Republic of the Philippines P10.

00 each
SUPREME COURT
(2) 210,000 shares of stock of Mindanao Mother
Manila
Lode Mines, Inc. at P0.38 per share 79,800.00
EN BANC (3) Cash credit with Canacao Estate Inc. 4,870.88
(4) Cash, with the Chartered Bank of India,
G.R. No. L-11622 January 28, 1961 Australia & China 851.97
Total Gross Assets P130,792.85
THE COLLECTOR OF INTERNAL REVENUE, petitioner,
vs.
On May 22, 1951, ancillary administration proceedings were instituted in the Court
DOUGLAS FISHER AND BETTINA FISHER, and the COURT OF TAX
of First Instance of Manila for the settlement of the estate in the Philippines. In due
APPEALS, respondents.
time Stevenson's will was duly admitted to probate by our court and Ian Murray
Statt was appointed ancillary administrator of the estate, who on July 11, 1951,
x---------------------------------------------------------x filed a preliminary estate and inheritance tax return with the reservation of having
the properties declared therein finally appraised at their values six months after the
G.R. No. L-11668 January 28, 1961. death of Stevenson. Preliminary return was made by the ancillary administrator in
order to secure the waiver of the Collector of Internal Revenue on the inheritance
DOUGLAS FISHER AND BETTINA FISHER, petitioner, tax due on the 210,000 shares of stock in the Mindanao Mother Lode Mines Inc.
vs. which the estate then desired to dispose in the United States. Acting upon said
THE COLLECTOR OF INTERNAL REVENUE, and the COURT OF TAX return, the Collector of Internal Revenue accepted the valuation of the personal
APPEALS, respondents. properties declared therein, but increased the appraisal of the two parcels of land
located in Baguio City by fixing their fair market value in the amount of P52.200.00,
BARRERA, J.: instead of P43,500.00. After allowing the deductions claimed by the ancillary
administrator for funeral expenses in the amount of P2,000.00 and for judicial and
This case relates to the determination and settlement of the hereditary estate left administration expenses in the sum of P5,500.00, the Collector assessed the state
by the deceased Walter G. Stevenson, and the laws applicable thereto. Walter G. the amount of P5,147.98 for estate tax and P10,875,26 or inheritance tax, or a total
Stevenson (born in the Philippines on August 9, 1874 of British parents and married of P16,023.23. Both of these assessments were paid by the estate on June 6, 1952.
in the City of Manila on January 23, 1909 to Beatrice Mauricia Stevenson another
British subject) died on February 22, 1951 in San Francisco, California, U.S.A. On September 27, 1952, the ancillary administrator filed in amended estate and
whereto he and his wife moved and established their permanent residence since inheritance tax return in pursuance f his reservation made at the time of filing of
May 10, 1945. In his will executed in San Francisco on May 22, 1947, and which was the preliminary return and for the purpose of availing of the right granted by
duly probated in the Superior Court of California on April 11, 1951, Stevenson section 91 of the National Internal Revenue Code.
instituted his wife Beatrice as his sole heiress to the following real and personal
properties acquired by the spouses while residing in the Philippines, described and In this amended return the valuation of the 210,000 shares of stock in the
preliminary assessed as follows: Mindanao Mother Lode Mines, Inc. was reduced from 0.38 per share, as originally
declared, to P0.20 per share, or from a total valuation of P79,800.00 to P42,000.00.
Gross Estate This change in price per share of stock was based by the ancillary administrator on
the market notation of the stock obtaining at the San Francisco California) Stock
Real Property — 2 parcels of land in Baguio, Exchange six months from the death of Stevenson, that is, As of August 22, 1931. In
covered by T.C.T. Nos. 378 and 379 P43,500.00
addition, the ancillary administrator made claim for the following deductions:
Personal Property
(1) 177 shares of stock of Canacao Estate at 1,770.00 Funeral expenses ($1,04326) P2,086.52
1
 Judicial Expenses:
(a) Administrator's Fee P1,204.34
(b) Attorney's Fee 6.000.00
(c) Judicial and Administration expenses
as of August 9, 1952 1,400.05
8,604.39
Real Estate Tax for 1951 on Baguio real
properties (O.R. No. B-1 686836) 652.50
Claims against the estate:
($5,000.00) P10,000.00 P10,000.00
Plus: 4% int. p.a. from Feb. 2 to 22, 1951 22.47 10,022.47
Sub-Total P21,365.88
In the meantime, on December 1, 1952, Beatrice Mauricia Stevenson assigned all
her rights and interests in the estate to the spouses, Douglas and Bettina Fisher,
respondents herein.
On September 7, 1953, the ancillary administrator filed a second amended estate
and inheritance tax return (Exh. "M-N"). This return declared the same assets of the
estate stated in the amended return of September 22, 1952, except that it
contained new claims for additional exemption and deduction to wit: (1) deduction
in the amount of P4,000.00 from the gross estate of the decedent as provided for in
Section 861 (4) of the U.S. Federal Internal Revenue Code which the ancillary
administrator averred was allowable by way of the reciprocity granted by Section
122 of the National Internal Revenue Code, as then held by the Board of Tax
Appeals in case No. 71 entitled "Housman vs. Collector," August 14, 1952; and (2)
exemption from the imposition of estate and inheritance taxes on the 210,000
shares of stock in the Mindanao Mother Lode Mines, Inc. also pursuant to the
reciprocity proviso of Section 122 of the National Internal Revenue Code. In this last
return, the estate claimed that it was liable only for the amount of P525.34 for
estate tax and P238.06 for inheritance tax and that, as a consequence, it had
overpaid the government. The refund of the amount of P15,259.83, allegedly
overpaid, was accordingly requested by the estate. The Collector denied the claim.
For this reason, action was commenced in the Court of First Instance of Manila by
respondents, as assignees of Beatrice Mauricia Stevenson, for the recovery of said
amount. Pursuant to Republic Act No. 1125, the case was forwarded to the Court of
Tax Appeals which court, after hearing, rendered decision the dispositive portion of
which reads as follows:
In fine, we are of the opinion and so hold that: (a) the one-half (½) share of
the surviving spouse in the conjugal partnership property as diminished by
the obligations properly chargeable to such property should be deducted
from the net estate of the deceased Walter G. Stevenson, pursuant to
Section 89-C of the National Internal Revenue Code; (b) the intangible
personal property belonging to the estate of said Stevenson is exempt
from inheritance tax, pursuant to the provision of section 122 of the
National Internal Revenue Code in relation to the California Inheritance Tax
Law but decedent's estate is not entitled to an exemption of P4,000.00 in
the computation of the estate tax; (c) for purposes of estate and
inheritance taxation the Baguio real estate of the spouses should be valued
at P52,200.00, and 210,000 shares of stock in the Mindanao Mother Lode
Mines, Inc. should be appraised at P0.38 per share; and (d) the estate shall
be entitled to a deduction of P2,000.00 for funeral expenses and judicial
expenses of P8,604.39.
From this decision, both parties appealed.
The Collector of Internal Revenue, hereinafter called petitioner assigned four errors
allegedly committed by the trial court, while the assignees, Douglas and Bettina
Fisher hereinafter called respondents, made six assignments of error. Together, the
assigned errors raise the following main issues for resolution by this Court:
(1) Whether or not, in determining the taxable net estate of the decedent, one-half
(½) of the net estate should be deducted therefrom as the share of tile surviving
spouse in accordance with our law on conjugal partnership and in relation to
section 89 (c) of the National Internal revenue Code;
(2) Whether or not the estate can avail itself of the reciprocity proviso embodied in
Section 122 of the National Internal Revenue Code granting exemption from the
payment of estate and inheritance taxes on the 210,000 shares of stock in the
Mindanao Mother Lode Mines Inc.;
(3) Whether or not the estate is entitled to the deduction of P4,000.00 allowed by
Section 861, U.S. Internal Revenue Code in relation to section 122 of the National
Internal Revenue Code;
(4) Whether or not the real estate properties of the decedent located in Baguio City
and the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc., were
correctly appraised by the lower court;
2
(5) Whether or not the estate is entitled to the following deductions: P8,604.39 for
judicial and administration expenses; P2,086.52 for funeral expenses; P652.50 for
real estate taxes; and P10,0,22.47 representing the amount of indebtedness
allegedly incurred by the decedent during his lifetime; and
(6) Whether or not the estate is entitled to the payment of interest on the amount
it claims to have overpaid the government and to be refundable to it.
In deciding the first issue, the lower court applied a well-known doctrine in our civil
law that in the absence of any ante-nuptial agreement, the contracting parties are
presumed to have adopted the system of conjugal partnership as to the properties
acquired during their marriage. The application of this doctrine to the instant case is
being disputed, however, by petitioner Collector of Internal Revenue, who contends
that pursuant to Article 124 of the New Civil Code, the property relation of the
spouses Stevensons ought not to be determined by the Philippine law, but by the
national law of the decedent husband, in this case, the law of England. It is alleged
by petitioner that English laws do not recognize legal partnership between spouses,
and that what obtains in that jurisdiction is another regime of property relation,
wherein all properties acquired during the marriage pertain and belong Exclusively
to the husband. In further support of his stand, petitioner cites Article 16 of the
New Civil Code (Art. 10 of the old) to the effect that in testate and intestate
proceedings, the amount of successional rights, among others, is to be determined
by the national law of the decedent.
In this connection, let it be noted that since the mariage of the Stevensons in the
Philippines took place in 1909, the applicable law is Article 1325 of the old Civil
Code and not Article 124 of the New Civil Code which became effective only in
1950. It is true that both articles adhere to the so-called nationality theory of
determining the property relation of spouses where one of them is a foreigner and
they have made no prior agreement as to the administration disposition, and
ownership of their conjugal properties. In such a case, the national law of the
husband becomes the dominant law in determining the property relation of the
spouses. There is, however, a difference between the two articles in that Article
1241 of the new Civil Code expressly provides that it shall be applicable regardless
of whether the marriage was celebrated in the Philippines or abroad while Article
13252 of the old Civil Code is limited to marriages contracted in a foreign land.
It must be noted, however, that what has just been said refers to mixed marriages
between a Filipino citizen and a foreigner. In the instant case, both spouses are
foreigners who married in the Philippines. Manresa, 3 in his Commentaries, has this
to say on this point:
La regla establecida en el art. 1.315, se refiere a las capitulaciones
otorgadas en Espana y entre espanoles. El 1.325, a las celebradas en el
extranjero cuando alguno de los conyuges es espanol. En cuanto a la regla
procedente cuando dos extranjeros se casan en Espana, o dos espanoles
en el extranjero hay que atender en el primer caso a la legislacion de pais a
que aquellos pertenezean, y en el segundo, a las reglas generales
consignadas en los articulos 9 y 10 de nuestro Codigo. (Emphasis supplied.)
If we adopt the view of Manresa, the law determinative of the property relation of
the Stevensons, married in 1909, would be the English law even if the marriage was
celebrated in the Philippines, both of them being foreigners. But, as correctly
observed by the Tax Court, the pertinent English law that allegedly vests in the
decedent husband full ownership of the properties acquired during the marriage
has not been proven by petitioner. Except for a mere allegation in his answer, which
is not sufficient, the record is bereft of any evidence as to what English law says on
the matter. In the absence of proof, the Court is justified, therefore, in indulging in
what Wharton calls "processual presumption," in presuming that the law of England
on this matter is the same as our law.4
Nor do we believe petitioner can make use of Article 16 of the New Civil Code (art.
10, old Civil Code) to bolster his stand. A reading of Article 10 of the old Civil Code,
which incidentally is the one applicable, shows that it does not encompass or
contemplate to govern the question of property relation between spouses. Said
article distinctly speaks of amount of successional rights and this term, in speaks in
our opinion, properly refers to the extent or amount of property that each heir is
legally entitled to inherit from the estate available for distribution. It needs to be
pointed out that the property relation of spouses, as distinguished from their
successional rights, is governed differently by the specific and express provisions of
Title VI, Chapter I of our new Civil Code (Title III, Chapter I of the old Civil Code.) We,
therefore, find that the lower court correctly deducted the half of the conjugal
property in determining the hereditary estate left by the deceased Stevenson.
On the second issue, petitioner disputes the action of the Tax Court in the
exempting the respondents from paying inheritance tax on the 210,000 shares of
stock in the Mindanao Mother Lode Mines, Inc. in virtue of the reciprocity proviso
of Section 122 of the National Internal Revenue Code, in relation to Section 13851
of the California Revenue and Taxation Code, on the ground that: (1) the said
proviso of the California Revenue and Taxation Code has not been duly proven by
the respondents; (2) the reciprocity exemptions granted by section 122 of the
National Internal Revenue Code can only be availed of by residents of foreign
countries and not of residents of a state in the United States; and (3) there is no
"total" reciprocity between the Philippines and the state of California in that while
3
the former exempts payment of both estate and inheritance taxes on intangible
personal properties, the latter only exempts the payment of inheritance tax..
To prove the pertinent California law, Attorney Allison Gibbs, counsel for herein
respondents, testified that as an active member of the California Bar since 1931, he
is familiar with the revenue and taxation laws of the State of California. When asked
by the lower court to state the pertinent California law as regards exemption of
intangible personal properties, the witness cited article 4, section 13851 (a) and (b)
of the California Internal and Revenue Code as published in Derring's California
Code, a publication of the Bancroft-Whitney Company inc. And as part of his
testimony, a full quotation of the cited section was offered in evidence as Exhibits
"V-2" by the respondents.
It is well-settled that foreign laws do not prove themselves in our jurisdiction and
our courts are not authorized to take judicial notice of them.5 Like any other fact,
they must be alleged and proved.6
Section 41, Rule 123 of our Rules of Court prescribes the manner of proving foreign
laws before our tribunals. However, although we believe it desirable that these laws
be proved in accordance with said rule, we held in the case of Willamette Iron and
Steel Works v. Muzzal, 61 Phil. 471, that "a reading of sections 300 and 301 of our
Code of Civil Procedure (now section 41, Rule 123) will convince one that these
sections do not exclude the presentation of other competent evidence to prove the
existence of a foreign law." In that case, we considered the testimony of an
attorney-at-law of San Francisco, California who quoted verbatim a section of
California Civil Code and who stated that the same was in force at the time the
obligations were contracted, as sufficient evidence to establish the existence of said
law. In line with this view, we find no error, therefore, on the part of the Tax Court
in considering the pertinent California law as proved by respondents' witness.
We now take up the question of reciprocity in exemption from transfer or death
taxes, between the State of California and the Philippines.F
Section 122 of our National Internal Revenue Code, in pertinent part, provides:
... And, provided, further, That no tax shall be collected under this Title in
respect of intangible personal property (a) if the decedent at the time of
his death was a resident of a foreign country which at the time of his death
did not impose a transfer of tax or death tax of any character in respect of
intangible personal property of citizens of the Philippines not residing in
that foreign country, or (b) if the laws of the foreign country of which the
decedent was a resident at the time of his death allow a similar exemption
from transfer taxes or death taxes of every character in respect of
intangible personal property owned by citizens of the Philippines not
residing in that foreign country." (Emphasis supplied).
On the other hand, Section 13851 of the California Inheritance Tax Law, insofar as
pertinent, reads:.
"SEC. 13851, Intangibles of nonresident: Conditions. Intangible personal
property is exempt from the tax imposed by this part if the decedent at the
time of his death was a resident of a territory or another State of the
United States or of a foreign state or country which then imposed a legacy,
succession, or death tax in respect to intangible personal property of its
own residents, but either:.
(a) Did not impose a legacy, succession, or death tax of any character in
respect to intangible personal property of residents of this State, or
(b) Had in its laws a reciprocal provision under which intangible personal
property of a non-resident was exempt from legacy, succession, or death
taxes of every character if the Territory or other State of the United States
or foreign state or country in which the nonresident resided allowed a
similar exemption in respect to intangible personal property of residents of
the Territory or State of the United States or foreign state or country of
residence of the decedent." (Id.)
It is clear from both these quoted provisions that the reciprocity must be total, that
is, with respect to transfer or death taxes of any and every character, in the case of
the Philippine law, and to legacy, succession, or death taxes of any and every
character, in the case of the California law. Therefore, if any of the two states
collects or imposes and does not exempt any transfer, death, legacy, or succession
tax of any character, the reciprocity does not work. This is the underlying principle
of the reciprocity clauses in both laws.
In the Philippines, upon the death of any citizen or resident, or non-resident with
properties therein, there are imposed upon his estate and its settlement, both an
estate and an inheritance tax. Under the laws of California, only inheritance tax is
imposed. On the other hand, the Federal Internal Revenue Code imposes an estate
tax on non-residents not citizens of the United States, 7 but does not provide for any
exemption on the basis of reciprocity. Applying these laws in the manner the Court
of Tax Appeals did in the instant case, we will have a situation where a Californian,
who is non-resident in the Philippines but has intangible personal properties here,
will the subject to the payment of an estate tax, although exempt from the
4
payment of the inheritance tax. This being the case, will a Filipino, non-resident of
California, but with intangible personal properties there, be entitled to the
exemption clause of the California law, since the Californian has not been exempted
from every character of legacy, succession, or death tax because he is, under our
law, under obligation to pay an estate tax? Upon the other hand, if we exempt the
Californian from paying the estate tax, we do not thereby entitle a Filipino to be
exempt from a similar estate tax in California because under the Federal Law, which
is equally enforceable in California he is bound to pay the same, there being no
reciprocity recognized in respect thereto. In both instances, the Filipino citizen is
always at a disadvantage. We do not believe that our legislature has intended such
an unfair situation to the detriment of our own government and people. We,
therefore, find and declare that the lower court erred in exempting the estate in
question from payment of the inheritance tax.
We are not unaware of our ruling in the case of Collector of Internal Revenue vs.
Lara (G.R. Nos. L-9456 & L-9481, prom. January 6, 1958, 54 O.G. 2881) exempting
the estate of the deceased Hugo H. Miller from payment of the inheritance tax
imposed by the Collector of Internal Revenue. It will be noted, however, that the
issue of reciprocity between the pertinent provisions of our tax law and that of the
State of California was not there squarely raised, and the ruling therein cannot
control the determination of the case at bar. Be that as it may, we now declare that
in view of the express provisions of both the Philippine and California laws that the
exemption would apply only if the law of the other grants an exemption from
legacy, succession, or death taxes of every character, there could not be partial
reciprocity. It would have to be total or none at all.
With respect to the question of deduction or reduction in the amount of P4,000.00
based on the U.S. Federal Estate Tax Law which is also being claimed by
respondents, we uphold and adhere to our ruling in the Lara case (supra) that the
amount of $2,000.00 allowed under the Federal Estate Tax Law is in the nature of a
deduction and not of an exemption regarding which reciprocity cannot be claimed
under the provision of Section 122 of our National Internal Revenue Code. Nor is
reciprocity authorized under the Federal Law. .
On the issue of the correctness of the appraisal of the two parcels of land situated
in Baguio City, it is contended that their assessed values, as appearing in the tax
rolls 6 months after the death of Stevenson, ought to have been considered by
petitioner as their fair market value, pursuant to section 91 of the National Internal
Revenue Code. It should be pointed out, however, that in accordance with said
proviso the properties are required to be appraised at their fair market value and
the assessed value thereof shall be considered as the fair market value only when
evidence to the contrary has not been shown. After all review of the record, we are
satisfied that such evidence exists to justify the valuation made by petitioner which
was sustained by the tax court, for as the tax court aptly observed:
"The two parcels of land containing 36,264 square meters were valued by
the administrator of the estate in the Estate and Inheritance tax returns
filed by him at P43,500.00 which is the assessed value of said properties.
On the other hand, defendant appraised the same at P52,200.00. It is of
common knowledge, and this Court can take judicial notice of it, that
assessments for real estate taxation purposes are very much lower than
the true and fair market value of the properties at a given time and place.
In fact one year after decedent's death or in 1952 the said properties were
sold for a price of P72,000.00 and there is no showing that special or
extraordinary circumstances caused the sudden increase from the price of
P43,500.00, if we were to accept this value as a fair and reasonable one as
of 1951. Even more, the counsel for plaintiffs himself admitted in open
court that he was willing to purchase the said properties at P2.00 per
square meter. In the light of these facts we believe and therefore hold that
the valuation of P52,200.00 of the real estate in Baguio made by defendant
is fair, reasonable and justified in the premises." (Decision, p. 19).
In respect to the valuation of the 210,000 shares of stock in the Mindanao Mother
Lode Mines, Inc., (a domestic corporation), respondents contend that their value
should be fixed on the basis of the market quotation obtaining at the San Francisco
(California) Stock Exchange, on the theory that the certificates of stocks were then
held in that place and registered with the said stock exchange. We cannot agree
with respondents' argument. The situs of the shares of stock, for purposes of
taxation, being located here in the Philippines, as respondents themselves concede
and considering that they are sought to be taxed in this jurisdiction, consistent with
the exercise of our government's taxing authority, their fair market value should be
taxed on the basis of the price prevailing in our country.
Upon the other hand, we find merit in respondents' other contention that the said
shares of stock commanded a lesser value at the Manila Stock Exchange six months
after the death of Stevenson. Through Atty. Allison Gibbs, respondents have shown
that at that time a share of said stock was bid for at only P.325 (p. 103, t.s.n.).
Significantly, the testimony of Atty. Gibbs in this respect has never been questioned
nor refuted by petitioner either before this court or in the court below. In the
absence of evidence to the contrary, we are, therefore, constrained to reverse the
Tax Court on this point and to hold that the value of a share in the said mining
company on August 22, 1951 in the Philippine market was P.325 as claimed by
respondents..
5
It should be noted that the petitioner and the Tax Court valued each share of stock
of P.38 on the basis of the declaration made by the estate in its preliminary return.
Patently, this should not have been the case, in view of the fact that the ancillary
administrator had reserved and availed of his legal right to have the properties of
the estate declared at their fair market value as of six months from the time the
decedent died..
On the fifth issue, we shall consider the various deductions, from the allowance or
disallowance of which by the Tax Court, both petitioner and respondents have
appealed..
Petitioner, in this regard, contends that no evidence of record exists to support the
allowance of the sum of P8,604.39 for the following expenses:.
1) Administrator's fee P1,204.34
2) Attorney's fee 6,000.00
3) Judicial and Administrative expenses 2,052.55
Total Deductions P8,604.39
An examination of the record discloses, however, that the foregoing items were
considered deductible by the Tax Court on the basis of their approval by the
probate court to which said expenses, we may presume, had also been presented
for consideration. It is to be supposed that the probate court would not have
approved said items were they not supported by evidence presented by the estate.
In allowing the items in question, the Tax Court had before it the pertinent order of
the probate court which was submitted in evidence by respondents. (Exh. "AA-2", p.
100, record). As the Tax Court said, it found no basis for departing from the findings
of the probate court, as it must have been satisfied that those expenses were
actually incurred. Under the circumstances, we see no ground to reverse this
finding of fact which, under Republic Act of California National Association, which it
would appear, that while still living, Walter G. Stevenson obtained we are not
inclined to pass upon the claim of respondents in respect to the additional amount
of P86.52 for funeral expenses which was disapproved by the court a quo for lack of
evidence.
In connection with the deduction of P652.50 representing the amount of realty
taxes paid in 1951 on the decedent's two parcels of land in Baguio City, which
respondents claim was disallowed by the Tax Court, we find that this claim has in
fact been allowed. What happened here, which a careful review of the record will
reveal, was that the Tax Court, in itemizing the liabilities of the estate, viz:
1) Administrator's fee P1,204.34
2) Attorney's fee 6,000.00
3) Judicial and Administration expenses as of August 9, 1952 2,052.55
Total P9,256.89
added the P652.50 for realty taxes as a liability of the estate, to the P1,400.05 for
judicial and administration expenses approved by the court, making a total of
P2,052.55, exactly the same figure which was arrived at by the Tax Court for judicial
and administration expenses. Hence, the difference between the total of P9,256.98
allowed by the Tax Court as deductions, and the P8,604.39 as found by the probate
court, which is P652.50, the same amount allowed for realty taxes. An evident
oversight has involuntarily been made in omitting the P2,000.00 for funeral
expenses in the final computation. This amount has been expressly allowed by the
lower court and there is no reason why it should not be. .
We come now to the other claim of respondents that pursuant to section 89(b) (1)
in relation to section 89(a) (1) (E) and section 89(d), National Internal Revenue
Code, the amount of P10,022.47 should have been allowed the estate as a
deduction, because it represented an indebtedness of the decedent incurred during
his lifetime. In support thereof, they offered in evidence a duly certified claim,
presented to the probate court in California by the Bank of California National
Association, which it would appear, that while still living, Walter G. Stevenson
obtained a loan of $5,000.00 secured by pledge on 140,000 of his shares of stock in
the Mindanao Mother Lode Mines, Inc. (Exhs. "Q-Q4", pp. 53-59, record). The Tax
Court disallowed this item on the ground that the local probate court had not
approved the same as a valid claim against the estate and because it constituted an
indebtedness in respect to intangible personal property which the Tax Court held to
be exempt from inheritance tax.
For two reasons, we uphold the action of the lower court in disallowing the
deduction.
Firstly, we believe that the approval of the Philippine probate court of this
particular indebtedness of the decedent is necessary. This is so although the same,
it is averred has been already admitted and approved by the corresponding probate
court in California, situs of the principal or domiciliary administration. It is true that
we have here in the Philippines only an ancillary administration in this case, but, it
has been held, the distinction between domiciliary or principal administration and
ancillary administration serves only to distinguish one administration from the
other, for the two proceedings are separate and independent. 8 The reason for the
ancillary administration is that, a grant of administration does not ex proprio vigore,
6
have any effect beyond the limits of the country in which it was granted. Hence, we
have the requirement that before a will duly probated outside of the Philippines
can have effect here, it must first be proved and allowed before our courts, in much
the same manner as wills originally presented for allowance therein.9 And the
estate shall be administered under letters testamentary, or letters of administration
granted by the court, and disposed of according to the will as probated, after
payment of just debts and expenses of administration.10 In other words, there is a
regular administration under the control of the court, where claims must be
presented and approved, and expenses of administration allowed before
deductions from the estate can be authorized. Otherwise, we would have the
actuations of our own probate court, in the settlement and distribution of the
estate situated here, subject to the proceedings before the foreign court over which
our courts have no control. We do not believe such a procedure is countenanced or
contemplated in the Rules of Court.
Another reason for the disallowance of this indebtedness as a deduction, springs
from the provisions of Section 89, letter (d), number (1), of the National Internal
Revenue Code which reads:
(d) Miscellaneous provisions — (1) No deductions shall be allowed in the
case of a non-resident not a citizen of the Philippines unless the executor,
administrator or anyone of the heirs, as the case may be, includes in the
return required to be filed under section ninety-three the value at the time
of his death of that part of the gross estate of the non-resident not
situated in the Philippines."
In the case at bar, no such statement of the gross estate of the non-resident
Stevenson not situated in the Philippines appears in the three returns submitted to
the court or to the office of the petitioner Collector of Internal Revenue. The
purpose of this requirement is to enable the revenue officer to determine how
much of the indebtedness may be allowed to be deducted, pursuant to (b), number
(1) of the same section 89 of the Internal Revenue Code which provides:
(b) Deductions allowed to non-resident estates. — In the case of a non-
resident not a citizen of the Philippines, by deducting from the value of
that part of his gross estate which at the time of his death is situated in the
Philippines —
(1) Expenses, losses, indebtedness, and taxes. — That proportion of the
deductions specified in paragraph (1) of subjection (a) of this
section11 which the value of such part bears the value of his entire gross
estate wherever situated;"
In other words, the allowable deduction is only to the extent of the portion of the
indebtedness which is equivalent to the proportion that the estate in the
Philippines bears to the total estate wherever situated. Stated differently, if the
properties in the Philippines constitute but 1/5 of the entire assets wherever
situated, then only 1/5 of the indebtedness may be deducted. But since, as
heretofore adverted to, there is no statement of the value of the estate situated
outside the Philippines, no part of the indebtedness can be allowed to be deducted,
pursuant to Section 89, letter (d), number (1) of the Internal Revenue Code.
For the reasons thus stated, we affirm the ruling of the lower court disallowing the
deduction of the alleged indebtedness in the sum of P10,022.47.
In recapitulation, we hold and declare that:
(a) only the one-half (1/2) share of the decedent Stevenson in the conjugal
partnership property constitutes his hereditary estate subject to the estate
and inheritance taxes;
(b) the intangible personal property is not exempt from inheritance tax,
there existing no complete total reciprocity as required in section 122 of
the National Internal Revenue Code, nor is the decedent's estate entitled
to an exemption of P4,000.00 in the computation of the estate tax;
(c) for the purpose of the estate and inheritance taxes, the 210,000 shares
of stock in the Mindanao Mother Lode Mines, Inc. are to be appraised at
P0.325 per share; and
(d) the P2,000.00 for funeral expenses should be deducted in the
determination of the net asset of the deceased Stevenson.
In all other respects, the decision of the Court of Tax Appeals is affirmed.
Respondent's claim for interest on the amount allegedly overpaid, if any actually results after
a recomputation on the basis of this decision is hereby denied in line with our recent decision
in Collector of Internal Revenue v. St. Paul's Hospital (G.R. No. L-12127, May 29, 1959)
wherein we held that, "in the absence of a statutory provision clearly or expressly directing
or authorizing such payment, and none has been cited by respondents, the National
Government cannot be required to pay interest."
WHEREFORE, as modified in the manner heretofore indicated, the judgment of the lower
court is hereby affirmed in all other respects not inconsistent herewith. No costs. So ordered.
7
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-34937 March 13, 1933
CONCEPCION VIDAL DE ROCES and her husband,
MARCOS ROCES, and ELVIRA VIDAL DE RICHARDS, plaintiff-appellants,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellee.
Feria and La O for appellants.
Attorney-General Jaranilla for appellee.
IMPERIAL, J.:
The plaintiffs herein brought this action to recover from the defendant, Collector of
Internal Revenue, certain sums of money paid by them under protest as inheritance
tax. They appealed from the judgment rendered by the Court of First Instance of
Manila dismissing the action, without costs.
On March 10 and 12, 1925, Esperanza Tuazon, by means of public documents,
donated certain parcels of land situated in Manila to the plaintiffs herein, who, with
their respective husbands, accepted them in the same public documents, which
were duly recorded in the registry of deeds. By virtue of said donations, the
plaintiffs took possession of the said lands, received the fruits thereof and obtained
the corresponding transfer certificates of title.
On January 5, 1926, the donor died in the City of Manila without leaving any forced
heir and her will which was admitted to probate, she bequeathed to each of the
donees the sum of P5,000. After the estate had been distributed among the
instituted legatees and before delivery of their respective shares, the appellee
herein, as Collector of Internal Revenue, ruled that the appellants, as donees and
legatees, should pay as inheritance tax the sums of P16,673 and P13,951.45,
respectively. Of these sums P15,191.48 was levied as tax on the donation to
Concepcion Vidal de Roces and P1,481.52 on her legacy, and, likewise, P12,388.95
was imposed upon the donation made to Elvira Vidal de Richards and P1,462.50 on
her legacy. At first the appellants refused to pay the aforementioned taxes but, at
the insistence of the appellee and in order not to delay the adjudication of the
legacies, they agreed at last, to pay them under protest.
The appellee filed a demurrer to the complaint on the ground that the facts alleged
therein were not sufficient to constitute a cause of action. After the legal questions
raised therein had been discussed, the court sustained the demurrer and ordered
the amendment of the complaint which the appellants failed to do, whereupon the
trial court dismissed the action on the ground that the afore- mentioned appellants
did not really have a right of action.
In their brief, the appellants assign only one alleged error, to wit: that the demurrer
interposed by the appellee was sustained without sufficient ground.
The judgment appealed from was based on the provisions of section 1540
Administrative Code which reads as follows:
SEC. 1540. Additions of gifts and advances. — After the aforementioned
deductions have been made, there shall be added to the resulting amount
the value of all gifts or advances made by the predecessor to any those
who, after his death, shall prove to be his heirs, devisees, legatees, or
donees mortis causa.
The appellants contend that the above-mentioned legal provision does not include
donations inter vivos and if it does, it is unconstitutional, null and void for the
following reasons: first, because it violates section 3 of the Jones Law which
provides that no law should embrace more than one subject, and that subject
should be expressed in the title thereof; second that the Legislature has no
authority to impose inheritance tax on donations inter vivos; and third, because a
legal provision of this character contravenes the fundamental rule of uniformity of
taxation. The appellee, in turn, contends that the words "all gifts" refer clearly to
donations inter vivos and, in support of his theory, cites the doctrine laid in the case
of Tuason and Tuason vs. Posadas (54 Phil., 289). After a careful study of the law
and the authorities applicable thereto, we are the opinion that neither theory
reflects the true spirit of the aforementioned provision. The gifts referred to in
section 1540 of the Revised Administration Code are, obviously, those
donations inter vivos that take effect immediately or during the lifetime of the
donor but are made in consideration or in contemplation of death. Gifts inter vivos,
the transmission of which is not made in contemplation of the donor's death should
not be understood as included within the said legal provision for the reason that it
would amount to imposing a direct tax on property and not on the transmission
thereof, which act does not come within the scope of the provisions contained in
Article XI of Chapter 40 of the Administrative Code which deals expressly with the
tax on inheritances, legacies and other acquisitions mortis causa.
Our interpretation of the law is not in conflict with the rule laid down in the case
of Tuason and Tuason vs. Posadas, supra. We said therein, as we say now, that the
8
expression "all gifts" refers to gifts inter vivos inasmuch as the law considers them
as advances on inheritance, in the sense that they are gifts inter vivos made in
contemplation or in consideration of death. In that case, it was not held that that
kind of gifts consisted in those made completely independent of death or without
regard to it.
Said legal provision is not null and void on the alleged ground that the subject
matter thereof is not embraced in the title of the section under which it is
enumerated. On the contrary, its provisions are perfectly summarized in the
heading, "Tax on Inheritance, etc." which is the title of Article XI. Furthermore, the
constitutional provision cited should not be strictly construed as to make it
necessary that the title contain a full index to all the contents of the law. It is
sufficient if the language used therein is expressed in such a way that in case of
doubt it would afford a means of determining the legislators intention. (Lewis'
Sutherland Statutory Construction, Vol. II, p. 651.) Lastly, the circumstance that the
Administrative Code was prepared and compiled strictly in accordance with the
provisions of the Jones Law on that matter should not be overlooked and that, in a
compilation of laws such as the Administrative Code, it is but natural and proper
that provisions referring to diverse matters should be found. (Ayson and Ignacio vs.
Provincial Board of Rizal and Municipal Council of Navotas, 39 Phil., 931.)
The appellants question the power of the Legislature to impose taxes on the
transmission of real estate that takes effect immediately and during the lifetime of
the donor, and allege as their reason that such tax partakes of the nature of the
land tax which the law has already created in another part of the Administrative
Code. Without making express pronouncement on this question, for it is
unnecessary, we wish to state that such is not the case in these instance. The tax
collected by the appellee on the properties donated in 1925 really constitutes an
inheritance tax imposed on the transmission of said properties in contemplation or
in consideration of the donor's death and under the circumstance that the donees
were later instituted as the former's legatees. For this reason, the law considers
such transmissions in the form of gifts inter vivos, as advances on inheritance and
nothing therein violates any constitutional provision, inasmuch as said legislation is
within the power of the Legislature.
Property Subject to Inheritance Tax. — The inheritance tax ordinarily
applies to all property within the power of the state to reach passing by
will or the laws regulating intestate succession or by gift inter vivos in the
manner designated by statute, whether such property be real or personal,
tangible or intangible, corporeal or incorporeal. (26 R.C.L., p. 208, par.
177.)
In the case of Tuason and Tuason vs. Posadas, supra, it was also held that section
1540 of the Administrative Code did not violate the constitutional provision
regarding uniformity of taxation. It cannot be null and void on this ground because
it equally subjects to the same tax all of those donees who later become heirs,
legatees or donees mortis causa by the will of the donor. There would be a
repugnant and arbitrary exception if the provisions of the law were not applicable
to all donees of the same kind. In the case cited above, it was said: "At any rate the
argument adduced against its constitutionality, which is the lack of Uniformity, does
not seem to be well founded. It was said that under such an interpretation, while a
donee inter vivos who, after the predecessor's death proved to be an heir, a
legatee, or a donee mortis causa, would have to pay the tax, another donee inter
vivos who did not prove to he an heir, a legatee, or a donee mortis causa of the
predecessor, would be exempt from such a tax. But as these are two different
cases, the principle of uniformity is inapplicable to them."
The last question of a procedural nature arising from the case at bar, which should
be passed upon, is whether the case, as it now stands, can be decided on the merits
or should be remanded to the court a quo for further proceedings. According to our
view of the case, it follows that, if the gifts received by the appellants would have
the right to recover the sums of money claimed by them. Hence the necessity of
ascertaining whether the complaint contains an allegation to that effect. We have
examined said complaint and found nothing of that nature. On the contrary, it be
may be inferred from the allegations contained in paragraphs 2 and 7 thereof that
said donations inter vivos were made in consideration of the donor's death. We
refer to the allegations that such transmissions were effected in the month of
March, 1925, that the donor died in January, 1926, and that the donees were
instituted legatees in the donor's will which was admitted to probate. It is from
these allegations, especially the last, that we infer a presumption juris tantum that
said donations were made mortis causa and, as such, are subject to the payment of
inheritance tax.
Wherefore, the demurrer interposed by the appellee was well-founded because it
appears that the complaint did not allege fact sufficient to constitute a cause of
action. When the appellants refused to amend the same, spite of the court's order
to that effect, they voluntarily waived the opportunity offered them and they are
not now entitled to have the case remanded for further proceedings, which would
serve no purpose altogether in view of the insufficiency of the complaint.
Wherefore, the judgment appealed from is hereby affirmed, with costs of this
instance against the appellants. So ordered.
Avanceña, C.J., Villamor, Ostrand, Abad Santos, Hull, Vickers and Buttes, JJ., concur.
9
Separate Opinions

