in accordance with Section 115(c) of the Tax Code; the filing of
the returns of such tax became due on March 1, 1956 and the tax became
payable on May 15, 1956, as provided for in Section 116(a) of the same Code.
In other words, petitioners maintain that the assessment and demand for
donees' gift taxes was prematurely made and of no legal effect; hence, they
should not be held liable for such surcharge and interest.
It is well to note, and it is not disputed, that petitioners-donees have failed to file
any gift tax return and that they also failed to pay the amount of the assessment
made against them by respondent in 1955. This situation is covered by Section
119(b) (1) and (c) and Section 120 of the Tax Code:
(b) Deficiency.

(1) Payment not extended. Where a deficiency, or any interest

assessed in connection therewith, or any addition to the taxes
provided for in section one hundred twenty is not paid in full within
thirty days from the date of the notice and demand from the
Commissioner, there shall be collected as a part of the taxes,
interest upon the unpaid amount at the rate of one per centum a
month from the date of such notice and demand until it is paid.
(section 119)
(c) Surcharge. If any amount of the taxes included in the notice
and demand from the Commissioner of Internal Revenue is not paid
in full within thirty days after such notice and demand, there shall be
collected in addition to the interest prescribed above as a part of the
taxes a surcharge of five per centum of the unpaid amount. (sec.
119)
The failure to file a return was found by the lower court to be due to reasonable
cause and not to willful neglect. On this score, the elimination by the lower court
of the 25% surcharge is ad valorem penalty which respondent Commissioner
had imposed pursuant to Section 120 of the Tax Code was proper, since said
Section 120 vests in the Commissioner of Internal Revenue or in the tax court
power and authority to impose or not to impose such penalty depending upon
whether or not reasonable cause has been shown in the non-filing of such
return.
On the other hand, unlike said Section 120, Section 119, paragraphs (b) (1) and
(c) of the Tax Code, does not confer on the Commissioner of Internal Revenue
or on the courts any power and discretion not to impose such interest and
surcharge. It is likewise provided for by law that an appeal to the Court of Tax
Appeals from a decision of the Commissioner of Internal Revenue shall not
suspend the payment or collection of the tax liability of the taxpayer unless a
motion to that effect shall have been presented to the court and granted by it on
the ground that such collection will jeopardize the interest of the taxpayer (Sec.
11, Republic Act No. 1125; Rule 12, Rules of the Court of Tax Appeals). It should
further be noted that
It has been the uniform holding of this Court that no suit for
enjoining the collection of a tax, disputed or undisputed, can be
brought, the remedy being to pay the tax first, formerly under
protest and now without need of protect, file the claim with the
Collector, and if he denies it, bring an action for recovery against
him. (David v. Ramos, et al., 90 Phil. 351)
Section 306 of the National Internal Revenue Code ... lays down the
procedure to be followed in those cases wherein a taxpayer
entertains some doubt about the correctness of a tax sought to be
collected. Said section provides that the tax, should first be paid and
the taxpayer should sue for its recovery afterwards. The purpose of
the law obviously is to prevent delay in the collection of taxes, upon
which the Government depends for its existence. To allow a
taxpayer to first secure a ruling as regards the validity of the tax
before paying it would be to defeat this purpose. (National Dental
Supply Co. vs. Meer, 90 Phil. 265)
Petitioners did not file in the lower court any motion for the suspension of
payment or collection of the amount of assessment made against them.
On the basis of the above-stated provisions of law and applicable authorities, it
is evident that the imposition of 1% interest monthly and 5% surcharge is
justified and legal. As succinctly stated by the court below, said imposition is
"mandatory and may not be waived by the Commissioner of Internal Revenue or
by the courts" (Resolution on petitioners' motion for reconsideration, Annex XIV,
petition). Hence, said imposition of interest and surcharge by the lower court
should be upheld.
WHEREFORE, the decision of the Court of Tax Appeals is affirmed. Costs
against petitioners Pirovano.

41

1. Definition - A tax on the privilege of transmitting ones property or property

rights to another or others without adequate valuable consideration.

its laws; shares, obligations or bonds by any foreign corporation eighty-five

percent (85%) of the business of which is located in the Philippines; shares,

Donors tax shall be imposed upon the transfer by any person, resident or nonresident, of any property by gift. This tax shall be applied whether the transfer is
by trust or otherwise, whether the gift is direct or indirect, and whether the
property is real or personal, tangible or intangible. (Sec. 98, NIRC)

obligations or bonds issued by any foreign corporation if such shares,

obligations or bonds have acquired a business situs in the Philippines; shares or
rights in any partnership, business or industry established in the Philippines,
shall be considered as situated in the Philippines: Provided, still further, that no

2. Composition of Gross Gift (Secs. 98 and 104)

tax shall be collected under this Title in respect of intangible personal property:
(a) if the decedent at the time of his death or the donor at the time of the
SEC. 98. Imposition of Tax. - (A) There shall be levied, assessed, collected

donation was a citizen and resident of a foreign country which at the time of his

and paid upon the transfer by any person, resident or nonresident, of the

death or donation did not impose a transfer tax of any character, in respect of

property by gift, a tax, computed as provided in Section 99.

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 or

(B) The tax shall apply whether the transfer is in trust or otherwise, whether the

donor was a citizen and resident at the time of his death or donation allows a

gift is direct or indirect, and whether the property is real or personal, tangible or

similar exemption from transfer or death taxes of every character or description

intangible.

in respect of intangible personal property owned by citizens of the Philippines

not residing in that foreign country.
The term "deficiency" means: (a) the amount by which tax imposed by this

SEC. 104. Definitions. - For purposes of this Title, the terms "gross

Chapter exceeds the amount shown as the tax by the donor upon his return; but

estate" and "gifts" include real and personal property, whether tangible or

the amount so shown on the return shall first be increased by the amount

intangible, or mixed, wherever situated: Provided, however, That where the

previously assessed (or collected without assessment) as a deficiency, and

decedent or donor was a nonresident alien at the time of his death or donation,

decreased by the amounts previously abated, refunded or otherwise repaid in

as the case may be, his real and personal property so transferred but which are

respect of such tax, or (b) if no amount is shown as the tax by the donor, then

situated outside the Philippines shall not be included as part of his "gross

the amount by which the tax exceeds the amounts previously assessed, (or

estate" or "gross gift": Provided, further, That franchise which must be exercised

collected without assessment) as a deficiency, but such amounts previously

in the Philippines; shares, obligations or bonds issued by any corporation or

assessed, or collected without assessment, shall first be decreased by the

sociedad anonima organized or constituted in the Philippines in accordance with

amount previously abated, refunded or otherwise repaid in respect of such tax.

3. Tax Exempt Net Gift (Sec. 99)

SEC. 99. Rates of Tax Payable by Donor. (A) In General. - The tax for each calendar year shall be computed on the basis of the total net gifts made during the calendar year in accordance with the following
schedule: If the net gift is:
OVER

BUT

THE PLU OF THE

NOT

TAX

OVER SHALL

S EXCES
S OVER

BE
P

Exempt

100,000
P

200,000 0

100,000

2% P100,00
0

200,000 500,000 2,000

4% 200,000

500,000 1,000,00 14,000 6% 500,000

0
1,000,00 3,000,00 44,000 8% 1,000,00
0

3,000,00 5,000,00 204,00 10%3,000,00

0

42

5,000,00 10,000,0 404,00 12%5,000,00

0

00

10,000,0

1,004,0 15%10,000,0

00

00

00

(B) Tax Payable by Donor if Donee is a Stranger. - When the donee or

philanthropic organization or research institution or organization: Provided,

beneficiary is stranger, the tax payable by the donor shall be thirty percent (30%)

however, That not more than thirty percent (30%) of said gifts shall be used by

of the net gifts.

such donee for administration purposes.

For the purpose of this tax, a "stranger", is a person who is not a: (1) Brother,
sister (whether by whole or half-blood), spouse, ancestor and lineal descendant;

For the purpose of the exemption, a 'non-profit educational and/or charitable

or (2) Relative by consanguinity in the collateral line within the fourth degree of

corporation, institution, accredited nongovernment organization, trust or

relationship.

philanthropic organization and/or research institution or organization' is a school,

(C) Any contribution in cash or in kind to any candidate, political party or

college or university and/or charitable corporation, accredited nongovernment

coalition of parties for campaign purposes shall be governed by the Election

organization, trust or philanthropic organization and/or research institution or

Code, as amended.

organization, incorporated as a nonstock entity, paying no dividends, governed

4. Minimum and Maximum Rates (Sec. 99)

5. Who is a stranger and applicable tax rate (Sec. 99)
6. Gift Splitting
B.
1.
2.
a.
3.
4.

Composition of the Gross Gifts (Sec. 104)

Residents and Citizens
Non-resident alien
Rule on Reciprocity
Corporations
Valuation of Gifts made in property (Sec. 102)

SEC. 102. Valuation of Gifts Made in Property. - If the gift is made in property,
the fair market value thereof at the time of the gift shall be considered the
amount of the gift.
In case of real property, the provisions of Section 88(B) shall apply to the
valuation thereof.

5. Exemption of Certain Gifts (Sec. 101)

by trustees who receive no compensation, and devoting all its income, whether
students' fees or gifts, donation, subsidies or other forms of philanthropy, to the
accomplishment and promotion of the purposes enumerated in its Articles of
Incorporation.
(B) In the Case of Gifts Made by a Nonresident Not a Citizen of the
Philippines. - (1) Gifts made to or for the use of the National Government or
any entity created by any of its agencies which is not conducted for profit, or to
any political subdivision of the said Government.
(2) Gifts in favor of an educational and/or charitable, religious, cultural or social
welfare corporation, institution, foundation, trust or philanthropic organization or
research institution or organization: Provided, however, That not more than thirty
percent (30%) of said gifts shall be used by such donee for administration
purposes.
(C) Tax Credit for Donor's Taxes Paid to a Foreign Country. - (1) In
General. - The tax imposed by this Title upon a donor who was a citizen or a

SEC. 101. Exemption of Certain Gifts. - The following gifts or donations shall
be exempt from the tax provided for in this Chapter:
(A) In the Case of Gifts Made by a Resident.(1) Dowries or gifts made on account of marriage and before its celebration or
within one year thereafter by parents to each of their legitimate, recognized
natural, or adopted children to the extent of the first Ten thousand pesos
(P10,000):
(2) Gifts made to or for the use of the National Government or any entity created
by any of its agencies which is not conducted for profit, or to any political
subdivision of the said Government; and
(3) Gifts in favor of an educational and/or charitable, religious, cultural or social

resident at the time of donation shall be credited with the amount of any donor's
tax of any character and description imposed by the authority of a foreign
country.
(2) Limitations on Credit. - The amount of the credit taken under this Section
shall be subject to each of the following limitations:
(a) The amount of the credit in respect to the tax paid to any country shall not
exceed the same proportion of the tax against which such credit is taken, which
the net gifts situated within such country taxable under this Title bears to his
entire net gifts; and
(b) The total amount of the credit shall not exceed the same proportion of the tax
against which such credit is taken, which the donor's net gifts situated outside
the Philippines taxable under this title bears to his entire net gifts.

welfare corporation, institution, accredited nongovernment organization, trust or

43

a. Residents and Citizens

b. Non-residents aliens
c. Corporations
C. Other Matters
1. Rule on Political Contributions [99C]
C) Any contribution in cash or in kind to any candidate, political party or coalition
of parties for campaign purposes shall be governed by the Election Code, as
amended.
a.

(P1,000.00) to Thirty thousand pesos (P30,000.00), in the discretion of the

Commission.

The fine shall be paid within thirty (30) days from receipt of notice of such failure;
otherwise, it shall be enforceable by a writ of execution issued by the
Commission against the properties of the offender.

Secs. 13 and 14 RA No. 7166

It shall be the duty of every city or municipal election registrar to advise in

Sec. 13. Authorized Expenses of Candidates and Political Parties. - The

writing, by personal delivery or registered mail, within five (5) days from the date

agreement amount that a candidate or registered political party may spend for

of election all candidates residing in his jurisdiction to comply with their

election campaign shall be as follows:

obligation to file their statements of contributions and expenditures.

1.

For candidates. - Ten pesos (P10.00) for President and VicePresident; and for other candidates Three Pesos (P3.00) for every
voter currently registered in the constituency where he filed his
certificate of candidacy: Provided, That a candidate without any
political party and without support from any political party may be
allowed to spend Five Pesos (P5.00) for every such voter; and

For the commission of a second or subsequent offense under this section, the
administrative fine shall be from Two thousand pesos (P2,000.00) to Sixty
thousand pesos (P60,000.00), in the discretion of the Commission. In addition,
the offender shall be subject to perpetual disqualification to hold public office.

2.

For political parties. - Five pesos (P5.00) for every voter currently
registered in the constituency or constituencies where it has official
candidates.

b.

RR No. 7-2011 dated February 16, 2011

Any provision of law to the contrary notwithstanding any contribution in cash or

c.

RMC 30-2016 dated March 14, 2016

in kind to any candidate or political party or coalition of parties for campaign

purposes, duly reported to the Commission shall not be subject to the payment

Abello vs. CIR, GR No. 120721 dated February 23, 2005

of any gift tax.

