CIR Vs Gonzales

8/11/2018 SUPREME COURT REPORTS ANNOTATED VOLUME 018
VOL. 18, NOVEMBER 24, 1966 757

Commissioner of Internal Revenue vs. Gonzales
No. L-19495. November 24, 1966.
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.

LlLIA YUSAY GONZALES and THE COURT OF TAX
APPEALS, respondents.
Courts; Appeals; Thirty-day period for appealing to Tax Court begins

from the date decision of Commissioner of Internal Revenue was received.
—In St. Stephen's Association vs. Collector of Internal Revenue (L-11238,
August 21, 1958), it was held that the counting of the thirty days within
which to institute an appeal in the Court of Tax Appeals should commence
"f rom the date of receipt of the decision of the Commissioner on the
disputed assessment, not from the date the assessment was issued. When the
taxpayer received the decision of the Commissioner on March 14, 1960, the
thirty-day period should begin from that date. From said date to April 13,
1960, when the taxpayer filed his appeal in the Court of Tax Appeals, is
exactly thirty days. Hence, the appeal was timely.
Same; Tax Court is the proper forum wherein to ventilate defenses
against tax assessment.—An action involving a disputed assessment for
internal revenue taxes falls within the exclusive appellate jurisdiction of the
Court of Tax Appeals (Sec. 7[1], Rep. Act 1125; Blaquera vs. Rodriguez,
103 Phil. 267). It is in that forum, to the exclusion of the Court of First
Instance, where the taxpayer can ventilate his or her defenses against the
assessment.
Courts; Probate jurisdiction.—The probate court has a limited
jurisdiction, And under the Rules of Court, its authority relates only to
matters of estates and probate of wills of deceased persons. It has had no
jurisdiction to resolve questions of disputed tax assessments.
Taxation; Evidence of fraud.—Fraud is a question of fact. The
circumstances constituting it must be alleged and proved in the Court of Tax
Appeals. And the finding of said court as to its existence or nonexistence is
final unless clearly shown to be erroneous. (Gutierrez vs. Court of Tax
Appeals, 101 Phil. 713). As the court 'a quo found that no fraud was alleged
758
758 SUPREME COURT REPORTS ANNOTATED
and proven therein, the Commissioner's assertion that the return was
fraudulent cannot be entertained.
Same; When tax return is considered sufficient.—A return need not be
complete in all particulars. It is sufficient if it complies substantially with
the law. There is substantial compliance (1) when the return is made in good
faith and is not false or fraudulent; (2) when it covers the entire period
involved; and (3) when it contains information as to the various items of
income, deductions and credits with such definiteness as to permit the
computation and assessment of the tax. (Mertens, Jr., 10 Law of Federal
Income Taxation, 1958 ed., Sec. 57.13).
Same; Sufficiency of estate and inheritance tax return.— An estate and
inheritance tax return was substantially defective when it was incomplete; it
declared only ninety-three parcels of land, representing about 400 hectares,
and left out ninety-two parcels covering 503 hectares and said huge
underdeclaration could not have been the result 01 an oversight or mistake.
Moreover, the return mentioned no heir. Thus, no inheritance tax could be
http://www.central.com.ph/sfsreader/session/00000165290085abf6d400ca003600fb002c009e/t/?o=False 1/12
assessed. As a matter of law, on the basis of the return, there would be no
occasion for the imposition of estate and inheritance taxes. When there is no
heir, the estate is escheated to the State. The State does not tax itself.
Same; Sufficient tax return; Prescription.—Where the return was made
on the wrong form, it was held that the filing thereof did not start the
running of the period of limitations, and where the return was very deficient,
there was no return at all as required in Section 93 of the Tax Code. If the
taxpayer failed to observe the law, Section 332 of the Tax Code, which
grants the Commissioner of Internal Revenue ten years period within which
to bring an action "f or tax collection, applies. Section 94 of the Tax Code
obligates him to make a return or amend one already filed based on his own
knowledge and information obtained through testimony or otherwise, and
subsequently to assess thereon the taxes due. The running of the period of
limitations under Section 332(a) of the Tax Code should be reckoned "f rom
the date the "f raud was discovered.
Same; Taxpayer's willingness to pay does not bar him from raising
defenses against the legality.—The Tax Code does not bar the right to
contest the legality of the tax after a taxpayer pays it. Under Section 306
thereof, he can pay the tax and claim a refund therefor. A fortiori his
willingness to pay the tax is no waiver of his right to raise defenses against
the legality of the tax.
Resolution on Motion for Reconsideration:
Taxation; Estate and inheritance taxes; Liability of estate for said

taxes.—Estate and inheritance taxes are satisfied from
759
VOL. 18, NOVEMBER 24, 1966 759
the estate of the decedent and are to be paid by the executor or administrator
thereof, Where there are two or more executors, all of them are severally
liable for the payment of the.estate tax. The inheritance tax, although
charged against the account of each beneficiary, should be paid by the
executor or administrator.
PETITION for review by certiorari of a decision of the Court of Tax

