Estate Tax 1
1.) PABLO LORENZO, as trustee of the estate of Thomas Hanley,
deceased, plaintiff-appellant,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-
appellant.
***When does estate tax accrue? ***Should the inheritance be computed
on the basis of the value of the estate at the time of the testator’s death
or on its value 10 years later?
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:
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
Estate Tax 2
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.
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.
Estate Tax 3
(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 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
Estate Tax 4
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.
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
Estate Tax 5
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. 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.
Estate Tax 6
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.

2.) LUIS W. DISON, plaintiff-appellant,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-
appellant.
Marcelino Aguas for plaintiff-appellant.
Attorney-General Jaranilla for defendant-appellant.
***Whether or not the gifts inter vivos are taxable (inheritance tax) Hence,
Dison Shoukd Pay inheritance tax.
BUTTE, J.:
This is an appeal from the decision of the Court of First Instance of Pampanga
in favor of the defendant Juan Posadas, Jr., Collector of Internal Revenue, in
a suit filed by the plaintiffs, Luis W. Dison, for the recovery of an inheritance
tax in the sum of P2,808.73 paid under protest. The petitioner alleged in his
complaint that the tax is illegal because he received the property, which is the
basis of the tax, from his father before his death by a deed of gift inter
vivos which was duly accepted and registered before the death of his father.
The defendant answered with a general denial and with a counterdemand for
the sum of P1,245.56 which it was alleged is a balance still due and unpaid on
account of said tax. The plaintiff replied to the counterdemand with a general
denial. The court a quo held that the cause of action set up in the
counterdemand was not proven and dismissed the same. Both sides appealed
to this court, but the cross-complaint and appeal of the Collector of Internal
Revenue were dismissed by this court on March 17, 1932, on motion of the
Attorney-General.1awphil.net
The only evidence introduced at the trial of this cause was the proof of payment
of the tax under protest, as stated, and the deed of gift executed by Felix Dison
on April 9, 1928, in favor of his sons Luis W. Dison, the plaintiff-appellant. This
deed of gift transferred twenty-two tracts of land to the donee, reserving to the
donor for his life the usufruct of three tracts. This deed was acknowledged by
the donor before a notary public on April 16, 1928. Luis W. Dison, on April 17,
1928, formally accepted said gift by an instrument in writing which he
acknowledged before a notary public on April 20, 1928.
At the trial the parties agreed to and filed the following ingenious stipulation of
fact:
1. That Don Felix Dison died on April 21, 1928;
Estate Tax 7
2. That Don Felix Dison, before his death, made a gift inter vivos in favor of the
plaintiff Luis W. Dison of all his property according to a deed of gift (Exhibit D)
which includes all the property of Don Felix Dizon;
3. That the plaintiff did not receive property of any kind of Don Felix Dison upon
the death of the latter;
4. That Don Luis W. Dison was the legitimate and only child of Don Felix Dison.
It is inferred from Exhibit D that Felix Dison was a widower at the time of his
death.
The theory of the plaintiff-appellant is that he received and holds the property
mentioned by a consummated gift and that Act No. 2601 (Chapter 40 of the
Administrative Code) being the inheritance tax statute, does not tax gifts. The
provision directly here involved is section 1540 of the Administrative Code
which reads as follows:
Additions of Gifts and Advances. — After the aforementioned deductions have
been made, there shall be added to the resulting amount the value of all gifts
or advances made by the predecessor to any of those who, after his death,
shall prove to be his heirs, devises, legatees, or donees mortis causa.
The question to be resolved may be stated thus: Does section 1540 of the
Administrative Code subject the plaintiff-appellant to the payment of an
inheritance tax?
The appellant argues that there is no evidence in this case to support a finding
that the gift was simulated and that it was an artifice for evading the payment
of the inheritance tax, as is intimated in the decision of the court below and the
brief of the Attorney-General. We see no reason why the court may not go
behind the language in which the transaction is masked in order to ascertain
its true character and purpose. In this case the scanty facts before us may not
warrant the inference that the conveyance, acknowledged by the donor five
days before his death and accepted by the donee one day before the donor's
death, was fraudulently made for the purpose of evading the inheritance tax.
But the facts, in our opinion, do warrant the inference that the transfer was an
advancement upon the inheritance which the donee, as the sole and forced
heir of the donor, would be entitled to receive upon the death of the donor.
The argument advanced by the appellant that he is not an heir of his deceased
father within the meaning of section 1540 of the Administrative Code because
his father in his lifetime had given the appellant all his property and left no
property to be inherited, is so fallacious that the urging of it here casts a
suspicion upon the appellants reason for completing the legal formalities of the
transfer on the eve of the latter's death. We do not know whether or not the
 Estate Tax 8

father in this case left a will; in any event, this appellant could not be deprived and his father was a consummated gift with no relation to the inheritance, we
of his share of the inheritance because the Civil Code confers upon him the hold that there is not merit in this attack upon the constitutionality of section
status of a forced heir. We construe the expression in section 1540 "any of 1540 under our view of the facts. No other constitutional questions were raised
those who, after his death, shall prove to be his heirs", to include those who, in this case.
by our law, are given the status and rights of heirs, regardless of the quantity
of property they may receive as such heirs. That the appellant in this case
occupies the status of heir to his deceased father cannot be questioned.
Construing the conveyance here in question, under the facts presented, as an
advance made by Felix Dison to his only child, we hold section 1540 to be
applicable and the tax to have been properly assessed by the Collector of
Internal Revenue.

This appeal was originally assigned to a Division of five but referred to the
court in banc by reason of the appellant's attack upon the constitutionality of
section 1540. This attack is based on the sole ground that insofar as section
1540 levies a tax upon gifts inter vivos, it violates that provision of section 3 of
the organic Act of the Philippine Islands (39 Stat. L., 545) which reads as
follows: "That no bill which may be enacted into law shall embraced more than
one subject, and that subject shall be expressed in the title of the bill." Neither
the title of Act No. 2601 nor chapter 40 of the Administrative Code makes any
reference to a tax on gifts. Perhaps it is enough to say of this contention that
section 1540 plainly does not tax gifts per se but only when those gifts are
made to those who shall prove to be the heirs, devisees, legatees or
donees mortis causa of the donor. This court said in the case of Tuason and
Tuason vs. Posadas 954 Phil., 289):lawphil.net

When the law says all gifts, it doubtless refers to gifts inter vivos, and
not mortis causa. Both the letter and the spirit of the law leave no room for any
other interpretation. Such, clearly, is the tenor of the language which refers to
donations that took effect before the donor's death, and not to mortis
causa donations, which can only be made with the formalities of a will, and can
only take effect after the donor's death. Any other construction would virtually
change this provision into:

". . . there shall be added to the resulting amount the value of all gifts mortis
causa . . . made by the predecessor to those who, after his death, shall prove
to be his . . . donees mortis causa." We cannot give to the law an interpretation
that would so vitiate its language. The truth of the matter is that in this section
(1540) the law presumes that such gifts have been made in anticipation of
inheritance, devise, bequest, or gift mortis causa, when the donee, after the
death of the donor proves to be his heir, devisee or donee mortis causa, for
the purpose of evading the tax, and it is to prevent this that it provides that they
shall be added to the resulting amount." However much appellant's argument
on this point may fit his preconceived notion that the transaction between him

3.) 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.
***Whether or not the donations should be subjected to inheritance tax
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.
Estate Tax 9
In their brief, the appellants assign only one alleged error, to wit: that the
demurrer interposed by the appellee was sustained without sufficient ground.
The judgment appealed from was based on the provisions of section 1540
Administrative Code which reads as follows:
SEC. 1540. Additions of gifts and advances. — After the aforementioned
deductions have been made, there shall be added to the resulting amount the
value of all gifts or advances made by the predecessor to any those who, after
his death, shall prove to be his heirs, devisees, legatees, or donees mortis
causa.
The appellants contend that the above-mentioned legal provision does not
include donations inter vivos and if it does, it is unconstitutional, null and void
for the following reasons: first, because it violates section 3 of the Jones Law
which provides that no law should embrace more than one subject, and that
subject should be expressed in the title thereof; second that the Legislature
has no authority to impose inheritance tax on donations inter vivos; and third,
because a legal provision of this character contravenes the fundamental rule
of uniformity of taxation. The appellee, in turn, contends that the words "all
gifts" refer clearly to donations inter vivos and, in support of his theory, cites
the doctrine laid in the case of Tuason and Tuason vs. Posadas (54 Phil., 289).
After a careful study of the law and the authorities applicable thereto, we are
the opinion that neither theory reflects the true spirit of the aforementioned
provision. The gifts referred to in section 1540 of the Revised Administration
Code are, obviously, those donations inter vivos that take effect immediately
or during the lifetime of the donor but are made in consideration or in
contemplation of death. Gifts inter vivos, the transmission of which is not made
in contemplation of the donor's death should not be understood as included
within the said legal provision for the reason that it would amount to imposing
a direct tax on property and not on the transmission thereof, which act does
not come within the scope of the provisions contained in Article XI of Chapter
40 of the Administrative Code which deals expressly with the tax on
inheritances, legacies and other acquisitions mortis causa.
Our interpretation of the law is not in conflict with the rule laid down in the case
of Tuason and Tuason vs. Posadas, supra. We said therein, as we say now,
that the expression "all gifts" refers to gifts inter vivos inasmuch as the law
considers them as advances on inheritance, in the sense that they are
gifts inter vivos made in contemplation or in consideration of death. In that
case, it was not held that that kind of gifts consisted in those made completely
independent of death or without regard to it.
Said legal provision is not null and void on the alleged ground that the subject
matter thereof is not embraced in the title of the section under which it is

enumerated. On the contrary, its provisions are perfectly summarized in the
heading, "Tax on Inheritance, etc." which is the title of Article XI. Furthermore,
the constitutional provision cited should not be strictly construed as to make it
necessary that the title contain a full index to all the contents of the law. It is
sufficient if the language used therein is expressed in such a way that in case
of doubt it would afford a means of determining the legislators intention. (Lewis'
Sutherland Statutory Construction, Vol. II, p. 651.) Lastly, the circumstance
that the Administrative Code was prepared and compiled strictly in accordance
with the provisions of the Jones Law on that matter should not be overlooked
and that, in a compilation of laws such as the Administrative Code, it is but
natural and proper that provisions referring to diverse matters should be found.
(Ayson and Ignacio vs. Provincial Board of Rizal and Municipal Council of
Navotas, 39 Phil., 931.)
The appellants question the power of the Legislature to impose taxes on the
transmission of real estate that takes effect immediately and during the lifetime
of the donor, and allege as their reason that such tax partakes of the nature of
the land tax which the law has already created in another part of the
Administrative Code. Without making express pronouncement on this
question, for it is unnecessary, we wish to state that such is not the case in
these instance. The tax collected by the appellee on the properties donated in
1925 really constitutes an inheritance tax imposed on the transmission of said
properties in contemplation or in consideration of the donor's death and under
the circumstance that the donees were later instituted as the former's legatees.
For this reason, the law considers such transmissions in the form of gifts inter
vivos, as advances on inheritance and nothing therein violates any
constitutional provision, inasmuch as said legislation is within the power of the
Legislature.
Property Subject to Inheritance Tax. — The inheritance tax ordinarily applies
to all property within the power of the state to reach passing by will or the laws
regulating intestate succession or by gift inter vivos in the manner designated
by statute, whether such property be real or personal, tangible or intangible,
corporeal or incorporeal. (26 R.C.L., p. 208, par. 177.)
In the case of Tuason and Tuason vs. Posadas, supra, it was also held that
section 1540 of the Administrative Code did not violate the constitutional
provision regarding uniformity of taxation. It cannot be null and void on this
ground because it equally subjects to the same tax all of those donees who
later become heirs, legatees or donees mortis causa by the will of the donor.
There would be a repugnant and arbitrary exception if the provisions of the law
were not applicable to all donees of the same kind. In the case cited above, it
was said: "At any rate the argument adduced against its constitutionality, which
is the lack of Uniformity, does not seem to be well founded. It was said that
Estate Tax 10
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.
 Estate Tax 11

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.