FACTS:

Sec. 14. Statement of Contributions and Expenditures; Effect of Failure to

File Statement. - Every candidate and treasurer of the political party shall,
within thirty (30) days after the day of the election, file in duplicate with the
offices of the Commission the full, true and itemized statement of all

During the 1987 national elections, petitioners, who are partners in the ACCRA
law firm, contributed P882,661.31 each to the campaign funds of Senator
Edgardo Angara, then running for the Senate. The BIR then assessed each of
the petitioners P263,032.66 for their contributions. Petitioners questioned the
assessment claiming that political or electoral contributions are not considered
gifts under NIRC therefore, not liable for donors tax. The claim for exemption
was
denied
by
the
Commissioner.

contributions and expenditures in connection with the election.

The BIR denied their motion. They then filed a petition with the CTA, which was
granted.

No person elected to any public offices shall enter upon the duties of his office

On

until he has filed the statement of contributions and expenditures herein

ISSUE:

required.

RULING:

The same prohibition shall apply if the political party which nominated the
winning candidate fails to file the statement required herein within the period
prescribed by this Act.

appeal,

the

Whether

CA
the

again

held

contributions

are

in

favor
liable

of
for

the
donor's

BIR.
tax.

Yes. The NIRC does not define transfer of property by gift. However, the Civil
Code, by reference, considers such as donations. The present case falls
squarely within the definition of a donation. There was intent to do an act of
liberality or animus donandi was present since each of the petitioners gave their
contributions
without
any
consideration.
Taken together with the Civil Code definition of donation, Section 91 of the NIRC
is clear and unambiguous, thereby leaving no room for construction.

Except candidates for elective barangay office, failure to file the statements or
reports in connection with electoral contributions and expenditures are required
herein shall constitute an administrative offense for which the offenders shall be
liable to pay an administrative fine ranging from One thousand pesos

Petitioners contribution of money without any material consideration evinces

animus donandi. The fact that their purpose for donating was to aid in the
election of the donee does not negate the presence of donative intent.
Petitioners raise the fact that since 1939 when the first Tax Code was enacted,
up to 1988 the BIR never attempted to subject political contributions to donors

44

tax.
This Court holds that the BIR is not precluded from making a new interpretation
of the law, especially when the old interpretation was flawed. It is a wellentrenched
rule
that
"erroneous application and enforcement of the law by public officers do not
FULL TEXT

This is a petition for review on certiorari under Rule 45 of the Rules of

Civil Procedure, assailing the decision of the Court of Appeals in CA G.R. SP
No. 27134, entitled Comissioner of Internal Revenue v. Manuel G. Abello, Jose
C. Concepcion, Teodoro D. Regala, Avelino V. Cruz and Court of Tax Appeals,
which reversed and set aside the decision of the Court of Tax Appeals (CTA),
ordering the Commissioner of Internal Revenue (Commissioner) to withdraw his
letters dated April 21, 1988 and August 4, 1988 assessing donors taxes and to
desist from collecting donors taxes from petitioners.
During the 1987 national elections, petitioners, who are partners in the
Angara, Abello, Concepcion, Regala and Cruz (ACCRA) law firm,
contributed P882,661.31 each to the campaign funds of Senator Edgardo
Angara, then running for the Senate. In letters dated April 21, 1988, the Bureau
of Internal Revenue (BIR) assessed each of the petitioners P263,032.66 for their
contributions. On August 2, 1988, petitioners questioned the assessment
through a letter to the BIR. They claimed that political or electoral contributions
are not considered gifts under the National Internal Revenue Code (NIRC), and
that, therefore, they are not liable for donors tax. The claim for exemption was
denied by the Commissioner.[1]
On September 12, 1988, petitioners filed a petition for review with the
CTA, which was decided on October 7, 1991 in favor of the petitioners. As
aforestated, the CTA ordered the Commissioner to desist from collecting donors
taxes from the petitioners.[2]
On appeal, the Court of Appeals reversed and set aside the CTA
decision on April 20, 1994.[3] The appellate Court ordered the petitioners to pay
donors tax amounting to P263,032.66 each, reasoning as follows:
The National Internal Revenue Code, as amended, provides:
Sec. 91. Imposition of Tax. (a) There shall be levied, assessed, collected, and
paid upon the transfer by any person, resident, or non-resident, of the property
by gift, a tax, computed as provided in Section 92. (b) The tax shall apply
whether the transfer is in trust or otherwise, whether the gift is direct or indirect,
and whether the property is real or personal, tangible or intangible.
Pursuant to the above-quoted provisions of law, the transfer of property by gift,
whether the transfer is in trust or otherwise, whether the gift is direct or indirect,
and whether the property is real or personal, tangible or intangible, is subject to
donors or gift tax.
A gift is generally defined as a voluntary transfer of property by one to another
without any consideration or compensation therefor (28 C.J. 620; Santos vs.
Robledo, 28 Phil. 250).
In the instant case, the contributions are voluntary transfers of property in the
form of money from private respondents to Sen. Angara, without considerations
therefor. Hence, they squarely fall under the definition of donation or gift.
As correctly pointed out by the Solicitor General:
The fact that the contributions were given to be used as campaign funds of Sen.
Angara does not affect the character of the fund transfers as donation or gift.
There was thereby no retention of control over the disposition of the
contributions. There was simply an indication of the purpose for which they were
to be used. For as long as the contributions were used for the purpose for which

block subsequent correct application of the statute" (PLDT v. Collector of

Internal Revenue, 90 Phil. 676), "and that the Government is never estopped by
mistake or error on the part of its agents" (Pineda v. Court of First Instance of
Tayabas, 52 Phil. 803, 807; Benguet Consolidated Mining Co. v. Pineda, 98 Phil.
711, 724).
they were intended, Sen. Angara had complete and absolute power to dispose
of the contributions. He was fully entitled to the economic benefits of the
contributions.
Section 91 of the Tax Code is very clear. A donors or gift tax is imposed on the
transfer of property by gift.
The Bureau of Internal Revenue issued Ruling No. 344 on July 20, 1988, which
reads:
Political Contributions. For internal revenue purposes, political contributions in
the Philippines are considered taxable gift rather than taxable income. This is
so, because a political contribution is indubitably not intended by the giver or
contributor as a return of value or made because of any intent to repay another
what is his due, but bestowed only because of motives of philanthropy or charity.
His purpose is to give and to bolster the morals, the winning chance of the
candidate and/or his party, and not to employ or buy. On the other hand, the
recipient-donee does not regard himself as exchanging his services or his
product for the money contributed. But more importantly he receives financial
advantages gratuitously.
When the U.S. gift tax law was adopted in the Philippines (before May 7, 1974),
the taxability of political contributions was, admittedly, an unsettled issue; hence,
it cannot be presumed that the Philippine Congress then had intended to
consider or treat political contributions as non-taxable gifts when it adopted the
said gift tax law. Moreover, well-settled is the rule that the Philippines need not
necessarily adopt the present rule or construction in the United States on the
matter. Generally, statutes of different states relating to the same class of
persons or things or having the same purposes are not considered to be in pari
materia because it cannot be justifiably presumed that the legislature had them
in mind when enacting the provision being construed. (5206, Sutherland,
Statutory Construction, p. 546.) Accordingly, in the absence of an express
exempting provision of law, political contributions in the Philippines are subject
to the donors gift tax. (cited in National Internal Revenue Code Annotated by
Hector S. de Leon, 1991 ed., p. 290).
In the light of the above BIR Ruling, it is clear that the political contributions of
the private respondents to Sen. Edgardo Angara are taxable gifts. The
vagueness of the law as to what comprise the gift subject to tax was made
concrete by the above-quoted BIR ruling. Hence, there is no doubt that political
contributions are taxable gifts.[4]
Petitioners filed a motion for reconsideration, which the Court of Appeals
denied in its resolution of June 16, 1995.[5]
Petitioners thereupon filed the instant petition on July 26, 1995. Raised
are the following issues:
1. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT
FAILED TO CONSIDER IN ITS DECISION THE
PURPOSE BEHIND THE ENACTMENT OF OUR GIFT
TAX LAW?
2. DID THE HONORABLE COURT OF APPEALS ERR IN NOT
CONSIDERING THE INTENTION OF THE GIVERS IN
DETERMINING
WHETHER
OR
NOT
THE
PETITIONERS POLITICAL CONTRIBUTIONS WERE
GIFTS SUBJECT TO DONORS TAX?
3. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT
FAILED TO CONSIDER THE DEFINITION OF AN

45

ELECTORAL CONTRIBUTION UNDER THE OMNIBUS

ELECTION CODE IN DETERMINING WHETHER OR
NOT POLITICAL CONTRIBUTIONS ARE TAXABLE?
4. DID THE HONORABLE COURT OF APPEALS ERR IN NOT
CONSIDERING THE ADMINISTRATIVE PRACTICE OF
CLOSE TO HALF A CENTURY OF NOT SUBJECTING
POLITICAL CONTRIBUTIONS TO DONORS TAX?
5. DID THE HONORABLE COURT OF APPEALS ERR IN NOT
CONSIDERING THE AMERICAN JURISPRUDENCE
RELIED UPON BY THE COURT OF TAX APPEALS AND
BY THE PETITIONERS TO THE EFFECT THAT
POLITICAL CONTRIBUTIONS ARE NOT TAXABLE
GIFTS?
6. DID THE HONORABLE COURT OF APPEALS ERR IN NOT
APPLYING AMERICAN JURISPRUDENCE ON THE
GROUND THAT THIS WAS NOT KNOWN AT THE TIME
THE PHILIPPINES GIFT TAX LAW WAS ADOPTED IN
1939?
7. DID THE HONORABLE COURT OF APPEALS ERR IN
RESOLVING THE CASE MAINLY ON THE BASIS OF A
RULING ISSUED BY THE RESPONDENT ONLY AFTER
THE ASSESSMENTS HAD ALREADY BEEN MADE?
8. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT
DID NOT CONSTRUE THE GIFT TAX LAW LIBERALLY
IN FAVOR OF THE TAXPAYER AND STRICLTY
AGAINST THE GOVERNMENT IN ACCORDANCE WITH
APPLICABLE
PRINCIPLES
OF
STATUTORY
CONSTRUCTION?[6]
First, Fifth and Sixth Issues
Section 91 of the National Internal Revenue Code (NIRC) reads:
(A) There shall be levied, assessed, collected and paid upon the
transfer by any person, resident or nonresident, of the
property by gift, a tax, computed as provided in Section
92
(B) The tax shall apply whether the transfer is in trust or
otherwise, whether the gift is direct or indirect, and
whether the property is real or personal, tangible or
intangible.
The NIRC does not define transfer of property by gift. However, Article 18
of the Civil Code, states:

The present case falls squarely within the definition of a donation.

Petitioners, the late Manuel G. Abello[8], Jose C. Concepcion, Teodoro D. Regala
and Avelino V. Cruz, each gave P882,661.31 to the campaign funds of Senator
Edgardo Angara, without any material consideration. All three elements of a
donation are present. The patrimony of the four petitioners were reduced
by P882,661.31 each. Senator Edgardo Angaras patrimony correspondingly
increased by P3,530,645.24[9]. There was intent to do an act of liberality
or animus donandi was present since each of the petitioners gave their
contributions without any consideration.
Taken together with the Civil Code definition of donation, Section 91 of
the NIRC is clear and unambiguous, thereby leaving no room for construction.
In Rizal Commercial Banking Corporation v. Intermediate Appellate Court [10] the
Court enunciated:
It bears stressing that the first and fundamental duty of the Court is to apply the
law. When the law is clear and free from any doubt or ambiguity, there is no
room for construction or interpretation. As has been our consistent ruling, where
the law speaks in clear and categorical language, there is no occasion for
interpretation; there is only room for application (Cebu Portland Cement Co. v.
Municipality of Naga, 24 SCRA 708 [1968])
Where the law is clear and unambiguous, it must be taken to mean exactly what
it says and the court has no choice but to see to it that its mandate is obeyed
(Chartered Bank Employees Association v. Ople, 138 SCRA 273 [1985]; Luzon
Surety Co., Inc. v. De Garcia, 30 SCRA 111 [1969]; Quijano v. Development
Bank of the Philippines, 35 SCRA 270 [1970]).
Only when the law is ambiguous or of doubtful meaning may the court interpret
or construe its true intent. Ambiguity is a condition of admitting two or more
meanings, of being understood in more than one way, or of referring to two or
more things at the same time. A statute is ambiguous if it is admissible of two or
more possible meanings, in which case, the Court is called upon to exercise one
of its judicial functions, which is to interpret the law according to its true intent.
Second Issue
Since animus donandi or the intention to do an act of liberality is an
essential element of a donation, petitioners argue that it is important to look into
the intention of the giver to determine if a political contribution is a gift.
Petitioners argument is not tenable. First of all, donative intent is a creature of
the mind. It cannot be perceived except by the material and tangible acts which
manifest its presence. This being the case, donative intent is presumed present
when one gives a part of ones patrimony to another without consideration.
Second, donative intent is not negated when the person donating has other
intentions, motives or purposes which do not contradict donative intent. This
Court is not convinced that since the purpose of the contribution was to help
elect a candidate, there was no donative intent. Petitioners contribution of
money without any material consideration evinces animus donandi. The fact that
their purpose for donating was to aid in the election of the donee does not
negate the presence of donative intent.
Third Issue

In matters which are governed by the Code of Commerce and special laws, their
deficiency shall be supplied by the provisions of this Code.
Thus, reference may be made to the definition of a donation in the Civil Code.
Article 725 of said Code defines donation as:
. . . an act of liberality whereby a person disposes gratuitously of a thing or right
in favor of another, who accepts it.
Donation has the following elements: (a) the reduction of the patrimony of the
donor; (b) the increase in the patrimony of the donee; and, (c) the intent to do an
act of liberality or animus donandi.[7]

Petitioners maintain that the definition of an electoral contribution under

the Omnibus Election Code is essential to appreciate how a political contribution
differs from a taxable gift.[11] Section 94(a) of the said Code defines electoral
contribution as follows:
The term "contribution" includes a gift, donation, subscription, loan, advance or
deposit of money or anything of value, or a contract, promise or agreement to
contribute, whether or not legally enforceable, made for the purpose of
influencing the results of the elections but shall not include services rendered
without compensation by individuals volunteering a portion or all of their time in
behalf of a candidate or political party. It shall also include the use of facilities
voluntarily donated by other persons, the money value of which can be
assessed based on the rates prevailing in the area.

