FIRST DIVISION

[G.R. No. 147188. September 14, 2004]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. THE

ESTATE OF BENIGNO P. TODA, JR., Represented by Special Co-
administrators Lorna Kapunan and Mario Luza
Bautista, respondents.

DECISION
DAVIDE, JR., C.J.:

This Court is called upon to determine in this case whether the tax
planning scheme adopted by a corporation constitutes tax evasion that would
justify an assessment of deficiency income tax.
The petitioner seeks the reversal of the Decision of the Court of Appeals
[1]

of 31 January 2001 in CA-G.R. SP No. 57799 affirming the 3 January 2000

Decision of the Court of Tax Appeals (CTA) in C.T.A. Case No. 5328, which
[2] [3]

held that the respondent Estate of Benigno P. Toda, Jr. is not liable for the
deficiency income tax of Cibeles Insurance Corporation (CIC) in the amount
of P79,099,999.22 for the year 1989, and ordered the cancellation and setting
aside of the assessment issued by Commissioner of Internal Revenue
Liwayway Vinzons-Chato on 9 January 1995.
The case at bar stemmed from a Notice of Assessment sent to CIC by the
Commissioner of Internal Revenue for deficiency income tax arising from an
alleged simulated sale of a 16-storey commercial building known as Cibeles
Building, situated on two parcels of land on Ayala Avenue, Makati City.
On 2 March 1989, CIC authorized Benigno P. Toda, Jr., President and
owner of 99.991% of its issued and outstanding capital stock, to sell the
Cibeles Building and the two parcels of land on which the building stands for
an amount of not less than P90 million. [4]

On 30 August 1989, Toda purportedly sold the property for P100 million to
Rafael A. Altonaga, who, in turn, sold the same property on the same day to
Royal Match Inc. (RMI) for P200 million. These two transactions were
evidenced by Deeds of Absolute Sale notarized on the same day by the same
notary public. [5]
 For the sale of the property to RMI, Altonaga paid capital gains tax in the
amount of P10 million. [6]

On 16 April 1990, CIC filed its corporate annual income tax return for the
[7]

year 1989, declaring, among other things, its gain from the sale of real
property in the amount of P75,728.021. After crediting withholding taxes
of P254,497.00, it paidP26,341,207 for its net taxable income
[8]

of P75,987,725.
On 12 July 1990, Toda sold his entire shares of stocks in CIC to Le Hun T.
Choa for P12.5 million, as evidenced by a Deed of Sale of Shares of
Stocks. Three and a half years later, or on 16 January 1994, Toda died.
[9]

On 29 March 1994, the Bureau of Internal Revenue (BIR) sent an

assessment notice and demand letter to the CIC for deficiency income tax
[10]

for the year 1989 in the amount of P79,099,999.22.

The new CIC asked for a reconsideration, asserting that the assessment
should be directed against the old CIC, and not against the new CIC, which is
owned by an entirely different set of stockholders; moreover, Toda had
undertaken to hold the buyer of his stockholdings and the CIC free from all tax
liabilities for the fiscal years 1987-1989.
[11]

On 27 January 1995, the Estate of Benigno P. Toda, Jr., represented by

special co-administrators Lorna Kapunan and Mario Luza Bautista, received a
Notice of Assessment dated 9 January 1995 from the Commissioner of
[12]

Internal Revenue for deficiency income tax for the year 1989 in the amount
of P79,099,999.22, computed as follows:

Income Tax 1989

Net Income per return P75,987,725.00

Add: Additional gain on sale
of real property taxable under
ordinary corporate income
but were substituted with
individual capital gains
(P200M 100M) 100,000,000.00
Total Net Taxable
Income P175,987,725.00
per investigation

Tax Due thereof at 35% P 61,595,703.75

Less: Payment already made

1. Per return P26,595,704.00

2. Thru Capital Gains
Tax made by R.A.
Altonaga 10,000,000.00 36,595,704.0
0
Balance of tax due P 24,999,999.75
Add: 50% Surcharge 12,499,999.88
25% Surcharge 6,249,999.94
Total P 43,749,999.57
Add: Interest 20% from
4/16/90-4/30/94 (.808) 35,349,999.65
TOTAL AMT. DUE &
COLLECTIBLE P 79,099,999.22
============
The Estate thereafter filed a letter of protest. [13]

In the letter dated 19 October 1995, the Commissioner dismissed the

[14]

protest, stating that a fraudulent scheme was deliberately perpetuated by the

CIC wholly owned and controlled by Toda by covering up the additional gain
of P100 million, which resulted in the change in the income structure of the
proceeds of the sale of the two parcels of land and the building thereon to an
individual capital gains, thus evading the higher corporate income tax rate of
35%.
On 15 February 1996, the Estate filed a petition for review with the CTA
[15]

alleging that the Commissioner erred in holding the Estate liable for income
tax deficiency; that the inference of fraud of the sale of the properties is
unreasonable and unsupported; and that the right of the Commissioner to
assess CIC had already prescribed.
In his Answer and Amended Answer, the Commissioner argued that the
[16] [17]

two transactions actually constituted a single sale of the property by CIC to

RMI, and that Altonaga was neither the buyer of the property from CIC nor the
seller of the same property to RMI. The additional gain of P100 million (the
difference between the second simulated sale for P200 million and the first
simulated sale for P100 million) realized by CIC was taxed at the rate of only
5% purportedly as capital gains tax of Altonaga, instead of at the rate of 35%
as corporate income tax of CIC. The income tax return filed by CIC for 1989
with intent to evade payment of the tax was thus false or fraudulent. Since
such falsity or fraud was discovered by the BIR only on 8 March 1991, the
assessment issued on 9 January 1995 was well within the prescriptive period
prescribed by Section 223 (a) of the National Internal Revenue Code of 1986,
which provides that tax may be assessed within ten years from the discovery
of the falsity or fraud. With the sale being tainted with fraud, the separate
corporate personality of CIC should be disregarded. Toda, being the
registered owner of the 99.991% shares of stock of CIC and the beneficial
owner of the remaining 0.009% shares registered in the name of the individual
directors of CIC, should be held liable for the deficiency income tax, especially
because the gains realized from the sale were withdrawn by him as cash
advances or paid to him as cash dividends. Since he is already dead, his
estate shall answer for his liability.
In its decision of 3 January 2000, the CTA held that the Commissioner
[18]

failed to prove that CIC committed fraud to deprive the government of the
taxes due it. It ruled that even assuming that a pre-conceived scheme was
adopted by CIC, the same constituted mere tax avoidance, and not tax
evasion. There being no proof of fraudulent transaction, the applicable period
for the BIR to assess CIC is that prescribed in Section 203 of the NIRC of
1986, which is three years after the last day prescribed by law for the filing of
the return. Thus, the governments right to assess CIC prescribed on 15 April
1993. The assessment issued on 9 January 1995 was, therefore, no longer
valid. The CTA also ruled that the mere ownership by Toda of 99.991% of the
capital stock of CIC was not in itself sufficient ground for piercing the separate
corporate personality of CIC. Hence, the CTA declared that the Estate is not
liable for deficiency income tax of P79,099,999.22 and, accordingly, cancelled
and set aside the assessment issued by the Commissioner on 9 January
1995.
In its motion for reconsideration, the Commissioner insisted that the sale
[19]

of the property owned by CIC was the result of the connivance between Toda
and Altonaga. She further alleged that the latter was a representative,
dummy, and a close business associate of the former, having held his office in
a property owned by CIC and derived his salary from a foreign corporation
(Aerobin, Inc.) duly owned by Toda for representation services rendered. The
CTA denied the motion for reconsideration, prompting the Commissioner to
[20]

file a petition for review with the Court of Appeals.

[21]

In its challenged Decision of 31 January 2001, the Court of Appeals

affirmed the decision of the CTA, reasoning that the CTA, being more
advantageously situated and having the necessary expertise in matters of
taxation, is better situated to determine the correctness, propriety, and
legality of the income tax assessments assailed by the Toda Estate. [22]
 Unsatisfied with the decision of the Court of Appeals, the Commissioner
filed the present petition invoking the following grounds:
I. THE COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENT
COMMITTED NO FRAUD WITH INTENT TO EVADE THE TAX ON THE SALE OF
THE PROPERTIES OF CIBELES INSURANCE CORPORATION.
II. THE COURT OF APPEALS ERRED IN NOT DISREGARDING THE SEPARATE
CORPORATE PERSONALITY OF CIBELES INSURANCE CORPORATION.
III. THE COURT OF APPEALS ERRED IN HOLDING THAT THE RIGHT OF
PETITIONER TO ASSESS RESPONDENT FOR DEFICIENCY INCOME TAX FOR
THE YEAR 1989 HAD PRESCRIBED.

The Commissioner reiterates her arguments in her previous pleadings and

insists that the sale by CIC of the Cibeles property was in connivance with its
dummy Rafael Altonaga, who was financially incapable of purchasing it. She
further points out that the documents themselves prove the fact of fraud in that
(1) the two sales were done simultaneously on the same date, 30 August
1989; (2) the Deed of Absolute Sale between Altonaga and RMI was
notarized ahead of the alleged sale between CIC and Altonaga, with the
former registered in the Notarial Register of Jocelyn H. Arreza Pabelana as
Doc. 91, Page 20, Book I, Series of 1989; and the latter, as Doc. No. 92, Page
20, Book I, Series of 1989, of the same Notary Public; (3) as early as 4 May
1989, CIC received P40 million from RMI, and not from Altonaga. The said
amount was debited by RMI in its trial balance as of 30 June 1989 as
investment in Cibeles Building. The substantial portion of P40 million was
withdrawn by Toda through the declaration of cash dividends to all its
stockholders.
For its part, respondent Estate asserts that the Commissioner failed to
present the income tax return of Altonaga to prove that the latter is financially
incapable of purchasing the Cibeles property.
To resolve the grounds raised by the Commissioner, the following
questions are pertinent:

1. Is this a case of tax evasion or tax avoidance?

2. Has the period for assessment of deficiency income tax for the year
1989 prescribed? and

3. Can respondent Estate be held liable for the deficiency income tax of
CIC for the year 1989, if any?

We shall discuss these questions in seriatim.

Is this a case of tax evasion
or tax avoidance?

Tax avoidance and tax evasion are the two most common ways used by
taxpayers in escaping from taxation. Tax avoidance is the tax saving device
within the means sanctioned by law. This method should be used by the
taxpayer in good faith and at arms length. Tax evasion, on the other hand, is a
scheme used outside of those lawful means and when availed of, it usually
subjects the taxpayer to further or additional civil or criminal liabilities. [23]

Tax evasion connotes the integration of three factors: (1) the end to be
achieved, i.e., the payment of less than that known by the taxpayer to be
legally due, or the non-payment of tax when it is shown that a tax is due; (2)
an accompanying state of mind which is described as being evil, in bad
faith, willfull,or deliberate and not accidental; and (3) a course of action or
failure of action which is unlawful. [24]

All these factors are present in the instant case. It is significant to note
that as early as 4 May 1989, prior to the purported sale of the Cibeles property
by CIC to Altonaga on 30 August 1989, CIC received P40 million from
RMI, and not from Altonaga. That P40 million was debited by RMI and
[25]

reflected in its trial balance as other inv. Cibeles Bldg. Also, as of 31 July
[26]

1989, another P40 million was debited and reflected in RMIs trial balance as
other inv. Cibeles Bldg. This would show that the real buyer of the
properties was RMI, and not the intermediary Altonaga.
The investigation conducted by the BIR disclosed that Altonaga was a
close business associate and one of the many trusted corporate executives of
Toda. This information was revealed by Mr. Boy Prieto, the assistant
accountant of CIC and an old timer in the company. But Mr. Prieto did not
[27]

testify on this matter, hence, that information remains to be hearsay and is

thus inadmissible in evidence. It was not verified either, since the letter-
request for investigation of Altonaga was unserved, Altonaga having left for
[28]

the United States of America in January 1990. Nevertheless, that Altonaga

was a mere conduit finds support in the admission of respondent Estate that
the sale to him was part of the tax planning scheme of CIC. That admission is
borne by the records. In its Memorandum, respondent Estate declared:

Petitioner, however, claims there was a change of structure of the proceeds of sale.
Admitted one hundred percent. But isnt this precisely the definition of tax planning?
Change the structure of the funds and pay a lower tax. Precisely, Sec. 40 (2) of the
Tax Code exists, allowing tax free transfers of property for stock, changing the
structure of the property and the tax to be paid. As long as it is done legally, changing
the structure of a transaction to achieve a lower tax is not against the law. It is
absolutely allowed.