4.) ANGELES UBALDE PUIG, ET AL., plaintiffs-appellants,
vs.
ESTELLA MAGBANUA PEÑAFLORIDA, ET AL., defendants-
appellants.
Salonga and Ordonez for the plaintiffs-appellants.
Fulgencio Vega for the defendants-appellants.
RESOLUTION
(Main opinion was promulgated on November 29, 1965).
***Was the donation mortis causa or inter vivos?
REYES, J.B.L., J.:
Defendants-appellants Estela Magbanua Peñaflorida, et al., insist that the
reservation by the donor of the right to dispose of the property during her
lifetime in the deed of December 28, 1949 indicates that title had passed to the
donee in her lifetime, otherwise, it is argued, the reservation would be
superfluous, and they cite American authorities in support.
This thesis would be plausible if the reservation of the power to dispose were
the only indication to be considered in deciding whether the donation of
December 28, 1949 was mortis causa or inter vivos. But such is not the case.
The Court in its decision took to account not only the foregoing circumstance
but also the fact that the deceased expressly and consistently declared her
conveyance to be one of donation mortis causa, and further forbade the
registration of the deed until after her death. All these features concordantly
indicated that the conveyance was not intended to produce any definitive
effects, nor to finally pass any interest to the grantee, except from and after
the death of the grantor.
We see nothing in the deed itself to indicate that any right, title or interest in
the properties described was meant to be transferred to Doña Estela
Magbanua prior to the death of the grantor, Carmen Ubalde Vda. de Parcon.
Not ownership, certainly, for the stipulation:
Que esta escritura de donacion mortis causa no se registrara en la oficina del
Registrador de Titulos de Iloilo sino despues del fallecimiento de la Donante
necessarily meant, according to section 50 of the Land Registration Act, that
the deed in question should not take effect as a conveyance nor bind the
land until after the death of the "donor".
Neither did the document operate to vest possession upon Doña Estela
Magbanua, in view of the express condition that (paragraph 3) if at the date of
her death the donor had not transferred, sold, or conveyed one-half of lot 58
of the Pototan Cadastre to other persons or entities, the donee would be bound
to pay to Caridad Ubalde, married to Tomas Pedrola, the amount of P600.00,
Estate Tax 12
and such payment was to be made on the date the donee took possession of
Lot No. 58. As the obligation to pay the legacy to Caridad Ubalde would not
definitely arise until after the death of the donor, because only by then would
it become certain that the "donor" could not transfer the property to someone
else, and such payment must precede the taking possession of the property
"donated", it necessarily follows that the "donee's" taking of possession could
not occur before the death of the donor.
It being thus clear that the disposition contained in the deed is one that
produces no effect until the death of the grantor, we are clearly faced by an
act mortis causa of the Roman and Spanish law. We thus see no need of
resorting to American authorities as to the import of the reservation of the
donor's right to dispose of the donated property, for the Spanish authorities are
very clear on this point:
Desde el momento en que la muerte del donante es la que determina la
adquisicion o el derecho a los bienes; desde el montento en que la disposicion
puede ser revocada voluntariamente, se salva la linea divisoria entre unos y
otros actos: la donacion equivale a un legado; mas aun que esto: es un legado
en realidad. (5 Manresa, 5th Ed., p. 107)
Ahora bien: si el mal llamado donante no solo dilata la fecha de la ejecucion
para el momento de su muerte, sino que ademas se reserva la facultad de
revocar a su arbitrio la disposicion, entonces el acto no es valido bajo la forma
de contrato; hay en realidad una disposicion mortis causa que exige las
solemnidades del testamento. (V Manresa, 5th Ed., p. 109) (Emphasis
supplied)
The presence of an acceptance is but a consequence of the erroneous
concept of the true nature of the juridical act, and does not indicate that in the
same is a true donation inter vivos.
Appellant Magbanua further argues that the reserved power of the donor to
convey the donated property to other parties during her lifetime is but
a resolutory condition (albeit a potestative one) that confirms the passing of
the title to the donee. In reality, this argument is a veritable petitio principii; it
takes for granted what has to be proved, i.e., that some proprietary right has
passed under the terms of the deed, which, as we have shown, is not true until
thedonor has died.
It is highly illuminating to compare the condition imposed in the deed of
donation of December 28, 1949 with that established in the contract dealt with
in Taylor vs. Uy Tieng Piao & Tau Liuan, 43 Phil. 874, invoked by appellants.
In the alleged deed of donation of December 28, 1949, the late Doña Carmen
Ubalde imposed expressly that:
 Estate Tax 13

Que antes de su muerte, la Donante podra enajenar, vender, traspasar e

hipotecar a cualesquiera personas o entidades los bienes aqui donados a
favor de la Donataria en concepto de Donacion mortis causa.
In the Taylor vs. Uy Tieng Piao case, on the other hand, the condition read:
It is understood and agreed that should the machinery to be installed in said
factory fail, for any reason, to arrive, in the City of Manila within the period of
six (6) months from date hereof, this contract may be cancelled by the party of
the second part at its option, such cancellation, however, not to occur before
the expiration of such six (6) months. (pp. 874-875, cas. cit.).
In the Uy Tieng Piao case the contract could only be cancelled after six
months, so that there could be no doubt that it was in force at least for that
long, and the optional cancellation can be viewed as a resolutory condition (or
more properly, a non-retroactive revocatory one); but no such restriction
limited the power of the donor, Doña Carmen Ubalde, to set at naught the
alleged conveyance in favor of Doña Estela Magbanua by conveying the
property to other parties at any time, even at the very next instant after
executing the donation, if she so chose. It requires no argument to
demonstrate that the power, as reserved in the deed, was a power to destroy
the donation at any time, and that it meant that the transfer is not binding on
the grantor until her death made it impossible to channel the property
elsewhere. Which, in the last analysis, as held in our main decision, signifies
that the liberality is testamentary in nature, and must appear with the
solemnities required of last wills and testaments in order to be legally valid.
Wherefore, the motion to reconsider is denied.

5.) THE COLLECTOR OF INTERNAL REVENUE, petitioner,
vs.
MANUEL B. PINEDA as one of the heirs of the deceased
ATANASIO PINEDA, respondent.
Office of the Solicitor General for petitioner.
Manuel B. Pineda for and in his own behalf as respondent.
G.R. No. L-14522 May 31, 1961
CONCEPCION, J.:
Petition for review of a decision of the Court of Tax Appeal reversing that of
petitioner Collector of Internal Revenue with respect of deficiency income
taxes for the years 1946, 1949 and 1947, as well as residence tax for the year
1945 and real estate dealer fixed tar for the fast quarter of 1946, and the whole
year of 1947, allegedly due from the estate of Atanasio Pineda, deceased,
without pronouncement as to costs.
Atanasio Pineda died on May 23, 1945. He was survived by his widow,
Felicisima Bagtas, hereafter referred to as Mrs. Pineda, and fifteen (15)
children, one of whom is herein respondents, Manuel B. Pineda. On August
30, 1945, proceedings for the settlement of the estate of the deceased were
commenced in the Court of First Instance of Manila as Case No. 71129 thereof,
in which Mrs. Pineda was appointed administratrix of the estate. Mrs. Pineda
performed her duties as such administratrix until June 8, 1948, when said case
was closed and she was relieved of her aforementioned duties. Over two (2)
years and a half later, Internal Revenue Examiner Espinosa investigated the
income tax liability of some heirs of the deceased. In the course of her
investigation, she allegedly found that no income tax return for the years 1945,
1946, 1947 and 1948 had been filed on behalf of his estate. When Mrs. Pineda
and her children, some of whom were minors, were contacted by examiner
Espinosa, the latter was referred to respondent Manuel B. Pineda. Inasmuch,
however, as Pineda could not be found in his residence and did not come to
see her, although examiner Espinosa had left word for him to do so, she
examined the records of said Case No. 71129 and pertinent records of other
offices of the Government, and on the basis of the data thus gathered, she
filed on January 29, 1951, income tax returns for the estate of the deceased
corresponding to the aforementioned years 1945, 1946, 1947 and 1948. On
August 1, 1951, income tax assessment notices Exhibits 3-A and 5-A (pp. 6
and 32, BIR rec.), for the years 1945 and 1946, were sent to said estate "c/o
Manuel B. Pineda", respondent herein, who received said notices on
September 8, 1951. Four (4) days later, he submitted to petitioner herein a
"statement" contesting the accuracy of said assessment notices and alleging
that the income of the estate had been included in income tax returns filed by
Mrs. Pineda (pp. 25-28, BIR rec.).
Estate Tax 14
Soon, thereafter, or on October 12, 1951, petitioner assessed and demanded
from said estate dealer's fixed tax from the last quarter of 1946 to 1950, plus
P50.00 as compromise penalty. Respondent, who received this assessment
and demand on October 22, 1951, contested the same in letters written by him
to the petitioner on October 31, 1951 (P. 20, BIR rec.) and March 30, 1953
(Exhibit 11, P., 79, BIR rec.). Meanwhile, or on October 20, 1952, petitioner
sent to the estate of the deceased, through respondent, income tax
assessment notice, Exhibit 7-A (p. 49, BIR rec.), in the sum of P2,223.51, plus
P555.88 as 25% surcharge and P20 as compromise, for the year 1947. This
assessment was impugned by respondent in another "statement" dated
December 2, 1952, upon the ground that the income of the estate had been
consolidated with that of Mrs. Pineda in the income tax return for 1947 filed by
the latter (pp. 117-118, BIR rec.) Subsequently, or on August 24, 1953,
respondent filed, on behalf of the estate of the deceased, its income tax returns
Exhibits 2-A, 4-A and 6-A, for the years 1945, 1946 and 1947 (pp. 8, 34 and
56, BIR rec.).
Thereafter, upon reinvestigation made, owing to respondent's aforementioned
communications denying the alleged tax delinquency of the estate of his father,
the income tax assessment notices 3-A and 5-A, made on August 1, 1951, as
well as the income tax assessment notice Exhibit 7-A, dated October 20, 1952,
were, cancelled and new income tax assessment notices (Exhibits 14, 15 and
16, pp. 10, 36 and 58, BIR rec.) were issued on October 19, 1953, charging
the following:
1. For the year 1945:
a. Tax due ...................................................... P108.66
b. 25% surcharge ......................................... 27.17
c. Compromise .............................................. 20.00
Total amount due and collectible ...... P155.83
2. For the year 1946:
a. Tax due ...................................................... P349.56
b. 25% surcharge ......................................... 87.39
c. Compromise .............................................. 20.00
Total amount due and collectible ........ P456.95
3. For the year 1947:

a. Tax due ......................................................
b. Compromise ..............................................
Total amount due and collectible..........
Moreover, after another reinvestigation, on August 12, 1954, petitioner
demanded from respondent the payment of P14.50, as basic and additional
residence tax for 1945 and P207.50 as real estate dealer's tax for the fourth
quarter of 1946 and the whole year of 1947, as well as payment of the sums
due as income tax for 1945, 1946 and 1947, according to said assessment
notices of October 19, 1953. On September 27, 1954, respondent appealed
the matter to the Conference Staff of the Bureau of Internal Revenue, which
upheld the latest assessments made by petitioner herein. On March 15, 1957,
the latter demanded, therefore, payment of the following:
1. As deficiency income tax
a. For 1945 ........................
b. For 1946 ........................
c. For 1947........................
T o t a l ..........
Add: 5% Surcharge ................................
1% monthly interest from November 30, 1953
to April 15, 1957 720.77
Compromise for late filing .....................
Compromise for late payment................
TOTAL AMOUNT DUE ON APRIL 15, 1957
2. As additional residence tax for 1945
3. As real estate dealer's tax for the fourth quarter of 1946 and the
whole year of 1947
(Exhibit 19, p. 165, BIR record.)
Eventually, respondent appealed the case to the Court of Tax Appeals where
the issues raised were:
Estate Tax 15
P1,206.91 1. Whether or not the right of the Collector (now Commissioner) of Internal
Revenue to assess against and collect from the Estate of the deceased
20.00 Atanasio Pineda the taxes in question has already prescribed?;
P1,206.91 2. Whether or not the series of assessments made by the respondent against
the Estate of the deceased Atanasio Pineda, served on the petitioner Manuel
B. Pineda in his personal capacity, are valid, considering the fact that the
judicial administration of the estate was closed by order of the Court on June
8, 1948, long before the disputed assessments were made and served?;
3. Whether or not the assessments under review are supported by the facts of
the case and the law applicable thereto?; and
4. Whether or not the petitioner herein, Manuel B. Pineda, may be held liable
for all the taxes assessed against the estate of his deceased father Atanasio
Pineda?
However, said Court did not deem it necessary to decide the last three issues,
having settled the first in the affirmative, upon the ground that the income tax
P135.83
assessment notice for 1945, dated August 1, 1951, and received by
486.95
respondent, Manuel B. Pineda, on September 8, 1951, was made more than
five (5) years after the filing of the income tax return for 1945, and beyond the
1,206.91 period fixed in section 331 of our Tax Code; that the present action must be
deemed filed on August 7, 1957 — when petitioner herein filed his answer in
P1,779.69 the Court of Tax Appeals — or nearly six (6) years after the income tax
assessments for the years 1945 and 1946 and beyond the period fixed in
88.98 section 332 (c) of said Code; that, although the original income tax assessment
for 1947 was made on November 12, 1952 (it was October 20, 1952) — within
five (5) years from the filing of the income tax return for 1947, on March 1,
1948 — said assessment was cancelled and substituted by another
assessment made on October 19, 1953, or after the expiration of said period
80.00
of five (5) years; that the residence tax for 1945 was assessed on September
22, 1954, or long after the expiration of the same period; and that, although
40.00
the demand for payment of the real estate dealer's tax for the fourth quarter of
P2,707.44
1946 and the whole year of 1947 was received by herein respondent within
the period aforementioned, or on October 31, 1951, the action for its collection
14.50 was commenced on August 7, 1957, or more than five (5) years later.
Hence, this appeal by petitioner herein, who maintains that there is no
P 207.50 evidence that an income tax return had filed for the year 1945; that, although
there is some evidence that Mrs. Pineda had filed an income tax return for the
year 1946, it does not appear that said return had been submitted for and on
behalf of the estate of the deceased; that the income tax return for 1947, filed
by her on behalf thereof, was void, and should be considered as non-existent
because her own income was included therein, so that petitioner had "no
means by which to determine which were the income of the widow, and which
were the income of the estate."