Appeals.
The facts are stated in the opinion of the Court.
Solicitor General for the petitioner.
Ramon A. Gonzales for respondent Lilia Yusay Gonzales.
BENGZON, J.P., J.:
Matias Yusay, a resident of Pototan, Iloilo, died intestate on May 13,

1948, leaving two heirs, namely, Jose S. Yusay, a legitimate child,
and Lilia Yusay Gonzales, an acknowledged natural child. Intestate
proceedings for the settlement of his estate were instituted in the
Court of First Instance of Iloilo (Special Proceedings No. 459). Jose
S. Yusay was therein appointed administrator.'
On May 11, 1949 Jose S. Yusay filed with the Bureau of Internal
Revenue an estate and inheritance tax return declaring therein the
following properties:
Personal properties
Palay.......................... 6,444.00
Carabaos................... 1,000.00 P 7,444.00
Real properties:
Capital, 74 )
parcels )
)
Conjugal 19 )
parcels )
assessed at ....... P179,760.00
Total gross estate ......... P187,204.00
The return mentioned no heir.
Upon investigation however the Bureau of Internal Revenue found

the following properties:
Personal properties:
Palay........................ P 6,444.00
Carabaos................ 1,500.00
760

Packard Automobile ... 2,000.00

2 Aparadors 500.00 P 10,444.00
Real properties:
Capital, 25 parcels assessed at P 87,715.32
.......
1/2 of Conjugal, 130 parcels P121,425.00 P209,140.32
assessed at .....
Total .................................................. P219,584.32
The fair market value of the real properties was computed by

Increasing the assessed value by forty percent.
Based on the above findings, the Bureau of Internal Revenue
assessed on October 29, 1953 estate and inheritance taxes in the
sums of P6,849.78 and P16,970.63, respectively.
On January 25, 1955 the Bureau of Internal Revenue increased
the assessment to P8,225.89 as estate tax and P22,117.10 as
inheritance tax plus delinquency interest and demanded payment
thereof on or before February 28, 1955. Meanwhile, on February 16,
1955, the Court of First Instance of Iloilo required Jose S. Yusay to
show proof of payment of said estate and inheritance taxes.
On March 3, 1955 Jose S. Yusay requested an extension of time
within which to pay the tax. He posted a surety bond to guarantee
payment of the taxes in question within one year. The Commissioner
of Internal Revenue however denied the request. Then he issued a -
warrant of distraint and levy which he transmitted to the Municipal
Treasurer of Pototan for execution. This warrant was. not enforced
because all the personal properties subject to distraint were located
in lloilo City.
On May 20, 1955 the Provincial Treasurer of Iloilo requested the
BIR Provincial Revenue Officer to furnish him copies of the
assessment notices to support a motion for payment of taxes which
the Provincial Fiscal would file in Special Proceedings No. 459
before the Court of First Instance of Iloilo. The papers requested
were sent by the Commissioner of Internal Revenue to the
Provincial Revenue Officer of Iloilo to be transmitted to the
Provincial Treasurer, : The records do not however show
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VOL. 18, NOVEMBER 24, 1966 761

whether the Provincial Fiscal filed a claim with the Court of First
Instance for the taxes due.
On May 30, 1956 the commissioner appointed by the Court of
First Instance for the purpose, submitted a reamended project of
partition which listed the following properties:
Personal properties:
Buick Sedan ...... P 8,100.00

Packard car ........... 2,000.00
Aparadors ............ 500.00
Cash in Bank (PNB) .. 8,858.46
Palay .................. 6,444.00
Carabaos ........... 1,500.00 P 27,402.46
Real properties:
Land, 174 parcels ass essed at P324,797.21
...........
Buildings .......................... 4,500.00 P329,297.21
Total.................................................................. P356,699.67
More than a year later, particularly on July 12, 1957, an agent of the
Bureau of Internal Revenue apprised the Commissioner of Internal
Revenue of the existence of said reamended project of partition.
Whereupon, the Internal Revenue Commissioner caused the estate
of Matias Yusay to be reinvestigated for estate and inheritance tax
liability, Accordingly, on February 13, 1958. he issued the following
assessment:
Estate tax ............................... P 16,246.04

5% surcharge.......................... 411,29
Delinquency interest ................ 11,868.90
Compromise
No notice of death ................ P15.00
Late payment ....... 40.00 55.00
Total ................... P 28,581.23
Inheritance Tax .................. P 38,178.12
5% surcharge .................. 1,105.86
Delinquency interest ..................... 28,808.75
Compromise for late payment............... 50.00
Total.................................................... P 69,142.73
762

