THE COLLECTOR OF INTERNAL REVENUE v. ANTONIO the National Internal Revenue Code.

It reads thus: "That no tax shall

CAMPOS RUEDA. G.R. No. L-13250. October 29, 1971 be collected under this Title in respect of intangible personal property
(a) if the decedent at the time of his death was a resident of a foreign
FACTS:
country which at the time of his death did not impose a transfer tax or
death tax of any character in respect of intangible person property of
Antonio Campos Rueda is the administrator of the estate of the
the Philippines not residing in that foreign country, or (b) if the laws
deceased Maria Cerdeira. Cerdeira is a Spanish national, by reason of
of the foreign country of which the decedent was a resident at the time
her marriage to a Spanish citizen and was a resident of Tangier,
of his death allow a similar exemption from transfer taxes or death
Morocco up to her death. At the time of her demise she left, among
taxes of every character in respect of intangible personal property
others, intangible personal properties in the Philippines. The CIR then
owned by citizens of the Philippines not residing in that foreign
issued an assessment for state and inheritance taxes of P369,383.96.
country."
Rueda filed an amended return stating that intangible personal
properties worth P396,308.90 should be exempted from taxes. The
It does not admit of doubt that if a foreign country is to be identified
CIR denied the request on the ground that the law of Tangier is not
with a state, it is required in line with Pound's formulation that it be a
reciprocal to Section 122 (now Section 104) of the National Internal
politically organized sovereign community independent of outside
Revenue Code.
control bound by penalties of nationhood, legally supreme within its
territory, acting through a government functioning under a regime
The case was elevated to the CTA which sided with Rueda. The CTA
of law. A foreign country is thus a sovereign person with the people
stated that the foreign country mentioned in Section 122 "refers to a
composing it viewed as an organized corporate society under a
government of that foreign power which, although not an international
government with the legal competence to exact obedience to its
person in the sense of international law, does not impose transfer or
commands.
death upon intangible person properties of our citizens not residing
therein, or whose law allows a similar exemption from such taxes. It
is, therefore, not necessary that Tangier should have been recognized
Even on the assumption then that Tangier is bereft of international
by our Government order to entitle the petitioner to the exemption
personality, the CIR has not successfully made out a case. The Court
benefits of the proviso of Section 122 of our Tax. Code."
did commit itself to the doctrine that even a tiny principality, like
Liechtenstein, hardly an international personality in the sense, did fall
ISSUE: Whether the exemption is valid.
under this exempt category.
RULING:

YES.

The controlling legal provision as noted is a proviso in Section 122 of

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COLLECTOR V. DE LARA (multiplicity of situs)
FACTS:
Appeal: CTA decision where assessment for estate and inheritance tax
on Hugo H. Miller is modified and Collector is to pay 2047.22 pesos
for estate taxes due. Failure to pay within 30 days will result in 5%
surcharge and interest.
Hugo H. Miller from Santa Cruz, California
came to the PH where he was connected to the public school system
as a teacher, later a superintendent.
retiring under Osmeiia Retirement Act, he got a position in Ginn &
Co. book publishers in NY until the start of the Pacific War.
1922-Dec. 7, 1941: stationed at PH but also covered JP and CN. sold
books for Philippine schools.
stayed at the Manila Hotel (1922) and never in any residential house
in the PH , even when his wife came to visit. Upon her death (1931),
he transferred to Army and Navy Club until the outbreak of Pacific
War.
Jan. 14, 1941: execution of last will and testament in SC, California.
Dec. 7, 1941: Ginn & Co. closed and he joined Board of Censors of
the US Navy which eventually lead to his capture by the Japanese
forces during the war and reportedly executed (Mar. 11, 1944)
Ancillary proceedings were filed by executors (BOA, Nat’l Trust &
Savings Assoc. SFC), as well as estate and inheritance tax return with
Collector, covering only shares of stocks issued by PH Corps; P269.43
for taxes and P230.27 for inheritance taxes
Collector assessed (made known to executor April 3, 1950), and De
Lara (estate Ancillary Administrator) protested at the total of 77300.92
pesos (Jan. 16, 1954)
In determining the “gross estate” of a decedent, under Section 122 in
relation to section 88 of our Tax Code, it is first necessary to decide
whether the decedent was a resident or a non-resident of the
Philippines at the time of his death.
CTA: Miller was considered a resident of the PH at the time of his
death due to length of stay, thus imposing taxes on intangible
properties in the US.
residence and domicile used interchangeably by Court, not affected by
actual residence.
despite being a non-resident of the PH, only taxable properties are PH
shares of stocks under the doctrine of mobilia secuuntur persona.
but his activities are with respect to the intangibles, lead him to avail
of PH laws and benefits; thus leading taxation to not be limited to
California, but also to the PH. Actual situs of the shares of stock,
corporation itself are in the PH, and rights to dividends, dispose shares
(transmission and acquisition) enjoy PH protection. PH may, with due
process, impose a tax upon transfer by death of shares of stock in a
domestic corporation owned by a decedent whose domicile was
outside of the state.
DE LARA:
Section 122 of Tax Code: No tax shall be collected in respect of
intangible personal property
(a) if the decedent at the time of his death was a resident of a foreign
country which at the time of his death did not impose a transfer tax or
death tax of any character in respect of intangible personal property of
citizens of the Philippines not residing in that country
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exemption of non-californians based from california inheritance tax the PH, Miller never acquired a residence and the bulk of his savings
with respect to tangibles. and properties were in theUnited States.
*an exemption was granted to the estate by virtue of Section 122 of Affirmed, with modification.
the Tax Code, also to prevent multiple taxation which otherwise would
subject a decedent’s intangible personal property to the inheritance
tax, both in his place of residence and domicile and the place where
those properties are found
(b) if the laws of the foreign country of which the decedent was
resident at the time of his death allow a similar exemption from
transfer taxes or death taxes of every character in respect of intangible
personal property owned by citizen, of the Philippine not residing in
that foreign country.
exemption by reduction of 4000 pesos from estates of non residents
*P4,000 based on the reduction under the Federal Tax Law in the
amount of $2,000 is in the nature of deduction and not of an exemption
ordered to pay 2047.22 as he used provisions in RA. 1253 which was
for those affected by the Japanese occupation, but was not in time and
could not be invoked.
ISSUE:
W/N the estate is liable to file an estate and inheritance tax return
besides those covering shares of stock issued by Philippine
corporations.
HELD: No
The Court agrees with the CTA that residence was synonymous with
domicile, used interchangeabiy. The incidence of estate and
succession has historically been determined by domicile and situs and
not by the fact of actual residence. At the time of his death, Miller had Vidal de Roces vs. Posadas Digest
his residence or domicile in Santa Cruz, California. During his stay in
Vidal de Roces v. Posadas