46

Since the purpose of an electoral contribution is to influence the results

of the election, petitioners again claim that donative intent is not present.
Petitioners attempt to place the barrier of mutual exclusivity between donative
intent and the purpose of political contributions. This Court reiterates that
donative intent is not negated by the presence of other intentions, motives or
purposes which do not contradict donative intent.

. . . erroneous application and enforcement of the law by public officers do not

block subsequent correct application of the statute (PLDT v. Collector of Internal
Revenue, 90 Phil. 676), and that the Government is never estopped by mistake
or error on the part of its agents (Pineda v. Court of First Instance of Tayabas, 52
Phil. 803, 807; Benguet Consolidated Mining Co. v. Pineda, 98 Phil. 711, 724).[13]
Seventh Issue

Petitioners would distinguish a gift from a political donation by saying that

the consideration for a gift is the liberality of the donor, while the consideration
for a political contribution is the desire of the giver to influence the result of an
election by supporting candidates who, in the perception of the giver, would
influence the shaping of government policies that would promote the general
welfare and economic well-being of the electorate, including the giver himself.
Petitioners attempt is strained. The fact that petitioners will somehow in
the future benefit from the election of the candidate to whom they contribute, in
no way amounts to a valuable material consideration so as to remove political
contributions from the purview of a donation. Senator Angara was under no
obligation to benefit the petitioners. The proper performance of his duties as a
legislator is his obligation as an elected public servant of the Filipino people and
not a consideration for the political contributions he received. In fact, as a public
servant, he may even be called to enact laws that are contrary to the interests of
his benefactors, for the benefit of the greater good.
In fine, the purpose for which the sums of money were given, which was
to fund the campaign of Senator Angara in his bid for a senatorial seat, cannot
be considered as a material consideration so as to negate a donation.
Fourth Issue
Petitioners raise the fact that since 1939 when the first Tax Code was
enacted, up to 1988 the BIR never attempted to subject political contributions to
donors tax. They argue that:
. . . It is a familiar principle of law that prolonged practice by the government
agency charged with the execution of a statute, acquiesced in and relied upon
by all concerned over an appreciable period of time, is an authoritative
interpretation thereof, entitled to great weight and the highest respect. . . .[12]

Petitioners question the fact that the Court of Appeals decision is based
on a BIR ruling, namely BIR Ruling No. 88-344, which was issued after the
petitioners were assessed for donors tax. This Court does not need to delve into
this issue. It is immaterial whether or not the Court of Appeals based its decision
on the BIR ruling because it is not pivotal in deciding this case. As discussed
above, Section 91 (now Section 98) of the NIRC as supplemented by the
definition of a donation found in Article 725 of the Civil Code, is clear and
unambiguous, and needs no further elucidation.
Eighth Issue
Petitioners next contend that tax laws are construed liberally in favor of
the taxpayer and strictly against the government. This rule of construction,
however, does not benefit petitioners because, as stated, there is here no room
for construction since the law is clear and unambiguous.
Finally, this Court takes note of the fact that subsequent to the donations
involved in this case, Congress approved Republic Act No. 7166 on November
25, 1991, providing in Section 13 thereof that political/electoral contributions,
duly reported to the Commission on Elections, are not subject to the payment of
any gift tax. This all the more shows that the political contributions herein made
are subject to the payment of gift taxes, since the same were made prior to the
exempting legislation, and Republic Act No. 7166 provides no retroactive effect
on this point.
WHEREFORE, the petition is DENIED and the assailed Decision and
Resolution of the Court of Appeals are AFFIRMED.

2. Transfer for Less than adequate and full consideration (Sec. 100) (RR No. 62008 on shares of stock as amended by RR 6-2013)

This Court holds that the BIR is not precluded from making a new
interpretation of the law, especially when the old interpretation was flawed. It is a
well-entrenched rule that
SEC. 100. Transfer for Less Than Adequate and Full Consideration. - Where
property, other than real property referred to in Section 24(D), is transferred for
less than an adequate and full consideration in money or money's worth, then
the amount by which the fair market value of the property exceeded the value of
the consideration shall, for the purpose of the tax imposed by this Chapter, be
deemed a gift, and shall be included in computing the amount of gifts made
during the calendar year.
SECTION 1. Scope. Pursuant to provisions of Sec. 244 of the National
Internal Revenue Code of 1997, as amended, in relation to Secs. 24 (C), 25 (A)
(3), 25 (B), 27 (D) (2), 28 (A) (7) (C), 28 (B) (5) (C) of the National Internal
Revenue Code (Tax Code), as Amended., these Regulations are hereby
promulgated to amend certain provisions of Revenue Regulations (RR) No. 062008 relative to the imposition of tax for the sale, barter, exchange or other
disposition of shares not traded through the Local Stock Exchange. SECTION 2.
Sale, Barter or Exchange of Shares of Stock Not Traded Through a Local Stock
Exchange Pursuant to Secs. 24 (C), 25 (A)(3), 25 (B), 27 (D) (2), 28 (A) (7) (C),
28 (B) (5) (C) of The Tax Code, as Amended. Sec. 7 of RR No. 06-2008 is
hereby amended to read as follows: "SEC. 7. Sale, Barter or Exchange of
Shares of Stock Not Traded Through a Local Stock Exchange Pursuant to Secs.
24 (C), 25 (A)(3), 25 (B), 27 (D) (2), 28 (A) (7) (C), 28 (B) (5) (C) of The Tax
Code, as Amended. xxx xxx xxx (c.2) Definition of "fair market value" of the
Shares of Stock. For purposes of this Section, "fair market value" of the
shares of stock sold shall be: (c.2.1) x x x (c.2.2) In the case of shares of stock
not listed and traded in the local stock exchanges, the value of the shares of
stock at the time of sale shall be the fair market value. In determining the value

of the shares, the Adjusted Net Asset Method shall be used whereby all assets
and liabilities are adjusted to fair market values. The net of adjusted asset minus
the liability values is the indicated value of the equity. For purposes of this
section, the appraised value of real property at the time of sale shall be the
higher of (1) The fair market value as determined by the Commissioner, or (2)
The fair market value as shown in the schedule of valued fixed by the Provincial
and City Assessors, or (3) The fair market value as determined by Independent
Appraiser. Illustrations: Assume that Mr. X sold on April 30, 2013, 5000 shares of
stock of A Corporation. A Corporation has 10,000 outstanding shares The
total assets and liabilities of A Corporation in its latest audited financial
statements (AFS) are Php20,000,000 and Php5,000,000, respectively.
Assuming further that the book value of all its assets and liabilities is also the
market value with the exception of its real property. Supposing, the market value
of the real properties of A Corporation are as follows: Book Value per AFS MV
per Tax Declaration Zonal Valuation Independent Appraiser Highest of the three
Adjustment Land A 2,000,000 2,500,000 5,000,000 6,000,000 6,000,000
4,000,000 Land B 2,000,000 2,200,000 4,000,000 3,500,000 4,000,000
2,000,000 Building A 1,000,000 2,400,000 3,000,000 3,000,000 2,000,000
Building B 500,000 2,000,000 1,950,000 2,000,000 1,500,000 TOTAL 5,500,000
15,000,000 9,500,000 In the above case, the net asset of A Corporation is
Php15,000,000 while the adjusted net asset is Php24,500,000 [(20,000,000 +
9,500,000)- 5,000,000]. As such, with the adjusted value per shares of stock of
Php2,450, the fair market value of the shares sold was Php12,250,000 (5000
shares at Php2,450 per share).
Philamlife vs. SOF, GR No. 210987 dated November 24, 2014

47

Petitioners above submission is specious (erroneous).

Philam Life sold its shares in Philam Care Health Systems to STI Investments
Inc., the highest bidder. After the sale was completed, Philam life applied for a
tax clearance and was informed by BIR that there is a need to secure a BIR
Ruling due to a potential donors tax liability on the sold shares.
ISSUE on DONORS TAX:
W/N the sales of shares sold for less than an adequate consideration be subject
to donors tax?
PETITIONERS CONTENTION:
The transaction cannot attract donors tax liability since there was no donative
intent and, ergo, no taxable donation, citing BIR Ruling [DA-(DT-065) 715-09]
dated November 27, 2009; that the shares were sold at their actual fair market
value and at arms length; that as long as the transaction conducted is at arms
lengthsuch that a bonafide business arrangement of the dealings is done in
the ordinary course of businessa sale for less than an adequate consideration
is not subject to donors tax; and that donors tax does not apply to sale of
shares sold in an open bidding process.
CIR DENYING THE REQUEST:
Through BIR Ruling No. 015-12. As determined by the Commissioner, the selling
price of the shares thus sold was lower than their book value based on the
financial statements of Philam Care as of the end of 2008. The Commissioner
held donors tax became imposable on the price difference pursuant to Sec. 100
of the National Internal Revenue Code (NIRC):
SEC. 100. Transfer for Less Than Adequate and full Consideration. - Where
property, other than real property referred to in Section 24(D), is transferred for
less than an adequate and full consideration in money or moneys worth, then
the amount by which the fair market value of the property exceeded the value of
the consideration shall, for the purpose of the tax imposed by this Chapter, be
deemed a gift, and shall be included in computing the amount of gifts made
during the calendar year.
RULING:
The price difference is subject to donors tax.
Petitioners substantive arguments are unavailing. The absence of donative
intent, if that be the case, does not exempt the sales of stock transaction from
donors tax since Sec. 100 of the NIRC categorically states that the amount by
which the fair market value of the property exceeded the value of the
consideration shall be deemed a gift. Thus, even if there is no actual donation,
the difference in price is considered a donation by fiction of law.
Moreover, Sec. 7(c.2.2) of RR 06-08 does not alter Sec. 100 of the NIRC but
merely sets the parameters for determining the fair market value of a sale of
stocks. Such issuance was made pursuant to the Commissioners power to
interpret tax laws and to promulgate rules and regulations for their
implementation.
Lastly, petitioner is mistaken in stating that RMC 25-11, having been issued after
the sale, was being applied retroactively in contravention to Sec. 246 of the
NIRC.26 Instead, it merely called for the strict application of Sec. 100, which
was already in force the moment the NIRC was enacted.
ISSUE on TAX REMEDIES:
The issue that now arises is thiswhere does one seek immediate recourse
from the adverse ruling of the Secretary of Finance in its exercise of its power of
review under Sec. 4?
Petitioner essentially questions the CIRs ruling that Petitioners sale of shares is
a taxable donation under Sec. 100 of the NIRC. The validity of Sec. 100 of the
NIRC, Sec. 7 (C.2.2) and RMC 25-11 is merely questioned incidentally since it
was used by the CIR as bases for its unfavourable opinion. Clearly, the Petition
involves an issue on the taxability of the transaction rather than a direct attack
on the constitutionality of Sec. 100, Sec.7 (c.2.2.) of RR 06-08 and RMC 25-11.
Thus, the instant Petition properly pertains to the CTA under Sec. 7 of RA 9282.
As a result of the seemingly conflicting pronouncements, petitioner submits that
taxpayers are now at a quandary on what mode of appeal should be taken, to
which court or agency it should be filed, and which case law should be followed.