Total estate and inheritance taxes...... P 97,723.96
Like in previous assessments, the fair market value of the real

properties was arrived at by adding 40% to the assessed value.
In view of the demise of Jose S. Yusay, said assessment was sent
to his widow, Mrs. Florencia Piccio Vda. de Yusay, who succeeded
him in the administration of the estate of Matias Yusay.
No payment having been made despite repeated demands, the
Commissioner of Internal Revenue filed a proof of claim for the
estate and inheritance taxes due and a motion for its allowance with
the settlement court invoking priority of lien pursuant to Section 315
of the Tax Code.
On June 1. 1959, Lilia Yusay, through her counsel, Ramon
Gonzales, filed - an answer to the proof of claim alleging non-receipt
of -the assessment of February 13, 1958, the existence of two
administrators, namely, FIorencia Piccio Vda. de Yusay who
administered two-thirds of the estate, and Lilia Yusay, who
administered the ,remaining, one-third, and her willingness to, pay
the taxes corresponding to her share, and praying for deferment of
the resolution on the motion for the payment of taxes until after a
new ass\essment corresponding to her, share was issued.
" On November 17, 1959 Lilia Yusay disputed the legality of the
assessment dated February 13, 1958. She claimed that the right to
make the same had prescribed inasmuch as more than five years had
elapsed since the filing of the estate and inheritance tax return on
May 11, 1949. She therefore requested that the assessment be
declared invalid and without force and effect. This request was
rejected by the Commissioner in his letter dated January 20, 1960,
received by Lilia Yusay on March 14, 1960, for the reasons, namely,
(1) that the right to assess. the taxes in question has not been lost by
prescription since the return which did not name the heirs cannot be
considered a true and complete return sufficient to start the running
of the period of limitations of five years under Section 331 of the
Tax Code and pursuant to Section 332 of the same Code he has ten
years within which to make the
763
VOL. 18, NOVEMBER 24, 1966 763

assessment counted from the discovery on September 24, 1953 of

the identity of the heirs; and (2) that the estate's administrator
waived the defense of prescription when he filed a surety bond on
March 3, 1955 to guarantee payment of the taxes in question and
when he requested postponement of the payment of the taxes
pending determination of who the heirs are by the settlement court.
On April 13, 1960 Lilia Yusay filed a petition for review in the
Court of Tax Appeals assailing the legality of the assessment dated
February 13, 1958. After hearing the parties, said Court declared the
right of the Commissioner of Internal Revenue to assess the estate
and inheritance taxes in question to have prescribed and rendered the
following judgment:
"WHEREFORE, the decision of respondent assessing against the estate of

the late Matias Yusay estate and inheritance taxes is hereby reversed. No
costs."
The Commissioner of Internal Revenue appealed to this Court and

raises the following issues:
1. Was the petition for review in the Court of Tax Appeals

within the 30-day period provided for in Section 11 of
Republic Act 1125?
2. Could the Court of Tax Appeals take cognizance of Lilia
Yusay's appeal despite the pendency of the "Proof of
Claim” and. "Motion for Allowance of Claim and for an
Order of Payment of Taxes" filed by the Commissioner of
Internal Revenue in Special Proceedings No. 459 before the
Court of First Instance of Iloilo?
3. Has the right of the Commissioner of Internal ,Revenue to
assess the estate and inheritance taxes in question
prescribed?
On November 17, 1959 Lilia Yusay disputed the legality of the

assessment of February 13, 1958. On March 14, 1960 she received
the decision of the Commissioner of Internal Revenue on the
disputed assessment, On April 13, 1960 she filed her petition for
review in the Court of Tax Appeals. Said Court correctly held that
the appeal was seasonably interposed pursuant to Section 11 of
Republic Act 1125. We already ruled in St. Stephen's Asso-
764

1
ciation v. Collector of Internal Revenue, that the counting of the
thirty days within which to institute an appeal in the Court of Tax
Appeals should commence from the date of receipt of the decision
of the Commissioner on the disputed assessment, not from the date
the assessment was issued.
Accordingly, the thirty-day period should begin running from

