B.
DONOR’S TAX
G.R. No. 210987 November 24, 2014
THE PHILIPPINE AMERICAN LIFE AND GENERAL INSURANCE
COMPANY, Petitioner,
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE, Respondents.
DECISION
VELASCO, JR., J.:
Nature of the Case
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court assailing and seeking the reversal of the Resolutions of the Court of Appeals
(CA) in CA-G.R. SP No. 127984, dated May 23, 20131 and January 21, 2014, which
dismissed outright the petitioner's appeal from the Secretary of Finance's review of
BIR Ruling No. 015-122 for lack of jurisdiction.
The Facts
Petitioner The Philippine American Life and General Insurance Company
(Philamlife) used to own 498,590 Class A shares in Philam Care Health Systems,
Inc. (PhilamCare), representing 49.89% of the latter's outstanding capital stock. In
2009, petitioner, in a bid to divest itself of its interests in the health maintenance
organization industry, offered to sell its shareholdings in PhilamCare through
competitive bidding. Thus, on September 24, 2009, petitioner's Class A shares were
sold for USD 2,190,000, or PhP 104,259,330 based on the prevailing exchange rate
at the time of the sale, to STI Investments, Inc., who emerged as the highest bidder. 3
After the sale was completed and the necessary documentary stamp and capital
gains taxes were paid, Philamlife filed an application for a certificate authorizing
registration/tax clearance with the Bureau of Internal Revenue (BIR) Large
Taxpayers Service Division to facilitate the transfer of the shares. Months later,
petitioner was informed that it needed to secure a BIR ruling in connection with its
application due to potential donor’s tax liability. In compliance, petitioner, on
January 4, 2012, requested a ruling4 to confirm that the sale was not subject to
donor’s tax, pointing out, in its request, the following: that the transaction cannot
attract donor’s tax liability since there was no donative intent and,ergo, no taxable
donation, citing BIR Ruling [DA-(DT-065) 715-09] dated November 27, 2009;5 that
the shares were sold at their actual fair market value and at arm’s length; that as
long as the transaction conducted is at arm’s length––such that a bona fide business
arrangement of the dealings is done inthe ordinary course of business––a sale for
less than an adequate consideration is not subject to donor’s tax; and that donor’s
tax does not apply to saleof shares sold in an open bidding process.
On January 4, 2012, however, respondent Commissioner on Internal Revenue
(Commissioner) denied Philamlife’s request through BIR Ruling No. 015-12. As
determined by the Commissioner, the selling price of the shares thus sold was
lower than their book value based on the financial statements of PhilamCare as of
the end of 2008.6 As such, the Commisioner held, donor’s tax became imposable on
the price difference pursuant to Sec. 100 of the National Internal Revenue Code
(NIRC), viz:
SEC. 100. Transfer for Less Than Adequate and full Consideration.- Where property,
other than real property referred to in Section 24(D), is transferred for less than an
adequate and full consideration in money or money’s worth, then the amount by
which the fair market value of the property exceeded the value of the consideration
shall, for the purpose of the tax imposed by this Chapter, be deemed a gift, and shall
be included in computing the amount of gifts made during the calendar year.
The afore-quoted provision, the Commissioner added, is implemented by Revenue
Regulation 6-2008 (RR 6-2008), which provides:
SEC. 7. SALE, BARTER OR EXCHANGE OF SHARES OF STOCK NOT TRADED
THROUGH A LOCAL STOCK EXCHANGE PURSUANT TO SECS. 24(C), 25(A)(3),
25(B), 27(D)(2), 28(A)(7)(c), 28(B)(5)(c) OF THE TAX CODE, AS AMENDED. —
xxxx
(c) Determination of Amount and Recognition of Gain or Loss –
(c.1) In the case of cash sale, the selling price shall be the consideration per deed of
sale.
xxxx
(c.1.4) In case the fair market value of the shares of stock sold, bartered, or
exchanged is greater than the amount of money and/or fair market value of the
property received, the excess of the fair market value of the shares of stock sold,
bartered or exchanged overthe amount of money and the fair market value of the
property, if any, received as consideration shall be deemed a gift subject to the
donor’stax under Section 100 of the Tax Code, as amended.
xxxx
(c.2) Definition of ‘fair market value’of Shares of Stock. – For purposes of this
Section, ‘fair market value’ of the share of stock sold shall be:
xxxx
(c.2.2) In the case of shares of stock not listed and traded in the local stock
exchanges, the book value of the shares of stock as shown in the financial
statements duly certified by an independent certified public accountant nearest to
the date of sale shall be the fair market value.
In view of the foregoing, the Commissioner ruled that the difference between the
book value and the selling price in the sales transaction is taxable donation subject
to a 30% donor’s tax under Section 99(B) of the NIRC.7Respondent Commissioner
likewise held that BIR Ruling [DA-(DT-065) 715-09], on which petitioner anchored
its claim, has already been revoked by Revenue Memorandum Circular (RMC) No.
25-2011.8
Aggrieved, petitioner requested respondent Secretary of Finance (Secretary) to
review BIR Ruling No. 015-12, but to no avail. For on November 26, 2012,
respondent Secretary affirmed the Commissioner’s assailed ruling in its entirety.9
Ruling of the Court of Appeals
Not contented with the adverse results, petitioner elevated the case to the CA via a
petition for review under Rule 43, assigning the following errors:10
A.
The Honorable Secretary of Finance gravely erred in not finding that the
application of Section 7(c.2.2) of RR 06-08 in the Assailed Ruling and RMC 25-11 is
void insofar as it altersthe meaning and scope of Section 100 of the Tax Code.
B.
The Honorable Secretary of Finance gravely erred in finding that Section 100 of the
Tax Code is applicable tothe sale of the Sale of Shares.
1.
The Sale of Shares were sold at their fair market value and for fair and full
consideration in money or money’s worth.
2.
The sale of the Sale Shares is a bona fide business transaction without any
donative intent and is therefore beyond the ambit of Section 100 of the
Tax Code.
3.
It is superfluous for the BIR to require an express provision for the
exemption of the sale of the Sale Shares from donor’s tax since Section 100
of the Tax Code does not explicitly subject the transaction to donor’s tax.
C.
The Honorable Secretary of Finance gravely erred in failing to find that in the
absence of any of the grounds mentioned in Section 246 of the Tax Code, rules and
regulations, rulings or circulars – such as RMC 25-11 – cannot be given retroactive
application to the prejudice of Philamlife.
On May 23, 2013, the CA issued the assailed Resolution dismissing the CA Petition,
thusly:
WHEREFORE, the Petition for Review dated January 9, 2013 is DISMISSED for lack
of jurisdiction.
SO ORDERED.
In disposing of the CA petition, the appellate court ratiocinated that it is the Court
of Tax Appeals (CTA), pursuant to Sec. 7(a)(1) of Republic Act No. 1125 (RA
1125),11 as amended, which has jurisdiction over the issues raised. The outright
dismissal, so the CA held, is predicated on the postulate that BIR Ruling No. 015-12
was issued in the exercise of the Commissioner’s power to interpret the NIRC and
other tax laws. Consequently, requesting for its review can be categorized as "other
matters arising under the NIRC or other laws administered by the BIR," which is
under the jurisdiction of the CTA, not the CA.
Philamlife eventually sought reconsideration but the CA, in its equally assailed
January 21, 2014 Resolution, maintained its earlier position. Hence, the instant
recourse.
Issues
Stripped to the essentials, the petition raises the following issues in both procedure
and substance:
1. Whether or not the CA erred in dismissing the CA Petition for lack of
jurisdiction; and
2. Whether or not the price difference in petitioner’s adverted sale of
shares in PhilamCare attracts donor’s tax.
Procedural Arguments
a. Petitioner’s contentions
Insisting on the propriety of the interposed CA petition, Philamlife, while conceding
that respondent Commissioner issued BIR Ruling No. 015-12 in accordance with
her authority to interpret tax laws, argued nonetheless that such ruling is subject to
review by the Secretary of Finance under Sec. 4 of the NIRC, to wit:
SECTION 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax
Cases. – The power to interpret the provisions of this Code and other tax laws shall
be under the exclusive and original jurisdiction of the Commissioner, subject to
review by the Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees
or other charges, penalties imposed in relation thereto, or other matters arising
under this Code orother laws or portions thereof administered by the Bureau of
Internal Revenue is vested in the Commissioner, subject to the exclusive appellate
jurisdiction of the Court of Tax Appeals. Petitioner postulates that there is a need to
differentiate the rulings promulgated by the respondent Commissioner relating to
those rendered under the first paragraph of Sec. 4 of the NIRC, which are
appealable to the Secretary of Finance, from those rendered under the second
paragraph of Sec. 4 of the NIRC, which are subject to review on appeal with the
CTA.
This distinction, petitioner argues, is readily made apparent by Department Order
No. 7-02,12 as circularized by RMC No. 40-A-02.
Philamlife further averred that Sec.7 of RA 1125, as amended, does not find
application in the case at bar since it only governs appeals from the Commissioner’s
rulings under the second paragraph and does not encompass rulings from the
Secretary of Finance in the exercise of his power of review under the first, as what
was elevated to the CA. It added that under RA 1125, as amended, the only
decisions of the Secretary appealable to the CTA are those rendered in customs
cases elevated to him automatically under Section 2315 of the Tariff and Customs
Code.13
There is, thus, a gap in the law when the NIRC, as couched, and RA 1125, as
amended, failed to supply where the rulings of the Secretary in its exercise of its
power of review under Sec. 4 of the NIRC are appealable to. This gap, petitioner
submits, was remedied by British American Tobacco v. Camacho 14 wherein the
Court ruled that where what is assailed is the validity or constitutionality of a law,
or a rule or regulation issued by the administrative agency, the regular courts have
jurisdiction to pass upon the same.
In sum, appeals questioning the decisions of the Secretary of Finance in the exercise
of its power of review under Sec. 4 of the NIRC are not within the CTA’s limited
special jurisdiction and, according to petitioner, are appealable to the CA via a Rule
43 petition for review.
b. Respondents’ contentions
Before the CA, respondents countered petitioner’s procedural arguments by
claiming that even assuming arguendo that the CTA does not have jurisdiction over
the case, Philamlife, nevertheless,committed a fatal error when it failed to appeal
the Secretary of Finance’s ruling to the Office of the President (OP). As made
apparent by the rules, the Department of Finance is not among the agencies and
quasi-judicial bodies enumerated under Sec. 1, Rule 43 of the Rules of Court whose
decisions and rulings are appealable through a petition for review.15 This is in stark
contrast to the OP’s specific mention under the same provision, so respondents
pointed out.
To further reinforce their argument, respondents cite the President’s power of
review emanating from his power of control as enshrined under Sec. 17 of Article
VII of the Constitution, which reads:
Section 17.The President shall have control of all the executive departments,
bureaus, and offices. He shall ensure that the laws be faithfully executed.
The nature and extent of the President’s constitutionally granted power of control
have beendefined in a plethora of cases, most recently in Elma v. Jacobi, 16 wherein
it was held that:
x x x This power of control, which even Congress cannot limit, let alone withdraw,
means the power of the Chief Executive to review, alter, modify, nullify, or set aside
what a subordinate, e.g., members of the Cabinet and heads of line agencies, had
done in the performance of their duties and to substitute the judgment of the
former for that of the latter.
In their Comment on the instant petition, however, respondents asseverate that the
CA did not err in its holding respecting the CTA’s jurisdiction over the controversy.
The Court’s Ruling
The petition is unmeritorious.
Reviews by the Secretary of Finance pursuant to Sec. 4 of the NIRC are appealable
to the CTA
To recapitulate, three different, if not conflicting, positions as indicated below have
been advanced by the parties and by the CA as the proper remedy open for
assailing respondents’ rulings:
1. Petitioners: The ruling of the Commissioner is subject to review by the
Secretary under Sec. 4 of the NIRC, and that of the Secretary to the CA via
Rule 43;
2. Respondents: The ruling of the Commissioner is subject to review by the
Secretary under Sec. 4 of the NIRC, and that of the Secretary to the Office of
the President before appealing to the CA via a Rule 43 petition; and
3. CA: The ruling of the Commissioner is subject to review by the CTA.
We now resolve.
Preliminarily, it bears stressing that there is no dispute that what is involved herein
is the respondent Commissioner’s exercise of power under the first paragraph of
Sec. 4 of the NIRC––the power to interpret tax laws. This, in fact, was recognized by