CTA, through its power of certiorari, to rule on the validity of a particular

administrative rule or regulation so long as it is within its appellate jurisdiction.
Hence, it can now rule not only on the propriety of an assessment or tax
treatment of a certain transaction, but also on the validity of the revenue
regulation or revenue memorandum circular on which the said assessment is
based.
Guided by the doctrinal teaching in resolving the case at bar, the fact that the CA
petition not only contested the applicability of Sec. 100 of the NIRC over the
sales transaction but likewise questioned the validity of Sec. 7(c.2.2) of RR 0608 and RMC 25-11 does not divest the CTA of its jurisdiction over the
controversy, contrary to petitioners arguments.
FULL TEXT
Nature of the Case
Before the Court is a Petition for Review on Certiorari under Rule 45 of the
Rules of Court assailing and seeking the reversal of the Resolutions of the Court
of Appeals (CA) in CA-G.R. SP No. 127984, dated May 23, 20131 and January
21, 2014, which dismissed outright the petitioner's appeal from the Secretary of
Finance's review of BIR Ruling No. 015-122 for lack of jurisdiction.
The Facts
Petitioner The Philippine American Life and General Insurance Company
(Philamlife) used to own 498,590 Class A shares in Philam Care Health
Systems, Inc. (PhilamCare), representing 49.89% of the latter's outstanding
capital stock. In 2009, petitioner, in a bid to divest itself of its interests in the
health maintenance organization industry, offered to sell its shareholdings in
PhilamCare through competitive bidding. Thus, on September 24, 2009,
petitioner's Class A shares were sold for USD 2,190,000, or PhP 104,259,330
based on the prevailing exchange rate at the time of the sale, to STI
Investments, Inc., who emerged as the highest bidder.3
After the sale was completed and the necessary documentary stamp and capital
gains taxes were paid, Philamlife filed an application for a certificate authorizing
registration/tax clearance with the Bureau of Internal Revenue (BIR) Large
Taxpayers Service Division to facilitate the transfer of the shares. Months later,
petitioner was informed that it needed to secure a BIR ruling in connection with
its application due to potential donors tax liability. In compliance, petitioner, on
January 4, 2012, requested a ruling4 to confirm that the sale was not subject to
donors tax, pointing out, in its request, the following: that the transaction cannot
attract donors tax liability since there was no donative intent and,ergo, no
taxable donation, citing BIR Ruling [DA-(DT-065) 715-09] dated November 27,
2009;5 that the shares were sold at their actual fair market value and at arms
length; that as long as the transaction conducted is at arms lengthsuch that a
bona fide business arrangement of the dealings is done inthe ordinary course of
businessa sale for less than an adequate consideration is not subject to
donors tax; and that donors tax does not apply to saleof shares sold in an open
bidding process.
On January 4, 2012, however, respondent Commissioner on Internal Revenue
(Commissioner) denied Philamlifes request through BIR Ruling No. 015-12. As
determined by the Commissioner, the selling price of the shares thus sold was
lower than their book value based on the financial statements of PhilamCare as
of the end of 2008.6 As such, the Commisioner held, donors tax became
imposable on the price difference pursuant to Sec. 100 of the National Internal
Revenue Code (NIRC), viz:
SEC. 100. Transfer for Less Than Adequate and full Consideration.- Where
property, other than real property referred to in Section 24(D), is transferred for
less than an adequate and full consideration in money or moneys worth, then
the amount by which the fair market value of the property exceeded the value of
the consideration shall, for the purpose of the tax imposed by this Chapter, be
deemed a gift, and shall be included in computing the amount of gifts made
during the calendar year.

48

The afore-quoted provision, the Commissioner added, is implemented by

Revenue Regulation 6-2008 (RR 6-2008), which provides:

1.
The Sale of Shares were sold at their fair market value and for fair
and full consideration in money or moneys worth.

SEC. 7. SALE, BARTER OR EXCHANGE OF SHARES OF STOCK NOT

TRADED THROUGH A LOCAL STOCK EXCHANGE PURSUANT TO SECS.
24(C), 25(A)(3), 25(B), 27(D)(2), 28(A)(7)(c), 28(B)(5)(c) OF THE TAX CODE,
AS AMENDED.

2.
The sale of the Sale Shares is a bona fide business transaction
without any donative intent and is therefore beyond the ambit of
Section 100 of the Tax Code.

xxxx
(c) Determination of Amount and Recognition of Gain or Loss

3.
(c.1) In the case of cash sale, the selling price shall be the consideration per
deed of sale.

It is superfluous for the BIR to require an express provision for the

exemption of the sale of the Sale Shares from donors tax since
Section 100 of the Tax Code does not explicitly subject the
transaction to donors tax.

xxxx
(c.1.4) In case the fair market value of the shares of stock sold, bartered, or
exchanged is greater than the amount of money and/or fair market value of the
property received, the excess of the fair market value of the shares of stock
sold, bartered or exchanged overthe amount of money and the fair market value
of the property, if any, received as consideration shall be deemed a gift subject
to the donorstax under Section 100 of the Tax Code, as amended.

C.
The Honorable Secretary of Finance gravely erred in failing to find that in the
absence of any of the grounds mentioned in Section 246 of the Tax Code, rules
and regulations, rulings or circulars such as RMC 25-11 cannot be given
retroactive application to the prejudice of Philamlife.

xxxx
(c.2) Definition of fair market valueof Shares of Stock. For purposes of this
Section, fair market value of the share of stock sold shall be:
xxxx
(c.2.2) In the case of shares of stock not listed and traded in the local stock
exchanges, the book value of the shares of stock as shown in the financial
statements duly certified by an independent certified public accountant nearest
to the date of sale shall be the fair market value.
In view of the foregoing, the Commissioner ruled that the difference between the
book value and the selling price in the sales transaction is taxable donation
subject to a 30% donors tax under Section 99(B) of the NIRC.7Respondent
Commissioner likewise held that BIR Ruling [DA-(DT-065) 715-09], on which
petitioner anchored its claim, has already been revoked by Revenue
Memorandum Circular (RMC) No. 25-2011.8
Aggrieved, petitioner requested respondent Secretary of Finance (Secretary) to
review BIR Ruling No. 015-12, but to no avail. For on November 26, 2012,
respondent Secretary affirmed the Commissioners assailed ruling in its entirety. 9

On May 23, 2013, the CA issued the assailed Resolution dismissing the CA
Petition, thusly:
WHEREFORE, the Petition for Review dated January 9, 2013 is DISMISSED for
lack of jurisdiction.
SO ORDERED.
In disposing of the CA petition, the appellate court ratiocinated that it is the Court
of Tax Appeals (CTA), pursuant to Sec. 7(a)(1) of Republic Act No. 1125 (RA
1125),11 as amended, which has jurisdiction over the issues raised. The outright
dismissal, so the CA held, is predicated on the postulate that BIR Ruling No.
015-12 was issued in the exercise of the Commissioners power to interpret the
NIRC and other tax laws. Consequently, requesting for its review can be
categorized as "other matters arising under the NIRC or other laws administered
by the BIR," which is under the jurisdiction of the CTA, not the CA.
Philamlife eventually sought reconsideration but the CA, in its equally assailed
January 21, 2014 Resolution, maintained its earlier position. Hence, the instant
recourse.
Issues

Ruling of the Court of Appeals

Not contented with the adverse results, petitioner elevated the case to the CA
via a petition for review under Rule 43, assigning the following errors:10
A.
The Honorable Secretary of Finance gravely erred in not finding that the
application of Section 7(c.2.2) of RR 06-08 in the Assailed Ruling and RMC 2511 is void insofar as it altersthe meaning and scope of Section 100 of the Tax
Code.
B.
The Honorable Secretary of Finance gravely erred in finding that Section 100 of
the Tax Code is applicable tothe sale of the Sale of Shares.

Stripped to the essentials, the petition raises the following issues in both
procedure and substance:
1. Whether or not the CA erred in dismissing the CA Petition for lack
of jurisdiction; and
2. Whether or not the price difference in petitioners adverted sale of
shares in PhilamCare attracts donors tax.
Procedural Arguments
a. Petitioners contentions
Insisting on the propriety of the interposed CA petition, Philamlife, while
conceding that respondent Commissioner issued BIR Ruling No. 015-12 in

49

accordance with her authority to interpret tax laws, argued nonetheless that
such ruling is subject to review by the Secretary of Finance under Sec. 4 of the
NIRC, to wit:
SECTION 4. Power of the Commissioner to Interpret Tax Laws and to Decide
Tax Cases. The power to interpret the provisions of this Code and other tax
laws shall be under the exclusive and original jurisdiction of the Commissioner,
subject to review by the Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes,
fees or other charges, penalties imposed in relation thereto, or other matters
arising under this Code orother laws or portions thereof administered by the
Bureau of Internal Revenue is vested in the Commissioner, subject to the
exclusive appellate jurisdiction of the Court of Tax Appeals. Petitioner postulates
that there is a need to differentiate the rulings promulgated by the respondent
Commissioner relating to those rendered under the first paragraph of Sec. 4 of
the NIRC, which are appealable to the Secretary of Finance, from those
rendered under the second paragraph of Sec. 4 of the NIRC, which are subject
to review on appeal with the CTA.
This distinction, petitioner argues, is readily made apparent by Department
Order No. 7-02,12 as circularized by RMC No. 40-A-02.
Philamlife further averred that Sec.7 of RA 1125, as amended, does not find
application in the case at bar since it only governs appeals from the
Commissioners rulings under the second paragraph and does not encompass
rulings from the Secretary of Finance in the exercise of his power of review
under the first, as what was elevated to the CA. It added that under RA 1125, as
amended, the only decisions of the Secretary appealable to the CTA are those
rendered in customs cases elevated to him automatically under Section 2315 of
the Tariff and Customs Code.13
There is, thus, a gap in the law when the NIRC, as couched, and RA 1125, as
amended, failed to supply where the rulings of the Secretary in its exercise of its
power of review under Sec. 4 of the NIRC are appealable to. This gap, petitioner
submits, was remedied by British American Tobacco v. Camacho14 wherein the
Court ruled that where what is assailed is the validity or constitutionality of a law,
or a rule or regulation issued by the administrative agency, the regular courts
have jurisdiction to pass upon the same.
In sum, appeals questioning the decisions of the Secretary of Finance in the
exercise of its power of review under Sec. 4 of the NIRC are not within the CTAs
limited special jurisdiction and, according to petitioner, are appealable to the CA
via a Rule 43 petition for review.
b. Respondents contentions
Before the CA, respondents countered petitioners procedural arguments by
claiming that even assuming arguendo that the CTA does not have jurisdiction
over the case, Philamlife, nevertheless,committed a fatal error when it failed to
appeal the Secretary of Finances ruling to the Office of the President (OP). As
made apparent by the rules, the Department of Finance is not among the
agencies and quasi-judicial bodies enumerated under Sec. 1, Rule 43 of the
Rules of Court whose decisions and rulings are appealable through a petition for
review.15 This is in stark contrast to the OPs specific mention under the same
provision, so respondents pointed out.
To further reinforce their argument, respondents cite the Presidents power of
review emanating from his power of control as enshrined under Sec. 17 of
Article VII of the Constitution, which reads:
Section 17.The President shall have control of all the executive departments,
bureaus, and offices. He shall ensure that the laws be faithfully executed.

x x x This power of control, which even Congress cannot limit, let alone
withdraw, means the power of the Chief Executive to review, alter, modify, nullify,
or set aside what a subordinate, e.g., members of the Cabinet and heads of line
agencies, had done in the performance of their duties and to substitute the
judgment of the former for that of the latter.
In their Comment on the instant petition, however, respondents asseverate that
the CA did not err in its holding respecting the CTAs jurisdiction over the
controversy.
The Courts Ruling
The petition is unmeritorious.
Reviews by the Secretary of Finance pursuant to Sec. 4 of the NIRC are
appealable to the CTA
To recapitulate, three different, if not conflicting, positions as indicated below
have been advanced by the parties and by the CA as the proper remedy open
for assailing respondents rulings:
1. Petitioners: The ruling of the Commissioner is subject to review
by the Secretary under Sec. 4 of the NIRC, and that of the
Secretary to the CA via Rule 43;
2. Respondents: The ruling of the Commissioner is subject to review
by the Secretary under Sec. 4 of the NIRC, and that of the
Secretary to the Office of the President before appealing to the CA
via a Rule 43 petition; and
3. CA: The ruling of the Commissioner is subject to review by the
CTA.
We now resolve.
Preliminarily, it bears stressing that there is no dispute that what is involved
herein is the respondent Commissioners exercise of power under the first
paragraph of Sec. 4 of the NIRCthe power to interpret tax laws. This, in fact,
was recognized by the appellate court itself, but erroneously held that her action
in the exercise of such power is appealable directly to the CTA. As correctly
pointed out by petitioner, Sec. 4 of the NIRC readily provides that the
Commissioners power to interpret the provisions of this Code and other tax laws
is subject to review by the Secretary of Finance. The issue that now arises is
thiswhere does one seek immediate recourse from the adverse ruling of the
Secretary of Finance in its exercise of its power of review under Sec. 4?
Admittedly, there is no provision in law that expressly provides where exactly the
ruling of the Secretary of Finance under the adverted NIRC provision is
appealable to. However, We find that Sec. 7(a)(1) of RA 1125, as amended,
addresses the seeming gap in the law asit vests the CTA, albeit impliedly, with
jurisdiction over the CA petition as "other matters" arising under the NIRC or
other laws administered by the BIR. As stated:
Sec. 7. Jurisdiction.- The CTA shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
1. Decisions of the Commissioner of Internal Revenue in cases involving
disputed assessments, refunds of internal revenue taxes, fees or other charges,
penalties in relation thereto, or other matters arising under the National Internal
Revenue or other laws administered by the Bureau of Internal Revenue.
(emphasis supplied)