VILLA-REAL, J., dissenting:

I sustain my concurrence in Justice Street's dissenting opinion in the case of Tuason

and Tuason vs. Posadas (54 Phil., 289).

The majority opinion to distinguish the present case from above-mentioned case
of Tuason and Tuason vs. Posadas, by interpreting section 1540 of the
Administrative Code in the sense that it establishes the legal presumption juris
tantum that all gifts inter vivos made to persons who are not forced heirs but who
are instituted legatees in the donor's will, have been made in contemplation of the
donor's death. Presumptions are of two kinds: One determined by law which is also
called presumption of law or of right; and another which is formed by the judge
from circumstances antecedent to, coincident with or subsequent to the principal
fact under investigation, which is also called presumption of man (presuncion de
hombre). (Escriche, Vol. IV, p. 662.) The Civil Code as well as the code of Civil
Procedure establishes presumptions juris et de jure and juris tantum which the
courts should take into account in deciding questions of law submitted to them for
decision. The presumption which majority opinion wishes to draw from said section
1540 of the Administrative Code can neither be found in this Code nor in any of the
aforementioned Civil Code and Code of Civil Procedure. Therefore, said
presumption cannot be called legal or of law. Neither can it be called a presumption
of man (presuncion de hombre) inasmuch as the majority opinion did not infer it
from circumstances antecedent to, coincident with or subsequent to the principal
fact with is the donation itself. In view of the nature, mode of making and effects of
donations inter vivos, the contrary presumption would be more reasonable and
logical; in other words, donations inter vivos made to persons who are not forced
heirs, but who are instituted legatees in the donor's will, should be presumed as not
made mortis causa, unless the contrary is proven. In the case under consideration,
the burden of the proof rests with the person who contends that the donation inter
vivos has been made mortis causa.

It is therefore, the undersigned's humble opinion that the order appealed from
should be reversed and the demurrer overruled, and the defendant ordered to file
his answer to the complaint.

Street, J., concurs.

