ESTATE CASE DIGEST
of section 1544 of the Revised Administrative Code. This contention
G.R. No. L-43082 June 18, 1937
PABLO LORENZO, as trustee of the estate of Thomas Hanley,
deceased, vs. JUAN POSADAS, JR., Collector of Internal Revenue
FACTS:
Thomas Hanley died, leaving a will and a considerable
amount of real and personal properties. Proceedings for the probate
of his will and the settlement and distribution of his estate were
begun in the CFI of Zamboanga. The will was admitted to probate.
The CFI considered it proper for the best interests of the
estate to appoint a trustee to administer the real properties which,
under the will, were to pass to nephew Matthew ten years after the
two executors named in the will was appointed trustee. Moore acted
as trustee until he resigned and the plaintiff Lorenzo herein was
appointed in his stead.
During the incumbency of the plaintiff as trustee, the
defendant Collector of Internal Revenue (Posadas) assessed
against the estate an inheritance tax, together with the penalties for
deliquency in payment. Lorenzo paid said amount under protest,
notifying Posadas at the same time that unless the amount was
promptly refunded suit would be brought for its recovery. Posadas
overruled Lorenzo’s protest and refused to refund the said amount.
Plaintiff went to court. The CFI dismissed Lorenzo’s complaint and
Posadas’ counterclaim. Both parties appealed to this court.
ISSUE:
(e) Has there been delinquency in the payment of the inheritance
tax?
HELD:
The judgment of the lower court is accordingly modified, with costs
against the plaintiff in both instances
YES
The defendant maintains that it was the duty of the executor to pay
the inheritance tax before the delivery of the decedent’s property to
the trustee. Stated otherwise, the defendant contends that delivery
to the trustee was delivery to the cestui que trust, the beneficiary in
this case, within the meaning of the first paragraph of subsection (b)
is well taken and is sustained. A trustee is but an instrument or
agent for the cestui que trust
The appointment of Moore as trustee was made by the trial court in
conformity with the wishes of the testator as expressed in his will. It
is true that the word “trust” is not mentioned or used in the will but
the intention to create one is clear. No particular or technical words
are required to create a testamentary trust. The words “trust” and
“trustee”, though apt for the purpose, are not necessary. In fact, the
use of these two words is not conclusive on the question that a trust
is created. ” To constitute a valid testamentary trust there must be a
concurrence of three circumstances:
(1) Sufficient words to raise a trust;
(2) a definite subject;
(3) a certain or ascertain object; statutes in some jurisdictions
expressly or in effect so providing.”
There is no doubt that the testator intended to create a trust. He
ordered in his will that certain of his properties be kept together
undisposed during a fixed period, for a stated purpose. The probate
court certainly exercised sound judgment in appointmening a trustee
to carry into effect the provisions of the will
As the existence of the trust was already proven, it results that the
estate which plaintiff represents has been delinquent in the payment
of inheritance tax and, therefore, liable for the payment of interest
and surcharge provided by law in such cases.
The delinquency in payment occurred on March 10, 1924, the date
when Moore became trustee. On that date trust estate vested in
him. The interest due should be computed from that date.
NOTES: Other issues:
(a) When does the inheritance tax accrue and when must it be
satisfied?
The accrual of the inheritance tax is distinct from the obligation to
pay the same.
1
Acording to article 657 of the Civil Code, “the rights to the
succession of a person are transmitted from the moment of his
death.” “In other words”, said Arellano, C. J., “. . . the heirs succeed
immediately to all of the property of the deceased ancestor. The
property belongs to the heirs at the moment of the death of the
ancestor as completely as if the ancestor had executed and
delivered to them a deed for the same before his death.”
Whatever may be the time when actual transmission of the
inheritance takes place, succession takes place in any event at the
moment of the decedent’s death. The time when the heirs legally
succeed to the inheritance may differ from the time when the heirs
actually receive such inheritance. ” Thomas Hanley having died on
May 27, 1922, the inheritance tax accrued as of the date.
From the fact, however, that Thomas Hanley died on May 27, 1922,
it does not follow that the obligation to pay the tax arose as of the
date. The time for the payment on inheritance tax is clearly fixed by
section 1544 of the Revised Administrative Code as amended by
Act No. 3031, in relation to section 1543 of the same Code. The two
sections follow:
SEC. 1543. Exemption of certain acquisitions and transmissions. —
The following shall not be taxed:
(a) The merger of the usufruct in the owner of the naked title.
(b) The transmission or delivery of the inheritance or legacy by the
fiduciary heir or legatee to the trustees.
(c) The transmission from the first heir, legatee, or donee in favor of
another beneficiary, in accordance with the desire of the
predecessor. xx
SEC. 1544. When tax to be paid. — The tax fixed in this article shall
be paid:
(a) In the second and third cases of the next preceding section,
before entrance into possession of the property.
(b) In other cases, within the six months subsequent to the death of
the predecessor; but if judicial testamentary or intestate proceedings
shall be instituted prior to the expiration of said period, the payment
shall be made by the executor or administrator before delivering to
each beneficiary his share.
The instant case does[not] fall under subsection (a), but under
subsection (b), of section 1544 above-quoted, as there is here no
fiduciary heirs, first heirs, legatee or donee. Under the subsection,
the tax should have been paid before the delivery of the properties
in question to Moore as trustee.
(b) Should the inheritance tax be computed on the basis of the value
of the estate at the time of the testator’s death, or on its value ten
years later?
If death is the generating source from which the power of the estate
to impose inheritance taxes takes its being and if, upon the death of
the decedent, succession takes place and the right of the estate to
tax vests instantly, the tax should be measured by the value of the
estate as it stood at the time of the decedent’s death, regardless of
any subsequent contingency value of any subsequent increase or
decrease in value
(c) In determining the net value of the estate subject to tax, is it
proper to deduct the compensation due to trustees?
A trustee, no doubt, is entitled to receive a fair compensation for his
services. But from this it does not follow that the compensation due
him may lawfully be deducted in arriving at the net value of the
estate subject to tax. There is no statute in the Philippines which
requires trustees’ commissions to be deducted in determining the
net value of the estate subject to inheritance tax
(d) What law governs the case at bar? Should the provisions of Act
No. 3606 favorable to the tax-payer be given retroactive effect?