March 14, 1960, the date Lilia Yusay received the appealable
decision. From said date to April 13, 1960, when she filed her appeal
in the Court of Tax Appeals, is exactly thirty days. Hence, the appeal
was timely.
Next, the Commissioner attacks the jurisdiction of the Court of
Tax Appeals to take cognizance of Lilia Yusay's appeal on the
ground of lis pendens. He maintains that the pendency of his motion
for allowance of claim and for order of payment of taxes in the
Court of First Instance of Iloilo would preclude the Court of Tax
Appeals from acquiring jurisdiction over Lilia Yusay's appeal. This
contention lacks merit.
Lilia Yusay's cause seeks to resist the legality of the assessment
in question. Should she maintain it in the settlement court or should
she elevate her cause to the Court of Tax Appeals? We say, she acted
correctly by appealing to the latter court. An action involving a
disputed assessment for internal revenue taxes falls within the
2
exclusive jurisdiction of the Court of Tax Appeals. It3 is in that
forum, to the exclusion of the Court of First Instance, where she
could ventilate her defenses against the assessment.
Moreover, the settlement court, where the Commissioner would
wish Lilia Yusay to contest
4
the assessment, is of limited jurisdiction.
And under the Rules, its authority relates only to matters having to
do with the settlement of
_______________
1 L-11238, August 21, 1958. See also Baguio Country Club Corporation v.
Collector of Internal Revenue, et al., L-11419, April 22, 1959.
2 Sec. 7(1), Rep. Act 1125; Blaquera v. Rodriguez, L-11295, March 29, 1958.
3 Castro v. Blaquera, L-8429, February 28, 1957, 53 O.G. 2135; Ledesma v. Court
of Tax Appeals, 102 Phil. 931.
4 Rules 74-92, now Rules 73-91, Rules of Court.
765
VOL. 18, NOVEMBER 24, 1966 765

5
estates and probate of wills of deceased persons. Said court has no
jurisdiction to adjudicate the contentions in question, which .—
assuming they do not come exclusively under the Tax Court's
cognizance—must be submitted to the Court of First Instance in the
6
exercise of its general jurisdiction.
We now come to the issue of prescription, Lilia Yusay claims that
since the.latest assessment was issued only on February 13, 1958 or
eight years, nine months and two days from the filing of the estate
and inheritance tax return, the Cammissioner's right to make it has
expired. She would rest her stand on Section 331 of the Tax Code
which limits the right of the Commissioner to assess the tax within
five years from the filing of the return,
The Commissioner claims that fraud attended the filing of the
return; that this being so, Section 332 (a) of the Tax: Code would
7
apply. It may be well to note that the assessment letter itself
(Exhibit 22) did not impute fraud in the return with intent to evade
payment of tax. Precisely, no surcharge for fraud was. imposed. In
his answer to the petition for review filed by Lilia Yusay in the Court
of Tax Appeals, the Commissioner alleged no fraud. Instead, he
broached the insufficiency of the return as barring the
commencement of the running of the statute of limitations. He raised
the point of fraud for the first time in the proceedings, only in his
memorandum filed with the Tax Court subsequent to resting his
case. Said Court rejected the plea of fraud for lack of allegation and
proof, and ruled that the return, although not accurate, was sufficient
to start the period of prescription.8
Fraud is a question of fact. The circumstances9
constituting it
must be alleged and proved in the court below. And the finding of
said court as to its existence
10
and nonexistence is final unless clearly
shown to be erroneous,
_______________
5 Adapon v. Maralit, 69 Phil. 383, 387.

6 Guzman v. Anog and Anog, 37 Phil. 62.
7 Brief for Petitioner, p. 26.
8 Collector of Internal Revenue v. Bautista, L-12250 and L-12259, May 27, 1959.
9 Gutierrez v. Court of Tax Appeals, L-9738 and L-9771, May 31, 1957.
10 Perez v. Court of Tax Appeals, L-9738, May 31, 1957.
766

As the court a quo found that no fraud was alleged and proved
therein, We see no reason to entertain the Commissioner's assertion
that the return was fraudulent.
The conclusion, however, that the return filed by Jose S. Yusay
was sufficient to commence the running of the prescriptive period
under Section 331 of the Tax Code rests on no solid ground.
Paragraph (a) of Section 93 of the Tax Code lists the
requirements of a valid return. It states:
"(a) Requirements.—In all cases of inheritance or transfers subject to either

the estate tax or the inheritance tax, or both, or where, though exempt "f rom
both taxes, the gross value of the estate exceeds three thousand pesos, the
executor, administrator, or anyone of the heirs, as the case may be, shall file
a return under oath in duplicate, setting forth (1) the value of the gross estate
of the decedent at the time of his death, or, in case of a nonresident not a
*
citizen of the Philippines ; (2) the deductions allowed from gross estate in
determining net estate as defined in section eighty-nine; (3) such part of
such information as may at the time be ascertainable and such supplemental
data as may be necessary to establish the correct taxes."
A return need not be complete in all particulars. It is sufficient if it