the appellate court itself, but erroneously held that her action in the exercise of
such power is appealable directly to the CTA. As correctly pointed out by petitioner,
Sec. 4 of the NIRC readily provides that the Commissioner’s power to interpret the
provisions of this Code and other tax laws is subject to review by the Secretary of
Finance. The issue that now arises is this––where does one seek immediate
recourse from the adverse ruling of the Secretary of Finance in its exercise of its
power of review under Sec. 4?
Admittedly, there is no provision in law that expressly provides where exactly the
ruling of the Secretary of Finance under the adverted NIRC provision is appealable
to. However, We find that Sec. 7(a)(1) of RA 1125, as amended, addresses the
seeming gap in the law asit vests the CTA, albeit impliedly, with jurisdiction over
the CA petition as "other matters" arising under the NIRC or other laws
administered by the BIR. As stated:
Sec. 7. Jurisdiction.- The CTA shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
1. Decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National Internal Revenue or
other laws administered by the Bureau of Internal Revenue. (emphasis supplied)
Even though the provision suggests that it only covers rulings of the Commissioner,
We hold that it is, nonetheless, sufficient enough to include appeals from the
Secretary’s review under Sec. 4 of the NIRC.
It is axiomatic that laws should be given a reasonable interpretation which does not
defeat the very purpose for which they were passed. 17 Courts should not follow the
letter of a statute when to do so would depart from the true intent of the legislature
or would otherwise yield conclusions inconsistent with the purpose of the
act.18 This Court has, in many cases involving the construction of statutes, cautioned
against narrowly interpreting a statute as to defeat the purpose of the legislator,
and rejected the literal interpretation of statutes if todo so would lead to unjust or
absurd results.19
Indeed, to leave undetermined the mode of appeal from the Secretary of Finance
would be an injustice to taxpayers prejudiced by his adverse rulings. To remedy
this situation, Weimply from the purpose of RA 1125 and its amendatory laws that
the CTA is the proper forum with which to institute the appeal. This is not, and
should not, in any way, be taken as a derogation of the power of the Office of
President but merely as recognition that matters calling for technical knowledge
should be handled by the agency or quasi-judicial body with specialization over the
controversy. As the specialized quasi-judicial agency mandated to adjudicate tax,
customs, and assessment cases, there can be no other court of appellate jurisdiction
that can decide the issues raised inthe CA petition, which involves the tax treatment
of the shares of stocks sold. Petitioner, though, nextinvites attention to the ruling in
Ursal v. Court of Tax Appeals20 to argue against granting the CTA jurisdiction by
implication, viz:
Republic Act No. 1125 creating the Court of Tax Appeals did not grant it blanket
authority to decide any and all tax disputes. Defining such special court’s
jurisdiction, the Act necessarily limited its authority to those matters enumerated
therein. Inline with this idea we recently approved said court’s order rejecting an
appeal to it by Lopez & Sons from the decision of the Collector ofCustoms, because
in our opinion its jurisdiction extended only to a review of the decisions of the
Commissioner of Customs, as provided bythe statute — and not to decisions of the
Collector of Customs. (Lopez & Sons vs. The Court of Tax Appeals, 100 Phil., 850, 53
Off. Gaz., [10] 3065).
xxxx
x x x Republic Act No. 1125 is a complete law by itself and expressly enumerates
the matters which the Court of Tax Appeals may consider; such enumeration
excludes all others by implication. Expressio unius est exclusio alterius.
Petitioner’s contention is untenable. Lest the ruling in Ursalbe taken out of context,
but worse as a precedent, it must be noted that the primary reason for the dismissal
of the said case was that the petitioner therein lacked the personality to file the suit
with the CTA because he was not adversely affected by a decision or ruling of the
Collector of Internal Revenue, as was required under Sec. 11 of RA 1125.21 As held:
We share the view that the assessor had no personality to resort to the Court of Tax
Appeals. The rulings of the Board of Assessment Appeals did not "adversely affect"
him. At most it was the City of Cebu that had been adversely affected in the sense
that it could not thereafter collect higher realty taxes from the abovementioned
property owners. His opinion, it is true had been overruled; but the overruling
inflicted no material damage upon him or his office. And the Court of Tax Appeals
was not created to decide mere conflicts of opinion between administrative officers
or agencies. Imagine an income tax examiner resorting to the Court of Tax Appeals
whenever the Collector of Internal Revenue modifies, or lower his assessment on
the return of a tax payer!22
The appellate power of the CTA includes certiorari
Petitioner is quick to point out, however, that the grounds raised in its CA petition
included the nullity of Section 7(c.2.2) of RR 06-08 and RMC 25-11. In an attempt to
divest the CTA jurisdiction over the controversy, petitioner then cites British
American Tobacco, wherein this Court has expounded on the limited jurisdiction of
the CTA in the following wise:
While the above statute confers on the CTA jurisdiction to resolve tax disputes in
general, this does not include cases where the constitutionality of a law or rule is
challenged. Where what is assailed is the validity or constitutionality of a law, or a
rule or regulation issued by the administrative agency in the performance of its
quasi legislative function, the regular courts have jurisdiction to pass upon the
same. The determination of whether a specific rule or set of rules issued by an
administrative agency contravenes the law or the constitution is within the
jurisdiction of the regular courts. Indeed, the Constitution vests the power of
judicial review or the power to declare a law, treaty, international or executive
agreement, presidential decree, order, instruction, ordinance, or regulation inthe
courts, including the regional trial courts. This is within the scope of judicial power,
which includes the authority of the courts to determine inan appropriate action the
validity of the acts of the political departments. Judicial power includes the duty of
the courts of justice to settle actual controversies involving rights which are legally
demandable and enforceable, and to determine whether or not there has been a
grave abuse of discretion amounting to lack or excess of jurisdiction on the part of
any branch or instrumentality of the Government.23
Vis-a-vis British American Tobacco, it bears to stress what appears to be a
contrasting ruling in Asia International Auctioneers, Inc. v. Parayno, Jr., to wit:
Similarly, in CIR v. Leal, pursuant to Section 116 of Presidential Decree No. 1158
(The National Internal Revenue Code, as amended) which states that "[d]ealers in
securities shall pay a tax equivalent to six (6%) per centum of their gross income.
Lending investors shall pay a tax equivalent to five (5%) per cent, of their gross
income," the CIR issued Revenue Memorandum Order (RMO) No. 15-91 imposing
5% lending investor’s tax on pawnshops based on their gross income and requiring
all investigating units of the BIR to investigate and assess the lending investor’s tax
due from them. The issuance of RMO No. 15-91 was an offshoot of the CIR’s finding
that the pawnshop business is akin to that of "lending investors" as defined in
Section 157(u) of the Tax Code. Subsequently, the CIR issued RMC No. 43-91
subjecting pawn tickets to documentary stamp tax. Respondent therein, Josefina
Leal, owner and operator of Josefina’s Pawnshop, asked for a reconsideration of
both RMO No. 15-91 and RMC No. 43-91, but the same was denied by petitioner
CIR. Leal then filed a petition for prohibition with the RTC of San Mateo, Rizal,
seeking to prohibit petitioner CIR from implementing the revenue orders. The CIR,
through the OSG, filed a motion to dismiss on the ground of lack of jurisdiction. The
RTC denied the motion. Petitioner filed a petition for certiorari and prohibition
with the CA which dismissed the petition "for lack of basis." In reversing the CA,
dissolving the Writ of Preliminary Injunction issued by the trial court and ordering
the dismissal of the case before the trial court, the Supreme Court held that "[t]he
questioned RMO No. 15-91 and RMC No. 43-91 are actually rulings or opinions of Sec. 7 (C.2.2) and RMC 25-11 is merely questioned incidentally since it was used by
the Commissioner implementing the Tax Code on the taxability of pawnshops." the CIR as bases for its unfavourable opinion. Clearly, the Petition involves an issue
They were issued pursuant to the CIR’s power under Section 245 of the Tax Code on the taxability of the transaction rather than a direct attack on the
"to make rulings or opinions in connection with the implementation of the constitutionality of Sec. 100, Sec.7 (c.2.2.) of RR 06-08 and RMC 25-11. Thus, the
provisions of internal revenue laws, including ruling on the classification of articles instant Petition properly pertains to the CTA under Sec. 7 of RA 9282.
of sales and similar purposes."The Court held that under R.A. No. 1125 (An Act
Creating the Court of Tax Appeals), as amended, such rulings of the CIR are As a result of the seemingly conflicting pronouncements, petitioner submits that
appealable to the CTA. taxpayers are now at a quandary on what mode of appeal should be taken, to which
court or agency it should be filed, and which case law should be followed.
In the case at bar, the assailed revenue regulations and revenue memorandum
circulars are actually rulings or opinions of the CIR on the tax treatment of motor Petitioner’s above submission is specious.
vehicles sold at public auction within the SSEZ to implement Section 12 of R.A. No.
7227 which provides that "exportation or removal of goods from the territory of
In the recent case of City of Manila v. Grecia-Cuerdo,25 the Court en banc has ruled
the [SSEZ] to the other parts of the Philippine territory shall be subject to customs
that the CTA now has the power of certiorari in cases within its appellate
duties and taxes under the Customs and Tariff Codeand other relevant tax laws of
jurisdiction. To elucidate:
the Philippines." They were issued pursuant to the power of the CIR under Section
4 of the National Internal Revenue Code x x x.24 (emphasis added)
The prevailing doctrine is that the authority to issue writs of certiorari involves the
exercise of original jurisdiction which must be expressly conferred by the
The respective teachings in British American Tobacco and Asia International
Constitution or by law and cannot be implied from the mere existence of appellate
Auctioneers, at first blush, appear to bear no conflict––that when the validity or
jurisdiction. Thus, x x x this Court has ruled against the jurisdiction of courts or
constitutionality of an administrative rule or regulation is assailed, the regular
tribunals over petitions for certiorari on the ground that there is no law which
courts have jurisdiction; and if what is assailed are rulings or opinions of the
expressly gives these tribunals such power. Itmust be observed, however, that x x x
Commissioner on tax treatments, jurisdiction over the controversy is lodged with
these rulings pertain not to regular courts but to tribunals exercising quasijudicial
the CTA. The problem with the above postulates, however, is that they failed to take
powers. With respect tothe Sandiganbayan, Republic Act No. 8249 now provides
into consideration one crucial point––a taxpayer can raise both issues
that the special criminal court has exclusive original jurisdiction over petitions for
simultaneously.
the issuance of the writs of mandamus, prohibition, certiorari, habeas corpus,
injunctions, and other ancillary writs and processes in aid of its appellate
Petitioner avers that there is now a trend wherein both the CTA and the CA jurisdiction.
disclaim jurisdiction over tax cases: on the one hand, mere prayer for the
declaration of a tax measure’s unconstitutionality or invalidity before the CTA can
In the same manner, Section 5 (1), Article VIII of the 1987 Constitution grants
result in a petition’s outright dismissal, and on the other hand, the CA will likewise
power to the Supreme Court, in the exercise of its original jurisdiction, to issue
dismiss the same petition should it find that the primary issue is not the tax
writs of certiorari, prohibition and mandamus. With respect to the Court of
measure’s validity but the assessment or taxability of the transaction or subject
Appeals, Section 9 (1) of Batas Pambansa Blg. 129 (BP 129) gives the appellate
involved. To illustrate this point, petitioner cites the assailed Resolution, thusly:
court, also in the exercise of its original jurisdiction, the power to issue, among
Admittedly, in British American Tobacco vs. Camacho, the Supreme Court has ruled
others, a writ of certiorari, whether or not in aid of its appellate jurisdiction. As to
that the determination of whether a specific rule or set of rules issued by an
Regional Trial Courts, the power to issue a writ of certiorari, in the exercise of their
administrative agency contravenes the law or the constitution is within the
original jurisdiction, is provided under Section 21 of BP 129.
jurisdiction of the regular courts, not the CTA.