A statute should be considered as prospective in its operation,
whether it enacts, amends, or repeals an inheritance tax, unless the
language of the statute clearly demands or expresses that it shall
have a retroactive effect, . . . .” Act No. 3606 itself contains no
provisions indicating legislative intent to give it retroactive effect. No
such effect can be given the statute by this court.
Facts:
On 27 May 1922, Thomas Hanley died in Zamboanga, leaving a will
and considerable amount of real and personal properties. Hanley’s
2
will provides the following: his money will be given to his nephew,
Matthew Hanley, as well as the real estate owned by him. It further
provided that the property will only be given ten years after Thomas
Hanley’s death. Thus, in the testamentary proceedings, the Court of
First Instance of Zamboanga appointed P.J.M. Moore as trustee of
the estate. Moore took oath of office on March 10, 1924, and
resigned on Feb. 29, 1932. Pablo Lorenzo was appointed in his
stead. Juan Posadas, Collector of Internal Revenue, assessed
inheritance tax against the estate amounting to P2,057.74 which
includes penalty and surcharge. He filed a motion in the
testamentary proceedings so that Lorenzo will be ordered to pay the
amount due. Lorenzo paid the amount in protest after CFI granted
Posadas’ motion. He claimed that the inheritance tax should have
been assessed after 10 years. He asked for a refund but Posadas
declined to do so. The latter counterclaimed for the additional
amount of P1,191.27 which represents interest due on the tax and
which was not included in the original assessment. However, CFI
dismissed this counterclaim. It also denied Lorenzo’s claim for
refund against Posadas. Hence, both appealed.
Issue: Whether the estate was delinquent in paying the inheritance
tax and therefore liable for the P1,191.27 that Posadas is asking
for?
Held: Yes. It was delinquent because according to Sec. 1544 (b) of
the Revised Administrative Code, payment of the inheritance tax
shall be made before delivering to each beneficiary his share. This
payment should have been made before March 10, 1924, the date
when P.J.M. Moore formally assumed the function of trustee.
Although the property was only to be given after 10 years from the
death of Hanley, the court considered that delivery to the trustee is
delivery to cestui que trust, the beneficiary within the meaning of
Sec. 1544 (b).
Even though there was no express mention of the word “trust” in the
will, the court of first instance was correct in appointing a trustee
because no particular or technical words are required to create a
testamentary trust (69 C.J.,p. 711). The requisites of a valid
testamentary trust are: 1) sufficient words to raise a trust, 2) a
definite subject, 3) a certain or ascertained object. There is no doubt
that Hanley intended to create a trust since he ordered in his will
that certain of his properties be kept together undisposed during a
fixed period or for a stated purpose.
G.R. No. L-68385 May 12, 1989
ILDEFONSO O. ELEGADO, as Ancillary Administrator of the
Testate Estate of the late WARREN TAYLOR GRAHAM, petitioner
vs.
CTA and COMMISSIONER OF INTERNAL REVENUE
GR 140944 April 30, 2008
RAFAEL ARSENIO S. DIZON, in his capacity as the Judicial
Administrator of the Estate of the deceased JOSE P. FERNANDEZ,
VS COURT OF TAX APPEALS and COMMISSIONER OF
INTERNAL REVENUE
FACTS:
On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter,
a petition for the probate of his will was filed with Branch 51 of the
Regional Trial Court (RTC) of Manila (probate court). The probate
court then appointed retired Supreme Court Justice Arsenio P.
Dizon (Justice Dizon) and petitioner, Atty. Rafael Arsenio P. Dizon
(petitioner) as Special and Assistant Special Administrator,
respectively, of the Estate of Jose (Estate). Petitioner alleged that
several requests for extension of the period to file the required
estate tax return were granted by the BIR since the assets of the
estate, as well as the claims against it, had yet to be collated,
determined and identified.
ISSUES:
1. Whether or not the CTA and the CA gravely erred in allowing the
admission of the pieces of evidence which were not formally offered
by the BIR; and
2. Whether the actual claims of the aforementioned creditors may
be fully allowed as deductions from the gross estate of Jose despite
the fact that the said claims were reduced or condoned through
compromise agreements entered into by the Estate with its creditors
3
Or Whether or not the CA erred in affirming the CTA in the latter's
determination of the deficiency estate tax imposed against the
Estate.
RULING:
1. Yes. While the CTA is not governed strictly by technical rules of
evidence, as rules of procedure are not ends in themselves and are
primarily intended as tools in the administration of justice, the
presentation of the BIR's evidence is not a mere procedural
technicality which may be disregarded considering that it is the only
means by which the CTA may ascertain and verify the truth of BIR's
claims against the Estate. The BIR's failure to formally offer these
pieces of evidence, despite CTA's directives, is fatal to its cause
2. Yes. The claims existing at the time of death are significant to,
and should be made the basis of, the determination of allowable
deductions. Also, as held in Propstra v. U.S., where a lien claimed
against the estate was certain and enforceable on the date of the
decedent's death, the fact that the claimant subsequently settled for
lesser amount did not preclude the estate from deducting the entire
amount of the claim for estate tax purposes. This is called the date-
of-death valuation rule.
G.R. No. L-20569 August 23, 1974
JOSE B. AZNAR, in his capacity as Administrator of the Estate of
the deceased, Matias H. Aznar, petitioner, vs.
CTA and COLLECTOR OF INTERNAL REVENUE, respondents
Facts:
Petitioner, as administrator of the estate of the deceased, Matias H.