complies substantially with the law. There is substantial compliance
(1) when the return is made in good faith and is not false or
fraudulent; (2) when it covers the entire period involved; and (3)
when it contains information as to the various items of income,
deduction and credit with such definiteness
11
as to permit the
computation and assessment of the tax.
There is no question that the state and inheritance tax return filed
by Jose S. Yusay was substantially defective. First, it was
incomplete. It declared only ninety-three parcels of land
representing about 400 hectares and left out ninety-two parcels
covering 503 hectares, Said huge underdeclaration could not have
been, the result of an oversight or mistake. As found in L-11378,
supra note 7, Jose S. Yusay very well knew of the existence of the
omit-
_______________
11 Jacob Mertens, Jr., The Law of Federal Income Taxation, 1958 ed., Vol. 10,
Section 57.13.
* Editors Note: This phrase should be "in case of a nonresident not a citizen of the
Philippines of part of his gross estate in the Philippines."
767
VOL. 18, NOVEMBER 24, 1966 767

ted properties. Perhaps his motive in underdeclaring the inventory of

properties attached to the return was to deprive Lilia Yusay from
inheriting her legal share in the hereditary estate, but certainly not
because he honestly believed that they did not form part of the gross
estate.
Second, the return mentioned no heir. Thus, no inheritance tax
could be assessed. As a matter of law, on the basis of the return,
there would be no occasion for the imposition of estate and
inheritance taxes. When there is no heir .—the 12return showed none .

—the intestate estate is escheated to the State. The State taxes not
itself.
In a case where the return was made on the wrong form, the
Supreme Court of the United States held that the 13
filing thereof did
not start the running of the period of limitations. The reason is that
the return submitted did not contain the necessary information
required in the correct form. In this jurisdiction, however, the
Supreme Court ref rained "f rom applying the said ruling of the
United States Supreme Court in Collector of Internal Revenue v.
Central Azucarera de Tarlac, L-1 1760-61, July 31, 1958, on the
ground that the return was complete in itself although inaccurate. To
our mind, it would not make much difference where a return is made
on the correct form prescribed by the Bureau of Internal Revenue if
the data therein required are not supplied by the taxpayer. Just the
same, the necessary information for the assessment of the tax would
be missing.
The return filed in this case was so deficient that it prevented the
Commissioner from computing the taxes due on the estate. It was as
though no return was made. The Commissioner had to determine
and assess the taxes on data obtained, not from the return, but from
other sources. We therefore hold the view that the return in question
was no return at all as required in Section 93
_______________
12 Articles 1011-1014, Civil Code. Rule 91, Rules of Court.

13 Florsheim Brothers Dry-Goods Company, Ltd. v. United States, 280 US 453, 74
L. ed. 542. See also Commissioner v. Lane-Wells Co., 321 US 219, 88 L. ed. 684;
Rockland :& Rockport Lime Corporation v. Ham, 38 ey 2d 239 (D.C.S.D. Main,
1930); Dubuque Packing Co. v. US, 126 F. Supp. 796 (D.C.N.D. lowa, 1954).
768

of the Tax Code.

The law imposes upon the taxpayer the burden of supplying by
the return the information upon which an assessment would be
14
based. His duty complied with, the taxpayer is not bound to do
anything more than to wait for the Commissioner to assess the tax.
However, he is not required to wait forever. Section 331 of the Tax
Code gives 15the Commissioner five years within which to make his
assessment. Except, of course, if the taxpayer failed to observe the
law, in which case Section 332 of the same Code grants the
Commissioner a longer period. Non-observance consists in filing a
false or fraudulent return with intent to evade the tax or in filing no
return at all.
Accordingly, for purposes of determining whether or not the
Commissioner's assessment of February 13, 1958 is barred by
prescription, Section 332 (a) which
16
is an exception to Section 331 of
the Tax Code finds application. We quote Section 332 (a):
"SEC. 332. 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 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 years after the discovery of the falsity,
fraud or omission."
As stated, the Commissioner came to know of the identity of the

heirs on September 24, 1953 and the huge underdeclaration in the
gross estate on July 12, 1957. From the latter date, Section 94 of the
Tax Code obligated him to make a return or amend one already filed
based on his/own knowledge and information obtained through
testimony or otherwise, and subsequently to assess thereon the taxes
due. The running of the period of limitations under Section 332(a) of
the Tax Code should therefore
_______________
14 Florsheim Brothers Dry-Goods Company, Ltd. v. United States, 280 U.S. 453,
74 L. ed. 542, 547.
15 Republic of the Philippines v. Lim De Yu, L-17438, April 30, 1964.
16 Taligaman Lumber Co. v. Collector of Internal Revenue, L-15717, March 31,
1962; Tan Tiong Bio, et al. v. Commissioner of Internal Revenue, L-15778, April 23,
1962.
769
VOL. 18, NOVEMBER 24, 1966 769