Tax planning is by definition to reduce, if not eliminate altogether, a tax. Surely

petitioner [sic] cannot be faulted for wanting to reduce the tax from 35% to
5%. [Underscoring supplied].
[29]

The scheme resorted to by CIC in making it appear that there were two
sales of the subject properties, i.e., from CIC to Altonaga, and then from
Altonaga to RMI cannot be considered a legitimate tax planning. Such
scheme is tainted with fraud.
Fraud in its general sense, is deemed to comprise anything calculated to
deceive, including all acts, omissions, and concealment involving a breach of
legal or equitable duty, trust or confidence justly reposed, resulting in the
damage to another, or by which an undue and unconscionable advantage is
taken of another. [30]

Here, it is obvious that the objective of the sale to Altonaga was to reduce
the amount of tax to be paid especially that the transfer from him to RMI would
then subject the income to only 5% individual capital gains tax, and not the
35% corporate income tax. Altonagas sole purpose of acquiring and
transferring title of the subject properties on the same day was to create a tax
shelter. Altonaga never controlled the property and did not enjoy the normal
benefits and burdens of ownership. The sale to him was merely a tax ploy, a
sham, and without business purpose and economic substance. Doubtless,
the execution of the two sales was calculated to mislead the BIR with the end
in view of reducing the consequent income tax liability.
In a nutshell, the intermediary transaction, i.e., the sale of Altonaga, which
was prompted more on the mitigation of tax liabilities than for legitimate
business purposes constitutes one of tax evasion. [31]

Generally, a sale or exchange of assets will have an income tax incidence

only when it is consummated. The incidence of taxation depends upon the
[32]

substance of a transaction. The tax consequences arising from gains from a

sale of property are not finally to be determined solely by the means employed
to transfer legal title. Rather, the transaction must be viewed as a whole, and
each step from the commencement of negotiations to the consummation of
the sale is relevant. A sale by one person cannot be transformed for tax
purposes into a sale by another by using the latter as a conduit through which
to pass title. To permit the true nature of the transaction to be disguised by
mere formalisms, which exist solely to alter tax liabilities, would seriously
impair the effective administration of the tax policies of Congress. [33]
 To allow a taxpayer to deny tax liability on the ground that the sale was
made through another and distinct entity when it is proved that the latter was
merely a conduit is to sanction a circumvention of our tax laws. Hence, the
sale to Altonaga should be disregarded for income tax purposes. The two [34]

sale transactions should be treated as a single direct sale by CIC to RMI.

Accordingly, the tax liability of CIC is governed by then Section 24 of the
NIRC of 1986, as amended (now 27 (A) of the Tax Reform Act of 1997), which
stated as follows:

Sec. 24. Rates of tax on corporations. (a) Tax on domestic corporations.- A tax
is hereby imposed upon the taxable net income received during each taxable year
from all sources by every corporation organized in, or existing under the laws of the
Philippines, and partnerships, no matter how created or organized but not including
general professional partnerships, in accordance with the following:

Twenty-five percent upon the amount by which the taxable net income does not
exceed one hundred thousand pesos; and

Thirty-five percent upon the amount by which the taxable net income exceeds one
hundred thousand pesos.

CIC is therefore liable to pay a 35% corporate tax for its taxable net income in
1989. The 5% individual capital gains tax provided for in Section 34 (h) of the
NIRC of 1986 (now 6% under Section 24 (D) (1) of the Tax Reform Act of
[35]

1997) is inapplicable. Hence, the assessment for the deficiency income tax
issued by the BIR must be upheld.

Has the period of

assessment prescribed?

No. Section 269 of the NIRC of 1986 (now Section 222 of the Tax Reform
Act of 1997) read:

Sec. 269. Exceptions as to 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
failure to file a return, the tax may be assessed, or a proceeding in court after the
collection of such tax may be begun without assessment, at any time within ten 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 collection thereof .
 Put differently, in cases of (1) fraudulent returns; (2) false returns with
intent to evade tax; and (3) failure to file a return, the period within which to
assess tax is ten years from discovery of the fraud, falsification or omission,
as the case may be.
It is true that in a query dated 24 August 1989, Altonaga, through his
counsel, asked the Opinion of the BIR on the tax consequence of the two sale
transactions. Thus, the BIR was amply informed of the transactions even
[36]

prior to the execution of the necessary documents to effect the

transfer. Subsequently, the two sales were openly made with the execution of
public documents and the declaration of taxes for 1989. However, these
circumstances do not negate the existence of fraud. As earlier discussed
those two transactions were tainted with fraud. And even
assuming arguendo that there was no fraud, we find that the income tax return
filed by CIC for the year 1989 was false. It did not reflect the true or actual
amount gained from the sale of the Cibeles property. Obviously, such was
done with intent to evade or reduce tax liability.
As stated above, the prescriptive period to assess the correct taxes in
case of false returns is ten years from the discovery of the falsity. The false
return was filed on 15 April 1990, and the falsity thereof was claimed to have
been discovered only on 8 March 1991. The assessment for the 1989
[37]

deficiency income tax of CIC was issued on 9 January 1995. Clearly, the
issuance of the correct assessment for deficiency income tax was well within
the prescriptive period.

Is respondent Estate liable

for the 1989 deficiency
income tax of Cibeles
Insurance Corporation?

A corporation has a juridical personality distinct and separate from the

persons owning or composing it. Thus, the owners or stockholders of a
corporation may not generally be made to answer for the liabilities of a
corporation and vice versa. There are, however, certain instances in which
personal liability may arise. It has been held in a number of cases that
personal liability of a corporate director, trustee, or officer along, albeit not
necessarily, with the corporation may validly attach when:
1. He assents to the (a) patently unlawful act of the corporation, (b) bad faith or gross
negligence in directing its affairs, or (c) conflict of interest, resulting in damages to
the corporation, its stockholders, or other persons;
 2. He consents to the issuance of watered down stocks or, having knowledge thereof,
does not forthwith file with the corporate secretary his written objection thereto;
3. He agrees to hold himself personally and solidarily liable with the corporation; or
4. He is made, by specific provision of law, to personally answer for his corporate
action.[38]

It is worth noting that when the late Toda sold his shares of stock to Le
Hun T. Choa, he knowingly and voluntarily held himself personally liable for all
the tax liabilities of CIC and the buyer for the years 1987, 1988, and
1989. Paragraph g of the Deed of Sale of Shares of Stocks specifically
provides:

g. Except for transactions occurring in the ordinary course of business, Cibeles has no
liabilities or obligations, contingent or otherwise, for taxes, sums of money or
insurance claims other than those reported in its audited financial statement as of
December 31, 1989, attached hereto as Annex B and made a part hereof. The
business of Cibeles has at all times been conducted in full compliance with all
applicable laws, rules and regulations. SELLER undertakes and agrees to hold the
BUYER and Cibeles free from any and all income tax liabilities of Cibeles for the
fiscal years 1987, 1988 and 1989. [Underscoring Supplied].
[39]

When the late Toda undertook and agreed to hold the BUYER and
Cibeles free from any all income tax liabilities of Cibeles for the fiscal years
1987, 1988, and 1989, he thereby voluntarily held himself personally liable
therefor. Respondent estate cannot, therefore, deny liability for CICs
deficiency income tax for the year 1989 by invoking the separate corporate
personality of CIC, since its obligation arose from Todas contractual
undertaking, as contained in the Deed of Sale of Shares of Stock.
WHEREFORE, in view of all the foregoing, the petition is hereby
GRANTED. The decision of the Court of Appeals of 31 January 2001 in CA-
G.R. SP No. 57799 is REVERSED and SET ASIDE, and another one is
hereby rendered ordering respondent Estate of Benigno P. Toda Jr. to
pay P79,099,999.22 as deficiency income tax of Cibeles Insurance
Corporation for the year 1989, plus legal interest from 1 May 1994 until the
amount is fully paid.
Costs against respondent.
SO ORDERED.
 SECOND DIVISION

[G.R. No. 120880. June 5, 1997]

FERDINAND R. MARCOS II, petitioner, vs. COURT OF APPEALS, THE

COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE and
HERMINIA D. DE GUZMAN, respondents.

DECISION
TORRES, JR., J.:

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

assailed as precipitate and unfair, suffering the basic and oftly implored
requisites of due process of law. Specifically, the petition assails the
Decision of the Court of Appeals dated November 29, 1994 in CA-G.R. SP
[1]

No. 31363, where the said court held:

"In view of all the foregoing, we rule that the deficiency income tax assessments and
estate tax assessment, are already final and (u)nappealable -and- the subsequent levy
of real properties is a tax remedy resorted to by the government, sanctioned by
Section 213 and 218 of the National Internal Revenue Code. This summary tax
remedy is distinct and separate from the other tax remedies (such as Judicial Civil
actions and Criminal actions), and is not affected or precluded by the pendency of any
other tax remedies instituted by the government.

WHEREFORE, premises considered, judgment is hereby rendered DISMISSING the

petition for certiorari with prayer for Restraining Order and Injunction.

No pronouncements as to costs.

SO ORDERED."

More than seven years since the demise of the late Ferdinand E. Marcos,
the former President of the Republic of the Philippines, the matter of the
settlement of his estate, and its dues to the government in estate taxes, are
still unresolved, the latter issue being now before this Court for
resolution. Specifically, petitioner Ferdinand R. Marcos II, the eldest son of
the decedent, questions the actuations of the respondent Commissioner of
Internal Revenue in assessing, and collecting through the summary remedy of
Levy on Real Properties, estate and income tax delinquencies upon the estate
and properties of his father, despite the pendency of the proceedings on
probate of the will of the late president, which is docketed as Sp. Proc. No.
10279 in the Regional Trial Court of Pasig, Branch 156.
Petitioner had filed with the respondent Court of Appeals a Petition
for Certiorari and Prohibition with an application for writ of preliminary
injunction and/or temporary restraining order on June 28, 1993, seeking to -

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

II. Annul and set aside the Notices of Sale dated May 26, 1993;

III. Enjoin the Head Revenue Executive Assistant Director II (Collection Service),
from proceeding with the Auction of the real properties covered by Notices of Sale.

After the parties had pleaded their case, the Court of Appeals rendered its
Decision on November 29, 1994, ruling that the deficiency assessments for
[2]

estate and income tax made upon the petitioner and the estate of the
deceased President Marcos have already become final and unappealable,
and may thus be enforced by the summary remedy of levying upon the
properties of the late President, as was done by the respondent
Commissioner of Internal Revenue.

"WHEREFORE, premises considered judgment is hereby rendered DISMISSING the

petition for Certiorari with prayer for Restraining Order and Injunction.

No pronouncements as to cost.

SO ORDERED."

Unperturbed, petitioner is now before us assailing the validity of the

appellate court's decision, assigning the following as errors:
A. RESPONDENT COURT MANIFESTLY ERRED IN RULING THAT THE SUMMARY
TAX REMEDIES RESORTED TO BY THE GOVERNMENT ARE NOT AFFECTED AND
PRECLUDED BY THE PENDENCY OF THE SPECIAL PROCEEDING FOR THE
ALLOWANCE OF THE LATE PRESIDENT'S ALLEGED WILL. TO THE CONTRARY, THIS
PROBATE PROCEEDING PRECISELY PLACED ALL PROPERTIES WHICH FORM PART OF
THE LATE PRESIDENT'S ESTATE IN CUSTODIA LEGIS OF THE PROBATE COURT TO THE
EXCLUSION OF ALL OTHER COURTS AND ADMINISTRATIVE AGENCIES.
B. RESPONDENT COURT ARBITRARILY ERRED IN SWEEPINGLY DECIDING THAT
SINCE THE TAX ASSESSMENTS OF PETITIONER AND HIS PARENTS HAD ALREADY
BECOME FINAL AND UNAPPEALABLE, THERE WAS NO NEED TO GO INTO THE MERITS
OF THE GROUNDS CITED IN THE PETITION. INDEPENDENT OF WHETHER THE TAX
ASSESSMENTS HAD ALREADY BECOME FINAL, HOWEVER, PETITIONER HAS THE
RIGHT TO QUESTION THE UNLAWFUL MANNER AND METHOD IN WHICH TAX
COLLECTION IS SOUGHT TO BE ENFORCED BY RESPONDENTS COMMISSIONER AND
DE GUZMAN. THUS, RESPONDENT COURT SHOULD HAVE FAVORABLY CONSIDERED
THE MERITS OF THE FOLLOWING GROUNDS IN THE PETITION:

(1) The Notices of Levy on Real Property were issued beyond the period
provided in the Revenue Memorandum Circular No. 38-68.

