Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-15939

January 31, 1966

ANGELES UBALDE PUIG, ET AL., plaintiffs-appellants,

vs.
ESTELLA MAGBANUA PEAFLORIDA, ET AL., defendants-appellants.
Salonga and Ordonez for the plaintiffs-appellants.
Fulgencio Vega for the defendants-appellants.
RESOLUTION
(Main opinion was promulgated on November 29, 1965).
REYES, J.B.L., J.:
Defendants-appellants Estela Magbanua Peaflorida, et al., insist that the reservation by the donor
of the right to dispose of the property during her lifetime in the deed of December 28, 1949 indicates
that title had passed to the donee in her lifetime, otherwise, it is argued, the reservation would be
superfluous, and they cite American authorities in support.
This thesis would be plausible if the reservation of the power to dispose were the only indication to
be considered in deciding whether the donation of December 28, 1949 was mortis causa or inter
vivos. But such is not the case. The Court in its decision took to account not only the foregoing
circumstance but also the fact that the deceased expressly and consistently declared her
conveyance to be one of donation mortis causa, and further forbade the registration of the deed until
after her death. All these features concordantly indicated that the conveyance was not intended to
produce any definitive effects, nor to finally pass any interest to the grantee, except from and after
the death of the grantor.
We see nothing in the deed itself to indicate that any right, title or interest in the properties described
was meant to be transferred to Doa Estela Magbanua prior to the death of the grantor, Carmen
Ubalde Vda. de Parcon. Not ownership, certainly, for the stipulation:
Que esta escritura de donacion mortis causa no se registrara en la oficina del Registrador de
Titulos de Iloilo sino despues del fallecimiento de la Donante
necessarily meant, according to section 50 of the Land Registration Act, that the deed in
question should not take effect as a conveyance nor bind the land until after the death of the "donor".

Neither did the document operate to vest possession upon Doa Estela Magbanua, in view of the
express condition that (paragraph 3) if at the date of her death the donor had not transferred, sold, or
conveyed one-half of lot 58 of the Pototan Cadastre to other persons or entities, the donee would be
bound to pay to Caridad Ubalde, married to Tomas Pedrola, the amount of P600.00, and such
payment was to be made on the date the donee took possession of Lot No. 58. As the obligation to
pay the legacy to Caridad Ubalde would not definitely arise until after the death of the donor,
because only by then would it become certain that the "donor" could not transfer the property to
someone else, and such payment must precede the taking possession of the property "donated", it
necessarily follows that the "donee's" taking of possession could not occur before the death of the
donor.
It being thus clear that the disposition contained in the deed is one that produces no effect until the
death of the grantor, we are clearly faced by an act mortis causa of the Roman and Spanish law. We
thus see no need of resorting to American authorities as to the import of the reservation of the
donor's right to dispose of the donated property, for the Spanish authorities are very clear on this
point:
Desde el momento en que la muerte del donante es la que determina la adquisicion o el
derecho a los bienes; desde el montento en que la disposicion puede ser revocada
voluntariamente, se salva la linea divisoria entre unos y otros actos: la donacion equivale a
un legado; mas aun que esto: es un legado en realidad. (5 Manresa, 5th Ed., p. 107)
Ahora bien: si el mal llamado donante no solo dilata la fecha de la ejecucion para el
momento de su muerte, sino que ademas se reserva la facultad de revocar a su arbitrio la
disposicion, entonces el acto no es valido bajo la forma de contrato; hay en realidad una
disposicion mortis causa que exige las solemnidades del testamento. (V Manresa, 5th Ed.,
p. 109) (Emphasis supplied)
The presence of an acceptance is but a consequence of the erroneous concept of the true nature of
the juridical act, and does not indicate that in the same is a true donation inter vivos.
Appellant Magbanua further argues that the reserved power of the donor to convey the donated
property to other parties during her lifetime is but a resolutory condition (albeit a potestative one) that
confirms the passing of the title to the donee. In reality, this argument is a veritable petitio principii; it
takes for granted what has to be proved, i.e., that some proprietary right has passed under the terms
of the deed, which, as we have shown, is not true until the donor has died.
It is highly illuminating to compare the condition imposed in the deed of donation of December 28,
1949 with that established in the contract dealt with in Taylor vs. Uy Tieng Piao & Tau Liuan, 43 Phil.
874, invoked by appellants.
In the alleged deed of donation of December 28, 1949, the late Doa Carmen Ubalde imposed
expressly that:

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

cualesquiera personas o entidades los bienes aqui donados a favor de la Donataria en
concepto de Donacion mortis causa.
In the Taylor vs. Uy Tieng Piao case, on the other hand, the condition read:
It is understood and agreed that should the machinery to be installed in said factory fail, for
any reason, to arrive, in the City of Manila within the period of six (6) months from date
hereof, this contract may be cancelled by the party of the second part at its option, such
cancellation, however, not to occur before the expiration of such six (6) months. (pp. 874875, cas. cit.).
In the Uy Tieng Piao case the contract could only be cancelled after six months, so that there could
be no doubt that it was in force at least for that long, and the optional cancellation can be viewed as
a resolutory condition (or more properly, a non-retroactive revocatory one); but no such restriction
limited the power of the donor, Doa Carmen Ubalde, to set at naught the alleged conveyance in
favor of Doa Estela Magbanua by conveying the property to other parties at any time, even at the
very next instant after executing the donation, if she so chose. It requires no argument to
demonstrate that the power, as reserved in the deed, was a power to destroy the donation at any
time, and that it meant that the transfer is not binding on the grantor until her death made it
impossible to channel the property elsewhere. Which, in the last analysis, as held in our main
decision, signifies that the liberality is testamentary in nature, and must appear with the solemnities
required of last wills and testaments in order to be legally valid.
Wherefore, the motion to reconsider is denied.
Bengzon, C.J., Concepcion, Dizon, Regala, Bengzon and Zaldivar, JJ., concur.
Barrera, J., took no part.
Makalintal, J., is on leave.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 123206

March 22, 2000

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
COURT OF APPEALS, COURT OF TAX APPEALS and JOSEFINA P. PAJONAR, as
Administratrix of the Estate of Pedro P. Pajonar, respondents.
RESOLUTION

GONZAGA-REYES, J.:
Assailed in this petition for review on certiorari is the December 21, 1995 Decision1 of the Court of
Appeals2 in CA-G.R. Sp. No. 34399 affirming the June 7, 1994 Resolution of the Court of Tax
Appeals in CTA Case No. 4381 granting private respondent Josefina P. Pajonar, as administratrix of
the estate of Pedro P. Pajonar, a tax refund in the amount of P76,502.42, representing erroneously
paid estate taxes for the year 1988.
Pedro Pajonar, a member of the Philippine Scout, Bataan Contingent, during the second World War,
was a part of the infamous Death March by reason of which he suffered shock and became insane.
His sister Josefina Pajonar became the guardian over his person, while his property was placed
under the guardianship of the Philippine National Bank (PNB) by the Regional Trial Court of
Dumaguete City, Branch 31, in Special Proceedings No. 1254. He died on January 10, 1988. He
was survived by his two brothers Isidro P. Pajonar and Gregorio Pajonar, his sister Josefina Pajonar,
nephews Concordio Jandog and Mario Jandog and niece Conchita Jandog.
On May 11, 1988, the PNB filed an accounting of the decedent's property under guardianship valued
at P3,037,672.09 in Special Proceedings No. 1254. However, the PNB did not file an estate tax
return, instead it advised Pedro Pajonar's heirs to execute an extrajudicial settlement and to pay the
taxes on his estate. On April 5, 1988, pursuant to the assessment by the Bureau of Internal Revenue
(BIR), the estate of Pedro Pajonar paid taxes in the amount of P2,557.
On May 19, 1988, Josefina Pajonar filed a petition with the Regional Trial Court of Dumaguete City
for the issuance in her favor of letters of administration of the estate of her brother. The case was
docketed as Special Proceedings No. 2399. On July 18, 1988, the trial court appointed Josefina
Pajonar as the regular administratrix of Pedro Pajonar's estate.
On December 19, 1988, pursuant to a second assessment by the BIR for deficiency estate tax, the
estate of Pedro Pajonar paid estate tax in the amount of P1,527,790.98. Josefina Pajonar, in her
capacity as administratrix and heir of Pedro Pajonar's estate, filed a protest on January 11, 1989 with
the BIR praying that the estate tax payment in the amount of P1,527,790.98, or at least some portion
of it, be returned to the heirs. 3
However, on August 15, 1989, without waiting for her protest to be resolved by the BIR, Josefina
Pajonar filed a petition for review with the Court of Tax Appeals (CTA), praying for the refund of
P1,527,790.98, or in the alternative, P840,202.06, as erroneously paid estate tax. 4 The case was
docketed as CTA Case No. 4381.
On May 6, 1993, the CTA ordered the Commissioner of Internal Revenue to refund Josefina Pajonar
the amount of P252,585.59, representing erroneously paid estate tax for the year 1988. 5 Among the
deductions from the gross estate allowed by the CTA were the amounts of P60,753 representing the

notarial fee for the Extrajudicial Settlement and the amount of P50,000 as the attorney's fees in
Special Proceedings No. 1254 for guardianship. 6
On June 15, 1993, the Commissioner of Internal Revenue filed a motion for reconsideration7 of the
CTA's May 6, 1993 decision asserting, among others, that the notarial fee for the Extrajudicial
Settlement and the attorney's fees in the guardianship proceedings are not deductible expenses.
On June 7, 1994, the CTA issued the assailed Resolution8 ordering the Commissioner of Internal
Revenue to refund Josefina Pajonar, as administratrix of the estate of Pedro Pajonar, the amount of
P76,502.42 representing erroneously paid estate tax for the year 1988. Also, the CTA upheld the
validity of the deduction of the notarial fee for the Extrajudicial Settlement and the attorney's fees in
the guardianship proceedings.
On July 5, 1994, the Commissioner of Internal Revenue filed with the Court of Appeals a petition for
review of the CTA's May 6, 1993 Decision and its June 7, 1994 Resolution, questioning the validity of
the abovementioned deductions. On December 21, 1995, the Court of Appeals denied the
Commissioner's petition.9
Hence, the present appeal by the Commissioner of Internal Revenue.
The sole issue in this case involves the construction of section 79 10 of the National Internal
Revenue Code11 (Tax Code) which provides for the allowable deductions from the gross estate of the
decedent. More particularly, the question is whether the notarial fee paid for the extrajudicial
settlement in the amount of P60,753 and the attorney's fees in the guardianship proceedings in the
amount of P50,000 may be allowed as deductions from the gross estate of decedent in order to
arrive at the value of the net estate.
We answer this question in the affirmative, thereby upholding the decisions of the appellate courts.
In its May 6, 1993 Decision, the Court of Tax Appeals ruled thus:
Respondent maintains that only judicial expenses of the testamentary or intestate
proceedings are allowed as a deduction to the gross estate. The amount of
P60,753.00 is quite extraordinary for a mere notarial fee.
This Court adopts the view under American jurisprudence that expenses incurred in
the extrajudicial settlement of the estate should be allowed as a deduction from the
gross estate. "There is no requirement of formal administration. It is sufficient that the
expense be a necessary contribution toward the settlement of the case." [ 34 Am.
Jur. 2d, p. 765; Nolledo, Bar Reviewer in Taxation, 10th Ed. (1990), p. 481]
xxx xxx xxx
The attorney's fees of P50,000.00, which were already incurred but not yet paid,
refers to the guardianship proceeding filed by PNB, as guardian over the ward of
Pedro Pajonar, docketed as Special Proceeding No. 1254 in the RTC (Branch XXXI)
of Dumaguete City. . . .
xxx xxx xxx

The guardianship proceeding had been terminated upon delivery of the residuary
estate to the heirs entitled thereto. Thereafter, PNB was discharged of any further
responsibility.
Attorney's fees in order to be deductible from the gross estate must be essential to
the collection of assets, payment of debts or the distribution of the property to the
persons entitled to it. The services for which the fees are charged must relate to the
proper settlement of the estate. [34 Am. Jur. 2d 767.] In this case, the guardianship
proceeding was necessary for the distribution of the property of the late Pedro
Pajonar to his rightful heirs.
xxx xxx xxx
PNB was appointed as guardian over the assets of the late Pedro Pajonar, who,
even at the time of his death, was incompetent by reason of insanity. The expenses
incurred in the guardianship proceeding was but a necessary expense in the
settlement of the decedent's estate. Therefore, the attorney's fee incurred in the
guardianship proceedings amounting to P50,000.00 is a reasonable and necessary
business expense deductible from the gross estate of the decedent.12
Upon a motion for reconsideration filed by the Commissioner of Internal Revenue, the Court of Tax
Appeals modified its previous ruling by reducing the refundable amount to P76,502.43 since it found
that a deficiency interest should be imposed and the compromise penalty excluded. 13 However, the
tax court upheld its previous ruling regarding the legality of the deductions
It is significant to note that the inclusion of the estate tax law in the codification of all our national
internal revenue laws with the enactment of the National Internal Revenue Code in 1939 were
copied from the Federal Law of the United States. [ UMALI, Reviewer in Taxation (1985), p. 285 ]
The 1977 Tax Code, promulgated by Presidential Decree No. 1158, effective June 3, 1977,
reenacted substantially all the provisions of the old law on estate and gift taxes, except the sections
relating to the meaning of gross estate and gift. [ Ibid, p. 286. ]
In the United States, [a]dministrative expenses, executor's commissions and attorney's fees are
considered allowable deductions from the Gross Estate. Administrative expenses are limited to such
expenses as are actually and necessarily incurred in the administration of a decedent's estate.
[PRENTICE-HALL, Federal Taxes Estate and Gift Taxes (1936), p. 120, 533.] Necessary expenses
of administration are such expenses as are entailed for the preservation and productivity of the
estate and for its management for purposes of liquidation, payment of debts and distribution of the
residue among the persons entitled thereto. [Lizarraga Hermanos vs. Abada, 40 Phil. 124.] They
must be incurred for the settlement of the estate as a whole. [34 Am. Jur. 2d, p. 765.] Thus, where
there were no substantial community debts and it was unnecessary to convert community property
to cash, the only practical purpose of administration being the payment of estate taxes, full deduction
was allowed for attorney's fees and miscellaneous expenses charged wholly to decedent's estate.
[Ibid., citing Estate of Helis, 26 T.C. 143 (A).]
Petitioner stated in her protest filed with the BIR that "upon the death of the ward, the PNB, which
was still the guardian of the estate, (Annex "Z"), did not file an estate tax return; however, it advised
the heirs to execute an extrajudicial settlement, to pay taxes and to post a bond equal to the value of
the estate, for which the state paid P59,341.40 for the premiums. (See Annex "K")." [p. 17, CTA
record.] Therefore, it would appear from the records of the case that the only practical purpose of
settling the estate by means of an extrajudicial settlement pursuant to Section 1 of Rule 74 of the
Rules of Court was for the payment of taxes and the distribution of the estate to the heirs. A fortiori,

since our estate tax laws are of American origin, the interpretation adopted by American Courts has
some persuasive effect on the interpretation of our own estate tax laws on the subject.
Anent the contention of respondent that the attorney's fees of P50,000.00 incurred in the
guardianship proceeding should not be deducted from the Gross Estate, We consider the same
unmeritorious. Attorneys' and guardians' fees incurred in a trustee's accounting of a taxable inter
vivos trust attributable to the usual issues involved in such an accounting was held to be proper
deductions because these are expenses incurred in terminating an inter vivos trust that was
includible in the decedent's estate. [Prentice Hall, Federal Taxes on Estate and Gift, p. 120, 861]
Attorney's fees are allowable deductions if incurred for the settlement of the estate. It is noteworthy
to point that PNB was appointed the guardian over the assets of the deceased. Necessarily the
assets of the deceased formed part of his gross estate. Accordingly, all expenses incurred in relation
to the estate of the deceased will be deductible for estate tax purposes provided these are
necessary and ordinary expenses for administration of the settlement of the estate. In upholding the
June 7, 1994 Resolution of the Court of Tax Appeals, the Court of Appeals held that:

2. Although the Tax Code specifies "judicial expenses of the testamentary or intestate proceedings,"
there is no reason why expenses incurred in the administration and settlement of an estate in
extrajudicial proceedings should not be allowed. However, deduction is limited to such administration
expenses as are actually and necessarily incurred in the collection of the assets of the estate,
payment of the debts, and distribution of the remainder among those entitled thereto. Such
expenses may include executor's or administrator's fees, attorney's fees, court fees and charges,
appraiser's fees, clerk hire, costs of preserving and distributing the estate and storing or maintaining
it, brokerage fees or commissions for selling or disposing of the estate, and the like. Deductible
attorney's fees are those incurred by the executor or administrator in the settlement of the estate or
in defending or prosecuting claims against or due the estate. (Estate and Gift Taxation in the
Philippines, T. P. Matic, Jr., 1981 Edition, p. 176).
xxx xxx xxx
It is clear then that the extrajudicial settlement was for the purpose of payment of taxes and the
distribution of the estate to the heirs. The execution of the extrajudicial settlement necessitated the
notarization of the same. Hence the Contract of Legal Services of March 28, 1988 entered into
between respondent Josefina Pajonar and counsel was presented in evidence for the purpose of
showing that the amount of P60,753.00 was for the notarization of the Extrajudicial Settlement. It
follows then that the notarial fee of P60,753.00 was incurred primarily to settle the estate of the
deceased Pedro Pajonar. Said amount should then be considered an administration expenses
actually and necessarily incurred in the collection of the assets of the estate, payment of debts and
distribution of the remainder among those entitled thereto. Thus, the notarial fee of P60,753 incurred
for the Extrajudicial Settlement should be allowed as a deduction from the gross estate.
3. Attorney's fees, on the other hand, in order to be deductible from the gross estate must be
essential to the settlement of the estate.
The amount of P50,000.00 was incurred as attorney's fees in the guardianship proceedings in Spec.
Proc. No. 1254. Petitioner contends that said amount are not expenses of the testamentary or
intestate proceedings as the guardianship proceeding was instituted during the lifetime of the
decedent when there was yet no estate to be settled.
Again, this contention must fail.