be reckoned from said date for, as aforesaid, it is from that time that
the Commissioner was expected by law to make his return and
assess the tax due thereon. From July 12, 1957 to February 13, 1958,
the date of the assessment now in dispute, less than ten years have
elapsed. Hence, prescription did not abate the Commissioner's right
to issue said assessment.
Anent the Commissioner's contention that Lilia Yusay is
estopped from raising the defense of prescription because she failed
to raise the same in her answer to the motion for allowance of claim
and for the payment of taxes filed in the settlement court (Court of
First Instance of Iloilo), suffice it to state that it would be unjust to
the taxpayer if We were to sustain such a view. The Court of First
Instance acting as a settlement court is not the proper tribunal to pass
upon such defense, therefore it would be but futile to raise it therein.
Moreover, the Tax Code does not bar the right to contest the legality
of the tax after a taxpayer pays it. Under Section 306 thereof, he can
pay the tax and claim a refund therefor. A fortiori his willingness to
pay the tax is no waiver to raise def enses against the tax's legality.'
WHEREFORE, the judgment appealed from is set aside and
another entered affirming the assessment of the Commissioner of
Internal Revenue dated February 13, 1958. Lilia Yusay Gonzales, as
administratrix of the intestate estate of Matias Yusay, is hereby
ordered to pay the sums of P16,246.04 and P39,178.12 as estate and
inheritance taxes, respectively, plus interest and surcharge for
delinquency in accordance with Section 101 of the National Internal
Revenue Code, without prejudice to reimbursement from her co-
administratrix, Florencia Piccio Vda. de Yusay for the latter's
corresponding tax liability. No costs. So ordered.
Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Regala,

Makalintal, Sanchez and Castro, JJ., concur.
Zaldivar, J., took no part.
Judgment set aside.
770

RESOLUTION
ON MOTION FOR RECONSIDERATION
April 24, 1967
BENGZON, J.P., J.:
Respondent Lilia Yusay Gonzales seeks reconsideration of our

decision holding her liable for the payment of P97,723.96 as estate
and inheritance taxes plus delinquency penalties as administratrix of
the intestate estate of Matias Yusay. The grounds raised by her
deserve this extended resolution.
Firstly, movant maintains that the issue of whether or not the
estate and inheritance tax return filed by Jose Yusay on May 13,
1949 was sufficient to start the running of the statute of limitations

on assessment, was neither raised in the Court of Tax Appeals nor
assigned as error before this Court. The records in the Court of Tax
Appeals however show the contrary. Paragraph 2 of the answer filed
by the Commissioner of Internal Revenue states:
"2. That he likewise admits, as alleged in paragraph 1 thereof having

received the letter of the petitioner dated November 27, 1959 (Annex "A" of
the Petition for Review), contesting the assessment of estate and inheritance
taxes levied against the Intestate Estate of the late Matias Yusay, Special
Proceedings No. 459, Court of First Instance of Iloilo, on the ground that the
said assessment has already prescribed, but specifically denies the
allegations that the assessments have already prescribed, the truth of the
matter being that the returns filed on May 11, 1949 cannot be considered as
a true, and complete return sufficient to start the running of the period of
five (5) years prescribed in Sec. 331 of the Tax Code;"
This point was discussed in the memorandum of the Commissioner

of Internal Revenue, thus:
"In the estate and inheritance tax return filed by Jose S. Yusay (Exhibits B &
1, pp. 14-20, B.I.R. records) the net value of the estate of the deceased was
claimed to be P203,354.00 and no inheritance tax was shown as the heirs
were not indicated. In the final computation of the estate by an examiner of
the respondent, the net estate was found to be worth P410,518.38 (p. 105,
B.I.R. records) or about more than twice the original
771
VOL. 18, NOVEMBER 24, 1966 771

amount declared in the return. In the subsequent investigation of this case, it

was also determined that the heirs of the deceased were Jose S. Yusay, a
legitimate son, and Lilia Yusay, an acknowledged natural child, (petitioner
herein).
"Under the circumstances, we believe the return filed on May 11, 1949
was false or fraudulent in the sense that the value of the properties were
underdeclared and that the said return was also incomplete as the heirs to the
estate were not specified. Inasmuch as the respondent was not furnished
adequate data upon which to base an assessment, the said return cannot be
considered a true and complete return sufficient to start the running of the
period of limitations of five (5) years prescribed in Section 331 of the Tax
Code."
In the lower court the defense of the Commissioner of Internal