Aznar, seeks a review and nullification of the decision of the Court
of Tax Appeals ordering the petitioner to pay the government the
sum of P227,691.77 representing deficiency income taxes for the
years 1946 to 1951. An investigation by the Commissioner of
Internal Revenue (CIR) ascertained the assets and liabilities of the
taxpayer and it was discovered that from 1946 to 1951, his net
worth had increased every year, which increases in net worth was
very much more than the income reported during said years. The
findings clearly indicated that the taxpayer did not declare correctly
the income reported in his income tax returns for the aforesaid
years. Petitioner avers that according to the NIRC, the right of the
CIR to assess deficiency income taxes of the late Aznar for the
years 1946, 1947, and 1948 had already prescribed at the time the
assessment was made on November 28, 1952; there being a five
year limitation upon assessment and collection from the filing of the
returns. Meanwhile, respondents believe that the prescription period
in the case at bar that is applicable is under Sec. 332 of the NIRC
which provides that: "(a) In the case of a false or fraudulent return
with intent to evade tax or of a failure to file a return, the tax may be
assessed, or a proceeding in court for the collection of such tax may
be begun without assessment, at any time within ten years after the
discovery of the falsity, fraud or omission". Petitioner argues said
provision does not apply because the taxpayer did not file false and
fraudulent returns with intent to evade tax.
Issue:
Whether or not the deceased Aznar filed false or fraudulent income
tax returns and subsequently, whether the action has not
prescribed.
Held:
The petition is without merit.
The respondent CTA concluded that the very "substantial under
declarations of income for six consecutive years eloquently
demonstrate the falsity or fraudulence of the income tax returns with
an intent to evade the payment of tax." The ordinary period of
prescription of 5 years within which to assess tax liabilities under
Sec. 331 of the NIRC should be applicable to normal circumstances,
but whenever the government is placed at a disadvantage so as to
prevent its lawful agents from proper assessment of tax liabilities
due to false returns, fraudulent return intended to evade payment of
tax, or failure to file returns, the period of ten years from the time of
the discovery of the falsity, fraud or omission even seems to be
inadequate. There being undoubtedly false tax returns in this case,
We affirm the conclusion of the respondent Court of Tax Appeals
that Sec. 332 (a) of the NIRC should apply and that the period of ten
4
years within which to assess petitioner's tax liability had not expired
at the time said assessment was made.
mtycong@accralaw.com
Copyright 2014. ACCRALAW. All Rights Reserved.
What constitutes “falsity of returns”?
In the landmark case of Aznar vs. Court of Tax Appeals, the
Supreme Court defined a false return as a deviation from the truth
or fact, whether intentional or not. There being substantial under-
declaration of income ranging from 170% to 4,370% of the reported
income for six years, Aznar was found to have filed false returns.
The definition of false returns becomes vital and relevant in
determining the application of the 10-year prescriptive period to
assess under Section 222 of the Tax Code, and the 50% surcharge
under Section 248 of the same law.
In general, the Commissioner of Internal Revenue is given three
years to assess deficiency taxes. However, when the assessment
involves false returns, the assessment period is extended to 10
years from its discovery.
Also, the normal surcharge imposed under the Tax Code is 25%.
The higher rate of 50% is applied only when there is willful neglect
to file returns or when false or fraudulent returns are filed. Clearly,
the filing of false returns is heavily penalized under the law.
Jurisprudence is not replete with cases concerning falsity of returns.
Other than the Aznar case, the issue of false returns was only
discussed by the Supreme Court in Samar-I Electric Cooperative vs
Commissioner of Internal Revenue. Here, there was substantial
under-declaration of withholding tax on compensation for three
years, which was considered by the Supreme Court to constitute
falsity in returns.
With the factual milieu of these cases and given the grave penalties
imposed by law, one would think that a return is false only when the
deviation is highly inordinate or when the return falsified pertains to
several years.
The Court of Tax Appeals (CTA), however, has differing views. In
the most recent case of Next Mobile, Inc. vs. Commissioner of
Internal Revenue, the CTA, applying the Aznar ruling, interpreted
that any deviation from the truth, even a 5% under-declaration of the
reported gross revenues, already constitutes a false return and
warrants the application of the 10-year prescriptive period to assess.
However, in Commissioner of Internal Revenue vs. Ayala Hotels,
Inc., the CTA ruled against the sweeping application of the Aznar
ruling. The CTA reasoned that otherwise, any mistake, however
slight in a return filed by a taxpayer in good faith, would justify the
application of the 10-year prescriptive period for assessment. The
CTA held that only false returns which are filed by a taxpayer with
intent to evade tax should warrant an application of the 10-year
prescriptive period.
Also, in San Miguel Corporation vs. Commissioner of Internal
Revenue, the CTA acknowledged that there is nothing in the Aznar
case which establishes a hard and fast rule that every deviation
from the truth necessarily brings a particular return under the
coverage of Section 222.
Thus, there appears to be no concrete and consistent rule as to
what constitutes false returns. A strict interpretation of the definition
in the Aznar case would make a mere deviation from the truth, such
as a P1 difference, a “false return.” If that were the case, the three-
year prescriptive period will be rendered nugatory, as every
deviation from the truth, which is always present in a deficiency tax
assessment, will result in a falsity in the return. Effectively, the
exception under Section 222 of the Tax Code becomes the general
rule, and the general rule of three years the exception. This
interpretation clearly runs counter to what Congress intended when
these provisions were drafted.
Section 248 (b) of the Tax Code even provides that substantial
under-declaration of taxable sales, receipts or income is required to
5
constitute a prima facie evidence of false returns, wherein under-
declared receipts must be in an amount exceeding 30% of the
receipts declared per return to constitute substantial under-
declaration.
Moreover, the issue of whether a design to mislead or deceive on
the part of the taxpayer, or at least culpable negligence, comes to
fore in interpreting what renders a return “false.”
In Section 222 of the Tax Code, the phrase “with intent to evade tax”
qualifies both the “false” and “fraudulent” as it is grouped under one
category.
As pronounced by the CTA in the Ayala Hotels case, following the
rules of statutory construction as well as the rules on grammatical
construction, the qualifying words “with intent to evade tax” should
refer to both the words “false” and “fraudulent” since these words
are not separated by a comma. If it was the intent of the lawmakers
to qualify only the word “fraudulent,” then this should have been
treated separately or, at the very least, the words “false” and
“fraudulent” should have been separated by a comma to show
separate treatment of the two.
It appears, therefore, that applying the rules of statutory construction
contradicts the definition of false returns laid by the Supreme Court
in the Aznar case, wherein intent is not relevant to constitute false
returns. However, since the latest case of Samar-I Electric adopts
the same definition held in Aznar, the question as to the
conclusiveness of the meaning of false returns still stays.