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G.R. No. 34937 March 13, 1933
Imperial, J.:
Facts:
1. Sometime in 1925, plaintiffs Concepcion Vidal de Roces and her
husband, as well as one Elvira Richards, received as donation several
parcels of land from Esperanza Tuazon. They took possession of the
lands thereafter and likewise obtained the respective transfer
certificates.
2.The donor died a year after without leaving any forced heir. In her
will, which was admitted to probate, she bequeathed to each of the
donees the sum of P5,000. After the distribution of the estate but
before the delivery of their shares, the CIR (appellee) ruled that
plaintiffs as donees and legatees should pay inheritance taxes. The
plaintiffs paid the taxes under protest.
3. CIR filed a demurrer on ground that the facts alleged were not
sufficient to constitute a cause of action. The court sustained the
demurrer and ordered the amendment of the complaint but the
appellants failed to do so. Hence, the trial court dismissed the action
on ground that plaintiffs, herein appellants, did not really have a right
of action.
4. Plaintiffs (appellant) contend that Sec. 1540 of the Administrative
Code does not include donation inter vivos and if it does, it is
unconstitutional, null and void for violating SEC. 3 of the Jones Law
(providing that no law shall embrace more than one subject and that
the subject should be expressed in its titles ; that the Legislature has
no authority to tax donation inter vivos; finally, that said provision
violates the rule on uniformity of taxation.
5. CIR however contends that the word 'all gifts' refer clearly to
donation inter vivos and cited the doctrine in Tuason v. Posadas.
Issue: Whether or not the donations should be subjected to inheritance
tax
YES. Sec. 1540 of the Administrative Code clearly refers to those
donation inter vivos that take effect immediately or during the lifetime
of the donor, but made in consideration of the death of the decedent.
Those donations not made in contemplation of the decedent's death are
not included as it would be equivalent to imposing a direct tax on
property and not on its transmission.
The phrase 'all gifts' as held in Tuason v. Posadas refers to gifts inter
vivos as they are considered as advances in anticipation of inheritance
since they are made in consideration of death.
Dizon vs Posadas Jr
57 Phil 465 [GR No. L-36770 November 4, 1932]
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Facts: Don Felix Dizon died on April 21, 1928. Before his death, he
made a gift inter vivos in favor of the plaintiff Luis W. Dizon of all
his property according to a deed of a gift of which includes all the
property of Don Felix Dizon. The plaintiff did not receive the property
of any kind of Don Felix upon the death of the latter. Don Luis is the
legitimate and only son of Don Felix. The defendant, collector of
internal revenue assess an inheritance tax of Php2,808.73 which Don
Luis paid under protest and later filed an action to recover sum of
money thus paid. Plaintiff alleged that the inheritance tax is illegal
because he received the property, which is the basis of the tax from
his father before his death by a deed of gift inter vivos which was duly
accepted and registered before the death of his father.
Issue: Whether or not the gift inter vivos is subject to inheritance tax.
Held: Yes. Section 1540 of the administrative code plainly does not
tax gifts per se but only when those gifts are made to those who shall
prove to be the heirs, devisees, legatees or donees mortis cause of the
donor.
In this case, the scanty facts before us may not warrant the inference
that the conveyance, acknowledged by the donor 5 days before his
death and accepted by the donee one day before the donor’s death, was
fraudulently made for the purpose of evading the inheritance tax. But
the facts, in our opinion, do not warrant the inference that the transfer
was an advancement upon the inheritance which the donee as the sole
and forced heir of the donor, would be entitled to receive upon the
death of the donor.
DIZON VS POSADAS
FACTS:
Don Felix Dizon died on April 21, 1928. Before his death, he made a
gift inter vivos in favor of the plaintiff Luis W. Dizon of all his
property according to a deed of a gift of which includes all the property
of Don Felix Dizon. The plaintiff did not receive the property of any
kind of Don Felix upon the death of the latter. Don Luis is the
legitimate and only son of Don Felix. The defendant, collector of
internal revenue assess an inheritance tax of Php2,808.73 which Don
Luis paid under protest and later filed an action to recover sum of
money thus paid. Plaintiff alleged that the inheritance tax is illegal
because he received the property, which is the basis of the tax from
his father before his death by a deed of gift inter vivos which was duly
accepted and registered before the death of his father.
ISSUE:
WON section 1540 of the Administrative Code subject the plaintiff-
appellant to the payment of an inheritance tax
HELD:
We do not know whether or not the father in this case left a will; in
any event, this appellant could not be deprived of his share of the
inheritance because the Civil Code confers upon him the status of a
forced heir. We construe the expression in section 1540 "any of those
who, after his death, shall prove to be his heirs", to include those who,
by our law, are given the status and rights of heirs, regardless of the
quantity of property they may receive as such heirs. That the appellant
in this case occupies the status of heir to his deceased father cannot be
questioned. Construing the conveyance here in question, under the
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facts presented, as an advance made by Felix Dison to his only child,
we hold section 1540 to be applicable and the tax to have been
properly assessed by the Collector of Internal Revenue.
This appeal was originally assigned to a Division of five but referred
to the court in banc by reason of the appellant's attack upon the
constitutionality of section 1540. This attack is based on the sole
ground that insofar as section 1540 levies a tax upon gifts inter vivos,
it violates that provision of section 3 of the organic Act of the
Philippine Islands (39 Stat. L., 545) which reads as follows: "That no
bill which may be enacted into law shall embraced more than one
subject, and that subject shall be expressed in the title of the bill."
Neither the title of Act No. 2601 nor chapter 40 of the Administrative
Code makes any reference to a tax on gifts. Perhaps it is enough to say
of this contention that section 1540 plainly does not tax gifts per se
but only when those gifts are made to those who shall prove to be the
heirs, devisees, legatees or donees mortis causa of the donor. This
court said in the case of Tuason and Tuason vs. Posadas 954 Phil.,
289):lawphil.net
shall prove to be his . . . donees mortis causa." We cannot give to the
law an interpretation that would so vitiate its language. The truth of
the matter is that in this section (1540) the law presumes that such gifts
have been made in anticipation of inheritance, devise, bequest, or gift
mortis causa, when the donee, after the death of the donor proves to
be his heir, devisee or donee mortis causa, for the purpose of evading
the tax, and it is to prevent this that it provides that they shall be added
to the resulting amount." However much appellant's argument on this
point may fit his preconceived notion that the transaction between him
and his father was a consummated gift with no relation to the
inheritance, we hold that there is not merit in this attack upon the
constitutionality of section 1540 under our view of the facts. No other
constitutional questions were raised in this case.

When the law says all gifts, it doubtless refers to gifts inter vivos, and
not mortis causa. Both the letter and the spirit of the law leave no room
for any other interpretation. Such, clearly, is the tenor of the language
which refers to donations that took effect before the donor's death, and
not to mortis causa donations, which can only be made with the BPI v Posadas (Taxation)
formalities of a will, and can only take effect after the donor's death.
BPI v Posadas
Any other construction would virtually change this provision into:
G.R. No. L-34583 October 22, 1931
FACTS:
". . . there shall be added to the resulting amount the value of all gifts
mortis causa . . . made by the predecessor to those who, after his death,

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The present complaint seeks to recover from the defendant Juan policy on the life of the late Adolphe Oscar Schuetze, after deducting
Posadas, Jr., Collector of Internal Revenue, the amount of P1,209 paid the proportional part corresponding to the first premium
by the plaintiff under protest, in its capacity of administrator of the
estate of the late Adolphe Oscar Schuetze, as inheritance tax upon the
sum of P20,150, which is the amount of an insurance policy on the
deceased's life, wherein his own estate was named the beneficiary.
ISSUES:
1. whether the amount thereof is paraphernal or community property.
2. whether an insurance policy on said Adolphe Oscar Schuetze's life
was, by reason of its ownership, subject to the inheritance tax

RULING:
1. With the exception of the premium for the first year covering the
period from January 14, 1913 to January 14, 1914, all the money used
for paying the premiums, i. e., from the second year, or
January 16, 1914, or when the deceased Adolphe Oscar Schuetze
married the plaintiff-appellant Rosario Gelano, until his death on
February 2, 1929, is conjugal property inasmuch as it does not appear
to have exclusively belonged to him or to his wife
2. Yes. the proceeds of a life-insurance policy payable to the insured's
estate as the beneficiary, if delivered to the testamentary administrator
of the former as part of the assets of said estate under probate
administration, are subject to the inheritance tax according to the law BPI vs Posadas
on the matter, if they belong to the assured exclusively, and it is
immaterial that the insured was domiciled in these Islands or outside. BPI vs. Posadas

Wherefore, the judgment appealed from is reversed, and the defendant GR No. 34583, October 22, 1931
is ordered to return to the plaintiff the one-half of the tax collected
upon the amount of P20,150, being the proceeds of the insurance
FACTS:

7|Page
BPI, as administrator of the estate of deceased Adolphe Schuetze,
appealed to CFI Manila absolving defendant, Collector of Internal
Revenue, from the complaint filed against him in recovering the
inheritance tax amounting to P1209 paid by the plaintiff, Rosario
Gelano Vda de Schuetze, under protest, and sum of
P20,150 representing the proceeds of the insurance policy of the
deceased.
Rosario and Adolphe were married in January 1914. The wife was
actually residing and living in Germany when Adolphe died in
December 1927. The latter while in Germany, executed a will in
March 1926, pursuant with its law wherein plaintiff was named his
universal heir. The deceased possessed not only real property situated
in the Philippines but also personal property consisting of shares of
stocks in 19 domestic corporations. Included in the personal property
is a life insurance policy issued at Manila on January 1913 for the sum
of $10,000 by the Sun Life Assurance Company of Canada, Manila
Branch. In the insurance policy, the estate of the deceased was named
the beneficiary without any qualification. Rosario is the sole and only
heir of the deceased. BPI, as administrator of the decedent’s estate
and attorney in fact of the plaintiff, having been demanded by Posadas
to pay the inheritance tax, paid under protest. Notwithstanding
various demands made by plaintiff, Posadas refused to refund such
amount.
ISSUE: WON the plaintiff is entitled to the proceeds of the insurance.
HELD:
SC ruled that(1)the proceeds of a life-insurance policy payable to the
insured's estate, on which the premiums were paid by the conjugal
partnership, constitute community property, and belong one-half to
the husband and the other half to the wife, exclusively; (2)if the
premiums were paid partly with paraphernal and partly conjugal
funds, the proceeds are likewise in like proportion paraphernal in part
and conjugal in part; and (3)the proceeds of a life-insurance policy
payable to the insured's estate as the beneficiary, if delivered to the
testamentary administrator of the former as part of the assets of said
estate under probate administration, are subject to the inheritance tax
according to the law on the matter, if they belong to the assured
exclusively, and it is immaterial that the insured was domiciled in
these Islands or outside.
Hence, the defendant was ordered to return to the plaintiff one-half of
the tax collected upon the amount of P20,150, being the proceeds of
the insurance policy on the life of the late Adolphe Oscar Schuetze,
after deducting the proportional part corresponding to the first
premium.
Del Val v. Del Val
29 Phil 535
Facts:
> Petitioners and private respondents are brothers and Sisters and are
the only heirs and next of kin of Gregorio del Val who died intestate.
8|Page
> It was found out that the deceased took out insurance on his life for
the sum of 40T and made it payable to private respondents as sole
beneficiary.
> After Gregorio’s death, Andres collected the proceeds of the policy.
> Of the said policy, Andres paid 18T to redeem some real property
which Gregorio had sold to third persons during his lifetime.
> Said redemption of the property was made by Andres’ laywer in the
name of Andres and the petitioners. (Accdg to Andres, said
redemption in the name of Petitioners and himself was without his
knowledge and that since the redemption, petitioners have been in
possession of the property)
> Petitioners now contend that the amount of the insurance policy
belonged to the estate of the deceased and not to Andres personally.
> Pet filed a complaint for partition of property including the
insurance proceeds
> Andress claims that he is the sole owner of the proceeds and prayed
that he be declared:
> Sole owner of the real property, redeemed with the use of the
insurance proceeds and its remainder;
> Petitioners to account for the use and occupation of the premises.
Issue:
Whether or not the petitioners have a right to the insurance proceeds?
Held:
NOPE.
The contract of life insurance is a special contract and the destination
of the proceeds thereof is determined by special laws which deal
exclusively with the subject. Our civil code has no provisions which
relate directly and specifically to life-insurance contracts of to the
destination of life-insurance proceeds that subject is regulated
exclusively by the Code of Commerce. Thus, contention of
petitioners that proceeds should be considered as a dontation or gift
and should be included in the estate of the deceased is UNTENABLE.
Since the repurchase has been made n the names of all the heirs instead
of the defendant alone, petitioners claim that the property belongs to
the heirs in common and not to the defendant alone. The SC held that
if it is established by evidence that that was his intention and that the
real estate was delivered to the plaintiffs with that understanding, then
it is probable that their contention is correct and that they are entitled
to share equally with the defendant. HOWEVER, it appears from the
evidence that the conveyances were taken in the name of the plaintiffs
without the knowledge and consent of Andres, or that it was not his
intention to make a gift to them of real estate, when it belongs to him.
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Collector of Internal Revenue vs. Fisher
GR. No. L-11622
January 28, 1961
DOCTRINE:
“
Reciprocity must be total. If any of the two states collects or imposes
or
does not exempt any transfer, death, legacy or succession tax of any
character, the reciprocity does not work.”

10 | P a g e
FACTS:
Walter G. Stevenson was born in the Philippines of British parents,
married in Manila to another British subject, Beatrice. He died in 1951
in California where he and his wife moved to.
In his will, he instituted Beatrice as his sole heiress to certain real and
personal properties, among which are 210,000 shares of stocks in
Mindanao Mother Lode Mines (Mines). Ian Murray Statt (Statt), the
appointed ancillary administrator of his estate filed an estate and
inheritance tax return. He made a preliminary return to
secure the waiver of the CIR on the inheritance of the Mines shares of
stock. In 1952, Beatrice assigned all her rights and interests in the
estate to the spouses Fisher. Statt filed an amended estate and
inheritance tax return claiming ADDITIOANL EXEMPTIONS,
one of which is the estate and inheritance tax on the Mines’ shares of
stock pursuant to a reciprocity proviso in the NIRC, hence, warranting
a refund from what he initially paid. The collector denied
the claim. He then filed in the CFI of Manila for the said amount.
CFI ruled that (a) the ½ share of Beatrice should be deducted from the
net estate of Walter, (b) the intangible personal property belonging to
the estate of Walter is exempt from inheritance tax pursuant to the
reciprocity proviso in NIRC.
ISSUE/S: Whether or not the estate can avail itself of the reciprocity
proviso in the NIRC granting exemption from the payment of taxes
for the Mines shares of stock.
RULING: NO.
Reciprocity must be total. If any of the two states collects or imposes
or does not exempt any transfer, death, legacy or succession tax of any
character, the reciprocity does not work. In the Philippines, upon the
death of any citizen or resident, or non- resident with properties, there
are imposed upon his estate, both an estate and an inheritance tax.
But, under the laws of California, only inheritance tax is imposed.
Also, although the Federal Internal Revenue Code imposes an estate
tax, it
does not grant exemption on the basis of reciprocity. Thus, a Filipino
citizen shall always be at a disadvantage. This is not what the
legislators intended.
SPECIFICALLY:
Section122 of the NIRC provides that “No tax shall be collected under
this
Title in respect of intangible personal property
(a) if the decedent at the time of his death was a resident of a foreign
country which at the time of his death
did not impose a transfer of tax
or death tax of any character in respect of intangible personal
property of citizens of the Philippines not residing in that foreign
country, or
(b) if the laws of the foreign country of which the decedent was a
resident at the time of his death allow a similar exemption from
transfer taxes or death taxes of every character in respect of intangible
personal property owned by
citizens of the Philippines not residing in that foreign country."
On the other hand, Section 13851 of the California Inheritance Tax
Law provides that intangible personal property is exempt from tax if
the decedent at the time of his death was a resident of a territory or
another State of the
United States or of a foreign state or country which then imposed a
legacy, succession, or death tax in respect to intangible personal
property of its own residents, but either: Did not impose a legacy,
succession, or death tax of any character in respect to intangible
personal property of residents of this State, or Had in its laws a
reciprocal provision under which intangible personal
property of a non-resident was exempt from legacy, succession, or
death taxes of every character if the Territory or other State of the
United States or foreign state or country in which the nonresident
resided allowed a similar exemption in respect to intangible personal
property of residents of the Territory or State of the United States or
foreign state or country of residence of the decedent."
11 | P a g e