10
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-15141 November 16, 1920
THE MANILA RAILROAD CO., plaintiff-appellant,
vs.
THE ATTORNEY-GENERAL, ET AL., defendant-appellees.
Orense & Vera and Jose A. Santos for appellant.
Rafael de la Sierra for appellees.
Albert E. Somersille for appellee Quijano.
VILLAMOR, J.:
On February 17, 1914, the plaintiff, The Manila Railroad Co., instituted this action in
the Court of First Instance of Albay, for the purpose of condemning the lands
described in the complaint, alleging that it was necessary for it to acquire said lands
for the construction of a railway branch from Legaspi to Nueva Caceres, that it had
the right to do so in accordance with the franchise granted to it by Acts Nos. 1510
and 1905 of the Philippine Legislature, and that it could not acquire said lands
through extra-judicial transactions as the true owners of some of these lands were
unknown to the plaintiff, while those that are known demand highly excessive
prices which are not the true value of their lands. The plaintiff asked that, after trial,
it be declared owner of the lands described in the complaint and that the
reasonable and true value, which it should pay to those who show themselves to be
the true owners of said lands, be fixed.
The owners, who appeared and answered the complaint, are Eleuteria Diaz,
Eugenia Pinilla, Ceferino Guanzon, Gutierrez Hermanos, and Florencia Quijano. They
admitted the right of the plaintiff to expropriate the lands described in the
complaint, and they merely stated the different sums which they claimed as
compensation for their lands, the improvements existing thereon at the time of
their occupation by the plaintiff and the damages occasioned to the unexpropriated
part of their lots due to the segregation of that occupied by the railway line.
With the consent of the parties, three commissioners were appointed to hear the
evidence, assess the value of the lands sought to be expropriated, and submit to
the court a complete and detailed report of the proceedings had, in accordance
with sections 243 and 244 of the Code of Civil Procedure.
After the commissioners had been appointed, Domingo Valenciano appeared and,
with the court's permission, intervened in this case with the object of presenting
evidence upon the value of parcel No. 334 in the plaintiff's plan, and the amount of
damages caused to the remainder of the lot from which said parcel was taken.
The evidence having been taken before the commissioners, two of them submitted
their report to the court on November 17, 1916, stating: (1) That they assessed the
value of parcel No. 280, which belonged to Gutierrez Hermanos, at P0.20 per
square meter, independently of the improvements, to which they gave a total value
of P18,820.10 and they granted to said commercial firm the sum of P5,000 as
damages to the remaining part of their lot; (2) that they fixed the value of parcel
No. 282, which belonged to Eleuterio Diaz at P1 per square meter, excluding the
improvements thereon, to which they gave the value of P433.50, and they assessed
the damages to the unexpropriated part of the lot at P150; (3) that they gave the
value of P2.50 per square meter to parcels Nos. 330 and 334, which belonged to
Eugenia Pinilla and Domingo Valenciano, respectively, and they adjudicated to the
spouses Antonio Porcalla and Eugenia Pinilla the additional sum of P400 for their
house on said land, and to Domingo Valenciano, respectively, and they adjudicated
to the spouses Antonio Porcalla and Eugenia Pinilla the additional sum of P400 for
their house on said land, and to Domingo Valenciano the sum of P560 for the
damages occasioned to him by the transfer of his house on said land; and (4) that
they assessed the value of parcel No. 353, which belonged to Ceferino Guanzon at
P2 per square meter, excluding the improvements thereon, which they valued at
P500, and they further granted him the sum of P300 for the damages suffered by
him in removing to another place one of the three houses that he had on said land
and a further sum of P300 for the value of the two other houses thereon.
The third commissioner, who did not sign the preceding report, presented on
March 1st, a dissenting report, in which he stated: (1) That parcel No. 280,
belonging to Gutierrez Hermanos, should be assessed at P0.50 per square meter,
including its improvements, and that instead of P5,000, only the sum of P4,000
should be granted to it, as damages caused to the unexpropriated part of the land;
(2) that parcel No. 282 belonging to Eleuterio Diaz should be assessed at P1 per
square meter, including its improvements; (3) that he agrees that the value of P2
per square meter should be given to parcel No. 253 belonging to Ceferino Guanzon,
but he assessed the value of the trees thereon at P300 only, and the damages
occasioned to him by the removal of his house to another place at P300, and the
value of the two houses that were destroyed at P200; and (4) that he completely
11
agrees with the report of the other commissioners with respect to parcels Nos. 330
and 334 belonging to Antonio Porcalla and Domingo Valenciano.
The plaintiff objected to the report of the commissioners, alleging that said
commissioners have adopted wrong principles in the assessment of the lands, and
the majority of them assessed the value of the lands separately from their
improvements, fixing for each of them excessive and exorbitant prices.
On February 26, 1918, the court rendered judgment, approving the report of the
majority of the commissioners, and adjudicating to the plaintiff the ownership of
the lands described in the complaint, but condemning to pay to their respective
owners the sums assigned by the commissioners to each of them, with legal
interest from February 17, 1914, until full payment.
With respect to parcel No. 14, belonging to Florencia Quijano, but not mentioned in
the report of the commissioners, the court also rendered judgment, adjudicating it
to the plaintiff and condemning the latter to pay to said Florencia Quijano the sum
of P559, with interest from May 20, 1908, until the date of payment.
The plaintiff excepted to this judgment and at the same time moved for a new trial,
on the ground that the judgment was manifestly contrary to the weight of the
evidence and the law. The motion having been overruled, the plaintiff excepted to
the order overruling the motion, and appealed the case to the Supreme Court by
means of a bill of exceptions.lawph!l.net
This appeal was taken by the plaintiff from the whole judgment, which deals,
among others, with parcel No. 14, belonging to Florencia Quijano. But we do not
find in the record before us the evidence with respect to this parcel, or the report of
the commissioners thereon, and consequently there is no other course for us to
take but to dismiss the appeal with respect to parcel No. 14. Furthermore, nowhere
in the record does it appear that the appellant has furnished counsel for Florencia
Quijano with a copy of his brief, as required by article 21 of the Rules of this Court;
and therefore, it is proper to dismiss the appeal, in accordance with article 23 of
said Rules, in so far as parcel No. 14, belonging to Florencia Quijano, is concerned.
The errors assigned by the appellant in its brief are the following: (1) The act of the
court in approving the report of the commissioners of appraisal and basing his
judgment thereon; (2) the act of the court in granting legal interest to the
defendants; and (3) the act of the court in denying the motion for new trial.
In discussing the first error imputed to the court below, counsel for the appellant
argues that the evidence of the defendants, upon which the report of the
commissioners is based, is incompetent, inasmuch as it consists of mere opinions of
witnesses, who are not shown to have intervened in real estate transactions, either
as brokers or in any other capacity that may give them knowledge of the value of
lands "in said localities." The appellant also attacks the report of the commissioners
on the ground that they did not consider the evidence presented by said appellant.
The question is therefore raised as to whether the evidence supports the
conclusions of the majority of the commissioners. To decide it, we will deal
separately with the five parcels covered by the report of the commissioners.
Parcel No. 280. — This parcel is part of the hacienda known as "Hacienda de
Mapulangbato," belonging to Gutierrez Hermanos. It is land suitable to be planted
to hemp and coconut. It is situated in Ligao, Albay, a small party being in the
municipality of Guinobatan.
Constancio Benito declared that he has been living in Ligao for about twenty-two
years; that he had sold to Mariano Lim a part of the land administered by him and
situated about 50 meters from the Hacienda de Mapulangbato; that said hacienda
is of greater value than the land sold by him; that the price obtained by him at said
sale was P0.29 ½ per square meter, which was less than the value of the land, but
he decided to effect the sale to avoid litigation with a third person who, claiming to
be the owner thereof, had previously sold it; that the document of conveyance, to
which he refer, is Exhibit 1 of the defendants. This exhibit bears date, January 31,
1913, that is, one year before the railroad took possession of parcel No. 280, which
took place in February, 1914, as appears from Exhibit 1 and others of the
defendants. Said Exhibit 1 proves the sale of a part of lot No. 284 of the plan of the
railroad at P0.29 ½ per square meter. The land thus sold is hemp land, according to
the document itself, and is 50 meters from the Hacienda de Mapulangbato,
according to the testimony of Constancia Benito, above noted.
Another witness, Roman Jaucian, gave the value of Hacienda de Mapulangbato at
P0.30 per square meter. This witness has been administering lands in the vicinity of
said hacienda and has been living there for more than ten years without having
intervened in any voluntary sale of lands.1awph!l.net
The witness Leopoldo Teran fixed the price of the expropriated part of said
hacienda at P0.40 per square meter, but his experience on the subject consists only
in his having administered lands near said hacienda.
Venancio Cavada Diaz, another witness for the defendants, fixed the price at P0.40
to P0.50 per square meter for parcel No. 280. His competency to testify as to the
value of the land is indisputable, because he knows perfectly parcel No. 280, having
possessed it, first as owner and later as caretaker of Gutierrez Hermanos, and
having lived in the municipality of Ligao for twenty years. Furthermore he had
12
bought and sold much lands situated in said municipality and had administered
them, farming and dealing in merchandise having been his principal occupation;
and therefore he is a business man of great experience who must have acquired
special knowledge of the value of the lands in the locality.
In the case of Manila Railroad Co. vs. Alano (36 Phil., 500), this court accepted the
declarations of the clerk of court and of the provincial treasurer of Batangas as
competent, with respect to the value of the lands in their province, for the reason
that "their experience as men of affairs in the Province of Batangas, whose official
duties could not fail to have given them some special knowledge as to land
valuations in that province, lends great weight, to their expressions of opinion as to
land values in the province in which they live, and justifies us in the belief that their
estimates of the true market value of the land in question are not far astray." (See
page 505 of the volume cited.)
On the other hand the plaintiff did not present any evidence except Exhibits 1 to 15,
of which the first eleven show sales of lands situated in different sitios or barrios of
the municipality of Ligao, and the last four are real-estate tax declarations of lots
belonging to Gutierrez Hermanos and G. Urrutia and Co. The plaintiff has not
established by means of other evidence the identity of similarity between the lands
referred to in those exhibits and those that are the object of the expropriation
proceedings. It attempted to do so, but the witnesses presented by it stated that
said lands were situated far from parcel No. 280, while the record does not show
whether the lands referred to in the other exhibits, with the exception of Exhibits
12, 13 and 14, are near or far from the expropriated lands and have some similarity
or relation to each other.
Venancio Cavada Diaz in rebuttal declared that the lands referred to in Exhibits 12
and 14 of the plaintiff were situated about 20 kilometers from the expropriated
lands. He also states that Exhibit 13, dated November 21, 1911, is no more than a
reproduction of the real-estate tax declaration which he presented in 1906, for
when he sold the Hacienda de Mapulangbato to Gutierrez Hermanos, he did
nothing more than to put the declaration in the name of gutierrez Hermanos, and
did not change the assessed valuation of the land, such change having been made
by the Government only in 1915. It thus results that the value stated in said Exhibits
12 and 14 cannot be made the basis in assessing the value of the lands in question
which were expropriated in 1914, the hacienda having been greatly improved
during the time that elapsed between 1906 and 1914, according to the declaration
of Venancio Cavada Diaz himself. The same thing occurred with the land described
in Exhibit 15, according to the same witness.
In the case of Manila Railroad Co. vs. Velasquez (32 Phil., 286), this court held that
in order that sales of other lands may be admitted as evidence of the value of the
expropriated lands, they must have been effected sufficiently near in point of time
with the date of the condemnation proceedings to exclude general increases or
decreases in property values due to changed commercial conditions in the vicinity
and the lands thus, sold must be in the immediate neighborhood, that is, in the
zone of commercial activity with which the condemned property is identified.
Applying these rules to the case at bar, it results that the exhibits presented by the
plaintiff cannot be made the basis in the assessment of the value of the lands here
in question, although Exhibit 13 should be considered to determine only whether
the price fixed by the commissioners for parcel No. 280 is excessive or reasonable.
(Manila Railroad vs. Alano, supra.)
From Exhibit 13, which seems to refer to the Hacienda de Mapulangbato, it appears
that it was assessed at less than one centavo per square meter, but it should be
noted that that was an assessment of the whole land which, according to the
testimony of Cavada Diaz, was in part mountainous and difficult to cultivate and in
part level and tillable, as it was in effect planted with hemp and coconut and other
plants and trees. It should also be noted that the railroad had occupied the parts
that are level and easily cultivated. Now, then, considering that the assessment was
made about eight years prior to the expropriation proceedings, that during this
period of time the land was cultivated with care, and that the expropriated part of
the Hacienda de Mapulangbato is level and easily cultivated, and therefore, of great
value, we do not believe that the value of P0.20 per square meter fixed by the
commissioners is excessive.
With respect to the valuation of the improvements on the expropriated part, the
plaintiff has no reasonable grounds for complaint, not only because it has not
presented any evidence on the point, but also because the witnesses for the
defendant, who testified on the value of said improvements, have shown such
experience in the lumber business, in the planting of trees, and such knowledge as
to the use, enjoyment and value of the trees and plants existing on the lands, that it
is impossible to question their competency in fixing the value of said improvements.
More than this, the commissioners reduced the values fixed by said witnesses. We
are therefore of the opinion that in assessing the value of these improvements the
commissioners committed no error prejudicial to the interests of the plaintiff.
The appellant, in order to support its contention that the improvement on the
expropriated lands should have been assessed jointly with the lands, invokes the
doctrine laid down by this court in the case of Manila Railroad Co. vs. Aguilar (35
Phil, 118), where it was said: "When the land is preferably intended for the raising
of a given crop or for the planting of trees of a certain kind, although these or the
crop be deemed improvements of the land they should not be appraised apart from
the land as they are an integral part thereof and their value is inherent or forms a
part of that of the land." In the present case it has not been shown that the land is
13
better adapted to a particular kind of plant; on the contrary, it is shown to be
planted with several kinds of trees and plants, and therefore we are of the opinion
that said improvements may be valued separately from the land, inasmuch as the
owners of expropriated lands have the right to be indemnified for the
improvements existing thereon, as was held by this court in the case of Manila
Railroad Co., vs. Velasquez (32 Phil., 286).
Finally there can be no doubt that damages were occasioned to the unexpropriated
part of the land, because the remaining portion was divided into two parts, with the
result that it is very difficult to pass from one part to the other. The witness Cavada
Diaz fixed the value of these damages at P20,000, while the commissioners fixed it
at P5,000. These damages consists in the fact that now transportation to and from
the hacienda is costly because there is no direct way from one side of the railroad
line to the other, and these damages are not compensated by any special benefit
derived form the construction of the line, for no station was established near
the hacienda, for which reason the value of the unexpropriated land was
necessarily reduced. According to Exhibit 13, the hacienda had a total area of 160
hectares, and an extent of about 52 hectares having been expropriated, 108
hectares remain, and the sum of P500 adjudicated by the commissioners to
Gutierrez Hermanos represents the decrease in the value of the 108 hectares at the
rate of less than one-half centavo per square meter, that is, 2 per cent if the price of
the unexpropriated part be fixed at P0.20, or 4 per cent if it be fixed at P0.10 per
square meter, which appears to be reasonable, inasmuch as the remaining or
unexpropriated part is of less value than the part occupied by the railroad because
its tillable portion is less. The amount granted by the commissioners as damages
occasioned to the unexpropriated part is therefore not excessive.
Parcel No. 282. — This parcel belongs to Eleuterio Diaz, who is represented in these
proceedings by Venancio Cavada Diaz, as is shown by a power of attorney duly
executed in favor of the latter by the former who is now absent in Spain.
It is situated in the sitio of Paolog, barrio of Tuburan, municipality of Ligao, at a
distance of about 50 meters from the main road from Albay to Ligao and in the
corner of the bridge of Paolog. The whole land of Eleuterio Diaz borders on said
road and was rented by the "International Purchasing Company," which had
a camarin thereon of strong materials, which camarin contained important
machinery and a press belonging to said company. Upon it there was also one
building in which two ilang-ilang stills had been installed, another building used as a
storehouse for copra, and another building of strong materials. There were also
many tress and plants of several kinds. The land was principally suitable for
construction of buildings, although plants and trees had been planted thereon in
order to utilize the part not covered by the buildings. On several sides the land was
enclosed with wire fencing and there were about twelve houses near it. With these
facts which clearly appear in the record there can be no doubt that parcel No. 282 is
a lot.
The witness Cavada Diaz who knows this lot, for he is the agent of the owner, fixed
its value at P1 per square meter, excluding the improvements.
The plaintiff did not present any evidence in these proceedings with the exception
of Exhibits 1 to 15, nor did it present any witness to establish the relation between
these documents and the expropriated land. Of these fifteen documents, Exhibits 8,
13 and 15 refer to lands situated in the barrio of Tuburan where parcel No. 282 is
situated, but the first of said lands is, according to the exhibits themselves, hemp
and coconut land, the second is a rustic and hemp land, and the last is hemp land;
while parcel No. 282 commissioners as to the value of this parcel is in accordance
with the evidence.
From the declaration of Venancio Cavada Diaz it is to be inferred that the land
described in assessment sheet Exhibit 15 is the same parcel No. 282, but even
supposing that this is true, said exhibit is not sufficient proof that the value fixed by
the commissioners for said parcel is erroneous, for said Exhibit 15 was presented in
1908 and it therefore cannot be affirmed that the value stated therein is the value
of parcel No. 282 in 1914, when it was occupied by the plaintiff, inasmuch as it
appears in the record that the land has increased in value due to the improvements
made thereon.
With respect to the improvements and the damages caused to the remainder of the
lot, what has been said with respect to parcel No. 280 is applicable to No. 282, for
the prices given by the witness Cavada Diaz for each three and plant, which do not
appear to be exaggerated, were yet reduced by the referees; and the damages
caused to the unexpropriated part are almost identical with those caused to parcel
No. 280. The whole of the land of which parcel No. 282 forms part is less than 2
hectares in area, the expropriated part measuring 2,619 square meters, and the
remaining part being about 1 1/2 hectares. The witness Cavada Diaz fixed the
damages at P400, but the commissioners reduced them to P150, or approximately 1
cent per square meter for the unexpropriated part; and P1 per square meter being
the price given to the lot, it results that the diminution in value of the
unexpropriated part is only 1 per cent, which is far from being excessive.
Parcel No. 330. — This parcel belongs to the spouses Antonio Porcalla and Eugenia
Pinilla. It is situated in the barrio of Bagumbayan about 19 meters from the new
market of Ligao. At the time of its condemnation by the railroad, that is, in February
1914, there was on it a house of wood and bamboo with nipa roof and therefore it
was a lot.
14
The evidence on the value of this parcel consist of the declaration of Venancio
Cavada Diaz and Calixto Verar and Exhibit 24 of the defendants.
This exhibit is a notarial document executed by one Higino Cipriano in favor of the
witness Calixto Verar, which evidences a sale between these two persons of a lot
situated in the barrio of Bagumbayan, municipality of Ligao. In describing the land
the document says that it bordered on one side by "lands of the municipality, that
is, by the market then under construction." The area of the lot does not appear in
the document though it states that it has a "circumference of sixty-six meters."
According to the testimony of Venancio Cavada Diaz, the land described in said
document, Exhibit 24, is identical with parcel No. 330; they are situated in the same
barrio, at the same distance from the public market, and are under the same
conditions. It also appears that the sale was effected under normal circumstances,
for the purchaser himself declared that he was not obliged to buy the land, and that
he bought it because he wanted to put up a store near the market which was
intended to be constructed there; and although it does not appear whether the
vendor was or was not in need of money, nevertheless, the purchaser himself
stated that the sale was effected in a free and voluntary manner.
It therefore results that the price at which the land described in Exhibit 24 was sold
is a reasonable basis for the valuation of parcel No. 330. (Manila Railroad
Co. vs. Velasquez, 32 Phil, 286; City of Manila vs. Neal, 33 Phil., 291; and City of
Manila vs. Estrada and Estrada, 25 Phil., 208.)
The purchaser Calixto Verar was a caretaker of the firm Gutierrez Hermanos, and he
took the money with which he paid the price of the land covered by Exhibit 24 from
that firm, by reason of which Venancio Cavada Diaz learned of the transaction.
Later on Calixto Verar attempted to sell the same land and then Venancio Diaz, with
the intention of acquiring it, had a surveyor measure it, and the land was measured
in the presence of Cavada Diaz, who not only aided in the work of locating the
course of the boundaries of the land and the longitudes, but also in the calculation
of the area, he having noted the data secured by him on a piece of paper. Said
witness, Diaz, states that this note is what he consulted when he declared that the
land had a length of 21 meters on the longest side and a width of 12 meters on the
widest side, and an area of 238 square meters which, at the price of P500
mentioned in Exhibit 21, gives a price of P2.14 per square meter. But as the public
market mentioned in said Exhibit 24, as the future boundary, did not yet exist when
the sale was made, and market having been opened a few months before the
occupation of parcel No. 330 by the railroad, according to the testimony of
Venancio Cavada Diaz, it is evident that the existence of said market must have
increased the value of the lot referred to in Exhibit 24 and also of parcel No. 330
which is nearby, as was the opinion of the witness Cavada Diaz; and, therefore, the
value of parcel No. 330 at the time of its occupation by the railroad must be greater
than the price at which the land mentioned in Exhibit 24 was sold. The witness,
Cavada Diaz, fixed this price at P2.50 and the commissioners, including the
dissenting one, accepted it without reducing or increasing it. On the other hand,
there is no evidence in the record in favor of the contention of the plaintiff, and
therefore there is no ground for declaring the conclusions of the commissioners as
erroneous.
It has been proved that the house located on the land was destroyed by the
employees or laborers of the railroad company and that the owners did not in any
way benefit from the materials thereof. The witness Cavada Diaz who knew the
house, having been there several times when Antonio Porcalla lived there
as mayordomo, stated that said house cost P450, but at the time of its destruction
by the company, part of the kitchen was already in a fallen condition and for this
reason he fixed its value at P400, which was accepted completely by the three
commissioners.
Parcel No. 334. — What has been said with respect to No. 330 is wholly applicable
to this parcel No. 334, because it is also a lot situated in the center of the town at a
distance of 100 meters from the new public market of Ligao. The dissenting
commissioner himself had to accept the price of P2.50 per square meter.
For the damage caused to the house on the lot due to the opening of the railway
line and the transfer thereof to another place, the commissioners including the
dissenting one, adjudicated P560 to its owner, their action being based on the
testimony of the latter, who was the only one to testify on the subject and the only
one who would know the value of said damages.
Of the fifteen exhibits presented by the plaintiff, Exhibit 1 refers to the land
situated in Bagumbayan, which seems to be the same barrio in which parcels Nos.
330 and 334 are situated, but according to said exhibit the land therein referred to
is rice land, and therefore it cannot be made the basis in assessing the value of the
lands in question, which are lots.
Parcel No. 353. — This parcel is a lot situated 200 meters from the public square of
the town and is therefore similar to the two preceding lots. But the three
commissioners fixed its value at P2 because it is at a greater distance from the zone
of commercial activity than the others; and therefore the plaintiff's objection to the
report of the commissioners is groundless so far as it concerns parcel No. 353.
As to the improvements on this parcel, the majority of the commissioners assessed
their value, basing their assessment upon the uncontradicted testimony of its
15
owner Ceferino Guanzon and upon other evidence in the record, but reduced some
of the amounts claimed by said owner. The appellant has not shown in what
respect the court erred, if it committed any error, and therefore, there is no reason
for rejecting or modifying the report of the commissioners which was approved by
the lower court.

With respect to the interest granted by the lower court to the owners of the
expropriated lands, this court has held in unequivocal terms that the owners of
exproriated lands are entitled to recover interest from the date that the company,
exercising the right of eminent domain, takes possession of the condemned lands,
and the amounts granted by the court shall cease to earn interest only from the
moment they are paid to the owners or are deposited in court. (Philippine Railway
Co. vs. Solon, 13 Phil., 34 and Philippine Railway Co. vs. Duran 33 Phil., 156.)

For the reasons above stated it is proper to affirm, as we do affirm, the judgment
appealed from, and the appeal is dismissed with respect to parcel No. 14, with the
costs of this instance against the appellant. So ordered.

Mapa, C.J., Johnson, Araullo, Street and Malcolm, JJ., concur.

16
 Republic of the Philippines administrator's disbursements in the total sum of P13,610.48, broken down as
SUPREME COURT follows:
Manila
I. Expense for the improvement and renovation of the decedent's residential house.
SECOND DIVISION
1. Construction of fence — P3,082.07
G.R. No. L-29276 May 18, 1978
2. Renovation of bathroom — P1,389.52
Testate Estate of the Late Felix J. de Guzman. VICTORINO G. DE
GUZMAN, administrator-appellee, 3. Repair of terrace and
vs.
CRISPINA DE GUZMAN-CARILLO, ARSENIO DE GUZMAN and HONORATA DE interior of house — P5,928.00 — P10,399.59
GUZMAN-MENDIOLA, oppositors-appellants.
II. Living expenses of Librada de Guzman while occupying the family home without
Emiliano Samson & R. Balderama-Samson for appellants. paying rent:

Cezar Paralejo for appellee. 1. For house helper — P1,170.00

2. Light bills — 227.41

AQUINO, J.: 3. Water bills — 150.80

This case is about the propriety of allowing as administration expenses certain 4. Gas oil, floor wax
disbursements made by the administrator of the testate estate of the late Felix J. de
Guzman of Gapan, Nueva Ecija.
and switch nail — 54.90 — P 1,603.11

The deceased testator was survived by eight children named Victorino, Librada,
III. Other expenses:
Severino, Margarita, Josefina, Honorata, Arsenio and Crispina. His will was duly
probated. Letters of administration were issued to his son, Doctor Victorino G. de
1. Lawyer's subsistence — P 19.30
Guzman, pursuant to the order dated September 17, 1964 of the Court of First
Instance of Nueva Ecija in Special Proceeding No. 1431.
2. Gratuity pay in lieu
One of the properties left by the dent was a residential house located in the
poblacion. In conformity with his last will, that house and the lot on which it stands of medical fee — 144.00
were adjudicated to his eight children, each being given a one-
eighth proindiviso share in the project of partition dated March 19, 1966, which was 3. For stenographic notes — 100.00
signed by the eight heirs and which was approved in the lower court's order of April
14, 1967 but without prejudice to the final outcome of the accounting. 4. For food served on

The administrator submitted four accounting reports for the period from June 16, decedent's first
1964 to September, 1967. Three heirs Crispina de Guzmans-Carillo Honorata de
Guzman-Mendiola and Arsenio de Guzman interposed objections to the death anniversary — 166.65
17
5. Cost of publication of or administrator of being examined on oath on any matter relating to an
administration account." (Sec. 1[c] Rule 81 and secs. 8 and 9, Rule 85, Rules of
death anniversary Court).

of decedent — 102.00 A hearing is usually held before an administrator's account is approved, especially if
an interested Party raises objections to certain items in the accounting report (Sec.
6. Representation 10, Rule 85).

expenses — 26.25 — P558.20 At that hearing, the practice is for the administrator to take the witness stand,
testify under oath on his accounts and Identify the receipts, vouchers and
documents evidencing his disbursements which are offered as exhibits. He may be
IV. Irrigation fee P1.049.58
interrogated by the court and crossed by the oppositors's counsel. The oppositors
may present proofs to rebut the ad. administrator's evidence in support of his
TOTAL P13,610.48
accounts.

It should be noted that the probate court in its order of August 29, 1966 directed
I. Expenses for the renovation and improvement of the family residence —
the administrator "to refrain from spending the assets of the estate for
P10,399.59. — As already shown above, these expenses consisted of disbursements
reconstructing and remodeling the house of the deceased and to stop spending (sic)
for the repair of the terrace and interior of the family home, the renovation of the
any asset of the estate without first during authority of the court to do so" (pp. 26-
bathroom, and the construction of a fence. The probate court allowed those
27, Record on Appeal).
expenses because an administrator has the duty to "maintain in tenantable repair
the houses and other structures and fences belonging to the estate, and deliver the
The lower court in its order of April 29, 1968 allowed the d items as legitimate same in such repair to the heirs or devises" when directed to do so by the court
expenses of administration. From that order, the three oppositors appealed to this (Sec. 2, Rule 84, Rules of Court).
Court. Their contention is that the probate court erred in approving the utilization
of the income of the estate (from rice harvests) to defray those expenditures which
On the other hand, the oppositors-appellants contend that the trial court erred in
allegedly are not allowable under the Rules of Court.
allowing those expenses because the same did not come within the category of
necessary expenses of administration which are understood to be the reasonable
An executor or administrator is allowed the necessary expenses in the care, and necessary expenses of caring for the property and managing it until the debts
management, and settlement of the estate. He is entitled to possess and manage are paid and the estate is partitioned and distributed among the heirs (Lizarraga
the decedent's real and personal estate as long as it is necessary for the payment of Hermanos vs. Abada, 40 Phil. 124).
the debts and the expenses of administration. He is accountable for the whole
decedent's estate which has come into his possession, with all the interest, profit,
As clarified in the Lizarraga case, administration expenses should be those which
and income thereof, and with the proceeds of so much of such estate as is sold by
are necessary for the management of the estate, for protecting it against
him, at the price at which it was sold (Sec. 3, Rule 84; Secs. 1 and 7, Rule 85, Rules
destruction or deterioration, and, possibly, for the production of fruits. They are
of Court).
expenses entailed for the preservation and productivity of the estate and its
management for purposes of liquidation, payment of debts, and distribution of the
One of the Conditions of the administrator's bond is that he should render a true residue among the persons entitled thereto.
and just account of his administration to the court. The court may examine him
upon oath With respect to every matter relating to his accounting 't and shall so
It should be noted that the family residence was partitioned proindiviso among the
examine him as to the correctness of his account before the same is allowed,
decedent's eight children. Each one of them was given a one-eighth share in
except when no objection is made to the allowance of the account and its
conformity with the testator's will. Five of the eight co-owners consented to the use
correctness is satisfactorily established by competent proof. The heirs, legatees,
of the funds of the estate for repair and improvement of the family home. It is
distributes, and creditors of the estate shall have the same privilege as the executor
18
obvious that the expenses in question were incurred to preserve the family home
and to maintain the family's social standing in the community.
Obviously, those expenses redounded to the benefit of an the co- owners. They
were necessary for the preservation and use of the family residence. As a result of
those expenses, the co-owners, including the three oppositors, would be able to
use the family home in comfort, convenience and security.
The other expenses, namely, P19.30 for the lawyer's subsistence and P144 as the
cost of the gift to the physician who attended to the testator during his last s are
allowable expenses.
IV. Irrigation fee — P1,049.58. —The appellants question the deductibility of that
expense on the ground that it seems to be a duplication of the item of P1,320 as
irrigation fee for the same 1966-67 crop-year.

We hold that the probate court did not err in approving the use of the income of
the estate to defray those ex
II. Expenses incurred by Librada de Guzman as occupant of the family residence
without paying rent — P1 603.11 — The probate court allowed the income of the
estate to be used for those expenses on the theory that the occupancy of the house
by one heir did not deprive the other seven heirs from living in it. Those expenses
consist of the salaries of the house helper, light and water bills, and the cost of gas,
oil floor wax and switch nail
We are of the opinion that those expenses were personal expenses of Librada de
Guzman, inuring y to her benefit. Those expenses, not being reasonable
administration expenses incurred by the administrator, should not be charged
against the income of the estate.
Librada de Guzman, as an heir, is entitled to share in the net income of the estate.
She occupied the house without paying rent. She should use her income for her
living expenses while occupying the family residence.
The administrator in his comment filed on February 28, 1978 explained that the
item of P1,320 represented the "allotments" for irrigation fees to eight tenants who
cultivated the Intan crop, which allotments were treated as "assumed expenses"
deducted as farming expenses from the value of the net harvests.
The explanation is not quite clear but it was not disputed by the appellants. The fact
is that the said sum of P1,049.58 was paid by the administrator to the Penaranda
Irrigation System as shown in Official Receipt No. 3596378 dated April 28, 1967. It
was included in his accounting as part of the farming expenses. The amount was
properly allowed as a legitimate expense of administration.
WHEREFORE, the lower court's order of April 29, 1968 is affirmed with the
modifications that the sum of (a) P1,603.11 as the living expenses of Librada de
Guzman. (b) P100 for stenographic notes, (c) P26.25 as representation expenses,
and (d) P268.65 as expenses for the celebration of the first anniversary of the
decedent's death are disallowed in the administrator's accounts. No costs.
SO ORDERED.

The trial court erred in approving those expenses in the administrator's accounts.
They should be, as they are hereby, disallowed (See 33 C.J.S 1239-40).

III. Other expenses — P558.20. — Among these expenses is the sum of P100 for
stenographic notes which, as admitted by the administrator on page 24 of his brief,
should be disallowed. Another item, "representation expenses" in the sum of
P26.25 (2nd accounting), was not explained. it should likewise be disallowed.

The probate court erred in allowing as expenses of ad. administration the sum of
P268.65 which was incurred during the celebration of the first death anniversary of
the deceased. Those expenses are disallowed because they have no connection
with the care, management and settlement of the decedent's estate (Nicolas vs.
Nicolas 63 Phil 332).