(2) [a] The numerous pending court cases questioning the late President's
ownership or interests in several properties (both personal and real) make the total
value of his estate, and the consequent estate tax due, incapable of exact
pecuniary determination at this time. Thus, respondents assessment of the estate
tax and their issuance of the Notices of Levy and Sale are premature, confiscatory
and oppressive.

[b] Petitioner, as one of the late President's compulsory heirs, was never notified,
much less served with copies of the Notices of Levy, contrary to the mandate of
Section 213 of the NIRC. As such, petitioner was never given an opportunity to
contest the Notices in violation of his right to due process of law.

C. ON ACCOUNT OF THE CLEAR MERIT OF THE PETITION, RESPONDENT COURT

MANIFESTLY ERRED IN RULING THAT IT HAD NO POWER TO GRANT INJUNCTIVE
RELIEF TO PETITIONER. SECTION 219 OF THE NIRC NOTWITHSTANDING, COURTS
POSSESS THE POWER TO ISSUE A WRIT OF PRELIMINARY INJUNCTION TO RESTRAIN
RESPONDENTS COMMISSIONER'S AND DE GUZMAN'S ARBITRARY METHOD OF
COLLECTING THE ALLEGED DEFICIENCY ESTATE AND INCOME TAXES BY MEANS OF
LEVY.

The facts as found by the appellate court are undisputed, and are hereby
adopted:

"On September 29, 1989, former President Ferdinand Marcos died in Honolulu,
Hawaii, USA.

On June 27, 1990, a Special Tax Audit Team was created to conduct investigations
and examinations of the tax liabilities and obligations of the late president, as well as
that of his family, associates and "cronies". Said audit team concluded its
investigation with a Memorandum dated July 26, 1991. The investigation disclosed
that the Marcoses failed to file a written notice of the death of the decedent, an estate
tax returns [sic], as well as several income tax returns covering the years 1982 to
1986, -all in violation of the National Internal Revenue Code (NIRC).
Subsequently, criminal charges were filed against Mrs. Imelda R. Marcos before the
Regional Trial of Quezon City for violations of Sections 82, 83 and 84 (has penalized
under Sections 253 and 254 in relation to Section 252- a & b) of the National Internal
Revenue Code (NIRC).

The Commissioner of Internal Revenue thereby caused the preparation and filing of
the Estate Tax Return for the estate of the late president, the Income Tax Returns of
the Spouses Marcos for the years 1985 to 1986, and the Income Tax Returns of
petitioner Ferdinand 'Bongbong' Marcos II for the years 1982 to 1985.

On July 26, 1991, the BIR issued the following: (1) Deficiency estate tax assessment
no. FAC-2-89-91-002464 (against the estate of the late president Ferdinand Marcos in
the amount of P23,293,607,638.00 Pesos); (2) Deficiency income tax assessment no.
FAC-1-85-91-002452 and Deficiency income tax assessment no. FAC-1-86-91-
002451 (against the Spouses Ferdinand and Imelda Marcos in the amounts of
P149,551.70 and P184,009,737.40 representing deficiency income tax for the years
1985 and 1986); (3) Deficiency income tax assessment nos. FAC-1-82-91-002460 to
FAC-1-85-91-002463 (against petitioner Ferdinand 'Bongbong' Marcos II in the
amounts of P258.70 pesos; P9,386.40 Pesos; P4,388.30 Pesos; and P6,376.60 Pesos
representing his deficiency income taxes for the years 1982 to 1985).

The Commissioner of Internal Revenue avers that copies of the deficiency estate and
income tax assessments were all personally and constructively served on August 26,
1991 and September 12, 1991 upon Mrs. Imelda Marcos (through her caretaker Mr.
Martinez) at her last known address at No. 204 Ortega St., San Juan, M.M. (Annexes
'D' and 'E' of the Petition). Likewise, copies of the deficiency tax assessments issued
against petitioner Ferdinand 'Bongbong' Marcos II were also personally and
constructively served upon him (through his caretaker) on September 12, 1991, at his
last known address at Don Mariano Marcos St. corner P. Guevarra St., San Juan,
M.M. (Annexes 'J' and 'J-1' of the Petition). Thereafter, Formal Assessment notices
were served on October 20, 1992, upon Mrs. Marcos c/o petitioner, at his office,
House of Representatives, Batasan Pambansa, Quezon City. Moreover, a notice to
Taxpayer inviting Mrs. Marcos (or her duly authorized representative or counsel), to a
conference, was furnished the counsel of Mrs. Marcos, Dean Antonio Coronel - but to
no avail.

The deficiency tax assessments were not protested administratively, by Mrs. Marcos
and the other heirs of the late president, within 30 days from service of said
assessments.
On February 22, 1993, the BIR Commissioner issued twenty-two notices of levy on
real property against certain parcels of land owned by the Marcoses - to satisfy the
alleged estate tax and deficiency income taxes of Spouses Marcos.

On May 20, 1993, four more Notices of Levy on real property were issued for the
purpose of satisfying the deficiency income taxes.

On May 26, 1993, additional four (4) notices of Levy on real property were again
issued. The foregoing tax remedies were resorted to pursuant to Sections 205 and 213
of the National Internal Revenue Code (NIRC).

In response to a letter dated March 12, 1993 sent by Atty. Loreto Ata (counsel of
herein petitioner) calling the attention of the BIR and requesting that they be duly
notified of any action taken by the BIR affecting the interest of their client Ferdinand
'Bongbong Marcos II, as well as the interest of the late president - copies of the
aforesaid notices were served on April 7, 1993 and on June 10, 1993, upon Mrs.
Imelda Marcos, the petitioner, and their counsel of record, 'De Borja, Medialdea, Ata,
Bello, Guevarra and Serapio Law Office'.

Notices of sale at public auction were posted on May 26, 1993, at the lobby of the
City Hall of Tacloban City. The public auction for the sale of the eleven (11) parcels
of land took place on July 5, 1993. There being no bidder, the lots were declared
forfeited in favor of the government.

On June 25, 1993, petitioner Ferdinand 'Bongbong' Marcos II filed the instant petition
for certiorari and prohibition under Rule 65 of the Rules of Court, with prayer for
temporary restraining order and/or writ of preliminary injunction."

It has been repeatedly observed, and not without merit, that the
enforcement of tax laws and the collection of taxes, is of paramount
importance for the sustenance of government. Taxes are the lifeblood of the
government and should be collected without unnecessary
hindrance. However, such collection should be made in accordance with law
as any arbitrariness will negate the very reason for government itself. It is
therefore necessary to reconcile the apparently conflicting interests of the
authorities and the taxpayers so that the real purpose of taxation, which is the
promotion of the common good, may be achieved." [3]

Whether or not the proper avenues of assessment and collection of the

said tax obligations were taken by the respondent Bureau is now the subject
of the Court's inquiry.
 Petitioner posits that notices of levy, notices of sale, and subsequent sale
of properties of the late President Marcos effected by the BIR are null and
void for disregarding the established procedure for the enforcement of taxes
due upon the estate of the deceased. The case of Domingo vs. Garlitos is [4]

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; to determine who are the heirs of
[5]

the decedent; the recognition of a natural child; the status of a woman

[6] [7]

claiming to be the legal wife of the decedent; the legality of disinheritance of

[8]

an heir by the testator; and to pass upon the validity of a waiver of hereditary
[9]

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 that the court recognized the liberal
[12]

treatment of claims for taxes charged against the estate of the

decedent. Such taxes, we said, were exempted from the application of the
statute of non-claims, and this is justified by the necessity of government
funding, immortalized in the maxim that taxes are the lifeblood of the
government. Vectigalia nervi sunt rei publicae - taxes are the sinews of the
state.

"Taxes assessed against the estate of a deceased person, after administration is

opened, need not be submitted to the committee on claims in the ordinary course of
administration. In the exercise of its control over the administrator, the court may
direct the payment of such taxes upon motion showing that the taxes have been
assessed against the estate."

Such liberal treatment of internal revenue taxes in the probate

proceedings extends so far, even to allowing the enforcement of tax
obligations against the heirs of the decedent, even after distribution of the
estate's properties.

"Claims for taxes, whether assessed before or after the death of the deceased, can be
collected from the heirs even after the distribution of the properties of the
decedent. They are exempted from the application of the statute of non-claims. The
heirs shall be liable therefor, in proportion to their share in the inheritance."
[13]

"Thus, the Government has two ways of collecting the taxes in question. One, by
going after all the heirs and collecting from each one of them the amount of the tax
proportionate to the inheritance received. Another remedy, pursuant to the lien
created by Section 315 of the Tax Code upon all property and rights to property
belong to the taxpayer for unpaid income tax, is by subjecting said property of the
estate which is in the hands of an heir or transferee to the payment of the tax due the
estate. (Commissioner of Internal Revenue vs. Pineda, 21 SCRA 105, September 15,
1967.)

From the foregoing, it is discernible that the approval of the court, sitting in
probate, or as a settlement tribunal over the deceased is not a mandatory
requirement in the collection of estate taxes. It cannot therefore be argued
that the Tax Bureau erred in proceeding with the levying and sale of the
properties allegedly owned by the late President, on the ground that it was
required to seek first the probate court's sanction. There is nothing in the Tax
Code, and in the pertinent remedial laws that implies the necessity of the
probate or estate settlement court's approval of the state's claim for estate
taxes, before the same can be enforced and collected.
On the contrary, under Section 87 of the NIRC, it is the probate or
settlement court which is bidden not to authorize the executor or judicial
administrator of the decedent's estate to deliver any distributive share to any
party interested in the estate, unless it is shown a Certification by the
Commissioner of Internal Revenue that the estate taxes have been paid. This
provision disproves the petitioner's contention that it is the probate court which
approves the assessment and collection of the estate tax.
If there is any issue as to the validity of the BIR's decision to assess the
estate taxes, this should have been pursued through the proper administrative
and judicial avenues provided for by law.
Section 229 of the NIRC tells us how:

"Sec. 229. Protesting of assessment.-When the Commissioner of Internal Revenue or

his duly authorized representative finds that proper taxes should be assessed, he shall
first notify the taxpayer of his findings. Within a period to be prescribed by
implementing regulations, the taxpayer shall be required to respond to said notice. If
the taxpayer fails to respond, the Commissioner shall issue an assessment based on his
findings.

Such assessment may be protested administratively by filing a request for

reconsideration or reinvestigation in such form and manner as may be prescribed by
implementing regulations within (30) days from receipt of the assessment; otherwise,
the assessment shall become final and unappealable.

If the protest is denied in whole or in part, the individual, association or corporation

adversely affected by the decision on the protest may appeal to the Court of Tax
Appeals within thirty (30) days from receipt of said decision; otherwise, the decision
shall become final, executory and demandable. (As inserted by P.D. 1773)"

Apart from failing to file the required estate tax return within the time
required for the filing of the same, petitioner, and the other heirs never
questioned the assessments served upon them, allowing the same to lapse
into finality, and prompting the BIR to collect the said taxes by levying upon
the properties left by President Marcos.
Petitioner submits, however, that "while the assessment of taxes may
have been validly undertaken by the Government, collection thereof may have
been done in violation of the law. Thus, the manner and method in which the
latter is enforced may be questioned separately, and irrespective of the finality
of the former, because the Government does not have the unbridled discretion
to enforce collection without regard to the clear provision of law." [14]

Petitioner specifically points out that applying Memorandum Circular No.