xxxx
Petitioner essentially questions the CIR’s ruling that Petitioner’s sale of shares is a
taxable donation under Sec. 100 of the NIRC. The validity of Sec. 100 of the NIRC,
The foregoing notwithstanding, while there is no express grant of such power, with
respect to the CTA, Section 1, Article VIII of the 1987 Constitution provides,
nonetheless, that judicial power shall be vested in one Supreme Court and in such
lower courts as may be established by law and that judicial power includes the duty
of the courts of justice to settle actual controversies involving rights which are
legally demandable and enforceable, and to determine whether or not there has
been a grave abuse of discretion amounting to lack or excess of jurisdiction on the
part of any branch or instrumentality of the Government.
On the strength of the above constitutional provisions, it can be fairly interpreted
that the power of the CTA includes that of determining whether or not there has
been grave abuse of discretion amounting to lack or excess of jurisdiction on the
part of the RTC in issuing an interlocutory order in cases falling within the
exclusive appellate jurisdiction of the tax court. It, thus, follows that the CTA, by
constitutional mandate, is vested with jurisdiction to issue writs of certiorari in
these cases.
Indeed, in order for any appellate court to effectively exercise its appellate
jurisdiction, it must have the authority to issue, among others, a writ of certiorari.
In transferring exclusive jurisdiction over appealed tax cases to the CTA, it can
reasonably be assumed that the law intended to transfer also such power as is
deemed necessary, if not indispensable, in aid of such appellate jurisdiction. There
is no perceivable reason why the transfer should only be considered as partial, not
total. (emphasis added)
deemed a gift.1âwphi1 Thus, even if there is no actual donation, the difference in
price is considered a donation by fiction of law.
Moreover, Sec. 7(c.2.2) of RR 06-08 does not alter Sec. 100 of the NIRC but merely
sets the parameters for determining the "fair market value" of a sale of stocks. Such
issuance was made pursuant to the Commissioner's power to interpret tax laws
and to promulgate rules and regulations for their implementation.
Lastly, petitioner is mistaken in stating that RMC 25-11, having been issued after
the sale, was being applied retroactively in contravention to Sec. 246 of the
NIRC.26 Instead, it merely called for the strict application of Sec. 100, which was
already in force the moment the NIRC was enacted.
WHEREFORE, the petition is hereby DISMISSED. The Resolutions of the Court of
Appeals in CA-G.R. SP No. 127984 dated May 23, 2013 and January 21, 2014 are
hereby AFFIRMED.
SO ORDERED.