April 30, 2008
G.R. No. 140944
RAFAEL ARSENIO S. DIZON, IN HIS CAPACITY AS THE
JUDICIAL ADMINISTRATOR OF THE ESTATE OF THE
DECEASED JOSE P. FERNANDEZ v. COURT OF TAX
APPEALS AND COMMISSIONER OF INTERNAL REVENUE
Ponente
Justice Nachura
Subject
Estate Taxation – Allowable Deductions, Date-of-Death Valuation
Principle
Facts
Jose P. Fernandez died in November 7, 1987. Thereafter, a petition
for the probate of his will was filed. The probate court appointed Atty.
Rafael Arsenio P. Dizon as administrator of the Estate of Jose
Fernandez.
An estate tax return was filed later on which showed ZERO estate tax
liability. BIR thereafter issued a deficiency estate tax assessment,
demanding payment of Php 66.97 million as deficiency estate tax.
This was subsequently reduced by CTA to Php 37.42 million. The CA
affirmed the CTA’s ruling, hence, the instant petition.
The petitioner claims that in as much as the valid claims of creditors
against the Estate are in excess of the gross estate, no estate tax was
due. On the other hand, respondents argue that since the claims of the
Estate’s creditors have been condoned, such claims may no longer be
deducted from the gross estate of the decedent.
Issue
Whether the actual claims of 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
Decision
YES.
Ratio
Following the US Supreme Court’s ruling in Ithaca Trust Co. v.
United States, the Court held that post-death developments are not
material in determining the amount of deduction. This is because
estate tax is a tax imposed on the act of transferring property by will
or intestacy and, because the act on which the tax is levied occurs at a
discrete time, i.e., the instance of death, the net value of the property
transferred should be ascertained, as nearly as possible, as of the that
time. This is the date-of-death valuation rule.
The Court, in adopting the date-of-death valuation principle,
explained that:
 First. There is no law, nor do we discern any legislative intent
in our tax laws, which disregards the date-of-death valuation
principle and particularly provides that post-death
developments must be considered in determining the net value
of the estate. It bears emphasis that tax burdens are not to be
imposed, nor presumed to be imposed, beyond what the
statute expressly and clearly imports, tax statutes being
construed strictissimi juris against the government.
12 | P a g e
 Second. Such construction finds relevance and consistency in
our Rules on Special Proceedings wherein the term "claims"
required to be presented against a decedent's estate is
generally construed to mean debts or demands of a pecuniary
nature which could have been enforced against the deceased
in his lifetime, or liability contracted by the deceased before
his death. Therefore, the claims existing at the time of death
are significant to, and should be made the basis of, the
determination of allowable deductions.

13 | P a g e
 RULING: The Supreme Court ruled that transmission by
inheritance is taxable at the time of the predecessor's death,
PABLO LORENZO, as trustee of the estate of Thomas Hanley,
notwithstanding the postponement of the actual possession or
vs. enjoyment of the estate by the beneficiary, and the tax measured by
the value of the property transmitted at that time regardless of its
JUAN POSADAS, JR., Collector of Internal Revenue, appreciation or depreciation. Additionally, the obligation to pay taxes
G.R. No. L-43082 June 18, 1937 rests not upon the privileges enjoyed by, or the protection afforded to,
a citizen by the government but upon the necessity of money for the
support of the state. For this reason, no one is allowed to object to or
resist the payment of taxes solely because no personal benefit to him
FACTS: Thomas Hanley died in Zamboanga, leaving a will and
can be pointed out. While courts will not enlarge, by construction, the
considerable
government's power of taxation, they also will not place upon tax laws
amount of real and personal properties. Hanley’s will provides the so loose a construction as to permit evasions on merely fanciful and
following: his money will be given to his nephew, Matthew Hanley, insubstantial distinctions.
as well as the real estate owned by him. The CFI for the best interests
of the estate appointed 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.
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. Lorenzo asked for a refund but Posadas declined.

ISSUE: when should the tax be assessed?