The nature and extent of the Presidents constitutionally granted power of

control have beendefined in a plethora of cases, most recently in Elma v.
Jacobi,16 wherein it was held that:

50

Even though the provision suggests that it only covers rulings of the
Commissioner, We hold that it is, nonetheless, sufficient enough to include
appeals from the Secretarys review under Sec. 4 of the NIRC.
It is axiomatic that laws should be given a reasonable interpretation which does
not defeat the very purpose for which they were passed.17 Courts should not
follow the letter of a statute when to do so would depart from the true intent of
the legislature or would otherwise yield conclusions inconsistent with the
purpose of the act.18 This Court has, in many cases involving the construction of
statutes, cautioned against narrowly interpreting a statute as to defeat the
purpose of the legislator, and rejected the literal interpretation of statutes if todo
so would lead to unjust or absurd results.19
Indeed, to leave undetermined the mode of appeal from the Secretary of
Finance would be an injustice to taxpayers prejudiced by his adverse rulings. To
remedy this situation, Weimply from the purpose of RA 1125 and its amendatory
laws that the CTA is the proper forum with which to institute the appeal. This is
not, and should not, in any way, be taken as a derogation of the power of the
Office of President but merely as recognition that matters calling for technical
knowledge should be handled by the agency or quasi-judicial body with
specialization over the controversy. As the specialized quasi-judicial agency
mandated to adjudicate tax, customs, and assessment cases, there can be no
other court of appellate jurisdiction that can decide the issues raised inthe CA
petition, which involves the tax treatment of the shares of stocks sold. Petitioner,
though, nextinvites attention to the ruling in Ursal v. Court of Tax Appeals20 to
argue against granting the CTA jurisdiction by implication, viz:
Republic Act No. 1125 creating the Court of Tax Appeals did not grant it blanket
authority to decide any and all tax disputes. Defining such special courts
jurisdiction, the Act necessarily limited its authority to those matters enumerated
therein. Inline with this idea we recently approved said courts order rejecting an
appeal to it by Lopez & Sons from the decision of the Collector ofCustoms,
because in our opinion its jurisdiction extended only to a review of the decisions
of the Commissioner of Customs, as provided bythe statute and not to
decisions of the Collector of Customs. (Lopez & Sons vs. The Court of Tax
Appeals, 100 Phil., 850, 53 Off. Gaz., [10] 3065).
xxxx
x x x Republic Act No. 1125 is a complete law by itself and expressly
enumerates the matters which the Court of Tax Appeals may consider; such
enumeration excludes all others by implication. Expressio unius est exclusio
alterius.
Petitioners contention is untenable. Lest the ruling in Ursalbe taken out of
context, but worse as a precedent, it must be noted that the primary reason for
the dismissal of the said case was that the petitioner therein lacked the
personality to file the suit with the CTA because he was not adversely affected
by a decision or ruling of the Collector of Internal Revenue, as was required
under Sec. 11 of RA 1125.21 As held:
We share the view that the assessor had no personality to resort to the Court of
Tax Appeals. The rulings of the Board of Assessment Appeals did not "adversely
affect" him. At most it was the City of Cebu that had been adversely affected in
the sense that it could not thereafter collect higher realty taxes from the
abovementioned property owners. His opinion, it is true had been overruled; but
the overruling inflicted no material damage upon him or his office. And the Court
of Tax Appeals was not created to decide mere conflicts of opinion between
administrative officers or agencies. Imagine an income tax examiner resorting to
the Court of Tax Appeals whenever the Collector of Internal Revenue modifies,
or lower his assessment on the return of a tax payer!22
The appellate power of the CTA includes certiorari
Petitioner is quick to point out, however, that the grounds raised in its CA petition
included the nullity of Section 7(c.2.2) of RR 06-08 and RMC 25-11. In an
attempt to divest the CTA jurisdiction over the controversy, petitioner then cites

British American Tobacco, wherein this Court has expounded on the limited
jurisdiction of the CTA in the following wise:
While the above statute confers on the CTA jurisdiction to resolve tax disputes in
general, this does not include cases where the constitutionality of a law or rule is
challenged. Where what is assailed is the validity or constitutionality of a law, or
a rule or regulation issued by the administrative agency in the performance of its
quasi legislative function, the regular courts have jurisdiction to pass upon the
same. The determination of whether a specific rule or set of rules issued by an
administrative agency contravenes the law or the constitution is within the
jurisdiction of the regular courts. Indeed, the Constitution vests the power of
judicial review or the power to declare a law, treaty, international or executive
agreement, presidential decree, order, instruction, ordinance, or regulation inthe
courts, including the regional trial courts. This is within the scope of judicial
power, which includes the authority of the courts to determine inan appropriate
action the validity of the acts of the political departments. Judicial power includes
the duty of the courts of justice to settle actual controversies involving rights
which are legally demandable and enforceable, and to determine whether or not
there has been a grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or instrumentality of the Government. 23
Vis-a-vis British American Tobacco, it bears to stress what appears to be a
contrasting ruling in Asia International Auctioneers, Inc. v. Parayno, Jr., to wit:
Similarly, in CIR v. Leal, pursuant to Section 116 of Presidential Decree No. 1158
(The National Internal Revenue Code, as amended) which states that "[d]ealers
in securities shall pay a tax equivalent to six (6%) per centum of their gross
income. Lending investors shall pay a tax equivalent to five (5%) per cent, of
their gross income," the CIR issued Revenue Memorandum Order (RMO) No.
15-91 imposing 5% lending investors tax on pawnshops based on their gross
income and requiring all investigating units of the BIR to investigate and assess
the lending investors tax due from them. The issuance of RMO No. 15-91 was
an offshoot of the CIRs finding that the pawnshop business is akin to that of
"lending investors" as defined in Section 157(u) of the Tax Code. Subsequently,
the CIR issued RMC No. 43-91 subjecting pawn tickets to documentary stamp
tax. Respondent therein, Josefina Leal, owner and operator of Josefinas
Pawnshop, asked for a reconsideration of both RMO No. 15-91 and RMC No.
43-91, but the same was denied by petitioner CIR. Leal then filed a petition for
prohibition with the RTC of San Mateo, Rizal, seeking to prohibit petitioner CIR
from implementing the revenue orders. The CIR, through the OSG, filed a
motion to dismiss on the ground of lack of jurisdiction. The RTC denied the
motion. Petitioner filed a petition for certiorari and prohibition with the CA which
dismissed the petition "for lack of basis." In reversing the CA, dissolving the Writ
of Preliminary Injunction issued by the trial court and ordering the dismissal of
the case before the trial court, the Supreme Court held that "[t]he questioned
RMO No. 15-91 and RMC No. 43-91 are actually rulings or opinions of the
Commissioner implementing the Tax Code on the taxability of pawnshops." They
were issued pursuant to the CIRs power under Section 245 of the Tax Code "to
make rulings or opinions in connection with the implementation of the provisions
of internal revenue laws, including ruling on the classification of articles of sales
and similar purposes."The Court held that under R.A. No. 1125 (An Act Creating
the Court of Tax Appeals), as amended, such rulings of the CIR are appealable
to the CTA.
In the case at bar, the assailed revenue regulations and revenue memorandum
circulars are actually rulings or opinions of the CIR on the tax treatment of motor
vehicles sold at public auction within the SSEZ to implement Section 12 of R.A.
No. 7227 which provides that "exportation or removal of goods from the territory
of the [SSEZ] to the other parts of the Philippine territory shall be subject to
customs duties and taxes under the Customs and Tariff Codeand other relevant
tax laws of the Philippines." They were issued pursuant to the power of the CIR
under Section 4 of the National Internal Revenue Code x x x.24 (emphasis
added)
The respective teachings in British American Tobacco and Asia International
Auctioneers, at first blush, appear to bear no conflictthat when the validity or
constitutionality of an administrative rule or regulation is assailed, the regular
courts have jurisdiction; and if what is assailed are rulings or opinions of the
Commissioner on tax treatments, jurisdiction over the controversy is lodged with
the CTA. The problem with the above postulates, however, is that they failed to

51

take into consideration one crucial pointa taxpayer can raise both issues
simultaneously.

there has been a grave abuse of discretion amounting to lack or excess of

jurisdiction on the part of any branch or instrumentality of the Government.

Petitioner avers that there is now a trend wherein both the CTA and the CA
disclaim jurisdiction over tax cases: on the one hand, mere prayer for the
declaration of a tax measures unconstitutionality or invalidity before the CTA can
result in a petitions outright dismissal, and on the other hand, the CA will
likewise dismiss the same petition should it find that the primary issue is not the
tax measures validity but the assessment or taxability of the transaction or
subject involved. To illustrate this point, petitioner cites the assailed Resolution,
thusly: Admittedly, in British American Tobacco vs. Camacho, the Supreme Court
has ruled that the determination of whether a specific rule or set of rules issued
by an administrative agency contravenes the law or the constitution is within the
jurisdiction of the regular courts, not the CTA.

On the strength of the above constitutional provisions, it can be fairly interpreted

that the power of the CTA includes that of determining whether or not there has
been grave abuse of discretion amounting to lack or excess of jurisdiction on the
part of the RTC in issuing an interlocutory order in cases falling within the
exclusive appellate jurisdiction of the tax court. It, thus, follows that the CTA, by
constitutional mandate, is vested with jurisdiction to issue writs of certiorari in
these cases.

xxxx
Petitioner essentially questions the CIRs ruling that Petitioners sale of shares is
a taxable donation under Sec. 100 of the NIRC. The validity of Sec. 100 of the
NIRC, Sec. 7 (C.2.2) and RMC 25-11 is merely questioned incidentally since it
was used by the CIR as bases for its unfavourable opinion. Clearly, the Petition
involves an issue on the taxability of the transaction rather than a direct attack
on the constitutionality of Sec. 100, Sec.7 (c.2.2.) of RR 06-08 and RMC 25-11.
Thus, the instant Petition properly pertains to the CTA under Sec. 7 of RA 9282.
As a result of the seemingly conflicting pronouncements, petitioner submits that
taxpayers are now at a quandary on what mode of appeal should be taken, to
which court or agency it should be filed, and which case law should be followed.
Petitioners above submission is specious.
In the recent case of City of Manila v. Grecia-Cuerdo,25 the Court en banc has
ruled that the CTA now has the power of certiorari in cases within its appellate
jurisdiction. To elucidate:
The prevailing doctrine is that the authority to issue writs of certiorari involves
the exercise of original jurisdiction which must be expressly conferred by the
Constitution or by law and cannot be implied from the mere existence of
appellate jurisdiction. Thus, x x x this Court has ruled against the jurisdiction of
courts or tribunals over petitions for certiorari on the ground that there is no law
which expressly gives these tribunals such power. Itmust be observed, however,
that x x x these rulings pertain not to regular courts but to tribunals exercising
quasijudicial powers. With respect tothe Sandiganbayan, Republic Act No. 8249
now provides that the special criminal court has exclusive original jurisdiction
over petitions for the issuance of the writs of mandamus, prohibition, certiorari,
habeas corpus, injunctions, and other ancillary writs and processes in aid of its
appellate jurisdiction.
In the same manner, Section 5 (1), Article VIII of the 1987 Constitution grants
power to the Supreme Court, in the exercise of its original jurisdiction, to issue
writs of certiorari, prohibition and mandamus. With respect to the Court of
Appeals, Section 9 (1) of Batas Pambansa Blg. 129 (BP 129) gives the appellate
court, also in the exercise of its original jurisdiction, the power to issue, among
others, a writ of certiorari, whether or not in aid of its appellate jurisdiction. As to
Regional Trial Courts, the power to issue a writ of certiorari, in the exercise of
their original jurisdiction, is provided under Section 21 of BP 129.
The foregoing notwithstanding, while there is no express grant of such power,
with respect to the CTA, Section 1, Article VIII of the 1987 Constitution provides,
nonetheless, that judicial power shall be vested in one Supreme Court and in
such lower courts as may be established by law and that judicial power includes
the duty of the courts of justice to settle actual controversies involving rights
which are legally demandable and enforceable, and to determine whether or not
SEC. 12. COMPUTATION OF THE DONORS TAX. For donors tax purposes,
donations made before January 1, 1998 shall be subject to the donors tax
computed on the basis of the old rates imposed under Section 92 of the National
Internal Revenue Code of 1977 (R.A. No. 7499), while donations made on or