When the law has not specified and the Supreme Court has not
extensively discussed or clarified the parameters of the meaning of
false returns, more than ever, the taxpayer should ensure that each
and every item stated in a return is correct. Any discrepancy or
deviation from the truth may already render a return false and
subject the taxpayer to the heavy penalties provided by law.
To prevent inconsistent interpretation, which may open the
floodgates of assessments issued beyond the normal three-year
period and unduly prejudice the taxpayer, Congress should revise
the law and clearly define what constitutes false returns.
Mhealler T. Ycong is an associate of the Angara Abello Concepcion
Regala & Cruz Law Offices -- Cebu Branch.
G.R. No. 138485. September 10, 2001
DR . FELISA L. VDA. DE SAN AGUSTIN, in substitution of JOSE Y.
FERIA, in his capacity as Executor of the Estate of JOSE SAN
AGUSTIN, petitioner, vs. COMMISSIONER OF INTERNAL
REVENUE, respondent.
Taxation; Actions; Tax Refunds; To hold that the taxpayer has lost the
right to appeal from the ruling on the disputed assessment but must
prosecute his appeal under Section 306 of the Tax Code, which requires a taxpayer to
file a claim for refund of the taxes paid as a condition precedent to his right to
appeal, would in effect require of him to go through a useless and needless ceremony
that would only delay the disposition of the case—the law should not be
interpreted as to result in absurdities.—The case has a striking resemblance to the
controversy in Roman Catholic Archbishop of Cebu vs. Collector of Internal Revenue. The
petitioner in that case paid under protest the sum of P5,201.52 by way of income tax,
surcharge and interest and, forthwith, filed a petition for review before the Court of Tax
Appeals. Then respondent Collector (now Commissioner) of Internal Revenue set up
several defenses, one of which was that petitioner had failed to first file a written claim for
refund, pursuant to Section 306 of the Tax Code, of the amounts paid. Convinced that the
lack of a written claim for refund was fatal to petitioner’s recourse to it, the Court of Tax
Appeal
Facts:
“Atty. Jose San died on June 27, 1990 leaving his wife Dra. Felisa L. San
Agustin as sole heir. He left a holographic will executed on April 21, 1980
giving all his estate to his widow, and naming retired Justice Jose Y. Feria
as Executor thereof. On September 1990, an estate tax return reporting an
estate tax due of P1,676,432.00 was filed on behalf of the estate, with a
request for an extension of two years for the payment of the tax, inasmuch
6
as the decedent’s widow (did) not personally have sufficient funds, and that
the payment (would) have to come from the estate. BIR Deputy
Commissioner Victor A. Deoferio, Jr., granted the heirs an extension of
only six (6) months, subject to the imposition of penalties and interests
under Sections 248 and 249 of the National Internal Revenue Code, as
amended. In the probate proceedings, the RTC allowed the will and
appointed Jose Feria as Executor of the estate. On December 5, 1990, the
executor submitted to the probate court an inventory of the estate with a
motion for authority to withdraw funds for the payment of the estate tax.
Such authority was granted by the probate court on March 5, 1991.
Thereafter, the executor paid the estate tax in the amount of P1,676,432 as
reported in the Tax Return filed with the BIR. This was well within the six
(6) months extension period granted by the BIR. On September 23, 1991,
the widow of the deceased, Felisa L. San Agustin, received a Pre-
Assessment Notice from the BIR, dated August 29, 1991, showing a
deficiency estate tax of P538,509.50, which, including surcharge, interest
and penalties, amounted to P976,540.00. On October 1, 1991, within the
ten-day period given in the pre-assessment notice, the executor filed a letter
with the petitioner Commissioner expressing readiness to pay the basic
deficiency estate tax of P538,509.50 as soon as the Regional Trial Court
approves withdrawal thereof, but, requesting that the surcharge, interest,
and other penalties, amounting to P438,040.38 be waived, considering that
the assessed deficiency arose only on account of the difference in zonal
valuation used by the Estate and the BIR, and that the estate tax due per
return of P1,676,432.00 was already paid in due time within the extension
period.
“In a letter, dated October 31, 1991, the executor requested the
Commissioner a reconsideration of the assessment of P976,549.00 and
waiver of the surcharge, interest, etc. “On December 18, 1991, the
Commissioner accepted payment of the basic deficiency tax in the amount
of P538,509.50. “The request for reconsideration was not acted upon until
January 21, 1993, when the executor received a letter, dated September 21,
1992, signed by the Commissioner, stating that there is no legal
justification for the waiver of the interests, surcharge and compromise
penalty in this case, and requiring full payment of P438,040.38
representing such charges within ten (10) days from receipt thereof. In
view thereof, the respondent estate paid the amount of P438,040.38 under
protest on January 25, 1993. On February 18, 1993, a Petition for Review
was filed by the executor with the CTA with the prayer that the
Commissioner’s letter/decision, dated September 21, 1992 be reversed and
that a refund of the amount of P438,040.38 be ordered. The Commissioner
opposed the said petition, alleging that the CTA’s jurisdiction was not
properly invoked inasmuch as no claim for a tax refund of the deficiency
tax collected was filed with the Bureau of Internal Revenue before the
petition was filed, in violation of Sections 204 and 230 of the National
Internal Revenue Code.
G.R. No. 159694 January 27, 2006
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
AZUCENA T. REYES, Respondent.
x -- -- -- -- -- -- -- -- -- -- -- -- -- x
G.R. No. 163581 January 27, 2006
AZUCENA T. REYES, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
[G.R. No. 120880. June 5, 1997]
In 1993, Maria Tancino died leaving behind an estate worth P32
million. In 1997, a tax audit was conducted on the estate.
Meanwhile, the National Internal Revenue Code (NIRC) of 1997
was passed. Eventually in 1998, the estate was issued a final
assessment notice (FAN) demanding the estate to pay P14.9
million in taxes inclusive of surcharge and interest; the estate’s
liability was based on Section 229 of the [old] Tax Code. Azucena
Reyes, one of the heirs, protested the FAN. The Commissioner of
Internal Revenue (CIR) nevertheless issued a warrant of distraint
and/or levy. Reyes again protested the warrant but in March 1999,
she offered a compromise and was willing to pay P1 million in taxes.