Sections 331 and 332 of the Tax Code provide:
SEC. 331. Period of limitation upon assessment and collection. — Except as
provided in the succeeding section, interval revenue taxes shall be assessed
within five year after the return was filed, and no proceeding in court without
assessment for the collection of such taxes should be begun after the
expiration of such period. For the purposes of this section a return filed before
the last day prescribed by law for the filing thereof shall be considered as filed
on such last day: Provided, That this limitation shall not apply to cases already
investigated prior to the approval of this Code.
SEC. 332. Exception as to period of limitation of assessment and collection of
taxes. — (a) In the case of a false or fraudulent with intent to evade tax or of a
failure to file a return, the tax may be assessed, or a proceeding in court for
the collection of such tax may be begun without assessment, at any time within
ten years after the discovery of the falsity, fraud, or omission.
(b) Where before the expiration of the time prescribed in the preceding section
for the assessment of the tax, both the Collector of Internal Revenue and the
taxpayer have consented in writing to its assessment after such time, the tax
may be assessed at any time prior to the expiration of the period agreed upon.
The period so agreed may be extended by subsequent agreements in writing
made before the expiration of the period previously agreed upon.
(c) Where the assessment of any internal revenue tax has been made within
the period of limitation above prescribed such tax may be collection by distraint
or levy or by a proceeding in court, but only if begun (1) within five years after
the assessment of the tax, or (2) prior to the expiration of any period for
collection agreed upon in writing by the Collector of Internal Revenue and the
taxpayer before the expiration of such five-year period. The period so agreed
upon may he extended by subsequent agreements in writing made before the
expiration of the period previously agreed upon.
We agree with petitioner herein that the filing of an income tax return for 1945
has not been established. The statement in the decision appealed from to the
effect that said return had been filed on February 28, 1946, is based upon a
mere allegation in a memorandum of respondent herein, which is not borne
out by the record. Considering that the first income tax return of 1945, filed on
behalf of the estate of the deceased, was that submitted by examiner Espinosa
on January 29, 1951; that the first assessment of the income tax due for 1945
was made on August 1, 1951; that on August 24, 1953, respondent filed an
income tax return for 1945, on behalf of said estate; that said first assessment
was superseded by another one dated October 19, 1953; and that the action
to recover the tax is deemed begun on August 7, 1957, it is clear that the said
assessments and action were made and filed within the periods prescribed in
sections 331 and 332 of the Tax Code.
Estate Tax 16
As regards the income tax return for 1946, its photostatic copy (Exhibit E, p.
81, CTA record) shows that the original thereof was filed on February 27, 1947
and that it was submitted in the name of Felicisima P. Pineda, unlike the
income tax return for 1947, which appears to have been filed "for and in behalf
of the estate of the late Atanasio Pineda". Inasmuch as said return for 1946
makes no reference whatsoever to the estate of the late Atanacio Pineda,
petitioner could not have assessed, on the basis thereof, the income tax due
from said estate. Hence, the period of 5 years, provided in said section 331 for
the making of the assessment, should be computed, not from February 27,
1947, but from January 29, 1951, when examiner Espinosa filed the income
tax return for 1946 on behalf of the estate of the deceased. This
notwithstanding, the Court of Tax Appeals held that the action for the collection
of the income tax for 1946 is barred, under section 332(c) of said Code, more
than five (5) years having elapsed from August 1, 1951, when the first
assessment of said action was made. We must not overlook. however, that
respondent filed an income tax return for 1946, on behalf of the estate of the
deceased, on August 24, 1953; that a revised assessment of the income tax
due for 1946, which took the place of the assessment dated August 1, 1951,
was effected on October 19, 1953 (pp. 12 and 39, BIR rec.); and that less than
five (5) years have elapsed, from either the date last mentioned, or that of the
filing of said income tax return by respondent herein August 24, 1953), to the
institution of the present proceeding (August 7, 1957). In short, the right of the
Government to collect the income tax for 1946 is not barred by the statute of
limitations.
Referring now to the Income tax return for 1947, filed by Mrs. Pineda on March
1, 1948, petitioner's theory to the effect that said return is void cannot be
sustained. It is not true that petitioner could not have made an assessment of
the income tax due, for the year 1947, from the estate of the deceased,
because the income of Mrs. Pineda had been included in said return. The
same having been explicitly filed by her "for and in behalf of the Estate of the
late Atanasio Pineda", petitioner was entitled to consider all data contained in
the return as pertaining to said estate, and hence, to assess, on the basis of
said return, the income tax for 1947 due from that estate.
Was its assessment made within the period of five (5) years fixed in section
331 of the Tax Code? Although the original assessment (Exhibit 7-A), dated
on October 20, 1952, was, another one substituted it on October 19, 1953, or
after the lapse of said period. Petitioner contends, however, that respondent
may not avail himself of the plea of prescription, the delay in making the revised
assessment having been due mainly to his protest against the original
assessment, thereby inducing petitioner herein to order several
reinvestigations, the first of which was made by examiner Espinosa, who
submitted her report on August 27, 1953, upon which the income tax
assessment notice of October 19, 1953, must have been based. Petitioner
relies, in support of his pretense, upon the case of Commissioner of Internal

Revenue vs. Consolidated Mining Co., L-11527 (November 25, 1958), in which
we held that
. . . there are cases however where a taxpayer may be prevented from setting
up the defense of prescription even if he has not previously waived it in writing
as when by his repeated requests or positive acts the Government has been,
for good reasons, persuaded to postpone collection to make him feel that the
demand was not unreasonable or that no harassment or injustice is meant by
the Government. (Emphasis supplied.)
The Suyoc case is not in point for respondent herein had not requested or
induced the petitioner by positive acts to delay the making of the revised
assessment notice of October 19, 1953. Up to that time, respondent merely
contended that the amounts sought to be collected by petitioner were not due
from the estate of the deceased and gave his reasons therefor. Petitioner had
a perfectly legitimate right to do this and the same does not suffice to estop
him from invoking the statute of limitations. The rule applicable to the case at
bar, with respect to the income tax liability for 1947, is that laid down in
Collector of Internal Revenue vs. Solano, L-11475 (July 31, 1958). We quote
from the decision therein rendered:
. . . the petitioner Collector urges that respondent Solano is estopped from
putting up the defense of prescription because he repeatedly made verbal
requests for extensions of time to pay his tax obligation for 1948, as allegedly
shown by the testimony of Bureau of Internal Revenue agent Benjamin S.
Valenzuela. The argument is also untenable, first, because Valenzuela
categorically declared that respondent Solano did not request for an extension
of time within which to pay his 1948 income tax liability (t.s.n. pp. 49-50); and
second, the only agreement that could have suspended the running of the
prescriptive period for the collection of the tax in question is, as correctly
pointed out by the Court of Tax Appeals, a written agreement between Solano
and the Collector, entered into before the expiration of the five-year
prescriptive period, extending the period of limitation prescribed by law (sec.
332 [c], N.I.R.C.) The rule is in accord with the general law on prescription that
requires a written acknowledgment of the debtor to renew the cause of action
or interrupt the running of the limitation period (Act 190, sec. 50; New Civil
Code, Art. 1155). The Court of Tax Appeals found, and the records show, that
no such written agreement was ever entered into between respondent Solano
and the petitioner Collector." .
It is true that in a letter to the petitioner, dated March 15, 1955 (pp. 138-139,
BIR rec.), respondent had asked the former to defer action for the collection of
the taxes in question, pending determination by the Conference Staff — to
which respondent had appealed in September, 1954 — and the petitioner of
the legality of the assessment impugned by said respondent. This
communication, it should be noted, was sent long after said assessment notice
of October 19, 1953, and could not have delayed, therefore, the issuance
Estate Tax 17
thereof. Besides, said letter of March 15, 1955, referred to the "collection" of
the taxes, not to the assessment thereof.
Having been made beyond the period fixed in section 331 of the Tax Code,
the assessment of October 19, 1953, is void, therefore, insofar as the income
tax for 1947 is concerned and its payment may not, accordingly, be enforced
by action.
Let us now consider the real estate dealer's fixed tax for the last quarter of
1946 and the whole year of 1947, amounting altogether to P207.50. The Court
of Tax Appeals sustained respondent's plea of prescription upon the ground
that this action was instituted more than five (5) years after the assessment of
said amount, which was allegedly made on October 12, 1951. Petitioner
argues, however, that said assessment was not for P207.50, but for P687.50,
and that it covered the period from the last quarter of 1946 to the year 1950,
inclusive; that said assessment of October 12, 1951 was, upon,
reinvestigation, cancelled, and, in lieu thereof, another assessment, dated
August 12, 1954, for the sum of P207.50, and covering only the period from
the last quarter of 1946 to the whole year of 1947, was made; and that the
present action was begun within five (5) years after said revised assessment.
Although the latter was made more than five (5) years after the period to which
it refers, this fact does not affect either the validity of the revised assessment
or the right to enforce it by court proceedings, inasmuch as no return for the
real estate dealer's fixed tax in question had been filed, and, accordingly, "a
proceeding in court for the collection of such tax may be begun without
assessment at any time within ten years after discovery of the . . . omission"
to file said return, pursuant to section 332(a) of the Tax Code (Visaya Land
Transportation Co., Inc. vs. Col. of Int. Rev. and Col. of Int. Rev. vs. Visaya
Land Transportation Co., Inc., L-12100 and L-11812, May 29, 1959).
For the reason just stated, the government is entitled to collect the residence
tax for 1945 within ten (10) years from discovery of the failure to pay it or to
make the statement necessary therefor, which in this case, took place on
November 21, 1951 (p. 51 BIR rec.) Consequently, the plea of prescription as
regards said residence tax was erroneously sustained by the lower court.
The decision appealed from should, accordingly, be, as it is hereby reversed,
insofar as it holds that the action for the collection of the income taxes for 1945
and 1946, the real estate dealer's fixed tax for the fourth quarter of 1945 and
the year 1946 and the residence tax for 1945 is barred by the statute of
limitation, and affirmed insofar as the income tax for 1947 is concerned.
Inasmuch, however, as no findings have been made in said decision with
respect to three (3) of the issues mentioned at the beginning of this decision,
which are material to the determination of respondent's liability, let the records
of this case be remanded to the Court of Tax Appeals, for further proceedings
not inconsistent with this decision, without special pronouncement as to costs.
It is so ordered.