14 | P a g e
MANILA RAILROAD COMPANY v. VELASQUEZ,
ALLAREY, MALIGALIG
November 23, 1915| Trent, J. | Basis of Valuation
Digester: Tan, Raya Grace
SUMMARY: Manila Railroad Company filed expropriation
proceedings for 12 small parcels of land for a railroad station site at
Lucena, Province of Tayabas. They allege that the commissioners’
appraisement of P81,412.75 is grossly excessive payment for the
agricultural land. Lower court affirmed the commissioners’ report. SC
affirmed with modification, reducing the payment to P6,500 based on
similar sales and market value. It is within the powers of the court to
change or modify the report of the commissioners by increasing or
decreasing the amount of the award.
DOCTRINE: Evidence of voluntary sales of other lands in the
vicinity and similarly situated is admissible in evidence to aid in
estimating the value of the tract sought to be condemned, but the value
of such testimony depends upon the similarity of the land to that in
question and the time when such sales were made and the distance
such lands are from those the value of which is the subject of inquiry.
“Market value of land” is that sum of money which a person, desirous
but not compelled to buy and an owner willing but not compelled to
sell, would agree on as a price to be given and received therefor.
FACTS:
 Manila Railroad Company for the purpose of expropriating twelve
small parcels of land for a railroad station site at Lucena, Province
of Tayabas.
 The commissioners fixed the value of the twelve parcels at
P81,412.75, and awarded P600 to Simeon Perez as damages for
the removal of an uncompleted camarin. Upon hearing, the
commissioners’ report was approved.
o Basis for appraisement: First, the construction of the
provincial building and the high school had increased
the price of land in their vicinity. Second, the
neighborhood of these buildings had become a choice
residential district. Third, the population in the
vicinity had increased.
 Manila Railroad Company alleges that the amount is grossly
excessive, pointing out that the land has never been used except
for rice culture.
 Lower court relied entirely upon the findings of the
commissioners.
RULING: Affirmed with modification by reducing the award for the
parcel containing 16,094 square meters to the sum of P6,500. The
damages for the remaining parcels will be fixed at the same
proportionate amount.
WoN the CFI has power over the reports of commissioners – YES.
There is ample authority in the statute to authorize the courts to change
or modify the report of the commissioners by increasing or decreasing
the amount of the award, if the facts of the case will justify such
change or modification.
 Section 246 of the Code of Civil Procedure reads: "Action of
Court Upon Commissioners' Report. — Upon the filing of such
report in court, the court shall, upon hearing, accept the same and
render judgment in accordance therewith; or for cause shown,
15 | P a g e
 it may recommit the report to the commissioners for further
report of facts; or it may set aside the report and appoint new
commissioners; or it may accept the report in part and reject
it in part, and may make such final order and judgment as
shall secure to the plaintiff the property essential to the
exercise of his rights under the law, and to the defendant just
compensation for the land so taken; and the judgment shall
require payment of the sum awarded as provided in the next
section, before the plaintiff can enter upon the ground and
appropriate it to the public use."
 The report of the commissioners on the value of the
condemned land is not final/conclusive. The judgment of the
court is necessary to give effect to their estimated valuation.
 The judgment of the court on the question of the value of the land
sought to be condemned is rendered after a consideration of the
evidence submitted to the commissioners, their report, and the
exceptions thereto submitted upon the hearing of the report.
 Based on Sec 246, it is obvious that the court may, in its
discretion correct the commissioners' report in any manner
deemed suitable to the occasion so that final judgment may be
rendered and thus end the litigation. The "final order and
judgment" are reviewable by this court by means of a bill of
exceptions in the same was as any other "action."
 Based on Secs 4961 and 4972, this court, in those cases where the
right of eminent domain has been exercised and where the
provisions of the above section have been complied with, may
examine the testimony and decide the case by a preponderance of
the evidence; or, in other words, retry the case upon the merits and
render such order or judgment as justice and equity may require.
 Court discussed several PHILIPPINE cases which were allegedly
in conflict with the ruling that there is ample authority in the
1Sec 496: SC may, in the exercise of its appellate jurisdiction, affirm, reverse,
or modify any final judgment, order, or decree of the Court of First Instance
2Sec 497: If the excepting party filed a motion in the Court of First Instance
for a new trial upon the ground that the evidence was insufficient to justify the
statute to authorize the courts to change or modify the report of
the commissioners.
o City of Manila v Tuason: Supreme Court remanded
the cause, apparently for the reason that the evidence
taken by the commissioners and the lower court was
not before it, and perhaps also because the
commissioners adopted a wrong principle of
assessing damages.
o Manila Railway Co v Fabie: Conceding, without
deciding, that he also had the right to formulate an
opinion of his own as to the value of the land in
question, nevertheless, if he formulate such an
opinion, he must base it upon competent evidence.
o Manila Railroad Co v Atty-General: The only ground
upon which the plaintiff company bases its contention
that the valuations are excessive is the minority report
of one of the commissioners. xxx there is no evidence
in the record which would justify us in holding these
values to be grossly excessive. The commissioners in
their report go into rather minute detail as to the
reasons for the conclusions reached and the
valuations fixed for the various items included
therein.
o Manila Railroad Co v Caligsihan: Supreme Court
reversed the lower court and remanded the case with
orders to appoint new commissioners, saying: "Under
the evidence in this case the award is excessive. xxx"
o Philippine Railway Co v Solon: The evidence before
the commissioners as to the value of the property
taken was contradictory and that their award was not
palpably excessive or inadequate. Under such
decision and the judge overruled such motion and due exception was taken to
his ruling, the Supreme Court may review the evidence and make such findings
upon the facts by a preponderance of the evidence and render such final
judgment as justice and equity may require
16 | P a g e
 circumstances, we are of the opinion that the court
had no right to interfere with it.
o City of Manila v Estrada: In the majority report the
value of the land was fixed at P20 per square meter
and in the minority report at P10. The Court of First
Instance fixed the value at P15 per square meter.
Upon appeal this court, after reviewing the evidence,
held that P10 per square meter was a just
compensation.
 Based on the above review of cases, aside from City of Manila v
Estrada, an award which is grossly excessive or grossly
insufficient in the opinion of the court can be increased or
decreased, although there be nothing which tends to indicate
prejudice or fraud on the part of the commissioners. The case of
the City of Manila vs. Estrada is direct authority supporting the
conclusions which we have reached in the case at bar.
 Court then discussed US cases:
o Morgan’s Louisiana & Texas R. R. Co. v. Barton:
Giving all possible weight, or rather restricting the
testimony of the plaintiffs' witnesses to its due
influence, and giving, we think, necessary effect to
the acts by which defendant purchased, the acts of
sale of other land, the assessment of value, with due
allowance for under assessment, and the other
testimony of record, we reach the conclusion that the
award gives twothirds more than the value of the land.
We fix the value of the land at $833.33.
o T. & P. R. R. Co. vs. Southern Develop. Co: The
appraisement too low and after discussing the
evidence, increased the amount of the award
accordingly.
When may the courts, with propriety, overrule the award of the
commissioners in whole or in part, and substitute their own
valuation of the condemned property?
PROCEDURAL (sec 246)
 The court is permitted to act upon the commissioners' report in
one of several ways, at its own discretion. The whole duty of the
court in considering the commissioners' report is to satisfy itself
that just compensation will be made to the defendant by its final
judgment in the matter, and in order to fulfill its duty in this
respect the court will be obliged to exercise its discretion in
dealing with the report as the particular circumstances of the case
may require.
 Generally, when the commissioners' report cannot with justice be
approved by the court, one of three or four circumstances will
usually present itself, each of which has for its antidote one of the
methods of dealing with the report placed at the disposal of the
court by section 246.
 If commissioners refused to hear competent evidence material to
the case, then all the evidence in the case would not be before the
court.  Remedy would be to "recommit the report of the
commissioners for further report of facts."
 If improper conduct, fraud, or prejudice be charged against the
commissioners and this charge be sustained  Remedy would to
set aside the award thus vitiated and "appoint new commissioners"
who could render a report not tainted by these things.
 If commissioners applied illegal principles to the evidence
submitted to them; or that they have disregarded a clear
preponderance of the evidence; or that they have used an improper
rule of assessment in arriving at the amount of the award 
Remedy: If the evidence be clear and convincing, the court should
ordinarily be able, by the use of those correct legal principles
which govern the case, to determine upon the amount which
should be awarded without returning the report to the
commissioners.
SUBSTANTIAL (what evidence must appear in the record in
order to justify such action)
17 | P a g e
 Almost a universal practice in the United States to submit the
question of value in expropriation cases to a jury or commission,
usually of local property owners, and one of the things they are
specially instructed to do is to view or inspect the condemned
property. The purpose of this view and the additional weight
which should be given to the award of the appraisers because of
the view are questions often discussed. It is supported by the
following cases:
o Denver Co v. Howe
o Gorgas v Railroad Co: The jury in estimating the
damages shall consider the testimony as given by the
witnesses, in connection with the facts as they appear
upon the view; and upon the whole case, as thus
presented, ascertain the difference between the
market value of the property immediately before and
immediately after the land was taken. This difference
is the proper measure of damages.
o Close v Samm: It is a general rule certainly, if not
universal, that the jury must base their verdict upon
the evidence delivered to them in open court, and they
may not take into consideration facts known to them
personally, but outside of the evidence produced
before them in court. If a party would avail himself of
the facts known to a juror, he must have him sworn
and examined as other witnesses.
o C. K. & W. R. Co. v Mouriquand: Court approved of
the practice of instructing the jury that their view of
the premises was to be used in determining the value
of conflicting testimony.
o Postal Telegraph-Cable Co v Peyton: In the absence
of this essential proof (i.e. data necessary in arriving
at an estimate), a verdict many times in excess of the
highest proved value of the land actually taken must
necessarily be deemed excessive.
o In re Titus Street in City of NY: It is the duty of each
party to submit what evidence of value he has and if
he fails to do so he can not complain if the
appraisement is kept within the bounds of the
evidence presented to the commissioners. xxx The
commissioners are required by law to be disinterested
landowners of the province, selected by the court with
a view to their ability to arrive at a judicious decision
in the assessment of damages. The judgment of men
with these qualifications upon the price of real
property is entitled to some considerable weight.
 If, after making due allowance for the superior facilities which the
commissioners had for arriving at the correct value of the
property, the court is clearly of the opinion that the evidence relied
upon by them is untrustworthy, and that other evidence rejected
by the commission and which fixes the value of the property at a
figure greatly at variance with their valuation of the property bears
the earmarks of truth, then it becomes the duty of the court to
substitute for the commissions' award the amount indicated by
such evidence. That the estimated value made by the appraisers is
to be given "great weight;" that such valuation is not to be "lightly
set aside;" that it will not be set aside "if there is substantial
testimony to support it," unless error is "plainly manifest;" "unless
it is apparent that injustice has been done;" "unless the
commissioners have clearly gone astray or adopted erroneous
principles;" "unless the commissioners acted upon wrong
principles, or their award is grossly inadequate;" unless the award
is "palpably excessive or inadequate;" unless it is "grossly
inadequate or unequal," is the burden of all the cases.
 Aledo Terminal Ry. Co. vs. Butler: "Evidence of voluntary sales
of other lands in the vicinity and similarly situated is admissible
in evidence to aid in estimating the value of the tract sought to be
condemned, but the value of such testimony depends upon the
similarity of the land to that in question and the time when
such sales were made and the distance such lands are from
those the value of which is the subject of inquiry." (same
doctrine with Fourth National Bank v. Com, Hewitt v. Price)
18 | P a g e
 Laing v. United New Jersey: "xxx such testimony is received only
upon the idea that there is substantial similarity between the
properties. The practice does not extend, and the rule should not
be applied, to cases where the conditions are so dissimilar as not
easily to admit of reasonable comparison, and much must be left
to the discretion of the trial judge in the determination of the
preliminary question whether the conditions are fairly
comparable."
AS APPLIED IN THIS CASE:
 The condemned land is not located in the commercial district of
the town of Lucena, but is located near the provincial building and
the high school. The land has been used from time out of mind
solely for the cultivation of rice.
 Based on the testimony of two defendants, Maligalig and Allarey,
it seems fair to fix the price of the condemned land for agricultural
purposes at P500 per hectare.
 We are inclined to believe that one of the reasons for the high
value placed upon the condemned land by all the witnesses is that
they were estimating the price per square meter instead of per
hectare, which is the customary method of fixing the price of
agricultural land.
 Aside from the bare fact that the real estate transactions referred
to by the witnesses were somewhere in the vicinity of the
condemned land, there is nothing to guide us as to the relative
value of the condemned land. The differences which must have
existed between the various parcels of land in the vicinity we are
left to imagine. And while the commissioners' view of the
condemned land undoubtedly assisted them in forming their
estimate of value, still counsel should not have relied upon their
astuteness to discover differences in values, but should have
brought them specifically to the attention of the commissioners. It
seems rather unusual, also, that the bare statements of witnesses
should be accepted as to the prices which nearby parcels brought,
in view of the insistence of counsel that the condemned land is
nothing more than agricultural land.
 Several transfers of nearby land happened after it became
generally known that it had been selected by the railroad company
as the site for its Lucena station. We take it that these transactions,
in which the defendants were themselves parties, offer a far more
certain basis for estimating the value of the land than do their
testimony before the commissioners or the testimony of other
witnesses as to fancy prices paid for neighboring parcels.
o Owners sold the land, parcel by parcel, as it had been
assessed by the commissioners for a little more than
P1 per meter, with the exception of Simeon Perez who
accepted P2.11 and P2.21.
 It is unfortunate that the commissioners did not have an
opportunity to consider the deeds executed by the defendants in
favor of the Tayabas Land Company. With the commissioners'
valuation of the land before them, the Tayabas Land Company
was actually able to purchase from the defendant all of the
condemned land at a greatly inferior price. The object of their
purchase was simply speculating on the 'probability that the award
of the commissioners would be approved by the court.
 Re the possible use of the condemned land as a residential site
owing to its proximity to the provincial building and the high
school: Complete failure because for years, not a single
homebuilder had selected any portion of the condemned land as a
site for his residence
 Re the possible use of the condemned land as a railroad station
site: the record gives no indication that it is the sole possible
location for that purpose in Lucena.
Re: Just compensation
 “Compensation” means an equivalent for the value of the land
(property) taken. The word "just" is used to intensify the meaning
of the word "compensation;" to convey the idea that the equivalent
19 | P a g e
 to be rendered for the property taken shall be real, substantial, full,
ample.
o Just compensation = a fair and full-equivalent for the NOTES:
loss sustained
 To arrive at this fair indemnity, the interests of the public and of
the owner and all the circumstances of the particular appropriation
should be taken into consideration. The compensation must be
just to the public as well as to the owners.
 Sec 244: "The commissioners shall assess the value of the
property taken and used, and shall also assess the consequential
damages to the property not taken and deduct from such
consequential damages the consequential benefits to be derived by
the owners from the public use of the land taken."
o “To assess” is to perform a judicial act. The
commissioners' power is limited to assessing the
value and to determining the amount of the damages.
xxx But in fixing these amounts, the commissioners
are not to act ad libitum. They are to discharge the
trust reposed in them according to well established
rules and form their judgment upon correct legal
principles.
o “Market value of land” is that sum of money
which a person, desirous but not compelled to buy
and an owner willing but not compelled to sell,
would agree on as a price to be given and received
therefor.
 The compensation to the owner is to be estimated by reference to
the uses for which the property is suitable, having regard to the
existing business or wants of the community, or such as may be
reasonably expected in the immediate future.
 "Proof must be limited to showing the present condition of the
property and the uses to which it is naturally adapted. It is not
competent for the owner to show to what use he intended to
put the property, nor what plans he had for its improvement,
nor the probable future use of the property. Nothing can be
allowed for damages to an intended use."