Her offer was denied. She continued to work on another
compromise but was eventually denied. The case reached the Court
of Tax Appeals where Reyes was also denied. In the Court of
Appeals, Reyes received a favorable judgment.
ISSUE: Whether or not the formal assessment notice is valid.
7
HELD: No. The NIRC of 1997 was already in effect when the FAN
was issued. Under Section 228 of the NIRC, taxpayers shall be
informed in writing of the law and the facts on which the assessment
is made: otherwise, the assessment shall be void. In the case at
bar, the FAN merely stated the amount of liability to be shouldered
by the estate and the law upon which such liability is based.
However, the estate was not informed in writing of the facts on
which the assessment of estate taxes had been made. The estate
was merely informed of the findings of the CIR. Section 228 of the
NIRC being remedial in nature can be applied retroactively even
though the tax investigation was conducted prior to the law’s
passage. Consequently, the invalid FAN cannot be a basis of a
compromise, any proceeding emanating from the invalid FAN is void
including the issuance of the warrant of distraint and/or levy.
GR 120880 June 5, 1997
FERDINAND R. MARCOS II, petitioner, vs. COURT OF APPEALS,
THE COMMISSIONER OF THE BUREAU OF INTERNAL
REVENUE and HERMINIA D. DE GUZMAN, respondents.
Facts:
following the death of former Pres. Marcos in 1989, a Special Tax
Audit Team was created on june 27, 1990 to conduct investigations
and examination of tax liabilities of the late president, his family,
associates and cronies. The investigation disclosed that the
Marcoses failed to file a written of death of the decedent, estate tax
return and income tax returns for the years 1982 to 1986, all in
violation of the Tax Code. Criminal charges were filed against Mrs.
Marcos for the violation of Secs. 82, 83 and 84, NIRC.
The commissioner of Internal Revenue thereby caused the
preparation of the estate tax return for the late president, the income
returns of the Marcos spouses for the 1985 and 1986, and the
income tax returns of the petitioner Marcos II for the 1982 10 1985.
on July 26,1991, the BIR issued deficiency estate tax assessment
and the corresponding deficiency income tax assessments. Copies
of said deficiency estate and income tax assessments were served
personally and constructively on august 26.1991 and September 12,
1991 upon Mrs. Marcos at her last known address through her
caretaker. Likewise, copies of the deficiency income tax
assessments against petitioner Marcos II were personally and
constructively served at his last known address. Formal assessment
notices were served upon Mrs. Marcos c/o petitioner at his office in
the house of representatives on Oct. 20, 1992, as well as a notice of
tax payer to attend a conference furnished through her counsel.
The deficiency tax assessments were not administratively protested
by the Marcoses w/ in 30 days from service thereof. subsequently.,
a commissioner issued a total of 30 notices to levy on real property
against certain parcels of land and other real property owned by the
Marcoses, pursuant to Secs. 205 and 213, NIRC. In response to a
letter dated March 12, 1993 of the marcoses new counsel, copies of
the afore said notices were serve on April 7, 1993 and June 10.1993
upon the Marcoses on their counsel of record.
Ferdinand R. Marcos II assailed the decision of the Court of Appeals
declaring the deficiency income tax assessments and estate tax
assessments upon the estate and properties of his late father
despite the pendency of the probate proceedings of the will of the
late President. On the other hand, the BIR argued that the State’s
authority to collect internal revenue taxes is paramount.
Petitioner further argues that "the numerous pending court cases
questioning the late president's ownership or interests in several
properties (both real and personal) make the total value of his
estate, and the consequent estate tax due, incapable of exact
pecuniary determination at this time. Thus, respondents'
assessment of the estate tax and their issuance of the Notices of
Levy and sale are premature and oppressive." He points out the
pendency of Sandiganbayan Civil Case Nos. 0001-0034 and 0141,
which were filed by the government to question the ownership and
interests of the late President in real and personal properties located
within and outside the Philippines. Petitioner, however, omits to
allege whether the properties levied upon by the BIR in the
collection of estate taxes upon the decedent's estate were among
those involved in the said cases pending in the Sandiganbayan.
Indeed, the court is at a loss as to how these cases are relevant to
the matter at issue. The mere fact that the decedent has pending
8
cases involving ill-gotten wealth does not affect the enforcement of
tax assessments over the properties indubitably included in his
estate.
Issue:
Is the contention of Marcos correct?
Held:
No. The approval of the court, sitting in probate or as a settlement
tribunal over the deceased’s estate, is not a mandatory requirement
in the collection of estate taxes.
There is nothing in the Tax Code, and in the pertinent remedial laws
that implies the necessity of the probate or estate settlement court's
approval of the state's claim for estate taxes, before the same can
be enforced and collected.
The enforcement of tax laws and the collection of taxes are of
paramount importance for the sustenance of government. Taxes are
the lifeblood of government and should be collected without
unnecessary hindrance. However, such collection should be made
in accordance with law as any arbitrariness will negate the existence
of government itself.
It is not the Department of Justice which is the government agency
tasked to determine the amount of taxes due upon the subject
estate, but the Bureau of Internal Revenue whose determinations
and assessments are presumed correct and made in good faith.
The taxpayer has the duty of proving otherwise. In the absence of
proof of any irregularities in the performance of official duties, an
assessment will not be disturbed. Even an assessment based on
estimates is prima facie valid and lawful where it does not appear to
have been arrived at arbitrarily or capriciously. The burden of proof
is upon the complaining party to show clearly that the assessment is
erroneous. Failure to present proof of error in the assessment will
justify the judicial affirmance of said assessment. In this instance,
petitioner has not pointed out one single provision in the
Memorandum of the Special Audit Team which gave rise to the
questioned assessment, which bears a trace of falsity. Indeed, the
petitioner's attack on the assessment bears mainly on the alleged
improbable and unconscionable amount of the taxes charged. But
mere rhetoric cannot supply the basis for the charge of impropriety
of the assessments made.
G.R. No. 208293, December 10, 2014
PHILIPPINE NATIONAL BANK, PETITIONER, VS. CARMELITA S.