6.) Testate Estate of the Late Felix J. de Guzman. VICTORINO G. DE
GUZMAN, administrator-appellee,
vs.
CRISPINA DE GUZMAN-CARILLO, ARSENIO DE GUZMAN and
HONORATA DE GUZMAN-MENDIOLA, oppositors-appellants.
Emiliano Samson & R. Balderama-Samson for appellants.
Cezar Paralejo for appellee.
AQUINO, J.:
This case is about the propriety of allowing as administration expenses certain
disbursements made by the administrator of the testate estate of the late Felix
J. de Guzman of Gapan, Nueva Ecija.
The deceased testator was survived by eight children named Victorino,
Librada, Severino, Margarita, Josefina, Honorata, Arsenio and Crispina. His
will was duly probated. Letters of administration were issued to his son, Doctor
Victorino G. de Guzman, pursuant to the order dated September 17, 1964 of
the Court of First Instance of Nueva Ecija in Special Proceeding No. 1431.
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 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 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.
The administrator submitted four accounting reports for the period from June
16, 1964 to September, 1967. Three heirs Crispina de Guzmans-Carillo
Honorata de Guzman-Mendiola and Arsenio de Guzman interposed objections
to the administrator's disbursements in the total sum of P13,610.48, broken
down as follows:
I. Expense for the improvement and renovation of the decedent's residential house.
1. Construction of fence — P3,082.07 2. Renovation of bathroom — P1,389.52 3. Repair of terrace and
interior of house — P5,928.00 — P10,399.59
II. Living expenses of Librada de Guzman while occupying the family home without paying rent:
1. For house helper — P1,170.00 2. Light bills — 227.41 3. Water bills — 150.80 4. Gas oil, floor
wax
and switch nail — 54.90 — P 1,603.11
III. Other expenses:
1. Lawyer's subsistence — P 19.30 2. Gratuity pay in lieu of medical fee — 144.00 3.
stenographic notes — 100.00 4. For food served on decedent's first death anniversary — 166.65
Cost of publication of death anniversary of decedent — 102.00 6. Representation
expenses — 26.25 — P558.20
IV. Irrigation fee P1.049.58
TOTAL P13,610.48
Estate Tax 18
It should be noted that the probate court in its order of August 29, 1966 directed
the administrator "to refrain from spending the assets of the estate for
reconstructing and remodeling the house of the deceased and to stop
spending (sic) any asset of the estate without first during authority of the court
to do so" (pp. 26-27, Record on Appeal).
The lower court in its order of April 29, 1968 allowed the d items as legitimate
expenses of administration. From that order, the three oppositors appealed to
this 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 allegedly are not allowable under the Rules of Court.
An executor or administrator is allowed the necessary expenses in the care,
management, and settlement of the estate. He is entitled to possess and
manage the decedent's real and personal estate as long as it is necessary for
the payment of 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, and income thereof, and with the
proceeds of so much of such estate as is sold by him, at the price at which it
was sold (Sec. 3, Rule 84; Secs. 1 and 7, Rule 85, Rules of Court).
One of the Conditions of the administrator's bond is that he should render a
true 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 examine him as to the correctness of his account before the same is
allowed, except when no objection is made to the allowance of the account
and its correctness is satisfactorily established by competent proof. The heirs,
legatees, distributes, and creditors of the estate shall have the same privilege
as the executor 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 Court).
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. 10, Rule 85).
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 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 accounts.
For
5. I. Expenses for the renovation and improvement of the family residence —
P10,399.59. — As already shown above, these expenses consisted of
disbursements for the repair of the terrace and interior of the family home, the
renovation of the bathroom, and the construction of a fence. The probate court
allowed those 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 same in such repair to the heirs or devises" when
directed to do so by the court (Sec. 2, Rule 84, Rules of Court).
On the other hand, the oppositors-appellants contend that the trial court erred
in allowing those expenses because the same did not come within the category
of necessary expenses of administration which are understood to be the
reasonable and necessary expenses of caring for the property and managing
it until the debts are paid and the estate is partitioned and distributed among
the heirs (Lizarraga Hermanos vs. Abada, 40 Phil. 124).
As clarified in the Lizarraga case, administration expenses should be those
which are necessary for the management of the estate, for protecting it against
destruction or deterioration, and, possibly, for the production of fruits. They are
expenses entailed for the preservation and productivity of the estate and its
management for purposes of liquidation, payment of debts, and distribution of
the residue among the persons entitled thereto.
It should be noted that the family residence was partitioned proindiviso among
the decedent's eight children. Each one of them was given a one-eighth share
in conformity with the testator's will. Five of the eight co-owners consented to
the use of the funds of the estate for repair and improvement of the family
home. It is 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.
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.
Estate Tax 19
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).
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.
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.

7.) In re estate of the deceased DIEGO DE LA VIÑA.
JOSE MA. DE LA VIÑA Y DE LA ROSA, ex-administrator-appellant,
vs.
THE COLLECTOR OF INTERNAL REVENUE, creditor-appellee.
Enrique Medina for appellant.
Raymundo Villanueva for the administrator of the estate of De la Viña.
Office of the Solicitor-General Ozaeta and Assistant Solicitor-General
Concepcion for appellee.
VILLA-REAL, J.:
This is an appeal taken by the ex-administrator, Dr. Jose MA. de la Viña y de
la Rosa, from the order of the Court of First Instance of Negros Oriental, the
dispositive part of which reads:
Wherefore the Court reiterates the order of March 7, 1933, only in so far as the
claim of the Insular Government is concerned, and orders the Administrator
herein to pay from whatever available fund of the estate of the deceased Diego
de la Viña the sum of P18,420.93 with the corresponding legal interests from
August 20, 1929 plus costs, to the Commonwealth of the Philippines.
It is also ordered that after the said claim shall have been fully paid, the
administrator herein shall pay to Dr. Jose de la Viña y De la Rosa the sum of
P19,342.93 and to other claimants their respective claims in the order
established by law out of the residue.
In support of his appeal the appellant assigns three alleged errors committed
by the trial court in its order, to wit:
1. The trial court erred in holding that the income tax claimed by the Collector
of Internal Revenue, should be paid before the administration expenses
claimed by the appellant executor Dr. Jose Ma. de la Viña y de la Rosa.
2. The trial court erred in applying article 1923 of the Civil Code and in not
holding that the said article has been repealed by section 735 of the Code of
Civil Procedure (Act 190).
3. Granting for the sake of argument that the payment of income tax has
preference over the payment of administration expenses, the trial court erred
in holding that said preference has been abandoned and lost due to the time
that has elapsed from 1925 to 1938.
The following are undisputed facts:
On April 8, 1920, after the death of Diego de la Viña, his brother, the herein
appellant Dr. Jose Ma. de la Viña, was appointed by the Court of First Instance
Estate Tax 20
of Negros Oriental as special administrator of the estate of the deceased; and
on the 20th of the same month and year he was appointed executor.
On January 23, 1926, this Court issued in civil case G.R. No. 23747, entitled
"In re estate of Diego de la Viña, deceased, Jose de la Viña v. Narcisa
Geopano et al.," an order approving the accounts of the said Dr. Jose de la
Viña, as outgoing administrator of the estate of Diego de la Viña. It appears
from the decision of this Court rendered in said Civil Case G.R. No. 23747 that
the following items were approved:
Special per diems of Jose de la Viña as former
adminstrator .............................. P12,552.00
Legal Commission ............................... 4,141.33
Total ............................................................ 16,693.33
In the bill of exceptions in said case it also appears that the following expenses of Jose de la Viña
were approved:
Balance in his favor as executor .................... P1,165.86
Balance on his aparceria ................................ 7,528.64
Total
...................................................................... 8,694.50
On July 16, 1927, the said Court of First Instance of Negros Oriental ordered
in the present case the payment to Dr. Jose de la Viña of the amount of
146.025 piculs of sugar belonging to him, which product was applied to the
payment of the administration expenses of the estate of Diego de la Viña. The
price of said sugar was fixed at P20 per picul by a subsequent order. Adding
the sum of P2,925, the value of said 146.025 piculs of sugar, to the sum of
P25,387.83, the result is a total of P28,312.83. As the amount of P9,228.65
has been paid on account, there remains a balance of P19,048.18 in favor of
the appellant.
It also appears that on February 23, 1932, this Court rendered judgment in
G.R. No. 33870, entitled "The Collector of Internal Revenue vs. Espiridion
Villegas, as administrator of the estate of Diego de la Viña", ordering the said
administrator to pay the Insular Government, by way of income tax for the year
1925, the sum of P18,420.93, with interest from August 20, 1939 until fully
paid, and the costs.
The estate of Diego de la Viña does not have sufficient funds or property to
pay fully both judgments. When the Insular Government attempted to collect
the amount of the said judgment in its favor, Dr. Jose de la Viña objected on
the ground that the judgments obtained by him are preferred under section 735
of Act No. 190, and should first be paid. After the corresponding trial, the trial
court overruled the opposition and entered the above-quoted order.

The first question to be decided in this appeal, which is raised by the first
assignments of error, is whether or not the trial court erred in holding that the
income tax claimed by the Collector of Internal Revenue, should be paid before
the administration expenses claimed by the ex-executor, Dr. Jose Ma. de la
Viña y de la Rosa.
Section 735 of the Code of Civil Procedure, as amended by Act No. 3960,
provides as follows:
SEC. 735. Order of payment if estate insolvent. — If the assets which can be
appropriated for the payment of debts are not sufficient for that purpose, the
executor or administrator shall, after pay the debts against the estate in the
following order:
1. The necessary funeral expenses;
2. The expenses of the last sickness;
3. What is owing to the laborer for salaries and wages earned and for
indemnities due to him, for the last year;
4. Debts due to the United States;
5. Taxes and assessments due to the Government, or any branch or
subdivision thereof;
6. Debts due to the province;
7. Debts due to other creditors.
In view of the legal provision just quoted, the question is whether the income
tax which an estate owes the Insular Government partakes of the nature of
administration expenses for purposes of the order of payment established by
section 735 of Act No. 190 above quoted. Section 680 of the same code of
Civil Procedure provides as follows:
SEC. 680. — How allowed for services. — The executor or administrator shall
be allowed necessary expenses in the care, management, and settlement of
the estate, and for his services, two dollars per day for the time actually and
necessarily employed, and a commission of three per cent upon all sums
disbursed in the payment of debts, expenses, and distributive shares, if the
amount of such disbursements does not exceed one thousand dollars. If the
amount exceeds one thousand dollars and does not exceed five thousand
dollars and one-half per cent upon the excess, if the whole amount does not
exceed five thousand dollars, then the percentage as above provided, and one
per cent on the excess above five thousand dollars. But in any special case,
where the estate is large, and the settlement has been attended with great
difficulty, and has required a high degree of capacity on the part of the executor
or administrator, a greater sum may be allowed. But if objection to the fees
Estate Tax 21
allowed be taken, the allowance may be re-examined by the Supreme Court
on appeal.
When the administrator or executor is a lawyer, he shall not be allowed to
charge against the estate any professional fees, as such, for services rendered
by himself. When the deceased by will makes some other provision for
compensation to his executor, the provision shall be full satisfaction for his
services, unless by a written instrument filed in the court he renounces all claim
to the compensation provided by the will.
The legal provision just quoted enumerates the services for which the
administrator should be paid and the commission to which he is entitled for
collections and disbursement made by him. Among these payments, which
constitutes the expenses of administration, are not included pending debts of
the estate, whatever may be their nature. According to the said legal provision,
only payments which the executor or administration may have made in the
discharge of his office and the commissions to which he may be entitled,
partakes of the nature of administration expenses. the expenses of
administration are due only to the executor or administrator, and he alone, and
no other, may collect them.
The Collector of internal Revenue contends that the tax of P18,420.93 which
he seeks to collect, having been laid on the profits realized in the sale of the
properties of the deceased Diego de la Viña, effected on September 29, 1925
by the judicial administrator of the estate, the said tax partake of the nature of
administration expenses. As we have said, the necessary expenses of
administration whose payment is given preference in the said section 735 of
the Code of Civil Procedure are those which the administrator may have
incurred in the care, administration and liquidation of the properties of the
estate and the commissions due to him for collections and disbursements
which he may have made, and not those which he cold or might have wished
to make out of his own pocket or but of the funds of the estate. "Administration
expenses," says Corpus Juris, volume 24, page 424, "include expenditures in
discovering and preserving assets, attorneys fees incurred in connection with
the administration of the estate, incurred in connection with the administration
of the estate, cost recovered against the representative in an action to recover
assets, to established a claim against the estate, to try title to land, and
insurance premiums expended for the protection of the property and it has
even been considered that expenditures in carrying on decedent's business
may be regarded as expenses of administration." And Woerner, volume 2,
page 1197, paragraph 362, third edition, of his work entitled "The American
Law of Administration of the Estate," says the following:
It has already been stated, that for the expenses attending the accomplishment
of the purpose of administration growing out of the contract or obligation
entered into by the personal representative he is to be reimbursed out of the
estate, and that his claim to reimbursed must be superior to the rights of the
beneficiaries. They are subject only to the lien of a mortgage executed on