Revenue against Lilia Yusay Gonzales' plea of prescription, centered
on the insufficiency and fraudulence or falsity of the return filed by
Jose Yusay. The Court of Tax Appeals overruled the Commissioner
of Internal Revenue. Said the Tax Code:
"The provision of Section 332(a) of the Tax Code cannot be invoked in this
case as it was neither alleged in respondent's answer, nor proved during the
hearing that the return was false or fraudulent with intent to evade the
payment of tax. Moreover, the failure of respondent to charge fraud and
impose the penalty thereof in the assessments made in 1953, 1955 and 1956
is an eloquent demonstration that the filing of petitioner's transfer tax return
was not attended by falsity or fraud with intent to evade tax.
x x x x x x x x x
"But respondent urges upon us that the filing of the return did not start
the running of the five (5) year period for the reason that the return did not
disclose the heirs of the deceased Matias Yusay, and contained inadequate
data regarding the value of the estate. We believe that these mere omissions
do not require additional returns for the same. Altho incomplete for being
def icient on these matters, the return cannot be regarded as a case of failure
to file a return where want of good faith and intent to evade the tax on the
part of petitioner are not charged. It served as a sufficient notice to the
Commissioner of Internal Revenue to make his assessment and start the
running of the period of limitation. In this connection, it must be borne in
mind that the Commissioner is not confined to the taxpayer's return in
making assessment of the tax, and for this purpose he may secure additional
information "f rom other sources. As was done in the case at bar, he sends
investigators to examine the taxpayer's records and other pertinent data. His
assessment is based upon the facts uncovered by the investigation
772

(Collector vs. Central Azucarera de Tarlac, G.R. Nos. L-11760 and L-11761,
July 31, 1958).
"Furthermore, the failure to state the heirs in the return can be attributed
to the then unsettled conflict raging before the probate court as to who are
the heirs of the.estate. Such failure could not have been a deliberate attempt
to mislead the government in the assessment of the correct taxes."
In his appeal, the Commissioner of Internal Revenue assigned as

third error of the Court of Tax Appeals the finding that the
assessment in question was "made beyond the five-year statutory
period provided in Section 332(a) of the Tax Code," and that the
right of the Commissioner of Internal Revenue to assess the estate
and inheritance taxes has already prescribed. To sustain his side, the
Commissioner ventilated in his brief, fraud in the filing of the return,
absence of certain data from the return which prevented him from
assessing thereon the tax due and the pendency in this Court of L-
11374 entitled "Intestate Estate of the late Matias Yusay, Jose C.
Yusay, Administrator vs. Lilia Yusay Gonzales" which allegedly had
the effect of suspending the running of the period of limitations on
assessment.
Clearly, therefore, it would be incorrect to say that the question
of whether or not the return filed by Jose Yusay was. suf ficient to
start the running of the statute of limitations to assess the
corresponding tax, was not raised by the Commissioner in the Court
of Tax Appeals and in this Court.
Second. Movant contends that contrary to Our ruling, the return
filed by Jose Yusay was sufficient to start the statute of limitations
on assessment. Inasmuch as this question was amply discussed in
Our decision sought to be reconsidered, and no new argument was
advanced, We deem it unnecessary to pass upon the same. There is
no reason for any change on Our stand on this point.
Third. Movant insists that since she administers only one-third of
the estate of Matias Yusay, she should not be liable for the whole
tax. And she suggests that We hold the intestate estate of Matias
Yusay liable for said takes, one-third to be paid by Lilia Yusay
Gonzales and two-thirds to be paid by Florencia P. Vda. de Yusay.
773
VOL. 18, NOVEMBER 24, 1966 773

The foregoing suggestion to require payment of twothirds of the

total taxes by Florencia P. Vda. de Yusay is not acceptable, for she
(Florencia P. Vda. de Yusay) is not a party in this case.
It should be pointed out that Lilia Yusay Gonzales appealed the
whole assessment to the Court of Tax Appeals. Thereupon, the
Commissioner of Internal Revenue questioned her legal capacity to
institute the appeal on the ground that she administered only one-
third of the estate of Matias Yusay. In opposition, she espoused the -
view, which was sustained by the Tax Court, that in co-
administration, the administratrices are regarded as one person and
the acts of one of them in relation to the regular administration of
the estate are deemed to be the acts of all; hence, each administratrix
can represent the whole estate. In advancing such proposition. Lilia
Yusay Gonzales represented the whole estate and hoped to benefit
from the favorable outcome of the case. For the same reason that she
represented her co-administratrix and the whole estate of Matias
Yusay, she risked being ordered to pay.the whole assessment, should
the assessment be sustained.
Her change of stand adopted in the motion for reconsideration to

the effect that she should be made liable for only one-third of the
total tax, would negate her aforesaid proposition before the. Court of
Tax Appeals. She is now estopped from denying liability for the
whole tax.
At any rate, estate and inheritance taxes are satisfied from
1
the
estate. and are to be paid by the executor or administrator. Where
there are two or more executors,
2
all of them are severally liable for
the payment of the estate tax.. The inheritance tax, although charged
against the account of each beneficiary, should be paid by the
3
executor or administrator. Failure to pay the estate and
_______________
1 Section 95 (a) (1), Tax Code.