38-68, implementing Sections 318 and 324 of the old tax code (Republic Act
5203), the BIR's Notices of Levy on the Marcos properties, were issued
beyond the allowed period, and are therefore null and void:

"...the Notices of Levy on Real Property (Annexes 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. 38-68. These
Notices of Levy were issued only on 22 February 1993 and 20 May 1993 when at
least seventeen (17) months had already lapsed from the last service of tax assessment
on 12 September 1991. As no notices of distraint of personal property were first
issued by respondents, the latter should have complied with Revenue Memorandum
Circular No. 38-68 and issued these Notices of Levy not earlier than three (3) months
nor later than six (6) months from 12 September 1991. In accordance with the
Circular, respondents only had until 12 March 1992 (the last day of the sixth month)
within which to issue these Notices of Levy. The Notices of Levy, having been issued
beyond the period allowed by law, are thus void and of no effect." [15]

We hold otherwise. The Notices of Levy upon real property were issued
within the prescriptive period and in accordance with the provisions of the
present Tax Code. The deficiency tax assessment, having already become
final, executory, and demandable, the same can now be collected through the
summary remedy of distraint or levy pursuant to Section 205 of the NIRC.
The applicable provision in regard to the prescriptive period for the
assessment and collection of tax deficiency in this instance is Article 223 of
the NIRC, which pertinently provides:
"Sec. 223. Exceptions as to a period of limitation of assessment and collection of
taxes.- (a) In the case of a false or fraudulent return with intent to evade tax or of a
failure to file a return, the tax may be assessed, or a proceeding in court for the
collection of such tax may be begun without assessment, at any time within ten (10)
years after the discovery of the falsity, fraud, or omission: Provided, That, in a fraud
assessment which has become final and executory, the fact of fraud shall be judicially
taken cognizance of in the civil or criminal action for the collection thereof.

xxx

(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.
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 whose determinations and assessments are presumed
[16]

correct and made in good faith. The taxpayer has the duty of proving
[17]

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
[18]

pointed out one single provision in the Memorandum of the Special Audit
Team which gave rise to the questioned assessment, which bears a trace of
falsity. Indeed, the petitioner's attack on the assessment bears mainly on the
alleged improbable and unconscionable amount of the taxes charged. But
mere rhetoric cannot supply the basis for the charge of impropriety of the
assessments made.
Moreover, these objections to the assessments should have been raised,
considering the ample remedies afforded the taxpayer by the Tax Code, with
the Bureau of Internal Revenue and the Court of Tax Appeals, as described
earlier, and cannot be raised now via Petition for Certiorari, under the pretext
of grave abuse of discretion. The course of action taken by the petitioner
reflects his disregard or even repugnance of the established institutions for
governance in the scheme of a well-ordered society. The subject tax
assessments having become final, executory and enforceable, the same can
no longer be contested by means of a disguised protest. In the
main, Certiorari may not be used as a substitute for a lost appeal or
remedy. This judicial policy becomes more pronounced in view of the
[19]

absence of sufficient attack against the actuations of government.

 On the matter of sufficiency of service of Notices of Assessment to the
petitioner, we find the respondent appellate court's pronouncements sound
and resilient to petitioner's attacks.

"Anent grounds 3(b) and (B) - both alleging/claiming lack of notice - We find, after
considering the facts and circumstances, as well as evidences, that there was
sufficient, constructive and/or actual notice of assessments, levy and sale, sent to
herein petitioner Ferdinand "Bongbong" Marcos as well as to his mother Mrs. Imelda
Marcos.

Even if we are to rule out the notices of assessments personally given to the caretaker
of Mrs. Marcos at the latter's last known address, on August 26, 1991 and September
12, 1991, as well as the notices of assessment personally given to the caretaker of
petitioner also at his last known address on September 12, 1991 - the subsequent
notices given thereafter could no longer be ignored as they were sent at a time when
petitioner was already here in the Philippines, and at a place where said notices would
surely be called to petitioner's attention, and received by responsible persons of
sufficient age and discretion.

Thus, on October 20, 1992, formal assessment notices were served upon Mrs. Marcos
c/o the petitioner, at his office, House of Representatives, Batasan Pambansa, Q.C.
(Annexes "A", "A-1", "A-2", "A-3"; pp. 207-210, Comment/Memorandum of
OSG). Moreover, a notice to taxpayer dated October 8, 1992 inviting Mrs. Marcos to
a conference relative to her tax liabilities, was furnished the counsel of Mrs. Marcos -
Dean Antonio Coronel (Annex "B", p. 211, ibid). Thereafter, copies of Notices were
also served upon Mrs. Imelda Marcos, the petitioner and their counsel "De Borja,
Medialdea, Ata, Bello, Guevarra and Serapio Law Office", on April 7, 1993 and June
10, 1993. Despite all of these Notices, petitioner never lifted a finger to protest the
assessments, (upon which the Levy and sale of properties were based), nor appealed
the same to the Court of Tax Appeals.

There being sufficient service of Notices to herein petitioner (and his mother) and it
appearing that petitioner continuously ignored said Notices despite several
opportunities given him to file a protest and to thereafter appeal to the Court of Tax
Appeals, - the tax assessments subject of this case, upon which the levy and sale of
properties were based, could no longer be contested (directly or indirectly) via this
instant petition for certiorari."
[20]

Petitioner argues that all the questioned Notices of Levy, however, must
be nullified for having been issued without validly serving copies thereof to the
petitioner. As a mandatory heir of the decedent, petitioner avers that he has
an interest in the subject estate, and notices of levy upon its properties should
have been served upon him.
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

...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. We cannot therefore, countenance
[21]

petitioner's insistence that he was denied due process. Where there was an
opportunity to raise objections to government action, and such opportunity
was disregarded, for no justifiable reason, the party claiming oppression then
becomes the oppressor of the orderly functions of government. He who
comes to court must come with clean hands. Otherwise, he not only taints his
name, but ridicules the very structure of established authority.
IN VIEW WHEREOF, the Court RESOLVED to DENY the present
petition. The Decision of the Court of Appeals dated November 29, 1994 is
hereby AFFIRMED in all respects.
SO ORDERED.
Regalado, (Chairman), Romero, Puno, and Mendoza, JJ., concur.
 Republic of the Philippines
Supreme Court
Manila

THIRD DIVISION

G.R. Nos. 130371 &130855

REPUBLIC OF THE
PHILIPPINES,
Petitioner,
Present:
YNARES-SANTIAGO, J.,
Chairperson,
- versus - CHICO-NAZARIO,
VELASCO, JR.,
NACHURA, and
PERALTA, JJ.

FERDINAND R. MARCOS II and Promulgated:

IMELDA R. MARCOS,
Respondents. August 4, 2009
x--------------------------------------------------x

DECISION

PERALTA, J.:

Before this Court is a Petition for Review on Certiorari[1] under Rule 45 of

the Rules of Court, seeking to set aside the March 13, 1997 Decision [2] and August
27, 1997 Resolution[3] of the Court of Appeals (CA) in CA-G.R. SP No. 43450.

The facts of the case are as follows:

On January 11, 1996, the Regional Trial Court (RTC) of Pasig City Branch
156, acting as a probate court, in Special Proceeding No. 10279, issued an
Order[4] granting letters testamentary in solidum to respondents Ferdinand R.
Marcos II and Imelda Trinidad Romualdez-Marcos as executors of the last will and
testament of the late Ferdinand E. Marcos.

The dispositive portion of the January 11, 1996 Order reads:

WHEREFORE, finding the Last Will and Testament of Ferdinand

Edralin Marcos to have been duly executed in accordance with law, the
same is hereby ALLOWED AND ADMITTED TO PROBATE.

Upon the filing of a bond in the amount of P50,000.00, let

letters testamentary be issued in solidum to Imelda Trinidad
Romualdez-Marcos AND Ferdinand Romualdez Marcos II, named
executors therein.

Pending the filing of said bond and their oath, Commissioner

Liwayway Vinzons-Chato of the Bureau of Internal Revenue is hereby
authorized to continue her functions as Special Administrator of the
Estate of Ferdinand Edralin Marcos.

Let NOTICE be given to all known heirs and creditors of the

decedent, and to any other persons having an interest in the estate for
them to lay their claim against the Estate or forever hold their peace.

SO ORDERED.[5]

On January 15, 1996, the petitioner Republic of the Philippines filed a

Motion for Partial Reconsideration[6] in so far as the January 11, 1996 RTC Order
granted letters testamentary to respondents. On the other hand, respondent Imelda
Marcos filed her own motion for reconsideration on the ground that the will is lost
and that petitioner has not proven its existence and validity.

On February 5, 1996, respondent Ferdinand Marcos II filed a Compliance

stating that he already filed a bond in the amount of P50,000.00 as directed by the
January 11, 1996 RTC Order and that he took his oath as named executor of the
will on January 30, 1996.
 On March 13, 1996, the RTC issued Letters of Administration[7] to BIR
Commissioner Liwayway Vinzons-Chato in accordance with an earlier Order
dated September 9, 1994, appointing her as Special Administratrix of the Marcos
Estate.

On April 1, 1996, respondent Ferdinand Marcos II filed a Motion to Revoke

the Letters of Administration issued by the RTC to BIR Commissioner Vinzons-
Chato.

On April 26, 1996, the RTC issued an Order[8] denying the motion for
partial reconsideration filed by petitioner as well as the motion for reconsideration
filed by respondent Imelda Marcos, the penultimate portion of which reads:

Under the Rules, a decedents testamentary privilege must be

accorded utmost respect. Guided by this legal precept, therefore, in
resolving the two (2) motions at hand, the Court is constrained to DENY
both.

Examining the arguments poised by the movants, the Court

observed that these are but a mere rehash of issues already raised and
passed upon by the Court.

One has to review the previous orders issued by the Court in this
case, e.g., the orders dated September 9, 1994, November 25, 1994, as
well as October 3, 1995, to see that even as far back then, the Court has
considered the matter of competency of the oppositors and of
Commissioner Liwayway Vinzons-Chato as having been settled.

It cannot be overstressed that the assailed January 11, 1996

Orders of the Court was arrived at only after extensive consideration of
every legal facet available on the question of validity of the Will.

WHEREFORE, for lack of merit, the motion for reconsideration

filed separately by petitioner Republic and oppositor Imelda R. Marcos
are both DENIED.

SO ORDERED.[9]
 On June 6, 1996, petitioner filed with this Court a Petition for Review
on Certiorari, under Ruled 45 of the Rules of Court, questioning the
aforementioned RTC Orders granting letters testamentary to respondents.

On February 5, 1997, the First Division of this Court issued a Resolution

referring the petition to the CA, to wit:

x x x x

The special civil action for certiorari as well as all the other
pleadings filed herein are REFERRED to the Court of Appeals for
consideration and adjudication on the merits or any other action as
it may deem appropriate, the latter having jurisdiction concurrent with
this Court over the Case, and this Court having been cited to no special
and important reason for it to take cognizance of said case in the first
instance.[10] (Emphasis and Underscoring Supplied)

On March 13, 1997, the CA issued a Decision,[11] dismissing the referred

petition for having taken the wrong mode of appeal, the pertinent portions of which
reads:

Consequently, for having taken the wrong mode of appeal, the

present petition should be dismissed in accordance with the
same Supreme Court Circular 2-90 which expressly provides that:

4. Erroneous Appeals An appeal taken to

either the Supreme Court or the Court of Appeals by
the wrong or inappropriate mode shall be dismissed.

IN VIEW OF THE FOREGOING, the instant petition for review

is hereby DISMISSED.

SO ORDERED.[12]

Petitioner filed a Motion for Reconsideration,[13] which was, however denied

by the CA in a Resolution[14] dated August 27, 1997.
 Hence, herein petition, with petitioner raising the following assignment of
errors, to wit:

I.

THE COURT OF APPEALS GRAVELY ERRED IN DISMISSING

THE PETITION ON TECHNICAL GROUNDS DESPITE THE
SUPREME COURT RESOLUTION SPECIFICALLY REFERRING
SAID PETITION FOR A DECISION ON THE MERITS.

II.

THE PROBATE COURT GRAVELY ERRED IN FAILING TO

CONSIDER THAT RESPONDENTS IMELDA R. MARCOS AND
FERDINAND R. MARCOS II SHOULD BE DISQUALIFIED TO ACT
AND SERVE AS EXECUTORS.

III.

THE PROBATE COURT GRAVELY ERRED IN FAILING TO

CONSIDER THAT SAID PRIVATE RESPONDENTS HAVE DENIED
AND DISCLAIMED THE VERY EXISTENCE AND VALIDITY OF
THE MARCOS WILL.

IV.

THE PROBATE COURT GRAVELY ERRED IN FAILING TO

CONSIDER THAT ITS ORDER OF JANUARY 11, 1996, WHICH
ADMITTED THE MARCOS WILL TO PROBATE AND WHICH
DIRECTED THE ISSUANCE OF LETTERS TESTAMENTARY IN
SOLIDUM TO PRIVATE RESPONDENTS AS EXECUTORS OF
SAID MARCOS WILL, WAS BASED ON THE EVIDENCE OF THE
REPUBLIC ALONE.