specific property by the deceased in his lifetime. The expenses under this
category include those paid for probate of the will, as well in the Probate court
as on appeal, or other proceeding in a contest, if carried on in good faith; and
the executor nominated in such will is entitled to a settlement of his account,
and reimbursement for his expenses in preserving the estate and for the
funeral, although the will be finally pronounced invalid; and, generally, all
expenses necessary in the protection and preservation of the estate, which
have been held to include the costs of establishing a claim against the estate.
But the general rule seems rather to be that costs incurred by the administrator
in defense of claims against the estate, or in prosecuting claims in favor of it,
pertain to the administration, and are to be allowed in full; but costs incurred
by claimants in establishing their claims stand on the same footing with the
claims themselves. The allowance of counsel fees and costs is discussed in
connection with the subject of accounting. Repairs necessary upon real estate
of which the executor or administrator has lawful possession also constitute
expenses of administration; if the expenses incurred is general, affecting all
the property of the estate, it should be charged generally, but if attaching to a
specific portion or piece of property, it should be charged against such portion
or piece.
The liability of the administrator as such cannot be treated as a continuation of
a running account with the deceased in his lifetime; nor can the defendant in
an action by an administrator upon a contract made by him as such, or to
recover assets of the estate, set off or counterclaim a debt due him from the
deceased. And it is held that one who renders services for a trust has no
recourse against the trust, except to subject an equitable demand of the
trustee to the payment of the debt.
The mere fact, therefore, that the income tax claimed by the Collector of
Internal Revenue had been imposed upon the profits obtained by the
administrator of the estate in the sale of certain properties of the deceased
Diego de la Viña, after the latter's death, does not make the said tax a
necessary expense of administration, unless the administrator had paid it
either from his own pocket or out of the funds of the estate: in the first case the
tax paid is converted into an expense of administration which the administrator
may fully recover, plus his commission; in the second case, he may only collect
his commission, which partakes of the nature of an expense of administration.
In the decision promulgated on May 18, 1938, in the Estate of the deceased
Claude E. Hoygood, The Collector of Internal Revenue, claimant and appellee,
vs. Annie Laurie Haygood, administratix and appellant, G.R. No. 44038, this
Court said:
In accordance with section 9, paragraph (a) of Act No. 2833, the assessment
made by the Collector of Internal Revenue within three years after the
discovery of an erroneous declaration shall be paid by the maker of the return
immediately upon being notified of the assessment. The procedure prescribed
by law is, therefore summary, and collection must be made from the person
Estate Tax 22
liable is already dead, collection must necessarily be made from the estate of
the deceased, either in a state or intestate proceedings instituted before a
competent court, by motion together with the sworn statement of the taxes due
filed with said court, so that it may require the administrator to pay the claim if
the latter has funds available therefor, that is, following the order of preference
provided in section 735 of the Code of Civil Procedure in case the said estate
should insolvent. If the testate or intestate is solvent, the court may order the
payment of the claim without necessity of its being substantiated by evidence
since the sworn statement constitutes prima facie evidence of the existence of
the unpaid taxes, and the administrator is under obligation to pay such claim,
under protest if he is not agreeable, without prejudice to his right later to
recover the taxes so paid, in the manner provided by law (Act No. 2711, sec.
1579, as amended by Act No. 3685).
The Collector of Internal Revenue also contends that the income tax in
question, being a lien created by the law superior to any other existing upon
the property on which it is imposed, under the provisions of section 1588 of the
Revised Administrative Code, as amended, enjoys preference over the
necessary expenses of administration.
The lien created by the said section 1588 of the Revised Administrative Code,
having reference to all internal revenue taxes, including the income tax here in
question, is general in character, and the order of its payment as a lien is
applicable to all properties subject to the payment of internal revenue tax;
whereas the order of payment established by section 735 of the Code of Civil
Procedure, as amended by Act No. 3960, is special in character and is only
applicable to properties of deceased persons; consequently, in accordance
with the cardinal rule of statutory construction, the latter provision of law should
prevail over the former. In section last mentioned, the taxes due to government
of any branch or subdivision thereof occupy the fifth place in the order of
payment; wherefore, the indebtedness of the estate of Diego de la Viña for
income tax not being a necessary expense of administration, and the claim of
the ex-administrator Dr. Jose Ma. de la Viña y de la Rosa being such
necessary expense of administration, the latter has preference over the
former.
The appellee denies that the first claim for P12,552 for special per
diems partakes of the nature of necessary expenses of administration, for lack
of allegation or proof to that effect. Section 680 of the Code of Civil Procedure
already cited provides that "but in any special case, where the estate is large,
and the settlement has been attended with great difficulty, and has required a
high decree of capacity on the part of the executor or administrator, a greater
sum may be allowed." There is no doubt that the estate of Diego de la Viña is
large. The determination of whether the administration and liquidation thereof
have been attended with great difficulty and have required a high degree of
capacity on the part of the executor or administrator, rests in the sound
discretion of the Court which took cognizance of the said estate. It not

appearing that the lower court committed an abuse of discretion in granting a
greater remuneration to the appellant, we do not feel warranted in interfering
with the exercise of said discretion.
In view of the foregoing consideration, we are of the opinion and so hold: (1)
that the income tax which an estate owes to the insular government for profits
obtained in the sale of properties belonging to it, after the death of the testator,
does not partake of the nature of necessary expenses of administration; (2)
that the lien created by section 1588 of the Revised Administrative Code for
internal revenue tax on properties subject to it, being general in character,
yields to the preference established by section 735 of the Code of Civil
Procedure, as amended by Act No. 3960, in favor of the necessary expenses
of administration of the estate of a deceased person; and, (3) that the claim of
an administrator for the necessary expenses of administration enjoys
preference over the claim for payment of income tax.
Wherefore, the remedy prayed for is granted, the appealed decision is
reversed, and it is held that the claim of the appellant, Dr. Jose Ma. de la Viña
y de la Rosa, as ex-administrator of the estate of the deceased Diego de la
Viña has preference over that of the Collector of Internal Revenue for income
tax, without special pronouncement as to costs. So ordered.
Diaz, Concepcion and Moran, JJ., concur.
Separate Opinions
IMPERIAL, J., dissenting:
This appeal has to do with the order of the Court of First Instance of Negros
Oriental of October 6, 1937, rendered in Special Proceedings No. 7, entitled,
Testate of the deceased Diego de la Viña, which directed the judicial
administrator to pay preferentially out of any funds of the estate the sum of
P18,420.93, with legal interest thereon from August 20, 1929, plus the costs,
which the Collector of Internal Revenue claimed as income tax which the
estate should pay on the profit which it obtained in the sale of certain property
of the deceased; and after paying said amount, to pay also the credits of Dr.
Jose Ma. de la Viña y de la Rosa Amounting to P19,342.93.
On April 8, 1920, the appellant Dr. Jose Ma. de la Viña was appointed special
administrator of the estate of his deceased brother Diego de la Viña, Special
Proceedings No. 7 of the Court of First Instance of Negros Oriental, and on the
20th of the same month he discharged the office of executor. In the decision
rendered on January 23, 1926, in G.R. No. 23747 this Court held that Dr. Jose
Ma. de la Viña was entitled to collect from the estate the following amounts:
Estate Tax 23
Balance due in his favor as executor ........ P1,165.86
Balance on his aparceria ........................... 7,528.64
Special per diem compensation .............. 12,552.00
Legal commission ...................................... 4,141.33
Total ............................................................. 25,387.83
On July 16, 1927 the Court ordered in the same proceeding that Dr. de la Viña
be paid the amount of 146.025 piculs of sugar belonging to him, which amount,
in money, he paid by way of expenses of administration of the estate. The price
of the sugar was fixed at P20 per picul, the value thereof amounting to P2,925.
Adding this amount to the credit approved in the decision rendered by this
Court, the result is a total of P28,312.83. As Dr. de la Viña had been paid on
amount of his credit the sum of P9,228.65, a balance of P19,084.18 remained
in his favor. On the other hand, on February 23, 1932 this court rendered
judgment in G.R. No. 33870, entitled the Collector on Internal Revenue vs.
Espiridion Villegas, as administrator to pay the Insular government, by way of
income tax for the year 1925, the sum of P18,420.93, with legal interest from
August 20, 1929 until fully paid, and the costs.
The government asked for immediate payment of its credit and as the estate
did not have sufficient funds to meet all the credits admitted and allowed, DR.
de la Viña filed an opposition on the allegation that his credit is preferred to
that of the Government because it represents expenses of administration. In
the appealed order the Court held that the claim of the Government is preferred
and should be paid before that of Dr. de la Viña. This appellant maintains in
his brief that the Court erred: in holding that the tax sought to be revered by
the government has preference of his claim and that it should be paid before
the expenses of administration of the estate, such as his credit; in improperly
applying article 1923 of the Civil Code, instead of section 735 of the Code of
Civil Procedure; and not holding that the preference of the credit of the
Government has been abandoned and lost because of the time that has
elapsed from 1925 to 1938, supposing that the said credit is really preferred.
To my mind the priority of the two credits is really depends upon the nature or
concept which each has before the law. The appellant contends that his claim,
for expenses of administration of the estate allowed and approved by the trial
court and by this Court, is preferred and would first be paid. The Government,
in turn, argues that its credit, which consists in the tax due upon the profits
which the estate obtained in the sale of one of its properties in 1925, is
preferred not only because it has to do with a tax which constitutes a lien, but
also because it partakes of the nature of administration expenses. As will be
seen, independently of the lien, relied upon by the Government, the first
question to be decided is whether both credits should be considered as
expenses of administration under the law.

It is admitted that the appellant's claim partakes of the nature of administration
expenses, hence, it remains to find out whether the credit of the Government
is of the same nature. Section 735 of the Code of Civil Procedure, as amended
by Act No. 3960, reads:
SEC. 735. Order of payment if estate insolvent. — If the assets which can be
appropriated for the payment of debts are not sufficient for that purpose, the
executor or administrator shall, after paying the necessary expenses of
administration, pay the debts against the estate in the following order:
1. The necessary funeral expenses;
2. The expenses of the last sickness;
3. What is owing to the laborer for salaries and wages earned and for the
indemnities due to him, for the last year;lâwphi1.nêt
4. Debts due to the United States;
5. Taxes and assessments due to the Government, or any branch or
subdivision thereof;
6. Debts due to the province;
7. Debts due to other creditors.
Under this section, if the properties of a deceased person are insufficient to
pay all his obligation, there shall be paid, in the first place, all the expenses of
administration and thereafter his admitted indebtedness in the order therein
mentioned. The said section, or any other section of the Code of Civil
Procedure, does not define what is meant by expenses of administration; but
in Lizarraga Hernamos vs. Abada (40 Phil., 124), it was said that by expense
of administration should be understood the reasonable and necessary
expense of caring for the property and managing it till the debts are paid, as
provided by law, and of dividing it, if necessary, so as to partition and deliver it
to the heirs. In this jurisdiction it has been invariably decided that the claims of
the Government for income tax need not be filed with the Committee on claims
and should be paid directly by the executor or administrator out of the funds of
the estate of the deceased (Pineda vs. Court of First Instance of Tayabas, 52
Phil., 803; Government of the Philippine Islands, 60 Phil., 461). And these
claims need not be filed with the committee appointed by the Court because
they partake of the mature of administration expenses. If they were ordinary
credits against the estate of a deceased person, or debts of the latter, there is
no doubt that they should be filed with and approved by the committee on
claims. In the first of the cited cases it was held that income taxes due from a
deceased person, assessed during his lifetime or after his death, are claims
which not be submitted to the committee and that they are proper and
necessary expenses of administration of the estate of the deceased. In said
case it was said.
Estate Tax 24
To reply to these contentions in turn, we observe that, while there are few
courts that have expressed themselves to the effect that a claim for taxes due
to the Government should be presented like other claims to the committee
appointed for the purpose of passing upon claims, the clear weight of judicial
authority is to the effect that claims for taxes and assessments, whether
assessed before or after the death of the decedent, are not required to be
presented to the committee. (24 C.J., 325; People v. Olivera, 43 Cal., 492;
Hancock v. Whittemore, 50 Cal., 522; Findley v. Taylor, 97 Iowa, 420; Bogue
v. Laughlin, 149 Wis., 271; 40 L.R. A. [N.S.], 927; Ann. Cas. 1913 C., p. 1367.)
In the case before us the tax now claimed by the Government was not due
until it was assessed; and this assessment was not made until after the
individual against whom the tax was assessed had died. The claim therefore
arose during the course administration. The law imposes on the administrator
of a deceased person the duty to pay taxes assessed against the property of
the deceased; and as well known, in case of insolvency, such taxes constitute
a preferential claim in the distribution of assets over ordinary debts, under
section 735 of the Code of Civil procedure. In the case before us it is not
suggested that the estate is insolvent, and there is therefore no danger of
imperiling the payment of funeral expenses or expenses of last sickness by
ordering the immediate payment of these taxes.
In the United States the same doctrine governs and incomes taxes have
always been considered as expenses of administration and not as debts of a
deceased person which should be presented, for their approval, to the
committee on claims. Thus in People v. Olivera (43 Cal., 492, 494), the
Supreme Court of California said:
Whatever may be the rule when taxes are assessed during the lifetime of the
decedent—and we are not called upon to express any opinion in reference to
it—it is clear that taxes assessed against the property of an estate, pending
administration, and while it is in the possession and under the management
and control of an administrator, are not "claims" against the estate which must
be presented, supported by an affidavit, and allowed or rejected , under the
provisions of sections one hundred and thirty and one hundred and thirty one
of the Probate Act. The undivided property of the deceased person may be
listed to administrators, and the taxes assessed are charges upon the
property, which should be paid as all necessary expenses in the care,
management, and settlement of the estate are paid.
And in Brown's Estate v. Hoge, (199 N.W., 320, 323), the Supreme Court of
Iowa said the following:
We think the federal tax is a charge or expense for which the estate is liable.
We think the lower court was right in holding that such tax was a part of the
expense of administration this tax should be deducted before computing the
state inheritance tax.
 Estate Tax 25

xxx xxx xxx

. . . The country court, in assessing the state inheritance tax on that property,
refused to deduct the federal estate tax paid by the executor, amounting to
P316,432.40. In the ruling the court erred. The federal estate tax is charge or
an expense against the estate of the decedent rather than against the shares
of the legatees or the distributees, and as part of the expense of administration
this tax be deducted before computing the state inheritance tax.
And in Corbin v. Townshend (103 A., 647, 649; 92 Conn., 501), the Supreme
Court of Connecticut said:
The federal tax imposed by Revenue Act Sept. 8, 1916, c. 463, Sec. 201, 39
Stat. 1000, on the transfer of the net estate of a decedent, being payable out
of the estate before distribution, and inheritance taxes imposed by other states
on the same basis, are expenses of administration, within Succession Act
1915, Sec. 5, providing for deduction of such expenses, to determine the net
estate subject to the succession tax; any expense arising by operation of law
which is a charge against or must be paid out of the estate being an
administration expense.
It may perhaps be argued that if taxes and assessments owing to the
Government or to any of its branches or offices were not debts against a
decedent which should be filed with the committee on claims, section 735
would not have mentioned them as the fifth in the enumeration. The answer to
this is that the taxes and assessments specified in the section are those which
are not considered as administration expenses.
Considering what has already been decided by this Court in Pineda vs. Court
of First Instance of Tayabas, Knowles vs. Government of the Philippine Islands
and Government of the Philippine Islands vs. Pamintuan, supra, and the cited
American precedents, I am of the opinion that the credit of the Government
presented in this case partakes of the nature of necessary expenses of the
administration and such enjoys preference; and undersection 1588 of the
Revised Administrative Code providing that an income tax creates a legal lien
superior to any other, it should be paid before that of Dr. de la Viña.