The guardianship proceeding in this case was necessary for the distribution of the property of the
deceased Pedro Pajonar. As correctly pointed out by respondent CTA, the PNB was appointed
guardian over the assets of the deceased, and that necessarily the assets of the deceased formed
part of his gross estate. . . .
xxx xxx xxx

It is clear therefore that the attorney's fees incurred in the guardianship proceeding in Spec. Proc.
No. 1254 were essential to the distribution of the property to the persons entitled thereto. Hence, the
attorney's fees incurred in the guardianship proceedings in the amount of P50,000.00 should be
allowed as a deduction from the gross estate of the decedent. The deductions from the gross estate
permitted under section 79 of the Tax Code basically reproduced the deductions allowed under
Commonwealth Act No. 466 (CA 466), otherwise known as the National Internal Revenue Code of
1939, 16 and which was the first codification of Philippine tax laws. Section 89 (a) (1) (B) of CA 466
also provided for the deduction of the "judicial expenses of the testamentary or intestate
proceedings" for purposes of determining the value of the net estate. Philippine tax laws were, in
turn, based on the federal tax laws of the United States. 17 In accord with established rules of
statutory construction, the decisions of American courts construing the federal tax code are entitled
to great weight in the interpretation of our own tax laws. Judicial expenses are expenses of
administration. 19Administration expenses, as an allowable deduction from the gross estate of the
decedent for purposes of arriving at the value of the net estate, have been construed by the federal
and state courts of the United States to include all expenses "essential to the collection of the
assets, payment of debts or the distribution of the property to the persons entitled to it." 20 In other
words, the expenses must be essential to the proper settlement of the estate. Expenditures incurred
for the individual benefit of the heirs, devisees or legatees are not deductible. 21 This distinction has
been carried over to our jurisdiction. Thus, in Lorenzo v. Posadas 22 the Court construed the phrase
"judicial expenses of the testamentary or intestate proceedings" as not including the compensation
paid to a trustee of the decedent's estate when it appeared that such trustee was appointed for the
purpose of managing the decedent's real estate for the benefit of the testamentary heir. In another
case, the Court disallowed the premiums paid on the bond filed by the administrator as an expense
of administration since the giving of a bond is in the nature of a qualification for the office, and not
necessary in the settlement of the estate. 23 Neither may attorney's fees incident to litigation incurred
by the heirs in asserting their respective rights be claimed as a deduction from the gross estate. 24
Coming to the case at bar, the notarial fee paid for the extrajudicial settlement is clearly a deductible
expense since such settlement effected a distribution of Pedro Pajonar's estate to his lawful heirs.
Similarly, the attorney's fees paid to PNB for acting as the guardian of Pedro Pajonar's property
during his lifetime should also be considered as a deductible administration expense. PNB provided
a detailed accounting of decedent's property and gave advice as to the proper settlement of the
latter's estate, acts which contributed towards the collection of decedent's assets and the
subsequent settlement of the estate.
We find that the Court of Appeals did not commit reversible error in affirming the questioned
resolution of the Court of Tax Appeals.
WHEREFORE, the December 21, 1995 Decision of the Court of Appeals is AFFIRMED. The notarial
fee for the extrajudicial settlement and the attorney's fees in the guardianship proceedings are
allowable deductions from the gross estate of Pedro Pajonar.
1wphi1.nt

SO ORDERED.

Melo, Vitug, Panganiban and Purisima, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
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.
DECISION
PANGANIBAN, CJ.:
Under the present provisions of the Tax Code and pursuant to elementary due process, taxpayers
must be informed in writing of the law and the facts upon which a tax assessment is based;
otherwise, the assessment is void. Being invalid, the assessment cannot in turn be used as a basis
for the perfection of a tax compromise.
The Case
Before us are two consolidated1 Petitions for Review2 filed under Rule 45 of the Rules of Court,
assailing the August 8, 2003 Decision3 of the Court of Appeals (CA) in CA-GR SP No. 71392. The
dispositive portion of the assailed Decision reads as follows:
"WHEREFORE, the petition is GRANTED. The assailed decision of the Court of Tax Appeals is
ANNULLED and SET ASIDE without prejudice to the action of the National Evaluation Board on the
proposed compromise settlement of the Maria C. Tancinco estates tax liability." 4
The Facts

The CA narrated the facts as follows:

"On July 8, 1993, Maria C. Tancinco (or decedent) died, leaving a 1,292 square-meter residential lot
and an old house thereon (or subject property) located at 4931 Pasay Road, Dasmarias Village,
Makati City.
"On the basis of a sworn information-for-reward filed on February 17, 1997 by a certain Raymond
Abad (or Abad), Revenue District Office No. 50 (South Makati) conducted an investigation on the
decedents estate (or estate). Subsequently, it issued a Return Verification Order. But without the
required preliminary findings being submitted, it issued Letter of Authority No. 132963 for the regular
investigation of the estate tax case. Azucena T. Reyes (or [Reyes]), one of the decedents heirs,
received the Letter of Authority on March 14, 1997.
"On February 12, 1998, the Chief, Assessment Division, Bureau of Internal Revenue (or BIR),
issued a preliminary assessment notice against the estate in the amount of P14,580,618.67. On May
10, 1998, the heirs of the decedent (or heirs) received a final estate tax assessment notice and a
demand letter, both dated April 22, 1998, for the amount of P14,912,205.47, inclusive of surcharge
and interest.
"On June 1, 1998, a certain Felix M. Sumbillo (or Sumbillo) protested the assessment [o]n behalf of
the heirs on the ground that the subject property had already been sold by the decedent sometime in
1990.
"On November 12, 1998, the Commissioner of Internal Revenue (or [CIR]) issued a preliminary
collection letter to [Reyes], followed by a Final Notice Before Seizure dated December 4, 1998.
"On January 5, 1999, a Warrant of Distraint and/or Levy was served upon the estate, followed on
February 11, 1999 by Notices of Levy on Real Property and Tax Lien against it.
"On March 2, 1999, [Reyes] protested the notice of levy. However, on March 11, 1999, the heirs
proposed a compromise settlement of P1,000,000.00.
"In a letter to [the CIR] dated January 27, 2000, [Reyes] proposed to pay 50% of the basic tax due,
citing the heirs inability to pay the tax assessment. On March 20, 2000, [the CIR] rejected [Reyess]
offer, pointing out that since the estate tax is a charge on the estate and not on the heirs, the latters
financial incapacity is immaterial as, in fact, the gross value of the estate amounting
to P32,420,360.00 is more than sufficient to settle the tax liability. Thus, [the CIR] demanded
payment of the amount of P18,034,382.13 on or before April 15, 2000[;] otherwise, the notice of sale
of the subject property would be published.
"On April 11, 2000, [Reyes] again wrote to [the CIR], this time proposing to pay 100% of the basic tax
due in the amount of P5,313,891.00. She reiterated the proposal in a letter dated May 18, 2000.
"As the estate failed to pay its tax liability within the April 15, 2000 deadline, the Chief, Collection
Enforcement Division, BIR, notified [Reyes] on June 6, 2000 that the subject property would be sold
at public auction on August 8, 2000.
"On June 13, 2000, [Reyes] filed a protest with the BIR Appellate Division. Assailing the scheduled
auction sale, she asserted that x x x the assessment, letter of demand[,] and the whole tax
proceedings against the estate are void ab initio. She offered to file the corresponding estate tax
return and pay the correct amount of tax without surcharge [or] interest.

"Without acting on [Reyess] protest and offer, [the CIR] instructed the Collection Enforcement
Division to proceed with the August 8, 2000 auction sale. Consequently, on June 28, 2000, [Reyes]
filed a [P]etition for [R]eview with the Court of Tax Appeals (or CTA), docketed as CTA Case No.
6124.
"On July 17, 2000, [Reyes] filed a Motion for the Issuance of a Writ of Preliminary Injunction or
Status Quo Order, which was granted by the CTA on July 26, 2000. Upon [Reyess] filing of a surety
bond in the amount ofP27,000,000.00, the CTA issued a [R]esolution dated August 16, 2000
ordering [the CIR] to desist and refrain from proceeding with the auction sale of the subject property
or from issuing a [W]arrant of [D]istraint or [G]arnishment of [B]ank [A]ccount[,] pending
determination of the case and/or unless a contrary order is issued.
"[The CIR] filed a [M]otion to [D]ismiss the petition on the grounds (i) that the CTA no longer has
jurisdiction over the case[,] because the assessment against the estate is already final and
executory; and (ii) that the petition was filed out of time. In a [R]esolution dated November 23, 2000,
the CTA denied [the CIRs] motion.
"During the pendency of the [P]etition for [R]eview with the CTA, however, the BIR issued Revenue
Regulation (or RR) No. 6-2000 and Revenue Memorandum Order (or RMO) No. 42-2000 offering
certain taxpayers with delinquent accounts and disputed assessments an opportunity to compromise
their tax liability.
"On November 25, 2000, [Reyes] filed an application with the BIR for the compromise settlement (or
compromise) of the assessment against the estate pursuant to Sec. 204(A) of the Tax Code, as
implemented by RR No. 6-2000 and RMO No. 42-2000.
"On December 26, 2000, [Reyes] filed an Ex-Parte Motion for Postponement of the hearing before
the CTA scheduled on January 9, 2001, citing her pending application for compromise with the BIR.
The motion was granted and the hearing was reset to February 6, 2001.
"On January 29, 2001, [Reyes] moved for postponement of the hearing set on February 6, 2001, this
time on the ground that she had already paid the compromise amount of P1,062,778.20 but was still
awaiting approval of the National Evaluation Board (or NEB). The CTA granted the motion and reset
the hearing to February 27, 2001.
"On February 19, 2001, [Reyes] filed a Motion to Declare Application for the Settlement of Disputed
Assessment as a Perfected Compromise. In said motion, she alleged that [the CIR] had not yet
signed the compromise[,] because of procedural red tape requiring the initials of four Deputy
Commissioners on relevant documents before the compromise is signed by the [CIR]. [Reyes]
posited that the absence of the requisite initials and signature[s] on said documents does not vitiate
the perfected compromise.
"Commenting on the motion, [the CIR] countered that[,] without the approval of the NEB, [Reyess]
application for compromise with the BIR cannot be considered a perfected or consummated
compromise.
"On March 9, 2001, the CTA denied [Reyess] motion, prompting her to file a Motion for
Reconsideration Ad Cautelam. In a [R]esolution dated April 10, 2001, the CTA denied the [M]otion for
[R]econsideration with the suggestion that[,] for an orderly presentation of her case and to prevent
piecemeal resolutions of different issues, [Reyes] should file a [S]upplemental [P]etition for
[R]eview[,] setting forth the new issue of whether there was already a perfected compromise.

"On May 2, 2001, [Reyes] filed a Supplemental Petition for Review with the CTA, followed on June 4,
2001 by its Amplificatory Arguments (for the Supplemental Petition for Review), raising the following
issues:
1. Whether or not an offer to compromise by the [CIR], with the acquiescence by the Secretary of
Finance, of a tax liability pending in court, that was accepted and paid by the taxpayer, is a perfected
and consummated compromise.
2. Whether this compromise is covered by the provisions of Section 204 of the Tax Code (CTRP)
that requires approval by the BIR [NEB].
"Answering the Supplemental Petition, [the CIR] averred that an application for compromise of a tax
liability under RR No. 6-2000 and RMO No. 42-2000 requires the evaluation and approval of either
the NEB or the Regional Evaluation Board (or REB), as the case may be.
"On June 14, 2001, [Reyes] filed a Motion for Judgment on the Pleadings; the motion was granted
on July 11, 2001. After submission of memoranda, the case was submitted for [D]ecision.
"On June 19, 2002, the CTA rendered a [D]ecision, the decretal portion of which pertinently reads:
WHEREFORE, in view of all the foregoing, the instant [P]etition for [R]eview is hereby DENIED.
Accordingly, [Reyes] is hereby ORDERED to PAY deficiency estate tax in the amount of Nineteen
Million Five Hundred Twenty Four Thousand Nine Hundred Nine and 78/100 (P19,524,909.78),
computed as follows:
xxxxxxxxx
[Reyes] is likewise ORDERED to PAY 20% delinquency interest on deficiency estate tax due
ofP17,934,382.13 from January 11, 2001 until full payment thereof pursuant to Section 249(c) of the
Tax Code, as amended.
"In arriving at its decision, the CTA ratiocinated that there can only be a perfected and consummated
compromise of the estates tax liability[,] if the NEB has approved [Reyess] application for
compromise in accordance with RR No. 6-2000, as implemented by RMO No. 42-2000.
"Anent the validity of the assessment notice and letter of demand against the estate, the CTA stated
that at the time the questioned assessment notice and letter of demand were issued, the heirs knew
very well the law and the facts on which the same were based. It also observed that the petition was
not filed within the 30-day reglementary period provided under Sec. 11 of Rep. Act No. 1125 and
Sec. 228 of the Tax Code."5
Ruling of the Court of Appeals
In partly granting the Petition, the CA said that Section 228 of the Tax Code and RR 12-99 were
mandatory and unequivocal in their requirement. The assessment notice and the demand letter
should have stated the facts and the law on which they were based; otherwise, they were deemed
void.6 The appellate court held that while administrative agencies, like the BIR, were not bound by
procedural requirements, they were still required by law and equity to observe substantive due
process. The reason behind this requirement, said the CA, was to ensure that taxpayers would be
duly apprised of -- and could effectively protest -- the basis of tax assessments against them. 7 Since

the assessment and the demand were void, the proceedings emanating from them were likewise
void, and any order emanating from them could never attain finality.
The appellate court added, however, that it was premature to declare as perfected and
consummated the compromise of the estates tax liability. It explained that, where the basic tax
assessed exceeded P1 million, or where the settlement offer was less than the prescribed minimum
rates, the National Evaluation Boards (NEB) prior evaluation and approval were the conditio sine
qua non to the perfection and consummation of any compromise. 8 Besides, the CA pointed out,
Section 204(A) of the Tax Code applied to all compromises, whether government-initiated or
not.9 Where the law did not distinguish, courts too should not distinguish.
Hence, this Petition.10
The Issues
In GR No. 159694, petitioner raises the following issues for the Courts consideration:
"I.
Whether petitioners assessment against the estate is valid.
"II.
Whether respondent can validly argue that she, as well as the other heirs, was not aware of the facts
and the law on which the assessment in question is based, after she had opted to propose several
compromises on the estate tax due, and even prematurely acting on such proposal by paying 20%
of the basic estate tax due."11
The foregoing issues can be simplified as follows: first, whether the assessment against the estate is
valid; and, second, whether the compromise entered into is also valid.
The Courts Ruling
The Petition is unmeritorious.
First Issue:
Validity of the Assessment Against the Estate
The second paragraph of Section 228 of the Tax Code12 is clear and mandatory. It provides as
follows:
"Sec. 228. Protesting of Assessment. -xxxxxxxxx
"The 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 present case, Reyes was not informed in writing of the law and the facts on which the
assessment of estate taxes had been made. She was merely notified of the findings by the CIR, who
had simply relied upon the provisions of former Section 229 13 prior to its amendment by Republic Act
(RA) No. 8424, otherwise known as the Tax Reform Act of 1997.
First, RA 8424 has already amended the provision of Section 229 on protesting an assessment. The
old requirement of merely notifying the taxpayer of the CIRs findings was changed in 1998
to informing the taxpayer of not only the law, but also of the facts on which an assessment would be
made; otherwise, the assessment itself would be invalid.
It was on February 12, 1998, that a preliminary assessment notice was issued against the estate. On
April 22, 1998, the final estate tax assessment notice, as well as demand letter, was also issued.
During those dates, RA 8424 was already in effect. The notice required under the old law was no
longer sufficient under the newlaw.
To be simply informed in writing of the investigation being conducted and of the recommendation for
the assessment of the estate taxes due is nothing but a perfunctory discharge of the tax function of
correctly assessing a taxpayer. The act cannot be taken to mean that Reyes already knew the law
and the facts on which the assessment was based. It does not at all conform to the compulsory
requirement under Section 228. Moreover, the Letter of Authority received by respondent on March
14, 1997 was for the sheer purpose of investigation and was not even the requisite notice under the
law.
The procedure for protesting an assessment under the Tax Code is found in Chapter III of Title VIII,
which deals with remedies. Being procedural in nature, can its provision then be applied
retroactively? The answer is yes.
The general rule is that statutes are prospective. However, statutes that are remedial, or that do not
create new or take away vested rights, do not fall under the general rule against the retroactive
operation of statutes.14Clearly, Section 228 provides for the procedure in case an assessment is
protested. The provision does not create new or take away vested rights. In both instances, it can
surely be applied retroactively. Moreover, RA 8424 does not state, either expressly or by necessary
implication, that pending actions are excepted from the operation of Section 228, or that applying it
to pending proceedings would impair vested rights.
Second, the non-retroactive application of Revenue Regulation (RR) No. 12-99 is of no moment,
considering that it merely implements the law.
A tax regulation is promulgated by the finance secretary to implement the provisions of the Tax
Code.15 While it is desirable for the government authority or administrative agency to have one
immediately issued after a law is passed, the absence of the regulation does not automatically mean
that the law itself would become inoperative.
At the time the pre-assessment notice was issued to Reyes, RA 8424 already stated that the
taxpayer must be informed of both the law and facts on which the assessment was based. Thus, the
CIR should have required the assessment officers of the Bureau of Internal Revenue (BIR) to follow
the clear mandate of the new law. The old regulation governing the issuance of estate tax
assessment notices ran afoul of the rule that tax regulations -- old as they were -- should be in
harmony with, and not supplant or modify, the law.16
It may be argued that the Tax Code provisions are not self-executory. It would be too wide a stretch
of the imagination, though, to still issue a regulation that would simply require tax officials to inform

the taxpayer, in any manner, of the law and the facts on which an assessment was based. That
requirement is neither difficult to make nor its desired results hard to achieve.
Moreover, an administrative rule interpretive of a statute, and not declarative of certain rights and
corresponding obligations, is given retroactive effect as of the date of the effectivity of the
statute.17 RR 12-99 is one such rule. Being interpretive of the provisions of the Tax Code, even if it
was issued only on September 6, 1999, this regulation was to retroact to January 1, 1998 -- a date
prior to the issuance of the preliminary assessment notice and demand letter.
Third, neither Section 229 nor RR 12-85 can prevail over Section 228 of the Tax Code.
No doubt, Section 228 has replaced Section 229. The provision on protesting an assessment has
been amended. Furthermore, in case of discrepancy between the law as amended and its
implementing but old regulation, the former necessarily prevails.18 Thus, between Section 228 of the
Tax Code and the pertinent provisions of RR 12-85, the latter cannot stand because it cannot go
beyond the provision of the law. The law must still be followed, even though the existing tax
regulation at that time provided for a different procedure. The regulation then simply provided that
notice be sent to the respondent in the form prescribed, and that no consequence would ensue for
failure to comply with that form.
Fourth, petitioner violated the cardinal rule in administrative law that the taxpayer be accorded due
process. Not only was the law here disregarded, but no valid notice was sent, either. A void
assessment bears no valid fruit.
The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax
collection without first establishing a valid assessment is evidently violative of the cardinal principle
in administrative investigations: that taxpayers should be able to present their case and adduce
supporting evidence.19 In the instant case, respondent has not been informed of the basis of the
estate tax liability. Without complying with the unequivocal mandate of first informing the taxpayer of
the governments claim, there can be no deprivation of property, because no effective protest can be
made.20 The haphazard shot at slapping an assessment, supposedly based on estate taxations
general provisions that are expected to be known by the taxpayer, is utter chicanery.
Even a cursory review of the preliminary assessment notice, as well as the demand letter sent,
reveals the lack of basis for -- not to mention the insufficiency of -- the gross figures and details of
the itemized deductions indicated in the notice and the letter. This Court cannot countenance an
assessment based on estimates that appear to have been arbitrarily or capriciously arrived at.
Although taxes are the lifeblood of the government, their assessment and collection "should be
made in accordance with law as any arbitrariness will negate the very reason for government itself." 21
Fifth, the rule against estoppel does not apply. Although the government cannot be estopped by the
negligence or omission of its agents, the obligatory provision on protesting a tax assessment cannot
be rendered nugatory by a mere act of the CIR .
Tax laws are civil in nature.22 Under our Civil Code, acts executed against the mandatory provisions
of law are void, except when the law itself authorizes the validity of those acts. 23 Failure to comply
with Section 228 does not only render the assessment void, but also finds no validation in any
provision in the Tax Code. We cannot condone errant or enterprising tax officials, as they are
expected to be vigilant and law-abiding.
Second Issue:

Validity of Compromise
It would be premature for this Court to declare that the compromise on the estate tax liability has
been perfected and consummated, considering the earlier determination that the assessment
against the estate was void. Nothing has been settled or finalized. Under Section 204(A) of the Tax
Code, where the basic tax involved exceeds one million pesos or the settlement offered is less than
the prescribed minimum rates, the compromise shall be subject to the approval of the NEB
composed of the petitioner and four deputy commissioners.
Finally, as correctly held by the appellate court, this provision applies to all compromises, whether
government-initiated or not. Ubi lex non distinguit, nec nos distinguere debemos. Where the law
does not distinguish, we should not distinguish.
WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. No
pronouncement as to costs.
SO ORDERED.
ARTEMIO V. PANGANIBAN
Chief Justice
Chairperson, First Division
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice

MA. ALICIA AUSTRIA-MARTINEZ

Asscociate Justice

ROMEO J. CALLEJO SR.