V.

THE PROBATE COURT GRAVELY ERRED IN FAILING TO

CONSIDER THAT BOTH PRIVATE RESPONDENTS HAVE
OBSTRUCTED THE TRANSFER TO THE PHILIPPINES OF THE
MARCOS ASSETS DEPOSITED IN THE SWISS BANKS.[15]
 In the meantime, on October 9, 2002, the RTC, acting on the pending
unresolved motions before it, issued an Order[16] which reads:

WHEREFORE, the Court hereby appoints as joint special

administrators of the estate of the late Ferdinand E. Marcos, the
nominee of the Republic of the Philippines (the Undersecretary of the
Department of Justice whom the Secretary of Justice will designate for
this purpose) and Mrs. Imelda Romualdez Marcos and Mr. Ferdinand R.
Marcos II, to serve as such until an executor is finally appointed.

SO ORDERED.

The petition is without merit.

When the assailed Orders granting letters testamentary in solidum to

respondents were issued by the RTC, petitioner sought to question them by filing a
petition for review on certiorari under Rule 45 of the Rules of Court.

Supreme Court Circular No. 2-90,[17] which was then in effect, reads:

2. Appeals from Regional Trial Courts to the Supreme Court.

Except in criminal cases where the penalty imposed is life imprisonment
to reclusion perpetua, judgments of regional trial courts may be
appealed to the Supreme Court only by petition for review on
certiorari in accordance with Rule 45 of the Rules of Court in
relation to Section 17 of the Judiciary Act of 1948, as amended, this
being the clear intendment of the provision of the Interim Rules that
(a)ppeals to the Supreme Court shall be taken by petition for certiorari
which shall be governed by Rule 45 of the Rules of Court. (Emphasis
and Underscoring Supplied)

The pertinent portions of Section 17[18] of the Judiciary Act of 1948 read:
The Supreme Court shall further have exclusive jurisdiction to
review, revise, reverse, modify or affirm on certiorari as the law or rules
of court may provide, final judgments and decrees of inferior courts as
herein provided, in
 (1) All cases in which the constitutionality or validity of any treaty, law,
ordinance, or executive order or regulation is in question;
(2) All cases involving the legality of any tax, impost, assessment or toll,
or any penalty imposed in relation thereto;
(3) All cases in which the jurisdiction of any inferior court is in issue;
(4) All other cases in which only errors or questions of law are involved:
Provided, however, That if, in addition to constitutional, tax or
jurisdictional questions, the cases mentioned in the three next preceding
paragraphs also involve questions of fact or mixed questions of fact and
law, the aggrieved party shall appeal to the Court of Appeals; and the
final judgment or decision of the latter may be reviewed, revised,
reversed, modified or affirmed by the Supreme Court on writ
of certiorari; and
(5) Final awards, judgments, decision or orders of the Commission on
Elections, Court of Tax Appeals, Court of Industrial Relations, the
Public Service Commission, and the Workmens Compensation
Commission.

A reading of Supreme Court Circular 2-90, in relation to Section 17 of the

Judiciary Act of 1948, clearly shows that the subject matter of therein petition, that
is, the propriety of granting letters testamentary to respondents, do not fall within
any ground which can be the subject of a direct appeal to this Court. The CA was
thus correct in declaring that the issues raised by petitioner do not fall within the
purview of Section 17 of the Judiciary Act of 1948 such that the Supreme Court
should take cognizance of the instant case.[19]

Moreover, the Courts pronouncement in Suarez v. Judge Villarama[20] is

instructive:
Section 4 of Circular No. 2-90, in effect at the time of the
antecedents, provides that an appeal taken to either the Supreme
Court or the Court of Appeals by the wrong mode or inappropriate
mode shall be dismissed. This rule is now incorporated in Section 5,
Rule 56 of the 1997 Rules of Civil Procedure.
Moreover, the filing of the case directly with this Court runs
afoul of the doctrine of hierarchy of courts. Pursuant to this
doctrine, direct resort from the lower courts to the Supreme Court
will not be entertained unless the appropriate remedy cannot be
obtained in the lower tribunals. This Court is a court of last resort, and
 must so remain if it is to satisfactorily perform the functions assigned to
it by the Constitution and immemorial tradition. Thus, a petition for
review on certiorari assailing the decision involving both questions
of fact and law must first be brought before the Court of Appeals.[21]

Also, in Southern Negros Development Bank v. Court of Appeals,[22] this

Court ruled:
It is incumbent upon private respondent qua appellants to utilize
the correct mode of appeal of the decisions of trial courts to the appellate
courts. In the mistaken choice of their remedy, they can blame no one
but themselves (Jocson v. Baguio, 179 SCRA 550 [1989]; Yucuanseh
Drug Co. v. National Labor Union, 101 Phil. 409 [1957]).
x x x x
Pursuant to Section 4 of Circular No. 2-90, which provides
that "[a]n appeal taken to either the Supreme Court or the Court of
Appeals by the wrong mode or inappropriate mode shall be
dismissed," the only course of action of the Court to which an
erroneous appeal is made is to dismiss the same. There is no longer
any justification for allowing transfers of erroneous appeals from
one court to another (Quesada v. Court of Appeals, G.R. No. 93869,
November 12, 1990, First Division, Minute Resolution).[23]

Based on the foregoing, petitioner cannot deny that the determination of

whether or not respondents should be disqualified to act as executors is a question
of fact. Hence, the proper remedy was to appeal to the CA, not to this Court.

Petitioner is adamant, however, that notwithstanding the improper remedy,

the CA should not have dismissed therein petition. Petitioner argues in the wise:
However, as can be seen in the Resolution of February 5, 1997,
(Annex H) this Honorable Court deemed it more proper to transmit the
first Petition for Review to respondent appellate court for the reason that:

This Court having been cited to no special and important reason

for it to take cognizance of said case in the first instance. x x x

It would appear then that even though this Honorable Court

apparently considers the Republics petition as deserving to be given due
course, it deemed it in the best interest of the parties concerned if the
Court of Appeals would first take cognizance of said case, thereby
preserving its stance as a court of last resort.
 Additionally, this Honorable Court itself plainly stated that the
case under review is:

.REFERRED to the Court of Appeals for consideration and

adjudication on the merits. The latter having jurisdiction concurrent
with this Court over the case[24]

Petitioners arguments are misplaced. To stress, the February 5,

1997 Resolution reads:

The special civil action for certiorari as well as all the other
pleadings filed herein are REFERRED to the Court of Appeals for
consideration and adjudication on the merits or any other action as it
may deem appropriate, the latter having jurisdiction concurrent with
this Court over the Case, and this Court having been cited to no special
and important reason for it to take cognizance of said case in the first
instance.[25]

Based thereon, this Court agrees with the ruling of the CA that said
resolution gave the CA discretion and latitude to decide the petition as it may deem
proper. The resolution is clear that the petition was referred to the CA for
consideration and adjudication on the merits or any other action as it may deem
appropriate. Thus, no error can be attributed to the CA when the action it deemed
appropriate was to dismiss the petition for having availed of an improper remedy.
More importantly, the action of the CA was sanctioned under Section 4 of
Supreme Court Circular 2-90 which provides that an appeal taken to either the
Supreme Court or the Court of Appeals by the wrong mode or inappropriate mode
shall be dismissed.
Moreover, petitioner mistakenly relies in Oriental Media, Inc. v. Court of
Appeals,[26] in which this Court made the following pronouncements:
In the case at bar, there was no urgency or need for Oriental
to resort to the extraordinary remedy of certiorari for when it learned
of the case and the judgment against it on July 25, 1986, due to its
receipt of a copy of the decision by default; no execution had as yet been
ordered by the trial court. As aforementioned, Oriental had still the time
and the opportunity to file a motion for reconsideration, as was actually
 done. Upon the denial of its motion for reconsideration in the first
case, or at the latest upon the denial of its petition for relief from
judgment, Oriental should have appealed. Oriental should have
followed the procedure set forth in the Rules of Court for
Rules of procedure are intended to ensure the orderly
administration of justice and the protection of substantive
rights in judicial and extrajudicial proceedings. It is a
mistake to purpose that substantive law and adjective law
are contradictory to each other or, as has often been
suggested, that enforcement of procedural rules should
never be permitted if it will result in prejudice to the
substantive rights of the litigants. This is not exactly true;
the concept is much misunderstood. As a matter of fact, the
policy of the courts is to give effect to both kinds of law, as
complementing each other, in the just and speedy
resolution of the dispute between the parties. Observance of
both substantive rights is equally guaranteed by due process
whatever the source of such rights, be it the Constitution
itself or only a statute or a rule of court.[27]

In the case at bar, as found by this Court in its February 5, 1997 Resolution,
therein petition offered no important or special reason for the Court to take
cognizance of it at the first instance. Petitioner offered no plausible reason why it
went straight to this Court when an adequate and proper remedy was still available.
The CA was thus correct that the remedy that petitioner should have availed of was
to file an appeal under Rule 109 of the Rules of Court which states:

Section 1. Orders of judgments from which appeals taken. An

interested person may appeal in special proceedings from an order or
judgment rendered by a Court of First Instance or a Juvenile and
Domestic Relations Court, where such order or judgment:

(a) allows or disallows a will;

Because of the preceding discussion, herein petition must necessarily fail.

However, even if this Court were to set aside petitioners procedural lapses, a
careful review of the records of the case reveal that herein petition is without merit.
 At the crux of the controversy is a determination of whether or not
respondents are incompetent to serve as executors of the will of Ferdinand
Marcos.

Ozeata v. Pecson[28] is instructive:

The choice of his executor is a precious prerogative of a testator, a
necessary concomitant of his right to dispose of his property in the
manner he wishes. It is natural that the testator should desire to appoint
one of his confidence, one who can be trusted to carry out his wishes in
the disposal of the estate. The curtailment of this right may be
considered as a curtailment of the right to dispose. And as the rights
granted by will take effect from the time of death (Article 777, Civil
Code of the Philippines), the management of his estate by the
administrator of his choice should be made as soon as practicable, when
no reasonable objection to his assumption of the trust can be interposed
any longer. It has been held that when a will has been admitted to
probate, it is the duty of the court to issue letters testamentary to the
person named as executor upon his application (23 C.J. 1023).

x x x x

The case of In re Erlanger's Estate, 242 N.Y.S. 249, also

reiterates the same principle.
The courts have always respected the right to which a testator
enjoys to determine who is most suitable to settle his testamentary
affairs, and his solemn selection should not lightly be disregarded. After
the admission of a will to probate, the courts will not name a better
executor for the testator nor disqualify, by a judicial veto, the widow
or friend or other person selected in the will, except upon strict
proof of the statutory grounds of incompetency. Matter of Leland's
Will, 219 N.Y. 387, 393, 114 N.E. 854. x x x[29]

Section 1(c), Rule 78 of the Rules of Court defines who are incompetent to
serve as executors, to wit:

Section 1. Who are incompetent to serve as executors or

administrators. No person is competent to serve as executor or
administrator who:
 x x x x

(c) Is in the opinion of the court unfit to execute the duties of

trust by reason of drunkenness, improvidence, or want of understanding
or integrity, or by reason of conviction of an offense involving moral
turpitude. (Emphasis Supplied)

In the case at bar, petitioner anchored its opposition to the grant of letters
testamentary to respondents, specifically on the following grounds: (1) want of
integrity, and (2) conviction of an offense involving moral turpitude. Petitioner
contends that respondents have been convicted of a number of cases [30] and, hence,
should be characterized as one without integrity, or at the least, with questionable
integrity.[31]
The RTC, however, in its January 11, 1996 Order, made the following
findings:

However, except for petitioner Republics allegation of want of

integrity on the part of Imelda Trinidad Romualdez-Marcos and
Ferdinand Romualdez Marco II, named executors in the last will and
testament, so as to render them incompetent to serve as executors, the
Court sees at this time, no evidence on record, oral or documentary,
to substantiate and support the said allegation. (Emphasis Supplied)

Based on the foregoing, this Court stresses that an appellate court is

disinclined to interfere with the action taken by the probate court in the matter of
removal of an executor or administrator unless positive error or gross abuse of
discretion is shown.[32] The Rules of Court gives the lower court the duty and
discretion to determine whether in its opinion an individual is unfit to serve as an
executor. The sufficiency of any ground for removal should thus be determined by
the said court, whose sensibilities are, in the first place, affected by any act or
omission on the part of the administrator not conformable to or in disregard of the
rules of orders of the court.[33]
Hence, in order to reverse the findings of the RTC, this Court must evaluate
the evidence presented or alleged by petitioner in support of its petition for
disqualification. However, after a painstaking review of the records and evidence
on hand, this Court finds that the RTC committed no error or gross abuse of
discretion when it ruled that petitioner failed to substantiate its allegation.
 Petitioner conveniently omits to state that the two cases against respondent
Imelda Marcos have already been reversed by this Court. Her conviction in
Criminal Case No. 17453 was reversed by this Court in Dans, Jr. v.
People.[34] Likewise, her conviction in Criminal Case No. 17450 was reversed by
this Court in Marcos v. Sandiganbayan.[35] Hence, the so-called convictions
against respondent Imelda Marcos cannot serve as a ground for her disqualification
to serve as an executor.