Indeed, in order for any appellate court to effectively exercise its appellate
jurisdiction, it must have the authority to issue, among others, a writ of certiorari.
In transferring exclusive jurisdiction over appealed tax cases to the CTA, it can
reasonably be assumed that the law intended to transfer also such power as is
deemed necessary, if not indispensable, in aid of such appellate jurisdiction.
There is no perceivable reason why the transfer should only be considered as
partial, not total. (emphasis added)
Evidently, City of Manilacan be considered as a departure from Ursal in that in
spite of there being no express grant in law, the CTA is deemed granted with
powers of certiorari by implication. Moreover, City of Manila diametrically
opposes British American Tobacco to the effect that it is now within the power of
the CTA, through its power of certiorari, to rule on the validity of a particular
administrative ruleor regulation so long as it is within its appellate jurisdiction.
Hence, it can now rule not only on the propriety of an assessment or tax
treatment of a certain transaction, but also on the validity of the revenue
regulation or revenue memorandum circular on which the said assessment is
based.
Guided by the doctrinal teaching in resolving the case at bar, the fact that the CA
petition not only contested the applicability of Sec. 100 of the NIRC over the
sales transaction but likewise questioned the validity of Sec. 7 (c.2.2) of RR 0608 and RMC 25-11 does not divest the CTA of its jurisdiction over the
controversy, contrary to petitioner's arguments.
The price difference is subject to donor's tax
Petitioner's substantive arguments are unavailing. The absence of donative
intent, if that be the case, does not exempt the sales of stock transaction from
donor's tax since Sec. 100 of the NIRC categorically states that the amount by
which the fair market value of the property exceeded the value of the
consideration shall be deemed a gift.1wphi1 Thus, even if there is no actual
donation, the difference in price is considered a donation by fiction of law.
Moreover, Sec. 7(c.2.2) of RR 06-08 does not alter Sec. 100 of the NIRC but
merely sets the parameters for determining the "fair market value" of a sale of
stocks. Such issuance was made pursuant to the Commissioner's power to
interpret tax laws and to promulgate rules and regulations for their
implementation.
Lastly, petitioner is mistaken in stating that RMC 25-11, having been issued after
the sale, was being applied retroactively in contravention to Sec. 246 of the
NIRC.26 Instead, it merely called for the strict application of Sec. 100, which was
already in force the moment the NIRC was enacted.
WHEREFORE, the petition is hereby DISMISSED. The Resolutions of the Court
of Appeals in CA-G.R. SP No. 127984 dated May 23, 2013 and January 21,
2014 are hereby AFFIRMED.

3. Manner of Computing the Donors Tax (Sec. 12 RR No. 2-03)

after January I, 1998 shall be subject to the donors tax computed in accordance
with the amended schedule of rates prescribed under Section 99 of the National
Internal Revenue Code of 1997 (R.A. No. 8424). THE COMPUTATION OF THE
DONORS TAX IS ON A CUMULATIVE BASIS OVER A PERIOD OF ONE

52

CALENDAR YEAR. Husband and wife are considered as separate and distinct
taxpayers for purposes of the donors tax. However, if what was donated is a
conjugal or community property and only the husband signed the deed of
donation, there is only one donor for donors tax purposes, without prejudice to
the right of the wife to question the validity of the donation without her consent
pursuant to the pertinent provisions of the Civil Code of the Philippines and the
Family Code of the Philippines. Illustration: Donations made on: January 30,
2002 -- P 2,000,000 March 30, 2002 -- 1,000,000 August 15, 2002 -- 500,000
Solution/computation: Date of donation Amount Donors Tax 1. January 30, 2002
P 2,000,000 P 124,000 2. March 30, 2002 1,000,000 March 30, 2002 donation
1,000,000 Add: January 30, 2002 donation 2,000,000 Total 3,000,000 Tax Due
Thereon 204,000 Less: Tax due/paid on January donation 124,000 Tax
Due/Payable on the March donation P 80,000 3. August 15,2002 500,000
August 15, 2002 donation 500,000 Add: January 2002 donation 2,000,000
March 2002 donation 1,000,000 Total 3,500,000 Tax Due Thereon 254,000
Less: Tax due/paid on Jan/March donation 204,000 Tax Due/Payable on the
August donation P 50,000
4. Tax Credit for Donors Taxes paid to a Foreign Country [Sec. 101 (C)]

(C) Tax Credit for Donor's Taxes Paid to a Foreign Country. - (1) In
General. - The tax imposed by this Title upon a donor who was a citizen or a
resident at the time of donation shall be credited with the amount of any donor's
tax of any character and description imposed by the authority of a foreign
country.
(2) Limitations on Credit. - The amount of the credit taken under this Section
shall be subject to each of the following limitations:
(a) The amount of the credit in respect to the tax paid to any country shall not
exceed the same proportion of the tax against which such credit is taken, which
the net gifts situated within such country taxable under this Title bears to his
entire net gifts; and
(b) The total amount of the credit shall not exceed the same proportion of the tax
against which such credit is taken, which the donor's net gifts situated outside
the Philippines taxable under this title bears to his entire net gifts.

5. Renunciation of share in the conjugal partnership or absolute community;

and, hereditary estate (Sec. 11 RR No. 2-03)
SEC. 11. THE LAW THAT GOVERNS THE IMPOSITION OF DONORS TAX. The donors tax is not a property tax, but is a tax imposed on the transfer of
property by way of gift inter vivos. (Lladoc vs. Commissioner of Internal
Revenue, L- 19201, June 16, 1965; 14 SCRA, 292) The donors tax shall not
apply unless and until there is a completed gift. The transfer of property by gift is
perfected from the moment the donor knows of the acceptance by the donee; it
is completed by the delivery, either actually or constructively, of the donated
property to the donee. Thus, the law in force at the time of the
perfection/completion of the donation shall govern the imposition of the donors
tax. In order that the donation of an immovable may be valid, it must be made in
a public document specifying therein the property donated. The acceptance may
be made in the same Deed of Donation or in a separate public document, but it
shall not take effect unless it is done during the lifetime of the donor. If the
acceptance is made in a separate instrument, the donor shall be notified thereof
in an authentic form, and this step shall be noted in both instruments. A gift that
is incomplete because of reserved powers, becomes complete when either: (1)
the donor renounces the power; or (2) his right to exercise the reserved power
ceases because of the happening of some event or contingency or the fulfilment
of some condition, other than because of the donors death. Renunciation by the
surviving spouse of his/her share in the conjugal partnership or absolute

community after the dissolution of the marriage in favor of the heirs of the
deceased spouse or any other person/s is subject to donors tax whereas
general renunciation by an heir, including the surviving spouse, of his/her share
in the hereditary estate left by the decedent is not subject to donors tax, unless
specifically and categorically done in favor of identified heir/s to the exclusion or
disadvantage of the other co-heirs in the hereditary estate. Where property,
other than a real property that has been subjected to the final capital gains tax,
is transferred for less than an adequate and full consideration in money or
moneys worth, then the amount by which the fair market value of the property at
the time of the execution of the Contract to Sell or execution of the Deed of Sale
which is not preceded by a Contract to Sell exceeded the value of the agreed or
actual consideration or selling price shall be deemed a gift, and shall be included
in computing the amount of gifts made during the calendar year. The law in force
at the time of the completion of the donation shall govern the imposition of
donors tax. For purposes of the donors tax, NET GIFT shall mean the net
economic benefit from the transfer that accrues to the donee. Accordingly, if a
mortgaged property is transferred as a gift, but imposing upon the donee the
obligation to pay the mortgage liability, then the net gift is measured by
deducting from the fair market value of the property the amount of mortgage
assumed.
6. Capacity to Buy
Spouses Evono vs. DOF, CTA EB Case No. 705 dated June 4, 2012
THE CASE This is a Petition for Review filed by sps. Hordon H. Evono and
Maribel C. Evono (hereafter "petitioners") under Section 11 of RA 9282 (An Act
Expanding the Jurisdiction of the Court of Tax Appeals), in relation to Rule 43 of
the 1997 Revised Rules of Civil Procedure, as ~ C.T.A. EB NO. 705 (C.T.A.
CASE NO. 7573) DECISION 2 amended, which seeks to set aside the Decision
dated June 3, 2010 and Resolution dated November 11, 2010, rendered by the
Special First Division of this Court in C.T.A. Case No. 7573 , the respective
dispositive portions of which read, as follows: "WHEREFORE, premises
considered, the "Appeal and Petition for Review" is hereby DENIED for
petitioner's failure to comply with the statutory period provided under Section
228 of the National Internal Revenue Code of 1997. SO ORDERED."
"WHEREFORE, finding no cogent reason to disturb, reverse or modify the
Decision dated June 3, 2010, petitioner's Motion for Reconsideration is hereby
DENIED for lack of merit. SO ORDERED." THE FACTS The facts, as found by
the Special First Division, are as follows: "On March 12, 2001 , petitioner
MARIBEL C. EVONO acting in her own capacity and in behalf of her minor
children, Mariangeli, Hordon Herberto II and Hordon Herberto III, all surnamed
Evono, and a certain Vicenta F. Diores, married to Luis V. Diores (SPS.
DIORES) executed a "Deed of Conditional Sale" involving a parcel of land
located in Barrio Gon-ob, Lapu-lapu City covered by TCT No. 3085 for a
consideration ofPhP4,117,500.00. On February 19, 2003 , petitioner-MARIBEL
C. EVONO and Spouses Olympio Credo and Clara Credo (SPS. CREDO)
executed a "Deed of Absolute Sale" wherein the latter sold to the former two
parcels of lands with areas of328 square ~ C.T.A. EB NO. 705 (C.T.A. CASE
NO. 7573) DECISION and 350 square meters, respectively, covered by TCT No.
18185 and TCT No. 3085, for a consideration ofP1 ,356,000.00. On April 16,
2004, MARJBEL C. EVONO and SPS. DIORES executed a "Deed of Absolute
Sale." In said Deed, SPS. DIORES sold, ceded, transferred and conveyed to
MARJBEL C. EVONO the same parcel of land located in Barrio Gun-ob, LapuLapu City covered by TCT No. 3085 for a consideration ofPhP4,117,500.00. On
May 27, 2004 and July 12, 2004, then Revenue Officer Ramer D. Narvaez of
BIR, RR No. 13, RDO 80- Mandaue City issued Certificates of Authority to
Register (CARs) Nos. 00234066 and 00234306, in the name of MARJBEL C.
EVONO. On September 11, 2004, Ms. CLARA CREDO executed an
"Amendment to Deed of Absolute Sale (to coincide the same with the Deed of
Conditional Sale)" wherein she acknowledged having received the amount
ofPhP1,356,000.00 as full payment after she sold parcels of land covered by
TCT Nos. 3085 and 18185. On September 14, 2004, SPS. DIORES executed
an "Amendment to Deed of Absolute Sale (to co[in]cide the same with the Deed
of Conditional Sale)" wherein they acknowledged having received the amount of
P4, 117,500.00 as full payment after they sold parcels of land covered by TCT
Nos. 3085 and 18185 to MARIBEL C. EVONO, in behalf of her minor legitimate
children, namely: Mariangeli C. Evono, Hordon Herberto C. Evono II, and
Hordon Herberto C. Evono III. On September 15, 2004, MARJBEL C. EVONO
wrote Revenue District Officer Ramer D. Narvaez of BIR Cebu, requesting that
the names of her children be added in the CARs so that their names be affixed
in the titles of the property they bought. Q}fJ 3 C.T.A. EB NO. 705 (C.T.A. CASE
NO. 7573) DECISION 4 On September 24, 2004, MARIBEL C. EVONO wrote
the BIR Cebu a "Letter of Ratification" stating that she was submitting a certified