Associate Justice

MINITA V. CHICO-NAZARIO
Asscociate Justice

C E R TI F I C ATI O N
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the
above Decision had been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.
ARTEMIO V. PANGANIBAN
Chief Justice

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION
G.R. No. 155541

January 27, 2004

ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL, petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
YNARES-SANTIAGO, J.:
This petition for review on certiorari assails the decision of the Court of Appeals in CA-G.R. CV No.
09107, dated September 30, 2002,1 which reversed the November 19, 1995 Order of Regional Trial
Court of Manila, Branch XXXVIII, in Sp. Proc. No. R-82-6994, entitled "Testate Estate of Juliana Diez
Vda. De Gabriel". The petition was filed by the Estate of the Late Juliana Diez Vda. De Gabriel,
represented by Prudential Bank as its duly appointed and qualified Administrator.
As correctly summarized by the Court of Appeals, the relevant facts are as follows:
During the lifetime of the decedent, Juliana Vda. De Gabriel, her business affairs were
managed by the Philippine Trust Company (Philtrust). The decedent died on April 3, 1979.
Two days after her death, Philtrust, through its Trust Officer, Atty. Antonio M. Nuyles, filed her
Income Tax Return for 1978. The return did not indicate that the decedent had died.
On May 22, 1979, Philtrust also filed a verified petition for appointment as Special Administrator with
the Regional Trial Court of Manila, Branch XXXVIII, docketed as Sp. Proc. No. R-82-6994. The court
a quo appointed one of the heirs as Special Administrator. Philtrusts motion for reconsideration was
denied by the probate court.
On January 26, 1981, the court a quo issued an Order relieving Mr. Diez of his appointment, and
appointed Antonio Lantin to take over as Special Administrator. Subsequently, on July 30, 1981, Mr.
Lantin was also relieved of his appointment, and Atty. Vicente Onosa was appointed in his stead.
In the meantime, the Bureau of Internal Revenue conducted an administrative investigation on the
decedents tax liability and found a deficiency income tax for the year 1977 in the amount of
P318,233.93. Thus, on November 18, 1982, the BIR sent by registered mail a demand letter and
Assessment Notice No. NARD-78-82-00501 addressed to the decedent "c/o Philippine Trust
Company, Sta. Cruz, Manila" which was the address stated in her 1978 Income Tax Return. No
response was made by Philtrust. The BIR was not informed that the decedent had actually passed
away.
In an Order dated September 5, 1983, the court a quo appointed Antonio Ambrosio as the
Commissioner and Auditor Tax Consultant of the Estate of the decedent.

On June 18, 1984, respondent Commissioner of Internal Revenue issued warrants of distraint and
levy to enforce collection of the decedents deficiency income tax liability, which were served upon
her heir, Francisco Gabriel. On November 22, 1984, respondent filed a "Motion for Allowance of
Claim and for an Order of Payment of Taxes" with the court a quo. On January 7, 1985, Mr.
Ambrosio filed a letter of protest with the Litigation Division of the BIR, which was not acted upon
because the assessment notice had allegedly become final, executory and incontestable.
On May 16, 1985, petitioner, the Estate of the decedent, through Mr. Ambrosio, filed a formal
opposition to the BIRs Motion for Allowance of Claim based on the ground that there was no proper
service of the assessment and that the filing of the aforesaid claim had already prescribed. The BIR
filed its Reply, contending that service to Philippine Trust Company was sufficient service, and that
the filing of the claim against the Estate on November 22, 1984 was within the five-year prescriptive
period for assessment and collection of taxes under Section 318 of the 1977 National Internal
Revenue Code (NIRC).
On November 19, 1985, the court a quo issued an Order denying respondents claim against the
Estate,2 after finding that there was no notice of its tax assessment on the proper party.3
On July 2, 1986, respondent filed an appeal with the Court of Appeals, docketed as CA-G.R. CV No.
09107,4assailing the Order of the probate court dated November 19, 1985. It was claimed that
Philtrust, in filing the decedents 1978 income tax return on April 5, 1979, two days after the
taxpayers death, had "constituted itself as the administrator of the estate of the deceased at least
insofar as said return is concerned."5 Citing Basilan Estate Inc. v. Commissioner of Internal
Revenue,6 respondent argued that the legal requirement of notice with respect to tax
assessments7 requires merely that the Commissioner of Internal Revenue release, mail and send
the notice of the assessment to the taxpayer at the address stated in the return filed, but notthat the
taxpayer actually receive said assessment within the five-year prescriptive period. 8 Claiming that
Philtrust had been remiss in not notifying respondent of the decedents death, respondent therefore
argued that the deficiency tax assessment had already become final, executory and incontestable,
and that petitioner Estate was liable therefor.
On September 30, 2002, the Court of Appeals rendered a decision in favor of the respondent.
Although acknowledging that the bond of agency between Philtrust and the decedent was severed
upon the latters death, it was ruled that the administrator of the Estate had failed in its legal duty to
inform respondent of the decedents death, pursuant to Section 104 of the National Internal Revenue
Code of 1977. Consequently, the BIRs service to Philtrust of the demand letter and Notice of
Assessment was binding upon the Estate, and, upon the lapse of the statutory thirty-day period to
question this claim, the assessment became final, executory and incontestable. The dispositive
portion of said decision reads:
WHEREFORE, finding merit in the appeal, the appealed decision is REVERSED AND SET
ASIDE. Another one is entered ordering the Administrator of the Estate to pay the
Commissioner of Internal Revenue the following:
a. The amount of P318,223.93, representing the deficiency income tax liability for the
year 1978, plus 20% interest per annum from November 2, 1982 up to November 2,

1985 and in addition thereto 10% surcharge on the basic tax of P169,155.34
pursuant to Section 51(e)(2) and (3) of the Tax Code as amended by PD 69 and
1705; and
b. The costs of the suit.
SO ORDERED.9
Hence, the instant petition, raising the following issues:
1. Whether or not the Court of Appeals erred in holding that the service of deficiency tax
assessment against Juliana Diez Vda. de Gabriel through the Philippine Trust Company was
a valid service in order to bind the Estate;
2. Whether or not the Court of Appeals erred in holding that the deficiency tax assessment
and final demand was already final, executory and incontestable.
Petitioner Estate denies that Philtrust had any legal personality to represent the decedent after her
death. As such, petitioner argues that there was no proper notice of the assessment which,
therefore, never became final, executory and incontestable.10 Petitioner further contends that
respondents failure to file its claim against the Estate within the proper period prescribed by the
Rules of Court is a fatal error, which forever bars its claim against the Estate.11
Respondent, on the other hand, claims that because Philtrust filed the decedents income tax return
subsequent to her death, Philtrust was the de facto administrator of her Estate. 12 Consequently,
when the Assessment Notice and demand letter dated November 18, 1982 were sent to Philtrust,
there was proper service on the Estate.13 Respondent further asserts that Philtrust had the legal
obligation to inform petitioner of the decedents death, which requirement is found in Section 104 of
the NIRC of 1977.14 Since Philtrust did not, respondent contends that petitioner Estate should not be
allowed to profit from this omission.15Respondent further argues that Philtrusts failure to protest the
aforementioned assessment within the 30-day period provided in Section 319-A of the NIRC of 1977
meant that the assessment had already become final, executory and incontestable. 16
The resolution of this case hinges on the legal relationship between Philtrust and the decedent, and,
by extension, between Philtrust and petitioner Estate. Subsumed under this primary issue is the subissue of whether or not service on Philtrust of the demand letter and Assessment Notice No. NARD78-82-00501 was valid service on petitioner, and the issue of whether Philtrusts inaction thereon
could bind petitioner. If both sub-issues are answered in the affirmative, respondents contention as
to the finality of Assessment Notice No. NARD-78-82-00501 must be answered in the affirmative.
This is because Section 319-A of the NIRC of 1977 provides a clear 30-day period within which to
protest an assessment. Failure to file such a protest within said period means that the assessment
ipso jure becomes final and unappealable, as a consequence of which legal proceedings may then
be initiated for collection thereof.
We find in favor of the petitioner.

The first point to be considered is that the relationship between the decedent and Philtrust was one
of agency, which is a personal relationship between agent and principal. Under Article 1919 (3) of
the Civil Code, death of the agent or principal automatically terminates the agency. In this instance,
the death of the decedent on April 3, 1979 automatically severed the legal relationship between her
and Philtrust, and such could not be revivedby the mere fact that Philtrust continued to act as her
agent when, on April 5, 1979, it filed her Income Tax Return for the year 1978.
Since the relationship between Philtrust and the decedent was automatically severed at the moment
of the Taxpayers death, none of Philtrusts acts or omissions could bind the estate of the Taxpayer.
Service on Philtrust of the demand letter and Assessment Notice No. NARD-78-82-00501 was
improperly done.
It must be noted that Philtrust was never appointed as the administrator of the Estate of the
decedent, and, indeed, that the court a quo twice rejected Philtrusts motion to be thus appointed. As
of November 18, 1982, the date of the demand letter and Assessment Notice, the legal relationship
between the decedent and Philtrust had already been non-existent for three years.
Respondent claims that Section 104 of the National Internal Revenue Code of 1977 imposed the
legal obligation on Philtrust to inform respondent of the decedents death. The said Section reads:
SEC. 104. Notice of death to be filed. In all cases of transfers subject to tax or where,
though exempt from tax, the gross value of the estate exceeds three thousand pesos, the
executor, administrator, or any of the legal heirs, as the case may be, within two months after
the decedents death, or within a like period after qualifying as such executor or
administrator, shall give written notice thereof to the Commissioner of Internal Revenue.
The foregoing provision falls in Title III, Chapter I of the National Internal Revenue Code of
1977, or the chapter on Estate Tax, and pertains to "all cases of transfers subject to tax" or
where the "gross value of the estate exceeds three thousand pesos". It has absolutely no
applicability to a case for deficiencyincome tax, such as the case at bar. It further lacks
applicability since Philtrust was never the executor, administrator of the decedents estate,
and, as such, never had the legal obligation, based on the above provision, to inform
respondent of her death.
Although the administrator of the estate may have been remiss in his legal obligation to
inform respondent of the decedents death, the consequences thereof, as provided in
Section 119 of the National Internal Revenue Code of 1977, merely refer to the imposition of
certain penal sanctions on the administrator. These do not include the indefinite tolling of the
prescriptive period for making deficiency tax assessments, or the waiver of the notice
requirement for such assessments.
Thus, as of November 18, 1982, the date of the demand letter and Assessment Notice No.
NARD-78-82-00501, there was absolutely no legal obligation on the part of Philtrust to either
(1) respond to the demand letter and assessment notice, (2) inform respondent of the
decedents death, or (3) inform petitioner that it had received said demand letter and

assessment notice. This lack of legal obligation was implicitly recognized by the Court of
Appeals, which, in fact, rendered its assailed decision on grounds of "equity".17
Since there was never any valid notice of this assessment, it could not have become final, executory
and incontestable, and, for failure to make the assessment within the five-year period provided in
Section 318 of the National Internal Revenue Code of 1977, respondents claim against the
petitioner Estate is barred. Said Section 18 reads:
SEC. 318. Period of limitation upon assessment and collection. Except as provided in the
succeeding section, internal revenue taxes shall be assessed within five years after the
return was filed, and no proceeding in court without assessment for the collection of such
taxes shall be begun after the expiration of such period. For the purpose of this section, a
return filed before the last day prescribed by law for the filing thereof shall be considered as
filed on such last day: Provided, That this limitation shall not apply to cases already
investigated prior to the approval of this Code.
Respondent argues that an assessment is deemed made for the purpose of giving effect to such
assessment when the notice is released, mailed or sent to the taxpayer to effectuate the
assessment, and there is no legal requirement that the taxpayer actually receive said notice within
the five-year period.18 It must be noted, however, that the foregoing rule requires that the notice be
sent to the taxpayer, and not merely to a disinterested party. Although there is no specific
requirement that the taxpayer should receive the notice within the said period, due process requires
at the very least that such notice actually be received. In Commissioner of Internal Revenue v.
Pascor Realty and Development Corporation,19 we had occasion to say:
An assessment contains not only a computation of tax liabilities, but also a demand for
payment within a prescribed period. It also signals the time when penalties and interests
begin to accrue against the taxpayer. To enable the taxpayer to determine his remedies
thereon, due process requires that it must be served on and received by the taxpayer.
In Republic v. De le Rama,20 we clarified that, when an estate is under administration, notice must be
sent to the administrator of the estate, since it is the said administrator, as representative of the
estate, who has the legal obligation to pay and discharge all debts of the estate and to perform all
orders of the court. In that case, legal notice of the assessment was sent to two heirs, neither one of
whom had any authority to represent the estate. We said:
The notice was not sent to the taxpayer for the purpose of giving effect to the assessment,
and said notice could not produce any effect. In the case of Bautista and Corrales Tan v.
Collector of Internal Revenue this Court had occasion to state that "the assessment is
deemed made when the notice to this effect is released, mailed or sent to the taxpayer for
the purpose of giving effect to said assessment." It appearing that the person liable for the
payment of the tax did not receive the assessment, the assessment could not become final
and executory. (Citations omitted, emphasis supplied.)
In this case, the assessment was served not even on an heir of the Estate, but on a completely
disinterested third party. This improper service was clearly not binding on the petitioner.

By arguing that (1) the demand letter and assessment notice were served on Philtrust, (2) Philtrust
was remiss in its obligation to respond to the demand letter and assessment notice, (3) Philtrust was
remiss in its obligation to inform respondent of the decedents death, and (4) the assessment notice
is therefore binding on the Estate, respondent is arguing in circles. The most crucial point to be
remembered is that Philtrust had absolutely no legal relationship to the deceased, or to her Estate.
There was therefore no assessment served on the Estate as to the alleged underpayment of tax.
Absent this assessment, no proceedings could be initiated in court for the collection of said tax, 21 and
respondents claim for collection, filed with the probate court only on November 22, 1984, was
barred for having been made beyond the five-year prescriptive period set by law.
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. CV No.
09107, dated September 30, 2002, is REVERSED and SET ASIDE. The Order of the Regional Trial
Court of Manila, Branch XXXVIII, in Sp. Proc. No. R-82-6994, dated November 19, 1985, which
denied the claim of the Bureau of Internal Revenue against the Estate of Juliana Diez Vda. De
Gabriel for the deficiency income tax of the decedent for the year 1977 in the amount of
P318,223.93, is AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Panganiban, and Carpio, JJ., concur.
Azcuna, J., on official leave.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 170632

July 10, 2007

EUGENIA D. POLIDO, Petitioner,

vs.
HON. COURT OF APPEALS and MARIANO P. GASAT, Respondents.
DECISION
CARPIO MORALES, J.:

After the death of her husband Jacinto Polido (Polido), Eugenia Duque Polido, petitioner, tried to
withdraw the joint savings deposit they maintained at the Philippine National Bank, Camiling, Tarlac
Branch, but failed because one Mariano Gasat (Gasat), herein respondent who claimed to be the
couples adopted child, objected thereto.
Petitioner thus filed on January 21, 2004 a complaint before the Regional Trial Court of Tarlac, with
Motion for the Issuance of a Writ of Preliminary Injunction, against Gasat.
In her complaint, petitioner prayed for the following reliefs:
1. An Order granting the issuance of [a] writ of preliminary injunction enjoining and
restraining the defendant and all persons acting under him from preventing the officers or
employee[s] of the Philippine National Bank, Camiling, Tarlac Branch 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. After trial, to declare the defendant not the adopted child of the plaintiff and her husband
Jacinto Polido;
3. Directing the defendant to pay plaintiff attorneys fees and litigation expenses in the
amount of P100,000.00 and moral damages in the amount of P50,000.00.
Other reliefs which are just and equitable under the premises are likewise prayed for.1 (Underscoring
supplied)
In his Answer with Compulsory Counterclaim,2 Gasat alleged that petitioner and her late husband
had adopted him as their child, annexing as proof thereof a photocopy of an Order dated September
23, 1970 of the Municipal Trial Court (MTC) of Camiling in Civil Case No. 2497, "In the Matter of the
Adoption of the Minors, Lea D. Tomas and Mariano Gasat, JACINTO POLIDO AND EUGENIA
POLIDO, Petitioners,"3 and a copy of a Certification4 from the MTC Clerk of Court that a "[c]opy of
the decree of adoption dated September 23, 1970 was furnished to the Office of 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.5
In his Opposition to the Issuance of Preliminary Injunction and Motion to Set the Affirmative
Defenses for Preliminary Hearing,6 Gasat argued that:
xxxx
3. Even assuming but without admitting that the defendants adoption paper is ineffective,
still he cannot be deprived of his inheritance from the Estate of Jacinto Polido because
said deceased and the plaintiff are childless and all the properties subject of inheritance
are exclusive properties of the late Jacinto Polido, the same being inherited from his late
father, NARCISO POLIDO[,] who died in Hawaii, USA.