19
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-43082 June 18, 1937
PABLO LORENZO, as trustee of the estate of Thomas Hanley, deceased, plaintiff-
appellant,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.
Pablo Lorenzo and Delfin Joven for plaintiff-appellant.
Office of the Solicitor-General Hilado for defendant-appellant.
LAUREL, J.:
On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as trustee of the
estate of Thomas Hanley, deceased, brought this action in the Court of First
Instance of Zamboanga against the defendant, Juan Posadas, Jr., then the Collector
of Internal Revenue, for the refund of the amount of P2,052.74, paid by the plaintiff
as inheritance tax on the estate of the deceased, and for the collection of interst
thereon at the rate of 6 per cent per annum, computed from September 15, 1932,
the date when the aforesaid tax was [paid under protest. The defendant set up a
counterclaim for P1,191.27 alleged to be interest due on the tax in question and
which was not included in the original assessment. From the decision of the Court
of First Instance of Zamboanga dismissing both the plaintiff's complaint and the
defendant's counterclaim, both parties appealed to this court.
It appears that on May 27, 1922, one Thomas Hanley died in Zamboanga,
Zamboanga, leaving a will (Exhibit 5) and considerable amount of real and personal
properties. On june 14, 1922, proceedings for the probate of his will and the
settlement and distribution of his estate were begun in the Court of First Instance
of Zamboanga. The will was admitted to probate. Said will provides, among other
things, as follows:
4. I direct that any money left by me be given to my nephew Matthew
Hanley.
5. I direct that all real estate owned by me at the time of my death be not
sold or otherwise disposed of for a period of ten (10) years after my death,
and that the same be handled and managed by the executors, and
proceeds thereof to be given to my nephew, Matthew Hanley, at
Castlemore, Ballaghaderine, County of Rosecommon, Ireland, and that he
be directed that the same be used only for the education of my brother's
children and their descendants.
6. I direct that ten (10) years after my death my property be given to the
above mentioned Matthew Hanley to be disposed of in the way he thinks
most advantageous.
xxx xxx xxx
8. I state at this time I have one brother living, named Malachi Hanley, and
that my nephew, Matthew Hanley, is a son of my said brother, Malachi
Hanley.
The Court of First Instance of Zamboanga considered it proper for the best interests
of ther estate to appoint a trustee to administer the real properties which, under
the will, were to pass to Matthew Hanley ten years after the two executors named
in the will, was, on March 8, 1924, appointed trustee. Moore took his oath of office
and gave bond on March 10, 1924. He acted as trustee until February 29, 1932,
when he resigned and the plaintiff herein was appointed in his stead.
During the incumbency of the plaintiff as trustee, the defendant Collector of
Internal Revenue, alleging that the estate left by the deceased at the time of his
death consisted of realty valued at P27,920 and personalty valued at P1,465, and
allowing a deduction of P480.81, assessed against the estate an inheritance tax in
the amount of P1,434.24 which, together with the penalties for deliquency in
payment consisting of a 1 per cent monthly interest from July 1, 1931 to the date of
payment and a surcharge of 25 per cent on the tax, amounted to P2,052.74. On
March 15, 1932, the defendant filed a motion in the testamentary proceedings
pending before the Court of First Instance of Zamboanga (Special proceedings No.
302) praying that the trustee, plaintiff herein, be ordered to pay to the Government
the said sum of P2,052.74. The motion was granted. On September 15, 1932, the
plaintiff paid said amount under protest, notifying the defendant at the same time
that unless the amount was promptly refunded suit would be brought for its
recovery. The defendant overruled the plaintiff's protest and refused to refund the
said amount hausted, plaintiff went to court with the result herein above indicated.
In his appeal, plaintiff contends that the lower court erred:
20
 I. In holding that the real property of Thomas Hanley, deceased, passed to
his instituted heir, Matthew Hanley, from the moment of the death of the
former, and that from the time, the latter became the owner thereof.
II. In holding, in effect, that there was deliquency in the payment of
inheritance tax due on the estate of said deceased.
III. In holding that the inheritance tax in question be based upon the value
of the estate upon the death of the testator, and not, as it should have
been held, upon the value thereof at the expiration of the period of ten
years after which, according to the testator's will, the property could be
and was to be delivered to the instituted heir.
IV. In not allowing as lawful deductions, in the determination of the net
amount of the estate subject to said tax, the amounts allowed by the court
as compensation to the "trustees" and paid to them from the decedent's
estate.
V. In not rendering judgment in favor of the plaintiff and in denying his
motion for new trial.
The defendant-appellant contradicts the theories of the plaintiff and assigns the
following error besides:
The lower court erred in not ordering the plaintiff to pay to the defendant
the sum of P1,191.27, representing part of the interest at the rate of 1 per
cent per month from April 10, 1924, to June 30, 1931, which the plaintiff
had failed to pay on the inheritance tax assessed by the defendant against
the estate of Thomas Hanley.
The following are the principal questions to be decided by this court in this appeal:
(a) When does the inheritance tax accrue and when must it be satisfied? (b) Should
the inheritance tax be computed on the basis of the value of the estate at the time
of the testator's death, or on its value ten years later? (c) In determining the net
value of the estate subject to tax, is it proper to deduct the compensation due to
trustees? (d) What law governs the case at bar? Should the provisions of Act No.
3606 favorable to the tax-payer be given retroactive effect? (e) Has there been
deliquency in the payment of the inheritance tax? If so, should the additional
interest claimed by the defendant in his appeal be paid by the estate? Other points
of incidental importance, raised by the parties in their briefs, will be touched upon
in the course of this opinion.
(a) The accrual of the inheritance tax is distinct from the obligation to pay the same.
Section 1536 as amended, of the Administrative Code, imposes the tax upon "every
transmission by virtue of inheritance, devise, bequest, gift mortis causa, or advance
in anticipation of inheritance,devise, or bequest." The tax therefore is upon
transmission or the transfer or devolution of property of a decedent, made
effective by his death. (61 C. J., p. 1592.) It is in reality an excise or privilege tax
imposed on the right to succeed to, receive, or take property by or under a will or
the intestacy law, or deed, grant, or gift to become operative at or after death.
Acording to article 657 of the Civil Code, "the rights to the succession of a person
are transmitted from the moment of his death." "In other words", said Arellano, C.
J., ". . . the heirs succeed immediately to all of the property of the deceased
ancestor. The property belongs to the heirs at the moment of the death of the
ancestor as completely as if the ancestor had executed and delivered to them a
deed for the same before his death." (Bondad vs. Bondad, 34 Phil., 232. See also,
Mijares vs. Nery, 3 Phil., 195; Suilong & Co., vs. Chio-Taysan, 12 Phil., 13; Lubrico vs.
Arbado, 12 Phil., 391; Innocencio vs. Gat-Pandan, 14 Phil., 491; Aliasas vs.Alcantara,
16 Phil., 489; Ilustre vs. Alaras Frondosa, 17 Phil., 321; Malahacan vs. Ignacio, 19
Phil., 434; Bowa vs. Briones, 38 Phil., 27; Osario vs. Osario & Yuchausti Steamship
Co., 41 Phil., 531; Fule vs. Fule, 46 Phil., 317; Dais vs. Court of First Instance of Capiz,
51 Phil., 396; Baun vs. Heirs of Baun, 53 Phil., 654.) Plaintiff, however, asserts that
while article 657 of the Civil Code is applicable to testate as well as intestate
succession, it operates only in so far as forced heirs are concerned. But the
language of article 657 of the Civil Code is broad and makes no distinction between
different classes of heirs. That article does not speak of forced heirs; it does not
even use the word "heir". It speaks of the rights of succession and the transmission
thereof from the moment of death. The provision of section 625 of the Code of Civil
Procedure regarding the authentication and probate of a will as a necessary
condition to effect transmission of property does not affect the general rule laid
down in article 657 of the Civil Code. The authentication of a will implies its due
execution but once probated and allowed the transmission is effective as of the
death of the testator in accordance with article 657 of the Civil Code. Whatever may
be the time when actual transmission of the inheritance takes place, succession
takes place in any event at the moment of the decedent's death. The time when the
heirs legally succeed to the inheritance may differ from the time when the heirs
actually receive such inheritance. "Poco importa", says Manresa commenting on
article 657 of the Civil Code, "que desde el falleimiento del causante, hasta que el
heredero o legatario entre en posesion de los bienes de la herencia o del legado,
transcurra mucho o poco tiempo, pues la adquisicion ha de retrotraerse al momento
de la muerte, y asi lo ordena el articulo 989, que debe considerarse como
complemento del presente." (5 Manresa, 305; see also, art. 440, par. 1, Civil Code.)
Thomas Hanley having died on May 27, 1922, the inheritance tax accrued as of the
date.
21
From the fact, however, that Thomas Hanley died on May 27, 1922, it does not
follow that the obligation to pay the tax arose as of the date. The time for the
payment on inheritance tax is clearly fixed by section 1544 of the Revised
Administrative Code as amended by Act No. 3031, in relation to section 1543 of the
same Code. The two sections follow:
SEC. 1543. Exemption of certain acquisitions and transmissions. — The
following shall not be taxed:
(a) The merger of the usufruct in the owner of the naked title.
(b) The transmission or delivery of the inheritance or legacy by the
fiduciary heir or legatee to the trustees.
(c) The transmission from the first heir, legatee, or donee in favor
of another beneficiary, in accordance with the desire of the
predecessor.
In the last two cases, if the scale of taxation appropriate to the new
beneficiary is greater than that paid by the first, the former must pay the
difference.
SEC. 1544. When tax to be paid. — The tax fixed in this article shall be paid:
(a) In the second and third cases of the next preceding section,
before entrance into possession of the property.
(b) In other cases, within the six months subsequent to the death
of the predecessor; but if judicial testamentary or intestate
proceedings shall be instituted prior to the expiration of said
period, the payment shall be made by the executor or
administrator before delivering to each beneficiary his share.
If the tax is not paid within the time hereinbefore prescribed, interest at
the rate of twelve per centum per annum shall be added as part of the tax;
and to the tax and interest due and unpaid within ten days after the date
of notice and demand thereof by the collector, there shall be further
added a surcharge of twenty-five per centum.
A certified of all letters testamentary or of admisitration shall be furnished
the Collector of Internal Revenue by the Clerk of Court within thirty days
after their issuance.
It should be observed in passing that the word "trustee", appearing in subsection
(b) of section 1543, should read "fideicommissary" or "cestui que trust". There was
an obvious mistake in translation from the Spanish to the English version.
The instant case does fall under subsection (a), but under subsection (b), of section
1544 above-quoted, as there is here no fiduciary heirs, first heirs, legatee or donee.
Under the subsection, the tax should have been paid before the delivery of the
properties in question to P. J. M. Moore as trustee on March 10, 1924.
(b) The plaintiff contends that the estate of Thomas Hanley, in so far as the real
properties are concerned, did not and could not legally pass to the instituted heir,
Matthew Hanley, until after the expiration of ten years from the death of the
testator on May 27, 1922 and, that the inheritance tax should be based on the
value of the estate in 1932, or ten years after the testator's death. The plaintiff
introduced evidence tending to show that in 1932 the real properties in question
had a reasonable value of only P5,787. This amount added to the value of the
personal property left by the deceased, which the plaintiff admits is P1,465, would
generate an inheritance tax which, excluding deductions, interest and surcharge,
would amount only to about P169.52.
If death is the generating source from which the power of the estate to impose
inheritance taxes takes its being and if, upon the death of the decedent, succession
takes place and the right of the estate to tax vests instantly, the tax should be
measured by the vlaue of the estate as it stood at the time of the decedent's death,
regardless of any subsequent contingency value of any subsequent increase or
decrease in value. (61 C. J., pp. 1692, 1693; 26 R. C. L., p. 232; Blakemore and
Bancroft, Inheritance Taxes, p. 137. See also Knowlton vs. Moore, 178 U.S., 41; 20
Sup. Ct. Rep., 747; 44 Law. ed., 969.) "The right of the state to an inheritance tax
accrues at the moment of death, and hence is ordinarily measured as to any
beneficiary by the value at that time of such property as passes to him. Subsequent
appreciation or depriciation is immaterial." (Ross, Inheritance Taxation, p. 72.)
Our attention is directed to the statement of the rule in Cyclopedia of Law of and
Procedure (vol. 37, pp. 1574, 1575) that, in the case of contingent remainders,
taxation is postponed until the estate vests in possession or the contingency is
settled. This rule was formerly followed in New York and has been adopted in
Illinois, Minnesota, Massachusetts, Ohio, Pennsylvania and Wisconsin. This rule,
horever, is by no means entirely satisfactory either to the estate or to those
interested in the property (26 R. C. L., p. 231.). Realizing, perhaps, the defects of its
anterior system, we find upon examination of cases and authorities that New York
has varied and now requires the immediate appraisal of the postponed estate at its
clear market value and the payment forthwith of the tax on its out of the corpus of
the estate transferred. (In re Vanderbilt, 172 N. Y., 69; 69 N. E., 782; In re Huber, 86
22
N. Y. App. Div., 458; 83 N. Y. Supp., 769; Estate of Tracy, 179 N. Y., 501; 72 N. Y.,
519; Estate of Brez, 172 N. Y., 609; 64 N. E., 958; Estate of Post, 85 App. Div., 611;
82 N. Y. Supp., 1079. Vide also, Saltoun vs. Lord Advocate, 1 Peter. Sc. App., 970; 3
Macq. H. L., 659; 23 Eng. Rul. Cas., 888.) California adheres to this new rule (Stats.
1905, sec. 5, p. 343).
But whatever may be the rule in other jurisdictions, we hold that a transmission by
inheritance is taxable at the time of the predecessor's death, notwithstanding the
postponement of the actual possession or enjoyment of the estate by the
beneficiary, and the tax measured by the value of the property transmitted at that
time regardless of its appreciation or depreciation.
(c) Certain items are required by law to be deducted from the appraised gross in
arriving at the net value of the estate on which the inheritance tax is to be
computed (sec. 1539, Revised Administrative Code). In the case at bar, the
defendant and the trial court allowed a deduction of only P480.81. This sum
represents the expenses and disbursements of the executors until March 10, 1924,
among which were their fees and the proven debts of the deceased. The plaintiff
contends that the compensation and fees of the trustees, which aggregate
P1,187.28 (Exhibits C, AA, EE, PP, HH, JJ, LL, NN, OO), should also be deducted under
section 1539 of the Revised Administrative Code which provides, in part, as follows:
"In order to determine the net sum which must bear the tax, when an inheritance is
concerned, there shall be deducted, in case of a resident, . . . the judicial expenses
of the testamentary or intestate proceedings, . . . ."
A trustee, no doubt, is entitled to receive a fair compensation for his services
(Barney vs. Saunders, 16 How., 535; 14 Law. ed., 1047). But from this it does not
follow that the compensation due him may lawfully be deducted in arriving at the
net value of the estate subject to tax. There is no statute in the Philippines which
requires trustees' commissions to be deducted in determining the net value of the
estate subject to inheritance tax (61 C. J., p. 1705). Furthermore, though a
testamentary trust has been created, it does not appear that the testator intended
that the duties of his executors and trustees should be separated. (Ibid.; In
re Vanneck's Estate, 161 N. Y. Supp., 893; 175 App. Div., 363; In re Collard's Estate,
161 N. Y. Supp., 455.) On the contrary, in paragraph 5 of his will, the testator
expressed the desire that his real estate be handled and managed by his executors
until the expiration of the period of ten years therein provided. Judicial expenses
are expenses of administration (61 C. J., p. 1705) but, in State vs. Hennepin County
Probate Court (112 N. W., 878; 101 Minn., 485), it was said: ". . . The compensation
of a trustee, earned, not in the administration of the estate, but in the management
thereof for the benefit of the legatees or devises, does not come properly within
the class or reason for exempting administration expenses. . . . Service rendered in
that behalf have no reference to closing the estate for the purpose of a distribution
thereof to those entitled to it, and are not required or essential to the perfection of
the rights of the heirs or legatees. . . . Trusts . . . of the character of that here before
the court, are created for the the benefit of those to whom the property ultimately
passes, are of voluntary creation, and intended for the preservation of the estate.
No sound reason is given to support the contention that such expenses should be
taken into consideration in fixing the value of the estate for the purpose of this tax."
(d) The defendant levied and assessed the inheritance tax due from the estate of
Thomas Hanley under the provisions of section 1544 of the Revised Administrative
Code, as amended by section 3 of Act No. 3606. But Act No. 3606 went into effect
on January 1, 1930. It, therefore, was not the law in force when the testator died on
May 27, 1922. The law at the time was section 1544 above-mentioned, as amended
by Act No. 3031, which took effect on March 9, 1922.
It is well-settled that inheritance taxation is governed by the statute in force at the
time of the death of the decedent (26 R. C. L., p. 206; 4 Cooley on Taxation, 4th ed.,
p. 3461). The taxpayer can not foresee and ought not to be required to guess the
outcome of pending measures. Of course, a tax statute may be made retroactive in
its operation. Liability for taxes under retroactive legislation has been "one of the
incidents of social life." (Seattle vs. Kelleher, 195 U. S., 360; 49 Law. ed., 232 Sup. Ct.
Rep., 44.) But legislative intent that a tax statute should operate retroactively
should be perfectly clear. (Scwab vs. Doyle, 42 Sup. Ct. Rep., 491; Smietanka vs. First
Trust & Savings Bank, 257 U. S., 602; Stockdale vs. Insurance Co., 20 Wall., 323;
Lunch vs. Turrish, 247 U. S., 221.) "A statute should be considered as prospective in
its operation, whether it enacts, amends, or repeals an inheritance tax, unless the
language of the statute clearly demands or expresses that it shall have a retroactive
effect, . . . ." (61 C. J., P. 1602.) Though the last paragraph of section 5 of
Regulations No. 65 of the Department of Finance makes section 3 of Act No. 3606,
amending section 1544 of the Revised Administrative Code, applicable to all estates
the inheritance taxes due from which have not been paid, Act No. 3606 itself
contains no provisions indicating legislative intent to give it retroactive effect. No
such effect can begiven the statute by this court.
The defendant Collector of Internal Revenue maintains, however, that certain
provisions of Act No. 3606 are more favorable to the taxpayer than those of Act No.
3031, that said provisions are penal in nature and, therefore, should operate
retroactively in conformity with the provisions of article 22 of the Revised Penal
Code. This is the reason why he applied Act No. 3606 instead of Act No. 3031.
Indeed, under Act No. 3606, (1) the surcharge of 25 per cent is based on the tax
only, instead of on both the tax and the interest, as provided for in Act No. 3031,
and (2) the taxpayer is allowed twenty days from notice and demand by rthe
Collector of Internal Revenue within which to pay the tax, instead of ten days only
as required by the old law.
23
Properly speaking, a statute is penal when it imposes punishment for an offense
committed against the state which, under the Constitution, the Executive has the
power to pardon. In common use, however, this sense has been enlarged to include
within the term "penal statutes" all status which command or prohibit certain acts,
and establish penalties for their violation, and even those which, without expressly
prohibiting certain acts, impose a penalty upon their commission (59 C. J., p. 1110).
Revenue laws, generally, which impose taxes collected by the means ordinarily
resorted to for the collection of taxes are not classed as penal laws, although there
are authorities to the contrary. (See Sutherland, Statutory Construction, 361; Twine
Co. vs. Worthington, 141 U. S., 468; 12 Sup. Ct., 55; Rice vs. U. S., 4 C. C. A., 104; 53
Fed., 910; Com. vs. Standard Oil Co., 101 Pa. St., 150; State vs. Wheeler, 44 P., 430;
25 Nev. 143.) Article 22 of the Revised Penal Code is not applicable to the case at
bar, and in the absence of clear legislative intent, we cannot give Act No. 3606 a
retroactive effect.
(e) The plaintiff correctly states that the liability to pay a tax may arise at a certain
time and the tax may be paid within another given time. As stated by this court,
"the mere failure to pay one's tax does not render one delinqent until and unless
the entire period has eplased within which the taxpayer is authorized by law to
make such payment without being subjected to the payment of penalties for
fasilure to pay his taxes within the prescribed period." (U. S. vs. Labadan, 26 Phil.,
239.)
The defendant maintains that it was the duty of the executor to pay the inheritance
tax before the delivery of the decedent's property to the trustee. Stated otherwise,
the defendant contends that delivery to the trustee was delivery to the cestui que
trust, the beneficiery in this case, within the meaning of the first paragraph of
subsection (b) of section 1544 of the Revised Administrative Code. This contention
is well taken and is sustained. The appointment of P. J. M. Moore as trustee was
made by the trial court in conformity with the wishes of the testator as expressed in
his will. It is true that the word "trust" is not mentioned or used in the will but the
intention to create one is clear. No particular or technical words are required to
create a testamentary trust (69 C. J., p. 711). The words "trust" and "trustee",
though apt for the purpose, are not necessary. In fact, the use of these two words is
not conclusive on the question that a trust is created (69 C. J., p. 714). "To create a
trust by will the testator must indicate in the will his intention so to do by using
language sufficient to separate the legal from the equitable estate, and with
sufficient certainty designate the beneficiaries, their interest in the ttrust, the
purpose or object of the trust, and the property or subject matter thereof. Stated
otherwise, to constitute a valid testamentary trust there must be a concurrence of
three circumstances: (1) Sufficient words to raise a trust; (2) a definite subject; (3) a
certain or ascertain object; statutes in some jurisdictions expressly or in effect so
providing." (69 C. J., pp. 705,706.) There is no doubt that the testator intended to
create a trust. He ordered in his will that certain of his properties be kept together
undisposed during a fixed period, for a stated purpose. The probate court certainly
exercised sound judgment in appointment a trustee to carry into effect the
provisions of the will (see sec. 582, Code of Civil Procedure).
P. J. M. Moore became trustee on March 10, 1924. On that date trust estate vested
in him (sec. 582 in relation to sec. 590, Code of Civil Procedure). The mere fact that
the estate of the deceased was placed in trust did not remove it from the operation
of our inheritance tax laws or exempt it from the payment of the inheritance tax.
The corresponding inheritance tax should have been paid on or before March 10,
1924, to escape the penalties of the laws. This is so for the reason already stated
that the delivery of the estate to the trustee was in esse delivery of the same estate
to the cestui que trust, the beneficiary in this case. A trustee is but an instrument or
agent for the cestui que trust (Shelton vs. King, 299 U. S., 90; 33 Sup. Ct. Rep., 689;
57 Law. ed., 1086). When Moore accepted the trust and took possesson of the trust
estate he thereby admitted that the estate belonged not to him but to his cestui
que trust (Tolentino vs. Vitug, 39 Phil.,126, cited in 65 C. J., p. 692, n. 63). He did not
acquire any beneficial interest in the estate. He took such legal estate only as the
proper execution of the trust required (65 C. J., p. 528) and, his estate ceased upon
the fulfillment of the testator's wishes. The estate then vested absolutely in the
beneficiary (65 C. J., p. 542).
The highest considerations of public policy also justify the conclusion we have
reached. Were we to hold that the payment of the tax could be postponed or
delayed by the creation of a trust of the type at hand, the result would be plainly
disastrous. Testators may provide, as Thomas Hanley has provided, that their
estates be not delivered to their beneficiaries until after the lapse of a certain
period of time. In the case at bar, the period is ten years. In other cases, the trust
may last for fifty years, or for a longer period which does not offend the rule against
petuities. The collection of the tax would then be left to the will of a private
individual. The mere suggestion of this result is a sufficient warning against the
accpetance of the essential to the very exeistence of government. (Dobbins vs. Erie
Country, 16 Pet., 435; 10 Law. ed., 1022; Kirkland vs. Hotchkiss, 100 U. S., 491; 25
Law. ed., 558; Lane County vs. Oregon, 7 Wall., 71; 19 Law. ed., 101; Union
Refrigerator Transit Co. vs. Kentucky, 199 U. S., 194; 26 Sup. Ct. Rep., 36; 50 Law.
ed., 150; Charles River Bridge vs. Warren Bridge, 11 Pet., 420; 9 Law. ed., 773.) The
obligation to pay taxes rests not upon the privileges enjoyed by, or the protection
afforded to, a citizen by the government but upon the necessity of money for the
support of the state (Dobbins vs. Erie Country, supra). For this reason, no one is
allowed to object to or resist the payment of taxes solely because no personal
benefit to him can be pointed out. (Thomas vs. Gay, 169 U. S., 264; 18 Sup. Ct. Rep.,
340; 43 Law. ed., 740.) While courts will not enlarge, by construction, the
government's power of taxation (Bromley vs. McCaughn, 280 U. S., 124; 74 Law.
24
ed., 226; 50 Sup. Ct. Rep., 46) they also will not place upon tax laws so loose a
construction as to permit evasions on merely fanciful and insubstantial distictions.
(U. S. vs. Watts, 1 Bond., 580; Fed. Cas. No. 16,653; U. S. vs. Wigglesirth, 2 Story,
369; Fed. Cas. No. 16,690, followed in Froelich & Kuttner vs. Collector of Customs,
18 Phil., 461, 481; Castle Bros., Wolf & Sons vs. McCoy, 21 Phil., 300; Muñoz & Co.
vs. Hord, 12 Phil., 624; Hongkong & Shanghai Banking Corporation vs. Rafferty, 39
Phil., 145; Luzon Stevedoring Co. vs. Trinidad, 43 Phil., 803.) When proper, a tax
statute should be construed to avoid the possibilities of tax evasion. Construed this
way, the statute, without resulting in injustice to the taxpayer, becomes fair to the
government.
That taxes must be collected promptly is a policy deeply intrenched in our tax
system. Thus, no court is allowed to grant injunction to restrain the collection of
any internal revenue tax ( sec. 1578, Revised Administrative Code; Sarasola vs.
Trinidad, 40 Phil., 252). In the case of Lim Co Chui vs. Posadas (47 Phil., 461), this
court had occassion to demonstrate trenchment adherence to this policy of the law.
It held that "the fact that on account of riots directed against the Chinese on
October 18, 19, and 20, 1924, they were prevented from praying their internal
revenue taxes on time and by mutual agreement closed their homes and stores and
remained therein, does not authorize the Collector of Internal Revenue to extend
the time prescribed for the payment of the taxes or to accept them without the
additional penalty of twenty five per cent." (Syllabus, No. 3.)
". . . It is of the utmost importance," said the Supreme Court of the United States, ".
. . that the modes adopted to enforce the taxes levied should be interfered with as
little as possible. Any delay in the proceedings of the officers, upon whom the duty
is developed of collecting the taxes, may derange the operations of government,
and thereby, cause serious detriment to the public." (Dows vs. Chicago, 11 Wall.,
108; 20 Law. ed., 65, 66; Churchill and Tait vs. Rafferty, 32 Phil., 580.)
It results that the estate which plaintiff represents has been delinquent in the
payment of inheritance tax and, therefore, liable for the payment of interest and
surcharge provided by law in such cases.
The delinquency in payment occurred on March 10, 1924, the date when Moore
became trustee. The interest due should be computed from that date and it is error
on the part of the defendant to compute it one month later. The provisions cases is
mandatory (see and cf. Lim Co Chui vs. Posadas, supra), and neither the Collector of
Internal Revenuen or this court may remit or decrease such interest, no matter how
heavily it may burden the taxpayer.
To the tax and interest due and unpaid within ten days after the date of notice and
demand thereof by the Collector of Internal Revenue, a surcharge of twenty-five
per centum should be added (sec. 1544, subsec. (b), par. 2, Revised Administrative
Code). Demand was made by the Deputy Collector of Internal Revenue upon Moore
in a communiction dated October 16, 1931 (Exhibit 29). The date fixed for the
payment of the tax and interest was November 30, 1931. November 30 being an
official holiday, the tenth day fell on December 1, 1931. As the tax and interest due
were not paid on that date, the estate became liable for the payment of the
surcharge.
In view of the foregoing, it becomes unnecessary for us to discuss the fifth error
assigned by the plaintiff in his brief.
We shall now compute the tax, together with the interest and surcharge due from
the estate of Thomas Hanley inaccordance with the conclusions we have reached.
At the time of his death, the deceased left real properties valued at P27,920 and
personal properties worth P1,465, or a total of P29,385. Deducting from this
amount the sum of P480.81, representing allowable deductions under secftion
1539 of the Revised Administrative Code, we have P28,904.19 as the net value of
the estate subject to inheritance tax.
The primary tax, according to section 1536, subsection (c), of the Revised Administrative
Code, should be imposed at the rate of one per centum upon the first ten thousand pesos
and two per centum upon the amount by which the share exceed thirty thousand pesos, plus
an additional two hundred per centum. One per centum of ten thousand pesos is P100. Two
per centum of P18,904.19 is P378.08. Adding to these two sums an additional two hundred
per centum, or P965.16, we have as primary tax, correctly computed by the defendant, the
sum of P1,434.24.
To the primary tax thus computed should be added the sums collectible under section 1544
of the Revised Administrative Code. First should be added P1,465.31 which stands for
interest at the rate of twelve per centum per annum from March 10, 1924, the date of
delinquency, to September 15, 1932, the date of payment under protest, a period covering 8
years, 6 months and 5 days. To the tax and interest thus computed should be added the sum
of P724.88, representing a surhcarge of 25 per cent on both the tax and interest, and also
P10, the compromise sum fixed by the defendant (Exh. 29), giving a grand total of P3,634.43.
As the plaintiff has already paid the sum of P2,052.74, only the sums of P1,581.69 is legally due from the
estate. This last sum is P390.42 more than the amount demanded by the defendant in his counterclaim.
But, as we cannot give the defendant more than what he claims, we must hold that the plaintiff is liable
only in the sum of P1,191.27 the amount stated in the counterclaim.
The judgment of the lower court is accordingly modified, with costs against the plaintiff in both
instances. So ordered.
25
G.R. No. 123206 March 22, 2000
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
COURT OF APPEALS, COURT OF TAX APPEALS and JOSEFINA P. PAJONAR, as
Administratrix of the Estate of Pedro P. Pajonar, respondents.
RESOLUTION
GONZAGA-REYES, J.:
Assailed in this petition for review on certiorari is the December 21, 1995
Decision1 of the Court of Appeals2 in CA-G.R. Sp. No. 34399 affirming the June 7,
1994 Resolution of the Court of Tax Appeals in CTA Case No. 4381 granting private
respondent Josefina P. Pajonar, as administratrix of the estate of Pedro P. Pajonar, a
tax refund in the amount of P76,502.42, representing erroneously paid estate taxes
for the year 1988.
Pedro Pajonar, a member of the Philippine Scout, Bataan Contingent, during the
second World War, was a part of the infamous Death March by reason of which he
suffered shock and became insane. His sister Josefina Pajonar became the guardian
over his person, while his property was placed under the guardianship of the
Philippine National Bank (PNB) by the Regional Trial Court of Dumaguete City,
Branch 31, in Special Proceedings No. 1254. He died on January 10, 1988. He was
survived by his two brothers Isidro P. Pajonar and Gregorio Pajonar, his sister
Josefina Pajonar, nephews Concordio Jandog and Mario Jandog and niece Conchita
Jandog.
On May 11, 1988, the PNB filed an accounting of the decedent's property under
guardianship valued at P3,037,672.09 in Special Proceedings No. 1254. However,
the PNB did not file an estate tax return, instead it advised Pedro Pajonar's heirs to
execute an extrajudicial settlement and to pay the taxes on his estate. On April 5,
1988, pursuant to the assessment by the Bureau of Internal Revenue (BIR), the
estate of Pedro Pajonar paid taxes in the amount of P2,557.
On May 19, 1988, Josefina Pajonar filed a petition with the Regional Trial Court of
Dumaguete City for the issuance in her favor of letters of administration of the
estate of her brother. The case was docketed as Special Proceedings No. 2399. On
July 18, 1988, the trial court appointed Josefina Pajonar as the regular
administratrix of Pedro Pajonar's estate.
On December 19, 1988, pursuant to a second assessment by the BIR for deficiency
estate tax, the estate of Pedro Pajonar paid estate tax in the amount of
P1,527,790.98. Josefina Pajonar, in her capacity as administratrix and heir of Pedro
Pajonar's estate, filed a protest on January 11, 1989 with the BIR praying that the
estate tax payment in the amount of P1,527,790.98, or at least some portion of it,
be returned to the heirs. 3
However, on August 15, 1989, without waiting for her protest to be resolved by the
BIR, Josefina Pajonar filed a petition for review with the Court of Tax Appeals (CTA),
praying for the refund of P1,527,790.98, or in the alternative, P840,202.06, as
erroneously paid estate tax. 4 The case was docketed as CTA Case No. 4381.
On May 6, 1993, the CTA ordered the Commissioner of Internal Revenue to refund
Josefina Pajonar the amount of P252,585.59, representing erroneously paid estate
tax for the year 1988.5 Among the deductions from the gross estate allowed by the
CTA were the amounts of P60,753 representing the notarial fee for the Extrajudicial
Settlement and the amount of P50,000 as the attorney's fees in Special Proceedings
No. 1254 for guardianship.6
On June 15, 1993, the Commissioner of Internal Revenue filed a motion for
reconsideration7 of the CTA's May 6, 1993 decision asserting, among others, that
the notarial fee for the Extrajudicial Settlement and the attorney's fees in the
guardianship proceedings are not deductible expenses.
On June 7, 1994, the CTA issued the assailed Resolution8 ordering the Commissioner
of Internal Revenue to refund Josefina Pajonar, as administratrix of the estate of
Pedro Pajonar, the amount of P76,502.42 representing erroneously paid estate tax
for the year 1988. Also, the CTA upheld the validity of the deduction of the notarial
fee for the Extrajudicial Settlement and the attorney's fees in the guardianship
proceedings.
On July 5, 1994, the Commissioner of Internal Revenue filed with the Court of
Appeals a petition for review of the CTA's May 6, 1993 Decision and its June 7, 1994
Resolution, questioning the validity of the abovementioned deductions. On
December 21, 1995, the Court of Appeals denied the Commissioner's petition. 9
Hence, the present appeal by the Commissioner of Internal Revenue.
The sole issue in this case involves the construction of section 79 10 of the National
Internal Revenue Code 11 (Tax Code) which provides for the allowable deductions
from the gross estate of the decedent. More particularly, the question is whether
the notarial fee paid for the extrajudicial settlement in the amount of P60,753 and
26
the attorney's fees in the guardianship proceedings in the amount of P50,000 may
be allowed as deductions from the gross estate of decedent in order to arrive at the
value of the net estate.
We answer this question in the affirmative, thereby upholding the decisions of the
appellate courts.
In its May 6, 1993 Decision, the Court of Tax Appeals ruled thus:
Respondent maintains that only judicial expenses of the testamentary or
intestate proceedings are allowed as a deduction to the gross estate. The
amount of P60,753.00 is quite extraordinary for a mere notarial fee.
This Court adopts the view under American jurisprudence that expenses
incurred in the extrajudicial settlement of the estate should be allowed as
a deduction from the gross estate. "There is no requirement of formal
administration. It is sufficient that the expense be a necessary contribution
toward the settlement of the case." [ 34 Am. Jur. 2d, p. 765; Nolledo, Bar
Reviewer in Taxation, 10th Ed. (1990), p. 481]
xxx xxx xxx
The attorney's fees of P50,000.00, which were already incurred but not yet
paid, refers to the guardianship proceeding filed by PNB, as guardian over
the ward of Pedro Pajonar, docketed as Special Proceeding No. 1254 in the
RTC (Branch XXXI) of Dumaguete City. . . .
xxx xxx xxx
The guardianship proceeding had been terminated upon delivery of the
residuary estate to the heirs entitled thereto. Thereafter, PNB was
discharged of any further responsibility.
Attorney's fees in order to be deductible from the gross estate must be
essential to the collection of assets, payment of debts or the distribution of
the property to the persons entitled to it. The services for which the fees
are charged must relate to the proper settlement of the estate. [34 Am.
Jur. 2d 767.] In this case, the guardianship proceeding was necessary for
the distribution of the property of the late Pedro Pajonar to his rightful
heirs.
xxx xxx xxx
PNB was appointed as guardian over the assets of the late Pedro Pajonar,
who, even at the time of his death, was incompetent by reason of insanity.
The expenses incurred in the guardianship proceeding was but a necessary
expense in the settlement of the decedent's estate. Therefore, the
attorney's fee incurred in the guardianship proceedings amounting to
P50,000.00 is a reasonable and necessary business expense deductible
from the gross estate of the decedent. 12
Upon a motion for reconsideration filed by the Commissioner of Internal Revenue,
the Court of Tax Appeals modified its previous ruling by reducing the refundable
amount to P76,502.43 since it found that a deficiency interest should be imposed
and the compromise penalty excluded. 13 However, the tax court upheld its previous
ruling regarding the legality of the deductions —
It is significant to note that the inclusion of the estate tax law in the codification of
all our national internal revenue laws with the enactment of the National Internal
Revenue Code in 1939 were copied from the Federal Law of the United States. [
UMALI, Reviewer in Taxation (1985), p. 285 ] The 1977 Tax Code, promulgated by
Presidential Decree No. 1158, effective June 3, 1977, reenacted substantially all the
provisions of the old law on estate and gift taxes, except the sections relating to the
meaning of gross estate and gift. [ Ibid, p. 286. ]
In the United States, [a]dministrative expenses, executor's commissions and
attorney's fees are considered allowable deductions from the Gross Estate.
Administrative expenses are limited to such expenses as are actually and necessarily
incurred in the administration of a decedent's estate. [PRENTICE-HALL, Federal
Taxes Estate and Gift Taxes (1936), p. 120, 533.] Necessary expenses of
administration are such expenses as are entailed for the preservation and
productivity of the estate and for its management for purposes of liquidation,
payment of debts and distribution of the residue among the persons entitled
thereto. [Lizarraga Hermanos vs. Abada, 40 Phil. 124.] They must be incurred for the
settlement of the estate as a whole. [34 Am. Jur. 2d, p. 765.] Thus, where there
were no substantial community debts and it was unnecessary to convert
community property to cash, the only practical purpose of administration being the
payment of estate taxes, full deduction was allowed for attorney's fees and
miscellaneous expenses charged wholly to decedent's estate. [Ibid., citing Estate of
Helis, 26 T.C. 143 (A).]
Petitioner stated in her protest filed with the BIR that "upon the death of the ward,
the PNB, which was still the guardian of the estate, (Annex "Z"), did not file an
estate tax return; however, it advised the heirs to execute an extrajudicial
settlement, to pay taxes and to post a bond equal to the value of the estate, for
which the state paid P59,341.40 for the premiums. (See Annex "K")." [p. 17, CTA
27
record.] Therefore, it would appear from the records of the case that the only
practical purpose of settling the estate by means of an extrajudicial settlement
pursuant to Section 1 of Rule 74 of the Rules of Court was for the payment of taxes
and the distribution of the estate to the heirs. A fortiori, since our estate tax laws
are of American origin, the interpretation adopted by American Courts has some
persuasive effect on the interpretation of our own estate tax laws on the subject.
Anent the contention of respondent that the attorney's fees of P50,000.00 incurred
in the guardianship proceeding should not be deducted from the Gross Estate, We
consider the same unmeritorious. Attorneys' and guardians' fees incurred in a
trustee's accounting of a taxable inter vivos trust attributable to the usual issues
involved in such an accounting was held to be proper deductions because these are
expenses incurred in terminating an inter vivos trust that was includible in the
decedent's estate. [Prentice Hall, Federal Taxes on Estate and Gift, p. 120, 861]
Attorney's fees are allowable deductions if incurred for the settlement of the
estate. It is noteworthy to point that PNB was appointed the guardian over the
assets of the deceased. Necessarily the assets of the deceased formed part of his
gross estate. Accordingly, all expenses incurred in relation to the estate of the
deceased will be deductible for estate tax purposes provided these are necessary
and ordinary expenses for administration of the settlement of the estate. 14
In upholding the June 7, 1994 Resolution of the Court of Tax Appeals, the Court of
Appeals held that:
2. Although the Tax Code specifies "judicial expenses of the testamentary or
intestate proceedings," there is no reason why expenses incurred in the
administration and settlement of an estate in extrajudicial proceedings should not
be allowed. However, deduction is limited to such administration expenses as are
actually and necessarily incurred in the collection of the assets of the estate,
payment of the debts, and distribution of the remainder among those entitled
thereto. Such expenses may include executor's or administrator's fees, attorney's
fees, court fees and charges, appraiser's fees, clerk hire, costs of preserving and
distributing the estate and storing or maintaining it, brokerage fees or commissions
for selling or disposing of the estate, and the like. Deductible attorney's fees are
those incurred by the executor or administrator in the settlement of the estate or in
defending or prosecuting claims against or due the estate. (Estate and Gift Taxation
in the Philippines, T. P. Matic, Jr., 1981 Edition, p. 176).
xxx xxx xxx
It is clear then that the extrajudicial settlement was for the purpose of payment of
taxes and the distribution of the estate to the heirs. The execution of the
extrajudicial settlement necessitated the notarization of the same. Hence the
Contract of Legal Services of March 28, 1988 entered into between respondent
Josefina Pajonar and counsel was presented in evidence for the purpose of showing
that the amount of P60,753.00 was for the notarization of the Extrajudicial
Settlement. It follows then that the notarial fee of P60,753.00 was incurred
primarily to settle the estate of the deceased Pedro Pajonar. Said amount should
then be considered an administration expenses actually and necessarily incurred in
the collection of the assets of the estate, payment of debts and distribution of the
remainder among those entitled thereto. Thus, the notarial fee of P60,753 incurred
for the Extrajudicial Settlement should be allowed as a deduction from the gross
estate.
3. Attorney's fees, on the other hand, in order to be deductible from the gross
estate must be essential to the settlement of the estate.
The amount of P50,000.00 was incurred as attorney's fees in the guardianship
proceedings in Spec. Proc. No. 1254. Petitioner contends that said amount are not
expenses of the testamentary or intestate proceedings as the guardianship
proceeding was instituted during the lifetime of the decedent when there was yet
no estate to be settled.
Again, this contention must fail.
The guardianship proceeding in this case was necessary for the distribution of the
property of the deceased Pedro Pajonar. As correctly pointed out by respondent
CTA, the PNB was appointed guardian over the assets of the deceased, and that
necessarily the assets of the deceased formed part of his gross estate. . . .
xxx xxx xxx
It is clear therefore that the attorney's fees incurred in the guardianship proceeding
in Spec. Proc. No. 1254 were essential to the distribution of the property to the
persons entitled thereto. Hence, the attorney's fees incurred in the guardianship
proceedings in the amount of P50,000.00 should be allowed as a deduction from
the gross estate of the decedent. 15
The deductions from the gross estate permitted under section 79 of the Tax Code
basically reproduced the deductions allowed under Commonwealth Act No. 466 (CA
466), otherwise known as the National Internal Revenue Code of 1939, 16 and which
was the first codification of Philippine tax laws. Section 89 (a) (1) (B) of CA 466 also
provided for the deduction of the "judicial expenses of the testamentary or
intestate proceedings" for purposes of determining the value of the net estate.
Philippine tax laws were, in turn, based on the federal tax laws of the United
28
States. 17 In accord with established rules of statutory construction, the decisions of
American courts construing the federal tax code are entitled to great weight in the
interpretation of our own tax laws. 18