Evidently, City of Manilacan be considered as a departure from Ursal in that in spite

of there being no express grant in law, the CTA is deemed granted with powers of
certiorari by implication. Moreover, City of Manila diametrically opposes British
American Tobacco to the effect that it is now within the power of the CTA, through
its power of certiorari, to rule on the validity of a particular administrative ruleor
regulation so long as it is within its appellate jurisdiction. Hence, it can now rule not
only on the propriety of an assessment or tax treatment of a certain transaction, but
also on the validity of the revenue regulation or revenue memorandum circular on
which the said assessment is based.

Guided by the doctrinal teaching in resolving the case at bar, the fact that the CA
petition not only contested the applicability of Sec. 100 of the NIRC over the sales
transaction but likewise questioned the validity of Sec. 7 (c.2.2) of RR 06-08 and
RMC 25-11 does not divest the CTA of its jurisdiction over the controversy,
contrary to petitioner's arguments.

The price difference is subject to donor's tax

Petitioner's substantive arguments are unavailing. The absence of donative intent,

if that be the case, does not exempt the sales of stock transaction from donor's tax
since Sec. 100 of the NIRC categorically states that the amount by which the fair
market value of the property exceeded the value of the consideration shall be
[G.R. No. 111904. October 5, 2000]
SPS. AGRIPINO GESTOPA and ISABEL SILARIO GESTOPA, petitioners,
vs. COURT OF APPEALS and MERCEDES DANLAG y
PILAPIL, respondents.
DECISION
QUISUMBING, J.:
This petition for review,[1] under Rule 45 of the Rules of Court, assails the
decision[2]of the Court of Appeals dated August 31, 1993, in CA-G.R. CV No.
38266, which reversed the judgment[3] of the Regional Trial Court of Cebu City,
Branch 5.
The facts, as culled from the records, are as follows:
Spouses Diego and Catalina Danlag were the owners of six parcels of
unregistered lands. They executed three deeds of donation mortis causa, two of
which are dated March 4, 1965 and another dated October 13, 1966, in favor of
private respondent Mercedes Danlag-Pilapil.[4] The first deed pertained to
parcels 1 & 2 with Tax Declaration Nos. 11345 and 11347, respectively. The
second deed pertained to parcel 3, with TD No. 018613. The last deed
pertained to parcel 4 with TD No. 016821. All deeds contained the reservation
of the rights of the donors (1) to amend, cancel or revoke the donation during
their lifetime, and (2) to sell, mortgage, or encumber the properties donated
during the donors' lifetime, if deemed necessary.
On January 16, 1973, Diego Danlag, with the consent of his wife, Catalina
Danlag, executed a deed of donation inter vivos[5] covering the aforementioned
parcels of land plus two other parcels with TD Nos. 11351 and 11343,
respectively, again in favor of private respondent Mercedes. This contained two
conditions, that (1) the Danlag spouses shall continue to enjoy the fruits of the
land during their lifetime, and that (2) the donee can not sell or dispose of the
land during the lifetime of the said spouses, without their prior consent and
approval. Mercedes caused the transfer of the parcels' tax declaration to her
name and paid the taxes on them.
On June 28, 1979 and August 21, 1979, Diego and Catalina Danlag sold
parcels 3 and 4 to herein petitioners, Mr. and Mrs. Agripino Gestopa. On
September 29, 1979, the Danlags executed a deed of revocation[6]recovering
the six parcels of land subject of the aforecited deed of donation inter vivos.
On March 1, 1983, Mercedes Pilapil (herein private respondent) filed with
the RTC a petition against the Gestopas and the Danlags, for quieting of
title[7] over the above parcels of land.She alleged that she was an illegitimate
daughter of Diego Danlag; that she lived and rendered incalculable beneficial
services to Diego and his mother, Maura Danlag, when the latter was still
alive. In recognition of the services she rendered, Diego executed a Deed of
Donation on March 20, 1973, conveying to her the six (6) parcels of land. She
accepted the donation in the same instrument, openly and publicly exercised
rights of ownership over the donated properties, and caused the transfer of the
tax declarations to her name. Through machination, intimidation and undue
influence, Diego persuaded the husband of Mercedes, Eulalio Pilapil, to buy two
of the six parcels covered by the deed of donation. Said donation inter vivos was
coupled with conditions and, according to Mercedes, since its perfection, she
had complied with all of them; that she had not been guilty of any act of
ingratitude; and that respondent Diego had no legal basis in revoking the
subject donation and then in selling the two parcels of land to the Gestopas.
In their opposition, the Gestopas and the Danlags averred that the deed of
donation dated January 16, 1973 was null and void because it was obtained by
Mercedes through machinations and undue influence. Even assuming it was
validly executed, the intention was for the donation to take effect upon the
death of the donor. Further, the donation was void for it left the donor, Diego
Danlag, without any property at all.
On December 27, 1991, the trial court rendered its decision, thus:
"WHEREFORE, the foregoing considered, the Court hereby renders judgment in
favor of the defendants and against the plaintiff:
1. Declaring the Donations Mortis Causa and Inter Vivos as revoked,
and, therefore, has (sic) no legal effect and force of law.
2. Declaring Diego Danlag the absolute and exclusive owner of the six
(6) parcels of land mentioned in the Deed of revocation (Exh. P-
plaintiff, Exh. 6-defendant Diego Danlag).
3. Declaring the Deeds of Sale executed by Diego Danlag in favor of
spouses Agripino Gestopa and Isabel Gestopa dated June 28, 1979
(Exh. S-plaintiff; Exh. 18-defendant); Deed of Sale dated
December 18, 1979 (Exh. T plaintiff; Exh. 9-defendant); Deed of
Sale dated September 14, 1979 (Exh. 8); Deed of Sale dated June
30, 1975 (Exh. U); Deed of Sale dated March 13, 1978 (Exh. X) as
valid and enforceable duly executed in accordance with the
formalities required by law.
 4. Ordering all tax declaration issued in the name of Mercedes Danlag
Y Pilapil covering the parcel of land donated cancelled and further
restoring all the tax declarations previously cancelled, except
parcels nos. 1 and 5 described, in the Deed of Donation Inter
Vivos (Exh. "1") and Deed of Sale (Exh. "2") executed by
defendant in favor of plaintiff and her husband.
[5.] With respect to the contract of sale of abovestated parcels of
land, vendor Diego Danlag and spouse or their estate have the
alternative remedies of demanding the balance of the agreed
price with legal interest, or rescission of the contract of sale.
SO ORDERED."[8]
In rendering the above decision, the trial court found that the reservation
clause in all the deeds of donation indicated that Diego Danlag did not make
any donation; that the purchase by Mercedes of the two parcels of land covered
by the Deed of Donation Inter Vivos bolstered this conclusion; that Mercedes
failed to rebut the allegations of ingratitude she committed against Diego
Danlag; and that Mercedes committed fraud and machination in preparing all
the deeds of donation without explaining to Diego Danlag their contents.
Mercedes appealed to the Court of Appeals and argued that the trial court
erred in (1) declaring the donation dated January 16, 1973 as mortis causa and
that the same was already revoked on the ground of ingratitude; (2) finding
that Mercedes purchased from Diego Danlag the two parcels of land already
covered by the above donation and that she was only able to pay three
thousand pesos, out of the total amount of twenty thousand pesos; (3) failing to
declare that Mercedes was an acknowledged natural child of Diego Danlag.
On August 31, 1993, the appellate court reversed the trial court. It ruled:
"PREMISES CONSIDERED, the decision appealed from is REVERSED and a new
judgment is hereby rendered as follows:
1. Declaring the deed of donation inter vivos dated January 16, 1973 as not
having been revoked and consequently the same remains in full force and
effect;
2. Declaring the Revocation of Donation dated June 4, 1979 to be null and void
and therefore of no force and effect;
3. Declaring Mercedes Danlag Pilapil as the absolute and exclusive owner of the
six (6) parcels of land specified in the above-cited deed of donation inter vivos;
4. Declaring the Deed of Sale executed by Diego Danlag in favor of spouses
Agripino and Isabel Gestopa dated June 28, 1979 (Exhibits S and 18), Deed of
Sale dated December 18, 1979 (Exhibits T and 19), Deed of Sale dated
September 14, 1979 (Exhibit 8), Deed of Sale dated June 30, 1975 (Exhibit U),
Deed of Sale dated March 13, 1978 (Exhibit X) as well as the Deed of Sale in
favor of Eulalio Danlag dated December 27, 1978 (Exhibit 2) not to have been
validly executed;
5. Declaring the above-mentioned deeds of sale to be null and void and
therefore of no force and effect;
6. Ordering spouses Agripino Gestopa and Isabel Silerio Gestopa to reconvey
within thirty (30) days from the finality of the instant judgment to Mercedes
Danlag Pilapil the parcels of land above-specified, regarding which titles have
been subsequently fraudulently secured, namely those covered by O.C.T. T-
17836 and O.C.T. No. 17523.
7. Failing to do so, ordering the Branch Clerk of Court of the Regional Trial
Court (Branch V) at Cebu City to effect such reconveyance of the parcels of land
covered by O.C.T. T-17836 and 17523.
SO ORDERED."[9]
The Court of Appeals held that the reservation by the donor of lifetime
usufruct indicated that he transferred to Mercedes the ownership over the
donated properties; that the right to sell belonged to the donee, and the donor's
right referred to that of merely giving consent; that the donor changed his
intention by donating inter vivos properties already donated mortis causa; that
the transfer to Mercedes' name of the tax declarations pertaining to the
donated properties implied that the donation was inter vivos; and that
Mercedes did not purchase two of the six parcels of land donated to her.
Hence, this instant petition for review filed by the Gestopa spouses,
asserting that:
"THE HONORABLE COURT OF APPEALS, TWELFTH DIVISION, HAS GRAVELY
ERRED IN REVERSING THE DECISION OF THE COURT A QUO."[10]
 Before us, petitioners allege that the appellate court overlooked the fact
that the donor did not only reserve the right to enjoy the fruits of the
properties, but also prohibited the donee from selling or disposing the land
without the consent and approval of the Danlag spouses. This implied that the
donor still had control and ownership over the donated properties. Hence, the
donation was post mortem.
Crucial in resolving whether the donation was inter vivos or mortis
causa is the determination of whether the donor intended to transfer the
ownership over the properties upon the execution of the deed.[11]
In ascertaining the intention of the donor, all of the deed's provisions must
be read together.[12] The deed of donation dated January 16, 1973, in favor of
Mercedes contained the following:
"That for and in consideration of the love and affection which the Donor
inspires in the Donee and as an act of liberality and generosity, the Donor
hereby gives, donates, transfer and conveys by way of donation unto the herein
Donee, her heirs, assigns and successors, the above-described parcels of land;
That it is the condition of this donation that the Donor shall continue to enjoy
all the fruits of the land during his lifetime and that of his spouse and that the
donee cannot sell or otherwise, dispose of the lands without the prior consent
and approval by the Donor and her spouse during their lifetime.
xxx
That for the same purpose as hereinbefore stated, the Donor further states that
he has reserved for himself sufficient properties in full ownership or in
usufruct enough for his maintenance of a decent livelihood in consonance with
his standing in society.
That the Donee hereby accepts the donation and expresses her thanks and
gratitude for the kindness and generosity of the Donor."[13]
Note first that the granting clause shows that Diego donated the properties out
of love and affection for the donee. This is a mark of a donation inter
vivos.[14] Second, the reservation of lifetime usufruct indicates that the donor
intended to transfer the naked ownership over the properties. As correctly
posed by the Court of Appeals, what was the need for such reservation if the
donor and his spouse remained the owners of the properties? Third, the donor
reserved sufficient properties for his maintenance in accordance with his
standing in society, indicating that the donor intended to part with the six
parcels of land.[15] Lastly, the donee accepted the donation. In the case
of Alejandro vs. Geraldez, 78 SCRA 245 (1977), we said that an acceptance clause
is a mark that the donation is inter vivos. Acceptance is a requirement for
donations inter vivos. Donations mortis causa, being in the form of a will, are
not required to be accepted by the donees during the donors' lifetime.
Consequently, the Court of Appeals did not err in concluding that the right
to dispose of the properties belonged to the donee. The donor's right to give
consent was merely intended to protect his usufructuary
interests. In Alejandro, we ruled that a limitation on the right to sell during the
donors' lifetime implied that ownership had passed to the donees and donation
was already effective during the donors' lifetime.
The attending circumstances in the execution of the subject donation also
demonstrated the real intent of the donor to transfer the ownership over the
subject properties upon its execution.[16] Prior to the execution of
donation inter vivos, the Danlag spouses already executed three
donations mortis causa. As correctly observed by the Court of Appeals, the
Danlag spouses were aware of the difference between the two donations. If
they did not intend to donate inter vivos, they would not again donate the four
lots already donated mortis causa.Petitioners' counter argument that this
proposition was erroneous because six years after, the spouses changed their
intention with the deed of revocation, is not only disingenious but also
fallacious. Petitioners cannot use the deed of revocation to show the spouses'
intent because its validity is one of the issues in this case.
Petitioners aver that Mercedes' tax declarations in her name can not be a
basis in determining the donor's intent. They claim that it is easy to get tax
declarations from the government offices such that tax declarations are not
considered proofs of ownership. However, unless proven otherwise, there is a
presumption of regularity in the performance of official duties.[17] We find that
petitioners did not overcome this presumption of regularity in the issuance of
the tax declarations. We also note that the Court of Appeals did not refer to the
tax declarations as proofs of ownership but only as evidence of the intent by
the donor to transfer ownership.
Petitioners assert that since private respondent purchased two of the six
parcels of land from the donor, she herself did not believe the donation
was inter vivos. As aptly noted by the Court of Appeals, however, it was private
respondent's husband who purchased the two parcels of land.
As a rule, a finding of fact by the appellate court, especially when it is
supported by evidence on record, is binding on us.[18] On the alleged purchase
by her husband of two parcels, it is reasonable to infer that the purchase was
without private respondent's consent. Purchase by her husband would make
the properties conjugal to her own disadvantage. That the purchase is against
her self-interest, weighs strongly in her favor and gives credence to her claim
that her husband was manipulated and unduly influenced to make the
purchase, in the first place.
Was the revocation valid? A valid donation, once accepted, becomes
irrevocable, except on account of officiousness, failure by the donee to comply
with the charges imposed in the donation, or ingratitude.[19] The donor-spouses
did not invoke any of these reasons in the deed of revocation. The deed merely
stated:

"WHEREAS, while the said donation was a donation Inter Vivos, our intention
thereof is that of Mortis Causa so as we could be sure that in case of our death,
the above-described properties will be inherited and/or succeeded by
Mercedes Danlag de Pilapil; and that said intention is clearly shown in
paragraph 3 of said donation to the effect that the Donee cannot dispose
and/or sell the properties donated during our life-time, and that we are the one
enjoying all the fruits thereof."[20]

Petitioners cited Mercedes' vehemence in prohibiting the donor to gather

coconut trees and her filing of instant petition for quieting of title. There is
nothing on record, however, showing that private respondent prohibited the
donors from gathering coconuts. Even assuming that Mercedes prevented the
donor from gathering coconuts, this could hardly be considered an act covered
by Article 765 of the Civil Code.[21] Nor does this Article cover respondent's
filing of the petition for quieting of title, where she merely asserted what she
believed was her right under the law.
Finally, the records do not show that the donor-spouses instituted any
action to revoke the donation in accordance with Article 769 of the Civil
Code.[22] Consequently, the supposed revocation on September 29, 1979, had
no legal effect.
WHEREFORE, the instant petition for review is DENIED. The assailed
decision of the Court of Appeals dated August 31, 1993, is AFFIRMED.
Costs against petitioners.
SO ORDERED.
G.R. No. L-5949 November 19, 1955
Charles Lee 20,000 7,500 60,690 7,500

TANG HO, WILLIAM LEE, HENRI LEE, SOFIA LEE TEEHANKEE, THOMAS LEE, Valeriana Lee 63,190 2,500
ANTHONY LEE, JULIA LEE KAW, CHARLES LEE, VALERIANA LEE YU, VICTOR
LEE, SILVINO LEE, MARY LEE, JOHN LEE, and PETER LEE, for themselves and as Victor Lee 63,190
heirs of LI SENG GIAP, deceased, petitioners,
vs. Silvino Lee 63,190
THE BOARD OF TAX APPEALS and THE COLLECTOR OF INTERNAL
REVENUE, respondents. Mary Lee 63,190

John Lee 63,190

Peter Lee 63,190

REYES, J.B.L., J.:

This is a petition for the review of the petition of the defunct Board of Tax Appeals The Collector of Internal Revenue regarded these transfers as undeclared gifts
holding petitioner Li Seng Giap, et al. liable for gift taxes in accordance with the made in the respective years, and assessed against Li Seng Giap and his children
assessments made by the respondent Collector of Internal Revenue. donor's and donee's taxes in the total amount of P76,995.31, including penalties,
surcharges, interests, and compromise fee due to the delayed payment of the taxes.
The petitioners paid the sum of P53,434.50, representing the amount of the basic
Petitioners Li Seng Giap (who died during the pendency of this appeal) and his wife
taxes, and put up a surety bond to guarantee payment of the balance demanded.
Tang Ho and their thirteen children appear to be the stockholder of two close
And on June 25, 1951, they requested the Collector of Internal Revenue for a
family corporations named Li Seng Giap & Sons, Inc. and Li Seng Giap & Co. On or
about May, 1951, examiners of the Bureau of Internal Revenue, then detailed to the revision of their tax assessments, and submitted donor's and donee's gift tax
returns showing that each child received by way of gift inter vivos, every year from
Allas Committee of the Congress of the Philippines, made an examination of the
1939 to 1950 (except in 1947 and 1948) P4,000 in cash; that each of the eight
books of the two corporation aforementioned and found that each of Li Seng Giap's
children who married during the period aforesaid, were given an additional
13 children had a total investment therein of approximately P63,195.00, in shares
P20,000 as dowry or gift propter nuptias; that the unmarried children received
issued to them by their father Li Seng Giap (who was the manager and controlling
stockholder of the two corporations) in the years 1940, 1942, 1948, 1949, and roughly equivalent amount in 1949, also by way of gifts inter vivos, so that the total
donations made to each and every child, as of 1950, stood at P63,190. Appellants
1950 in the following amounts:
admit that these gifts were not reported; but contend that as the cash donated came
from the conjugal funds, they constituted individual donations by each of the
Donees 1940 1942 1948 1949 1950 spouses Li Seng Giap and Tang Ho of one half of the amount received by the donees
in each instance, up to a total of P31,505 to each of the thirteen children from each
William Lee 7,500 12,500 6,750 27,940 7,500 parent. They further alleged that the children's stockholding in the two family
corporations were purchased by them with savings from the aforesaid cash
Henry Lee 7,500 12,500 6,750 27,940 7,500 donations received from their parents.

Sofia Lee 7,500 12,500 16,500 26,690 Claiming the benefit of gift tax exemptions (under section 110 and 112 of the
Internal Revenue Code) at the rate of P2000 a year for each donation, plus P10,000
Thomas Lee 7,500 12,500 7,500 28,190 7,500 for each gift propter nuptias made by either parent, and appellants' aggregate tax
liability, according to their returns, would only be P4,599.94 for the year 1949, and
Anthony Lee 18,000 7,500 28,190 7,500 P228,28 for the year 1950, or a total of P4,838.22, computed as follows:
Julia Lee 20,000 15,000 25,690 2,500
 Appeals upheld the decision of the respondent Collector of Internal Revenue; hence,
DONORS 1939-44 1945-46 1949 1950 TOTAL
this petition for review.
Li Seng Giap Exempt Exempt P1,110.72 P74.14 P1,184.86
The questions in this appeal may be summarized as follows:
Tang Ho Exempt Exempt 1,110.72 74.14 1,184.86
(1) Whether or not the dates and amounts of the donations taxable against
Total None None P2,221.44 P148.28 P2,369.72
petitioners were as found by the Collector of Internal Revenue from the books of
the corporations Li Seng Giap & Sons, Inc. and Li Seng Giap & Co., or as set forth in
William Lee Exempt Exempt P253.80 P30.00 P283.80
petitioners' gift tax returns;
Henry Lee Exempt Exempt Exempt 15.00 15.00
(2) Whether or not the donations made by petitioner Li Seng Giap to his children
Sofia Lee Exempt Exempt P51.90 None from the conjugal property should be taxed against the husband alone, or against
51.90
husband and wife; and
Thomas Lee Exempt Exempt Exempt 15.00 15.00
(3) Whether or not petitioners should be allowed the tax deduction claimed by
Anthony Lee Exempt Exempt Exempt 15.00 15.00
them.

Julia Lee Exempt Exempt 26.90 Exempt 26.90

On the first question, which is of fact the appellants take the preliminary stand that
because of Collector failed to specifically deny the allegation of their petition in the
Charles Lee Exempt Exempt Exempt 15.00 15.00
Tax Board he must be deemed to have admitted the annual and propter
nuptias donations alleged by them, and that he is estopped from denying their
Valeriana Lee Exempt Exempt 26.90 Exempt 26.90
existence. As the proceedings before the Tax Board were administrative in
character, not governed by the Rules of Court (see Sec. 10, Executive Order 401-
Victor Lee Exempt Exempt 403.80 None 403.80
A),and as the Collector actually submitted his own version of the transactions, we
do not consider that the Collector's failure to make specific denials should be given
Silvino Lee Exempt Exempt 403.80 None 403.80
the same binding effect as in strict court pleadings.
Mary Lee Exempt Exempt 403.80 None 403.80
Going now to the merits of the issue. The appealed findings of the Board of Tax
John Lee Exempt Exempt 403.80 None Appeals and of the Collector of Internal Revenue (that the stock transfers from Li
403.80
Seng Giap to his children were donations) appear supported by the following
Peter Lee Exempt Exempt 403.80 None circumstances:
403.80

Total None None P2,378.50 P90.00 P2,468.50

(1) That the transferor Li Seng Giap (now deceased) had in fact conveyed shares to
stock to his 13 children on the dates and in the amounts shown in the table on page
Grand total liability of Donors and Donees P4,599.94 P238.28 P4,838.22
2 of this decision.