53

true copy of the original Conditional Deed of Sale so that "the properties be
Titled in the names of Maribel C. Evono; Mariangeli C. Evono, Hordon H. Evono
II, and Hordon H. Evono III." On June 3, 2005, MARIBEL C. EVONO received a
Computation of Donor's Tax, which reads: I. Property purchased from Clara C.
Credo & Olympia Credo: Date of Donation: February 19, 2003 (date of execution
of absolute sale) Kind Area (sq.m.) Location OCT/TCT Land 350 Gun-ob, Lapulapu City 3085 Land 328 Gun-ob, Lapu-lapu City 18185 VALUE of the Donation
(3/4 of the value of the property) Value of Donation/spouse Donor's Tax Add :
25% Surcharge (Sec. 248 (A) NIRC) 20% Interest (3/19/03 to 06/19/05) - Sec.
249 (B) NIRC Compromise Penalty (RMO 1-90) TOTAL AMOUNT DUE &
PAYABLE II. Property purchased from Atty. Diores & Vicenta Diores: Tax Dec.
No. 03999 04664 Husband P508,500.00 14,510.00 3,627.50 6,529.50 3,000.00
13,157.00 27,667.00 Date of Donation: April 23, 2004 (date of execution of
absolute sale) Kind Area (sq.m.) Location OCT/TCT Tax Dec. No. Land 7,885
Gun-ob, Lapu-lapu City 3085 03999 Land 103 Gun-ob, Lapu-lapu City 18185
04664 VALUE of the Donation (3/4 of the value of the property) Husband Value
of Donation/spouse 1,544,062.50 Donor's Tax 87,525.00 MarketValue
280,000.00 262,400.00 P542,400.00 Wife P508,500.00 14,510.00 3,627.50
6,529.50 3,000.00 13,157.00 27,667.00 Market Value 4,533,875.00 59,225.00
P4,593,1 00.00 Wife 1,544,062.50 87,525.00 Selling Price P1 ,356,000.00 P1 ,
017,000.00 1,017,000.00 P55,334.00 Selling Price P4, 117,500.00 P3,088,
125.00 3,088,125.00 0~ C.T.A. EB NO. 705 (C.T.A. CASE NO. 7573) DECISION
Add: 25% Surcharge (Sec. 248 (A) NIRC) 20% Interest (5/23/04 to 06/19/05) Sec. 249 (B) NIRC Compromise Penalty (RMO 1-90) TOTAL AMOUNT DUE &
PAYABLE 21 ,881 .25 18,963.75 12,000.00 52,845.00 140,370.00 GRAND
TOTAL (Three Hundred Thirty Six Thousand Seventy Four Pesos) 21 ,881.25
18,963.75 12,000.00 52,845.00 140,370.00 On June 20, 2005, petitioners-SPS.
HORDON H. EVONO and MARIBEL C. EVONO (SPS. EVONO) paid the
Donor's Tax in the amount ofPhP55,334.00 and PhP280,740.00 under protest,
and surrendered the original CAR Nos. 00234252 and 00234306 for
cancellation. On July 18, 2005, Revenue District Officer Ramer D. Narvaez of
the BIR, Revenue District No. 81 , Cebu City-North, informed the SPS. EVONO
that CAR Nos. 00234252 and 00234306 have been amended by including the
names of the latter's three minor children. Further, the Office of the Revenue
District Officer has considered the transactions completed, closed and
terminated since the CARs had been issued. On August 9, 2005, SPS. EVONO
wrote respondentCommissioner of Internal Revenue (CIR) to rescind the
assessment for Donor's Tax. As a follow up, petitionerHORDON H. EVONO
wrote respondent a letter dated December 12, 2006, regarding their previous
request and informed the latter that petitioners intend to file an action in the
appropriate court if the request remained unacted upon." 5 280,740.00
P336,074.00 Alleging inaction, on February 13, 2007, petitioners filed a Petition
for Review with this Court, docketed as C.T.A. Case No. 7573. C.T.A. EB NO.
705 (C.T.A. CASE NO. 7573) DECISION 6 In her Answer, respondent CIR
alleged by way of special and affirmative defenses that the amount of
P336,074.00 being claimed by petitioner as alleged erroneously paid donor's tax
was not properly documented; that the original Deeds of Absolute Sale were
executed by the sellers only in favor of Maribel C. Evono, married to Hordon
Evono; that on September 15, 2004, petitioners requested for the amendment of
the Certificate Authorizing Registration (CAR) to include the names of all her
three (3) minor children as transferees of the lots and alleged that the funds
used to purchase the properties are not exclusively hers, but included those of
her minor children; that the said allegations of petitioner Maribel C. Evono are
mere afterthoughts and that the intent of the parties to the transaction is that
petitioner is the buyer of the properties, thus, the request for adding the minor
children in the CAR as transferees is in effect a donation equivalent to % of the
property; that the admission by petitioners that the funds used to purchase the
properties came from the allowances given by them to their children is the best
proof that the monies used were donated by the parents to their children; that
excessive allowances from parents which enable them to save substantial
amount to purchase properties are deemed donations within the realms of
taxation law; that the inclusion of petitioner's minor &fJJ C.T.A. EB NO. 705
(C.T.A. CASE NO. 7573) DECISION 7 children in the CAR is subject to donor's
tax; and claims for refund are construed strictly against the claimant. After trial
on the merits, on June 3, 2010, the Special First Division rendered a Decision
denying petitioners' claim on the ground of prescription. On July 27, 2010,
petitioners filed a "Motion for Reconsideration" to which respondent filed her
"Opposition (Re: Motion for Reconsideration)" on August 12, 2010. On
November 11, 2010, the Special First Division denied petitioners' "Motion for
Reconsideration" for lack of merit. Not satisfied, on December 23, 2010,
petitioners filed the instant Petition for Review raising the following: ISSUES I
DID THE 1st DIVISION, COURT OF TAX APPEALS ERROR (SIC) IN
ASSUMING THAT THERE WAS PROPERTY GIVEN TO THE SPOUSES

PETITIONERS MINOR CHILDREN WHERE IN FACT THE TRANSFER OF

PROPERTIES BY DEED OF CONDITIONAL SALE AND DEED OF ABSOLUTE
SALE WAS BY THE ORIGINAL OWNERS TO THE SPOUSES PETITIONER
AND THEIR MINOR CHILDREN (LOTS 1427;5B). C.T.A. EB NO. 705 (C.T.A.
CASE NO. 7573) DECISION II DID THE 1sT DIVISION, COURT OF TAX
APPEALS ERROR (SIC) IN QUESTIONING JURISDICTION SOLELY BASING
THEIR DECISION UNDER SECTION 228 OF THE NATIONAL INTERNAL
REVENUE CODE OF 1997 AND ERRONEOUSLY FAILED AND
DISREGARDED THE APPLICATION OF SECTION 229 OF THE NATIONAL
INTERNAL REVENUE CODE OF 1997 WHICH IS ALSO THE GOVERNING
LAW OR RULES IN THE CASE AT HAND. III DID THE 1sT DIVISION, COURT
OF TAX APPEALS MAKE AN ERROR IN QUESTIONING JURISDICTION AND
REVIEW SUCH WHEN IT HAD BEEN STIPULATED BY THE PARTIES THAT
THE COURT OF TAX APPEALS HAD JURISDICTION. IV DID THE 1sT
DIVISION, COURT OF TAX APPEALS MAKE AN ERROR IN ITS REVIEW OF
ISSUES OTHER THAN THAT WHICH WAS PRESENTED IN THE JOINT
STIPULATION OF FACTS AND ISSUES FOR RESOLUTION, DATED 26 JULY
2007. v WAS THIS PETITION TO THE COURT OF TAX APPEALS FILED ON
TIME (SIC). VI WAS THERE JURISDICTION OF THE COURT OF TAX
APPEALS AT THE TIME OF FILING (SIC). 8 C.T.A. EB NO. 705 (C.T.A. CASE
NO. 7573) DECISION Principal Issues The foregoing issues boil down to two (2)
principal issues, to wit: 9 1) whether or not the Petition for Review in C.T.A. Case
No. 7573 was timely filed; and 2) whether the inclusion of petitioners' children in
the CAR and transfer certificate of titles maybe deemed a donation from their
parents, and maybe subject to donor's tax under Section 98 of the NIRC of
1997, as amended. On March 29, 2011, without necessarily giving due course to
the petition, respondent was ordered to file her comment, within ten (1 0) days
from notice. In compliance thereto, on April 18, 2011, respondent filed her
"Comment to Petition for Review (Re: Resolution dated 29 March 2011 )".
Thereafter, both parties were ordered to file their simultaneous memoranda,
within thirty (30) days from notice. On June 13, 2011, respondent filed her
"Manifestation" stating that she is adopting her "Comment to the Petition for
Review" filed on April 18,2011. On the other hand, on July 6, 2011, petitioners
filed a "Manifestation" stating that they are adopting a number of documents as
part of their memorandum. On July 10, 2011, petitioners filed their C.T.A. EB
NO. 705 (C.T.A. CASE NO. 7573) DECISION 10 "Memorandu(m) Addressing
Disputed Issues Presented to Court of Tax Appeals En Bane". On September 6,
2011, this case was deemed submitted for decision. THE COURT EN BANC'S
RULING The petition has no merit. Petitioners argue that there was no transfer
of property from petitioner spouses to their children since they do not own the
subject properties, hence, the inclusion of the names of the children in the
Certificate Authorizing Registration (CAR) is not subject to donor's tax; and that
the CT A has jurisdiction over their claim since they are appealing under Section
229 of the NIRC of 1997, as amended, or within two-years from payment of the
tax. On the other hand, respondent counter-argues that the instant petition was
filed beyond the 30-day period prescribed under Section 228 of the NIRC of
1997, as amended, hence, the CTA has no jurisdiction over the case; the intent
to donate was clearly established; the inclusion of the children's name in the
CAR is a mere afterthought since the original transaction shows that petitioner is
the sole buyer of the properties; the children have no income, and the alleged
monies given by the parents are u C.T.A. EB NO. 705 (C.T.A. CASE NO. 7573)
DECISION 11 considered donations since these monies are excessive
allowances, which enabled them to save substantial amounts to purchase real
properties. After a careful consideration of the arguments of both parties, and
the applicable law and jurisprudence, we rule for the respondents. Timeliness
o{the Filing o{the Petition For Review in C. T.A. Case No. 7573 We deem it
necessary to first resolve the procedural issue of whether the Petition for Review
in C.T.A. Case No. 7573 was filed within the prescribed 30-day period. To
resolve this issue, We must first determine the nature of petitioner's claim,
whether it is a claim for refund or a protest on the assessment. The period to
appeal a disputed assessment under Section 228 of the NIRC of 1997, as
amended, is distinct from the period to file a claim for refund under Section 229
of the same Code. In this case, a careful perusal of the records shows that
petitioners first disputed the assessment on January 11, 2005 prior to their
payment under protest on June 20, 2005. Thus, the present petition involves a
disputed assessment considering that from the time petitioners received the
assessments for the payment of donor's tax, they already protested and refused
to pay the same, questioning the legality and correctness of !LI C.T.A. EB NO.
705 (C.T.A. CASE NO. 7573) DECISION 12 said assessments. Petitioner
spouses concededly questioned the legality and validity of the assessments on
the ground that there was no intent to donate and the children had their own
savings used to purchase the property. Petitioners paid the disputed
assessments under protest in order not to delay the issuance of the Certificates

54

Authorizing Registration and the eventual registration of the titles in the name of
petitioner Maribel Evono and her children. In other words, the payment under
protest of the donor's tax is only to expedite the transfer of the title in the names
of petitioner Maribel C. Evono and her children, and not to avoid any penalty
resulting from non-payment. Clearly, petitioners' claim for refund is necessarily
dependent upon and is a mere incident of the action contesting the assessment
for donor's tax. The main action to be resolved is the disputed assessment,
regardless of whether it has been paid under protest, since the resolution of the
claim for refund is dependent on the outcome of the resolution of petitioners'
protest. Therefore, we agree with the Special First Division that Section 228 of
the NIRC of 1997, as amended, is the applicable law to petitioners' present
action. Petitioners cannot base their claim on Section 229 of the same Code
considering that they are still questioning the validity or legality of said
assessments. C.T.A. EB NO. 705 (C.T.A. CASE NO. 7573) DECISION 13
Having resolved that petitioners' action on the disputed donor's tax assessments
falls under Section 228 of the NIRC of 1997, as amended, we now proceed to
determine the timeliness of the filing of the Petition For Review in C.T.A. Case
no. 7573. In this regard, Section 228 of the NIRC of 1997, as amended,
provides: "SEC. 228. Protesting of Assessment. - When the Commissioner or his
duly authorized representative finds that proper taxes should be assessed, he
shall first notify the taxpayer of his findings: provided, however, That a
preassessment notice shall not be required in the following cases: (a) When the
finding for any deficiency tax is the result of mathematical error in the
computation of the tax as appearing on the face of the return; or (b) When a
discrepancy has been determined between the tax withheld and the amount
actually remitted by the withholding agent; or (c) When a taxpayer who opted to
claim a refund or tax credit of excess creditable withholding tax for a taxable
period was determined to have carried over and automatically applied the same
amount claimed against the estimated tax liabilities for the taxable quarter or
quarters of the succeeding taxable year; or (d) When the excise tax due on
exciseable articles has not been paid; or (e) When the article locally purchased
or imported by an exempt person, such as, but not limited to, vehicles, capital
equipment, machineries and spare parts, has been sold, traded or transferred to
non-exempt persons. C.T.A. EB NO. 705 (C.T.A. CASE NO. 7573) DECISION
The taxpayers shall be informed in writing of the law and the facts on which the
assessment is made; otherwise, the assessment shall be void. Within a period
to be prescribed by implementing rules and regulations, the taxpayer shall be
required to respond to said notice. If the taxpayer fails to respond, the
Commissioner or his duly authorized representative shall issue an assessment
based on his findings. Such assessment may be protested administratively by
filing a request for reconsideration or reinvestigation within thirty (30) days from
receipt of the assessment in such form and manner as may be prescribed by
implementing rules and regulations. Within sixty (60) days from filing of the
protest, all relevant supporting documents shall have been submitted; otherwise,
the assessment shall become final. If the protest is denied in whole or in part, or
is not acted upon within one hundred eighty (180) days from submission of
documents, the taxpayer adversely affected by the decision or inaction may
appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said
decision, or from the lapse of one hundred eighty ( 180)-day period; otherwise,
the decision shall become final, executory and demandable." 14 Pursuant to the
above provision, when the protest is not acted upon by the Commissioner after
the expiration of the 180-day period, the taxpayer adversely affected by the
inaction may appeal to the CT A within thirty (30) days from the lapse of the 180day period; otherwise, the assessment shall become final, executory and
demandable. Thus, if there is no appeal within thirty (30) days from the lapse of
the 180-day period, IL/ C.T.A. EB NO. 705 (C.T.A. CASE NO. 7573) DECISION
15 the matter under protest and/or decision shall become final, executory and
demandable. In this case, records show that petitioners filed their administrative
protest with the CIR on August 9, 2005. Counting 180-days from August 9, 2005,
the Commissioner had until February 6, 2006 within which to act on petitioners'
protest. Within thirty (30) days from the lapse of the 180-day period, or until
March 8, 2006, petitioners should have appealed their claim for refund to this
Court. However, as aptly ruled by the Special First Division, petitioners filed their
appeal only on February 12, 2007, or more than one year way beyond the 30day prescribed period. As to petitioners' contention that the CIR failed to render
a decision until March 1, 2010, it must be emphasized that in both Section 228
and RA 9282 (An Act Expanding the Jurisdiction of the CTA), the jurisdiction of
the CT A has been expanded to include not only decisions or rulings, but
inaction as well of the Commissioner of Internal Revenue. In fact, Section 228
specifically provides a period where "inaction" will arise, which may be subject to
appeal and the corresponding consequence of failure to elevate the matter to
the CT A. Thus, in the case of RCBC vs. CIR (491 SCRA 221), the Supreme
Court ruled: C.T.A. EB NO. 705 (C.T.A. CASE NO. 7573) DECISION "As