Judicial expenses are expenses of administration. 19 Administration expenses, as an

allowable deduction from the gross estate of the decedent for purposes of arriving
at the value of the net estate, have been construed by the federal and state courts
of the United States to include all expenses "essential to the collection of the assets,
payment of debts or the distribution of the property to the persons entitled to
it." 20 In other words, the expenses must be essential to the proper settlement of
the estate. Expenditures incurred for the individual benefit of the heirs, devisees or
legatees are not deductible. 21 This distinction has been carried over to our
jurisdiction. Thus, in Lorenzo v. Posadas 22 the Court construed the phrase "judicial
expenses of the testamentary or intestate proceedings" as not including the
compensation paid to a trustee of the decedent's estate when it appeared that such
trustee was appointed for the purpose of managing the decedent's real estate for
the benefit of the testamentary heir. In another case, the Court disallowed the
premiums paid on the bond filed by the administrator as an expense of
administration since the giving of a bond is in the nature of a qualification for the
office, and not necessary in the settlement of the estate. 23 Neither may attorney's
fees incident to litigation incurred by the heirs in asserting their respective rights be
claimed as a deduction from the gross estate. 24 1âwphi1

Coming to the case at bar, the notarial fee paid for the extrajudicial settlement is
clearly a deductible expense since such settlement effected a distribution of Pedro
Pajonar's estate to his lawful heirs. Similarly, the attorney's fees paid to PNB for
acting as the guardian of Pedro Pajonar's property during his lifetime should also be
considered as a deductible administration expense. PNB provided a detailed
accounting of decedent's property and gave advice as to the proper settlement of
the latter's estate, acts which contributed towards the collection of decedent's
assets and the subsequent settlement of the estate.

We find that the Court of Appeals did not commit reversible error in affirming the
questioned resolution of the Court of Tax Appeals.

WHEREFORE, the December 21, 1995 Decision of the Court of Appeals is AFFIRMED.
The notarial fee for the extrajudicial settlement and the attorney's fees in the
guardianship proceedings are allowable deductions from the gross estate of Pedro
Pajonar.1âwphi1.nêt

SO ORDERED.

29
 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 [1] of the Court of
Appeals dated November 29, 1994 in CA-G.R. SP No. 31363, where the said court
held:
"In view of all the foregoing, we rule that the deficiency income tax assessments
and estate tax assessment, are already final and (u)nappealable -and- the
subsequent levy of real properties is a tax remedy resorted to by the government,
sanctioned by Section 213 and 218 of the National Internal Revenue Code. This
summary tax remedy is distinct and separate from the other tax remedies (such as
Judicial Civil actions and Criminal actions), and is not affected or precluded by the
pendency of any other tax remedies instituted by the government.
WHEREFORE, premises considered, judgment is hereby rendered DISMISSING the
petition 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[2] on November 29, 1994, ruling that the deficiency assessments for estate
and income tax made upon the petitioner and the estate of the deceased President
Marcos have already become final and unappealable, and may thus be enforced by
the summary remedy of levying upon the properties of the late President, as was
done by the respondent Commissioner of Internal Revenue.
"WHEREFORE, premises considered judgment is hereby rendered DISMISSING the
petition for Certiorari with prayer for Restraining Order and Injunction.
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.
30
 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.
31
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[4] is specifically cited to
bolster the argument that "the ordinary procedure by which to settle claims of
indebtedness against the estate of a deceased, person, as in an inheritance (estate)
tax, is for the claimant to present a claim before the probate court so that said
court may order the administrator to pay the amount therefor." This remedy is
allegedly, exclusive, and cannot be effected through any other means.
Petitioner goes further, submitting that the probate court is not precluded
from denying a request by the government for the immediate payment of taxes,
and should order the payment of the same only within the period fixed by the
probate court for the payment of all the debts of the decedent. In this regard,
petitioner cites the case of Collector of Internal Revenue vs. The Administratrix of
the Estate of Echarri (67 Phil 502), where it was held that:
"The case of Pineda vs. Court of First Instance of Tayabas and Collector of Internal
Revenue (52 Phil 803), relied upon by the petitioner-appellant is good authority on
the proposition that the court having control over the administration proceedings
has jurisdiction to entertain the claim presented by the government for taxes due
and to order the administrator to pay the tax should it find that the assessment was
proper, and that the tax was legal, due and collectible. And the rule laid down in
that case must be understood in relation to the case of Collector of Customs vs.
Haygood, supra., as to the procedure to be followed in a given case by the
government to effectuate the collection of the tax. Categorically stated, where
during the pendency of judicial administration over the estate of a deceased person
a claim for taxes is presented by the government, the court has the authority to
order payment by the administrator; but, in the same way that it has authority to
order payment or satisfaction, it also has the negative authority to deny the
same. While there are cases where courts are required to perform certain duties
mandatory and ministerial in character, the function of the court in a case of the
present character is not one of them; and here, the court cannot be an organism
endowed with latitude of judgment in one direction, and converted into a mere
mechanical contrivance in another direction."
On the other hand, it is argued by the BIR, that the state's authority to collect
internal revenue taxes is paramount. Thus, the pendency of probate proceedings
over the estate of the deceased does not preclude the assessment and collection,
through summary remedies, of estate taxes over the same. According to the
32
respondent, claims for payment of estate and income taxes due and assessed after
the death of the decedent need not be presented in the form of a claim against the
estate. These can and should be paid immediately. The probate court is not the
government agency to decide whether an estate is liable for payment of estate of
income taxes. Well-settled is the rule that the probate court is a court with special
and limited jurisdiction.
Concededly, the authority of the Regional Trial Court, sitting, albeit with
limited jurisdiction, as a probate court over estate of deceased individual, is not a
trifling thing. The court's jurisdiction, once invoked, and made effective, cannot be
treated with indifference nor should it be ignored with impunity by the very parties
invoking its authority.
In testament to this, it has been held that it is within the jurisdiction of the
probate court to approve the sale of properties of a deceased person by his
prospective heirs before final adjudication;[5] to determine who are the heirs of the
decedent;[6] the recognition of a natural child;[7] the status of a woman claiming to
be the legal wife of the decedent;[8] the legality of disinheritance of an heir by the
testator;[9] and to pass upon the validity of a waiver of hereditary rights. [10]
The pivotal question the court is tasked to resolve refers to the authority of
the Bureau of Internal Revenue to collect by the summary remedy of levying upon,
and sale of real properties of the decedent, estate tax deficiencies, without the
cognition and authority of the court sitting in probate over the supposed will of the
deceased.
The nature of the process of estate tax collection has been described as
follows:
"Strictly speaking, the assessment of an inheritance tax does not directly involve the
administration of a decedent's estate, although it may be viewed as an incident to
the complete settlement of an estate, and, under some statutes, it is made the duty
of the probate court to make the amount of the inheritance tax a part of the final
decree of distribution of the estate. It is not against the property of decedent, nor is
it a claim against the estate as such, but it is against the interest or property right
which the heir, legatee, devisee, etc., has in the property formerly held by
decedent. Further, under some statutes, it has been held that it is not a suit or
controversy between the parties, nor is it an adversary proceeding between the
state and the person who owes the tax on the inheritance. However, under other
statutes it has been held that the hearing and determination of the cash value of
the assets and the determination of the tax are adversary proceedings. The
proceeding has been held to be necessarily a proceeding in rem.[11]
In the Philippine experience, the enforcement and collection of estate tax, is
executive in character, as the legislature has seen it fit to ascribe this task to the
Bureau of Internal Revenue. Section 3 of the National Internal Revenue Code attests
to this:
"Sec. 3. Powers and duties of the Bureau.-The powers and duties of the Bureau of
Internal Revenue shall comprehend the assessment and collection of all national
internal revenue taxes, fees, and charges, and the enforcement of all forfeitures,
penalties, and fines connected therewith, including the execution of judgments in
all cases decided in its favor by the Court of Tax Appeals and the ordinary
courts. Said Bureau shall also give effect to and administer the supervisory and
police power conferred to it by this Code or other laws."
Thus, it was in Vera vs. Fernandez[12] that the court recognized the liberal
treatment of claims for taxes charged against the estate of the decedent. Such
taxes, we said, were exempted from the application of the statute of non-claims,
and this is justified by the necessity of government funding, immortalized in the
maxim that taxes are the lifeblood of the
government.Vectigalia nervi sunt rei publicae - taxes are the sinews of the state.
"Taxes assessed against the estate of a deceased person, after administration is
opened, need not be submitted to the committee on claims in the ordinary course
of administration. In the exercise of its control over the administrator, the 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.)
33
 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
34
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[16] whose determinations and assessments are presumed correct
and made in good faith.[17] The taxpayer has the duty of proving otherwise. In the
absence of proof of any irregularities in the performance of official duties, an
assessment will not be disturbed. Even an assessment based on estimates is prima
facie valid and lawful where it does not appear to have been arrived at arbitrarily or
capriciously. The burden of proof is upon the complaining party to show clearly that
the assessment is erroneous. Failure to present proof of error in the assessment will
justify the judicial affirmance of said assessment.[18] In this instance, petitioner has
not pointed out one single provision in the Memorandum of the Special Audit Team
which gave rise to the questioned assessment, which bears a trace of
falsity. Indeed, the petitioner's attack on the assessment bears mainly on the
alleged improbable and unconscionable amount of the taxes charged. But mere
rhetoric cannot supply the basis for the charge of impropriety of the assessments
made.
Moreover, these objections to the assessments should have been raised,
considering the ample remedies afforded the taxpayer by the Tax Code, with the
Bureau of Internal Revenue and the Court of Tax Appeals, as described earlier, and
cannot be raised now via Petition for Certiorari, under the pretext of grave abuse of
discretion. The course of action taken by the petitioner reflects his disregard or
even repugnance of the established institutions for governance in the scheme of a
well-ordered society. The subject tax assessments having become final, executory
and enforceable, the same can no longer be contested by means of a disguised
protest. In the main, Certiorari may not be used as a substitute for a lost appeal or
remedy.[19]This judicial policy becomes more pronounced in view of the absence of
sufficient attack against the actuations of government.
On the matter of sufficiency of service of Notices of Assessment to the
petitioner, we find the respondent appellate court's pronouncements sound and
resilient to petitioner's attacks.
"Anent grounds 3(b) and (B) - both alleging/claiming lack of notice - We find, after
considering the facts and circumstances, as well as evidences, that there was
sufficient, constructive and/or actual notice of assessments, levy and sale, sent to
herein petitioner Ferdinand "Bongbong" Marcos as well as to his mother Mrs.
Imelda Marcos.
35
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.
...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"