4. The Estate of Narciso Polido was inherited by his two children, namely, said JACINTO
POLIDO and PETRA P. GASAT, also deceased and the latter was survived by her husband
and SEVEN (7) children of which the defendant (MARIANO D. POLIDO) is one . . .;
5. Thus, by virtue of the provision of Art. 1001 of the Civil Code of the Philippines, which
reads as follows:
"ART. 1001. Should brothers and sisters or their children survive with the widow or widower, the
latter shall be entitled to one-half of the inheritance and the brothers and sisters or their children to
the other half."
[T]he heirs of the late Jacinto Polido are his WIFE (plaintiff) [who is entitled to] one-half (1/2) and
Petra P. Gasats SEVEN (7) CHILDREN which would include the defendant[, who are entitled to]
one-half (1/2).
HENCE, THERE IS NO WAY WHATSOEVER TO JUSTIFY THE ISSUANCE OF PRELIMINARY
INJUNCTION AGAINST THE DEFENDANT EVEN IF HIS ADOPTION WOULD BE NULLIFIED OR
OF NO EFFECT WHATSOEVER.7 (Emphasis in the original; underscoring supplied)
Gasat subsequently filed an Omnibus Motion8 withdrawing 1) the allegation he had made in various
pleadings that he is an adopted son of the couple and 2) his Motion to Set the Affirmative Defenses
for Preliminary Hearing. And he moved to convert the case to an action for partition, at his
instance, of the estate of his grandfather Narciso Polido,9 father of petitioners husband and Gasats
mother, and to require petitioner to file income tax returns and pay the estate tax due.
To Gasats prayer to convert the action to one for partition and to require her to file Estate Tax
Returns, petitioner filed an Opposition.10 And she moved for Judgment on the Pleadings.11
To justify her motion for judgment on the pleadings, petitioner argued that Gasat, in withdrawing his
claim and allegation that he is an adopted child, "practically admitted [her] material allegations [in the
Complaint] that [he] is not an adopted child."12
By Order13 dated December 7, 2004, the trial court denied Gasats motion to convert the case to an
action for partition and granted petitioners motion for judgment on the pleadings in this wise:
On November 30, 2004, the plaintiff filed a Motion for Judgment on the ground that by withdrawing
all his allegations that he is [an] adopted child of the plaintiff, defendant practically admitted all the
material allegations in the complaint and prayed that judgment be rendered as the complaint may
warrant.
This Court resolves to grant the motion for judgment on the ground that the defense that he is an
adopted child of the plaintiff is withdrawn by the defendant himself. By withdrawing his defense, he is
deemed to have admitted the main allegation of the plaintiff that he is not an adopted child. On the
motion of the defendant that the instant action be converted into a partition and that the plaintiff be
ordered to file her real estate tax return, the same is denied for lack of merit. 14 (Underscoring
supplied)

Accordingly, the trial court disposed as follows:

WHEREFORE, judgment is hereby rendered:
1. Declaring the defendant not the adopted child of the plaintiff,
2. Ordering the Manager of the Philippine National Bank, Camiling Branch or any other
branch to release to plaintiff upon her request the money she deposited or her deceased
husband Jacinto Polido;
3. Directing the defendant to pay the plaintiff moral damages in the amount of P25,000.00
and attorneys fee[s] in the amount of P25,000.00.
SO ORDERED.15 (Underscoring supplied)
Gasat filed a Notice of Appeal.16 On May 26, 2005, before the Court of Appeals, he filed an Ex-Parte
Motion to Admit Payment of Docket Fee,17 explaining that being jobless, it took some time for him to
raise the docket fee. He added that he had to borrow at an exorbitant interest rate. Finally, he
explained that when he went to the trial court to pay the docket fee, he was advised to pay the same
at the Court of Appeals, the records having already been forwarded to it.
The Court of Appeals denied his motion and dismissed his
appeal.18 On Motion for Reconsideration,however, the Court of Appeals, by Resolution dated July 19,
2005, admitted Gasats docket fee.19 Petitioner filed a Motion for Reconsideration, which the Court of
Appeals denied in this wise: 20
It is settled that "delay in the payment of the docket fees confers a discretionary, and not mandatory,
power to dismiss the proposed appeal." While the payment of the prescribed docket fee is a
jurisdictional requirement, its non-payment 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. On this score is the case of Spouses Gregorio Go and Juan Tan Go v. Johnson Y.
Tong, et. al., where the Supreme Court ruled that:
While the cause of action of the private respondent was supposed to prescribe in four (4) years, he
was allowed to pay; and he in fact paid the docket fee in a years time. We do not see how this
period can be deemed unreasonable. Moreover, on his part there is no showing of any pattern or
intent to defraud the government of the required docket fee.
In the instant case, the period between the filing of the notice of appeal on February 28, 2005 and
the payment of docket fee on May 26, 2005 is deemed reasonable. Moreover, justice will be better
served with the admission of such belated payment. 21 (Underscoring supplied)
Hence, the present Petition for Certiorari and Prohibition with Urgent Motion for Injunction and
Temporary Restraining Order,22 petitioner faulting the Court of Appeals for committing grave abuse of
discretion in relaxing the rule on the payment of docket fees on the ground of substantial justice.23

The petition fails.

Indeed, jurisprudence allows the relaxation of the Rule on non-payment of appellate docket fees.
Notwithstanding the mandatory nature of the requirement of payment of appellate docket fees, we
also recognize that its strict application is qualified by the following: 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.24
The relaxation by the appellate court of the rule on non-payment of the appellate docket fee appears
justified as a perusal of the records of the case shows persuasive and weighty reasons to give due
course to the appeal.25
Instead of remanding the case to the appellate court, however, this Court, in the interest of speedy
dispensation of justice,26 especially given that the main issue is a question of law, now passes on the
merits of the appeal of Gasat.
Section 1 of Rule 34 of the Rules of Court provides:
SECTION 1. Judgment on the Pleadings. Where an answer fails to tender an issue, or
otherwise admits the material allegations of the adverse partys pleading, the court may, on motion of
that party, direct judgment on such pleading. However, in actions for declaration of nullity or
annulment of marriage or for legal separation, the material facts alleged in the complaint shall
always be proved. (Emphasis and underscoring supplied)
Passing on this rule, the Court declared:
x x x The answer would fail to tender an issue x x x if it does not comply with the requirements for a
specific denial set out in Section 10 (or Section 8) of Rule 8; and it would admit the material
allegations of the adverse partys pleadings not only where it expressly confesses the truthfulness
thereof but also if it omits to deal with them at all.
Now, if an answer does in fact specifically deny the material averments of the complaint in the
manner indicated by said Section 10 of Rule 8, and/or asserts affirmative defenses (allegations of
new matter which, while admitting the material allegations of the complaint expressly or impliedly,
would nevertheless bar recovery by the plaintiff) x x x, a judgment on the pleadings would naturally
not be proper.27
In the case at bar, the trial court granted petitioners motion for judgment on the pleadings on
petitioners argument that in withdrawing Gasats allegation of her having adopted him, he
"practically admitted her material allegations [in her Complaint] that [he] is not an adopted child."
Gasats Answer with Compulsory Counterclaim raised other issues, however, which are independent
of his claim of adoptive filiation and which would defeat petitioners 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.
11. . . Further, defendant has all the rights to prohibit the plaintiff from personally withdrawing [from]
the said bank account because, it is mandated by law that after the death of the owner of the said
account, any withdrawal is prohibited except by order of the Court or upon presentation of an
Extrajudicial Settlement executed by the legal heirs and after compliance with all the requirements of
the law. Likewise the bank is prohibited to allow any withdrawal without submitting to it said
requirements.
xxxx
13. With respect to the allegations of said paragraph 14, to wit
Unless an injunction be issued against the defendant restraining him from claiming in the bank
account, the plaintiff would suffer irreparable damage. The plaintiff is willing to post a bond in an
amount to be fixed by the Honorable Court.
this allegation is UNFOUNDED AND BASELESS and the court cannot use [it] as a ground for the
issuance of any restraining order. Even assuming that the court will issue an Order restraining
defendant from claiming the bank account, the plaintiff still cannot withdraw any amount thereof,
because it is a part of the ESTATE of Jacinto Polido, and as provided for by laws 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. 28 (Underscoring supplied)
It bears noting that petitioner and her deceased husband Polido were childless; hence, Gasat, who
is a son of Polidos sister Petra P. Gasat, could inherit from Polido.
Parenthetically, Section 97 of the National Internal Revenue Code states:
xxxx
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 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.
There being no ground to merit petitioners Motion for Judgment on the Pleadings, the trial court
erred in granting the same.
lawphil.net

WHEREFORE, the assailed petition is DENIED. The Court of Appeals Resolution admitting
respondents payment of docket fee is upheld.
The Order of the Regional Trial Court of Camiling, Tarlac, Branch 68 dated December 7, 2004
granting petitioners Motion for Judgment on the Pleadings is REVERSED and SET ASIDE.
Let the case be REMANDED to the trial court which is directed to continue with dispatch its
proceedings on and/or resolve the case in light of the foregoing discussions.
Costs against petitioner.
SO ORDERED.
CONCHITA CARPIO MORALES
Associate Justice

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 120880 June 5, 1997

FERDINAND R. MARCOS II, petitioner,
vs.
COURT OF APPEALS, THE COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE and
HERMINIA D. DE GUZMAN, respondents.

TORRES, JR., J.:

In this Petition for Review on Certiorari, Government action is once again assailed as precipitate and
unfair, suffering the basic and oftly implored requisites of due process of law. Specifically, the petition
assails the Decision 1 of the Court of Appeals dated November 29, 1994 in CA-G.R. SP No. 31363,
where the said court held:
In view of all the foregoing, we rule that the deficiency income tax assessments and
estate tax assessment, are already final and (u)nappealable-and-the subsequent
levy of real properties is a tax remedy resorted to by the government, sanctioned by

Section 213 and 218 of the National Internal Revenue Code. This summary tax
remedy is distinct and separate from the other tax remedies (such as Judicial Civil
actions and Criminal actions), and is not affected or precluded by the pendency of
any other tax remedies instituted by the government.
WHEREFORE, premises considered, judgment is hereby rendered DISMISSING the
petition forcertiorari with prayer for Restraining Order and Injunction.
No pronouncements as to costs.
SO ORDERED.
More than seven years since the demise of the late Ferdinand E. Marcos, the former President of
the Republic of the Philippines, the matter of the settlement of his estate, and its dues to the
government in estate taxes, are still unresolved, the latter issue being now before this Court for
resolution. Specifically, petitioner Ferdinand R. Marcos II, the eldest son of the decedent, questions
the actuations of the respondent Commissioner of Internal Revenue in assessing, and collecting
through the summary remedy of Levy on Real Properties, estate and income tax delinquencies upon
the estate and properties of his father, despite the pendency of the proceedings on probate of the
will of the late president, which is docketed as Sp. Proc. No. 10279 in the Regional Trial Court of
Pasig, Branch 156.
Petitioner had filed with the respondent Court of Appeals a Petition for Certiorari and Prohibition with
an application for writ of preliminary injunction and/or temporary restraining order on June 28, 1993,
seeking to
I. Annul and set aside the Notices of Levy on real property dated February 22, 1993
and May 20, 1993, issued by respondent Commissioner of Internal Revenue;
II. Annul and set aside the Notices of Sale dated May 26, 1993;
III. Enjoin the Head Revenue Executive Assistant Director II (Collection Service),
from proceeding with the Auction of the real properties covered by Notices of Sale.
After the parties had pleaded their case, the Court of Appeals rendered its Decision 2 on November
29, 1994, ruling that the deficiency assessments for estate and income tax made upon the petitioner
and the estate of the deceased President Marcos have already become final and unappealable, and
may thus be enforced by the summary remedy of levying upon the properties of the late President,
as was done by the respondent Commissioner of Internal Revenue.
WHEREFORE, premises considered judgment is hereby rendered DISMISSING the
petition forCertiorari with prayer for Restraining Order and Injunction.
No pronouncements as to cost.
SO ORDERED.

Unperturbed, petitioner is now before us assailing the validity of the appellate court's decision,
assigning the following as errors:
A. RESPONDENT COURT MANIFESTLY ERRED IN RULING THAT THE
SUMMARY TAX REMEDIES RESORTED TO BY THE GOVERNMENT ARE NOT
AFFECTED AND PRECLUDED BY THE PENDENCY OF THE SPECIAL
PROCEEDING FOR THE ALLOWANCE OF THE LATE PRESIDENT'S ALLEGED
WILL. TO THE CONTRARY, THIS PROBATE PROCEEDING PRECISELY PLACED
ALL PROPERTIES WHICH FORM PART OF THE LATE PRESIDENT'S ESTATE IN
CUSTODIA LEGIS OF THE PROBATE COURT TO THE EXCLUSION OF ALL
OTHER COURTS AND ADMINISTRATIVE AGENCIES.
B. RESPONDENT COURT ARBITRARILY ERRED IN SWEEPINGLY DECIDING
THAT SINCE THE TAX ASSESSMENTS OF PETITIONER AND HIS PARENTS HAD
ALREADY BECOME FINAL AND UNAPPEALABLE, THERE WAS NO NEED TO GO
INTO THE MERITS OF THE GROUNDS CITED IN THE PETITION. INDEPENDENT
OF WHETHER THE TAX ASSESSMENTS HAD ALREADY BECOME FINAL,
HOWEVER, PETITIONER HAS THE RIGHT TO QUESTION THE UNLAWFUL
MANNER AND METHOD IN WHICH TAX COLLECTION IS SOUGHT TO BE
ENFORCED BY RESPONDENTS COMMISSIONER AND DE GUZMAN. THUS,
RESPONDENT COURT SHOULD HAVE FAVORABLY CONSIDERED THE MERITS
OF THE FOLLOWING GROUNDS IN THE PETITION:
(1) The Notices of Levy on Real Property were issued beyond the
period provided in the Revenue Memorandum Circular No. 38-68.
(2) [a] The numerous pending court cases questioning the late
President's ownership or interests in several properties (both
personal and real) make the total value of his estate, and the
consequent estate tax due, incapable of exact pecuniary
determination at this time. Thus, respondents' assessment of the
estate tax and their issuance of the Notices of Levy and Sale are
premature, confiscatory and oppressive.
[b] Petitioner, as one of the late President's compulsory heirs, was
never notified, much less served with copies of the Notices of Levy,
contrary to the mandate of Section 213 of the NIRC. As such,
petitioner was never given an opportunity to contest the Notices in
violation of his right to due process of law.
C. ON ACCOUNT OF THE CLEAR MERIT OF THE PETITION, RESPONDENT
COURT MANIFESTLY ERRED IN RULING THAT IT HAD NO POWER TO GRANT
INJUNCTIVE RELIEF TO PETITIONER. SECTION 219 OF THE NIRC
NOTWITHSTANDING, COURTS POSSESS THE POWER TO ISSUE A WRIT OF
PRELIMINARY INJUNCTION TO RESTRAIN RESPONDENTS COMMISSIONER'S

AND DE GUZMAN'S ARBITRARY METHOD OF COLLECTING THE ALLEGED

DEFICIENCY ESTATE AND INCOME TAXES BY MEANS OF LEVY.
The facts as found by the appellate court are undisputed, and are hereby adopted:
On September 29, 1989, former President Ferdinand Marcos died in Honolulu,
Hawaii, USA.
On June 27, 1990, a Special Tax Audit Team was created to conduct investigations
and examinations of the tax liabilities and obligations of the late president, as well as
that of his family, associates and "cronies". Said audit team concluded its
investigation with a Memorandum dated July 26, 1991. The investigation disclosed
that the Marcoses failed to file a written notice of the death of the decedent, an estate
tax returns [sic], as well as several income tax returns covering the years 1982 to
1986, all in violation of the National Internal Revenue Code (NIRC).
Subsequently, criminal charges were filed against Mrs. Imelda R. Marcos before the
Regional Trial of Quezon City for violations of Sections 82, 83 and 84 (has penalized
under Sections 253 and 254 in relation to Section 252 a & b) of the National
Internal Revenue Code (NIRC).
The Commissioner of Internal Revenue thereby caused the preparation and filing of
the Estate Tax Return for the estate of the late president, the Income Tax Returns of
the Spouses Marcos for the years 1985 to 1986, and the Income Tax Returns of
petitioner Ferdinand "Bongbong" Marcos II for the years 1982 to 1985.
On July 26, 1991, the BIR issued the following: (1) Deficiency estate tax assessment
no. FAC-2-89-91-002464 (against the estate of the late president Ferdinand Marcos
in the amount of P23,293,607,638.00 Pesos); (2) Deficiency income tax assessment
no. FAC-1-85-91-002452 and Deficiency income tax assessment no. FAC-1-86-91002451 (against the Spouses Ferdinand and Imelda Marcos in the amounts of
P149,551.70 and P184,009,737.40 representing deficiency income tax for the years
1985 and 1986); (3) Deficiency income tax assessment nos. FAC-1-82-91-002460 to
FAC-1-85-91-002463 (against petitioner Ferdinand "Bongbong" Marcos II in the
amounts of P258.70 pesos; P9,386.40 Pesos; P4,388.30 Pesos; and P6,376.60
Pesos representing his deficiency income taxes for the years 1982 to 1985).
The Commissioner of Internal Revenue avers that copies of the deficiency estate and
income tax assessments were all personally and constructively served on August 26,
1991 and September 12, 1991 upon Mrs. Imelda Marcos (through her caretaker Mr.
Martinez) at her last known address at No. 204 Ortega St., San Juan, M.M. (Annexes
"D" and "E" of the Petition). Likewise, copies of the deficiency tax assessments
issued against petitioner Ferdinand "Bongbong" Marcos II were also personally and
constructively served upon him (through his caretaker) on September 12, 1991, at
his last known address at Don Mariano Marcos St. corner P. Guevarra St., San Juan,
M.M. (Annexes "J" and "J-1" of the Petition). Thereafter, Formal Assessment notices

were served on October 20, 1992, upon Mrs. Marcos c/o petitioner, at his office,
House of Representatives, Batasan Pambansa, Quezon City. Moreover, a notice to
Taxpayer inviting Mrs. Marcos (or her duly authorized representative or counsel), to a
conference, was furnished the counsel of Mrs. Marcos, Dean Antonio Coronel but
to no avail.
The deficiency tax assessments were not protested administratively, by Mrs. Marcos
and the other heirs of the late president, within 30 days from service of said
assessments.
On February 22, 1993, the BIR Commissioner issued twenty-two notices of levy on
real property against certain parcels of land owned by the Marcoses to satisfy the
alleged estate tax and deficiency income taxes of Spouses Marcos.
On May 20, 1993, four more Notices of Levy on real property were issued for the
purpose of satisfying the deficiency income taxes.
On May 26, 1993, additional four (4) notices of Levy on real property were again
issued. The foregoing tax remedies were resorted to pursuant to Sections 205 and
213 of the National Internal Revenue Code (NIRC).
In response to a letter dated March 12, 1993 sent by Atty. Loreto Ata (counsel of
herein petitioner) calling the attention of the BIR and requesting that they be duly
notified of any action taken by the BIR affecting the interest of their client Ferdinand
"Bongbong" Marcos II, as well as the interest of the late president copies of the
aforesaid notices were, served on April 7, 1993 and on June 10, 1993, upon Mrs.
Imelda Marcos, the petitioner, and their counsel of record, "De Borja, Medialdea, Ata,
Bello, Guevarra and Serapio Law Office".
Notices of sale at public auction were posted on May 26, 1993, at the lobby of the
City Hall of Tacloban City. The public auction for the sale of the eleven (11) parcels of
land took place on July 5, 1993. There being no bidder, the lots were declared
forfeited in favor of the government.
On June 25, 1993, petitioner Ferdinand "Bongbong" Marcos II filed the instant
petition for certiorariand prohibition under Rule 65 of the Rules of Court, with prayer
for temporary restraining order and/or writ of preliminary injunction.
It has been repeatedly observed, and not without merit, that the enforcement of tax laws and the
collection of taxes, is of paramount importance for the sustenance of government. Taxes are the
lifeblood of the government and should be collected without unnecessary hindrance. However, such
collection should be made in accordance with law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the apparently conflicting interests of the
authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the
common good, may be achieved. 3

Whether or not the proper avenues of assessment and collection of the said tax obligations were
taken by the respondent Bureau is now the subject of the Court's inquiry.
Petitioner posits that notices of levy, notices of sale, and subsequent sale of properties of the late
President Marcos effected by the BIR are null and void for disregarding the established procedure
for the enforcement of taxes due upon the estate of the deceased. The case of Domingo
vs. Garlitos 4 is specifically cited to bolster the argument that "the ordinary procedure by which to
settle claims of indebtedness against the estate of a deceased, person, as in an inheritance (estate)
tax, is for the claimant to present a claim before the probate court so that said court may order the
administrator to pay the amount therefor." This remedy is allegedly, exclusive, and cannot be
effected through any other means.
Petitioner goes further, submitting that the probate court is not precluded from denying a request by
the government for the immediate payment of taxes, and should order the payment of the same only
within the period fixed by the probate court for the payment of all the debts of the decedent. In this
regard, petitioner cites the case of Collector of Internal Revenue vs. The Administratrix of the Estate
of Echarri (67 Phil 502), where it was held that:
The case of Pineda vs. Court of First Instance of Tayabas and Collector of Internal
Revenue (52 Phil 803), relied upon by the petitioner-appellant is good authority on
the proposition that the court having control over the administration proceedings has
jurisdiction to entertain the claim presented by the government for taxes due and to
order the administrator to pay the tax should it find that the assessment was proper,
and that the tax was legal, due and collectible. And the rule laid down in that case
must be understood in relation to the case of Collector of Customs
vs.Haygood, supra., as to the procedure to be followed in a given case by the
government to effectuate the collection of the tax. Categorically stated, where during
the pendency of judicial administration over the estate of a deceased person a claim
for taxes is presented by the government, the court has the authority to order
payment by the administrator; but, in the same way that it has authority to order
payment or satisfaction, it also has the negative authority to deny the same. While
there are cases where courts are required to perform certain duties mandatory and
ministerial in character, the function of the court in a case of the present character is
not one of them; and here, the court cannot be an organism endowed with latitude of
judgment in one direction, and converted into a mere mechanical contrivance in
another direction.
On the other hand, it is argued by the BIR, that the state's authority to collect internal revenue taxes
is paramount. Thus, the pendency of probate proceedings over the estate of the deceased does not
preclude the assessment and collection, through summary remedies, of estate taxes over the same.
According to the respondent, claims for payment of estate and income taxes due and assessed after
the death of the decedent need not be presented in the form of a claim against the estate. These
can and should be paid immediately. The probate court is not the government agency to decide
whether an estate is liable for payment of estate of income taxes. Well-settled is the rule that the
probate court is a court with special and limited jurisdiction.