provided in Section 228, the failure of a taxpayer to appeal from an assessment

on time rendered the assessment final, executory and demandable.
Consequently, petitioner is precluded from disputing the correctness of the
assessment. In Ker & Company, Ltd. v. Court of Tax Appeals, the Court held that
while the right to appeal a decision of the Commissioner to the Court of Tax
Appeals is merely a statutory remedy, nevertheless the requirement that it must
be brought within 30 days is jurisdictional. If a statutory remedy provides as a
condition precedent that the action to enforce it must be commenced within a
prescribed time, such requirement is jurisdictional and failure to comply
therewith may be raised in a motion to dismiss. In fine, the failure to comply with
the 30-day statutory period would bar the appeal and deprive the Court of Tax
Appeals of its jurisdiction to entertain and determine the correctness of the
assessment." (Emphasis ours) 16 Furthermore, petitioners' receipt on June 28,
2010 of the Decision of the CIR dated March 1, 2010 denying their protest on
the assessments for donor's tax, cannot be made as the reckoning point of the
30-day period to appeal to the CTA, since petitioners had already availed of the
first option to file a Petition For Review with this Court on February 12, 2007,
without waiting for the decision of the CIR. Thus, in the resolution of the Motion
for Reconsideration filed in the RCBC case (522 SCRA 1 53), the Supreme
Court categorically ruled: "In case the Commissioner failed to act on the
disputed assessment within the 180-day period from date of submission of
documents, a taxpayer can either: 1) file a petition fo~ C.T.A. EB NO. 705
(C.T.A. CASE NO. 7573) DECISION review with the Court of Tax Appeals within
30 days after the expiration of the 180-day period; or 2) await the final decision
of the Commissioner on the disputed assessments and appeal such final
decision to the Court of Tax Appeals within 30 days after receipt of a copy of
such decision. However, these options are mutually exclusive, and resort to one
bars the application of the other. In the instant case, the Commissioner failed to
act on the disputed assessment within 180 days from date of submission of
documents. Thus, petitioner opted to file a petition for review before the Court of
Tax Appeals. Unfortunately, the petition for review was filed out of time, i.e., it
was filed more than 30 days after the lapse of the 180-day period.
Consequently, it was dismissed by the Court of Tax Appeals for late filing.
Petitioner did not file a motion for reconsideration or make an appeal; hence, the
disputed assessment became final, demandable and executory. Based on the
foregoing, petitioner cannot now claim that the disputed assessment is not yet
final as it remained unacted upon by the Commissioner; that it can still await the
final decision of the Commissioner and thereafter appeal the same to the Court
of Tax Appeals. This legal maneuver cannot be countenanced. After availing the
first option, i.e., filing a petition for review which was however filed out of time,
petitioner can not successfully resort to the second option, i.e., awaiting the final
decision of the Commissioner and appealing the same to the Court of Tax
Appeals, on the pretext that there is yet no final decision on the disputed
assessment because of the Commissioner's inaction." (Emphasis Ours) 17
Clearly, the present petition was filed more than one (1) year way beyond the
prescribed 30-day period. Consequently, the donor's tax assessments had
already become final, executory and demandable. Hence, we hold that the
Special First Division correctly dismissed the ur C.T.A. EB NO. 705 (C.T.A.
CASE NO. 7573) DECISION 18 Petition for Review for having been filed way
beyond the prescribed 30- day period. Validity o(Donor's Tax Assessment
Assuming, for the sake of argument that petitioners' judicial claim was filed on
time, still, the present petition must necessarily fail, as aptly ruled by the Special
First Division there is clearly an animus donandi on the part of petitioners.
Donation (donatio) is defined as "a gift; a transfer of the title to property to one
who receives it without paying for it; the act by which the owner of a thing
voluntarily transfers the title and possession of the same from himself to another
person, without any consideration." (Black 's Law Dictionary, 61 h Edition, p.487)
In this regard, Section 98 of the NIRC of 1997, as amended, provides: "SEC. 98.
Imposition of Tax.- (A) There shall be levied, assessed, collected and paid upon
the transfer by any person, resident or nonresident, of the property by gift, a tax,
computed as provided in Section 99. (B)The tax shall apply whether the transfer
is in trust or otherwise, whether the gift is direct or indirect, and C.T.A. EB NO.
705 (C.T.A. CASE NO. 7573) DECISION (C)whether the property 1s real or
personal, tangible or intangible." 19 Pursuant to the above provision, the transfer
of property by gift is taxable, whether the same is direct or indirect, real or
personal, tangible or intangible. In this case, to determine whether or not there is
a donation, the true intention of the parties must be ascertained. Records show
that petitioners presented various contracts to prove that their children were also
buyers in the sale of the subject properties. However, in order to determine the
tax liability for any transaction, not only the legal documents will be considered,
but also some other external factors surrounding the transaction, such as the
capacity of the buyer in cases of transfer of properties. This is a preventive
measure imposed to prevent avoidance of the legal tax due. In this case,

55

petitioners admitted that their children are not earning income, but are financially
capable to purchase the subject properties from their own savings from
allowances given by their parents. True, children can save money from their
allowances and would be able to purchase properties from their savings,
however, in this case, records show that petitioners' children were only 11 , 10
and 5 years old at the (JY C.T.A. EB NO. 705 (C.T.A. CASE NO. 7573)
DECISION 20 time of the sale of the subject properties, the consideration of
which amounted to the total amount of P5,473,500.00 (P4,117,500.00 for the
purchase of Diores' property and P1,356,000.00 for the purchase of Credo's
property). Logically, at such young ages, the three minor children would not be
able to save such substantial amount, even if they were receiving enormous
allowances from their parents. As a consequence thereof, the inclusion of the
children's names in the transfer of the titles/properties shall be deemed a
donation or gift from their parents. To own a real property at an early age without
a source of income, said property is deemed to be a donation, within the
meaning of the law. There is a clear animus donandi, as evidenced by
petitioners' request to include the names of their minor children in the CARs and
certificates of title of the properties. Thus, We agree with then Commissioner
Joel Tan- Torres in his Final Decision dated March 1, 2010, citing the ruling of
Regional Director Jaime B. Santiago, CESO V, Revenue Region No. 13, Cebu
City, dated November 17, 2004, to wit: "It is noteworthy that, "The gift tax was
enacted mainly to prevent the loss of revenue due to the practice of wealthy
individuals of donating inter vivos or otherwise gratuitously disposing of their
properties during their lifetime for the purpose of reducing their estate and thus,
avoid payment of the estate tax upon their death. A gift tax is imposed to prevej
~ C.T.A. EB NO. 705 (C.T.A. CASE NO. 7573) DECISION avoidance of estate
tax." (BIR Ruling No. 261-87 dated September 2, 1987) The admission of
Maribel C. Evono that the funds used to purchase the properties were sourced
from the allowances given by the parents, established the fact that these minor
children are not earning income. Excessive allowances from parents that have
enabled the children to save substantial amounts to purchase properties is
deemed a donation within the meaning of the law. Otherwise, taxpayers can
easily skirt transfer taxation in the guise of allowances by the parents to their
children. Hence, in the absence of clear showing that these minor children are or
have been earning income of their own, the inclusion of their names in the title to
the properties is tantamount to gratuitous acquisitions falling within the purview
of the definition of donation as provided in the foregoing provision." 21
Therefore, without a source of income or acceptable form of acquisition of
substantial amount to purchase the subject properties, the inclusion of the
names of petitioners' minor children in the CARs is deemed a gratuitous
transaction, which is subject to donor's tax. The inclusion of the names of
petitioners' minor children in the certificates of title of the subject properties shall
be deemed an implied donation within the purview of the law. Therefore,
respondent's imposition of donor's tax in the inclusion of the names of the
children in the CARs and transfer titles is in accordance with Section 98 of the
NIRC of 1997, as amended. C.T.A. EB NO. 705 (C.T.A. CASE NO. 7573)
DECISION 22 Finding no reversible error, we affirm the assailed Decision dated
June 3, 2010 and Resolution dated November 11 , 2010 rendered by the Special
First Division of this Court in C.T.A. Case No. 7573. WHEREFORE, premises
considered, the instant petition 1s hereby DENIED, and accordingly,
DISMISSED for lack of merit
D. Filing and Payment of Returns (Sec. 103) / (Sec. 13 RR No. 2-03)

SEC. 103. Filing of Return and Payment of Tax. (A) Requirements.- any individual who makes any transfer by gift (except those
which, under Section 101, are exempt from the tax provided for in this Chapter)
shall, for the purpose of the said tax, make a return under oath in duplicate.
The return shall se forth:
(1) Each gift made during the calendar year which is to be included in computing
net gifts;

(2) The deductions claimed and allowable;

(3) Any previous net gifts made during the same calendar year;
(4) The name of the donee; and
(5) Such further information as may be required by rules and regulations made
pursuant to law.
(B) Time and Place of Filing and Payment. - The return of the donor required
in this Section shall be filed within thirty (30) days after the date the gift is made
and the tax due thereon shall be paid at the time of filing.
Except in cases where the Commissioner otherwise permits, the return shall be
filed and the tax paid to an authorized agent bank, the Revenue District Officer,
Revenue Collection Officer or duly authorized Treasurer of the city or
municipality where the donor was domiciled at the time of the transfer, or if there
be no legal residence in the Philippines, with the Office of the Commissioner.
In the case of gifts made by a nonresident, the return may be filed with the
Philippine Embassy or Consulate in the country where he is domiciled at the
time of the transfer, or directly with the Office of the Commissioner.

SEC. 13. FILING OF RETURNS AND PAYMENT OF DONORS TAX. - (A)

Requirements. Any person making a donation (whether direct or indirect),
unless the donation is specifically exempt under the Code or other special laws,
is required, for every donation, to accomplish under oath a donors tax return in
duplicate. The return shall set forth: (1) Each gift made during the calendar year
which is to be included in computing net gifts; (2) The deductions claimed and
allowable; (3) Any previous net gifts made during the same calendar year; (4)
The name of the donee; (5) Relationship of the donor to the donee; and (6) Such
further information as the Commissioner may require. (B) Time and place of
filing and payment. The donors tax return shall be filed within thirty (30) days
after the date the gift is made or completed and the tax due thereon shall be
paid at the same time that the return is filed. Unless the Commissioner
otherwise permits, the return shall be filed and the tax paid to an authorized
agent bank, the Revenue District Officer, Revenue Collection Officer or duly
authorized Treasurer of the city or municipality where the donor was domiciled at
the time of the transfer, or if there be no legal residence in the Philippines, with
the Office of the Commissioner. In the case of gifts made by a non-resident, the
return may be filed with the Philippine Embassy or Consulate in the country
where he is domiciled at the time of the transfer, or directly with the Office of the
Commissioner. For this purpose, the term OFFICE OF THE COMMISSIONER
shall refer to the Revenue District Office (RDO) having jurisdiction over the BIRNational Office Building which houses the Office of the Commissioner, or
presently, to the Revenue District Office No. 39 South Quezon City. (C) Notice
of donation by a donor engaged in business. In order to be exempt from
donors tax and to claim full deduction of the donation given to qualifieddonee
institutions duly accredited by the Philippine Council for NGO Certification, Inc.
(PCNC), the donor engaged in business shall give a notice of donation on every
donation worth at least Fifty Thousand Pesos (P50,000) to the Revenue District
Office (RDO) which has jurisdiction over his place of business within thirty (30)
days after receipt of the qualified donee institutions duly issued Certificate of
Donation, which shall be attached to the said Notice of Donation, stating that not
more than thirty percent (30%) of the said donation/gifts for the taxable year
shall be used by such accredited non-stock, non-profit corporation/NGO
institution (qualified-donee institution) for administration purposes pursuant to
the provisions of Section 101(A)(3) and (B)(2) of the Code.
1. Requirements

56

2. Time and Place of Filing

3. Notice of Donation Exemption from Donors Tax (RR No. 2-03)

57