Thus, on October 20, 1992, formal assessment notices were served upon Mrs. 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,
Marcos c/o the petitioner, at his office, House of Representatives, Batasan
and June 10, 1993, and the petitioner himself on April 12, 1993 at his office at the
Pambansa, Q.C. (Annexes "A", "A-1", "A-2", "A-3"; pp. 207-210,
Batasang Pambansa.[21] We cannot therefore, countenance petitioner's insistence
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 that he was denied due process. Where there was an opportunity to raise
objections to government action, and such opportunity was disregarded, for no
furnished the counsel of Mrs. Marcos - Dean Antonio Coronel (Annex "B", p. 211,
justifiable reason, the party claiming oppression then becomes the oppressor of the
ibid). Thereafter, copies of Notices were also served upon Mrs. Imelda Marcos, the
orderly functions of government. He who comes to court must come with clean
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, hands. Otherwise, he not only taints his name, but ridicules the very structure of
established authority.
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 IN VIEW WHEREOF, the Court RESOLVED to DENY the present petition. The
Appeals. Decision of the Court of Appeals dated November 29, 1994 is hereby AFFIRMED in
all respects.
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
36
 Republic of the Philippines by the Commissioner on July 7, 1978.5 No further action was taken by the estate in
SUPREME COURT pursuit of that protest.
Manila
Meanwhile, on January 18, 1977, the decedent's will had been admitted to probate
FIRST DIVISION in the Circuit Court of Oregon 6Ward Graham, the designated executor, then
appointed Ildefonso Elegado, the herein petitioner, as his attorney-in-fact for the
G.R. No. L-68385 May 12, 1989 allowance of the will in the Philippines.7

ILDEFONSO O. ELEGADO, as Ancillary Administrator of the Testate Estate of the Pursuant to such authority, the petitioner commenced probate proceedings in the
late WARREN TAYLOR GRAHAM, petitioner Court of First Instance of Rizal. 8The will was allowed on December 18, 1978, with
vs. the petitioner as ancillary administrator. 9 As such, he filed a second estate tax
HON. COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL return with the Bureau of Internal Revenue on June 4, 1980. 10
REVENUE respondents.
On the basis of this second return, the Commissioner imposed an assessment on
Agrava, Lucero & Gineta for petitioners. the estate in the amount of P72,948.87.11 This was protested on behalf of the
estate by the Agrava, Lucero and Gineta Law Office on August 13, 1980.12
The Office of the Solictor General for public respondents.
While this protest was pending, the Commissioner filed in the probate proceedings
a motion for the allowance of the basic estate tax of P96,509.35 as assessed on
February 9, 1978.13 He said that this liability had not yet been paid although the
assessment had long become final and executory.
CRUZ, J.:

The petitioner regarded this motion as an implied denial of the protest filed on
What the petitioner presents as a rather complicated problem is in reality a very
August 13, 1980, against the second assessment of P72,948.87.14 On this
simple question from the viewpoint of the Solicitor General. We agree with the
understanding, he filed on September 15, 1981, a petition for review with the Court
latter. There is actually only one issue to be resolved in this action. That issue is
of Tax Appeals challenging the said assessment. 15
whether or not the respondent Court of Tax Appeals erred in dismissing the
petitioner's appeal on grounds of jurisdiction and lack of a cause of action.
The Commissioner did not immediately answer (in fact, as the petitioner stressed,
no answer was filed during a delay of 195 days) and in the end instead cancelled the
Appeal from what? That indeed is the question.
protested assessment in a letter to the decedent's estate dated March 31,
1982.16 This cancellation was notified to the Court of Tax Appeals in a motion to
But first the facts.
dismiss on the ground that the protest had become moot and academic. 17

On March 14, 1976, Warren Taylor Graham, an American national formerly resident
The motion was granted and the petition dismissed on April 25, 1984.18 The
in the Philippines, died in Oregon, U.S.A. 1 As he left certain shares of stock in the
petitioner then came to this Court oncertiorari under Rule 45 of the Rules of Court.
Philippines, his son, Ward Graham, filed an estate tax return on September 16,
1976, with the Philippine Revenue Representative in San Francisco, U.S.A. 2
The petitioner raises three basic questions, to wit, (1) whether the shares of stocks
left by the decedent should be treated as his exclusive, and not conjugal, property;
On the basis of this return, the respondent Commissioner of Internal Revenue
(2) whether the said stocks should be assessed as of the time of the owner's death
assessed the decedent's estate an estate tax in the amount of P96,509.35 on
or six months thereafter; and (3) whether the appeal filed with the respondent
February 9, 1978.3 This assessment was protested on March 7, 1978, by the law
court should be considered moot and academic.
firm of Bump, Young and Walker on behalf of the estate . 4 The protest was denied

37
We deal first with the third issue as it is decisive of this case.
In the letter to the decedent's estate dated March 31, 1982, the Commissioner of
Internal Revenue wrote as follows:
Estate of WARREN T. GRAHAM c/o Mr. ILDEFENSO O. ELEGADO Ancillary
Administrator Philex Building cor. Brixton & Fairlane Sts. Pasig, Metro Manila
Sir:
This is with regard to the estate of the late WARREN TAYLOR
GRAHAM, who died a resident of Oregon, U.S.A. on March 14,
1976. It appears that two (2) letters of demand were issued by
this Bureau. One is for the amount of P96,509.35 based on the
first return filed, and the other in the amount of P72,948.87,
based on the second return filed.
It appears that the first assessment of P96,509.35 was issued on
February 9, 1978 on the basis of the estate tax return filed on
September 16, 1976. The said assessment was, however,
protested in a letter dated March 7, 1978 but was denied on July
7, 1978. Since no appeal was made within the regulatory period,
the same has become final.
In view thereof, it is requested that you settle the aforesaid
assessment for P96,509.35 within fifteen (15) days upon receipt
hereof to the Receivable Accounts Division, this Bureau, BIR
National Office Building, Diliman, Quezon City. The assessment for
P72,949.57 dated July 3, 1980, referred to above is hereby
cancelled.
Very truly yours,
(SGD.) RUBEN B. ANCHETA Acting Commissioner 19
It is obvious from the express cancellation of the second assessment for P72,948.87
that the petitioner had been deprived of a cause of action as it was precisely from
this assessment that he was appealing.
In its decision, the Court of Tax Appeals said that the petition questioning the
assessment of July 3, 1980, was "premature" since the protest to the assessment
had not yet been resolved.20 As a matter of fact it had: the said assessment had
been cancelled by virtue of the above-quoted letter. The respondent court was on
surer ground, however, when it followed with the finding that the said cancellation
had rendered the petition moot and academic. There was really no more
assessment to review.
The petitioner argues that the issuance of the second assessment on July 3, 1980,
had the effect of canceling the first assessment of February 9, 1978, and that the
subsequent cancellation of the second assessment did not have the effect of
automatically reviving the first. Moreover, the first assessment is not binding on
him because it was based on a return filed by foreign lawyers who had no
knowledge of our tax laws or access to the Court of Tax Appeals.
The petitioner is clutching at straws.
It is noted that in the letter of July 3, 1980, imposing the second assessment of
P72,948.87, the Commissioner made it clear that "the aforesaid amount is
considered provisional only based on the estate tax return filed subject to
investigation by this Office for final determination of the correct estate tax due
from the estate. Any amount that may be found due after said investigation will be
assessed and collected later." 21 It is illogical to suggest that aprovisional assessment
can supersede an earlier assessment which had clearly become final and executory.
The second contention is no less flimsy. The petitioner cannot be serious when he
argues that the first assessment was invalid because the foreign lawyers who filed
the return on which it was based were not familiar with our tax laws and procedure.
Is the petitioner suggesting that they are excused from compliance therewith
because of their ignorance?
If our own lawyers and taxpayers cannot claim a similar preference because they
are not allowed to claim a like ignorance, it stands to reason that foreigners cannot
be any less bound by our own laws in our own country. A more obvious and shallow
discrimination than that suggested by the petitioner is indeed difficult to find.
But the most compelling consideration in this case is the fact that the first
assessment is already final and executory and can no longer be questioned at this
late hour. The assessment was made on February 9, 1978. It was protested on
March 7, 1978. The protest was denied on July 7, 1978. As no further action was
taken thereon by the decedent's estate, there is no question that the assessment
has become final and executory.
In fact, the law firm that had lodged the protest appears to have accepted its denial.
In his motion with the probate court, the respondent Commissioner stressed that
38
"in a letter dated January 29, 1980, the Estate of Warren Taylor Graham thru the
aforesaid foreign law firm informed claimant that they have paid said tax liability
thru the Agrava, Velarde, Lucero and Puno, Philippine law firm of 313 Buendia
Avenue Ext., Makati, Metro Manila that initiated the instant ancillary proceedings"
although he added that such payment had not yet been received. 22 This letter was
an acknowledgment by the estate of the validity and finality of the first assessment.
Significantly, it has not been denied by the petitioner.

In view of the finality of the first assessment, the petitioner cannot now raise the
question of its validity before this Court any more than he could have done so
before the Court of Tax Appeals. What the estate of the decedent should have done
earlier, following the denial of its protest on July 7, 1978, was to appeal to the Court
of Tax Appeals within the reglementary period of 30 days after it received notice of
said denial. It was in such appeal that the petitioner could then have raised the first
two issues he now raises without basis in the present petition.

The question of whether or not the shares of stock left by the decedent should be
considered conjugal property or belonging to him alone is immaterial in these
proceedings. So too is the time at which the assessment of these shares of stock
should have been made by the BIR. These questions were not resolved by the Court
of Tax Appeals because it had no jurisdiction to act on the petitioner's appeal from
an assessment that had already been cancelled. The assessment being no longer
controversial or reviewable, there was no justification for the respondent court to
rule on the petition except to dismiss it.

If indeed the Commissioner of Internal Revenue committed an error in the

computation of the estate tax, as the petitioner insists, that error can no longer be
rectified because the original assessment has long become final and executory. If
that assessment was not challenged on time and in accordance with the prescribed
procedure, that error — for error it was — was committed not by the respondents
but by the decedent's estate itself which the petitioner represents. So how can he
now complain.

WHEREFORE, the petition is DENIED, with costs against the petitioner. It is so

ordered,

39
 Republic of the Philippines 1% monthly interest from
SUPREME COURT November 30, 1953 to April 15,
Manila 1957 720.77
Compromise for late filing 80.00
EN BANC
Compromise for late payment 40.00

G.R. No. L-22734 September 15, 1967

COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
MANUEL B. PINEDA, as one of the heirs of deceased ATANASIO
PINEDA, respondent.
Office of the Solicitor General for petitioner.
Manuel B. Pineda for and in his own behalf as respondent.
BENGZON, J.P., J.:
On May 23, 1945 Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and
15 children, the eldest of whom is Manuel B. Pineda, a lawyer. Estate proceedings
were had in the Court of First Instance of Manila (Case No. 71129) wherein the
surviving widow was appointed administratrix. The estate was divided among and
awarded to the heirs and the proceedings terminated on June 8, 1948. Manuel B.
Pineda's share amounted to about P2,500.00.
After the estate proceedings were closed, the Bureau of Internal Revenue
investigated the income tax liability of the estate for the years 1945, 1946, 1947
and 1948 and it found that the corresponding income tax returns were not filed.
Thereupon, the representative of the Collector of Internal Revenue filed said
returns for the estate on the basis of information and data obtained from the
aforesaid estate proceedings and issued an assessment for the following:
1. Deficiency income tax
1945 P135.83
1946 436.95
1947 1,206.91 P1,779.69
Add: 5% surcharge 88.98
Total amount due P2,707.44
===========
P14.50
2. Additional residence tax for 1945
===========
3. Real Estate dealer's tax for the fourth
quarter of 1946 and the whole year P207.50
of 1947 ===========
Manuel B. Pineda, who received the assessment, contested the same.
Subsequently, he appealed to the Court of Tax Appeals alleging that he was
appealing "only that proportionate part or portion pertaining to him as one of the
heirs."
After hearing the parties, the Court of Tax Appeals rendered judgment reversing the
decision of the Commissioner on the ground that his right to assess and collect the
tax has prescribed. The Commissioner appealed and this Court affirmed the findings
of the Tax Court in respect to the assessment for income tax for the year 1947 but
held that the right to assess and collect the taxes for 1945 and 1946 has not
prescribed. For 1945 and 1946 the returns were filed on August 24, 1953;
assessments for both taxable years were made within five years therefrom or on
October 19, 1953; and the action to collect the tax was filed within five years from
the latter date, on August 7, 1957. For taxable year 1947, however, the return was
filed on March 1, 1948; the assessment was made on October 19, 1953, more than
five years from the date the return was filed; hence, the right to assess income tax
for 1947 had prescribed. Accordingly, We remanded the case to the Tax Court for
further appropriate proceedings.1
In the Tax Court, the parties submitted the case for decision without additional
evidence.
On November 29, 1963 the Court of Tax Appeals rendered judgment holding
Manuel B. Pineda liable for the payment corresponding to his share of the following
taxes:
Deficiency income tax
40
 P135.8
1945
3
1946 436.95
Real estate dealer's fixed
tax 4th quarter of 1946
and whole year of 1947 P187.50
The Commissioner of Internal Revenue has appealed to Us and has proposed to
hold Manuel B. Pineda liable for the payment of all the taxes found by the Tax Court
to be due from the estate in the total amount of P760.28 instead of only for the
amount of taxes corresponding to his share in the estate.1awphîl.nèt
Manuel B. Pineda opposes the proposition on the ground that as an heir he is liable
for unpaid income tax due the estate only up to the extent of and in proportion to
any share he received. He relies on Government of the Philippine Islands v.
Pamintuan2 where We held that "after the partition of an estate, heirs and
distributees are liable individually for the payment of all lawful outstanding claims
against the estate in proportion to the amount or value of the property they have
respectively received from the estate."
We hold that the Government can require Manuel B. Pineda to pay the full amount
of the taxes assessed.
Pineda is liable for the assessment as an heir and as a holder-transferee of property
belonging to the estate/taxpayer. As an heir he is individually answerable for the
part of the tax proportionate to the share he received from the inheritance. 3 His
liability, however, cannot exceed the amount of his share. 4
As a holder of property belonging to the estate, Pineda is liable for he tax up to the
amount of the property in his possession. The reason is that the Government has a
lien on the P2,500.00 received by him from the estate as his share in the
inheritance, for unpaid income taxes4a for which said estate is liable, pursuant to
the last paragraph of Section 315 of the Tax Code, which we quote hereunder:
If any person, corporation, partnership, joint-account (cuenta en
participacion), association, or insurance company liable to pay the income
tax, neglects or refuses to pay the same after demand, the amount shall be
a lien in favor of the Government of the Philippines from the time when
the assessment was made by the Commissioner of Internal Revenue until
paid with interest, penalties, and costs that may accrue in addition thereto
upon all property and rights to property belonging to the taxpayer: . . .
By virtue of such lien, the Government has the right to subject the property in
Pineda's possession, i.e., the P2,500.00, to satisfy the income tax assessment in the
sum of P760.28. After such payment, Pineda will have a right of contribution from
his co-heirs,5 to achieve an adjustment of the proper share of each heir in the
distributable estate.
All told, the Government has two ways of collecting the tax in question. One, by
going after all the heirs and collecting from each one of them the amount of the tax
proportionate to the inheritance received. This remedy was adopted in Government
of the Philippine Islands v. Pamintuan, supra. In said case, the Government filed an
action against all the heirs for the collection of the tax. This action rests on the
concept that hereditary property consists only of that part which remains after the
settlement of all lawful claims against the estate, for the settlement of which the
entire estate is first liable.6 The reason why in case suit is filed against all the heirs
the tax due from the estate is levied proportionately against them is to achieve
thereby two results: first, payment of the tax; and second, adjustment of the shares
of each heir in the distributed estate as lessened by the tax.
Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon
all property and rights to property belonging to the taxpayer for unpaid income tax,
is by subjecting said property of the estate which is in the hands of an heir or
transferee to the payment of the tax due, the estate. This second remedy is the
very avenue the Government took in this case to collect the tax. The Bureau of
Internal Revenue should be given, in instances like the case at bar, the necessary
discretion to avail itself of the most expeditious way to collect the tax as may be
envisioned in the particular provision of the Tax Code above quoted, because taxes
are the lifeblood of government and their prompt and certain availability is an
imperious need.7 And as afore-stated in this case the suit seeks to achieve only one
objective: payment of the tax. The adjustment of the respective shares due to the
heirs from the inheritance, as lessened by the tax, is left to await the suit for
contribution by the heir from whom the Government recovered said tax.
WHEREFORE, the decision appealed from is modified. Manuel B. Pineda is hereby
ordered to pay to the Commissioner of Internal Revenue the sum of P760.28 as
deficiency income tax for 1945 and 1946, and real estate dealer's fixed tax for the
fourth quarter of 1946 and for the whole year 1947, without prejudice to his right
of contribution for his co-heirs. No costs. So ordered.
41
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-14532 May 26, 1965
JOSE LEON GONZALES, petitioner-appellant,
vs.
THE HON. COURT OF TAX APPEALS and THE COLLECTOR OF INTERNAL
REVENUE, respondents-appellees.
-----------------------------
G.R. No. L-14533 May 26, 1965
JUANA G. GONZALES and FORTUNATO DE LEON, petitioners-appellants,
vs.
THE HON. COURT OF TAX APPEALS and THE COLLECTOR OF INTERAL
REVENUE, respondents-appellees.
Guillermo B. Ilagan and Delfin J. Hilario for petitioners-appellants.
Office of the Solicitor General for respondents-appellees.
BENGZON, C.J.:
Statement. — This is an appeal from the decision of the Court of Tax Appeals
denying the refund of income taxes imposed on, and paid by, Jose Leon Gonzales
and Juana F. Gonzales.
The Facts. — Jose Leon Gonzales and Juana F. Gonzales are brother and sister [the
latter being married to Atty. Fortunato de Leon 1]. Both petitioners are co-heirs and
co-owners, (one-sixth each) of a tract of land of 871, [982.] square meters which
they, along with four other co-heirs, inherited from their mother.
This realty, located at Caloocan, Rizal, was the object of expropriation proceedings,
which this Court finally decided in May 1954, in G.R. No.L-4918. Therein, we fixed
the just compensation for the property at P1.50 per square meter. We also ordered
the payment of interest at the legal rate of 6% from January 25, 1947 (when the
Government took possession of the property) to the date of payment, which
payment was actually made on October 31, 1954. Excluded from the payment of
interest was the sum of P28,850.00, the amount deposited by the Government
upon taking possession of the estate.
The total compensation paid the six heirs for the expropriated property amounted
to P1,307,973.00. Subtracting therefrom the amount of P28,850.00 just mentioned,
there remained a difference of P1,279,123.00, the interest on which, at the legal
rate of 6% per annum, totalled P535,587.70. Divided among the six heirs, this total
gave a share of P89,305.61 as interest to each of them.1äwphï1.ñët
Upon the amounts received from the Government, Jose Leon Gonzales and Juana F.
Gonzales, were each ascertained to have made a capital gain of P213,328.82
[P1,279,973.00 2 divided by 6 heirs], and each of them to have received the amount
of P89,309.61 as share in the interests of P535,857.70 (this, sum is divided by 6). A
tentative return for 1954 was thus prepared and filed for each of the two
petitioners describing the amounts of P213,328.82 as capital gain, and in addition,
the amount of P89,309.61 as ordinary income. On the basis of such income, each of
the petitioners was assessed P86,166.00.
The Government paid to petitioners the proceeds of the expropriation award and
interest through the People's Homesite and Housing Corporation sometime in
October 1954 the last check having been delivered on November 4, 1954. However,
the sum of P532,234.70 was retained by the Housing Corporation; and on
November 18, 1954, at the request of respondent Collector, it turned over to the
Bureau of Internal Revenue the amount of P516,007.00 representing income taxes
reportedly due and owing from the six co-heirs of the estate. Therefore, petitioners
Jose Leon Gonzales and his sister Juana F. Gonzales were each credited the amount
of P86,166.00 as payment of their income tax. (Official Receipts Nos. 520491 and
520496 dated November 19, 1954)
On February 29, 1956, petitioner Juana F. Gonzales wrote the respondent Collector
a letter, seeking the refund of P24,426.00 allegedly representing excess payment of
income taxes for 1954. The letter pertinently stated:
We respectively contend that the assessment was erroneous in that the
amount of P89,309.61 representing interest, was considered as ordinary
income and not merely capital gain. If the interest was computed as capital
gain, there shall be due and owing from your office the amount of
P24,426.00 assuming for argument's sake that your assessment was
correct. (Exhs. H & 2, also par. 22, "Stifacts")
On November 5, 1956, petitioner Jose Leon Gonzales also wrote a letter to said
respondent requesting refund of a similar amount of P24,426.00 for the same
42
reasons as his co-petitioner. No action appears to have been taken on this refund
claim.
On November 12, 1956, respondent Collector denied the request of Juana F.
Gonzales for refund of P24,426.00.
The Suits. — So on November 15, 1956, Jose Leon Gonzales and Juana F. Gonzales
submitted to the Court of Tax Appeals a joint petition seeking a refund, this time of
the amount of P86,166.00 for each of the two petitioners; but the next day, both
petitioners amended their petition by filing separate petitions which were docketed
separately as CTA Case No. 328 and CTA Case No. 329.
It appears that on November 24, 1956, Atty. Fortunato de Leon wrote the
respondent Collector the following letter:
Sir:
This is to acknowledge receipt today of your letter of November
12, 1956, denying the claim of Mrs. Juana F. Gonzales de Leon for
refund, to which we take exception.
We are not only claiming the refund of P24,426.00 but the entire
amount of P86,166.00 for various reasons more specifically
contained in our petition before the Court of Tax Appeals on
November 16, 1956, Case No. 328. We had to file the petition
because we believe our claim is meritorious and that the
prescriptive period may run out.
For all legal purposes we shall consider your letter herein referred
to as a denial of the claim for refund of the total amount of
P86,166.00. And the difference in amount may be considered for
all purposes as variance only.
Respondent Collector, however, disclaims receipt of this second written claim for
refund.
On December 5, 1956, respondent Collector contested the amended petitions. Trial
ensued, and in the course thereof the parties signed a "Partial Stipulation of Facts."
Decision. — On July 16, 1958, a decision was rendered by the Court of Tax Appeals
denying petitioners' claim for refund, with costs against them. Their motion for
reconsideration and new trial having been denied, petitioners perfected this appeal
and now pray for reversal.
Issue. — A careful perusal of the debated issues will show that the resolution of this
appeal hinges decisively on two propositions:
(1) Whether or not petitioners' claim for refund of the total of P86,166.00
may be properly entertained; and
(2) Whether or not the sum of P89,309.61 which each of the petitioners
received as interest on the value of the land expropriated is taxable as
ordinary income, and not as capital gain.
Discussion. — The record shows that on November 18, 1954, at the request of
respondent Collector, the People's Homesite and Housing Corporation turned over
to the Bureau of Internal Revenue the sum of P516,007.00 representing income
taxes due from the six co-owners of the expropriated property. Of this amount, the
two appellants Gonzales were each credited with the amount of P86,166.00 as
income taxes for 1954. (The receipts evidencing such payments are O.R. No.
520491, dated November 19, 1954 for P86,166.00 for Jose Leon Gonzales and O.R.
No. 520496 dated November 19, 1954 for Juana F. Gonzales.)
It likewise appears that appellant Juana F. Gonzales in her letter of February 29,
1956, requested for the refund of P24,426.00 (only), citing as sole ground therefor
that the amount of P89,309.61 which was her share in the interests paid on the
expropriated property was taxed by respondent Collector as ordinary income. She
contended that it should have been taxed as capital gain. Appellant Jose Leon
Gonzales on his part, in his letter of November 5, 1958, requested the refund of a
similar amount of P24,426.00 only.
Then a joint petition was filed by both parties before the Court of Tax Appeals first
on November 15, 1956, but the next day, November 16, 1956, they filed separate
petitions containing similar allegations.
It would appear, therefore, that from November 19, 1954, when the payments for
income taxes were received from the appellants to February 29, 1956, when
appellant Juana Gonzales filed her claim for refund and to November 5, 1956, and
appellant Jose Leon Gonzales filed his own refund claim, less than two years had
elapsed.
43
But, since their respective claims for refund were restricted to the amount of
P24,426.00 only, it should be clear that any demand for the return of an amount in
excess thereof (P86,166.00) is not included.
Remarkedly, the so-called claim for refund of the amount of P86,166.00 was
made only on November 24, 1956, (after the complaints had been filed) without
giving the Collector "an opportunity to consider his mistake, if mistake has been
committed." (Kiener Co. vs. David, 92 Phil. 945) And it refers specifically and
exclusively to appellant Juana F. Gonzales' claim (Exh. "J"). Appellant Jose Leon
Gonzales seems not to have filed any refund claim for a similar amount.
Be that as it may, this later claim for refund for P86,166.00 made on November 24,
1956, by appellant Juana F. Gonzales has been definitely filed beyond the statutory
period of two year, from the date of payment, which was November 19, 1954.
A stringent requirement of the Tax Code is that before a suit or proceeding for the
refund of any internal revenue tax can be maintained in any court, a written claim
for its refund shall be filed with the Collector of Internal Revenue before filing the
action in court and before the expiration of two years from the date of payment of
the taxes to be refunded.3This requirement is mandatory and failure to comply
therewith is fatal to the action. 4 What is more, the claim for refund should set forth
in detail the facts and the grounds upon which it is based, so as to apprise the
Collector accordingly. 5
Appellants maintain that it was not they who had paid the tax of P86,166.00
imposed upon each of them, but that it was respondent Collector himself who paid
those taxes and issued receipts therefor without their knowledge and consent. And
that even if the receipts of payment were in fact sent by the respondent Collector
to the People's Homesite and Housing Corporation and were received by the latter
on November 23, 1953, said receipts could not have been received by appellants
earlier than November 28, 1954, considering that the Rules of Court treats a service
as complete only upon the expiration of five days from mailing.
We find no merit in these contentions. To begin with, there is no proof positive on
record that appellant Juana F. Gonzales' so-called refund claim for the amount of
P86,166.00 had been sent to, let alone received by, respondent Neither have they
protested against this payment by the Collector to the Collector. In the second
place, the refund letter of November 24, 1956, assuming that it was duly filed,
referred to Juana F. Gonzales' claim alone, and made no mention of Jose Leon
Gonzales'. ln the third place, the aforesaid refund claim does not set forth in detail
the facts and grounds upon which it was based and failed to apprise the respondent
of her grounds for raising her claim from P24,426.00 to P86,166.00 (see letter).
Lastly, appellant Juana F. Gonzales' eleventh-hour modification upping her refund
claim from P24,426.00 to P86,166.00 was made on November 24, 1956 or eight
days after the filing of her amended petition before the respondent court on
November 16, 1956, and a few days after the two-year period.
Obviously then, the requirement of prior timely claim for refund of the sum of
P86,166.00 had not been met in this case. The demand for refund must precede the
suit, and this requirement is mandatory; so much so that non-compliance therewith
bars the action. 6
Appellants insist that payment of the tax was not made by them but by the
respondent Collector himself, and that, therefore, the prescriptive period should
begin not from the date of such payment but from the date appellants learned of
such payment.
This contention offers no help to appellants' cause. Assuming that appellants
indeed learned of their payments only on November 24, 1953, they should have
claimed the refund of P86,166.00 from said date and before they filled their
petitions with the respondent Court on November 15 or 16, 1956. Neither could
they blame the respondent Collector for failing to act on their refund claims sooner
for it was incumbent upon appellants to urge him to act expeditiously on their
claims, knowing as they did that the time for bringing an action for a refund of
income tax, fixed by statute, is not extended by the delay of the Collector of
Internal Revenue in giving notice of the rejection of their claim.
Moreover, the provisions of section 306 of the Tax Code are mandatory and not
subject to any qualification and, hence, they apply regardless of the conditions
under which the payment has been made.8
With respect, therefore, to the issue of whether or not appellants' claim for refund
of P86,166.00 (each) could now be entertained, we believe that the same has been
barred by prescription.
Anyway, it is mainly based on the proposition that our ruling in Gutierrez vs. Court
of Tax Appeals, L-9738 and L-9771, May 31, 1957, should be abandoned, a
proposition we are not disposed to encourage.
Thus, our decision will, therefore, address itself only to appellants' earlier claim for
refund in the sum of P24,426.00. Which brings us to the question of whether or not
the sum of P89,309.61 which each of the appellants had received as share in the
interest on the proceeds of the expropriation should be taxed as capital gain or as
ordinary income.
44
Appellants argue that the accessory follows the principal, that the amount paid in Incidentally, the above Supreme Court's decision disapproved the Seaside
expropriation proceedings (the principal, i.e., the profit thereon is Improvement case on which petitioners rely.
admittedly capital gain, not ordinary income, and that, therefore, the interest paid
thereon (the accessory) is capital gain, not ordinary income. We see, therefore, no reason to impute error to the opinion of the Collector of
Internal Revenue and the Court of Tax Appeals that interest paid was ordinary
This contention may not be sustained. In a previous case, 9 we held that "the income, bearing in mind that the Tax Code provides:
acquisition by the Government of private properties through the exercise of the
power of eminent domain, said properties being justly compensated, is embraced SEC. 29. Gross Income. — General Definition. — "Gross income" includes
within the meaning of the term 'sale' or 'disposition of property'" and the definition gains, profits, and income derived from ... interests, rents, dividends,
of gross income laid down by Section 29 of the Tax Code of the Philippines. We also securities, or the transactions of any business carried on for gain or profit,
adhered to the view that the transfer of property through condemnation or gains, profits and income derived from any source whatever.11
proceedings is a sale or exchange and that profit from the transaction constitutes
capital gain. Having arrived at these conclusions, we deem it unnecessary to discuss the other
points extensively argued in the appellants' brief.
But to say that the proceeds of expropriation which is the return of capital and,
therefore, a capital gain, partakes of the same nature as interests paid thereon is far Judgment — Consequently, finding no error in the appealed decision, we hereby
from correct; because interest is compensation for the delay in the return of such affirm it, with costs. So ordered.
capital. In fact, the authorities support the conclusion that for income tax purposes,
interest does not form part of the price paid by the Government in condemnation
proceedings; and may not be treated as part of the capital gain. It was so held by
the United States Supreme Court in Kieselback v. Commissioner of Internal Revenue,
317 U.S. 399.