20 | P a g e
Tax 2- No. 15- Administrative Requirements- CIR vs. Gonzales
G.R. No. L-19495 November 24, 1966
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
LILIA YUSAY GONZALES and THE COURT OF TAX
APPEALS, respondents.
FACTS:
1. Matias Yusay, a resident of Pototan, Iloilo, died intestate on May
13, 1948, leaving two heirs, namely, Jose S. Yusay, a legitimate child,
and Lilia Yusay Gonzales, an acknowledged natural child. Intestate
proceedings for the settlement of his estate were instituted in the Court
of First Instance of Iloilo (Special Proceedings No. 459). Jose S.
Yusay was therein appointed administrator.
2. On May 11, 1949, Jose Yusay filed with the BIR an estate and
inheritance tax return. The return mentioned no heirs.
3. Upon investigation, the BIR found additional personal (like the
Packard car and aparador) and real properties ( like 92 parcels of land
) which were not included in the return.
4. The estate and inheritance tax assessment were increased.
5. In view of the demise of Jose Yusay, the assessment was sent to his
widow, Florencia, you succeeded him in the administration of the
estate of Matias Yusay. Florencia was made administrator of 2/3 of
the estate, while Lilia Yusay adnministered 1/3 of the estate.
6. No payment has been made despite repeated demands made by the
CIR.
7. June 1, 1959, Lilia Yusay, through counsel alleged the non-receipt
of the assessment of Feb. 13, 1958. She was willing to pay the taxes
corresponding to 1/3, which is her share of the property under her
administration.
8. On Nov. 17, 1959, Lilia disputed the legality of the assessment
dated Feb. 13, 1958. She claimed that the right to make the assessment
had prescribed since more than five years had elapsed since the filing
of the estate and inheritance tax return on May 11, 1949. She wanted
to have the assessment declared invalid and without force and effect.
The Commissioner rejected her demand for the following reasons:
a. that the right to assess the taxes in question has not been
lost by prescription since the return which did not name the heirs
cannot be considered a true and complete return sufficient to start the
running of the period of limitations of five years under Section 331 of
the Tax Code and pursuant to Section 332 of the same Code he has ten
years within which to make the assessment counted from the discovery
on September 24, 1953 of the identity of the heirs; and
(b) that the estate's administrator waived the defense of
prescription when he filed a surety bond on March 3, 1955 to
guarantee payment of the taxes in question and when he requested
postponement of the payment of the taxes pending determination of
who the heirs are by the settlement court.
9. Lilia filed a petition for review in the Court of Tax Appeals (CTA).
The CTA declared that the right of the CIR to assess the estate
and inheritance taxes in question has prescribed.
ISSUE: Was the petition for review in the CTA made within the
30 day period provided for in Sec. 11 of RA 1125?
HELD: YES.
Nov. 17, 1959- Lilia Yusay disputed the legality of the assessment of
Feb. 13, 1958.
21 | P a g e
March 14, 1960- she received the decision of the CIR on the disputed
assessment
April 13, 1960- she filed her petition for review in the CTA.
The CTA has correctly held that the appeal was seasonably interposed
pursuant to Sec. 11 of RA 1125. As ruled in the case of ST. Stephen’s
Association vs. CIR, the counting of the 30 days within which to
institute an appeal in the CTA should commence from the date of
receipt of the decision of the CIR on the disputed assessment and not
from the date the assessment was issued.
The 30 day period should begin running from March 14, 1960, the date
Lilia received the appealable decision. From said date to April 13,
1960, when she filed her appeal in the CTA is exactly 30 days. Hence,
her appeal was timely
ISSUE: Lilia Yusay questions the legality of the assessment.
Where should she file her appeal?
HELD: In the Court of Tax Appeals
An action involving a disputed assessment for internal revenue taxes
falls within the exclusive jurisdiction of the CTA. It is in that forum,
to the exclusions of the Court of First Instance (CFI, now RTC), where
she could ventilate her defenses against the assessment.
Under the Rules of Court, the jurisdiction of the CFI relates only with
the settlement of estates and probate of wills of deceased persons. It
has no jurisdiction to adjudicate the tax assessment.
ISSUE: Lila Yusay claims that the latest assessment was issued
only on Feb 13, 1958 or 8 years, 9 months and 2 days from the
filing of the estate and inheritance tax. Because of prescription,
the CIR’s right has expired.
HELD: Not prescribed, due to substantial defect in the returns.
Based on Sec. 331 of the Tax Code, the CIR is limited to make an
assessment within five years from the filing of the return. However,
the CIR claims that fraud attended the filing of the return. The CIR,
however, raised the point of fraud for the first time in the proceedings,
only in his memorandum filed with the Tax Court subsequent to
resting his case.
The Tax Court rejected the plea of fraud for lack of allegation and
proof and ruled that the return, although not accurate, was sufficient
to start the period of prescription.
The Supreme Court, however ruled that the state and inheritance tax
return filed by Jose Yusay was substantially defective, based on the
following:
a. It was incomplete. It declared only ninety-three parcels of land
representing about 400 hectares and left out ninety-two parcels
covering 503 hectares. Said huge under declaration could not have
been the result of an over-sight or mistake. Jose S. Yusay very well
knew of the existence of the omitted properties. Perhaps his motive in
under declaring the inventory of properties attached to the return was
to deprive Lilia Yusay from inheriting her legal share in the hereditary
estate, but certainly not because he honestly believed that they did not
form part of the gross estate.
b. Second, the return mentioned no heir. Thus, no inheritance tax
could be assessed. As a matter of law, on the basis of the return, there
would be no occasion for the imposition of estate and inheritance
taxes. When there is no heir - the return showed none - the intestate
estate is escheated to the State. The State taxes not itself.
The filing of the wrong form does not make much differenc if the
necessary information for the assessment of the tax would be missing.
22 | P a g e
The return filed was so deficient that it prevented the CIR from Estate and inheritance taxes are satisfied from the estate of the
computing the proper taxes. The CIR had to use other sources of decedent and are to be paid by the executor or administrator thereof.
information, other than the return Where there are two or more executors, all of them are severally liable
for the payment of the estate tax. The inheritance tax, although
Accordingly, for purposes of determining whether or not the
charged against the account of each beneficiary, should be paid by the
Commissioner's assessment of February 13, 1958 is barred by
executor or administrator.
prescription, Section 332(a) which is an exception to Section 331 of
the Tax Code finds application. We quote Section 332(a): Dispositive: WHEREFORE, the judgment appealed from is set aside
and another entered affirming the assessment of the Commissioner of
SEC. 332. Exceptions as to period of limitation of assessment and
Internal Revenue dated February 13, 1958. Lilia Yusay Gonzales, as
collection of taxes.— (a) In the case of a false or fraudulent return with
administratrix of the intestate estate of Matias Yusay, is hereby
intent to evade tax or of a failure to file a return, the tax may be
ordered to pay the sums of P16,246.04 and P39,178.12 as estate and
assessed, or a proceeding in court for the collection of such tax may
inheritance taxes, respectively, plus interest and surcharge for
be begun without assessment, at any time within ten years after the
delinquency in accordance with Section 101 of the National Internal
discovery of the falsity, fraud or omission.
Revenue Code, without prejudice to reimbursement from her co-
As stated, the Commissioner came to know of the identity of the administratrix, Florencia Piccio Vda. de Yusay for the latter's
heirs on September 24, 1953 and the huge underdeclaration in the corresponding tax liability. No costs. So ordered.
gross estate on July 12, 1957. From the latter date, Section 94 of the
Tax Code obligated him to make a return or amend one already filed
based on his own knowledge and information obtained through
testimony or otherwise, and subsequently to assess thereon the taxes
due. The running of the period of limitations under Section 332(a) of
the Tax Code should therefore be reckoned from said date for, as
aforesaid, it is from that time that the Commissioner was expected by
law to make his return and assess the tax due thereon. From July 12,
1957 to February 13, 1958, the date of the assessment now in
dispute, less than ten years have elapsed. Hence, prescription did
not abate the Commissioner's right to issue said assessment.
ISSUE: Can Lilia Yusay Gonzales pay her 1/3 share of the estate
and inheritance taxes only?
HELD: NO.