8.) MISAEL P. VERA, as Commissioner of Internal Revenue, and
JAIME ARANETA, as Regional Director, Revenue Region No. 14,
Bureau of Internal Revenue, petitioners,
vs.
HON. JOSE F. FERNANDEZ, Judge of the Court of First Instance
of Negros Occidental, Branch V, and FRANCIS A. TONGOY,
Administrator of the Estate of the late LUIS D.
TONGOY respondents.
DE CASTRO, J.:
Appeal from two orders of the Court of First Instance of Negros Occidental,
Branch V in Special Proceedings No. 7794, entitled: "Intestate Estate of Luis
D. Tongoy," the first dated July 29, 1969 dismissing the Motion for Allowance
of Claim and for an Order of Payment of Taxes by the Government of the
Republic of the Philippines against the Estate of the late Luis D. Tongoy, for
deficiency income taxes for the years 1963 and 1964 of the decedent in the
total amount of P3,254.80, inclusive 5% surcharge, 1% monthly interest and
compromise penalties, and the second, dated October 7, 1969, denying the
Motion for reconsideration of the Order of dismissal.
The Motion for allowance of claim and for payment of taxes dated May 28,
1969 was filed on June 3, 1969 in the abovementioned special proceedings,
(par. 3, Annex A, Petition, pp. 1920, Rollo). The claim represents the
indebtedness to the Government of the late Luis D. Tongoy for deficiency
income taxes in the total sum of P3,254.80 as above stated, covered by
Assessment Notices Nos. 11-50-29-1-11061-21-63 and 11-50-291-1 10875-
64, to which motion was attached Proof of Claim (Annex B, Petition, pp. 21-
22, Rollo). The Administrator opposed the motion solely on the ground that the
claim was barred under Section 5, Rule 86 of the Rules of Court (par. 4,
Opposition to Motion for Allowance of Claim, pp. 23-24, Rollo). Finding the
opposition well-founded, the respondent Judge, Jose F. Fernandez, dismissed
the motion for allowance of claim filed by herein petitioner, Regional Director
of the Bureau of Internal Revenue, in an order dated July 29, 1969 (Annex D,
Petition, p. 26, Rollo). On September 18, 1969, a motion for reconsideration
was filed, of the order of July 29, 1969, but was denied in an Order dated
October 7, 1969.
Hence, this appeal on certiorari, petitioner assigning the following errors:
1. The lower court erred in holding that the claim for taxes by the government
against the estate of Luis D. Tongoy was filed beyond the period provided in
Section 2, Rule 86 of the Rules of Court.
2. The lower court erred in holding that the claim for taxes of the government
was already barred under Section 5, Rule 86 of the Rules of Court.
which raise the sole issue of whether or not the statute of non-claims Section
5, Rule 86 of the New Rule of Court, bars claim of the government for unpaid
taxes, still within the period of limitation prescribed in Section 331 and 332 of
the National Internal Revenue Code.
Estate Tax 26
Section 5, Rule 86, as invoked by the respondent Administrator in hid
Oppositions to the Motion for Allowance of Claim, etc. of the petitioners reads
as follows:
All claims for money against the decedent, arising from contracts, express or
implied, whether the same be due, not due, or contingent, all claims for funeral
expenses and expenses for the last sickness of the decedent, and judgment
for money against the decedent, must be filed within the time limited in they
notice; otherwise they are barred forever, except that they may be set forth as
counter claims in any action that the executor or administrator may bring
against the claimants. Where the executor or administrator commence an
action, or prosecutes an action already commenced by the deceased in his
lifetime, the debtor may set forth may answer the claims he has against the
decedents, instead of presenting them independently to the court has herein
provided, and mutual claims may be set off against each other in such action;
and in final judgment is rendered in favored of the decedent, the amount to
determined shall be considered the true balance against the estate, as though
the claim has been presented directly before the court in the administration
proceedings. Claims not yet due, or contingent may be approved at their
present value.
A perusal of the aforequoted provisions shows that it makes no mention of
claims for monetary obligation of the decedent created by law, such as taxes
which is entirely of different character from the claims expressly enumerated
therein, such as: "all claims for money against the decedent arising from
contract, express or implied, whether the same be due, not due or contingent,
all claim for funeral expenses and expenses for the last sickness of the
decedent and judgment for money against the decedent." Under the familiar
rule of statutory construction of expressio unius est exclusio alterius, the
mention of one thing implies the exclusion of another thing not mentioned.
Thus, if a statute enumerates the things upon which it is to operate, everything
else must necessarily, and by implication be excluded from its operation and
effect (Crawford, Statutory Construction, pp. 334-335).
In the case of Commissioner of Internal Revenue vs. Ilagan Electric & Ice
Plant, et al., G.R. No. L-23081, December 30, 1969, it was held that the
assessment, collection and recovery of taxes, as well as the matter of
prescription thereof are governed by the provisions of the National Internal
revenue Code, particularly Sections 331 and 332 thereof, and not by other
provisions of law. (See also Lim Tio, Dy Heng and Dee Jue vs. Court of Tax
Appeals & Collector of Internal Revenue, G.R. No. L-10681, March 29, 1958).
Even without being specifically mentioned, the provisions of Section 2 of Rule
86 of the Rules of Court may reasonably be presumed to have been also in
the mind of the Court as not affecting the aforecited Section of the National
Internal Revenue Code.
In the case of Pineda vs. CFI of Tayabas, 52 Phil. 803, it was even more
pointedly held that "taxes assessed against the estate of a deceased person

... 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." The abolition of the Committee on Claims
does not alter the basic ruling laid down giving exception to the claim for taxes
from being filed as the other claims mentioned in the Rule should be filed
before the Court. Claims for taxes may be collected even after the distribution
of the decedent's estate among his heirs who shall be liable therefor in
proportion of their share in the inheritance. (Government of the Philippines vs.
Pamintuan, 55 Phil. 13).
The reason for the more liberal treatment of claims for taxes against a
decedent's estate in the form of exception from the application of the statute
of non-claims, is not hard to find. Taxes are the lifeblood of the Government
and their prompt and certain availability are imperious need. (Commissioner
of Internal Revenue vs. Pineda, G. R. No. L-22734, September 15, 1967, 21
SCRA 105). Upon taxation depends the Government ability to serve the people
for whose benefit taxes are collected. To safeguard such interest, neglect or
omission of government officials entrusted with the collection of taxes should
not be allowed to bring harm or detriment to the people, in the same manner
as private persons may be made to suffer individually on account of his own
negligence, the presumption being that they take good care of their personal
affairs. This should not hold true to government officials with respect to matters
not of their own personal concern. This is the philosophy behind the
government's exception, as a general rule, from the operation of the principle
of estoppel. (Republic vs. Caballero, L-27437, September 30, 1977, 79 SCRA
177; Manila Lodge No. 761, Benevolent and Protective Order of the Elks Inc.
vs. Court of Appeals, L-41001, September 30, 1976, 73 SCRA 162; Sy vs.
Central Bank of the Philippines, L-41480, April 30,1976, 70 SCRA 571;
Balmaceda vs. Corominas & Co., Inc., 66 SCRA 553; Auyong Hian vs. Court
of Tax Appeals, 59 SCRA 110; Republic vs. Philippine Rabbit Bus Lines, Inc.,
66 SCRA 553; Republic vs. Philippine Long Distance Telephone Company, L-
18841, January 27, 1969, 26 SCRA 620; Zamora vs. Court of Tax Appeals, L-
23272, November 26, 1970, 36 SCRA 77; E. Rodriguez, Inc. vs. Collector of
Internal Revenue, L- 23041, July 31, 1969, 28 SCRA 119.) As already shown,
taxes may be collected even after the distribution of the estate of the decedent
among his heirs (Government of the Philippines vs. Pamintuan, supra; Pineda
vs. CFI of Tayabas, supra Clara Diluangco Palanca vs. Commissioner of
Internal Revenue, G. R. No. L-16661, January 31, 1962).
Furthermore, as held in Commissioner of Internal Revenue vs. Pineda, supra,
citing the last paragraph of Section 315 of the Tax Code payment of income
tax shall be a lien in favor of the Government of the Philippines from the time
the assessment was made by the Commissioner of Internal Revenue until paid
with interests, penalties, etc. By virtue of such lien, this court held that the
property of the estate already in the hands of an heir or transferee may be
subject to the payment of the tax due the estate. A fortiori before the
Estate Tax 27
inheritance has passed to the heirs, the unpaid taxes due the decedent may
be collected, even without its having been presented under Section 2 of Rule
86 of the Rules of Court. It may truly be said that until the property of the estate
of the decedent has vested in the heirs, the decedent, represented by his
estate, continues as if he were still alive, subject to the payment of such taxes
as would be collectible from the estate even after his death. Thus in the case
above cited, the income taxes sought to be collected were due from the estate,
for the three years 1946, 1947 and 1948 following his death in May, 1945.
Even assuming arguendo that claims for taxes have to be filed within the time
prescribed in Section 2, Rule 86 of the Rules of Court, the claim in question
may be filed even after the expiration of the time originally fixed therein, as
may be gleaned from the italicized portion of the Rule herein cited which reads:
Section 2. Time within which claims shall be filed. - In the notice provided in
the preceding section, the court shall state the time for the filing of claims
against the estate, which shall not be more than twelve (12) nor less than six
(6) months after the date of the first publication of the notice. However, at any
time before an order of distribution is entered, on application of a creditor who
has failed to file his claim within the time previously limited the court may, for
cause shown and on such terms as are equitable, allow such claim to be flied
within a time not exceeding one (1) month. (Emphasis supplied)
In the instant case, petitioners filed an application (Motion for Allowance of
Claim and for an Order of Payment of Taxes) which, though filed after the
expiration of the time previously limited but before an order of the distribution
is entered, should have been granted by the respondent court, in the absence
of any valid ground, as none was shown, justifying denial of the motion,
specially considering that it was for allowance Of claim for taxes due from the
estate, which in effect represents a claim of the people at large, the only reason
given for the denial that the claim was filed out of the previously limited period,
sustaining thereby private respondents' contention, erroneously as has been
demonstrated.
WHEREFORE, the order appealed from is reverse. Since the Tax
Commissioner's assessment in the total amount of P3,254.80 with 5 %
surcharge and 1 % monthly interest as provided in the Tax Code is a final one
and the respondent estate's sole defense of prescription has been herein
overruled, the Motion for Allowance of Claim is herein granted and respondent
estate is ordered to pay and discharge the same, subject only to the limitation
of the interest collectible thereon as provided by the Tax Code. No
pronouncement as to costs.