Borrowing the words and phrases of said Court, we could say now:

The sum paid these taxpayers above the award of P1,307,973.00 was paid
because of the failure to put the award in the taxpayer's hands on the day,
January 25, 1947, when the property was taken. This additional payment
was necessary to give the owners the full equivalent of the value of the
property at the time it was taken. Whether one calls it interest on the
value or payments to meet the constitutional requirement of just
compensation is immaterial. It is income paid to the taxpayers in lieu of
what they might have earned on the sum found to be the value of the
property on the day the property was taken. It is not a capital gain upon an
asset sold. The sale price was the P1,307,973.00.10

The property was turned over in January, 1947. This was the sale. Title then passed.
The subsequent earnings of the property went to the Government. The transaction
was as though a purchase money lien at legal interest was retained upon the
property. Such interest when paid would, of course, be ordinary income.

45
 SECOND DIVISION
[G.R. No. 118671. January 29, 1996]
THE ESTATE OF HILARIO M. RUIZ, EDMOND RUIZ, Executor, petitioner, vs. THE
COURT OF APPEALS (Former Special Sixth Division), MARIA PILAR RUIZ-
MONTES, MARIA CATHRYN RUIZ, CANDICE ALBERTINE RUIZ, MARIA
ANGELINE RUIZ and THE PRESIDING JUDGE OF THE REGIONAL TRIAL
COURT OF PASIG, BRANCH 156, respondents.
DECISION
PUNO, J.:
This petition for review on certiorari seeks to annul and set aside the decision
dated November 10, 1994 and the resolution dated January 5, 1995 of the Court of
Appeals in CA-G.R. SP No. 33045.
The facts show that on June 27, 1987, Hilario M. Ruiz1 executed a holographic
will naming as his heirs his only son, Edmond Ruiz, his adopted daughter, private
respondent Maria Pilar Ruiz Montes, and his three granddaughters, private
respondents Maria Cathryn, Candice Albertine and Maria Angeline, all children of
Edmond Ruiz. The testator bequeathed to his heirs substantial cash, personal and
real properties and named Edmond Ruiz executor of his estate. 2
On April 12, 1988, Hilario Ruiz died. Immediately thereafter, the cash
component of his estate was distributed among Edmond Ruiz and private
respondents in accordance with the decedents will. For unbeknown
reasons, Edmond, the named executor, did not take any action for the probate of
his fathers holographic will.
On June 29, 1992, four years after the testators death, it was private
respondent Maria Pilar Ruiz Montes who filed before the Regional Trial Court,
Branch 156, Pasig, a petition for the probate and approval of Hilario Ruizs will and
for the issuance of letters testamentary to Edmond
Ruiz.3 Surprisingly, Edmond opposed the petition on the ground that the will was
executed under undue influence.
On November 2, 1992, one of the properties of the estate - the house and lot
at No. 2 Oliva Street, Valle Verde IV, Pasig which the testator bequeathed to Maria
Cathryn, Candice Albertine and Maria Angeline4 - was leased out by Edmond Ruiz to
third persons.
On January 19, 1993, the probate court ordered Edmond to deposit with the
Branch Clerk of Court the rental deposit and payments totalling P540,000.00
representing the one-year lease of the Valle Verde property. In compliance,
on January 25, 1993, Edmond turned over the amount of P348,583.56, representing
the balance of the rent after deducting P191,416.14 for repair and maintenance
expenses on the estate.5
In March 1993, Edmond moved for the release of P50,000.00 to pay the real
estate taxes on the real properties of the estate. The probate court approved the
release of P7,722.006
On May 14, 1993, Edmond withdrew his opposition to the probate of the
will. Consequently, the probate court, on May 18, 1993, admitted the will to
probate and ordered the issuance of letters testamentary to Edmond conditioned
upon the filing of a bond in the amount of P50,000.00. The letters testamentary
were issued on June 23, 1993.
On July 28, 1993, petitioner Testate Estate of Hilario Ruiz as executor, filed an
Ex-Parte Motion for Release of Funds. It prayed for the release of the rent payments
deposited with the Branch Clerk of Court. Respondent Montes opposed the motion
and concurrently filed a Motion for Release of Funds to Certain Heirs and Motion
for Issuance of Certificate of Allowance of Probate Will. Montes prayed for the
release of the said rent payments to Maria Cathryn, Candice Albertine and Maria
Angeline and for the distribution of the testators properties, specifically the Valle
Verde property and the Blue Ridge apartments, in accordance with the provisions of
the holographic will.
On August 26, 1993, the probate court denied petitioners motion for release
of funds but granted respondent Montes motion in view of petitioners lack of
opposition. It thus ordered the release of the rent payments to the decedents three
granddaughters. It further ordered the delivery of the titleds to and possession of
the properties bequeathed to the three granddaughters and respondent Montes
upon the filing of a bond of P50,000.00.
Petitioner moved for reconsideration alleging that he actually filed his
opposition to respondent Montes motion for release of rent payments which
opposition the court failed to consider.Petitioner likewise reiterated his previous
motion for release of funds.
On November 23, 1993, petitioner, through counsel, manifested that he was
withdrawing his motion for release of funds in view of the fact that the lease
contract over Valle Verde property had been renewed for another year.7
46
 Despite petitioners manifestation, the probate court, on December 22, 1993,
ordered the release of the funds to Edmond but only such amount as may be
necessary to cover the espenses of administration and allowanceas for support of
the testators three granddaughters subject to collation and deductible from their
share in the inheritance. The court, however, held in abeyance the release of the
titles to respondent Montes and the three granddaughters until the lapse of six
months from the date of firast publication of the notice to creditors. 8 The Court
stated thus:
xxx xxx xxx
After consideration of the arguments set forth thereon by the parties, the court
resolves to allow Administrator Edmond M. Ruiz to take possession of the rental
payments deposited with the Clerk of Court, Pasig Regional Trial Court, but only
such amount as may be necessary to cover the expenses of administration and
allowances for support of Maria Cathryn Veronique, Candice Albertine and Maria
Angeli, which are subject to collation and deductible from the share in the
inheritance of said heirs and insofar as they exceed the fruits or rents pertaining to
them.
As to the release of the titles bequeathed to petitioner Maria Pilar Ruiz-Montes and
the above-named heirs, the same is hereby reconsidered and held in abeyance until
the lapse of six (6) months from the date of first publication of Notice to Creditors.
WHEREFORE, Administrator Edmond M. Ruiz is hereby ordered to submit an
accounting of the expenses necessary for administration including provisions for the
support Of Maria Cathryn Veronique Ruiz, Candice Albertine Ruiz and Maria Angeli
Ruiz before the amount required can be withdrawn and cause the publication of
the notice to creditors with reasonable dispatch.9
Petitioner assailed this order before the Court of Appeals. Finding no grave abuse of
discretion on the part of respondent judge, the appellate court dismissed the
petition and sustained the probate courts order in a decision dated November 10,
199410 and a resolution dated January 5, 1995.11
Hence, this petition.
Petitioner claims that:
THE PUBLIC RESPONDENT COURT OF APPEALS COMMITTED GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN AFFIRMING AND
CONFIRMING THE ORDER OF RESPONDENT REGIONAL TRIAL COURT OF PASIG,
BRANCH 156, DATED DECEMBER 22, 1993, WHICH WHEN GIVEN DUE COURSE AND
IS EFFECTED WOULD: (1) DISALLOW THE EXECUTOR/ADMINISTRATOR OF THE
ESTATE OF THE LATE HILARIO M. RUIZ TO TAKE POSSESSION OF ALL THE REAL AND
PERSONAL PROPERTIES OF THE ESTATE; (2) GRANT SUPPORT, DURING THE
PENDENCY OF THE SETTLEMENT OF AN ESTATE, TO CERTAIN PERSONS NOT
ENTITLED THERETO; AND (3) PREMATURELY PARTITION AND DISTRIBUTE THE
ESTATE PURSUANT TO THE PROVISIONS OF THE HOLOGRAPHIC WILL EVEN BEFORE
ITS INTRINSIC VALIDITY HAS BEEN DETERMINED, AND DESPITE THE EXISTENCE OF
UNPAID DEBTS AND OBLIGATIONS OF THE ESTATE.12
The issue for resolution is whether the probate court, after admitting the will
to probate but before payment of the estates debts and obligations, has the
authority: (1) to grant an allowance from the funds of the estate for the support of
the testators grandchildren; (2) to order the release of the titles to certain heirs;
and (3) to grant possession of all properties of the estate to the executor of the will.
On the matter of allowance, Section 3 of Rule 83 of the Revised Rules of Court
provides:
Sec. 3. Allowance to widow and family. - The widow and minor or incapacitated
children of a deceased person, during the settlement of the estate, shall receive
therefrom under the direction of the court, such allowance as are provided by law.
Petitioner alleges that this provision only gives the widow and the minor or
incapacitated children of the deceased the right to receive allowances for support
during the settlement of estate proceedings. He contends that the testators three
granddaughters do not qualify for an allowance because they are not incapacitated
and are no longer minors but of legal age, married and gainfully employed. In
addition, the provision expressly states children of the deceased which excludes the
latters grandchildren.
It is settled that allowances for support under Section 3 of Rule 83 should not
be limited to the minor or incapacitated children of the deceased. Article 18813 of
the Civil Code of the Philippines, the substantive law in force at the time of the
testators death, provides that during the liquidation of the conjugal partnership,
the deceaseds legitimate spouse and children, regardless of their age, civil status or
gainful employment, are entitled to provisional support from the funds of the
estate.14 The law is rooted on the fact that the right and duty to support, especially
the right to education, subsist even beyond the age of majority. 15
Be that as it may, grandchildren are not entitled to provisional support from
the funds of the decedents estate. The law clearly limits the allowance to widow
and children and does not extend it to the deceaseds grandchildren, regardless of
their minority or incapacity.16 It was error, therefore, for the appellate court to
47
sustain the probate courts order granting an allowance to the grandchildren of the
testator pending settlement of his estate.
Respondent courts also erred when they ordered the release of the titles of
the bequeathed properties to private respondents six months after the date of first
publication of notice to creditors. An order releasing titles to properties of the
estate amounts to an advance distribution of the estate which is allowed only under
the following conditions:
Sec. 2. Advance distribution in special proceedings. - Nothwithstanding a pending
controversy or appeal in proceedings to settle the estate of a decedent, the court
may, in its discretion and upon such terms as it may deem proper and just, permit
that such part of the estate as may not be affected by the controversy or appeal be
distributed among the heirs or legatees, upon compliance with the conditions set
forth in Rule 90 of these Rules.17
And Rule 90 provides that:
Sec. 1. When order for distribution of residue made. - When the debts, funeral
charges, and expenses of administration, the allowance to the widow, and
inheritance tax, if any, chargeable to the estate in accordance with law, have been
paid, the court, on the application of the executor or administrator, or of a person
interested in the estate, and after hearing upon notice, shall assign the residue of
the estate to the persons entitled to the same, naming them and the proportions,
or parts, to which each is entitled, and such persons may demand and recover their
respective shares from the executor or administrator, or any other person having
the same in his possession. If there is a controversy before the court as to who are
the lawful heirs of the deceased person or as to the distributive shares to which
each person is entitled under the law, the controversy shall be heard and decided
as in ordinary cases.
No distribution shall be allowed until the payment of the obligations above-
mentioned has been made or provided for, unless the distributees, or any of
them, give a bond, in a sum to be fixed by the court, conditioned for the payment
of said obligations within such time as the court directs. 18
In settlement of estate proceedings, the distribution of the estate properties can
only be made: (1) after all the debts, funeral charges, expenses of administration,
allowance to the widow, and estate tax have been paid; or (2) before payment of
said obligations only if the distributees or any of them gives a bond in a sum fixed
by the court conditioned upon the payment of said obligations within such time as
the court directs, or when provision is made to meet those obligations. 19
In the case at bar, the probate court ordered the release of the titles to the
Valle Verde property and the Blue Ridge apartments to the private respondents
after the lapse of six months from the date of first publication of the notice to
creditors. The questioned order speaks of notice to creditors, not payment of debts
and obligations. Hilario Ruiz allegedly left no debts when he died but the taxes on
his estate had not hitherto been paid, much less ascertained. The estate tax is one
of those obligations that must be paid before distribution of the estate. If not yet
paid, the rule requires that the distributees post a bond or make such provisions as
to meet the said tax obligation in proportion to their respective shares in the
inheritance.20 Notably, at the time the order was issued the properties of the estate
had not yet been inventoried and appraised.
It was also too early in the day for the probate court to order the release of
the titles six months after admitting the will to probate. The probate of a will is
conclusive as to its due execution and extrinsic validity 21 and settles only the
question of whether the testator, being of sound mind, freely executed it in
accordance with the formalities prescribed by law.22Questions as to the intrinsic
validity and efficacy of the provisions of the will, the legality of any devise or legacy
may be raised even after the will has been authenticated.23
The intrinsic validity of Hilarios holographic will was controverted by petitioner
before the probate court in his Reply to Montes Opposition to his motion for
release of funds24 and his motion for reconsideration of the August 26, 1993 order
of the said court.25 Therein, petitioner assailed the distributive shares of the
devisees and legatees inasmuch as his fathers will included the estate of his mother
and allegedly impaired his legitime as an intestate heir of his mother. The Rules
provide that if there is a controversy as to who are the lawful heirs of the decedent
and their distributive shares in his estate, the probate court shall proceed to hear
and decide the same as in ordinary cases.26
Still and all, petitioner cannot correctly claim that the assailed order deprived
him of his right to take possession of all the real and personal properties of the
estate. The right of an executor or administrator to the possession and
management of the real and personal properties of the deceased is not absolute
and can only be exercised so long as it is necessary for the payment of the debts
and expenses of administration,27 Section 3 of Rule 84 of the Revised Rules of Court
explicitly provides:
Sec. 3. Executor or administrator to retain whole estate to pay debts, and to
administer estate not willed. - An executor or administrator shall have the right to
the possession and management of the real as well as the personal estate of the
deceased so long as it is necessary for the payment of the debts and expenses for
administration.28
48
When petitioner moved for further release of the funds deposited with the clerk of
court, he had been previously granted by the probate court certain amounts for
repair and maintenance expenses on the properties of the estate, and payment of
the real estate taxes thereon. But petitioner moved again for the release of
additional funds for the same reasons he previously cited. It was correct for the
probate court to require him to submit an accounting of the necessary expenses for
administration before releasing any further money in his favor.
It was relevantly noted by the probate court that petitioner had deposited
with it only a portion of the one-year rental income from the Valle Verde property.
Petitioner did not deposit its succeeding rents after renewal of the lease. 29 Neither
did he render an accounting of such funds.
Petitioner must be reminded that his right of ownership over the properties of
his father is merely inchoate as long as the estate has not been fully settled and
partitioned.30 As executor, he is a mere trustee of his fathers estate. The funds of
the estate in his hands are trust funds and he is held to the duties and
responsibilities of a trustee of the highest order.31 He cannot unilaterally assign to
himself and possess all his parents properties and the fruits thereof without first
submitting an inventory and appraisal of all real and personal properties of the
deceased, rendering a true account of his administration, the expenses of
administration, the amount of the obligations and estate tax, all of which are
subject to a determination by the court as to their veracity, propriety and
justness.32
IN VIEW WHEREOF, the decision and resolution of the Court of Appeals in CA-
G.R. SP No. 33045 affirming the order dated December 22, 1993 of the Regional
Trial Court, Branch 156, Pasig in SP Proc. No. 10259 are affirmed with the
modification that those portions of the order granting an allowance to the testators
grandchildren and ordering the release of the titles to the private respondents upon
notice to creditors are annulled and set aside.
Respondent judge is ordered to proceed with dispatch in the proceedings
below.
SO ORDERED.