SANTOS, REYME L. SANTOS, ANGEL L. SANTOS, NONENG S.
DIANCO, ET AL., RESPONDENTS.
Respondents, heirs of Angel C. Santos, who died on March 21,
1991, discovered that their father had a premium savings account
(P1,759,082.634), and a time deposit (P1,000,000.00) with the
Philippine National Bank Sta. Elena,-Marikina City branch. They
tried to withdraw the deposits but were required to submit the
necessary documents. It was only after two years that they were
able to complete the required documents, but were shocked to
discover that the money was released to a certain Bernardito
Manimbo, who submitted the following documents: (a) an affidavit of
self-adjudication purportedly executed by one of the respondents,
Reyme L. Santos; (b) a certificate of time deposit dated December
14, 1989 amounting to P1,000,000.00; and (c) the death certificate
of Angel C. Santos, among others, and a special power of attorney
purportedly executed by Reyme L. Santos in favor of Manimbo and
a certain Angel P. Santos for purposes of withdrawing and receiving
the proceeds of the certificate of time deposit. Thus, the
respondents filed a complaint for sum of money against PNB, Lina
Aguilar, and a certain John Doe, to compel them to pay the premium
deposit amount; the certificate of time deposit, and moral and
exemplary damages. In their answer, PNB denied liability,
maintaing that Santos only had one deposit with the bank, a time
deposit that was converted into a premium savings account upon
maturity; that they did not know of Angel’s death in 1991; and
Manimbo was able to submit documents which appeared to be
regular. They also filed third-party complaints against Manimbo,
Angel Santos and Capital Insurance and Surety Co; Angel denied
knowing about the SPA; Capital Insurance on the other hand denied
9
liability for PNB’s negligence, as its undertaking was only to persons
who were unduly deprived of their participation in the estate.
The RTC after trial held PNM and Aguilar jointly and severally liable;
it ruled that Santos only had one account with PNB, a time deposit
which was converted into a premium savings account. Further, it
found PNB and Aguilar negligent in releasing the proceeds of the
deposit, and its failure to notify the depositor about the maturity of
the time deposit and its conversion into a savings deposit. It also
failed to require the production of birth certificates to prove the
claimant relationship to the depositor, and its reliance on the
affidavit of self-adjudication when several claimants had already
approached them beforehand. Both PNB and Aguilar appealed to
the Court of Appeals, which also affirmed the decision of the RTC.
PNB was negligent when it did not require all the documents from
Manimbo, particularly the BIR certification that estate taxes had
been paid. On the other hand, Aguilar cannot point her finger at the
Legal Department of the PNB to whom she should have provided all
the necessary documents as Branch Manager. Dissatisfied with the
CA ruling, both PNB and Aguilar appealed to the Supreme Court.
The Issue:
Whether or not PNB and Aguilar were negligent is releasing the
proceeds of the savings deposit to a person other than the heirs of
the depositor
The Ruling:
We rule for the respondents.
The trial court and the Court of Appeals correctly found that
petitioners PNB and Aguilar were negligent in handling the deposit
of Angel C. Santos.
The contractual relationship between banks and their depositors is
governed by the Civil Code provisions on simple loan.⁠1 Once a
person makes a deposit of his or her money to the bank, he or she
is considered to have lent the bank that money.⁠2 The bank
becomes his or her debtor, and he or she becomes the creditor of
the bank, which is obligated to pay him or her on demand.⁠3
The default standard of diligence in the performance of obligations
is “diligence of a good father of a family.” Thus, the Civil Code
provides:
ART. 1163. Every person obliged to give something is also obliged
to take care of it with the proper diligence of a good father of a
family, unless the law or the stipulation of the parties requires
another standard of care.
ART. 1173. The fault or negligence of the obligor consists in the
omission of that diligence which is required by the nature of the
obligation and corresponds with the circumstances of the persons,
of the time and of the place. When negligence shows bad faith, the
provisions of articles 1171 and 2201, paragraph 2, shall apply.
If the law or contract does not state the diligence which is to be
observed in the performance, that which is expected of a good
father of a family shall be required. (Emphasis supplied)
“Diligence of a good father of a family” is the standard of diligence
expected of, among others, usufructuaries,⁠4 passengers of
common carriers,⁠5 agents,⁠6 depositaries,⁠7 pledgees,⁠8 officious
managers,⁠9 and persons deemed by law as responsible for the acts
of others.⁠10 “The diligence of a good father of a family requires only
that diligence which an ordinary prudent man would exercise with
regard to his own property.”⁠11
Other industries, because of their nature, are bound by law to
observe higher standards of diligence. Common carriers, for
example, must observe “extraordinary diligence in the vigilance over
the goods and for the safety of [their] passengers”⁠12 because it is
considered a business affected with public interest. “Extraordinary
diligence” with respect to passenger safety is further qualified as
“carrying the passengers safely as far as human care and foresight
can provide, using the utmost diligence of very cautious persons,
with a due regard for all the circumstances.”⁠13
10
Similar to common carriers, banking is a business that is impressed
with public interest. It affects economies and plays a significant role
in businesses and commerce.⁠14 The public reposes its faith and
confidence upon banks, such that “even the humble wage-earner
has not hesitated to entrust his life’s savings to the bank of his
choice, knowing that they will be safe in its custody and will even
earn some interest for him.”⁠15 This is why we have recognized the
fiduciary nature of the banks’ functions, and attached a special
standard of diligence for the exercise of their functions.
In Simex International (Manila), Inc. v. Court of Appeals,⁠16 this
court described the nature of banks’ functions and the attitude
expected of banks in handling their depositors’ accounts, thus:
In every case, the depositor expects the bank to treat his account
with the utmost fidelity, whether such account consists only of a few
hundred pesos or of millions. . . .
The point is that as a business affected with public interest and
because of the nature of its functions, the bank is under obligation to
treat the accounts of its depositors with meticulous care, always
having in mind the fiduciary nature of their relationship.⁠17
(Emphasis supplied)
The fiduciary nature of banking is affirmed in Republic Act No. 8791
or The General Banking Law, thus:
SEC. 2. Declaration of Policy. — The State recognizes the vital role
of banks in providing an environment conducive to the sustained
development of the national economy and the fiduciary nature of
banking that requires high standards of integrity and performance.