9.) 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.
Assailed in this petition for review on certiorari is the December 21, 1995
Decision[1] of the Court of Appeals[2] in CA-G.R. Sp. No. 34399 affirming the
June 7, 1994 Resolution of the Court of Tax Appeals in CTA Case No. 4381
granting private respondent Josefina P. Pajonar, as administratrix of the estate
of Pedro P. Pajonar, a tax refund in the amount of P76,502.42, representing
erroneously paid estate taxes for the year 1988.
Pedro Pajonar, a member of the Philippine Scout, Bataan Contingent, during
the second World War, was a part of the infamous Death March by reason of
which he suffered shock and became insane. His sister Josefina Pajonar
became the guardian over his person, while his property was placed under the
guardianship of the Philippine National Bank (PNB) by the Regional Trial Court
of Dumaguete City, Branch 31, in Special Proceedings No. 1254. He died on
January 10, 1988. He was survived by his two brothers Isidro P. Pajonar and
Gregorio Pajonar, his sister Josefina Pajonar, nephews Concordio Jandog and
Mario Jandog and niece Conchita Jandog.
On May 11, 1988, the PNB filed an accounting of the 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] Jur-is
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.
Estate Tax 28
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]Juri-ssc
On June 15, 1993, the Commissioner of Internal Revenue filed a motion for
reconsideration[7] 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 Resolution[8] ordering the
Commissioner of Internal Revenue to refund Josefina Pajonar, as
administratrix of the estate of Pedro Pajonar, the amount of P76,502.42
representing erroneously paid estate tax for the year 1988. Also, the CTA
upheld the validity of the deduction of the notarial fee for the Extrajudicial
Settlement and the 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 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. J-jlex
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. x x x
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. Sc-
juris
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. ] Nc-mmis
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
Estate Tax 29
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 estate paid P59,341.40 for the premiums. (See Annex
'K')." [p. 17, CTA record. ] Therefore, it would appear from the records of the
case that the only practical purpose of settling the estate by means of an
extrajudicial settlement pursuant to Section 1 of Rule 74 of the Rules of Court
was for the payment of taxes and the distribution of the estate to the heirs. A
fortiori, since our estate tax laws are of American origin, the interpretation
adopted by American Courts has some persuasive effect on the interpretation
of our own estate tax laws on the subject.
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: Newmiso
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. Acctmis
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. x x x
xxx.....xxx.....xxxIt 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
Estate Tax 30
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 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] Scc-alr
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]
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.

10.) DIZON V. CIR
NACHURA, J.:
Before this Court is a Petition for Review on Certiorari[1] under Rule 45 of the
Rules of Civil Procedure seeking the reversal of the Court of Appeals (CA)
Decision[2] dated April 30, 1999 which affirmed the Decision[3] of the Court of
Tax Appeals (CTA) dated June 17, 1997.[4]
The Facts
On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition
for the probate of his will[5] was filed with Branch 51 of the Regional Trial Court
(RTC) of Manila(probate court).[6] The probate court then appointed retired
Supreme Court Justice Arsenio P. Dizon (Justice Dizon) and petitioner, Atty.
Rafael Arsenio P. Dizon (petitioner) as Special and Assistant Special
Administrator, respectively, of the Estate of Jose (Estate). In a
letter[7] dated October 13, 1988, Justice Dizon informed respondent
Commissioner of the Bureau of Internal Revenue (BIR) of the special
proceedings for the Estate.
Petitioner alleged that several requests for extension of the period to file the
required estate tax return were granted by the BIR since the assets of the
estate, as well as the claims against it, had yet to be collated, determined and
identified. Thus, in a letter[8] dated March 14, 1990, Justice Dizon authorized
Atty. Jesus M. Gonzales (Atty. Gonzales) to sign and file on behalf of the
Estate the required estate tax return and to represent the same in securing a
Certificate of Tax Clearance. Eventually, on April 17, 1990, Atty. Gonzales
wrote a letter[9] addressed to the BIR Regional Director for San Pablo City and
filed the estate tax return[10] with the same BIR Regional Office, showing
therein a NIL estate tax liability, computed as follows:
COMPUTATION OF TAX
Conjugal Real Property (Sch. 1) P10,855,020.00
Conjugal Personal Property (Sch.2) 3,460,591.34
Taxable Transfer (Sch. 3)
Gross Conjugal Estate 14,315,611.34
Less: Deductions (Sch. 4) 187,822,576.06
Net Conjugal Estate NIL
Less: Share of Surviving Spouse NIL .
Net Share in Conjugal Estate NIL
Net Taxable Estate NIL .
Estate Tax Due NIL .[11]
On April 27, 1990, BIR Regional Director for San Pablo City, Osmundo G.
Umali issued Certification Nos. 2052[12] and 2053[13] stating that the taxes due
on the transfer of real and personal properties[14] of Jose had been fully paid
and said properties may be transferred to his heirs. Sometime in August 1990,
Justice Dizon passed away. Thus, on October 22, 1990, the probate court
appointed petitioner as the administrator of the Estate.[15]
Estate Tax 31
Petitioner requested the probate court's authority to sell several properties
forming part of the Estate, for the purpose of paying its creditors, namely:
Equitable Banking Corporation (P19,756,428.31), Banque de L'Indochine et.
de Suez (US$4,828,905.90 as of January 31, 1988), Manila Banking
Corporation (P84,199,160.46 as of February 28, 1989) and State Investment
House, Inc. (P6,280,006.21). Petitioner manifested that Manila Bank, a major
creditor of the Estate was not included, as it did not file a claim with the probate
court since it had security over several real estate properties forming part of
the Estate.[16]
However, on November 26, 1991, the Assistant Commissioner for Collection
of the BIR, Themistocles Montalban, issued Estate Tax Assessment Notice
No. FAS-E-87-91-003269,[17] demanding the payment of P66,973,985.40 as
deficiency estate tax, itemized as follows:
Deficiency Estate Tax- 1987
Estate tax P31,868,414.48
25% surcharge- late filing 7,967,103.62
late payment 7,967,103.62
Interest 19,121,048.68
Compromise-non filing 25,000.00
non payment 25,000.00
no notice of death 15.00
no CPA Certificate 300.00
Total amount due & collectible P66,973,985.40[18]
In his letter[19] dated December 12, 1991, Atty. Gonzales moved for the
reconsideration of the said estate tax assessment. However, in her
letter[20] dated April 12, 1994, the BIR Commissioner denied the request and
reiterated that the estate is liable for the payment of P66,973,985.40 as
deficiency estate tax. On May 3, 1994, petitioner received the letter of denial.
On June 2, 1994, petitioner filed a petition for review[21] before respondent
CTA. Trial on the merits ensued.
As found by the CTA, the respective parties presented the following pieces of
evidence, to wit:
In the hearings conducted, petitioner did not present testimonial evidence but
merely documentary evidence consisting of the following: ………..
Respondent's [BIR] counsel presented on June 26, 1995 one witness in
the person of Alberto Enriquez, who was one of the revenue examiners
who conducted the investigation on the estate tax case of the late Jose
P. Fernandez. In the course of the direct examination of the witness, he
identified the following:
Documents/
Signatures BIR Record
 Estate Tax 32

1. Estate Tax Return prepared by The CTA's Ruling

the BIR; p. 138
On June 17, 1997, the CTA denied the said petition for review. Citing this
2. Signatures of Ma. Anabella Court's ruling in Vda. de Oate v. Court of Appeals,[23] the CTA opined that the
Abuloc and Alberto Enriquez, aforementioned pieces of evidence introduced by the BIR were admissible in
Jr. appearing at the lower evidence. The CTA ratiocinated:
Portion of Exh. "1"; -do-
Although the above-mentioned documents were not formally offered as
3. Memorandum for the Commissioner,
dated July 19, 1991, prepared by evidence for respondent, considering that respondent has been declared to
revenue examiners, Ma. Anabella A. have waived the presentation thereof during the hearing on March 20, 1996,
Abuloc, Alberto S. Enriquez and still they could be considered as evidence for respondent since they were
Raymund S. Gallardo; Reviewed by properly identified during the presentation of respondent's witness, whose
Maximino V. Tagle pp. 143-144
testimony was duly recorded as part of the records of this case. Besides, the
4. Signature of Alberto S. documents marked as respondent's exhibits formed part of the BIR records of
Enriquez appearing at the the case.[24]
lower portion on p. 2 of Exh. "2"; -do-
Nevertheless, the CTA did not fully adopt the assessment made by the BIR
5. Signature of Ma. Anabella A.
and it came up with its own computation of the deficiency estate tax, to wit:
Abuloc appearing at the
lower portion on p. 2 of Exh. "2"; -do- Conjugal Real Property P 5,062,016.00
Conjugal Personal Prop. 33,021,999.93
6. Signature of Raymund S. Gross Conjugal Estate 38,084,015.93
Gallardo appearing at the Less: Deductions 26,250,000.00
Lower portion on p. 2 of Exh. "2"; -do- Net Conjugal Estate P 11,834,015.93
Less: Share of Surviving Spouse 5,917,007.96
7. Signature of Maximino V. Net Share in Conjugal Estate P 5,917,007.96
Tagle also appearing on Add: Capital/Paraphernal
p. 2 of Exh. "2"; -do- Properties P44,652,813.66
Less: Capital/Paraphernal
8. Summary of revenue Deductions 44,652,813.66
Enforcement Officers Audit Net Taxable Estate P 50,569,821.62
Report, dated July 19, 1991; p. 139 ============
9. Signature of Alberto Estate Tax Due P 29,935,342.97
Enriquez at the lower Add: 25% Surcharge for Late Filing 7,483,835.74
portion of Exh. "3"; -do- Add: Penalties for-No notice of death 15.00
No CPA certificate 300.00
10. Signature of Ma. Anabella A. Total deficiency estate tax P 37,419,493.71
Abuloc at the lower =============
portion of Exh. "3"; -do-
exclusive of 20% interest from due date of its payment until full payment
11. Signature of Raymond S. thereof
Gallardo at the lower
portion of Exh. "3"; -do- [Sec. 283 (b), Tax Code of 1987].[25]
12. Signature of Maximino Thus, the CTA disposed of the case in this wise:
V. Tagle at the lower
portion of Exh. "3"; -do- WHEREFORE, viewed from all the foregoing, the Court finds the petition
unmeritorious and denies the same. Petitioner and/or the heirs of Jose P.
13. Demand letter (FAS-E-87-91-00),
signed by the Asst. Commissioner Fernandez are hereby ordered to pay to respondent the amount
for Collection for the Commissioner of P37,419,493.71 plus 20% interest from the due date of its payment until full
of Internal Revenue, demanding payment thereof as estate tax liability of the estate of Jose P. Fernandez who
payment of the amount of died on November 7, 1987.
P66,973,985.40; and p. 169
14. Assessment Notice FAS-E-87-91-00 pp. 169-170[22]
SO ORDERED.[26]

Aggrieved, petitioner, on March 2, 1998, went to the CA via a petition for
review.[27]
The CA's Ruling
On April 30, 1999, the CA affirmed the CTA's ruling. Adopting in full the CTA's
findings, the CA ruled that the petitioner's act of filing an estate tax return with
the BIR and the issuance of BIR Certification Nos. 2052 and 2053 did not
deprive the BIR Commissioner of her authority to re-examine or re-assess the
said return filed on behalf of the Estate.[28]
On May 31, 1999, petitioner filed a Motion for Reconsideration[29] which the CA
denied in its Resolution[30] dated November 3, 1999.
Hence, the instant Petition raising the following issues:
1. Whether or not the admission of evidence which were not formally
offered by the respondent BIR by the Court of Tax Appeals which was
subsequently upheld by the Court of Appeals is contrary to the Rules of Court
and rulings of this Honorable Court;
2. Whether or not the Court of Tax Appeals and the Court of Appeals erred in
recognizing/considering the estate tax return prepared and filed by respondent
BIR knowing that the probate court appointed administrator of the estate of
Jose P. Fernandez had previously filed one as in fact, BIR Certification
Clearance Nos. 2052 and 2053 had been issued in the estate's favor;
3. Whether or not the Court of Tax Appeals and the Court of Appeals erred in
disallowing the valid and enforceable claims of creditors against the estate, as
lawful deductions despite clear and convincing evidence thereof; and
4. Whether or not the Court of Tax Appeals and the Court of Appeals erred in
validating erroneous double imputation of values on the very same estate
properties in the estate tax return it prepared and filed which effectively bloated
the estate's assets.[31]
The petitioner claims that in as much as the valid claims of creditors against
the Estate are in excess of the gross estate, no estate tax was due; that the
lack of a formal offer of evidence is fatal to BIR's cause; that the doctrine laid
down in Vda. de Oate has already been abandoned in a long line of cases in
which the Court held that evidence not formally offered is without any weight
or value; that Section 34 of Rule 132 of the Rules on Evidence requiring a
formal offer of evidence is mandatory in character; that, while BIR's witness
Alberto Enriquez (Alberto) in his testimony before the CTA identified the pieces
of evidence aforementioned such that the same were marked, BIR's failure to
formally offer said pieces of evidence and depriving petitioner the opportunity
to cross-examine Alberto, render the same inadmissible in evidence; that
assuming arguendo that the ruling in Vda. de Oate is still applicable, BIR failed
to comply with the doctrine's requisites because the documents herein
Estate Tax 33
remained simply part of the BIR records and were not duly incorporated in the
court records; that the BIR failed to consider that although the actual payments
made to the Estate creditors were lower than their respective claims, such
were compromise agreements reached long after the Estate's liability had
been settled by the filing of its estate tax return and the issuance of
BIR Certification Nos. 2052 and 2053; and that the reckoning date of the
claims against the Estate and the settlement of the estate tax due should be
at the time the estate tax return was filed by the judicial administrator and the
issuance of said BIR Certifications and not at the time the aforementioned
Compromise Agreements were entered into with the Estate's creditors.[32]
On the other hand, respondent counters that the documents, being part of the
records of the case and duly identified in a duly recorded testimony are
considered evidence even if the same were not formally offered; that the filing
of the estate tax return by the Estate and the issuance of BIR Certification Nos.
2052 and 2053 did not deprive the BIR of its authority to examine the return
and assess the estate tax; and that the factual findings of the CTA as affirmed
by the CA may no longer be reviewed by this Court via a petition for review.[33]
The Issues
There are two ultimate issues which require resolution in this case:
First. Whether or not the CTA and the CA gravely erred in allowing the
admission of the pieces of evidence which were not formally offered by the
BIR; and
Second. Whether or not the CA erred in affirming the CTA in the latter's
determination of the deficiency estate tax imposed against the Estate.
The Courts Ruling
The Petition is impressed with merit.
Under Section 8 of RA 1125, the CTA is categorically described as a court of
record. As cases filed before it are litigated de novo, party-litigants shall prove
every minute aspect of their cases. Indubitably, no evidentiary value can be
given the pieces of evidence submitted by the BIR, as the rules on
documentary evidence require that these documents must be formally offered
before the CTA.[34] Pertinent is Section 34, Rule 132 of the Revised Rules on
Evidence which reads:
SEC. 34. Offer of evidence. The court shall consider no evidence which has
not been formally offered. The purpose for which the evidence is offered must
be specified.
The CTA and the CA rely solely on the case of Vda. de Oate, which reiterated
this Court's previous rulings in People v. Napat-a[35] and People v. Mate[36] on
the admission and consideration of exhibits which were not formally offered