The Collector refused to revise his original assessments; and the petitioners
appealed to the then Board of Tax Appeals (created by Executive Order 401-A, in
1951) insisting that the entries in the books of the corporation do not prove
donations; that the true amount and date of the donation were those appearing in
their tax returns; and that the donees merely bought stocks in the corporation out
of savings made from the money received from their parents. The Board of Tax
(2) That none of the transferees appeared to possess adequate independent means
to buy the shares, so much so that they claim now to have purchased the shares
with the cash donations made to them from time to time.
(3) That the total of the alleged cash donations to each child is practically identical
to the value of the shares supposedly purchased by each donee.
(4) That there is no evidence other than the belated sworn gift tax returns of the
spouses Li Seng Giap and Ang Tang Ho, and their children, appellants herein, to
support their contention that the shares were acquired by purchase. No contracts
of sale or other documents were presented, nor any witnesses introduced; not even
the claimants themselves have testified.
(5) The claim that the shares were acquired by the children by purchase was first
advanced only after the assessment of gift taxes and penalties due thereon (in the
sum of P76,995.31) had been made, and after the appellants had paid P53,434.50
on account, and had filed a bond to guarantee the balance.
(6) That for the parent to donate cash to enable the donee to buy from him shares
of equivalent value is, for all intents and purposes, a donation of such shares to the
purchaser donee.
We cannot say, under the circumstances, that there is no sufficient evidence on
record to support the findings of the Tax Board that the stock transfers above
indicated were made by way of donation, as would entitle us to disregard or
reverse the Board's finding.
The filing of the gift tax returns only after assessments and part payment of the
taxes demanded by the Collector, and the lack of corroboration of the alleged
donations in cash, amply justify the Tax Board's distrust of the veracity of the
appellants' belated tax returns "on or before the first of March following the close
of the calendar year" when the gifts were made (Sec. 115, par. [c]; and besides the
return a written notice to the Collector of each donation of P10,000 or more, must
be given within thirty days after the donation, Sec. 114). These yearly returns and
notices are evidently designed to enable the Collector to verify promptly their truth
and correctness, while the gifts are still recent and proof of the circumstances
surrounding the making thereof is still fresh and accessible. On their own
admission, appellants failed to file for ten successive years, the corresponding
returns for the alleged yearly gifts of P4,000 to each child, and likewise failed to
give the notices for the P20,000 marriage gifts to each married child. Hence, they
are now scarcely in a position to complain if their contentions are not accepted as
truthful without satisfactory corroboration. Any other view would leave the
collection of taxes at the mercy of explanations concoctedex post facto by evading
taxpayers, drafted to suit any facts disclosed upon investigation, and safe from
contradiction because the passing years have erased all trace of the truth.
The second and third issues in this appeal revolve around appellants' thesis that
inasmuch as the property donated was community property (gananciales), and
such property is jointly owned by their parents, the total amount of the gifts made
in each year should be divided between the father and the mother, as separate
donors, and should be taxed separately to each one of them.
In assessing the worth of this contention, it must be ever borne in mind that
appellants have not only failed to prove that the donations were actually made by
both spouses, Li Seng Giap and Tang Ho, but that precisely the contrary appears
from their own evidence. In the original claim for tax refund, filed with the Collector
of Internal Revenue, under date of June 25, 1951 (copied in pages 6 and 7 of the
appellants' petition for review addressed to the Board of Tax Appeals), the father,
Li Seng Giap, describes himself as "the undersigned donor" (par. 1) and speaks of
"cash donations made by the undersigned" (par. 3), without in any way mentioning
his wife as a co-participant in the donation. The issue is thus reduced to the
following: Is a donation of community property by the father alone equivalent in
law to a donation of one-half of its value by the father and one-half by the mother?
Appellants submit that all such donations of community property are to be
regarded, for tax purposes, as donations by both spouses, for which two separate
exemptions may be claimed in each instance, one for each spouse.
This presentation should be viewed in the light of the provisions of the Spanish
Civil Code of 1889, which was the governing law in the years herein involved, 1939
to 1950. the determinative rule is that of Arts. 1409 and 1415, reading as follows:
Art. 1409. The conjugal partnership shall also be chargeable with anything
which may have been given or promised by the husband to the children
born of the marriage solely in order to obtain employment for them or
give them a profession, or by both spouses by common consent, should
they not have stipulated that such expenditures should be borne in whole
or in part by the separate property of one of them.
ART. 1415, p. 1. — The husband may dispone of the property of the
conjugal partnership for the purposes mentioned in Art. 1409.
In effect, these Articles clearly refute the appellants' theory that because the
property donated is community property, the donations should be viewed as made
by both spouses. First, because the law clearly differentiates the donations of such
property "by the husband" from the "donations by both spouses by common
consent" ("por el marido . . . o por ambos conyuges de comun acuerdo," in the
Spanish text).
Next, the wording of Arts. 1409 and 1415 indicates that the lawful donations by the
husband to the common children are valid and are chargeable to the community
property, irrespective of whether the wife agrees or objects thereof. Obviously,
should the wife object to the donation, she can not be regarded as a donor at all.
Even more: Suppose that the husband should make a donation of some community
property to a concubine or paramour. Undeniably, the wife cannot be regarded as
joining in any such donation. Yet under the old Civil Code, the donation would
stand, with the only limitation that the wife should not be prejudiced in the division
of the profits after the conjugal partnership affairs are liquidated. So that if the
value of the donation should be found to fit within the limits of the husband's
ultimate share in the conjugal partnership profits, the donation by the husband
would remain unassailable, over and against the non-participation of the wife
therein. This Court has so ruled in Baello vs. Villanueva (54 Phil. 213, 214):
According to article 1413 of the Civil Code, any transfer or agreement
upon conjugal property made by the husband in contravention of its
provisions, shall not prejudice his wife or her heirs. As the conjugal
property belongs equally to husband and wife, the donation of this
property made by the husband prejudices the wife in so far as it includes a
part or the whole of the wife's half, and is to that extent invalid. Hence
article 1419, in providing for the liquidation of the conjugal partnership,
directs that all illegal donations made by the husband be charged against
his estates and deducted from his capital. But it is only then, when the
conjugal partnership is in the process of liquidation, that it can be
discovered whether or not an illegal donation made by the husband
prejudices the wife. And inasmuch as these gifts are only to be held invalid
in so far as they prejudice the wife, their nullity cannot be decided until
after the liquidation of the conjugal partnership and it is found that they
encroach upon the wife's portion.
It becomes unnecessary to discuss the nature of a conjugal partnership, there being
specific rules on donations of property belonging to it. The consequence of the
husband's legal power to donate community property is that, where made by the
husband alone, the donation is taxable as his own exclusive act. Hence, only one
exemption or deduction can be claimed for every such gift, and not two, as claimed
by appellants herein. In thus holding, the Board of Tax Appeals committed no error.
Premises considered, we are of the opinion and so declare:
(a) That the finding of the defunct Board of Tax Appeals to the effect that shares
transferred from Li Seng Giap to his children were conveyed to them by way of
donation inter vivos is supported by adequate evidence, and therefore cannot be
reviewed by this Court (Comm. of Internal Revenue. vs. Court Holding Co., L. Ed.
981; Comm. of Internal Revenue vs. Scottish American Investment Co., 89 L. Ed.
113; Comm. of Internal Revenue vs. Tower, 90 L. Ed. 670; Helvering vs. Tax Penn. Oil
Co., 81 L. Ed. 755).
(b) That under the old Civil Code, a donation by the husband alone does not become
in law a donation by both spouses merely because it involves property of the
conjugal partnership;
(c) That such a donation of property belonging to the conjugal partnership, made
during its existence, by the husband alone in favor of the common children, is
taxable to him exclusively as sole donor.

Appellants herein are therefore in error when they contend that it is enough that Wherefore, the decision appealed from is affirmed with costs to the appellants.
the property donated should belong to the conjugal partnership in order that the
donation be considered and taxed as a donation of both husband and wife, even if So ordered
the husband should appear as the sole donor. There is no blinking the fact that,
under the old Civil Code, to be a donation by both spouses, taxable to both, the wife
must expressly join the husband in making the gift; her participation therein cannot
be implied.

It is true, as appellants stress, that in Gibbs vs. Government of the Philippines, 59