In furtherance thereof, the State shall promote and maintain a stable
and efficient banking and financial system that is globally
competitive, dynamic and responsive to the demands of a
developing economy. (Emphasis supplied)
In The Consolidated Bank and Trust Corporation v. Court of
Appeals,⁠18 this court explained the meaning of fiduciary
relationship and the standard of diligence assumed by banks:
This fiduciary relationship means that the bank’s obligation to
observe “high standards of integrity and performance” is deemed
written into every deposit agreement between a bank and its
depositor. The fiduciary nature of banking requires banks to assume
a degree of diligence higher than that of a good father of a family.
Article 1172 of the Civil Code states that the degree of diligence
required of an obligor is that prescribed by law or contract, and
absent such stipulation then the diligence of a good father of a
family.⁠19 (Emphasis supplied, citation omitted)
Petitioners PNB and Aguilar’s treatment of Angel C. Santos’ account
is inconsistent with the high standard of diligence required of banks.
They accepted Manimbo’s representations despite knowledge of the
existence of circumstances that should have raised doubts on such
representations. As a result, Angel C. Santos’ deposit was given to
a person stranger to him.
Petitioner PNB pointed out that since petitioner Aguilar assumed
office as PNB-Sta. Elena-Marikina City Branch Manager only five (5)
years from Angel C. Santos’ death, she was not in the position to
know that respondents were the heirs of Angel C. Santos.⁠20 She
could not have accepted the unsigned and unnotarized extrajudicial
settlement deed that respondents had first showed her. She was
not competent to make a conclusion whether that deed was
genuine.⁠22 Neither could petitioners PNB and Aguilar pass
judgment on a letter from respondents’ lawyer stating that
respondents were the nine heirs of Angel C. Santos.⁠23
Petitioners PNB and Aguilar’s negligence is not based on their
failure to accept respondents’ documents as evidence of their right
to claim Angel C. Santos’ deposit. Rather, it is based on their failure
to exercise the diligence required of banks when they accepted the
fraudulent representations of Manimbo.
11
Petitioners PNB and Aguilar disregarded their own requirements for
the release of the deposit to persons claiming to be heirs of a
deceased depositor. When respondents asked for the release of
Angel C. Santos’ deposit, they were required to present the
following: “(1) original or certified true copy of the Death Certificate
of Angel C. Santos; (2) certificate of payment of, or exemption from,
estate tax issued by the Bureau of Internal Revenue (BIR); (3) Deed
of Extrajudicial Settlement; (4) Publisher’s Affidavit of publication of
the Deed of Extrajudicial Settlement; and (5) Surety bond effective
for two (2) years and in an amount equal to the balance of the
deposit to be withdrawn.”⁠24
Petitioners PNB and Aguilar, however, accepted Manimbo’s
representations, and they released Angel C. Santos’ deposit based
on only the following documents:
1. Death certificate of Angel C. Santos;
2. Birth certificate of Reyme L. Santos;
3. Affidavit of self-adjudication of Reyme L. Santos;
4. Affidavit of publication;
5. Special power of attorney that Reyme L. Santos executed in
favor of Bernardito Manimbo and Angel P. Santos;
6. Personal items of Angel C. Santos, such as photocopies or
originals of passport, residence certificate for year 1990,
SSS I.D., etc.;
7. Surety good for two (2) years; and
8. Certificate of Time Deposit No. 341306
Based on these enumerations, petitioners PNB and Aguilar either
have no fixed standards for the release of their deceased clients’
deposits or they have standards that they disregard for
convenience, favor, or upon exercise of discretion. Both are
inconsistent with the required diligence of banks. These threaten the
safety of the depositors’ accounts as they provide avenues for
fraudulent practices by third persons or by bank officers themselves.
In this case, petitioners PNB and Aguilar released Angel C. Santos’
deposit to Manimbo without having been presented the BIR-issued
certificate of payment of, or exception from, estate tax. This is a
legal requirement before the deposit of a decedent is released.
Presidential Decree No. 1158,⁠26 the tax code applicable when
Angel C. Santos died in 1991, provides:
SEC. 118. Payment of tax antecedent to the transfer of shares,
bonds, or rights. — There shall not be transferred to any new owner
in the books of any corporation, sociedad anonima, partnership,
business, or industry organized or established in the Philippines,
any shares, obligations, bonds or rights by way of gift inter vivos or
mortis causa, legacy, or inheritance unless a certification from the
Commissioner that the taxes fixed in this Title and due thereon have
been paid is shown.
If a bank has knowledge of the death of a person who maintained a
hank deposit account alone, or jointly with another, it shall not allow
any withdrawal from the said deposit account, unless the
Commissioner has certified that the taxes imposed thereon by this
Title have been paid; Provided, however, That the administrator of
the estate or any one of the heirs of the decedent may upon
authorization by the Commissioner of Internal Revenue, withdraw
an amount not exceeding P10,000 without the said certification. For
this purpose, all withdrawal slips shall contain a statement to the
effect that all of the joint depositors are still living at the time of
withdrawal by any one of the joint depositors and such statement
shall be under oath by the said depositors.⁠27 (Emphasis supplied)
This provision was reproduced in Section 97 of the 1997 National
Internal Revenue Code, thus:
12
SEC. 97. Payment of Tax Antecedent to the Transfer of Shares,
Bonds or Rights. — There shall not be transferred to any new owner
in the books of any corporation, sociedad anonima, partnership,
business, or industry organized or established in the Philippines any
share, obligation, bond or right by way of gift inter vivos or mortis
causa, legacy or inheritance, unless a certification from the
Commissioner that the taxes fixed in this Title and due thereon have
been paid is shown.