On the other hand, the eight cases filed against respondent Ferdinand Marcos
II involve four charges for violation of Section 45 (failure to file income tax
returns) and four charges for violation of Section 50 (non-payment of deficiency
taxes) of the National Internal Revenue Code of 1977 (NIRC).

It is a matter of record, that in CA-G.R. CR No. 18569,[36] the CA acquitted

respondent Ferdinand Marcos II of all the four charges for violation of Section 50
and sustained his conviction for all the four charges for violation of Section 45. It,
however, bears to stress, that the CA only ordered respondent Marcos II to pay a
fine for his failure to file his income tax return. Moreover, and as admitted by
petitioner,[37] said decision is still pending appeal.

Therefore, since respondent Ferdinand Marcos II has appealed his conviction

relating to four violations of Section 45 of the NIRC, the same should not serve as
a basis to disqualify him to be appointed as an executor of the will of his father.
More importantly, even assuming arguendo that his conviction is later on affirmed,
the same is still insufficient to disqualify him as the failure to file an income tax
return is not a crime involving moral turpitude.

In Villaber v. Commision on Elections,[38] this Court held:

As to the meaning of "moral turpitude," we have consistently

adopted the definition in Black's Law Dictionary as "an act of baseness,
vileness, or depravity in the private duties which a man owes his
fellow men, or to society in general, contrary to the accepted and
customary rule of right and duty between man and woman, or
conduct contrary to justice, honesty, modesty, or good morals."
 In In re Vinzon, the term "moral turpitude" is considered as
encompassing "everything which is done contrary to justice, honesty, or
good morals."
x x x x
We, however, clarified in Dela Torre vs. Commission on
Elections that "not every criminal act involves moral turpitude," and
that ''as to what crime involves moral turpitude is for the Supreme
Court to determine."[39]

Moreover, In De Jesus-Paras v. Vailoces:[40]

Indeed, it is well-settled that "embezzlement, forgery, robbery,

and swindling are crimes which denote moral turpitude and, as a general
rule, all crimes of which fraud is an element are looked on as
involving moral turpitude" (58 C.J.S., 1206).

The failure to file an income tax return is not a crime involving moral
turpitude as the mere omission is already a violation regardless of the fraudulent
intent or willfulness of the individual. This conclusion is supported by the
provisions of the NIRC as well as previous Court decisions which show that with
regard to the filing of an income tax return, the NIRC considers three distinct
violations: (1) a false return, (2) a fraudulent return with intent to evade tax, and
(3) failure to file a return.

The same is illustrated in Section 51(b) of the NIRC which reads:

(b) Assessment and payment of deficiency tax xxx

In case a person fails to make and file a return or list at the

time prescribed by law, or makes willfully or otherwise, false or
fraudulent return or list x x x. (Emphasis Supplied)

Likewise, in Aznar v. Court of Tax Appeals,[41] this Court observed:

 To our minds we can dispense with these controversial arguments
on facts, although we do not deny that the findings of facts by the Court
of Tax Appeals, supported as they are by very substantial evidence, carry
great weight, by resorting to a proper interpretation of Section 332 of the
NIRC. We believe that the proper and reasonable interpretation of said
provision should be that in the three different cases of (1) false return,
(2) fraudulent return with intent to evade tax, (3) 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 years after the discovery of the (1) falsity, (2) fraud, and (3)
omission. Our stand that the law should be interpreted to mean a
separation of the three different situations of false return, fraudulent
return with intent to evade tax, and failure to file a return is
strengthened immeasurably by the last portion of the provision
which segregates the situations into three different classes, namely,
"falsity," "fraud" and "omission."[42] (Emphasis Supplied)

Applying the foregoing considerations to the case at bar, the filing of a

fraudulent return with intent to evade tax is a crime involving moral turpitude as
it entails willfulness and fraudulent intent on the part of the individual. The same,
however, cannot be said for failure to file a return where the mere omission
already constitutes a violation. Thus, this Court holds that even if the conviction of
respondent Marcos II is affirmed, the same not being a crime involving moral
turpitude cannot serve as a ground for his disqualification.

Anent the third error raised by petitioner, the same has no merit.

Petitioner contends that respondents denied the existence of the will, and are,
therefore, estopped from claiming to be the rightful executors thereof. Petitioner
further claims that said actions clearly show that respondents lack the competence
and integrity to serve as officers of the court.

This Court does not agree with the posture taken by petitioner, and instead,
accepts the explanation given by respondents, to wit:

Respondents opposed the petition for probate not because they are
disclaiming the existence of the will, but because of certain legal
 grounds, to wit: (a) petitioner does not have the requisite interest to
institute it; (b) the original copy of the will was not attached to the
petition for probate as required by the rules; and (c) the Commissioner of
the Bureau of Internal Revenue is not qualified to be appointed as
administrator of the estate.[43]

Based on the foregoing, considering the nature of their opposition,

respondents cannot be held guilty of estoppel as they merely acted within their
rights when they put in issue legal grounds in opposing the probate proceedings.
More importantly, even if said grounds were later on overruled by the RTC, said
court was still of opinion that respondents were fit to serve as executors
notwithstanding their earlier opposition. Again, in the absence of palpable error or
gross abuse of discretion, this Court will not interfere with the RTCs discretion.

As for the remaining errors assigned by petitioner, the same are bereft of
merit.

Petitioner contends that respondents have strongly objected to the transfer to

the Philippines of the Marcos assets deposited in the Swiss Banks[44] and thus the
same should serve as a ground for their disqualification to act as executors. This
Court does not agree. In the first place, the same are mere allegations which,
without proof, deserve scant consideration. Time and again, this Court has stressed
that this Court is a court of law and not a court of public opinion. Moreover,
petitioner had already raised the same argument in its motion for partial
reconsideration before the RTC. Said court, however, still did not find the same as
a sufficient ground to disqualify respondents. Again, in the absence of palpable
error or gross abuse of discretion, this Court will not interfere with the RTCs
discretion.
Lastly, petitioner argues that the assailed RTC Orders were based solely on
their own evidence and that respondents offered no evidence to show that they
were qualified to serve as executors.[45] It is basic that one who alleges a fact has
the burden of proving it and a mere allegation is not evidence.[46] Consequently, it
was the burden of petitioner (not respondents) to substantiate the grounds upon
which it claims that respondents should be disqualified to serve as executors, and
having failed in doing so, its petition must necessarily fail.
 WHEREFORE, premises considered, the March 13, 1997 Decision
and August 27, 1997 Resolution of the Court of Appeals in CA-G.R. SP No. 43450
are hereby AFFIRMED.

The Regional Trial Court of Pasig City, Branch 156, acting as a probate
court in Special Proceeding No. 10279, is hereby ORDERED to issue letters
testamentary, in solidum, to Imelda Romualdez-Marcos and Ferdinand Marcos II.

SO ORDERED.
 THIRD DIVISION

RAFAEL ARSENIO S. DIZON, in his G.R. No. 140944

capacity as the Judicial Administrator of
the Estate of the deceased JOSE P. Present:
FERNANDEZ,
Petitioner, YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
- versus - CHICO-NAZARIO,
NACHURA, and
REYES, JJ.
COURT OF TAX APPEALS
andCOMMISSIONER OF INTERNAL Promulgated:
REVENUE,
Respondents. April 30, 2008
x------------------------------------------------------------------------------------x

DECISION

NACHURA, J.:

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]

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] datedOctober 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 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 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[13] stating that the taxes due on
the transfer of real and personal properties[14] of Jose had been fully paid and said
properties may be transferred to his heirs. Sometime in August 1990, Justice Dizon
passed away. Thus, on October 22, 1990, the probate court appointed petitioner as
the administrator of the Estate.[15]

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

forming part of the Estate, for the purpose of paying its creditors, namely:
Equitable Banking Corporation (P19,756,428.31), Banque de L'Indochine et. de
Suez (US$4,828,905.90 as of January 31, 1988), Manila Banking Corporation
(P84,199,160.46 as of February 28, 1989) and State Investment House, Inc.
(P6,280,006.21). Petitioner manifested that Manila Bank, a major creditor of
the Estate was not included, as it did not file a claim with the probate court since it
had security over several real estate properties forming part of the Estate.[16]

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

Collection of the BIR, Themistocles Montalban, issued Estate Tax Assessment
Notice No. FAS-E-87-91-003269,[17] demanding the payment of P66,973,985.40 as
deficiency estate tax, itemized as follows:
 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"

9. Claim of State Investment

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

10. Letter dated March 14, 1990

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

11. Letter dated April 17, 1990

from J.M. Gonzales addressed
to the Regional Director of
BIR in San Pablo City
(p. 183, BIR records); "J"

12. Estate Tax Return filed by

the estate of the late Jose P.
Fernandez through its authorized
representative, Atty. Jesus M.
Gonzales, for Arsenio P. Dizon,
with attachments (pp. 177-182,
BIR records); "K" to "K-5"
13. Certified true copy of the
Letter of Administration
issued by RTC Manila, Branch
51, in Sp. Proc. No. 87-42980
appointing Atty. Rafael S.
Dizon as Judicial Administrator
of the estate of Jose P.
Fernandez; (p. 102, CTA records)
and "L"

14. Certification of Payment of

estate taxes Nos. 2052 and
2053, both dated April 27, 1990,
issued by the Office of the
Regional Director, Revenue
Region No. 4-C, San Pablo
City, with attachments
(pp. 103-104, CTA records.). "M" to "M-5"

Respondent's [BIR] counsel presented on June 26, 1995 one

witness in the person of Alberto Enriquez, who was one of the
revenue examiners who conducted the investigation on the estate tax
case of the late Jose P. Fernandez. In the course of the direct
examination of the witness, he identified the following:

Documents/
Signatures BIR Record

1. Estate Tax Return prepared by

the BIR; p. 138

2. Signatures of Ma. Anabella

Abuloc and Alberto Enriquez,
Jr. appearing at the lower
Portion of Exh. "1"; -do-

3. Memorandum for the Commissioner,

dated July 19, 1991, prepared by
revenue examiners, Ma. Anabella A.
Abuloc, Alberto S. Enriquez and
Raymund S. Gallardo; Reviewed by
 Maximino V. Tagle pp. 143-144

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

5. Signature of Ma. Anabella A.

Abuloc appearing at the
lower portion on p. 2 of Exh. "2"; -do-

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

7. Signature of Maximino V.
Tagle also appearing on
p. 2 of Exh. "2"; -do-

8. Summary of revenue
Enforcement Officers Audit
Report, dated July 19, 1991; p. 139

9. Signature of Alberto
Enriquez at the lower
portion of Exh. "3"; -do-

10. Signature of Ma. Anabella A.

Abuloc at the lower
portion of Exh. "3"; -do-

11. Signature of Raymond S.

Gallardo at the lower
portion of Exh. "3"; -do-

12. Signature of Maximino

V. Tagle at the lower
portion of Exh. "3"; -do-

13. 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]

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
deprive the BIR Commissioner of her authority to re-examine or re-assess the said
return filed on behalf of the Estate.[28]
 On May 31, 1999, petitioner filed a Motion for Reconsideration[29] which the
CA denied in its Resolution[30] dated November 3, 1999.