Concededly, the authority of the Regional Trial Court, sitting, albeit with limited jurisdiction, as a
probate court over estate of deceased individual, is not a trifling thing. The court's jurisdiction, once
invoked, and made effective, cannot be treated with indifference nor should it be ignored with
impunity by the very parties invoking its authority.
In testament to this, it has been held that it is within the jurisdiction of the probate court to approve
the sale of properties of a deceased person by his prospective heirs before final adjudication; 5 to
determine who are the heirs of the decedent; 6 the recognition of a natural child; 7 the status of a
woman claiming to be the legal wife of the decedent; 8 the legality of disinheritance of an heir by the
testator; 9 and to pass upon the validity of a waiver of hereditary rights. 10
The pivotal question the court is tasked to resolve refers to the authority of the Bureau of Internal
Revenue to collect by the summary remedy of levying upon, and sale of real properties of the
decedent, estate tax deficiencies, without the cognition and authority of the court sitting in probate
over the supposed will of the deceased.
The nature of the process of estate tax collection has been described as follows:
Strictly speaking, the assessment of an inheritance tax does not directly involve the
administration of a decedent's estate, although it may be viewed as an incident to the
complete settlement of an estate, and, under some statutes, it is made the duty of the
probate court to make the amount of the inheritance tax a part of the final decree of
distribution of the estate. It is not against the property of decedent, nor is it a claim
against the estate as such, but it is against the interest or property right which the heir,
legatee, devisee, etc., has in the property formerly held by decedent. Further, under
some statutes, it has been held that it is not a suit or controversy between the parties, nor
is it an adversary proceeding between the state and the person who owes the tax on the
inheritance. However, under other statutes it has been held that the hearing and
determination of the cash value of the assets and the determination of the tax are
adversary proceedings. The proceeding has been held to be necessarily a proceeding in
rem. 11

In the Philippine experience, the enforcement and collection of estate tax, is executive in character,
as the legislature has seen it fit to ascribe this task to the Bureau of Internal Revenue. Section 3 of
the National Internal Revenue Code attests to this:
Sec. 3. Powers and duties of the Bureau. The powers and duties of the Bureau of
Internal Revenue shall comprehend the assessment and collection of all national
internal revenue taxes, fees, and charges, and the enforcement of all forfeitures,
penalties, and fines connected therewith, including the execution of judgments in all
cases decided in its favor by the Court of Tax Appeals and the ordinary courts. Said
Bureau shall also give effect to and administer the supervisory and police power
conferred to it by this Code or other laws.
Thus, it was in Vera vs. Fernandez 12 that the court recognized the liberal treatment of claims for
taxes charged against the estate of the decedent. Such taxes, we said, were exempted from the
application of the statute of non-claims, and this is justified by the necessity of government funding,

immortalized in the maxim that taxes are the lifeblood of the government. Vectigalia nervi sunt rei
publicae taxes are the sinews of the state.
Taxes assessed against the estate of a deceased person, after administration is
opened, need not be submitted to the committee on claims in the ordinary course of
administration. In the exercise of its control over the administrator, the court may
direct the payment of such taxes upon motion showing that the taxes have been
assessed against the estate.
Such liberal treatment of internal revenue taxes in the probate proceedings extends so far, even to
allowing the enforcement of tax obligations against the heirs of the decedent, even after distribution
of the estate's properties.
Claims for taxes, whether assessed before or after the death of the deceased, can be
collected from the heirs even after the distribution of the properties of the decedent. They
are exempted from the application of the statute of non-claims. The heirs shall be liable
therefor, in proportion to their share in the inheritance. 13

Thus, the Government has two ways of collecting the taxes in question. One, by
going after all the heirs and collecting from each one of them the amount of the tax
proportionate to the inheritance received. Another remedy, pursuant to the lien
created by Section 315 of the Tax Code upon all property and rights to property
belong to the taxpayer for unpaid income tax, is by subjecting said property of the
estate which is in the hands of an heir or transferee to the payment of the tax due the
estate. (Commissioner of Internal Revenue vs. Pineda, 21 SCRA 105, September 15,
1967.)
From the foregoing, it is discernible that the approval of the court, sitting in probate, or as a
settlement tribunal over the deceased is not a mandatory requirement in the collection of estate
taxes. It cannot therefore be argued that the Tax Bureau erred in proceeding with the levying and
sale of the properties allegedly owned by the late President, on the ground that it was required to
seek first the probate court's sanction. There is nothing in the Tax Code, and in the pertinent
remedial laws that implies the necessity of the probate or estate settlement court's approval of the
state's claim for estate taxes, before the same can be enforced and collected.
On the contrary, under Section 87 of the NIRC, it is the probate or settlement court which is bidden
not to authorize the executor or judicial administrator of the decedent's estate to deliver any
distributive share to any party interested in the estate, unless it is shown a Certification by the
Commissioner of Internal Revenue that the estate taxes have been paid. This provision disproves
the petitioner's contention that it is the probate court which approves the assessment and collection
of the estate tax.
If there is any issue as to the validity of the BIR's decision to assess the estate taxes, this should
have been pursued through the proper administrative and judicial avenues provided for by law.
Section 229 of the NIRC tells us how:

Sec. 229. Protesting of assessment. When the Commissioner of Internal Revenue

or his duly authorized representative finds that proper taxes should be assessed, he
shall first notify the taxpayer of his findings. Within a period to be prescribed by
implementing regulations, the taxpayer shall be required to respond to said notice. If
the taxpayer fails to respond, the Commissioner shall issue an assessment based on
his findings.
Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation in such form and manner as may be prescribed by
implementing regulations within (30) days from receipt of the assessment; otherwise,
the assessment shall become final and unappealable.
If the protest is denied in whole or in part, the individual, association or corporation
adversely affected by the decision on the protest may appeal to the Court of Tax
Appeals within thirty (30) days from receipt of said decision; otherwise, the decision
shall become final, executory and demandable. (As inserted by P.D. 1773)
Apart from failing to file the required estate tax return within the time required for the filing of the
same, petitioner, and the other heirs never questioned the assessments served upon them, allowing
the same to lapse into finality, and prompting the BIR to collect the said taxes by levying upon the
properties left by President Marcos.
Petitioner submits, however, that "while the assessment of taxes may have been validly undertaken
by the Government, collection thereof may have been done in violation of the law. Thus, the manner
and method in which the latter is enforced may be questioned separately, and irrespective of the
finality of the former, because the Government does not have the unbridled discretion to enforce
collection without regard to the clear provision of law." 14
Petitioner specifically points out that applying Memorandum Circular No. 38-68, implementing
Sections 318 and 324 of the old tax code (Republic Act 5203), the BIR's Notices of Levy on the
Marcos properties, were issued beyond the allowed period, and are therefore null and void:
. . . the Notices of Levy on Real Property (Annexes O to NN of Annex C of this Petition) in
satisfaction of said assessments were still issued by respondents well beyond the period
mandated in Revenue Memorandum Circular No. 38-68. These Notices of Levy were
issued only on 22 February 1993 and 20 May 1993 when at least seventeen (17) months
had already lapsed from the last service of tax assessment on 12 September 1991. As no
notices of distraint of personal property were first issued by respondents, the latter should
have complied with Revenue Memorandum Circular No. 38-68 and issued these Notices
of Levy not earlier than three (3) months nor later than six (6) months from 12 September
1991. In accordance with the Circular, respondents only had until 12 March 1992 (the last
day of the sixth month) within which to issue these Notices of Levy. The Notices of Levy,
having been issued beyond the period allowed by law, are thus void and of no effect. 15

We hold otherwise. The Notices of Levy upon real property were issued within the prescriptive period
and in accordance with the provisions of the present Tax Code. The deficiency tax assessment,

having already become final, executory, and demandable, the same can now be collected through
the summary remedy of distraint or levy pursuant to Section 205 of the NIRC.
The applicable provision in regard to the prescriptive period for the assessment and collection of tax
deficiency in this instance is Article 223 of the NIRC, which pertinently provides:
Sec. 223. Exceptions as to a period of limitation of assessment and collection of
taxes. (a) In the case of a false or fraudulent return with intent to evade tax or of a
failure to file a return, the tax may be assessed, or a proceeding in court for the
collection of such tax may be begun without assessment, at any time within ten (10)
years after the discovery of the falsity, fraud, or omission:Provided, That, in a fraud
assessment which has become final and executory, the fact of fraud shall be
judicially taken cognizance of in the civil or criminal action for the collection thereof.
xxx xxx xxx
(c) Any internal revenue tax which has been assessed within the period of limitation
above prescribed, may be collected by distraint or levy or by a proceeding in court
within three years following the assessment of the tax.
xxx xxx xxx
The omission to file an estate tax return, and the subsequent failure to contest or appeal the
assessment made by the BIR is fatal to the petitioner's cause, as under the above-cited provision, in
case of failure to file a return, the tax may be assessed at any time within ten years after the
omission, and any tax so assessed may be collected by levy upon real property within three years
following the assessment of the tax. Since the estate tax assessment had become final and
unappealable by the petitioner's default as regards protesting the validity of the said assessment,
there is now no reason why the BIR cannot continue with the collection of the said tax. Any objection
against the assessment should have been pursued following the avenue paved in Section 229 of the
NIRC on protests on assessments of internal revenue taxes.
Petitioner further argues that "the numerous pending court cases questioning the late president's
ownership or interests in several properties (both real and personal) make the total value of his
estate, and the consequent estate tax due, incapable of exact pecuniary determination at this time.
Thus, respondents' assessment of the estate tax and their issuance of the Notices of Levy and sale
are premature and oppressive." He points out the pendency of Sandiganbayan Civil Case Nos.
0001-0034 and 0141, which were filed by the government to question the ownership and interests of
the late President in real and personal properties located within and outside the Philippines.
Petitioner, however, omits to allege whether the properties levied upon by the BIR in the collection of
estate taxes upon the decedent's estate were among those involved in the said cases pending in the
Sandiganbayan. Indeed, the court is at a loss as to how these cases are relevant to the matter at
issue. The mere fact that the decedent has pending cases involving ill-gotten wealth does not affect
the enforcement of tax assessments over the properties indubitably included in his estate.

Petitioner also expresses his reservation as to the propriety of the BIR's total assessment of
P23,292,607,638.00, stating that this amount deviates from the findings of the Department of
Justice's Panel of Prosecutors as per its resolution of 20 September 1991. Allegedly, this is clear
evidence of the uncertainty on the part of the Government as to the total value of the estate of the
late President.
This is, to our mind, the petitioner's last ditch effort to assail the assessment of estate tax which had
already become final and unappealable.
It is not the Department of Justice which is the government agency tasked to determine the amount
of taxes due upon the subject estate, but the Bureau of Internal Revenue, 16 whose determinations
and assessments are presumed correct and made in good faith. 17 The taxpayer has the duty of
proving otherwise. In the absence of proof of any irregularities in the performance of official duties,
an assessment will not be disturbed. Even an assessment based on estimates is prima facie valid
and lawful where it does not appear to have been arrived at arbitrarily or capriciously. The burden of
proof is upon the complaining party to show clearly that the assessment is erroneous. Failure to
present proof of error in the assessment will justify the judicial affirmance of said assessment. 18 In
this instance, petitioner has not pointed out one single provision in the Memorandum of the Special
Audit Team which gave rise to the questioned assessment, which bears a trace of falsity. Indeed, the
petitioner's attack on the assessment bears mainly on the alleged improbable and unconscionable
amount of the taxes charged. But mere rhetoric cannot supply the basis for the charge of impropriety
of the assessments made.
Moreover, these objections to the assessments should have been raised, considering the ample
remedies afforded the taxpayer by the Tax Code, with the Bureau of Internal Revenue and the Court
of Tax Appeals, as described earlier, and cannot be raised now via Petition for Certiorari, under the
pretext of grave abuse of discretion. The course of action taken by the petitioner reflects his
disregard or even repugnance of the established institutions for governance in the scheme of a wellordered society. The subject tax assessments having become final, executory and enforceable, the
same can no longer be contested by means of a disguised protest. In the main, Certiorari may not
be used as a substitute for a lost appeal or remedy. 19 This judicial policy becomes more pronounced
in view of the absence of sufficient attack against the actuations of government.
On the matter of sufficiency of service of Notices of Assessment to the petitioner, we find the
respondent appellate court's pronouncements sound and resilient to petitioner's attacks.
Anent grounds 3(b) and (B) both alleging/claiming lack of notice We find, after
considering the facts and circumstances, as well as evidences, that there was
sufficient, constructive and/or actual notice of assessments, levy and sale, sent to
herein petitioner Ferdinand "Bongbong" Marcos as well as to his mother Mrs. Imelda
Marcos.
Even if we are to rule out the notices of assessments personally given to the
caretaker of Mrs. Marcos at the latter's last known address, on August 26, 1991 and
September 12, 1991, as well as the notices of assessment personally given to the
caretaker of petitioner also at his last known address on September 12, 1991 the

subsequent notices given thereafter could no longer be ignored as they were sent at
a time when petitioner was already here in the Philippines, and at a place where said
notices would surely be called to petitioner's attention, and received by responsible
persons of sufficient age and discretion.
Thus, on October 20, 1992, formal assessment notices were served upon Mrs.
Marcos c/o the petitioner, at his office, House of Representatives, Batasan
Pambansa, Q.C. (Annexes "A", "A-1", "A-2", "A-3"; pp. 207-210,
Comment/Memorandum of OSG). Moreover, a notice to taxpayer dated October 8,
1992 inviting Mrs. Marcos to a conference relative to her tax liabilities, was furnished
the counsel of Mrs. Marcos Dean Antonio Coronel (Annex "B", p. 211, ibid).
Thereafter, copies of Notices were also served upon Mrs. Imelda Marcos, the
petitioner and their counsel "De Borja, Medialdea, Ata, Bello, Guevarra and Serapio
Law Office", on April 7, 1993 and June 10, 1993. Despite all of these Notices,
petitioner never lifted a finger to protest the assessments, (upon which the Levy and
sale of properties were based), nor appealed the same to the Court of Tax Appeals.
There being sufficient service of Notices to herein petitioner (and his mother) and it
appearing that petitioner continuously ignored said Notices despite several opportunities
given him to file a protest and to thereafter appeal to the Court of Tax Appeals, the tax
assessments subject of this case, upon which the levy and sale of properties were based,
could no longer be contested (directly or indirectly) via this instant petition forcertiorari. 20

Petitioner argues that all the questioned Notices of Levy, however, must be nullified for having been
issued without validly serving copies thereof to the petitioner. As a mandatory heir of the decedent,
petitioner avers that he has an interest in the subject estate, and notices of levy upon its properties
should have been served upon him.
We do not agree. In the case of notices of levy issued to satisfy the delinquent estate tax, the
delinquent taxpayer is the Estate of the decedent, and not necessarily, and exclusively, the petitioner
as heir of the deceased. In the same vein, in the matter of income tax delinquency of the late
president and his spouse, petitioner is not the taxpayer liable. Thus, it follows that service of notices
of levy in satisfaction of these tax delinquencies upon the petitioner is not required by law, as under
Section 213 of the NIRC, which pertinently states:
xxx xxx xxx
. . . Levy shall be effected by writing upon said certificate a description of the property
upon which levy is made. At the same time, written notice of the levy shall be mailed
to or served upon the Register of Deeds of the province or city where the property is
located and upon the delinquent taxpayer, or if he be absent from the Philippines, to
his agent or the manager of the business in respect to which the liability arose, or if
there be none, to the occupant of the property in question.
xxx xxx xxx

The foregoing notwithstanding, the record shows that notices of warrants of distraint and levy of sale
were furnished the counsel of petitioner on April 7, 1993, and June 10, 1993, and the petitioner
himself on April 12, 1993 at his office at the Batasang Pambansa. 21 We cannot therefore,
countenance petitioner's insistence that he was denied due process. Where there was an
opportunity to raise objections to government action, and such opportunity was disregarded, for no
justifiable reason, the party claiming oppression then becomes the oppressor of the orderly functions
of government. He who comes to court must come with clean hands. Otherwise, he not only taints
his name, but ridicules the very structure of established authority.
IN VIEW WHEREOF, the Court RESOLVED to DENY the present petition. The Decision of the Court
of Appeals dated November 29, 1994 is hereby AFFIRMED in all respects.
SO ORDERED.
Regalado, Romero, Puno and Mendoza, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 140944

April 30, 2008

RAFAEL ARSENIO S. DIZON, in his capacity as the Judicial Administrator of the Estate of the
deceased JOSE P. FERNANDEZ, petitioner,
vs.
COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents.
DECISION
NACHURA, J.:
Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Civil Procedure
seeking the reversal of the Court of Appeals (CA) Decision 2 dated April 30, 1999 which affirmed the
Decision3 of the Court of Tax Appeals (CTA) dated June 17, 1997.4
The Facts
On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition for the probate of his
will5 was filed with Branch 51 of the Regional Trial Court (RTC) of Manila (probate court). [6] The

probate court then appointed retired Supreme Court Justice Arsenio P. Dizon (Justice Dizon) and
petitioner, Atty. Rafael Arsenio P. Dizon (petitioner) as Special and Assistant Special Administrator,
respectively, of the Estate of Jose (Estate). In a letter 7 dated October 13, 1988, Justice Dizon
informed respondent Commissioner of the Bureau of Internal Revenue (BIR) of the special
proceedings for the Estate.
Petitioner alleged that several requests for extension of the period to file the required estate tax
return were granted by the BIR since the assets of the estate, as well as the claims against it, had
yet to be collated, determined and identified. Thus, in a letter8 dated March 14, 1990, Justice Dizon
authorized Atty. Jesus M. Gonzales (Atty. Gonzales) to sign and file on behalf of the Estate the
required estate tax return and to represent the same in securing a Certificate of Tax Clearance.
Eventually, on April 17, 1990, Atty. Gonzales wrote a letter 9addressed to the BIR Regional Director
for San Pablo City and filed the estate tax return10 with the same BIR Regional Office, showing
therein a NIL estate tax liability, computed as follows:

COMPUTATION OF TAX

Conjugal Real Property (Sch. 1)

Conjugal Personal Property (Sch.2)

P10,855,020.00

3,460,591.34

Taxable Transfer (Sch. 3)

Gross Conjugal Estate

Less: Deductions (Sch. 4)

14,315,611.34

187,822,576.06

Net Conjugal Estate

NIL

Less: Share of Surviving Spouse

NIL.