Phil., 293, this Court ruled that "the wife, upon acquisition of any conjugal property,
becomes immediately vested with an interest and title equal to that of the
husband"; but this Court was careful to immediately add, "subject to the power of
management and disposition which the law vests on the husband." As has been
shown, this power of disposition may, within the legal limits, override the
objections of the wife and render the donation of the husband fully effective
without need of the wife's joining therein. (Civil Code of 1889, Arts 1409, 1415.)
G.R. No. L-14166 April 28, 1962 WHEREFORE, our decision of February 28, 1958 is modified in the
sense that the delinquency interest of one-half (1/2) of one (1%)
FINLEY J. GIBBS, as Trustee for JOHNSON KELLEY GIBBS, ALLISON percent should be computed on the deficiency taxes only from July 1,
DEFRANCE GIBBS, 1954 to July 30, 1954, and the defendant Collector of Internal Revenue
CANDACE GIBBS, DOUGLAS FLETCHER GIBBS, and REGINALD KELLEY is hereby ordered refund to plaintiff the sum of P9,387.54 as computed
GIBBS, plaintiff-petitioner; in Annex "A" hereof, with interest at the legal rate from date of
ALLISON J. GIBBS and ESTHER K. GIBBS, intervenors-petitioners, payment. Without special pronouncement as to costs. 1äwphï1.ñët
vs.
COLLECTOR OF INTERNAL REVENUE and COURT of TAX On September 25, 1950, Allison J. Gibbs and his wife Esther K. Gibbs,
APPEALS, respondents. hereinafter referred to as trustors, executed five (5) separate documents each,
entitled "Deed of Sale and Declaration of Trust", whereby the respective
----------------------------- trustors transferred, sold and assigned, in trust, 53,000 shares of stock of the
Lepanto Consolidated Mining Co., in favor of each one of their five (5) children,
G.R. No. L-14320 April 28, 1962 namely Johnson Kelley Gibbs, Allison Defrance Gibbs, Candace Gibbs, Douglas
Fletcher Gibbs and Reginald Kelley Gibbs in consideration of the sum of
P26,227.70, to be paid "on or before December 23, 1950, by selling,
COLLECTOR OF INTERNAL REVENUE, petitioner, mortgaging, hypothecating or pledging part or all of the corpus of the trust."
vs. The market value of said 53,000 shares on September 25, 1950 was
FINLEY J. GIBBS, as Trustee for JOHNSON KELLEY GIBBS, ALLISON P34,980.00.
DEFRANCE GIBBS,
CANDACE GIBBS, DOUGLAS FLETCHER GIBBS and REGINALD KELLEY
GIBBS, respondent; The terms and conditions of the ten (10) deeds trust were identical. Instituted
ALLISON J. GIBBS and ESTHER K. GIBBS, respondents-intervenors. trustee, without bond, in said ten (10) deeds, was Finley J. Gibbs, a brother of
trustor Allison J. Gibbs, who, as attorney-in-fact of the former, accepted the
trust, in his (Finley J. Gibbs') name, for and on behalf of the aforementioned
beneficiaries. The trust was to terminate upon the respective beneficiary
reaching the age of 35. If the beneficiary died before reaching that age, leaving
CONCEPCION, J.: legitimate issue the trust would continue, but for the benefit of the latter, and
the full distribution and termination of the trust with respect to such issue
These are two (2) appeals, one by the plaintiff and the plaintiffs-intervenors would be effected not later than 20 years after the death of said beneficiary. If
and the other by the Government, from a decision of the Court of Tax Appeals, the beneficiary died before reaching the age of 35 leaving no legitimate issue,
hereafter referred to as the lower court, promulgated on February 28, 1958, the trustee would turn over the trust corpus or the remainder thereof and any
the dispositive part of which reads: accumulated income, share and share alike, to the other beneficiaries or
children of the trustors.
IN VIEW OF THE FOREGOING, the decision appeal from is modified,
and the defendant Collector of Internal Revenue is hereby ordered to On October 24, 1950, the trustors gave notice to the then Collector of Internal
refund to the plaintiff the sum P5,381.88, as computed in Annex "A" Revenue, hereafter referred to as defendant, of the execution of the ten (10)
hereof, with interest the legal rate from date of payment, Without deeds of trust and requested a ruling on whether or not gift taxes were due
special pronouncement as to costs. thereon. Soon, thereafter, or on December 14, 1950, defendant assessed a
donee gift tax of P75.00 on each of the beneficiaries in said trust agreements, or
as amended by a resolution of said lower court, dated July 25, 1958, the a total of P750.40, and a donor gift tax of P774.04 on each of the trustors, or
concluding paragraph of which is as follows: P1,548.08 for both. These assessments were based upon the difference
between said market value of the shares of stock and the stipulated
consideration for transfer thereof. On December 22, 1950, defendant revised
his assessment of the donor gift tax by increasing it from P774.04 to P342.84
for each trustor, or a total of P1,685.68. The next day, the donee gift taxes were,
also, increased, from the aforementioned total sum of P750.40 to P17,856.90.
Within the period fixed by law, or on May 15, 1951, said donor and donee gift
taxes in the sums of P1,685.68 and P17,856.90, respectively, were paid.
Subsequently, the refund of P17,106.50, representing the difference between
the amount if the first assessment (P750.40) for donee gift taxes and that of the
second assessment thereof (P17,856.90), was demanded, but the demand was,
on August 23, 1951, turned down by the defendant. The trustee appealed to the
Secretary of Finance. Before the latter could pass upon the appeal, however, the
Board of Tax Appeals was created by Executive Order No. 401 of the President
of the Philippines. The pertinent records were then forwarded to said Board.
Alleging fear of expiration of the two-year period for the refund of said sum of
P17,106.50, on May 12, 1953, the trustee instituted Civil Case No. 19541 of the
Court of First Instance of Manila against the defendant for the recovery of such
amount.
Meanwhile, or on December 28, 1951, the trustors, by five (5) separate
documents each, had created ten (10) additional and separate trusts, each
involving 22,400 shares of stock of the same mining company, in favor of each
of the aforementioned beneficiaries, for the stipulated consideration of
P17,430, to be paid by the trustees within 120 days after the transfer of said
stock has been effected in the books of the mining company. In all other
respects, the terms and conditions of this second set of deeds of trusts are
identical to those of the first set. Admittedly, the market value of said 22,400
shares was then P19,264.00.
These additional deeds of trust impelled the defendant to assess, on April 8,
1952, a donor gift tax of P304.42 on each trustor, or a total of P608.84 for both
trustors, and a donee gift tax of P36.69, on each of the beneficiaries, or a total of
P366.90. These amounts were paid on May 15, 1952, within the statutory
period therefor.
Holding that gift taxes are available on the full market value of all the shares of
stock thus placed in trust — instead of upon the difference between said
market value and the stipulated considerations — on June 16, 1954, defendant
assessed additional donor gift taxes in the sums of P5,093.71 on each trustor,
or a total of P10,187.42, for the ten (10) trusts created on September 25, 1950,
and P8,788.78, on each trustor, or a total of P17,577.56 for the trusts created
on December 28, 1951. Additional donee gift taxes were, likewise, assessed in
the sum of P12,040.30 for the ten (10) additional trusts created on December
28, 1951. The corresponding assessment notices demanded that these three
(3) sums be paid on or before June 30, 1954. Upon request of the taxpayers,
they were given an extension up to July 31, 1954, on which date said sums
were paid under protest. Thus, the amounts paid under protest for the two (2)
sets of trusts in question aggregate P56,911.78, itemized as follows: .
Donee gift taxes on the trusts created on September
P17,106.50
25, 1950
Donor gift taxes on the trusts created on September
10,187.42
25, 1950
Donee gift taxes on the trusts created on December 28,
12,040.30
1951
Donor gift taxes on the trusts created on December 28,
17,577.56
1951
TOTAL....................... P56,911.78
============
In the meantime, or on June 16, 1954, Republic Act No. 1125, creating the Court
of Tax Appeals, had been approved and become effective. Pursuant to section
22 of said Act, the records of Civil Case No. 19541 of the Court of First Instance
of Manila were, on August 26, 1954, forwarded to the Court of Tax Appeals. In
October, 1955, the trustors intervened in the case as plaintiffs-intervenors. In
their complaint in intervention they prayed for the refund of the additional
donor gift taxes paid by them in the aggregate sum of P27,764.98, with interest
and attorney's fees. In July, 1956, the trustee amended his complaint to include
therein the claim for refund of the aggregate sum of P50,911.78 specified
above. In due course, thereafter, the Court of Tax Appeals rendered its
aforementioned decision, which on motion for reconsideration was amended
as adverted to above. Hence, these appeals, one by the trustee (plaintiff) and
the trustors (plaintiffs-intervenors), G. R. No. L-14166, and another by the
defendant, G. R. No. L-14320.
The main issue raised in the first appeal is whether the gift taxes on the
transfer of the shares of stock aforementioned should be based on the full
market value of said shares of stock at the time of the respective transfers
thereof or only upon the difference between said market value and the
consideration stipulated in the trust agreements. The defendant adhered to the
first alternative, which the Court of Tax Appeals, likewise, adopted, upon the
ground that the stipulated considerations were — except as to the aggregate
sum of P52,277.00 allegedly paid by the trustee in June 1953 — in effect,
simulated.
Indeed, the stipulated consideration of P262,277.00, for the transfer of the
530,000 shares of stock involved in first set of deeds of trust were to be paid,
pursuant thereto, "on or before December 23, 1950, by selling, mortgaging,
hypothecating or pledging part or all of the corpus the trust". On December 2,
1950, the Central Bank granted plaintiff's application for license to sell, assign
or encumber said shares of stock. Yet nothing was done pay the stipulated
consideration on the date set therefor. What is more, the trustors did not
demand payment of, or do anything to collect, said consideration.
It is true that on June 15, 1953, or about three and a half years (3-1/2) after the
latter had become due, Allison Gibbs, as one of the trustors and as attorney-in-
fact for the trustee, as well as the other trustor, his wife, Esther K. Gibbs,
executed ten (10) documents entitled Compromise Agreement", stating that the
parties had agreed to suspend and defer payment of the sum of P26,277.70
stipulated in each of the first ten (10) trust agreements, and to liquidate the
obligation to make said payment as follows: (a) the trustee would pay
P5,227.70 on or before June 30, 1953; and (b) the balance of P21,000.00 would
be paid on or before the 21st birthday of the respective beneficiaries or the
date of termination of the trust, which ever date came first. The trustee and the
trustors have likewise, introduced in evidence, ten (10) promissory notes of
the trustee, for said sum of P21,000, allegedly executed in compliance with said
compromise agreements.
These did not merit, however, full faith and credence from the Court of Tax
Appeals, which regarded such agreements, as well as said promissory notes, as
a mere devise to avoid and evade payment of the corresponding gift taxes.
Considering that the trustee is a brother of trustor Allison J. Gibbs; that the ten
(10) cash payment of P5,277.70 each, referred to in the compromise
agreements aforementioned, were seemingly made to trustors Esther K. Gibbs
and Allison J. Gibbs by the latter as attorney-in-fact of the trustee, his brother
Finley J. Gibbs; that there was absolutely no consideration for the release of the
trustee from the obligation to pay P26,227.70 on or before December 23, 1950,
under each of the deeds of trust executed on September 25, 1950; that the
promissory notes adverted to above bear no date and were not executed before
any witness; and that the date of maturity therein set is so distant, in relation to
the due dates under said deeds of trust, we find no justification for disturbing
the conclusion reached by the lower court. In fact, said conclusion is borne out
by the following circumstances: .
1. In answer to the following question propounded by a Judge of said court .
If the trusts were created for the benefit of your children and as you
said, one of the consequences of which was your love and affection for
your children, what need was there for you to impose this burden of
requiring them to pay for those shares?
trustor Allison J. Gibbs answered:
Well, there were tax considerations involved, Your Honor, I have not
only to think of the Philippine tax problems but also the United States
tax problems. I very carefully went into the whole matter before my
wife and I decided on doing what we did. I studied and came to the
conclusion that we could not afford to make an outright gift of these
shares, that the taxes that would result not only to the Philippine
government but to the United States government would be too big for
us to shoulder, considering the fact that we also are letting off our
control of transfers of our right into these substantial portion of our
assets. We could not have afforded to do it. It calls by way of future
interest under the United States gift tax laws for payment of gift taxes.
We are allowed an exemption both — for both my wife — for each of
my wife and myself of $30,000.00 under the United States Federal gift
tax law. But these gifts, had they been accepted ... had they been made
100% rather, these transfers had they been made without any
consideration would have been taxable 100% at the market value on
that date. That would have resulted on a tremendous tax both to the
Philippine government and to the United States government. We could
not afford to pay those taxes, and that is fundamentally one reason for
fixing the price that we did fix which was premised upon our cost.
2. The deeds of trust state that the purpose thereof is "to establish an
endowment for the support, maintenance, care, health, higher education and
travel of the beneficiary and the launching of his career after he becomes of
age". These purposes would be materially impaired, if not entirely defeated, if
the beneficiaries were to pay the stipulated consideration aggregating
P262,277, under the first set of deeds of trust, and P174,300 under the second
set, or a total of P436,577. If we deduct this sum from the aggregate market
value of all the shares of stock in question — which is P542,540 — the net
value of the whole trust would be reduced to P105,863 and the net value of the
aggregate trust for each beneficiary would be no more than P21,172.60. And, if
as the trustee and the trustors maintain, the taxes under consideration
(P56,911.78) should be deducted from the corpus of the trust, the net value of
the aggregate trust for each beneficiary would be further reduced to
P9,790.244. Certainly, this amount, as well as the aforementioned sum of
P21,172.60 could hardly be sufficient for the "support, maintenance, care,
health, higher education and travel" of each beneficiary and "the launching of
his career after he has become of age." .
3. The trustors are financially well off. When the first set of deeds of trust were
executed (September 25, 1950), their assets in the Philippines and United
States were worth P1,500,000.00 and P500,000.00, respectively, at the rate of
P2.00 to a $1.00. If the trustors were earnestly concerned, as they seemingly
were, in providing ample funds to assure the support, maintenance, care,
health, higher education and travel of their children and the launching of their
career after they had become of age, the trustors would not have really meant
to require them to pay the consideration stipulated in the trust agreements.
The subsequent acts of the trustors showed that they did not intend to collect
said consideration. As the lower court had correctly observed:
... We assume that the trustors were indeed serious about the purpose
of the trusts. With this in mind, we cannot conceive how the purpose of
the trust may readily and liberally be achieved if the trust were to be
burdened by such onerous monetary consideration. Without the
consideration, the purpose or purposes of the trusts could have been
more readily obtained. Consequently, we feel constrained to treat the
monetary considerations of the trusts as an intended superfluity if not
a subtlety, to becloud the donative intent of trustors.
4. The corpus of the trust was never totally or partially sold, hypothecated or
encumbered. Instead, after December 7, 1950, when the Central Bank
authorized the conversion of the shares of stock covered by the first set of trust
agreements from resident stocks to non-resident stocks, the corresponding
cash dividends and stock dividends declared by the mining company were sent
directly to the trustee in the United States, thus enabling the trustors to create
dollar assets in the United States. The testimony of trustor Allison J. Gibbs on
this point is illuminating.
JUDGE LUCIANO
If, as you said, one of the purposes of imposing a consideration
on the trustee in your favor and that of your wife, was to
protect the interest of both you and your wife, why is it that
when these dividends were declared by the Lepanto
Consolidated Mining Company, and were so declared, you did
not collect the consideration from these dividends to offset the
stipulated consideration in the series of trust agreements? .
A — Because that would defeat the very objectives for which
we created the trusts and at least, one of the objectives was to
transfer as much as possible of our Philippine assets to the
United States in the form of dollars so as to create dollar
assets in the United States on which our children could rely
under the trust indentures. In fact, that was the prime basis
upon which I secured the eventual licensing by the Central
Bank of the transactions. In fact, I told the Central Bank if they
did not license it on the basis on which I had proposed which I
considered absolutely legal, then I would find some other way
of accomplishing the objective. If necessary, I would leave the
Philippine Islands and become a resident of the United States.
And, in that instance, under their regulations, there could be
no question that all of my assets in the Philippines which were
earning dividends would be entitled to have the dividends
remitted to the United States. They saw the logic of my
reasoning and they finally agreed on the transaction of issuing
the license, XL-530 on December 2, 1950, Exhibit J-2, plaintiff.
There has been no question from the very beginning of one of
the prime purposes of this transaction — it was to create a
dollar estate for our children in the United States, premised
upon our conviction that Lepanto Consolidated Mining
Company was going to pay dividends and that the Central
Bank regulations would allow the remittance of dividends to
non-resident stockholders.
The trustors could have easily collected the stipulated consideration or part of
it from said dividends, yet they did not do so — they even saw to it that the
dividends were sent to the United States.
In connection with the trust agreements executed on December 28, 1951, the
trustee, represented by his attorney-in-fact, Allison J. Gibbs, and the latter, as
one of the trustors, as well as his wife, trustor Esther K. Gibbs, executed on July
15, 1953, another set of deeds, entitled "Compromise Agreement", stating that
the trustee thereby resold, retransferred and reassigned to the trustor the
22,400 shares covered by each of said trust agreements, for and in
consideration of the sum of P19,264 to be paid by the trustors by crediting to
the trustee the sum of P17,430, the consideration stipulated in each one of said
trust agreements, thereby leaving a balance of P1,843 to be paid to the trustee
upon the trustor's repossession of the corresponding stock certificates.
The main reason given in said compromise agreements for the provisions
thereof is the alleged inability of the trustee to sell, mortgage, hypothecate, or
pledge the said shares of stock or otherwise deal with third parties with a view
to raising funds for the payment of the consideration stipulated in the trust
agreements, pending registration of the transfer of said stock, in the books of
the mining company, in view of the conditions — not described in the
compromise agreements — imposed by the Central Bank for the issuance of a
license authorizing said transfer, which — according to the compromise
agreements — are rightly unacceptable to the trustee.
This reason is clearly artificious. The stock involved in the trust agreements of
September 25, 1950 were so transferred. Still no payment was made thereon.
Moreover, the trustee could have authorized the trustors to sell, mortgage,
hypothecate or otherwise dispose of said stock to raise the necessary funds, if
the intent was really that the stipulated consideration be paid. Indeed, as
attorney in-fact for the trustee, trustor Allison J. Gibbs, with the ample powers
that his acts revealed he had, could have simply granted such authority to
himself and his wife, Esther K. Gibbs, as trustors. Considering that one of the
prime objectives of the trustors in executing the trust agreements was "to
transfer as much as possible of our Philippine assets to the United States in the
form of dollars", it is understandable that they did not wish the stock in
question to be disposed of in the Philippines, for this would surely defeat the
accomplishment of said objectives. At the same time, it is apparent that the
reason given in said compromise agreements for the execution thereof is not
true.
It may not be amiss to note, also, that the compromise agreements affecting the
trusts constituted on December 28, 1951, virtually revoked said trusts,
contrary to the explicit provision in the trust agreements, to the effect that the
trusts therein established are "irrevocable".
Another factor that affects adversely the credence and weight due to all of the
compromise agreements is that the same were made with knowledge of the
fact that the defendant was already investigating whether the stipulated
consideration was real or fictitious and entertaining the idea of assessing the
corresponding gift taxes on the basis of the full market value of the stock
involved.
The trustee and the trustors maintain that the lower court erred in not
deducting the amount of the donor gift taxes from the value of the property
subject to the donee gift taxes, in view of the provision of the trust agreement
to the effect —
In addition to the foregoing, the TRUSTEE shall pay out of the property
and/or the gross income of the trust estate all income, estate, gift,
succession or inheritance taxes, if any, payable by the VENDOR,
TRUSTEE or BENEFICIARY by reason of this trust.
We find no merit in this pretense. The questions as to who shall pay any given
tax and what shall be the basis thereof are determined by law, the operation of
which can not be affected by the provisions of a contract to which the
Government is not a party. This, of course, is without prejudice to the right, if
any, of a party to the trust agreements to demand reimbursement from the
other party. But such right of reimbursement is independent of, and foreign to,
the right and duty of the defendant to collect the taxes in the manner and under
the conditions prescribed by law.
The appeal taken up by the defendant refers to the interest chargeable on the
amounts representing the taxes in question, and the interest on the sum to be
refunded by the Government.
In its resolution of June 25, 1958, the Court of Tax Appeals held that interest of
one-half (1/2) of one (1%) percent should be charged on the deficiency taxes
only from July 1, 1954 to July 30, 1954, because the defendant had demanded
payment on or before June 30, 1954, of the deficiency donor gift taxes —
amounting to P10,187.42 and P17,577.56 — assessed on the first and the
second set of trust agreements, respectively, and the deficiency donee gift taxes
of P12,040.30, assessed on the second set of trust agreements. The defendant
maintains that said interest should be charged from the 15th day of May
following the calendar year in which the gifts in question had been made, for
section 116 of the tax Code provides —
The gift taxes imposed by section one hundred nine and one hundred
ten of this Chapter shall be due and payable on or before the fifteenth
day of May following the close of the calendar year and shall be paid by
the donor or donee, as the case may be, to the Collector of Internal
Revenue or the treasurer of the province city or municipality of which
the donor or the donee is a resident.
Upon the other hand, section 118 (b) of the same Code, on which the lower of payment of interest on sums collected by way of taxes, which the
court relied, reads: . Government is subsequently sentenced to refund to the taxpayer, depends
upon whether or not the collection of said sums is manifestly unwarranted
In case an extension for the payment of a deficiency is granted, there (Collector of Internal Revenue vs. Convention of the Philippine Baptist
shall be collected, as a part of the taxes, interest on the part of the Churches, et al., L-11807, May 19, 1961 [Resolution]; Collector of Internal
deficiency the time for payment of which is so extended, at the rate of six Revenue vs. Sweeney, L-12178, August 21, 1959; Collector of Internal Revenue
per centum per annum for the period of the extensions. (Emphasis vs. St. Paul's Hospital, etc., L-12127, May 21, 1959). In the case at bar, it is
supplied.) . clearly not so, in the light of the attending circumstances. Hence, the amount
refundable by the Government, pursuant to the decision appealed from, should
At this juncture, it should be noted that the taxes assessed on the basis of the draw no interest, and said decision should be modified accordingly.
difference between the market value and the consideration were paid within
the period fixed by law or on May 15, 1951, as regards to trusts created in Thus modified, said decision should be, as it is hereby affirmed, in all other
1950, and on May 15, 1952, as regards the trusts constituted in 1951. Even the respects, without pronouncement as to costs. It is so ordered.
donor gift taxes, under a revised assessment, and the deficiency donor gift
taxes due on the first set of trusts were paid in due time (May 15, 1951). With
respect to the deficiency donor gift taxes on the two sets of trust agreements
and the deficiency donee gifts taxes assessed on the second set of trust
agreements, the defendant demanded payment thereof on or before June 30,
1954. Had these assessments been paid on that date, no interest whatsoever
would have been due thereon. It is but fair and just, therefore, that interest be
charged only for the period of the extension secured for the payment of the
trust assessments, pursuant to section 118(b).