23 | P a g e
1. CIR vs Pineda GR No L-22734 September 15,
1957
Facts: On May 23, 1945, Anastasio Pineda died, survived by his wife
and 15 children, the eldest of whom is Atty. Manuel Pineda. Estate
proceedings were had in the CFI of Manila resulting to the estate being
divided among and awarded to the heirs. Manuel’s share amounted to
about P 2,500.00.
After the estate proceedings were closed, the Bureau of
Internal Revenue (BIR) investigated the income tax liability of the
estate for the years 1945, 1946, 1947 and 1948 and it found that the
corresponding income tax returns were not filed. Thereupon, the
representative of the CIR issued the following assessments:
I. Deficiency Income Tax (1945, 1946, 1947) – P 2,707.44
II. Additional Residence Tax for 1945 – P 14.50
III. Real estate dealer’s tax for 4th qtr of 1946 and whole year
1947 – P207.50
The assessment was contested by Manuel Pineda. Thereafter,
he appealed to the CTA alleging that he was appealing only that
proportionate part or portion pertaining to him as one of the heirs.
Subsequently, the CTA rendered judgment reversing the decision of
the CIR on the ground of prescription of his right to assess and collect
the aforementioned tax. On appeal to the SC, the SC affirmed the
ruling of the CTA with respect to the assessment for the year 1947
(income tax) but held that for the years 1945 and 1946, the action for
assessment and collection has not yet prescribed. Accordingly, the SC
remanded the case to the CTA for further appropriate proceedings.
The CTA rendered judgment holding Manuel Pineda liable
for his share in the deficiency income tax for 1945 and 1946 and the
real estate dealer’s tax all amounting to P760.28. The decision was
then appealed by the CIR to the SC.
Issue: WON Manuel Pineda can be held liable for the payment of all
the taxes found by the CTA instead of only for his corresponding share
in the same
Held: YES. The government can require Manuel Pineda to pay the
full amount of the taxes assessed. The reason is that the government
has a lien on the P2, 500.00 received by him from the estate as his
share in the inheritance, for unpaid income taxes for which said estate
is liable, pursuant to Section 315 of the Tax Code.
By virtue of such lien, the government has the right to subject
the property in Pineda’s possession (the money amounting to P2,
500.00) to satisfy the income tax assessment. After such payment,
Manuel Pineda will have a right of contribution from his co-heirs.
The government can collect the tax in question in two ways.
First, by going after all the heirs and collecting from each one of them
the amount of the tax proportionate to the inheritance received. The
second remedy, pursuant to the lien created by Section 315 of the Tax
Code upon all property and property rights belonging to the taxpayer
for unpaid income tax, is by subjecting said property of the estate
which is in the hands of the heir or transferee to the payment of the tax
due, the estate. This second remedy is the option the government took
in this case to collect the tax. The BIR should be given the necessary
discretion to avail itself of the most expeditious way to collect the tax,
because taxes are the lifeblood of the government and their prompt
and certain availability is an imperious need.
Spouses Alvaro PASTOR, Jr. and Ma. Elena Achaval de
PASTOR, petitioners,
vs.
The COURT OF APPEALS, Hon. Juan Y. REYES, and Lewellyn
QUEMADA, respondents.
G.R. No. L-56340, June 24, 1983.
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FACTS:
Spouses Alvaro Pastor, Sr. and Sofia Bossio were survived by their
two legitimate children Alvaro Pastor, Jr. (Pastor Jr.) and Sofia Pastor
(Sofia), and an illegitimate child, Lewellyn Quemada. Quemada filed
a petition for the probate and allowance of an alleged holographic will
of Pastor Sr. with the CFI which contained only one testamentary
disposition: a legacy in favor of Quemada consisting of 30% of Pastor
Sr.’s 42% share in the operation by ATLAS. Thereafter, the probate
court appointed Quemada as special administrator of the entire estate
of Pastor Sr. whether or not covered or affected by the holographic
will. Consequently, Quemada instituted against Pastor Jr., and his wife
an action for reconveyance of alleged properties of estate which
included the properties subject of the legacy which were in the names
of spouses Pastor Sr. and Ma. Elena, who claimed to be the owners in
their own rights, and not by inheritance. The probate court issued an
order allowing the will to probate. The order was affirmed by CA and
on petition for review, the SC dismissed the petition and remanded the
same to the probate court after denying reconsideration. For two years
after remand of the case to the probate court, all pleadings of both
parties remained unacted upon. Not long after, the probate court set
the hearing on the intrinsic validity of the will but upon objection of
Pastor Jr. and Sofia on the ground of pendency of the reconveyance
suit, no hearing was held. Instead, the probate court required the
parties to submit their respective position papers. While the
reconveyance suit was still pending in another court, the probate court
issued Order of Execution and Garnishment, resolving the question of
ownership of the royalties payable by ATLAS and ruling in effect that
the legacy to Quemada was not inofficious. Pursuant to said order,
ATLAS was directed to remit directly to Quemada the 42% royalties
due to decedent’s estate, of which Quemada was authorized to retain
75% for himself as legatee. Further, the 33% share of Pastor Jr. and/or
his assignees was ordered garnished to answer for the accumulated
legacy of Quemada. Being “immediately executory”, Quemada
succeeded in obtaining a Writ of Execution and Garnishment. The
oppositors sought reconsideration thereof but in the meantime, the
probate court ordered suspension of payment of all royalties due
Pastor Jr. and/or his assignees until after resolution of oppositor’s
motion for reconsideration. Pending motion, Pastor Jr. and his wife
filed with the CA a petition for certiorariand prohibition with a prayer
for writ of preliminary injunction assailing the writ of execution and
garnishment issued by the probate court. However, said petition was
denied as well as their motion for reconsideration. Hence, this petition
for review by certiorari with prayer for a writ of preliminary
injunction.
ISSUE:
Whether or not the Probate Order resolved with finality the questions
of ownership and intrinsic validity.
RULING:
In a special proceeding for the probate of a will, the issue by and large
is restricted to the extrinsic validity of the will. As a rule, the question
of ownership is an extraneous matter which the Probate Court cannot
resolve with finality. Thus, for the purpose of determining whether a
certain property should or should not be included in the inventory of
estate properties, the Probate Court may pass upon the title thereto, but
such determination is provisional, not conclusive, and is subject to the
final decision in a separate action to resolve title.
The Order sought to be executed by the assailed Order of execution is
the Probate Order allegedly resolved the question of ownership of the
disputed mining properties. However, nowhere in the dispositive
portion is there a declaration of ownership of specific properties. On
the contrary, it is manifested therein that ownership was not resolved.
For it confined itself to the question of extrinsic validity of the will,
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and the need for and propriety of appointing a special administrator.
Thus it allowed and approved the holographic will “with respect to its
extrinsic validity, the same having been duly authenticated pursuant
to the requisites or solemnities prescribed by law.” It declared that the
intestate estate administration aspect must proceed subject to the
outcome of the suit for reconveyance of ownership and possession of
real and personal properties.