Hence, the instant Petition raising the following issues:

1. Whether or not the admission of evidence which were not formally

offered by the respondent BIR by the Court of Tax Appeals which
was subsequently upheld by the Court of Appeals is contrary to the
Rules of Court and rulings of this Honorable Court;

2. Whether or not the Court of Tax Appeals and the Court of Appeals
erred in recognizing/considering the estate tax return prepared and
filed by respondent BIR knowing that the probate court appointed
administrator of the estate of Jose P. Fernandez had previously filed
one as in fact, BIR Certification Clearance Nos. 2052 and 2053 had
been issued in the estate's favor;

3. Whether or not the Court of Tax Appeals and the Court of Appeals
erred in disallowing the valid and enforceable claims of creditors
against the estate, as lawful deductions despite clear and convincing
evidence thereof; and

4. Whether or not the Court of Tax Appeals and the Court of Appeals
erred in validating erroneous double imputation of values on the very
same estate properties in the estate tax return it prepared and filed
which effectively bloated the estate's assets.[31]

The petitioner claims that in as much as the valid claims of creditors against
the Estate are in excess of the gross estate, no estate tax was due; that the lack of a
formal offer of evidence is fatal to BIR's cause; that the doctrine laid down in Vda.
de 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 Section
34 of Rule 132 of the Rules on Evidence requiring a formal offer of evidence is
mandatory in character; that, while BIR's witness Alberto Enriquez (Alberto) in his
testimony before the CTA identified the pieces of evidence aforementioned such
that the same were marked, BIR's failure to formally offer said pieces of evidence
and depriving petitioner the opportunity to cross-examine Alberto, render the same
inadmissible in evidence; that assuming arguendo that the ruling in Vda. de
Oate is still applicable, BIR failed to comply with the doctrine's requisites
because the documents herein remained simply part of the BIR records and were
not duly incorporated in the court records; that the BIR failed to consider that
although the actual payments made to the Estate creditors were lower than their
respective claims, such were compromise agreements reached long after the
Estate's liability had been settled by the filing of its estate tax return and the
issuance of BIR Certification Nos. 2052 and 2053; and that the reckoning date of
the claims against the Estate and the settlement of the estate tax due should be at
the time the estate tax return was filed by the judicial administrator and the
issuance of said BIR Certifications and not at the time the aforementioned
Compromise Agreements were entered into with the Estate's creditors.[32]

On the other hand, respondent counters that the documents, being part of the
records of the case and duly identified in a duly recorded testimony are considered
evidence even if the same were not formally offered; that the filing of the estate tax
return by the Estate and the issuance of BIR Certification Nos. 2052 and 2053 did
not deprive the BIR of its authority to examine the return and assess the estate tax;
and that the factual findings of the CTA as affirmed by the CA may no longer be
reviewed by this Court via a petition for review.[33]

The Issues

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

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

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

The Courts Ruling

The Petition is impressed with merit.

 Under Section 8 of RA 1125, the CTA is categorically described as a court
of record. As cases filed before it are litigated de novo, party-litigants shall prove
every minute aspect of their cases. Indubitably, no evidentiary value can be given
the pieces of evidence submitted by the BIR, as the rules on documentary evidence
require that these documents must be formally offered before the
CTA.[34] Pertinent is Section 34, Rule 132 of the Revised Rules on Evidence which
reads:

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

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

The CTA and the CA rely solely on the case of Vda. de Oate, which
reiterated this Court's previous rulings in People v. Napat-a[35] and People v.
Mate[36] on the admission and consideration of exhibits which were not formally
offered during the trial. Although in a long line of cases many of which were
decided after Vda. de Oate, we held that courts cannot consider evidence which
has not been formally offered,[37] nevertheless, petitioner cannot validly assume
that the doctrine laid down in Vda. de Oate has already been abandoned.
Recently, in Ramos v. Dizon,[38] this Court, applying the said doctrine, ruled that
the trial court judge therein committed no error when he admitted and considered
the respondents' exhibits in the resolution of the case, notwithstanding the fact that
the same
were not formally offered. Likewise, in Far East Bank & Trust Company v.
Commissioner of Internal Revenue,[39] the Court made reference to said doctrine in
resolving the issues therein. Indubitably, the doctrine laid down in Vda. De
Oate still subsists in this jurisdiction. In Vda. de Oate, we held that:

From the foregoing provision, it is clear that for evidence to be

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

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

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

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

merely an exception to the general rule. Being an exception, it may be applied
only when there is strict compliance with the requisites mentioned therein;
otherwise, the general rule in Section 34 of Rule 132 of the Rules of Court should
prevail.

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

A common fact threads through Vda. de Oate and Ramos that does not exist
at all in the instant case. In the aforementioned cases, the exhibits were marked at
the pre-trial proceedings to warrant the pronouncement that the same were duly
incorporated in the records of the case. Thus, we held in Ramos:

In this case, we find and so rule that these requirements have been
satisfied. The exhibits in question were presented and marked
during the pre-trial of the case thus, they have been incorporated
into the records. Further, Elpidio himself explained the contents of
these exhibits when he was interrogated by respondents' counsel...

xxxx

But what further defeats petitioner's cause on this issue is that

respondents' exhibits were marked and admitted during the pre-trial
stage as shown by the Pre-Trial Order quoted earlier.[44]
 While the CTA is not governed strictly by technical rules of evidence, [45] as
rules of procedure are not ends in themselves and are primarily intended as tools in
the administration of justice, the presentation of the BIR's evidence is not a mere
procedural technicality which may be disregarded considering that it is the only
means by which the CTA may ascertain and verify the truth of BIR's claims
against the Estate.[46] The BIR's failure to formally offer these pieces of evidence,
despite CTA's directives, is fatal to its cause.[47] Such failure is aggravated by the
fact that not even a single reason was advanced by the BIR to justify such fatal
omission. This, we take against the BIR.

Per the records of this case, the BIR was directed to present its evidence[48] in
the hearing of February 21, 1996, but BIR's counsel failed to appear.[49] The CTA
denied petitioner's motion to consider BIR's presentation of evidence as waived,
with a warning to BIR that such presentation would be considered waived if BIR's
evidence would not be presented at the next hearing. Again, in the hearing of
March 20, 1996, BIR's counsel failed to appear.[50]Thus, in its Resolution[51] dated
March 21, 1996, the CTA considered the BIR to have waived presentation of its
evidence. In the same Resolution, the parties were directed to file their respective
memorandum. Petitioner complied but BIR failed to do so.[52] In all of these
proceedings, BIR was duly notified. Hence, in this case, we are constrained to
apply our ruling in Heirs of Pedro Pasag v. Parocha:[53]

A formal offer is necessary because judges are mandated to rest

their findings of facts and their judgment only and strictly upon the
evidence offered by the parties at the trial. Its function is to enable the
trial judge to know the purpose or purposes for which the proponent is
presenting the evidence. On the other hand, this allows opposing parties
to examine the evidence and object to its admissibility. Moreover, it
facilitates review as the appellate court will not be required to review
documents not previously scrutinized by the trial court.

Strict adherence to the said rule is not a trivial matter. The Court
in Constantino v. Court of Appeals ruled that the formal offer of one's
evidence is deemed waived after failing to submit it within a
considerable period of time. It explained that the court cannot admit
an offer of evidence made after a lapse of three (3) months because
to do so would "condone an inexcusable laxity if not non-compliance
 with a court order which, in effect, would encourage needless delays
and derail the speedy administration of justice."

Applying the aforementioned principle in this case, we find that

the trial court had reasonable ground to consider that petitioners had
waived their right to make a formal offer of documentary or object
evidence. Despite several extensions of time to make their formal offer,
petitioners failed to comply with their commitment and allowed almost
five months to lapse before finally submitting it. Petitioners' failure to
comply with the rule on admissibility of evidence is anathema to the
efficient, effective, and expeditious dispensation of justice.

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

merits of the case.

Ordinarily, the CTA's findings, as affirmed by the CA, are entitled to the
highest respect and will not be disturbed on appeal unless it is shown that the lower
courts committed gross error in the appreciation of facts.[54] In this case, however,
we find the decision of the CA affirming that of the CTA tainted with palpable
error.

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

been condoned. As a mode of extinguishing an obligation,[55] condonation or
remission of debt[56] is defined as:

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

the creditor renounces the enforcement of the obligation, which is
extinguished in its entirety or in that part or aspect of the same to which
the remission refers. It is an essential characteristic of remission that it
be gratuitous, that there is no equivalent received for the benefit given;
once such equivalent exists, the nature of the act changes. It may become
dation in payment when the creditor receives a thing different from that
stipulated; or novation, when the object or principal conditions of the
obligation should be changed; or compromise, when the matter
renounced is in litigation or dispute and in exchange of some concession
which the creditor receives.[57]
 Verily, the second issue in this case involves the construction of Section
79 of the National Internal Revenue Code[59] (Tax Code) which provides for the
[58]

allowable deductions from the gross estate of the decedent. The specific question is
whether the actual claims of the aforementioned creditors may be fully allowed as
deductions from the gross estate of Jose despite the fact that the said claims were
reduced or condoned through compromise agreements entered into by the Estate
with its creditors.

Claims against the estate, as allowable deductions from the gross estate
under Section 79 of the Tax Code, are basically a reproduction of the deductions
allowed under Section 89 (a) (1) (C) and (E) of Commonwealth Act No. 466 (CA
466), otherwise known as the National Internal Revenue Code of 1939, and which
was the first codification of Philippine tax laws. Philippine tax laws were, in turn,
based on the federal tax laws of the United States. Thus, pursuant to established
rules of statutory construction, the decisions of American courts construing the
federal tax code are entitled to great weight in the interpretation of our own tax
laws.[60]

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

whether the deductible amount for a claim against the estate is fixed as of the
decedent's death which is the general rule, or the same should be adjusted to reflect
post-death developments, such as where a settlement between the parties results in
the reduction of the amount actually paid.[61] On one hand, the U.S. court ruled that
the appropriate deduction is the value that the claim had at the date of the
decedent's death.[62] Also, as held in Propstra v. U.S., [63] where a lien claimed
against the estate was certain and enforceable on the date of the decedent's death,
the fact that the claimant subsequently settled for lesser amount did not preclude
the estate from deducting the entire amount of the claim for estate tax
purposes. These pronouncements essentially confirm the general principle that
post-death developments are not material in determining the amount of the
deduction.

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:

We are persuaded that the Ninth Circuit's decision...in Propstra correctly

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

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

pursuant to the ruling of the U.S. Supreme Court in Ithaca Trust Co. v. United
States.[68] First. There is no law, nor do we discern any legislative intent in our tax
laws, which disregards the date-of-death valuation principle and particularly
provides that post-death developments must be considered in determining the net
value of the estate. It bears emphasis that tax burdens are not to be imposed, nor
presumed to be imposed, beyond what the statute expressly and clearly imports,
tax statutes being construed strictissimi juris against the government.[69] Any doubt
on whether a person, article or activity is taxable is generally resolved against
taxation.[70] Second. Such construction finds relevance and consistency in our
Rules on Special Proceedings wherein the term "claims" required to be presented
against a decedent's estate is generally construed to mean debts or demands of a
pecuniary nature which could have been enforced against the deceased in his
lifetime, or liability contracted by the deceased before his death.[71] Therefore, the
claims existing at the time of death are significant to, and should be made the basis
of, the determination of allowable deductions.
 WHEREFORE, the instant Petition is GRANTED. Accordingly, the
assailed Decision dated April 30, 1999 and the Resolution dated November 3,
1999 of the Court of Appeals in CA-G.R. S.P. No. 46947
are REVERSED andSET ASIDE. The Bureau of Internal Revenue's deficiency
estate tax assessment against the Estate of Jose P. Fernandez is
hereby NULLIFIED. No costs.

SO ORDERED.
 SECOND DIVISION

[G.R. No. 144653. August 28, 2001]

BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. COMMISSIONER

OF INTERNAL REVENUE, respondent.