Net Share in Conjugal Estate

NIL

xxx

Net Taxable Estate

NIL.

Estate Tax Due

NIL.11

On April 27, 1990, BIR Regional Director for San Pablo City, Osmundo G. Umali issued Certification
Nos. 2052[12] and 2053[13] stating that the taxes due on the transfer of real and personal
properties[14] of Jose had been fully paid and said properties may be transferred to his heirs.
Sometime in August 1990, Justice Dizon passed away. Thus, on October 22, 1990, the probate court
appointed petitioner as the administrator of the Estate.15
Petitioner requested the probate court's authority to sell several properties forming part of the Estate,
for the purpose of paying its creditors, namely: Equitable Banking Corporation (P19,756,428.31),
Banque de L'Indochine et. de Suez (US$4,828,905.90 as of January 31, 1988), Manila Banking
Corporation (P84,199,160.46 as of February 28, 1989) and State Investment House, Inc.
(P6,280,006.21). Petitioner manifested that Manila Bank, a major creditor of the Estate was not
included, as it did not file a claim with the probate court since it had security over several real estate
properties forming part of the Estate.16
However, on November 26, 1991, the Assistant Commissioner for Collection of the BIR,
Themistocles Montalban, issued Estate Tax Assessment Notice No. FAS-E-87-91003269,17 demanding the payment ofP66,973,985.40 as deficiency estate tax, itemized as follows:

Deficiency Estate Tax- 1987

Estate tax

P31,868,414.48

25% surcharge- late filing

late payment

Interest

7,967,103.62

7,967,103.62

19,121,048.68

Compromise-non filing

25,000.00

non payment

25,000.00

no notice of death

15.00

no CPA Certificate

300.00

Total amount due & collectible

P66,973,985.4018

In his letter19 dated December 12, 1991, Atty. Gonzales moved for the reconsideration of the said
estate tax assessment. However, in her letter20 dated April 12, 1994, the BIR Commissioner denied
the request and reiterated that the estate is liable for the payment of P66,973,985.40 as deficiency
estate tax. On May 3, 1994, petitioner received the letter of denial. On June 2, 1994, petitioner filed a
petition for review21 before respondent CTA. Trial on the merits ensued.
As found by the CTA, the respective parties presented the following pieces of evidence, to wit:
In the hearings conducted, petitioner did not present testimonial evidence but merely
documentary evidence consisting of the following:

Nature of Document (sic)

Exhibits

1.

Letter dated October 13, 1988 from Arsenio P. Dizon

addressed to the Commissioner of Internal Revenue
informing the latter of the special proceedings for the
settlement of the estate (p. 126, BIR records);

"A"

2.

Petition for the probate of the will and issuance of letter of

administration filed with the Regional Trial Court (RTC) of
Manila, docketed as Sp. Proc. No. 87-42980 (pp. 107108, BIR records);

"B" & "B-1"

3.

Pleading entitled "Compliance" filed with the probate

Court submitting the final inventory of all the properties of
the deceased (p. 106, BIR records);

"C"

4.

Attachment to Exh. "C" which is the detailed and

complete listing of the properties of the deceased (pp. 89105, BIR rec.);

"C-1" to "C-17"

5.

Claims against the estate filed by Equitable Banking

Corp. with the probate Court in the amount
ofP19,756,428.31 as of March 31, 1988, together with the
Annexes to the claim (pp. 64-88, BIR records);

"D" to "D-24"

6.

Claim filed by Banque de L' Indochine et de Suez with the

probate Court in the amount of US $4,828,905.90 as of
January 31, 1988 (pp. 262-265, BIR records);

"E" to "E-3"

7.

Claim of the Manila Banking Corporation (MBC) which as

of November 7, 1987 amounts to P65,158,023.54, but
recomputed as of February 28, 1989 at a total amount
of P84,199,160.46; together with the demand letter from
MBC's lawyer (pp. 194-197, BIR records);

"F" to "F-3"

8.

Demand letter of Manila Banking Corporation prepared by

Asedillo, Ramos and Associates Law Offices addressed
to Fernandez Hermanos, Inc., represented by Jose P.
Fernandez, as mortgagors, in the total amount
of P240,479,693.17 as of February 28, 1989 (pp. 186187, BIR records);

"G" & "G-1"

9.

Claim of State Investment House, Inc. filed with the RTC,

Branch VII of Manila, docketed as Civil Case No. 8638599 entitled "State Investment House, Inc., Plaintiff,
versus Maritime Company Overseas, Inc. and/or Jose P.
Fernandez, Defendants," (pp. 200-215, BIR records);

"H" to "H-16"

10.

Letter dated March 14, 1990 of Arsenio P. Dizon

addressed to Atty. Jesus M. Gonzales, (p. 184, BIR
records);

"I"

11.

Letter dated April 17, 1990 from J.M. Gonzales addressed

to the Regional Director of BIR in San Pablo City (p. 183,
BIR records);

"J"

12.

Estate Tax Return filed by the estate of the late Jose P.

Fernandez through its authorized representative, Atty.
Jesus M. Gonzales, for Arsenio P. Dizon, with

"K" to "K-5"

attachments (pp. 177-182, BIR records);

13.

Certified true copy of the Letter of Administration issued

by RTC Manila, Branch 51, in Sp. Proc. No. 87-42980
appointing Atty. Rafael S. Dizon as Judicial Administrator
of the estate of Jose P. Fernandez; (p. 102, CTA records)
and

"L"

14.

Certification of Payment of estate taxes Nos. 2052 and

2053, both dated April 27, 1990, issued by the Office of
the Regional Director, Revenue Region No. 4-C, San
Pablo City, with attachments (pp. 103-104, CTA records.).

"M" to "M-5"

Respondent's [BIR] counsel presented on June 26, 1995 one witness in the person of
Alberto Enriquez, who was one of the revenue examiners who conducted the
investigation on the estate tax case of the late Jose P. Fernandez. In the course of the
direct examination of the witness, he identified the following:

Documents/Signatures

BIR Record

1.

Estate Tax Return prepared by the BIR;

p. 138

2.

Signatures of Ma. Anabella Abuloc and Alberto Enriquez,

Jr. appearing at the lower Portion of Exh. "1";

-do-

3.

Memorandum for the Commissioner, dated July 19, 1991,

prepared by revenue examiners, Ma. Anabella A. Abuloc,
Alberto S. Enriquez and Raymund S. Gallardo; Reviewed
by Maximino V. Tagle

pp. 143-144

4.

Signature of Alberto S. Enriquez appearing at the lower

portion on p. 2 of Exh. "2";

-do-

5.

Signature of Ma. Anabella A. Abuloc appearing at the

lower portion on p. 2 of Exh. "2";

-do-

6.

Signature of Raymund S. Gallardo appearing at the

Lower portion on p. 2 of Exh. "2";

-do-

7.

Signature of Maximino V. Tagle also appearing on p. 2 of

Exh. "2";

-do-

8.

Summary of revenue Enforcement Officers Audit Report,

dated July 19, 1991;

p. 139

9.

Signature of Alberto Enriquez at the lower portion of Exh.

"3";

-do-

10.

Signature of Ma. Anabella A. Abuloc at the lower portion

of Exh. "3";

-do-

11.

Signature of Raymond S. Gallardo at the lower portion of

Exh. "3";

-do-

12.

Signature of Maximino V. Tagle at the lower portion of

Exh. "3";

-do-

13.

Demand letter (FAS-E-87-91-00), signed by the Asst.

Commissioner for Collection for the Commissioner of
Internal Revenue, demanding payment of the amount
of P66,973,985.40; and

p. 169

14.

Assessment Notice FAS-E-87-91-00

pp. 169-17022

The CTA's Ruling

On June 17, 1997, the CTA denied the said petition for review. Citing this Court's ruling in Vda. de
Oate v. Court of Appeals,23 the CTA opined that the aforementioned pieces of evidence introduced
by the BIR were admissible in evidence. The CTA ratiocinated:
Although the above-mentioned documents were not formally offered as evidence for respondent,
considering that respondent has been declared to have waived the presentation thereof during the

hearing on March 20, 1996, still they could be considered as evidence for respondent since they
were properly identified during the presentation of respondent's witness, whose testimony was duly
recorded as part of the records of this case. Besides, the documents marked as respondent's
exhibits formed part of the BIR records of the case.24
Nevertheless, the CTA did not fully adopt the assessment made by the BIR and it came up with its
own computation of the deficiency estate tax, to wit:

Conjugal Real Property

P 5,062,016.00

Conjugal Personal Prop.

33,021,999.93

Gross Conjugal Estate

38,084,015.93

Less: Deductions

26,250,000.00

Net Conjugal Estate

Less: Share of Surviving Spouse

Net Share in Conjugal Estate

P 11,834,015.93

5,917,007.96

P 5,917,007.96

Add: Capital/Paraphernal

Properties P44,652,813.66

Less: Capital/Paraphernal
Deductions

Net Taxable Estate

44,652,813.66

P 50,569,821.62
============

Estate Tax Due P 29,935,342.97

Add: 25% Surcharge for Late Filing

Add: Penalties for-No notice of death

No CPA certificate

Total deficiency estate tax

7,483,835.74

15.00

300.00

P 37,419,493.71
============

exclusive of 20% interest from due date of its payment until full payment thereof
[Sec. 283 (b), Tax Code of 1987].25
Thus, the CTA disposed of the case in this wise:
WHEREFORE, viewed from all the foregoing, the Court finds the petition unmeritorious and
denies the same. Petitioner and/or the heirs of Jose P. Fernandez are hereby ordered to pay
to respondent the amount of P37,419,493.71 plus 20% interest from the due date of its
payment until full payment thereof as estate tax liability of the estate of Jose P. Fernandez
who died on November 7, 1987.
SO ORDERED.26
Aggrieved, petitioner, on March 2, 1998, went to the CA via a petition for review.27
The CA's Ruling
On April 30, 1999, the CA affirmed the CTA's ruling. Adopting in full the CTA's findings, the CA ruled
that the petitioner's act of filing an estate tax return with the BIR and the issuance of BIR Certification
Nos. 2052 and 2053 did not deprive the BIR Commissioner of her authority to re-examine or reassess the said return filed on behalf of the Estate. 28
On May 31, 1999, petitioner filed a Motion for Reconsideration29 which the CA denied in its
Resolution30 dated November 3, 1999.
Hence, the instant Petition raising the following issues:
1. Whether or not the admission of evidence which were not formally offered by the
respondent BIR by the Court of Tax Appeals which was subsequently upheld by the Court of
Appeals is contrary to the Rules of Court and rulings of this Honorable Court;

2. Whether or not the Court of Tax Appeals and the Court of Appeals erred in
recognizing/considering the estate tax return prepared and filed by respondent BIR knowing
that the probate court appointed administrator of the estate of Jose P. Fernandez had
previously filed one as in fact, BIR Certification Clearance Nos. 2052 and 2053 had been
issued in the estate's favor;
3. Whether or not the Court of Tax Appeals and the Court of Appeals erred in disallowing the
valid and enforceable claims of creditors against the estate, as lawful deductions despite
clear and convincing evidence thereof; and
4. Whether or not the Court of Tax Appeals and the Court of Appeals erred in validating
erroneous double imputation of values on the very same estate properties in the estate tax
return it prepared and filed which effectively bloated the estate's assets. 31
The petitioner claims that in as much as the valid claims of creditors against the Estate are in excess
of the gross estate, no estate tax was due; that the lack of a formal offer of evidence is fatal to BIR's
cause; that the doctrine laid down in Vda. de Oate has already been abandoned in a long line of
cases in which the Court held that evidence not formally offered is without any weight or value; that
Section 34 of Rule 132 of the Rules on Evidence requiring a formal offer of evidence is mandatory in
character; that, while BIR's witness Alberto Enriquez (Alberto) in his testimony before the CTA
identified the pieces of evidence aforementioned such that the same were marked, BIR's failure to
formally offer said pieces of evidence and depriving petitioner the opportunity to cross-examine
Alberto, render the same inadmissible in evidence; that assuming arguendo that the ruling in Vda.
de Oate is still applicable, BIR failed to comply with the doctrine's requisites because the
documents herein remained simply part of the BIR records and were not duly incorporated in the
court records; that the BIR failed to consider that although the actual payments made to the Estate
creditors were lower than their respective claims, such were compromise agreements reached long
after the Estate's liability had been settled by the filing of its estate tax return and the issuance of BIR
Certification Nos. 2052 and 2053; and that the reckoning date of the claims against the Estate and
the settlement of the estate tax due should be at the time the estate tax return was filed by the
judicial administrator and the issuance of said BIR Certifications and not at the time the
aforementioned Compromise Agreements were entered into with the Estate's creditors. 32
On the other hand, respondent counters that the documents, being part of the records of the case
and duly identified in a duly recorded testimony are considered evidence even if the same were not
formally offered; that the filing of the estate tax return by the Estate and the issuance of BIR
Certification Nos. 2052 and 2053 did not deprive the BIR of its authority to examine the return and
assess the estate tax; and that the factual findings of the CTA as affirmed by the CA may no longer
be reviewed by this Court via a petition for review.33
The Issues
There are two ultimate issues which require resolution in this case:
First. Whether or not the CTA and the CA gravely erred in allowing the admission of the pieces of
evidence which were not formally offered by the BIR; and
Second. Whether or not the CA erred in affirming the CTA in the latter's determination of the
deficiency estate tax imposed against the Estate.
The Courts Ruling

The Petition is impressed with merit.

Under Section 8 of RA 1125, the CTA is categorically described as a court of record. As cases filed
before it are litigated de novo, party-litigants shall prove every minute aspect of their cases.
Indubitably, no evidentiary value can be given the pieces of evidence submitted by the BIR, as the
rules on documentary evidence require that these documents must be formally offered before the
CTA.34 Pertinent is Section 34, Rule 132 of the Revised Rules on Evidence which reads:
SEC. 34. Offer of evidence. The court shall consider no evidence which has not been
formally offered. The purpose for which the evidence is offered must be specified.
The CTA and the CA rely solely on the case of Vda. de Oate, which reiterated this Court's previous
rulings inPeople v. Napat-a35 and People v. Mate36 on the admission and consideration of exhibits
which were not formally offered during the trial. Although in a long line of cases many of which were
decided after Vda. de Oate, we held that courts cannot consider evidence which has not been
formally offered,37 nevertheless, petitioner cannot validly assume that the doctrine laid down in Vda.
de Oate has already been abandoned. Recently, in Ramos v. Dizon,38 this Court, applying the said
doctrine, ruled that the trial court judge therein committed no error when he admitted and considered
the respondents' exhibits in the resolution of the case, notwithstanding the fact that the same were
not formally offered. Likewise, in Far East Bank & Trust Company v. Commissioner of Internal
Revenue,39 the Court made reference to said doctrine in resolving the issues therein. Indubitably, the
doctrine laid down in Vda. De Oate still subsists in this jurisdiction. In Vda. de Oate, we held that:
From the foregoing provision, it is clear that for evidence to be considered, the same must be
formally offered. Corollarily, the mere fact that a particular document is identified and marked
as an exhibit does not mean that it has already been offered as part of the evidence of a
party. In Interpacific Transit, Inc. v. Aviles [186 SCRA 385], we had the occasion to make a
distinction between identification of documentary evidence and its formal offer as an exhibit.
We said that the first is done in the course of the trial and is accompanied by the marking of
the evidence as an exhibit while the second is done only when the party rests its case and
not before. A party, therefore, may opt to formally offer his evidence if he believes that it will
advance his cause or not to do so at all. In the event he chooses to do the latter, the trial
court is not authorized by the Rules to consider the same.
However, in People v. Napat-a [179 SCRA 403] citing People v. Mate [103 SCRA 484], we
relaxed the foregoing rule and allowed evidence not formally offered to be admitted
and considered by the trial court provided the following requirements are present,
viz.: first, the same must have been duly identified by testimony duly recorded and,
second, the same must have been incorporated in the records of the case.40
From the foregoing declaration, however, it is clear that Vda. de Oate is merely an exception to the
general rule. Being an exception, it may be applied only when there is strict compliance with the
requisites mentioned therein; otherwise, the general rule in Section 34 of Rule 132 of the Rules of
Court should prevail.
In this case, we find that these requirements have not been satisfied. The assailed pieces of
evidence were presented and marked during the trial particularly when Alberto took the witness
stand. Alberto identified these pieces of evidence in his direct testimony.41 He was also subjected to
cross-examination and re-cross examination by petitioner.42 But Albertos account and the exchanges
between Alberto and petitioner did not sufficiently describe the contents of the said pieces of
evidence presented by the BIR. In fact, petitioner sought that the lead examiner, one Ma. Anabella A.
Abuloc, be summoned to testify, inasmuch as Alberto was incompetent to answer questions relative

to the working papers.43 The lead examiner never testified. Moreover, while Alberto's testimony
identifying the BIR's evidence was duly recorded, the BIR documents themselves were not
incorporated in the records of the case.
A common fact threads through Vda. de Oate and Ramos that does not exist at all in the instant
case. In the aforementioned cases, the exhibits were marked at the pre-trial proceedings to warrant
the pronouncement that the same were duly incorporated in the records of the case. Thus, we held
in Ramos:
In this case, we find and so rule that these requirements have been satisfied. The exhibits
in question were presented and marked during the pre-trial of the case thus, they have
been incorporated into the records. Further, Elpidio himself explained the contents of
these exhibits when he was interrogated by respondents' counsel...
xxxx
But what further defeats petitioner's cause on this issue is that respondents' exhibits were
marked and admitted during the pre-trial stage as shown by the Pre-Trial Order quoted
earlier.44
While the CTA is not governed strictly by technical rules of evidence, 45 as rules of procedure are not
ends in themselves and are primarily intended as tools in the administration of justice, the
presentation of the BIR's evidence is not a mere procedural technicality which may be disregarded
considering that it is the only means by which the CTA may ascertain and verify the truth of BIR's
claims against the Estate.46 The BIR's failure to formally offer these pieces of evidence, despite
CTA's directives, is fatal to its cause.47 Such failure is aggravated by the fact that not even a single
reason was advanced by the BIR to justify such fatal omission. This, we take against the BIR.
Per the records of this case, the BIR was directed to present its evidence48 in the hearing of February
21, 1996, but BIR's counsel failed to appear.49 The CTA denied petitioner's motion to consider BIR's
presentation of evidence as waived, with a warning to BIR that such presentation would be
considered waived if BIR's evidence would not be presented at the next hearing. Again, in the
hearing of March 20, 1996, BIR's counsel failed to appear.50 Thus, in its Resolution51 dated March 21,
1996, the CTA considered the BIR to have waived presentation of its evidence. In the same
Resolution, the parties were directed to file their respective memorandum. Petitioner complied but
BIR failed to do so.52 In all of these proceedings, BIR was duly notified. Hence, in this case, we are
constrained to apply our ruling in Heirs of Pedro Pasag v. Parocha:53
A formal offer is necessary because judges are mandated to rest their findings of facts and
their judgment only and strictly upon the evidence offered by the parties at the trial. Its
function is to enable the trial judge to know the purpose or purposes for which the proponent
is presenting the evidence. On the other hand, this allows opposing parties to examine the
evidence and object to its admissibility. Moreover, it facilitates review as the appellate court
will not be required to review documents not previously scrutinized by the trial court.
Strict adherence to the said rule is not a trivial matter. The Court in Constantino v. Court of
Appeals ruled that the formal offer of one's evidence is deemed waived after failing to
submit it within a considerable period of time. It explained that the court cannot admit
an offer of evidence made after a lapse of three (3) months because to do so would
"condone an inexcusable laxity if not non-compliance with a court order which, in
effect, would encourage needless delays and derail the speedy administration of
justice."