during the trial. Although in a long line of cases many of which were decided
after Vda. de Oate, we held that courts cannot consider evidence which has
not been formally offered,[37] nevertheless, petitioner cannot validly assume
that the doctrine laid down in Vda. de Oate has already been abandoned.
Recently, in Ramos v. Dizon,[38] this Court, applying the said doctrine, ruled
that the trial court judge therein committed no error when he admitted and
considered the respondents' exhibits in the resolution of the case,
notwithstanding the fact that the same
were not formally offered. Likewise, in Far East Bank & Trust Company v.
Commissioner of Internal Revenue,[39] the Court made reference to said
doctrine in resolving the issues therein. Indubitably, the doctrine laid down
in Vda. De Oate still subsists in this jurisdiction. In Vda. de Oate, we held that:
From the foregoing provision, it is clear that for evidence to be considered, the
same must be formally offered. Corollarily, the mere fact that a particular
document is identified and marked as an exhibit does not mean that it has
already been offered as part of the evidence of a party. In Interpacific Transit,
Inc. v. Aviles [186 SCRA 385], we had the occasion to make a distinction
between identification of documentary evidence and its formal offer as an
exhibit. We said that the first is done in the course of the trial and is
accompanied by the marking of the evidence as an exhibit while the second is
done only when the party rests its case and not before. A party, therefore, may
opt to formally offer his evidence if he believes that it will advance his cause or
not to do so at all. In the event he chooses to do the latter, the trial court is not
authorized by the Rules to consider the same.
However, in People v. Napat-a [179 SCRA 403] citing People v. Mate [103
SCRA 484], we relaxed the foregoing rule and allowed evidence not
formally offered to be admitted and considered by the trial court provided
the following requirements are present, viz.: first, the same must have
been duly identified by testimony duly recorded and, second, the same
must have been incorporated in the records of the case.[40]
From the foregoing declaration, however, it is clear that Vda. de Oate is merely
an exception to the general rule. Being an exception, it may be applied only
when there is strict compliance with the requisites mentioned therein;
otherwise, the general rule in Section 34 of Rule 132 of the Rules of Court
should prevail.
In this case, we find that these requirements have not been satisfied. The
assailed pieces of evidence were presented and marked during the trial
particularly when Alberto took the witness stand. Alberto identified these
pieces of evidence in his direct testimony.[41] He was also subjected to cross-
examination and re-cross examination by petitioner.[42]But Albertos account
and the exchanges between Alberto and petitioner did not sufficiently describe
the contents of the said pieces of evidence presented by the BIR. In fact,
petitioner sought that the lead examiner, one Ma. Anabella A. Abuloc, be
summoned to testify, inasmuch as Alberto was incompetent to answer
Estate Tax 34
questions relative to the working papers.[43] The lead examiner never testified.
Moreover, while Alberto's testimony identifying the BIR's evidence was duly
recorded, the BIR documents themselves were not incorporated in the records
of the case.
A common fact threads through Vda. de Oate and Ramos that does not exist
at all in the instant case. In the aforementioned cases, the exhibits were
marked at the pre-trial proceedings to warrant the pronouncement that the
same were duly incorporated in the records of the case. Thus, we held
in Ramos:
In this case, we find and so rule that these requirements have been
satisfied. The exhibits in question were presented and marked during the
pre-trial of the case thus, they have been incorporated into the
records. Further, Elpidio himself explained the contents of these exhibits
when he was interrogated by respondents' counsel...
xxxx
But what further defeats petitioner's cause on this issue is that respondents'
exhibits were marked and admitted during the pre-trial stage as shown by the
Pre-Trial Order quoted earlier.[44]
While the CTA is not governed strictly by technical rules of evidence, [45] as
rules of procedure are not ends in themselves and are primarily intended as
tools in the administration of justice, the presentation of the BIR's evidence is
not a mere procedural technicality which may be disregarded considering that
it is the only means by which the CTA may ascertain and verify the truth of
BIR's claims against the Estate.[46] The BIR's failure to formally offer these
pieces of evidence, despite CTA's directives, is fatal to its cause. [47] Such
failure is aggravated by the fact that not even a single reason was advanced
by the BIR to justify such fatal omission. This, we take against the BIR.
Per the records of this case, the BIR was directed to present its evidence[48] in
the hearing of February 21, 1996, but BIR's counsel failed to appear. [49] The
CTA denied petitioner's motion to consider BIR's presentation of evidence as
waived, with a warning to BIR that such presentation would be considered
waived if BIR's evidence would not be presented at the next hearing. Again, in
the hearing of March 20, 1996, BIR's counsel failed to appear.[50] Thus, in its
Resolution[51] dated March 21, 1996, the CTA considered the BIR to have
waived presentation of its evidence. In the same Resolution, the parties were
directed to file their respective memorandum. Petitioner complied but BIR
failed to do so.[52] In all of these proceedings, BIR was duly notified. Hence, in
this case, we are constrained to apply our ruling in Heirs of Pedro Pasag v.
Parocha:[53]
A formal offer is necessary because judges are mandated to rest their findings
of facts and their judgment only and strictly upon the evidence offered by the
parties at the trial. Its function is to enable the trial judge to know the purpose

or purposes for which the proponent is presenting the evidence. On the other
hand, this allows opposing parties to examine the evidence and object to its
admissibility. Moreover, it facilitates review as the appellate court will not be
required to review documents not previously scrutinized by the trial court.
Strict adherence to the said rule is not a trivial matter. The Court in Constantino
v. Court of Appeals ruled that the formal offer of one's evidence is deemed
waived after failing to submit it within a considerable period of time. It
explained that the court cannot admit an offer of evidence made after a
lapse of three (3) months because to do so would "condone an
inexcusable laxity if not non-compliance with a court order which, in
effect, would encourage needless delays and derail the speedy
administration of justice."
Applying the aforementioned principle in this case, we find that the trial court
had reasonable ground to consider that petitioners had waived their right to
make a formal offer of documentary or object evidence. Despite several
extensions of time to make their formal offer, petitioners failed to comply with
their commitment and allowed almost five months to lapse before finally
submitting it. Petitioners' failure to comply with the rule on admissibility
of evidence is anathema to the efficient, effective, and expeditious
dispensation of justice.
Having disposed of the foregoing procedural issue, we proceed to discuss the
merits of the case.
Ordinarily, the CTA's findings, as affirmed by the CA, are entitled to the highest
respect and will not be disturbed on appeal unless it is shown that the lower
courts committed gross error in the appreciation of facts. [54] In this case,
however, we find the decision of the CA affirming that of the CTA tainted with
palpable error.
It is admitted that the claims of the Estate's aforementioned creditors have
been condoned. As a mode of extinguishing an obligation, [55] condonation or
remission of debt[56] is defined as
an act of liberality, by virtue of which, without receiving any equivalent, the
creditor renounces the enforcement of the obligation, which is extinguished in
its entirety or in that part or aspect of the same to which the remission refers.
It is an essential characteristic of remission that it be gratuitous, that there is
no equivalent received for the benefit given; once such equivalent exists, the
nature of the act changes. It may become dation in payment when the creditor
receives a thing different from that stipulated; or novation, when the object or
principal conditions of the obligation should be changed; or compromise, when
the matter renounced is in litigation or dispute and in exchange of some
concession which the creditor receives.[57]
Verily, the second issue in this case involves the construction of Section
79[58] of the National Internal Revenue Code[59] (Tax Code) which provides for
Estate Tax 35
the allowable deductions from the gross estate of the decedent. The specific
question is whether the actual claims of the aforementioned creditors may be
fully allowed as deductions from the gross estate of Jose despite the fact that
the said claims were reduced or condoned through compromise agreements
entered into by the Estate with its creditors.
Claims against the estate, as allowable deductions from the gross estate under
Section 79 of the Tax Code, are basically a reproduction of the deductions
allowed under Section 89 (a) (1) (C) and (E) of Commonwealth Act No. 466
(CA 466), otherwise known as the National Internal Revenue Code of 1939,
and which was the first codification of Philippine tax laws. Philippine tax laws
were, in turn, based on the federal tax laws of the United States. Thus,
pursuant to established rules of statutory construction, the decisions of
American courts construing the federal tax code are entitled to great weight in
the interpretation of our own tax laws.[60]
It is noteworthy that even in the United States, there is some dispute as to
whether the deductible amount for a claim against the estate is fixed as of the
decedent's death which is the general rule, or the same should be adjusted to
reflect post-death developments, such as where a settlement between the
parties results in the reduction of the amount actually paid. [61] On one hand,
the U.S. court ruled that the appropriate deduction is the value that the claim
had at the date of the decedent's death.[62] Also, as held in Propstra v.
U.S.,[63] where a lien claimed against the estate was certain and enforceable
on the date of the decedent's death, the fact that the claimant subsequently
settled for lesser amount did not preclude the estate from deducting the entire
amount of the claim for estate tax purposes. These pronouncements
essentially confirm the general principle that post-death developments are not
material in determining the amount of the deduction.
On the other hand, the Internal Revenue Service (Service) opines that post-
death settlement should be taken into consideration and the claim should be
allowed as a deduction only to the extent of the amount actually
paid.[64] Recognizing the dispute, the Service released Proposed Regulations
in 2007 mandating that the deduction would be limited to the actual amount
paid.
In announcing its agreement with Propstra,[66] the U.S. 5th Circuit Court of
Appeals held:
We are persuaded that the Ninth Circuit's decision...in Propstra correctly apply
the Ithaca Trust date-of-death valuation principle to enforceable claims against
the estate. As we interpret Ithaca Trust, when the Supreme Court announced
the date-of-death valuation principle, it was making a judgment about the
nature of the federal estate tax specifically, that it is a tax imposed on the act
of transferring property by will or intestacy and, because the act on which the
tax is levied occurs at a discrete time, i.e., the instance of death, the net value
of the property transferred should be ascertained, as nearly as possible, as of
 Estate Tax 36

that time. This analysis supports broad application of the date-of-death

valuation rule.[67]
We express our agreement with the date-of-death valuation rule, made
pursuant to the ruling of the U.S. Supreme Court in Ithaca Trust Co. v. United
States.[68] First. There is no law, nor do we discern any legislative intent in our
tax laws, which disregards the date-of-death valuation principle and
particularly provides that post-death developments must be considered in
determining the net value of the estate. It bears emphasis that tax burdens are
not to be imposed, nor presumed to be imposed, beyond what the statute
expressly and clearly imports, tax statutes being construed strictissimi
juris against the government.[69] Any doubt on whether a person, article or
activity is taxable is generally resolved against taxation. [70] Second. Such
construction finds relevance and consistency in our Rules on Special
Proceedings wherein the term "claims" required to be presented against a
decedent's estate is generally construed to mean debts or demands of a
pecuniary nature which could have been enforced against the deceased in his
lifetime, or liability contracted by the deceased before his death.[71] Therefore,
the claims existing at the time of death are significant to, and should be made
the basis of, the determination of allowable deductions.
WHEREFORE, the instant Petition is GRANTED. Accordingly, the
assailed Decision dated April 30, 1999 and the Resolution dated November 3,
1999 of the Court of Appeals in CA-G.R. S.P. No. 46947
are REVERSED and SET ASIDE. The Bureau of Internal Revenue's
deficiency estate tax assessment against the Estate of Jose P. Fernandez is
hereby NULLIFIED. No costs.
SO ORDERED.