In support of the theory that interest is due, not only for said period of
extension but, also, from the fifteenth day of May of the year following that in
which the trust had been constituted, defendant cites section 119(b) (2) of the
Tax Code, according to which: .

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

This provision applies only when the taxes are not paid within the extension
granted by the Collector or Commissioner of Internal Revenue. It is
inapplicable to the case at bar, for the taxes involved herein were paid
within said extension of time.

It is urged by the defendant that the Government should not be required to pay
interest on the amount refundable to the trustee and the trustors. The matter
G.R. No. L-19865 July 31, 1965
MARIA CARLA PIROVANO, etc., et al., petitioners-appellants,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent-appellee.
REYES, J.B.L., J.:
This case is a sequel to the case of Pirovano vs. De la Rama Steamship Co., 96 Phil.
335.
Briefly, the facts of the aforestated case may be stated as follows:
Enrico Pirovano was the father of the herein petitioners-appellants. Sometime in
the early part of 1941, De la Rama Steamship Co. insured the life of said Enrico
Pirovano, who was then its President and General Manager until the time of his
death, with various Philippine and American insurance companies for a total sum of
one million pesos, designating itself as the beneficiary of the policies, obtained by it.
Due to the Japanese occupation of the Philippines during the second World War, the
Company was unable to pay the premiums on the policies issued by its Philippine
insurers and these policies lapsed, while the policies issued by its American
insurers were kept effective and subsisting, the New York office of the Company
having continued paying its premiums from year to year.
During the Japanese occupation , or more particularly in the latter part of 1944,
said Enrico Pirovano died.
After the liberation of the Philippines from the Japanese forces, the Board of
Directors of De la Rama Steamship Co. adopted a resolution dated July 10, 1946
granting and setting aside, out of the proceeds expected to be collected on the
insurance policies taken on the life of said Enrico Pirovano, the sum of P400,000.00
for equal division among the four (4) minor children of the deceased, said sum of
money to be convertible into 4,000 shares of stock of the Company, at par, or 1,000
shares for each child. Shortly thereafter, the Company received the total sum of
P643,000.00 as proceeds of the said life insurance policies obtained from American
insurers.
Upon receipt of the last stated sum of money, the Board of Directors of the
Company modified, on January 6, 1947, the above-mentioned resolution by
renouncing all its rights title, and interest to the said amount of P643,000.00 in
favor of the minor children of the deceased, subject to the express condition that
said amount should be retained by the Company in the nature of a loan to it,
drawing interest at the rate of five per centum (5%) per annum, and payable to the
Pirovano children after the Company shall have first settled in full the balance of its
present remaining bonded indebtedness in the sum of approximately
P5,000,000.00. This latter resolution was carried out in a Memorandum Agreement
on January 10, 1947 and June 17, 1947., respectively, executed by the Company and
Mrs. Estefania R. Pirovano, the latter acting in her capacity as guardian of her
children (petitioners-appellants herein) find pursuant to an express authority
granted her by the court.
On June 24, 1947, the Board of Directors of the Company further modified the last
mentioned resolution providing therein that the Company shall pay the proceeds of
said life insurance policies to the heirs of the said Enrico Pirovano after the
Company shall have settled in full the balance of its present remaining bonded
indebtedness, but the annual interests accruing on the principal shall be paid to the
heirs of the said Enrico Pirovano, or their duly appointed representative, whenever
the Company is in a position to meet said obligation.
On February 26, 1948, Mrs. Estefania R. Pirovano, in behalf of her children,
executed a public document formally accepting the donation; and, on the same date,
the Company through its Board of Directors, took official notice of this formal
acceptance.
On September 13, 1949, the stockholders of the Company formally ratified the
various resolutions hereinabove mentioned with certain clarifying modifications
that the payment of the donation shall not be effected until such time as the
Company shall have first duly liquidated its present bonded indebtedness in the
amount of P3,260,855.77 with the National Development Company, or fully
redeemed the preferred shares of stock in the amount which shall be issued to the
National Development Company in lieu thereof; and that any and all taxes, legal
fees, and expenses in any way connected with the above transaction shall be
chargeable and deducted from the proceeds of the life insurance policies mentioned
in the resolutions of the Board of Directors.
On March 8, 1951, however, the majority stockholders of the Company voted to
revoke the resolution approving the donation in favor of the Pirovano children.
As a consequence of this revocation and refusal of the Company to pay the balance
of the donation amounting to P564,980.90 despite demands therefor, the herein
petitioners-appellants represented by their natural guardian, Mrs. Estefania R.
Pirovano, brought an action for the recovery of said amount, plus interest and
damages against De la Rama Steamship Co., in the Court of First Instance of Rizal,
which case ultimately culminated to an appeal to this Court. On December 29, 1954,
this court rendered its decision in the appealed case (96 Phil. 335) holding that the
donation was valid and remunerative in nature, the dispositive part of which reads:
Wherefore, the decision appealed from should be modified as follows: (a)
that the donation in favor of the children of the late Enrico Pirovano of the
proceeds of the insurance policies taken on his life is valid and binding on
the defendant corporation; (b) that said donation, which amounts to a
total of P583,813.59, including interest, as it appears in the books of the
corporation as of August 31, 1951, plus interest thereon at the rate of 5
per cent per annum from the filing of the complaint, should be paid to the
plaintiffs after the defendant corporation shall have fully redeemed the
preferred shares issued to the National Development Company under the
terms and conditions stared in the resolutions of the Board of Directors of
January 6, 1947 and June 24, 1947, as amended by the resolution of the
stockholders adopted on September 13, 1949; and (c) defendant shall pay
to plaintiffs an additional amount equivalent to 10 per cent of said amount
of P583,813.59 as damages by way of attorney's fees, and to pay the costs
of action. (Pirovano et al. vs. De la Rama Steamship Co., 96 Phil. 367-368)
The above decision became final and executory. In compliance therewith, De la
Rama Steamship Co. made, on April 6, 1955, a partial payment on the amount of the
judgment and paid the balance thereof on May 12, 1955.
On March 6, 1955, respondent Commissioner of Internal Revenue assessed the
amount of P60,869.67 as donees' gift tax, inclusive of surcharges, interests and
other penalties, against each of the petitioners-appellants, or for the total sum of
P243,478.68; and, on April 23, 1955, a donor's gift tax in the total amount of
P34,371.76 was also assessed against De la Rama Steamship Co., which the latter
paid.
Petitioners-appellants herein contested respondent Commissioner's assessment
and imposition of the donees' gift taxes and donor's gift tax and also made a claim
for refund of the donor's gift tax so collected. Respondent Commissioner overruled
petitioners' claims; hence, the latter presented two (2) petitions for review against
respondent's rulings before the Court of Tax Appeals, said petitions having been
docketed as CTA Cases Nos. 347 and 375. CTA Case No. 347 relates to the petition
disputing the legality of the assessment of donees' gift taxes and donor's gift tax
while CTA Case No. 375 refers to the claim for refund of the donor's gift tax already
paid.
After the filing of respondent's usual answers to the petitions, the two cases, being
interrelated to each other, were tried jointly and terminated.
On January 31, 1962, the Court of Tax Appeals rendered its decision in the two
cases, the dispositive part of which reads:
In resume, we are of the opinion, that (1) the donor's gift tax in the sum of
P34,371.76 was erroneously assessed and collected, hence, petitioners are
entitled to the refund thereof; (2) the donees' gift taxes were correctly
assessed; (3) the imposition of the surcharge of 25% is not proper; (4) the
surcharge of 5% is legally due; and (5) the interest of 1% per month on the
deficiency donees' gift taxes is due from petitioners from March 8, 1955
until the taxes are paid.
IN LINE WITH THE FOREGOING OPINION, petitioners are hereby ordered
to pay the donees' gift taxes as assessed by respondent, plus 5% surcharge
and interest at the rate of 1% per month from March 8, 1955 to the date of
payment of said donees' gift taxes. Respondent is ordered to apply the sum
of P34,371.76 which is refundable to petitioners, against the amount due
from petitioners. With costs against petitioners in Case No. 347.
Petitioners-appellants herein filed a motion to reconsider the above decision, which
the lower court denied. Hence, this appeal before us.
In the instant appeal, petitioners-appellants herein question only that portion of
the decision of the lower court ordering the payment of donees' gift taxes as
assessed by respondent as well as the imposition of surcharge and interest on the
amount of donees' gift taxes.
In their brief and memorandum, they dispute the factual finding of the lower court
that De la Rama Steamship Company's renunciation of its rights, title, and interest
over the proceeds of said life insurance policies in favor of the Pirovano children
"was motivated solely and exclusively by its sense of gratitude, an act of pure
liberality, and not to pay additional compensation for services inadequately paid
for." Petitioners now contend that the lower court's finding was erroneous in
seemingly considering the disputed grant as a simple donation, since our previous
decision (96 Phil. 335) had already declared that the transfer to the Pirovano
children was a remuneratory donation. Petitioners further contend that the same
was made not for an insufficient or inadequate consideration but rather it a was
made for a full and adequate compensation for the valuable services rendered by
the late Enrico Pirovano to the De la Rama Steamship Co.; hence, the donation does
not constitute a taxable gift under the provisions of Section 108 of the National
Internal Revenue Code.
The argument for petitioners-appellants fails to take into account the fact that
neither in Spanish nor in Anglo-American law was it considered that past services,
rendered without relying on a coetaneous promise, express or implied, that such
services would be paid for in the future, constituted cause or consideration that
would make a conveyance of property anything else but a gift or donation. This
conclusion flows from the text of Article 619 of the Code of 1889 (identical with
Article 726 of the present Civil Code of the Philippines):
When a person gives to another a thing ... on account of the latter's merits
or of the services rendered by him to the donor, provided they do not
constitute a demandable debt, ..., there is also a donation. ... .
There is nothing on record to show that when the late Enrico Pirovano rendered
services as President and General Manager of the De la Rama Steamship Co. he was
not fully compensated for such services, or that, because they were "largely
responsible for the rapid and very successful development of the activities of the
company" (Res. of July 10, 1946). Pirovano expected or was promised further
compensation over and in addition to his regular emoluments as President and
General Manager. The fact that his services contributed in a large measure to the
success of the company did not give rise to a recoverable debt, and the conveyances
made by the company to his heirs remain a gift or donation. This is emphasized by
the directors' Resolution of January 6, 1947, that "out of gratitude" the company
decided to renounce in favor of Pirovano's heirs the proceeds of the life insurance
policies in question. The true consideration for the donation was, therefore, the
company's gratitude for his services, and not the services themselves.
That the tax court regarded the conveyance as a simple donation, instead of a
remuneratory one as it was declared to be in our previous decision, is but an
innocuous error; whether remuneratory or simple, the conveyance remained a gift,
taxable under Chapter 2, Title III of the Internal Revenue Code.
But then appellants contend, the entire property or right donated should not be
considered as a gift for taxation purposes; only that portion of the value of the
property or right transferred, if any, which is in excess of the value of the services
rendered should be considered as a taxable gift. They cite in support Section 111 of
the Tax Code which provides that —
Where property is transferred for less, than an adequate and full
consideration in money or money's worth, then the amount by which the
value of the property exceeded the value of the consideration shall, for the
purpose of the tax imposed by this Chapter, be deemed a gift, ... .
The flaw in this argument lies in the fact that, as copied from American law, the
term consideration used in this section refers to the technical "consideration"
defined by the American Law Institute (Restatement of Contracts) as "anything that
is bargained for by the promisor and given by the promisee in exchange for the
promise" (Also, Corbin on Contracts, Vol. I, p. 359). But, as we have seen, Pirovano's
successful activities as officer of the De la Rama Steamship Co. cannot be deemed
such consideration for the gift to his heirs, since the services were rendered long
before the Company ceded the value of the life policies to said heirs; cession and
services were not the result of one bargain or of a mutual exchange of promises.
And the Anglo-American law treats a subsequent promise to pay for past services
(like one to pay for improvements already made without prior request from the
promisor) to be a nudum pactum (Roscorla vs. Thomas, 3 Q.B. 234; Peters vs. Poro,
25 ALR 615; Carson vs. Clark, 25 Am. Dec. 79; Boston vs. Dodge, 12 Am. Dec. 206),
i.e., one that is unenforceable in view of the common law rule that consideration
must consist in a legal benefit to the promisee or some legal detriment to the
promisor.
What is more, the actual consideration for the cession of the policies, as previously
shown, was the Company's gratitude to Pirovano; so that under section 111 of the
Code there is no consideration the value of which can be deducted from that of the
property transferred as a gift. Like "love and affection," gratitude has no economic
value and is not "consideration" in the sense that the word is used in this section of
the Tax Code.
As stated by Chief Justice Griffith of the Supreme Court of Mississippi in his well-
known book, "Outlines of the Law" (p. 204) —
Love and affection are not considerations of value — they are not estimable in
terms of value. Nor are sentiments of gratitude for gratuitous part favors or
kindnesses; nor are obligations which are merely moral. It has been well said that if
a moral obligation were alone sufficient it would remove the necessity for any
consideration at all, since the fact of making a promise impose, the moral obligation
to perform it."
It is of course perfectly possible that a donation or gift should at the same time
impose a burden or condition on the donee involving some economic liability for
him. A, for example, may donate a parcel of land to B on condition that the latter
assume a mortgage existing on the donated land. In this case the donee may
rightfully insist that the gift tax be computed only on the value of the land less the
value of the mortgage. This, in fact, is contemplated by Article 619 of the Civil Code
of 1889 (Art. 726 of the Tax Code) when it provides that there is also a donation
"when the gift imposes upon the donee a burden which is less than the value of the
thing given." Section 111 of the Tax Code has in view situations of this kind, since it
also prescribes that "the amount by which the value of the property exceeded the
value of the consideration" shall be deemed a gift for the purpose of the tax. .
Petitioners finally contend that, even assuming that the donation in question is
subject to donees' gift taxes, the imposition of the surcharge of 5% and interest of
1% per month from March 8, 1955 was not justified because the proceeds of the life
insurance policies were actually received on April 6, 1955 and May 12, 1955 only
and in accordance with Section 115(c) of the Tax Code; the filing of the returns of
such tax became due on March 1, 1956 and the tax became payable on May 15,
1956, as provided for in Section 116(a) of the same Code. In other words,
petitioners maintain that the assessment and demand for donees' gift taxes was
prematurely made and of no legal effect; hence, they should not be held liable for
such surcharge and interest.
It is well to note, and it is not disputed, that petitioners-donees have failed to file
any gift tax return and that they also failed to pay the amount of the assessment
made against them by respondent in 1955. This situation is covered by Section
119(b) (1) and (c) and Section 120 of the Tax Code:
(b) Deficiency.
(1) Payment not extended. — Where a deficiency, or any interest assessed
in connection therewith, or any addition to the taxes provided for in
section one hundred twenty is not paid in full within thirty days from the
date of the notice and demand from the Commissioner, there shall be
collected as a part of the taxes, interest upon the unpaid amount at the rate
of one per centum a month from the date of such notice and demand until
it is paid. (section 119)
(c) Surcharge. — If any amount of the taxes included in the notice and
demand from the Commissioner of Internal Revenue is not paid in full
within thirty days after such notice and demand, there shall be collected in
addition to the interest prescribed above as a part of the taxes a surcharge
of five per centum of the unpaid amount. (sec. 119)
The failure to file a return was found by the lower court to be due to reasonable
cause and not to willful neglect. On this score, the elimination by the lower court of
the 25% surcharge is ad valorem penalty which respondent Commissioner had
imposed pursuant to Section 120 of the Tax Code was proper, since said Section
120 vests in the Commissioner of Internal Revenue or in the tax court power and
authority to impose or not to impose such penalty depending upon whether or not
reasonable cause has been shown in the non-filing of such return.
On the other hand, unlike said Section 120, Section 119, paragraphs (b) (1) and (c)
of the Tax Code, does not confer on the Commissioner of Internal Revenue or on the
courts any power and discretion not to impose such interest and surcharge. It is
likewise provided for by law that an appeal to the Court of Tax Appeals from a
decision of the Commissioner of Internal Revenue shall not suspend the payment or
collection of the tax liability of the taxpayer unless a motion to that effect shall have
been presented to the court and granted by it on the ground that such collection
will jeopardize the interest of the taxpayer (Sec. 11, Republic Act No. 1125; Rule 12,
Rules of the Court of Tax Appeals). It should further be noted that —
It has been the uniform holding of this Court that no suit for enjoining the
collection of a tax, disputed or undisputed, can be brought, the remedy
being to pay the tax first, formerly under protest and now without need of
protect, file the claim with the Collector, and if he denies it, bring an action
for recovery against him. (David v. Ramos, et al., 90 Phil. 351)
Section 306 of the National Internal Revenue Code ... lays down the
procedure to be followed in those cases wherein a taxpayer entertains
some doubt about the correctness of a tax sought to be collected. Said
section provides that the tax, should first be paid and the taxpayer should
sue for its recovery afterwards. The purpose of the law obviously is to
prevent delay in the collection of taxes, upon which the Government
depends for its existence. To allow a taxpayer to first secure a ruling as
regards the validity of the tax before paying it would be to defeat this
purpose. (National Dental Supply Co. vs. Meer, 90 Phil. 265)
Petitioners did not file in the lower court any motion for the suspension of payment
or collection of the amount of assessment made against them.
On the basis of the above-stated provisions of law and applicable authorities, it is
evident that the imposition of 1% interest monthly and 5% surcharge is justified
and legal. As succinctly stated by the court below, said imposition is "mandatory
and may not be waived by the Commissioner of Internal Revenue or by the courts"
(Resolution on petitioners' motion for reconsideration, Annex XIV, petition). Hence,
said imposition of interest and surcharge by the lower court should be upheld.
WHEREFORE, the decision of the Court of Tax Appeals is affirmed. Costs against
petitioners Pirovano.