Applying the aforementioned principle in this case, we find that the trial court had reasonable
ground to consider that petitioners had waived their right to make a formal offer of
documentary or object evidence. Despite several extensions of time to make their formal
offer, petitioners failed to comply with their commitment and allowed almost five months to
lapse before finally submitting it. Petitioners' failure to comply with the rule on
admissibility of evidence is anathema to the efficient, effective, and expeditious
dispensation of justice.
Having disposed of the foregoing procedural issue, we proceed to discuss the merits of the case.
Ordinarily, the CTA's findings, as affirmed by the CA, are entitled to the highest respect and will not
be disturbed on appeal unless it is shown that the lower courts committed gross error in the
appreciation of facts.54 In this case, however, we find the decision of the CA affirming that of the CTA
tainted with palpable error.
It is admitted that the claims of the Estate's aforementioned creditors have been condoned. As a
mode of extinguishing an obligation,55 condonation or remission of debt56 is defined as:
an act of liberality, by virtue of which, without receiving any equivalent, the creditor
renounces the enforcement of the obligation, which is extinguished in its entirety or in that
part or aspect of the same to which the remission refers. It is an essential characteristic of
remission that it be gratuitous, that there is no equivalent received for the benefit given; once
such equivalent exists, the nature of the act changes. It may become dation in payment
when the creditor receives a thing different from that stipulated; or novation, when the object
or principal conditions of the obligation should be changed; or compromise, when the matter
renounced is in litigation or dispute and in exchange of some concession which the creditor
receives.57
Verily, the second issue in this case involves the construction of Section 79 58 of the National Internal
Revenue Code59 (Tax Code) which provides for the allowable deductions from the gross estate of the
decedent. The specific question is whether the actual claims of the aforementioned creditors may be
fully allowed as deductions from the gross estate of Jose despite the fact that the said claims were
reduced or condoned through compromise agreements entered into by the Estate with its creditors.
"Claims against the estate," as allowable deductions from the gross estate under Section 79 of the
Tax Code, are basically a reproduction of the deductions allowed under Section 89 (a) (1) (C) and
(E) of Commonwealth Act No. 466 (CA 466), otherwise known as the National Internal Revenue
Code of 1939, and which was the first codification of Philippine tax laws. Philippine tax laws were, in
turn, based on the federal tax laws of the United States. Thus, pursuant to established rules of
statutory construction, the decisions of American courts construing the federal tax code are entitled
to great weight in the interpretation of our own tax laws. 60
It is noteworthy that even in the United States, there is some dispute as to whether the deductible
amount for a claim against the estate is fixed as of the decedent's death which is the general rule, or
the same should be adjusted to reflect post-death developments, such as where a settlement
between the parties results in the reduction of the amount actually paid. 61 On one hand, the U.S.
court ruled that the appropriate deduction is the "value" that the claim had at the date of the
decedent's death.62 Also, as held in Propstra v. U.S., 63 where a lien claimed against the estate was
certain and enforceable on the date of the decedent's death, the fact that the claimant subsequently
settled for lesser amount did not preclude the estate from deducting the entire amount of the claim
for estate tax purposes. These pronouncements essentially confirm the general principle that postdeath developments are not material in determining the amount of the deduction.

On the other hand, the Internal Revenue Service (Service) opines that post-death settlement should
be taken into consideration and the claim should be allowed as a deduction only to the extent of the
amount actually paid.64 Recognizing the dispute, the Service released Proposed Regulations in 2007
mandating that the deduction would be limited to the actual amount paid. 65
In announcing its agreement with Propstra,66 the U.S. 5th Circuit Court of Appeals held:
We are persuaded that the Ninth Circuit's decision...in Propstra correctly apply the Ithaca
Trust date-of-death valuation principle to enforceable claims against the estate. As we
interpret Ithaca Trust, when the Supreme Court announced the date-of-death valuation
principle, it was making a judgment about the nature of the federal estate tax specifically, that
it is a tax imposed on the act of transferring property by will or intestacy and, because the act
on which the tax is levied occurs at a discrete time, i.e., the instance of death, the net value
of the property transferred should be ascertained, as nearly as possible, as of that time. This
analysis supports broad application of the date-of-death valuation rule. 67
We express our agreement with the date-of-death valuation rule, made pursuant to the ruling of the
U.S. Supreme Court in Ithaca Trust Co. v. United States.68 First. There is no law, nor do we discern
any legislative intent in our tax laws, which disregards the date-of-death valuation principle and
particularly provides that post-death developments must be considered in determining the net value
of the estate. It bears emphasis that tax burdens are not to be imposed, nor presumed to be
imposed, beyond what the statute expressly and clearly imports, tax statutes being
construed strictissimi juris against the government.69 Any doubt on whether a person, article or
activity is taxable is generally resolved against taxation. 70 Second. Such construction finds relevance
and consistency in our Rules on Special Proceedings wherein the term "claims" required to be
presented against a decedent's estate is generally construed to mean debts or demands of a
pecuniary nature which could have been enforced against the deceased in his lifetime, or liability
contracted by the deceased before his death.71 Therefore, the claims existing at the time of death are
significant to, and should be made the basis of, the determination of allowable deductions.
WHEREFORE, the instant Petition is GRANTED. Accordingly, the assailed Decision dated April 30,
1999 and the Resolution dated November 3, 1999 of the Court of Appeals in CA-G.R. S.P. No.
46947 are REVERSED andSET ASIDE. The Bureau of Internal Revenue's deficiency estate tax
assessment against the Estate of Jose P. Fernandez is hereby NULLIFIED. No costs.
SO ORDERED.
ANTONIO EDUARDO B. NACHURA
Associate Justice

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-19495

November 24, 1966

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
LILIA YUSAY GONZALES and THE COURT OF TAX APPEALS, respondents.
Office of the Solicitor General for the petitioner.
Ramon A. Gonzales for respondent Lilia Yusay Gonzales.
BENGZON, J.P., J.:
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.
On May 11, 1949 Jose S. Yusay filed with the Bureau of Internal Revenue an estate and inheritance
tax return declaring therein the following properties:

Personal properties

Palay
Carabaos

P6,444.00
1,000.00

P7,444.00

Real properties:
Capital, 74 parcels )

Conjugal 19 parcels)

Total gross estate

assessed
at

P179,760.00

P187,204.00

The return mentioned no heir.

Upon investigation however the Bureau of Internal Revenue found the following properties:

Personal properties:

Palay
Carabaos
Packard Automobile
2 Aparadors

P6,444.00
1,500.00
2,000.00
500.00

Real properties:
Capital, 25 parcels assessed at

1/2 of Conjugal, 130 parcels

assessed at

Total

P10,444.00

P87,715.32

P121,425.00

P209,140.32

P219,584.32

The fair market value of the real properties was computed by increasing the assessed value by forty
percent.
Based on the above findings, the Bureau of Internal Revenue assessed on October 29, 1953 estate
and inheritance taxes in the sums of P6,849.78 and P16,970.63, respectively.
On January 25, 1955 the Bureau of Internal Revenue increased the assessment to P8,225.89 as
estate tax and P22,117.10 as inheritance tax plus delinquency interest and demanded payment
thereof on or before February 28, 1955. Meanwhile, on February 16, 1955, the Court of First
Instance of Iloilo required Jose S. Yusay to show proof of payment of said estate and inheritance
taxes.
On March 3, 1955 Jose S. Yusay requested an extension of time within which to pay the tax. He
posted a surety bond to guarantee payment of the taxes in question within one year. The
Commissioner of Internal Revenue however denied the request. Then he issued a warrant of
distraint and levy which he transmitted to the Municipal Treasurer of Pototan for execution. This
warrant was not enforced because all the personal properties subject to distraint were located in
Iloilo City.
On May 20, 1955 the Provincial Treasurer of Iloilo requested the BIR Provincial Revenue Officer to
furnish him copies of the assessment notices to support a motion for payment of taxes which the
Provincial Fiscal would file in Special Proceedings No. 459 before the Court of First Instance of Iloilo.
The papers requested were sent by the Commissioner of Internal Revenue to the Provincial
Revenue Officer of Iloilo to be transmitted to the Provincial Treasurer. The records do not however
show whether the Provincial Fiscal filed a claim with the Court of First Instance for the taxes due.
On May 30, 1956 the commissioner appointed by the Court of First Instance for the purpose,
submitted a reamended project of partition which listed the following properties:

Personal properties:

Buick Sedan
Packard car
Aparadors
Cash in Bank (PNB)
Palay
Carabaos

P8,100.00
2,000.00
500.00
8,858.46
6,444.00
1,500.00

P27,402.46

P324,797.21
4,500.00

P329,297.21

Real properties:

Land, 174 parcels

assessed at
Buildings

Total

P356,699.67

More than a year later, particularly on July 12, 1957, an agent of the Bureau of Internal Revenue
apprised the Commissioner of Internal Revenue of the existence of said reamended project of
partition. Whereupon, the Internal Revenue Commissioner caused the estate of Matias Yusay to be
reinvestigated for estate and inheritance tax liability. Accordingly, on February 13, 1958 he issued
the following assessment:

Estate tax

5% surcharge

Delinquency interest

P16,246.04

411.29

11,868.90

Compromise
No notice of death
Late payment

P15.00
40.00

Total

Inheritance Tax

55.00

P28,581.23

P38,178.12

5% surcharge

1,105.86

Delinquency interest

Compromise for late payment

Total

Total estate and inheritance taxes

28,808.75

50.00

P69,142.73

P97,723.96

Like in previous assessments, the fair market value of the real properties was arrived at by adding
40% to the assessed value.
In view of the demise of Jose S. Yusay, said assessment was sent to his widow, Mrs. Florencia
Piccio Vda. de Yusay, who succeeded him in the administration of the estate of Matias Yusay.
No payment having been made despite repeated demands, the Commissioner of Internal Revenue
filed a proof of claim for the estate and inheritance taxes due and a motion for its allowance with the
settlement court in voting priority of lien pursuant to Section 315 of the Tax Code.
On June 1, 1959, Lilia Yusay, through her counsel, Ramon Gonzales, filed an answer to the proof of
claim alleging non-receipt of the assessment of February 13, 1958, the existence of two
administrators, namely Florencia Piccio Vda. de Yusay who administered two-thirds of the estate,
and Lilia Yusay, who administered the remaining one-third, and her willingness to pay the taxes
corresponding to her share, and praying for deferment of the resolution on the motion for the
payment of taxes until after a new assessment corresponding to her share was issued.

On November 17, 1959 Lilia Yusay disputed the legality of the assessment dated February 13, 1958.
She claimed that the right to make the same had prescribed inasmuch as more than five years had
elapsed since the filing of the estate and inheritance tax return on May 11, 1949. She therefore
requested that the assessment be declared invalid and without force and effect. This request was
rejected by the Commissioner in his letter dates January 20, 1960, received by Lilia Yusay on March
14, 1960, for the reasons, namely, (1) 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 (2) 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.
On April 13, 1960 Lilia Yusay filed a petition for review in the Court of Tax Appeals assailing the
legality of the assessment dated February 13, 1958. After hearing the parties, said Court declared
the right of the Commissioner of Internal Revenue to assess the estate and inheritance taxes in
question to have prescribed and rendered the following judgment:
WHEREFORE, the decision of respondent assessing against the estate of the late Matias
Yusay estate and inheritance taxes is hereby reversed. No costs.
The Commissioner of Internal Revenue appealed to this Court and raises the following issues:
1. Was the petition for review in the Court of Tax Appeals within the 30-day period provided for in
Section 11 of Republic Act 1125?
2. Could the Court of Tax Appeals take cognizance of Lilia Yusay's appeal despite the pendency of
the "Proof of Claim" and "Motion for Allowance of Claim and for an Order of Payment of Taxes" filed
by the Commissioner of Internal Revenue in Special Proceedings No. 459 before the Court of First
Instance of Iloilo?
3. Has the right of the Commissioner of Internal Revenue to assess the estate and inheritance taxes
in question prescribed?
On November 17, 1959 Lilia Yusay disputed the legality of the assessment of February 13, 1958. On
March 14, 1960 she received the decision of the Commissioner of Internal Revenue on the disputed
assessment. On April 13, 1960 she filed her petition for review in the Court of Tax Appeals. Said
Court correctly held that the appeal was seasonably interposed pursuant to Section 11 of Republic
Act 1125. We already ruled in St. Stephen's Association v. Collector of Internal Revenue,1 that the
counting of the thirty days within which to institute an appeal in the Court of Tax Appeals should
commence from the date of receipt of the decision of the Commissioner on the disputed
assessment, not from the date the assessment was issued.
Accordingly, the thirty-day period should begin running from March 14, 1960, the date Lilia Yusay
received the appealable decision. From said date to April 13, 1960, when she filed her appeal in the
Court of Tax Appeals, is exactly thirty days. Hence, the appeal was timely.
Next, the Commissioner attacks the jurisdiction of the Court of Tax Appeals to take cognizance of
Lilia Yusay's appeal on the ground of lis pendens. He maintains that the pendency of his motion for
allowance of claim and for order of payment of taxes in the Court of First Instance of Iloilo would

preclude the Court of Tax Appeals from acquiring jurisdiction over Lilia Yusay's appeal. This
contention lacks merit.
Lilia Yusay's cause seeks to resist the legality of the assessment in question. Should she maintain it
in the settlement court or should she elevate her cause to the Court of Tax Appeals? We say, she
acted correctly by appealing to the latter court. An action involving a disputed assessment for
internal revenue taxes falls within the exclusive jurisdiction of the Court of Tax Appeals. 2 It is in that
forum, to the exclusion of the Court of First Instance,3 where she could ventilate her defenses
against the assessment.
Moreover, the settlement court, where the Commissioner would wish Lilia Yusay to contest the
assessment, is of limited jurisdiction. And under the Rules,4 its authority relates only to matters
having to do with the settlement of estates and probate of wills of deceased persons. 5 Said court has
no jurisdiction to adjudicate the contentions in question, which assuming they do not come
exclusively under the Tax Court's cognizance must be submitted to the Court of First Instance in
the exercise of its general jurisdiction.6
We now come to the issue of prescription. Lilia Yusay claims that since the latest assessment was
issued only on February 13, 1958 or eight years, nine months and two days from the filing of the
estate and inheritance tax return, the Commissioner's right to make it has expired. She would rest
her stand on Section 331 of the Tax Code which limits the right of the Commissioner to assess the
tax within five years from the filing of the return.
The Commissioner claims that fraud attended the filing of the return; that this being so, Section
332(a) of the Tax Code would apply.7 It may be well to note that the assessment letter itself (Exhibit
22) did not impute fraud in the return with intent to evade payment of tax. Precisely, no surcharge for
fraud was imposed. In his answer to the petition for review filed by Lilia Yusay in the Court of Tax
Appeals, the Commissioner alleged no fraud. Instead, he broached the insufficiency of the return as
barring the commencement of the running of the statute of limitations. He 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. Said 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.
Fraud is a question of fact.8 The circumstances constituting it must be alleged and proved in the
court below.9And the finding of said court as to its existence and non-existence is final unless clearly
shown to be erroneous.10 As the court a quo found that no fraud was alleged and proved therein, We
see no reason to entertain the Commissioner's assertion that the return was fraudulent.
The conclusion, however, that the return filed by Jose S. Yusay was sufficient to commence the
running of the prescriptive period under Section 331 of the Tax Code rests on no solid ground.
Paragraph (a) of Section 93 of the Tax Code lists the requirements of a valid return. It states:
(a) Requirements.In all cases of inheritance or transfers subject to either the estate tax or
the inheritance tax, or both, or where, though exempt from both taxes, the gross value of the
estate exceeds three thousand pesos, the executor, administrator, or anyone of the heirs, as
the case may be, shall file a return under oath in duplicate, setting forth (1) the value of the
gross estate of the decedent at the time of his death, or, in case of a nonresident not a
citizen of the Philippines ; (2) the deductions allowed from gross estate in determining net
estate as defined in section eighty-nine; (3) such part of such information as may at the time
be ascertainable and such supplemental data as may be necessary to establish the correct
taxes.