The Probate Court did not resolve the question of ownership of the
properties listed in the estate inventory, considering that the issue of
ownership was the very subject of controversy in the reconveyance
suit that was still pending. It was, therefore, error for the assailed
implementing Orders to conclude that the Probate Order adjudged
with finality the question of ownership of the mining properties and
royalties, and that, premised on this conclusion, the dispositive portion
of the said Probate Order directed special administrator to pay the
legacy in dispute.

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Polido vs CA
G.R. No. 170632 / July 10, 2007 / Carpio-Morales, J./Tax2-Estate
Tax/JMB
NATURE Certiorari and Prohibition
PETITIONERS Eugenia D. Polido
RESPONDENTS Hon. Court of Appeals and Mariano P. Gasat
SUMMARY. Wife wants to withdraw from hers and her late
husband’s joint account but was contested by Gasat who claims to
be their adopted child, on the ground of NIRC 97 prohibiting such
withdrawal without complying with certain requirements as
provided for by law. Gasat later on withdrew is claim of being an
adopted child but nevertheless claimed that Eugenia still cannot
withdraw from the joint account as she had not complied with the
requirements and that he is an heir of said property. The SC sided
with Gasat and
DOCTRINE. 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 had 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 P20,000 without the said certification. (NIRC 97)
FACTS.
After the death of her husband Jacinto Polido, Eugenia Polido tried to
withdraw the joint savings deposit they maintained at the Philippine
National Bank (PNB) but failed because Mariano Gasat, who claimed
to be the couple’s adopted child, objected.
Eugenia prayed for the ff. reliefs:
1. A writ of preliminary injunction enjoining and restraining Gasat and
all persons acting under him from preventing the officers or employees
of PNB from releasing in favor of the plaintiff the money deposited
with the said bank upon posting of a bond by the plaintiff in an amount
to be fixed by the Court.
2. To declare Gasat not a adopted child of Jacinto.
3. Payment of attorney’s fees and litigation expenses.
Mariano Gasat’s counterclaim:
1. Claims to be the adopted child of Jacinto and annexed a photocopy
of an order of the MTC declaring said adoption and a copy of a
certification from the MTC clerk of court that said decree has been
furnished to the local civil registrar and said decree had become final
and executory; and that petitioner cannot withdraw any amount from
the bank account because she should follow legal procedures
governing settlement of the estate of a deceased, unless a competent
court issues an order allowing her to withdraw from said account.
2. That the properties subject of inheritance are exclusive properties
of Jacinto, the same having been inherited by his late father Narciso.
3. That the Estate of Narciso was inherited by his 2 children, namely,
JACINTO POLIDO and PETRA R GASAT, also deceased and the
latter was survived by her husband and 7 children of which the
MARIANO is one.
Gasat subsequently withdrew his allegation of being an
adopted child. He prays for partition and for Eugenia to file her Estate
Tax Returns.
27 | P a g e
 2. WON the trial court erred in granting Eugenia’s motion for
Trial Court: denied Gasat’s prayers and granted Eugenia’s motion for
judgment on the pleadings due to Gasat having admitted the main
allegation of Eugenia that he is not an adopted child of Jacinto.
CA: dismissed Gasat’s appeal for having failed to pay the docket fees.
Gasat claims that he was jobless and had to borrow money at an
exorbitant interest rate in order to raise the docket fee.
3. (MAIN) WON Eugenia may withdraw from the joint savings
CA on MR: admitted Gasat’s docket fee. While the payment of the
prescribed docket fee is a jurisdictional requirement, its nonpayment
at the time of filing does not automatically cause the dismissal of the
case, as long as the fee is paid within the applicable prescriptive or
reglementary period moreso, when the party involved demonstrates a
willingness to abide by the rules prescribing such payment.
Hence, present petition for certiorari and prohibition.
ISSUES & RATIO.
1. WON the CA committed GAD in relaxing the rule on payment
of docket fees on the ground of substantial justice. – NO.
First, failure to pay those fees within the reglementary period allows
only discretionary, not automatic, dismissal; second, such power
should be used by the court in conjunction with its exercise of sound
discretion in accordance with the tenets of justice and fair play, as
well as with a great deal of circumspection in consideration of all
attendant circumstances.
judgment on the pleading. – YES.
Gasat’s Answer with Compulsory Counterclaim raised other issues
which are independent of his claim of adoptive filiation and which
would defeat petitioner’s main cause of action—for the court to
enjoin Gasat “and all persons acting under him from preventing the
officers or employees of the [PNB] from releasing” the deposit to
her.
account of her and her late husband? – NO.
Eugenia cannot withdraw any amount thereof, because it is a part of
the ESTATE of Jacinto, and as provided for by law, before the bank
allows any withdrawal, the plaintiff has to follow certain procedures
required by other laws governing estate settlement, that is,—(a)
Payment of Estate Tax, if any; (b) BIR Tax Clearance; (c) Present a
duly published Extrajudicial Partition executed by the heirs
adjudicating said amount to such heir, unless a competent Court
issues an Order allowing the plaintiff to withdraw [from] said
account.”
It bears noting that petitioner and her deceased husband Polido were
childless; hence, Gasat, who is a son of Polido’s sister Petra P.
Gasat, could inherit from Polido.
Section 97 of the NIRC states:
“x x x x
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 had certified that the taxes imposed thereon by
28 | P a g e
 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 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.”

DECISION.
Petition denied. Case remanded to the trial court.

NOTES.
Though this case was raised only on the ground of certiorari and
prohibition with regard to the docket fee issue, instead of remanding
the case to the appellate court, the SC, in the interest of speedy
dispensation of justice, especially given that the main issue is a
question of law, passed on the merits of the appeal of Gasat and not
just the issue on WON the CA committed GAD in relaxing the rule
on payment of docket fees.

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