49
 FIRST DIVISION
[G.R. No. L-26869. August 6, 1975.]
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. MARIANO CU UNJIENG,
ALFONSO CU UNJIENG, BENITO CU UNJIENG, SOR ESPERANZA CU UNJIENG,
JOSEFA C. RIVERA, CARIDAD C. PAPA, LEONOR C. ANDRES, VICTORIA FE CU
UNJIENG, MAGDALENA C. BARRETO, AND ELISA C. BAYOT, Respondents.
[G.R. No. L-26869. August 6, 1975.]
MARIANO CU UNJIENG, ALFONSO CU UNJIENG, BENITO CU UNJIENG, SOR
ESPERANZA CU UNJIENG, JOSEFA C. RIVERA, CARIDAD PAPA, LEONOR C. ANDRES,
VICTORIA FE CU UNJIENG, MAGDALENA C. BARRETO, AND ELISA C.
BAYOT, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R.
Rosete, Solicitor Lolita O. Gal-lang and Special Attorney Michaelina R. Balasbas for
Commissioner of Internal Revenue.
Bausa, Ampil & Suarez for Mariano Cu Unjieng, Et. Al.
SYNOPSIS
On December 2, 1957, Dominga Ayala Vda. de Cu Unjieng died, leaving properties
on which state and inheritance taxes became due and collectible on September 2,
1958 and December 2, 1958, respectively. The heirs paid the estate tax on May 19,
1958, and the inheritance taxes on October 13, 1958. On March 24, 1959, the
Commissioner advised the heirs in writing that a deficiency estate tax and
inheritance taxes were due from them and payable on or before April 23, 1959. On
March 31, 1959, the heirs requested a five-year grace period, but the Commissioner
gave them only two years from April 15, 1959, informing them that the payment
should be made in 24 equal monthly installment, and requiring them to pay a 5%
surcharge. The heirs protested the imposition of 5% surcharge contending that it
was uncalled for considering that they had been granted an extension within which
to settle their tax liabilities. The Commissioner turned down the protest. The heirs
appealed to the Court of Tax Appeals. Although the heirs appeal was limited solely
to the question of the validity of the surcharge imposition, the Commissioner,
however, as one of his affirmative defenses, alleged that the heirs are liable to 1%
instead of 1/2% interest on unpaid amounts from April 24, 1959.
The Tax Court relieved the Cu Unjieng heirs from payment of the 5% surcharge. On
the matter of the interest charges, the Tax Court held that 1/2% monthly interest
on the assessed deficiency taxes should be computed "on the unpaid balances of
the deficiency estate and inheritance taxes remaining after the monthly installment
payments which were made from April 15, 1959 through October 18, 1960."cralaw
virtua1aw library
The Supreme Court held that the tax court erred in invalidating the imposition by
the Commissioner of the questioned surcharge. Upon the jurisdictional dispute over
the matter of interest, it held that the Tax Court properly took cognizance of the
issue because the Commissioner himself raised the same before the Tax Court for
resolution. On the matter of the interest charges that the heirs should pay, it held
that the computation of 1/2% monthly interest should be reckoned from the
original due dates of the assessed deficiency taxes, and approved the Tax Court’s
adoption of declining balance principle in computing the interest due form the heirs
for the period covered by the extension of time given.
SYLLABUS
1. TAXATION; SURCHARGE; PAYMENT OF SURCHARGE IS MANDATORY IF TAXPAYER
FAILS TO PAY DEFICIENCY TAX WITHIN 30 DAYS AFTER NOTICE. — Section 101(c) of
the Tax Code is mandatory, that is, the 5% surcharge attaches at the end of the 30-
day period reckoned from the delay a notice of assessment and demand issued by
the Commissioner of Internal Revenue is received. if the taxpayer fails to pay the
deficiency tax within the said period.
2. ID.; ID.; POWER OF COMMISSIONER TO EXTEND DEADLINE FOR PAYMENT HAS
NO MODIFYING EFFECT ON IMPOSITION OF SURCHARGE. — Section 95(b) of the
Tax Code which empowers the Commission to extend the deadline for the payment
of death taxes in meritorious cases has no controlling or modifying effect on Section
101 (c) which explicitly and unqualifiedly states that the 5% surcharge shall be
collected in addition to the interest prescribed herein and in sections ninety-nine
and one hundred. Section 99 prescribes the collection of 6% interest in cases where
the time for the payment of the estate and inheritance has been extended pursuant
to Section 95(b). Thus, the fact that the period for payment of deficiency taxes was
extended is of no moment: by explicit statutory fiat payment of the 5% is in
addition to the interest collectible upon the basic deficiency estate and inheritance
taxes the time for payment of which has been extended.
3. COURT OF TAX APPEALS; JURISDICTION; COURT MAY TAKE COGNIZANCE OF
ISSUES RAISED. — Although the taxpayer’s appeal to the Court of Tax Appeal is
limited solely to the question of the validity of the surcharge imposition, the Court
of Tax Appeals may properly take cognizance of the issue relative to the rate and
50
 amount of interest the taxpayers should pay where the Tax Commissioner himself
raises said issue before the Tax Court for resolution, an issue that is within the
ambit of the power, authority and jurisdiction of said Tribunal to resolve under its
enabling act, Republic Act 1125.
4. TAXATION; INTEREST; METHOD OF COMPUTATION. — The computation of 1/2%
monthly interest on the assessed deficiency taxes from the original due dates of the
said deficiency taxes is authorized by Section 100 of the Tax Code which requires
the collection of 6% interest per annum upon the deficiency estate and inheritance
taxes "from the due date of the tax to the date the deficiency is assessed," and by
Section 99(b) which authorizes the collection of a similar interest charge on the
amount of the deficiency estate and inheritance taxes "for the period of the
extension."cralaw virtua1aw library
5. ID.; ID.; DECLINING BALANCE PRINCIPLE. — The Tax Court correctly adopted the
declining balance principle in computing the interest due from the heirs of the
period covered by the extension of time given them. The interest prescribed in
Section 99(b) of the Tax Code is the nature of compensation for the use or
detention of money which would otherwise have been paid to the Government
Section 99(b) requires the collection of interest on a deficiency the time for the
payment of which has been extended "at the rate of six per centum per annum for
the period of extension." This means that the interest chargeable on the deficiency
should be spread over an entire year. When, therefore, a taxpayer makes a series of
partial amortization on his tax liability during the year, the amount of interest that
he must pay should be computed on the basis of the actual number of days that
have elapsed between every two consecutive amortizations payments, using as tax
base the remaining sum then due and payable, Computation of the interest
chargeable upon the deficiency for the entire two-year extension and the collection
in advance schedules of portions of the predetermined interest charges plus a
portion of the principal deficiency, effectively results in the imposition of a higher
rate of interest than the 6% per annum authorized by law, since in such a situation
the taxpayer will already be required to pay, at the start of the amortization
schedule, amounts computed on the basis of what the original deficiency tax base
will generate as interest if paid at the end of the second year of extension. The
Commissioner is not authorized by law to collect interest on a deficiency at a rate
effectively higher than the 6% per annum.
6. ID.; ID.; METHOD OF COMPUTING 1% INTEREST UNDER SECTION 101(b)(2) OF
THE TAX CODE. — Under Section 101(b)(2) of the Tax Code, when a taxpayer,
despite the extension of time given him to liquidate his estate and inheritance tax
liabilities, still fails to pay them in full, including all lawful charges applicable
thereon, such taxpayer should pay interest at the rate 1% a month from the date
his deficiency taxes were in the instance due and collectible and not from the date
of expiry of the period of extension.
DECISION
CASTRO, J.:
Before us are two petitions for review of the decision of the Court of Tax Appeals
dated April 30, 1966 in CTA case 934.
In L-26850 the Commissioner of Internal Revenue (hereinafter referred to as the
Commissioner) impugns the tax court’s (a) refusal to levy a 5% surcharge on the
deficiency estate and inheritance taxes assessed against the respondents Mariano
Cu Unjieng, Alfonso Cu Unjieng, Benito Cu Unjieng, Sor Esperanza Cu Unjieng, Josefa
C. Rivera, Caridad C. Papa, Leonor C. Andres, Victoria Fe Cu Unjieng, Magdalena C.
Barreto, and Elisa C. Bayot (hereinafter referred to as the Cu Unjieng heirs); and (b)
taking cognizance of a matter — the correct rate of interest imposable on the
assessed deficiency taxes — not appealed to it by the Cu Unjieng heirs. The
Commissioner, alternatively, assails as erroneous the determination made by the
tax court of the interest due on the said deficiency taxes.
In L-26869 the Cu Unjieng heirs pose in issue the legality of the tax court’s ruling
that they should pay 1% (instead of only 1/2%) monthly interest on the total
amount determined as deficiency taxes from the date they were originally due.
The background material facts are uncontroverted.
On December 2, 1957 Dominga Ayala vda. de Cu Unjieng died, leaving properties on
which estate and inheritance taxes became due and collectible on September 2,
1958 and December 2, 1958, respectively. On May 19, 1958 her heirs paid
P63,166.45 as estate tax, and on October 13, 1958 P25,998.10 in inheritance taxes.
On March 24, 1959 the Commissioner formally wrote the Cu Unjieng heirs, thru
Mariano Cu Unjieng, advising them that a deficiency estate tax of P84,145.67
(P80,909.30 as basic deficiency and P3,236.37 as interest) and deficiency
inheritance taxes amounting to P54,918.00 (P53,576.54 as basic deficiency and
P1,339.46 as interest) were due from them and payable on or before April 23, 1959.
On March 31, 1959 the Cu Unjieng heirs requested a grace period of five years
within which to settle the aforementioned liabilities. The Commissioner, in a letter
51
dated April 3, 1959, gave them only two years, from April 15, 1959 to March 15,
1961. 1 In granting the extension, the Commissioner on April 7, 1959 informed the Balance still due 64,076.35
counsel of the Cu Unjieng heirs that payment should be made in 24 equal monthly
installments of P6,571.11 in accordance with the following computation of their ————
deficiency liabilities, to wit:jgc:chanrobles.com.ph
TOTAL ESTATE & INHERITANCE
"Estate tax 144,075.75
TAXES DUE: P162,026.61"
5% surcharge for late payment on
—————
P80,909.30 4,045.47
The Cu Unjieng heirs protested the imposition of the 5% surcharge (amounting to
1/2% mo. int. on P80,909.30 from P6,724.40), contending that it was uncalled for, considering that they had been
granted an extension of time within which to settle their tax liabilities. The
9/3/58 to 3/15/61 12,945.49 Commissioner, however, turned down the protest, invoking Section 101(c) of the
National Internal Revenue Code which reads:jgc:chanrobles.com.ph
Compromise for late payment 50.00
"(c) Surcharge. — If any amount of the taxes included in the notice and demand
———— from the Commissioner of Internal Revenue is not paid in full within thirty days
after such notice and demand, there shall be collected in addition to the interest
Total P161,116.71 prescribed herein and in sections ninety-nine and one hundred and as part of the
taxes as surcharge of five per centum of the unpaid amount." 2
Less amount paid P63,166.45
The Commissioner’s submission is that Section 101(c) is mandatory and operates
Balance still due P97,950.26 independently of any tax payment extension. The Cu Unjieng heirs moved for a
reconsideration of the Commissioner’s ruling but in the meantime, starting on April
Inheritance tax 79,576.64 15, 1959, also commenced to gradually liquidate the assessed deficiency taxes. (As
of October 18, 1960 the total payment they had made amounted to P129,180.)
5% surcharge on P53,578.54 for late payment 2,678.93
The Commissioner, however, denied reconsideration. The Cu Unjieng heirs then
1/2% mo int. on P53,578.54 from appealed to the Court of Tax Appeals. Although their appeal was limited solely to
the question of the validity of the surcharge imposition, it must be noted that the
12/3/58 to 3/15/61 7,768.88 Commissioner, as one of his affirmative defenses, alleged that the Cu Unjieng heirs,

Compromise for late payment. 50.00 "having filed to pay the deficiency estate and inheritance taxes in accordance with
the terms of the extension, they are liable to 1%, instead of 1/2% interest on the
———— unpaid amounts from April 24, 1959, pursuant to Section 101(b) (2) of the Tax
Code,"
Total P90,074.45
and correspondingly prayed for the imposition not only of the 5% surcharge but as
Less amount paid 25,998.10 well a 1% monthly interest on the original basic tax deficiency because of late
payment.
————

52
On April 30, 1966 the tax court rendered judgment relieving the Cu Unjieng heirs
from payment of the 5% surcharge, for the following Balance still due P 53,578.54
reasons:jgc:chanrobles.com.ph
1/2% mo. int. on inheritance tax from
". . . Mere failure to pay the tax on March 15, 1961 does not justify the imposition
of the 5% surcharge. Under Section 101(c) of the Revenue Code, in order that the 12/3/58 to 4/13/59 1,157.30 54,735.84
5% surcharge may be imposed, there must be a notice and demand for payment of
the deficiency estate and inheritance taxes. The surcharge of 5% accrues only if ————
such taxes are not paid within 30 days after such notice and demand. There being
no proof that such notice and demand was issued, we find no justification for the P138,606.42
imposition and collection of the 5% surcharge on the amounts of P80,909.30 and
P53,578.54. Neither may the said surcharge be imposed upon petitioners’ failure to 1. Payment on 4/13/59 5,795.00
pay the deficiency taxes within 30 days after the assessment made on March 24,
1959, because respondent granted petitioners an extension of time to pay said ————
taxes until March 15, 1961, which is allowed under Section 116(b) [should be
Section 95(b)] of the Revenue Code."cralaw virtua1aw library P132,811.42

On the matter of the interest charges, the tax court held that the 1/2% monthly 1/2% mo. int. from
interest on the assessed deficiency taxes should be computed "on the unpaid
balances of the deficiency estate and inheritance taxes remaining after the monthly 4/14/59 to 5/15/59 707.88
installment payments which were made from April 15, 1959 through October 18,
1960." Applying this rule, the tax court computed the remaining taxes due from the ————
Cu Unjieng heirs, as follows:jgc:chanrobles.com.ph
P133,519.30
"Estate Tax 144,075.75
2. Payment on 5/15/59 17,385.00
Less amount paid 63,166.45
————
————
P116,134.30
Balance still due 80,909.30
1/2% mo. int. from
1/2% mo. int. on
5/16/59 to 8/10/59 1,660.72
inheritance tax from
————
9/3/58 to 4/13/59 2,961.28 P83,870.58
P117,795.09
Inheritance Tax P79,576.64
3. Payment on 8/10/59 P20,000.00
Less amount paid 25,998.10
————
————

53
97,795.02
10/14/59 to 11/17/59 445.74
1/2% mo. int. from
————
8/11/59 to 9/2/59 371.62
P79,197.91
————
7. Payment on 11/17/59 P10,000.00
98,166.64
————
4. Payment on 9/2/59 10,000.00
69,197.91
————
1/2% mo. int. from
88,166.64
11/18/59 to 12/1/59 159.15
1/2% mo. int. from
————
9/3/59 to 9/25/59 335.03
P69,357.06
————
8. Payment on 12/1/59 10,000.00
P88,501.67
————
5. Payment on 9/25/59 5,000.00
59,357.06
————
1/2% mo. int. from
P83,501.67
12/2/59 to 12/22/59 207.75
1/2% mo. int. from 250.50
————
————
P59,564.81
9/26/59 to 10/13/59 P83,752.17
9. Payment on 12/22/59 P10,000.00
6. Payment on 10/13/59 5,000.00
————
————
P49,564.81
P78,752.17
1/2% mo. int. from
1/2% mo. int. from

54
12/23/59 to 2/16/60 455.99 ". . . to pay the respondent Commissioner of Internal Revenue, the amounts of
P9,396.40 and P6,222.61 as deficiency estate and inheritance taxes, plus interest at
———— 1% per month from September 3, 1958 and December 3, 1958, respectively, to the
date of payment. Interest at 1/2% a month having been imposed on these
P50,020.80 deficiency amounts of P8,396.40 and P6,222.61 from the dates they were originally
due to October 18, 1960 as per above computation, additional interest at the rate
10. Payment on 2/16/60 10,000.00 of 1/2% per month on the said amounts from September 3, 1958 and December 3,
1958, respectively, to October 18, 1960 shall be computed, plus 1% interest per
———— month thereon from October 19, 1960 to the date of payment. If the said amounts
of P6,396.40 and P6,222.61, plus interest, are not paid within 30 days from and
40,020.80 after this decision becomes final and executory, petitioner shall also pay 5%
surcharge thereon in accordance with Sec. 101(c) of the Tax Code."cralaw
1/2% mo. int. from virtua1aw library

2/17/60 to 10/5/60 1,528.80 On June 21, 1966 the Cu Unjieng heirs paid the sum of P15,619.01 to the Bureau of
Internal Revenue.
————
1. We hold that the tax court erred in invalidating the imposition by the
P41,549.60 Commissioner of the questioned surcharge, We further hold that Section 101(c) of
the Tax Code is mandatory, that is, the 5% surcharge attaches at the end of the 30-
11. Payment on 10/5/60 10,000.00 day period reckoned from the day a notice of assessment and demand issued by the
Commissioner of Internal Revenue is received, if the taxpayer fails to pay the
———— deficiency tax within the said period.

P31,549.60 Section 95(b), supra, of the Tax Code which empowers the Commissioner to extend
the deadline for the payment of death taxes in meritorious cases has no controlling
1/2% mo. int. from or modifying effect on Section 101(c) which explicitly and unqualifiedly states that
the 5% surcharge "shall be collected in addition to the interest prescribed herein
10/6/60 to 10/18/60 69.41 and in sections ninety-nine and one hundred." (Emphasis supplied) Section 99,
supra, prescribes the collection of 6% interest in cases where the time for the
———— payment of the estate and inheritance taxes has been extended pursuant to Section
95(b).
P31,619.01
The record shows that on March 24, 1959 the Cu Unjieng heirs were notified by the
12. Payment on 10/18/60 16,000.00 Commissioner that they had deficiencies in their estate and inheritance tax
payments; 3 payment thereof in accordance with Section 101(c) was demanded.
Balance still due P15,619.01."cralaw virtua1aw library Consequently, the liability of the decedent’s estate as well as of the heirs for the
payment of the 5% surcharge accrued against them by force of law upon their
========== failure to pay the full amount of the assessed deficiency taxes within 30 days from
notice and demand. That the period for the payment of the said deficiency taxes
The tax court, in the dispositive portion of its decision, ordered the Cu Unjieng was extended is of no moment; by explicit statutory fiat payment of the 5%
heirs. surcharge prescribed in Section 101(c) is in addition to the interest collectible upon
the basic deficiency estate and inheritance taxes the time for payment of which has

55
been extended.
2. Upon the jurisdictional dispute over the matter of interest, we hold that the tax
court properly took cognizance of the issue relative to the rate and amount of
interest the Cu Unjieng heirs should pay. The Commissioner himself presented that
issue before the tax court for resolution, an issue that is within the ambit of the
power, authority and jurisdiction of the said tribunal to resolve under its enabling
act, Republic Act 1125.
3. The dispute regarding the interest charges the Cu Unjieng heirs should pay on
their assessed deficiency taxes is not a complicated one.
According to the Commissioner, by virtue of Section 100 (supra) of the Tax Code
which authorizes the collection of 6% interest per annum on the amount of
deficiency estate and inheritance taxes "from the due date of the tax to the date
the deficiency is assessed," there is due from the Cu Unjieng heirs 1/2% monthly
interest corresponding to the period from September 3, 1958 (the due date of the
estate tax) and December 3, 1958 (the due date of the inheritance taxes) to March
24, 1958 (the date of the deficiency tax assessment). In addition, and by virtue of
Section 99 (b) (supra) of the Tax Code, which authorizes the collection of 6%
interest per annum on the part of the deficiency the time for the payment of which
is so extended . . . for the period of the extension," There is due from the Cu
Unjieng heirs 1/2% monthly interest on the amounts of P80.909.30 and P53,578.54
(the deficiency estate and inheritance taxes the time for the payment of which was
extended) for the period of extension to March 15, 1961. The additional interest of
1% a month on the sum of P32,846.61, which should be computed from April 24,
1959 to June 21, 1966, is, on the other hand, in accordance with Section 101(b) (2)
(supra) of the Tax Code which authorizes the collection of 1% monthly interest on
the deficiency taxes remaining unpaid after the lapse of the period of extension
from the date the same were originally due, April 24, 1959, until they are paid.
Since the Cu Unjieng heirs paid the sum of P15,619.01 on June 21, 1966 in partial
fulfillment of the decision of the tax court, there still remained chargeable from
them the balance of P17,227.60, on which the 1% monthly interest is due from June
22, 1966 to the date of payment.
The position taken by the Commissioner conflicts with the view of the tax court
which maintained (a) that pursuant to the provisions of Sections 99(b) and 100 of
the Tax Code, the 1/2% monthly interest should be computed on the balances of
the deficiency taxes remaining unpaid after each installment payment made by the
Cu Unjieng heirs from April 15, 1959 to October 18, 1960; and (b) that the 1%
monthly interest provided for in Section 101(b) (2) should, in turn, be applied from
the date the remaining unpaid balances of the deficiency estate and inheritance
taxes were originally due, on September 3 and December 3, 1958, respectively, to
the date of payment; however, since a 1/2% interest per month had already been
imputed, per its computation, on the said deficiency taxes for the period from their
original due dates to October 18, 1960, only 1/2% monthly interest need be applied
thereon for the said period.
The Cu Unjieng heirs, on the other hand, object to that portion of the tax court’s
decision requiring them to pay 1% monthly interest from September 3 and
December 3, 1958, respectively, on the balances of their deficiency estate and
inheritance taxes, arguing that under Section 101 the computation of that interest
should be reckoned only from the end of the extended period, that is, from March
16, 1961.
For purposes of computing the 1/2% monthly interest, therefore, the parties are in
agreement that the sums of P80,909.30 and P53,578.54 are the correct tax bases as
of the original due dates of the assessed deficiency taxes. They differ, however, on
how far the said sums may be used as tax bases.
We hold that the tax court correctly computed the 1/2% monthly interest on
P80,909.30 and P53,578.54, respectively, from the original due dates of the said
assessed deficiency taxes. This method of computation is authorized by Section 100
of the Tax Code which requires the collection of 6% interest per annum upon the
deficiency estate and inheritance taxes "from the due date of the tax to the date
the deficiency is assessed," and by Section 99(b) which authorizes the collection of a
similar interest charge on the amount of the deficiency estate and inheritance taxes
"for the period of the extension."cralaw virtua1aw library
We likewise view with approval the tax court’s adoption of the declining balance
principle in computing the interest due from the Cu Unjieng heirs for the period
covered by the extension of time given them.
The interest prescribed in Section 99(b) of the Tax Code is in the nature of a
compensation for the use or detention of money which would otherwise have been
paid to the Government. Section 99(b) requires the collection of interest on a
deficiency the time for the payment of which has been extended "at the rate of six
per centum per annum for the period of extension." This means that the interest
chargeable on the deficiency should be spread over an entire year. When,
therefore, a taxpayer makes a series of partial amortizations on his tax liability
during the year, the amount of interest that he must pay should be computed on
the basis of the actual number of days that have elapsed between every two
consecutive amortization payments, using as tax base the remaining sum then due
and payable. Computation of the interest chargeable upon the deficiency for the
entire two-year extension, as was done by the Commissioner in the case at bar, and
the collection in advance schedules of portions of the predetermined interest
56
charges plus a portion of the principal deficiency, effectively results in the
imposition of a higher rate of interest than the 6% per annum authorized by law,
since in such a situation the taxpayer will already be required to pay, at the start of
the amortization schedule, amounts computed on the basis of what the original
deficiency tax base will generate as interest if paid at the end of the second year of
extension. The Commissioner is not authorized by law to collect interest on a
deficiency at a rate effectively higher than 6% per annum.

4. There is likewise no merit in the objection of the Cu Unjieng heirs regarding the
date when payment of the 1% monthly interest on their remaining unpaid
deficiency taxes is due. Section 101(b) (2) of the Tax Code provides that —

"If the part of the deficiency the time for payment of which is extended is not paid
in accordance with the terms of the extension, there shall be collected, as a part of
the taxes, interest on such unpaid amount at the rate of one per centum a month
from the date the same was originally due until it is paid."cralaw virtua1aw library

The language of the foregoing provision is sufficiently clear — it can mean no other
than that when a taxpayer, despite the extension of time given to liquidate his
estate and inheritance tax liabilities, still fails to pay them in full, including all lawful
charges applicable thereon, such taxpayer should pay interest at the rate of 1% a
month from the date his deficiency taxes were in the first instance due and
collectible and not from the date of expiry of the period of extension granted.

ACCORDINGLY, the denial by the Court of Tax Appeals of the imposition of a 5%

surcharge on the original deficiency estate and inheritance taxes assessed against
the Cu Unjieng heirs is set aside; the Commissioner of Internal Revenue is hereby
directed to collect a 5% surcharge on the original deficiency estate and inheritance
taxes assessed against the Cu Unjieng heirs from April 23, 1959, taking into account
the various payments made after that date in liquidation of the said deficiency
estate and inheritance taxes. In all other respects, the judgment a quo is affirmed.
No costs.

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