2 Baldwin v. Commissioner of Internal Revenue, 94 F. 2d 355, 20 AFTR 940.
3 Jose Arañas, Annotations and Jurisprudence on the National Internal Revenue
Code, As Amended, Second Edition, 1963, Vol. I, p. 630.
774

People vs. Damaso
inheritance taxes before distribution of the estate would subject the

executor or administrator to criminal liability under Section 107 (c)
of the Tax Code.
It is immaterial therefore that Lilia Yusay Gonzales administers
only one-third of the estate and will receive as her share only 4
said
portion, for her right to the estate comes after taxes. As an
administratrix, she is liable for the entire estate tax. As an heir, she is
liable for the entire inheritance tax although 5her liability would not
exceed the amount of her share in the estate. The entire inheritance
tax which amounts to P39,178.12 excluding penalties is obviously
much less than her distributive share.
Motion for reconsideration denied.
Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal,

Sanchez and Castro, JJ., concur.
Zaldivar, J., did not take part.
Motion denied.
Notes.—As to the rule that fraud is a factual question, see

Republic vs. Ker & Co., Ltd. L-21609, Sept. 29, 1966, ante.
As to the computation of the thirty-day period, see Republic vs.
Lim Tian Teng :& Sons Co., Inc., L-21731, March 31, 1966, 16
Supreme Court Reports Annotated 597.
_____________
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CIR Vs Gonzales

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8/11/2018 SUPREME COURT REPORTS ANNOTATED VOLUME 018

VOL. 18, NOVEMBER 24, 1966 757

No. L-19495. November 24, 1966.

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.

Courts; Appeals; Thirty-day period for appealing to Tax Court begins

758 SUPREME COURT REPORTS ANNOTATED

Commissioner of Internal Revenue vs. Gonzales

Resolution on Motion for Reconsideration:

Taxation; Estate and inheritance taxes; Liability of estate for said

VOL. 18, NOVEMBER 24, 1966 759

Commissioner of Internal Revenue vs. Gonzales

PETITION for review by certiorari of a decision of the Court of Tax

BENGZON, J.P., J.:

Matias Yusay, a resident of Pototan, Iloilo, died intestate on May 13,

The return mentioned no heir.

Upon investigation however the Bureau of Internal Revenue found

760 SUPREME COURT REPORTS ANNOTATED

Packard Automobile ... 2,000.00

The fair market value of the real properties was computed by

VOL. 18, NOVEMBER 24, 1966 761

Buick Sedan ...... P 8,100.00

Estate tax ............................... P 16,246.04

762 SUPREME COURT REPORTS ANNOTATED

Total estate and inheritance taxes...... P 97,723.96

Like in previous assessments, the fair market value of the real

VOL. 18, NOVEMBER 24, 1966 763

assessment counted from the discovery on September 24, 1953 of

"WHEREFORE, the decision of respondent assessing against the estate of

The Commissioner of Internal Revenue appealed to this Court and

1. Was the petition for review in the Court of Tax Appeals

On November 17, 1959 Lilia Yusay disputed the legality of the

764 SUPREME COURT REPORTS ANNOTATED

Accordingly, the thirty-day period should begin running from

VOL. 18, NOVEMBER 24, 1966 765

5 Adapon v. Maralit, 69 Phil. 383, 387.

766 SUPREME COURT REPORTS ANNOTATED

"(a) Requirements.—In all cases of inheritance or transfers subject to either

A return need not be complete in all particulars. It is sufﬁcient if it

VOL. 18, NOVEMBER 24, 1966 767

ted properties. Perhaps his motive in underdeclaring the inventory of

inheritance taxes. When there is no heir .—the 12return showed none .

12 Articles 1011-1014, Civil Code. Rule 91, Rules of Court.

768 SUPREME COURT REPORTS ANNOTATED

of the Tax Code.

"SEC. 332. Exceptions as to period of limitation of assessment and

As stated, the Commissioner came to know of the identity of the

VOL. 18, NOVEMBER 24, 1966 769

Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Regala,

Judgment set aside.

770 SUPREME COURT REPORTS ANNOTATED

April 24, 1967

BENGZON, J.P., J.:

Respondent Lilia Yusay Gonzales seeks reconsideration of our

1949 was sufﬁcient to start the running of the statute of limitations

"2. That he likewise admits, as alleged in paragraph 1 thereof having

This point was discussed in the memorandum of the Commissioner

VOL. 18, NOVEMBER 24, 1966 771

amount declared in the return. In the subsequent investigation of this case, it

In the lower court the defense of the Commissioner of Internal

772 SUPREME COURT REPORTS ANNOTATED

In his appeal, the Commissioner of Internal Revenue assigned as

VOL. 18, NOVEMBER 24, 1966 773

The foregoing suggestion to require payment of twothirds of the