DECISION
MENDOZA, J.:

This is a petition for review on certiorari of the decision, dated April 14, 2000, of the Court
of Appeals,[1] affirming the decision of the Court of Tax Appeals (which denied petitioner Bank
of the Philippine Islands claim for tax refund for 1985), and the appeals courts resolution, dated
August 21, 2000, denying reconsideration.
The facts are as follows:
Prior to its merger with petitioner Bank of the Philippine Islands (BPI) on July 1, 1985, the
Family Bank and Trust Co. (FBTC) earned income consisting of rentals from its leased
properties and interest from its treasury notes for the period January 1 to June 30, 1985. As
required by the Expanded Withholding Tax Regulation, the lessees of FBTC withheld 5 percent
of the rental income, in the amount of P118,609.17, while the Central Bank, from which the
treasury notes were purchased by FBTC, withheld P55,456.60 from the interest earned thereon.
Creditable withholding taxes in the total amount of P174,065.77 were remitted to respondent
Commissioner of Internal Revenue.
FBTC, however, suffered a net loss of about P64,000,000.00 during the period in
question. It also had an excess credit of P2,146,072.57 from the previous year. Thus, upon its
dissolution in 1985, FBTC had a refundable amount of P2,320,138.34, representing that years
tax credit of P174,065.77 and the previous years excess credit of P2,146,072.57.
As FBTCs successor-in-interest, petitioner BPI claimed this amount as tax refund, but
respondent Commissioner of Internal Revenue refunded only the amount of P2,146,072.57,
leaving a balance of P174,065.77. Accordingly, petitioner filed a petition for review in the Court
of Tax Appeals on December 29, 1987, seeking the refund of the aforesaid amount.[2] However,
in its decision rendered on July 19, 1994, the Court of Tax Appeals dismissed petitioners
petition for review and denied its claim for refund on the ground that the claim had already
prescribed.[3] In its resolution, dated August 4, 1995, the Court of Tax Appeals denied
petitioners motion for reconsideration.[4]
Petitioner appealed to the Court of Appeals, but, in its decision rendered on April 14, 2000,
the appeals court affirmed the decision of the CTA.[5] The appeals court subsequently denied
petitioners motion for reconsideration.[6] Hence this petition.
 The sole issue in this case is whether petitioners claim is barred by prescription. The
resolution of this question requires a determination of when the two-year period of prescription
under 292 of the Tax Code started to run. This provision states:

Recovery of tax erroneously or illegally collected. No suit or proceeding shall be

maintained in any court for the recovery of any national internal revenue tax hereafter
alleged to have been erroneously or illegally assessed or collected, or of any penalty
claimed to have been collected without authority, or of any sum alleged to have been
excessive or in any manner wrongfully collected, until a claim for refund or credit has
been duly filed with the Commissioner; but such suit or proceeding may be
maintained, whether or not such tax, penalty, or sum has been paid under protest or
duress.

In any case, no such suit or proceeding shall be begun after the expiration of two years
from the date of payment of the tax or penalty regardless of any supervening cause
that may arise after payment: Provided, however, That the Commissioner may, even
without a written claim therefor, refund or credit any tax, where on the face of the
return upon which payment was made, such payment appears clearly to have been
erroneously paid.

There is no dispute that FBTC ceased operations on June 30, 1985 upon its merger with
petitioner BPI. The merger was approved by the Securities and Exchange Commission on July 1,
1985. Petitioner contends, however, that its claim for refund has not yet prescribed because the
two-year prescriptive period commenced to run only after it had filed FBTCs Final Adjustment
Return on April 15, 1986, pursuant to 46(a) of the National Internal Revenue Code of 1977 (the
law applicable at the time of this transaction) which provided that

Corporation returns. (a) Requirement. Every corporation, subject to the tax

herein imposed, except foreign corporations not engaged in trade or business in the
Philippines shall render, in duplicate, a true and accurate quarterly income tax return
and final or adjustment return in accordance with the provisions of Chapter X of this
Title. The return shall be filed by the president, vice-president, or other principal
officer, and shall be sworn to by such officer and by the treasurer or assistant
treasurer.

On the other hand, the Court of Tax Appeals ruled that the prescriptive period should be
counted from July 31, 1985, 30 days after the approval by the SEC of the plan of dissolution in
view of 78 of the Code, which provided that

Every corporation shall, within thirty days after the adoption by the corporation of a
resolution or plan for the dissolution of the corporation or for the liquidation of the
whole or any part of its capital stock, including corporations which have been notified
of possible involuntary dissolution by the Securities and Exchange Commission,
render a correct return to the Commissioner of Internal Revenue, verified under oath,
setting forth the terms of such resolution or plan and such other information as the
Minister of Finance shall, by regulations, prescribe. The dissolving corporation prior
to the issuance of the Certificate of Dissolution by the Securities and Exchange
Commission shall secure a certificate of tax clearance from the Bureau of Internal
Revenue which certificate shall be submitted to the Securities and Exchange
Commission.

Failure to render the return and secure the certificate of tax clearance as above-
mentioned shall subject the officer(s) of the corporation required by law to file the
return under Section 46(a) of this Code, to a fine of not less than Five Thousand Pesos
or imprisonment of not less than two years and shall make them liable for all
outstanding or unpaid tax liabilities of the dissolving corporation.

Its ruling was sustained by the Court of Appeals.

After due consideration of the parties arguments, we are of the opinion that, in case of the
dissolution of a corporation, the period of prescription should be reckoned from the date of filing
of the return required by 78 of the Tax Code. Accordingly, we hold that petitioners claim for
refund is barred by prescription.
First. Generally speaking, it is the Final Adjustment Return, in which amounts of the
gross receipts and deductions have been audited and adjusted, which is reflective of the results of
the operations of a business enterprise. It is only when the return, covering the whole year, is
filed that the taxpayer will be able to ascertain whether a tax is still due or a refund can be
claimed based on the adjusted and audited figures.[7] Hence, this Court has ruled that, at the
earliest, the two-year prescriptive period for claiming a refund commences to run on the date of
filing of the adjusted final tax return.[8]
In the case at bar, however, the Court of Tax Appeals, applying 78 of the Tax Code, held:

Before this Court can rule on the issue of prescription, it is noteworthy to point out
that based on the financial statements of FBTC and the independent auditors opinion
(Exhs. A-7 to A-17), FBTC operates on a calendar year basis. Its twelve (12)
months accounting period was shortened at the time it was merged with BPI. Thereby,
losing its corporate existence on July 1, 1985 when the Articles of Merger was
approved by the Security and Exchange Commission. Thus, respondent[s] stand that
FBTC operates on a fiscal year basis, based on its income tax return, holds no
ground. This Court believes that FBTC is operating on a calendar year period based
on the audited financial statements and the opinion thereof. The fiscal period ending
June 30, 1985 on the upper left corner of the income tax return can be concluded as an
error on the part of FBTC. It should have been for the six month period ending June
30, 1985. It should also be emphasized that where one corporation succeeds another
both are separate entities and the income earned by the predecessor corporation before
organization of its successor is not income to the successor (Mertens, Law of Federal
Income Taxation, Vol. 7 S 38.36).

Ruling now on the issue of prescription, this Court finds that the petition for review is
filed out of time. FBTC, after the end of its corporate life on June 30, 1985, should
have filed its income tax return within thirty days after the cessation of its business or
thirty days after the approval of the Articles of Merger. This is bolstered by Sec. 78 of
the Tax Code and under Sec. 244 of Revenue Regulation No. 2. . .[9]

As the FBTC did not file its quarterly income tax returns for the year 1985, there was no
need for it to file a Final adjustment Return because there was nothing for it to adjust or to
audit. After it ceased operations on June 30, 1985, its taxable year was shortened to six months,
from January 1, 1985 to June 30, 1985. The situation of FBTC is precisely what was
contemplated under 78 of the Tax Code. It thus became necessary for FBTC to file its income
tax return within 30 days after approval by the SEC of its plan or resolution of dissolution.
Indeed, it would be absurd for FBTC to wait until the fifteenth day of April, or almost 10 months
after it ceased its operations, before filing its income tax return.
Thus, 46(a) of the Tax Code applies only to instances in which the corporation remains
subsisting and its business operations are continuing. In instances in which the corporation is
contemplating dissolution, 78 of the Tax Code applies. It is a rule of statutory construction that
[w]here there is in the same statute a particular enactment and also a general one which in its
most comprehensive sense would include what is embraced in the former, the particular
enactment must be operative, and the general enactment must be taken to affect only such cases
within its general language as are not within the provisions of the particular enactment.[10]
Petitioner argues that to hold, as the Court of Tax Appeals and the Court of Appeals do, that
78 applies in case a corporation contemplates dissolution would lead to absurd results. It
contends that it is not feasible for the certified public accountants to complete their report and
audited financial statements, which are required to be submitted together with the plan of
dissolution to the SEC, within the period contemplated by 78. It maintains that, in turn, the
SEC would not have sufficient time to process the papers considering that 78 also requires the
submission of a tax clearance certificate before the SEC, can approve the plan of dissolution.
As the Court of Tax Appeals observed, however, petitioner could have asked for an
extension of time to file its income tax return under 47 of the NIRC which provides:

Extension of time to file returns. The Commissioner of Internal Revenue may, in

meritorious cases, grant a reasonable extension of time for filing returns of income (or
final and adjustment returns in the case of corporations), subject to the provisions of
section fifty-one of this Code.

Petitioner further argues that the filing of a Final Adjustment Return would fall due on July
30, 1985, even before the due date for filing the quarterly return. This argument begs the
question. It assumes that a quarterly return was required when the fact is that, because its taxable
year was shortened, the FBTC did not have to file a quarterly return. In fact, petitioner presented
no evidence that the FBTC ever filed such quarterly return in 1985.
Finally, petitioner cites a hypothetical situation wherein the directors of a corporation would
convene on June 30, 2000 to plan the dissolution of the corporation on December 31, 2000, but
would submit the plan for dissolution earlier with the SEC, which, in turn, would approve the
same on October 1, 2000. Following 78 of the Tax Code, the corporation would be required to
submit its complete return on October 31, 2000, although its actual dissolution would take place
only on December 31, 2000.
Suffice it to say that such a situation may likewise be remedied by resort to 47 of the Tax
Code. The corporation can ask for an extension of time to file a complete income tax return until
December 31, 2000, when it would cease operations. This would obviate any difficulty which
may arise out of the discrepancies not covered by 78 of the Tax Code.
In any case, as held in Commissioner of Internal Revenue v. Santos,[11] Debatable questions
are for the legislature to decide. The courts do not sit to resolve the merits of conflicting issues.
Second. Petitioner contends that what 78 required was an information return, not an
income tax return. It cites Revenue Memorandum Circular No. 14-85, of then Acting
Commissioner of Internal Revenue Ruben B. Ancheta, referring to an information return in
interpreting Executive Order No. 1026, which amended 78.[12]
The contention has no merit. The circular in question must be considered merely as an
administrative interpretation of the law which in no case is binding on the courts.[13] The opinion
in question cannot be given any effect inasmuch as it is contrary to 244 of Revenue Regulation
No. 2, as amended, which was issued by the Minister of Finance pursuant to the authority
granted to him by 78 of the Tax Code. This provision states:

Sec. 244. Return of corporations contemplating dissolution or retiring from

business. All corporations, partnership, joint accounts and associations,
contemplating dissolution or retiring from business without formal dissolution shall,
within 30 days after the approval of such resolution authorizing their dissolution, and
within the same period after their retirement from business, file their income tax
returns covering the profit earned or business done by them from the beginning of the
year up to the date of such dissolution or retirement and pay the corresponding income
tax due thereon upon demand by the Commissioner of Internal Revenue. . .

This regulation prevails over the memorandum circular of the Acting Commissioner of Internal
Revenue, which petitioner invokes.
Thus, as required by 244 of Revenue Regulation No. 2, any corporation contemplating
dissolution must submit tax return on the income earned by it from the beginning of the year up
to the date of its dissolution or retirement and pay the corresponding tax due upon demand by the
Commissioner of Internal Revenue. Nothing in 78 of the Tax Code limited the return to be
filed by the corporation concerned to a mere information return.
It is noteworthy that 78 of the Tax Code was substantially reproduced first in 45(c), of the
amendments to the same Tax Code, and later in 52(C) of the National Internal Revenue Code of
1997. Through all the re-enactments of the law, there has been no change in the authority
granted to the Secretary (formerly Minister) of Finance to require corporations to submit such
other information as he may prescribe. Indeed, Revenue Regulation No. 2 had been in existence
prior to these amendments. Had Congress intended only information returns, it would have
expressly provided so.
Third. Considering that 78 of the Tax Code, in relation to 244 of Revenue Regulation No.
2, applies to FBTC, the two-year prescriptive period should be counted from July 30, 1985, i.e.,
30 days after the approval by the SEC of its plan for dissolution. In accordance with 292 of the
Tax Code, July 30, 1985 should be considered the date of payment by FBTC of the taxes
withheld on the earned income. Consequently, the two-year period of prescription ended on July
30, 1987. As petitioners claim for tax refund before the Court of Tax Appeals was filed only on
December 29, 1987, it is clear that the claim is barred by prescription.
WHEREFORE, the petition is DENIED for lack of merit.
SO ORDERED.