If a bank has knowledge of the death of a person, who maintained a
bank deposit account alone, or jointly with another, it shall not allow
any withdrawal from the said deposit account, unless the
Commissioner has certified that the taxes imposed thereon by this
Title have been paid: Provided, however, That the administrator of
the estate or any one (1) of the heirs of the decedent may, upon
authorization by the Commissioner, withdraw an amount not
exceeding Twenty thousand pesos (P20,000) without the said
certification. For this purpose, all withdrawal slips shall contain a
statement to the effect that all of the joint depositors are still living at
the time of withdrawal by any one of the joint depositors and such
statement shall be under oath by the said depositors. (Emphasis
supplied)
Taxes are created primarily to generate revenues for the
maintenance of the government. However, this particular tax may
also serve as guard against the release of deposits to persons who
have no sufficient and valid claim over the deposits. Based on the
assumption that only those with sufficient and valid claim to the
deposit will pay the taxes for it, requiring the certificate from the BIR
increases the chance that the deposit will be released only to them.
In their compulsory counterclaim,⁠28 petitioners PNB and Aguilar
claimed that Manimbo presented a certificate of payment of estate
tax.⁠29 During trial, however, it turned out that this certificate was
instead an authority to accept payment, which is not the certificate
required for the release of bank deposits.⁠30 It appears that
Manimbo was not even required to submit the BIR certificate⁠31. He,
thus, failed to present such certificate. Petitioners PNB and Aguilar
provided no satisfactory explanation why Angel C. Santos’ deposit
was released without it.
Petitioners PNB and Aguilar’s negligence is also clear when they
accepted as bases for the release of the deposit to Manimbo: (a) a
mere photocopy of Angel C. Santos’ death certificate;⁠32 (b) the
falsified affidavit of self-adjudication and special power of attorney
purportedly executed by Reyme L. Santos;⁠33 and (c) the certificate
of time deposit.⁠34
Petitioner Aguilar was aware that there were other claimants to
Angel C. Santos’ deposit. Respondents had already communicated
with petitioner Aguilar regarding Angel C. Santos’ account before
Manimbo appeared. Petitioner Aguilar even gave respondents the
updated passbook of Angel C. Santos’ account.⁠35 Yet, petitioners
PNB and Aguilar did not think twice before they released the deposit
to Manimbo. They did not doubt why no original death certificate
could be submitted. They did not doubt why Reyme L. Santos would
execute an affidavit of self-adjudication when he, together with
others, had previously asked for the release of Angel C. Santos’
deposit. They also relied on the certificate of time deposit and on
Manimbo’s representation that the passbook was lost when the
passbook had just been previously presented to Aguilar for
updating.⁠36
During the trial, petitioner PNB’s counsel only reasoned that the
photocopy of the death certificate was also submitted with other
documents, which led him to no other conclusion than that Angel C.
Santos was already dead.⁠37 On petitioners PNB and Aguilar’s
reliance special power of attorney allegedly executed by Reyme L.
Santos, Aguilar admitted that she did not contact Reyme L. Santos
for verification. Her reason was that Reyme L. Santos was not their
client. Therefore, they had no obligation to do so.⁠38
Given the circumstances, “diligence of a good father of a family”
would have required petitioners PNB and Aguilar to verify. A prudent
man would have inquired why Reyme L. Santos would issue an
affidavit of self-adjudication when others had also claimed to be
heirs of Angel C. Santos. Contrary to petitioner Aguilar’s reasoning,
the fact that Reyme L. Santos was not petitioner PNB’s client should
have moved her to take measures to ensure the veracity of
Manimbo’s documents and representations. This is because she
had no previous knowledge of Reyme L. Santos his representatives,
and his signature.
13
Petitioner PNB is a bank from which a degree of diligence higher
than that of a good father of a family is expected. Petitioner PNB
and its manager, petitioner Aguilar, failed to meet even the standard
of diligence of a good father of a family. Their actions and inactions
constitute gross negligence. It is for this reason that we sustain the
trial court’s and the Court of Appeals’ rulings that petitioners PNB
and Aguilar are solidarity liable with each other.⁠39
For the same reason, we sustain the award for moral damages.
Petitioners PNB and Aguilar’s gross negligence deprived Angel C.
Santos’ heirs what is rightfully theirs. Respondents also testified that
they experienced anger and embarrassment when petitioners PNB
and Aguilar refused to release Angel C. Santos’ deposit.⁠40 “The
bank’s negligence was the result of lack of due care and caution
required of managers and employees of a firm engaged in so
sensitive and demanding business as banking.”⁠41
Exemplary damages should also be awarded. “The law allows the
grant of exemplary damages by way of example for the public good.
The public relies on the banks’ sworn profession of diligence and
meticulousness in giving irreproachable service. The level of
meticulousness must be maintained at all times by the banking
sector.”⁠42
Since exemplary damages are awarded and since respondents
were compelled to litigate to protect their interests,⁠43 the award of
attorney’s fees is also proper.
The Court of Appeals’ award of interest should be modified to 12%
from demand on April 26, 1998 until June 30, 2013, and 6% from
July 1, 2013 until fully paid. In Nacar v. Gallery Frames:⁠44
Thus, from the foregoing, in the absence of an express stipulation
as to the rate of interest that would govern the parties, the rate of
legal interest for loans or forbearance of any money. . . shall no
longer be twelve percent (12%) per annum. . . but will now be six
percent (6%) per annum effective July 1, 2013. It should be noted,
nonetheless, that. . . the twelve percent (12%) per annum legal
interest shall apply only until June 30, 2013. Come July 1, 2013 the
new rate of six percent (6%) per annum shall be the prevailing rate
of interest when applicable.
….
1. When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself
earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 6%
per annum to be computed from default, i.e., from judicial or
extrajudicial demand. . .
….
1. When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest,
whether the case falls under paragraph 1 or paragraph 2,
above, shall be 6% per annum from such finality until its
satisfaction, this interim period being deemed to be by then
an equivalent to a forbearance of credit.⁠45
WHEREFORE, the Court of Appeals’ decision dated July 25, 2013
is AFFIRMED with the MODIFICATIONS in that petitioners
Philippine National Bank and Lina B. Aguilar are ordered solidarity
liable to pay respondents P100,000.00 as exemplary damages.
Further, the interest rate for the amount of P1,882,002.05,
representing the face value of PNB Manager’s Check No. AF-
974686B is modified to 12% from April 26, 1998 until June 30, 2013,
and 6% from July 1, 2013 until satisfaction. All monetary awards
shall then earn interest at the rate of 6% per annum from finality of
the decision until full satisfaction.
SO ORDERED.
14