A return need not be complete in all particulars. It is sufficient if it complies substantially with the law.
There is substantial compliance (1) when the return is made in good faith and is not false or
fraudulent; (2) when it covers the entire period involved; and (3) when it contains information as to
the various items of income, deduction and credit with such definiteness as to permit the
computation and assessment of the tax.11
There is no question that the state and inheritance tax return filed by Jose S. Yusay was
substantially defective.
First, 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. As found in L-11378, supra note 7, Jose S. Yusay very
well knew of the existence of the ommited 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.
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.12 The State taxes not itself.
In a case where the return was made on the wrong form, the Supreme Court of the United States
held that the filing thereof did not start the running of the period of limitations. 13 The reason is that the
return submitted did not contain the necessary information required in the correct form. In this
jurisdiction, however, the Supreme Court refrained from applying the said ruling of the United States
Supreme Court in Collector of Internal Revenue v. Central Azucarera de Tarlac, L-11760-61, July 31,
1958, on the ground that the return was complete in itself although inaccurate. To our mind, it would
not make much difference where a return is made on the correct form prescribed by the Bureau of
Internal Revenue if the data therein required are not supplied by the taxpayer. Just the same, the
necessary information for the assessment of the tax would be missing.
The return filed in this case was so deficient that it prevented the Commissioner from computing the
taxes due on the estate. It was as though no return was made. The Commissioner had to determine
and assess the taxes on data obtained, not from the return, but from other sources. We therefore
hold the view that the return in question was no return at all as required in Section 93 of the Tax
Code.
The law imposes upon the taxpayer the burden of supplying by the return the information upon
which an assessment would be based.14 His duty complied with, the taxpayer is not bound to do
anything more than to wait for the Commissioner to assess the tax. However, he is not required to
wait forever. Section 331 of the Tax Code gives the Commissioner five years within which to make
his assessment.15 Except, of course, if the taxpayer failed to observe the law, in which case Section
332 of the same Code grants the Commissioner a longer period. Non-observance consists in filing a
false or fraudulent return with intent to evade the tax or in filing no return at all.
Accordingly, for purposes of determining whether or not the Commissioner's assessment of February
13, 1958 is barred by prescription, Section 332(a) which is an exception to Section 331 of the Tax
Code finds application.16 We quote Section 332(a):
SEC. 332. Exceptions as to period of limitation of assessment and collection of taxes. (a)
In the case of a false or fraudulent return with intent to evade tax or of a failure to file a

return, the tax may be assessed, or a proceeding in court for the collection of such tax may
be begun without assessment, at any time within ten years after the discovery of the falsity,
fraud or omission.
As stated, the Commissioner came to know of the identity of the heirs on September 24, 1953 and
the huge underdeclaration in the 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.
Anent the Commissioner's contention that Lilia Yusay is estopped from raising the defense of
prescription because she failed to raise the same in her answer to the motion for allowance of claim
and for the payment of taxes filed in the settlement court (Court of First Instance of Iloilo), suffice it to
state that it would be unjust to the taxpayer if We were to sustain such a view. The Court of First
Instance acting as a settlement court is not the proper tribunal to pass upon such defense, therefore
it would be but futile to raise it therein. Moreover, the Tax Code does not bar the right to contest the
legality of the tax after a taxpayer pays it. Under Section 306 thereof, he can pay the tax and claim a
refund therefor. A fortiori his willingness to pay the tax is no waiver to raise defenses against the
tax's legality.
WHEREFORE, the judgment appealed from is set aside and another entered affirming the
assessment of the Commissioner of Internal Revenue dated February 13, 1958. Lilia Yusay
Gonzales, as administratrix of the intestate estate of Matias Yusay, is hereby ordered to pay the
sums of P16,246.04 and P39,178.12 as estate and inheritance taxes, respectively, plus interest and
surcharge for delinquency in accordance with Section 101 of the National Internal Revenue Code,
without prejudice to reimbursement from her co-administratrix, Florencia Piccio Vda. de Yusay for
the latter's corresponding tax liability. No costs. So ordered.
Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Regala, Makalintal, Sanchez and Castro,
JJ., concur.
Zaldivar, J., took no part.

RESOLUTION
April 24, 1967
BENGZON, J.P., J.:
Respondent Lilia Yusay Gonzales seeks reconsideration of our decision holding her liable for the
payment of P97,723.96 as estate and inheritance taxes plus delinquency penalties as administratrix
of the intestate estate of Matias Yusay. The grounds raised by her deserve this extended resolution.
Firstly, movant maintains that the issue of whether or not the estate and inheritance tax return filed
by Jose Yusay on May 13, 1949 was sufficient to start the running of the statute of limitations on

assessment, was neither raised in the Court of Tax Appeals nor assigned as error before this Court.
The records in the Court of Tax Appeals however show the contrary. Paragraph 2 of the answer filed
by the Commissioner of Internal Revenue states:
2. That he likewise admits, as alleged in paragraph 1 thereof having received the letter of the
petitioner dated November 27, 1959 (Annex "A" of the Petition for Review), contesting the
assessment of estate and inheritance taxes levied against the Intestate Estate of the late
Matias Yusay, Special Proceedings No. 459, Court of First Instance of Iloilo, on the ground
that the said assessment has already prescribed, but specifically denies the allegation that
the assessment have already prescribed, the truth of the matter being that the returns filed
on May 11, 1949 cannot be considered as a true, and complete return sufficient to start the
running of the period of five (5) years prescribed in Sec. 331 of the Tax Code;
This point was discussed in the memorandum of the Commissioner of Internal Revenue, thus:
In the estate and inheritance tax return filed by Jose S. Yusay (Exhibits B & 1, pp. 14-20,
B.I.R. records) the net value of the estate of the deceased was claimed to be P203,354.00
and no inheritance tax was shown as the heirs were not indicated. In the final computation of
the estate by an examiner of the respondent, the net estate was found to be worth
P410,518.38 (p. 105, B.I.R. records) or about more than twice the original amount declared
in the return. In the subsequent investigation of this case, it was also determined that the
heirs of the deceased were Jose S. Yusay, a legitimate son, and Lilia Yusay, an
acknowledged natural child, (petitioner herein).
Under the circumstances, we believe the return filed on May 11, 1949 was false or fraudulent
in the sense that the value of the properties were underdeclared and that the said return was
also incomplete as the heirs to the estate were not specified. Inasmuch as the respondent
was not furnished adequate data upon which to base an assessment, the said return cannot
be considered a true and complete return sufficient to start the running of the period of
limitations of five (5) years prescribed in Section 331 of the Tax Code.
In the lower court the defense of the Commissioner of Internal Revenue against Lilia Yusay
Gonzales' plea of prescription, centered on the insufficiency and fraudulence or falsity of the return
filed by Jose Yusay. The Court of Tax Appeals overruled the Commissioner of Internal Revenue. Said
the Tax Code:
The provision of Section 332(a) of the Tax Code cannot be invoked in this case as it was
neither alleged in respondent's answer, nor proved during the hearing that the return was
false or fraudulent with intent to evade the payment of tax. Moreover, the failure of
respondent to charge fraud and impose the penalty thereof in the assessments made in
1953, 1955 and 1956 is an eloquent demonstration that the filing of petitioner's transfer tax
return was not attended by falsity or fraud with intent to evade tax.
xxx

xxx

xxx

But respondent urges upon us that the filing of the return did not start the running of the five
(5) year period for the reason that the return did not disclose the heirs of the deceased
Matias Yusay, and contained inadequate data regarding the value of the estate. We believe
that these mere omissions do not require additional returns for the same. Altho incomplete
for being deficient on these matters, the return cannot be regarded as a case of failure to file
a return where want of good faith and intent to evade the tax on the part of petitioner are not
charged. It served as a sufficient notice to the Commissioner of Internal Revenue to make

his assessment and start the running, of the period of limitation. In this connection, it must be
borne in mind that the Commissioner is not confined to the taxpayer's return in making
assessment of the tax, and for this purpose he may secure additional information from other
sources. As was done in the case at bar, he sends investigators to examine the taxpayer's
records and other pertinent data. His assessment is based upon the facts uncovered by the
investigation (Collector vs. Central Azucarera de Tarlac, G.R. Nos. L-11760 and L-11761,
July 31, 1958).
Furthermore, the failure to state the heirs in the return can be attributed to the then unsettled
conflict raging before the probate court as to who are the heirs of the estate. Such failure
could not have been a deliberate attempt to mislead the government in the assessment of
the correct taxes.
In his appeal, the Commissioner of Internal Revenue assigned as third error of the Court of Tax
Appeals the finding that the assessment in question was "made beyond the five-year statutory period
provided in Section 332 (a) of the Tax Code," and that the right of the Commissioner of Internal
Revenue to assess the estate and inheritance taxes has already prescribed. To sustain his side, the
Commissioner ventilated in his brief, fraud in the filing of the return, absence of certain data from the
return which prevented him from assessing thereon the tax due and the pendency in this Court of L11374 entitled "Intestate Estate of the late Matias Yusay, Jose C. Yusay, Administrator vs. Lilia Yusay
Gonzales" which allegedly had the effect of suspending the running of the period of limitations on
assessment.
Clearly, therefore, it would be incorrect to say that the question of whether or not the return filed by
Jose Yusay was sufficient to start the running of the statute of limitations to assess the
corresponding tax, was not raisedby the Commissioner in the Court of Tax Appeals and in this Court.
Second. Movant contend that contrary to Our ruling, the return filed by Jose Yusay was sufficient to
start the statute of limitations on assessment. Inasmuch as this question was amply discussed in
Our decision sought to be reconsidered, and no new argument was advanced, We deem it
unnecessary to pass upon the same. There is no reason for any change on Our stand on this point.
Third. Movant insists that since she administers only one-third of the estate of Matias Yusay, she
should not be liable for the whole tax. And she suggests that We hold the intestate estate of Matias
Yusay liable for said taxes, one-third to be paid by Lilia Yusay Gonzales and two-thirds to be paid by
Florencia P. Vda. de Yusay.
The foregoing suggestion to require payment of two-thirds of the total taxes by Florencia P. Vda. de
Yusay is not acceptable, for she (Florencia P. Vda. de Yusay) is not a party in this case.
It should be pointed out that Lilia Yusay Gonzales appealed the whole assessment to the Court of
Tax Appeals. Thereupon, the Commissioner of Internal Revenue questioned her legal capacity to
institute the appeal on the ground that she administered only one-third of the estate of Matias Yusay.
In opposition, she espoused the view, which was sustained by the Tax Court, that in coadministration, the administratrices are regarded as one person and the acts of one of them in
relation to the regular administration of the estate are deemed to be the acts of all; hence, each
administratrix can represent the whole estate. In advancing such proposition, Lilia Yusay Gonzales
represented the whole estate and hoped to benefit from the favorable outcome of the case. For the
same reason that she represented her co-administratrix and the whole estate of Matias Yusay, she
risked being ordered to pay the whole assessment, should the assessment be sustained.

Her change of stand adopted in the motion for reconsideration to the effect that she should be made
liable for only one-third of the total tax, would negate her aforesaid proposition before the Court of
Tax Appeals. She is now estopped from denying liability for the whole tax.
At any rate, estate and inheritance taxes are satisfied from the estate and are to be paid by the
executor or administrator.1 Where there are two or more executors, all of them are severally liable for
the payment of the estate tax.2 The inheritance tax, although charged against the account of each
beneficiary, should be paid by the executor or administrator.3 Failure to pay the estate and
inheritance taxes before distribution of the estate would subject the executor or administrator to
criminal liability under Section 107(c) of the Tax Code.
It is immaterial therefore that Lilia Yusay Gonzales administers only one-third of the estate and will
receive as her share only said portion, for her right to the estate comes after taxes. 4 As an
administratrix, she is liable for the entire estate tax. As an heir, she is liable for the entire inheritance
tax although her liability would not exceed the amount of her share in the estate. 5 The entire
inheritance tax which amounts to P39,178.12 excluding penalties is obviously much less than her
distributive share.
Motion for reconsideration denied.
Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Sanchez and Castro, JJ., concur.
Zaldivar, J., took no part.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
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.
VITUG,, J.:
Before the Court is a petition for review seeking to set aside the decision of 24 February 1999 of the
Court of Appeals, as well as its resolution of 27 Apri11999, in CA-G.R. SP No. 34156, which has
reversed that of the Court of Tax Appeals in CTA Case No.4956, entitled "Jose V. Feria, in his
capacity as Executor of the Estate of Jose San Agustin versus Commissioner of Internal Revenue."
The tax court's decision has modified the deficiency assessment of the Commission of Internal
Revenue for surcharge, interests and other penalties imposed against the estate of the late Jose
San Agustin.

The facts of the case narrated by the appellate court would appear, by and large, to be
uncontroverted; thusviz:
"Atty. Jose San Agustin of 2904 Kakarong St., Olympia, Makati 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.
"Probate proceedings were instituted on August 22, 1990, in the Regional Trial Court (RTC)
of Makati, Branch 139, docketed as Sp. Proc. No. M-2554. Pursuantly, notice of decedent's
death was sent to the Commissioner of Internal Revenue on August 30, 1990.
1wphi1.nt

"On September 3, 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 as the decedent's widow ( did) not personally have sufficient
funds, and that the payment (would) have to come from the estate.
"In his letter/answer, dated September 4, 1990, 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, on October 11, 1990 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, on March 8,
1991 , 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 PreAssessment 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.
"On October 4, 1991, the Commissioner issued an Assessment Notice reiterating the
demand in the pre- assessment notice and requesting payment on or before thirty (30) days
upon receipt thereof.
"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 through its Receivable Accounts Billing Division.
"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 CT A 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. Moreover, there is no statutory basis for
the refund of the deficiency surcharges, interests and penalties charged by the
Commissioner upon the estate of the decedent.
"Upholding its jurisdiction over the dispute, the CTA rendered its Decision, dated April 21,
1994, modifying the CIR's assessment for surcharge, interests and other penalties from
P438,040.38 to P13,462.74, representing interest on the deficiency estate tax, for which
reason the CTA ordered the reimbursement to the respondent estate the balance of
P423,577.64, to wit:
"WHEREFORE, respondent's deficiency assessment for surcharge, interests, and
other penalties is hereby modified and since petitioner has clearly paid the full
amount of P438,040.38, respondent is hereby ordered to refund to the Estate of Jose
San Agustin the overpayment amounting to P423,577.64."1
On 30 May 1994, the decision of the Court of Tax Appeals was appealed by the Commissioner of
Internal Revenue to the Court of Appeals. There, the petition for review raised the following issues:
"1. Whether respondent Tax Court has jurisdiction to take cognizance of the case considering
the failure of private respondent to comply with the mandatory requirements of Sections 204
and 230 of the National Internal Revenue Code.
"2. Whether or not respondent Tax Court was correct in ordering the refund to the Estate of
Jose San Agustin the reduced amount of P423,577.64 as alleged overpaid surcharge,
interests and compromise penalty imposed on the basic deficiency estate tax of P538,509.50
due on the transmission of the said Estate to the sole heir in 1990."2
In its decision of 24 February 1999, the Court of Appeals granted the petition of the Commissioner of
Internal Revenue and held that the Court of Tax Appeals did not acquire jurisdiction over the subject
matter and that, accordingly, its decision was null and void.
Hence, the instant petition where petitioner submits that -

"1. The filing of a claim for refund [is] not essential before the filing of the petition for review.
"2. The imposition by the respondent of surcharge, interest and penalties on the deficiency
estate tax is not in accord with the law and therefore illegal." 3
The Court finds the petition partly meritorious.
The case has a striking resemblance to the controversy in Roman Catholic Archbishop of Cebu vs.
Collector of Internal Revenue.4
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 Appeals dismissed the petition for lack of jurisdiction. On
appeal to this Court, the tax court's ruling was reversed; the Court held:
"We agree with petitioner that Section 7 of Republic Act No.1125, creating the Court of Tax
Appeals, in providing for appeals from '(1) Decisions of the Collector of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising under the National Internal
Revenue Code or other law or part of the law administered by the Bureau of Internal
Revenue allows an appeal from a decision of the Collector in cases involving' disputed assessments'
as distinguished from cases involving' refunds of internal revenue taxes, fees or other
charges, x x'; that the present action involves a disputed assessment'; because from the time
petitioner received assessments Nos. 17-EC-00301-55 and 17-AC-600107-56 disallowing
certain deductions claimed by him in his income tax returns for the years 1955 and 1956, he
already protested and refused to pay the same, questioning the correctness and legality of
such assessments; and that the petitioner paid the disputed assessments under protest
before filing his petition for review with the Court a quo, only to forestall the sale of his
properties that had been placed under distraint by the respondent Collector since December
4, 1957. To hold that the taxpayer has now 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, for the Collector (now
Commissioner) would cer1ainly disallow the claim for refund in the same way as he
disallowed the protest against the assessment. The law, should not be interpreted as to
result in absurdities."5
The Court sees no cogent reason to abandon the above dictum and to require a useless formality
that can serve the interest of neither the government nor the taxpayer. The tax court has aptly acted
in taking cognizance of the taxpayer's appeal to it.
On the second issue, the National Internal Revenue Code, relative to the imposition of surcharges,
interests, and penalties, provides thusly:

"Sec. 248. Civil Penalties. "(a) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to
twenty-five percent (25% ) of the amount due, in the following cases:
"(1) Failure to file any return and pay the tax due thereon as required under the provisions of
this Code or rules and regulations on the date prescribed; or
"(2) Unless otherwise authorized by the Commissioner, filing a return with an internal
revenue officer other than those with whom the return is required to be filed; or
"(3) Failure to pay the deficiency tax within the time prescribed for its payment in the notice
of assessment; or
"(4) Failure to pay the full or part of the amount of tax shown on any return required to be
filed under the provisions of this Code or rules and regulations, or the full amount of tax due
for which no return is required to be filed, on or before the date prescribed for its payment."
"Sec.249. Interest. "(A) In General. -There shall be assessed and collected on any unpaid amount of tax,
interest at the rate of twenty percent (20%) per annum, or such higher rate as may be
prescribed by rules and regulations, from the date prescribed for payment until the amount is
fully paid.
"(B) Deficiency Interest. - Any deficiency in the tax due, as the term is defined in this Code,
shall be subject to the interest prescribed in Subsection (A) hereof, which interest shall be
assessed and collected from the date prescribed for its payment until the full payment
thereof.
"(C) Delinquency Interest. -In case of failure to pay:
"(1) The amount of the tax due on any return to be filed, or
"(2) The amount of the tax due for which no return is required, or
"(3) A deficiency tax, or any surcharge or interest thereon on the due date appearing in the
notice and demand of the Commissioner, there shall be assessed and collected on the
unpaid amount, interest at the rate prescribed in Subsection (A) hereof until the amount is
fully paid, which interest shall form part of the tax.
"(D) Interest on Extended Payment. -If any person required to pay the tax is qualified and
elects to pay the tax on installment under the provisions of this Code, but fails to pay the tax
or any installment hereof, or any part of such amount or installment on or before the date
prescribed for its payment, or where the Commissioner has authorized an extension of time
within which to pay a tax or a deficiency tax or any part thereof, there shall be assessed and
collected interest at the rate hereinabove prescribed on the tax or deficiency tax or any part
thereof unpaid from the date of notice and demand until it is paid."
It would appear that, as early as 23 September 1991, the estate already received a pre-assessment
notice indicating a deficiency estate tax of P538,509.50. Within the ten-day period given in the pre-

assessment notice, respondent Commissioner received a letter from petitioner expressing the latter's
readiness to pay the basic deficiency estate tax of P538,509.50 as soon as the trial court would have
approved the withdrawal of that sum from the estate but requesting that the surcharge, interests and
penalties be waived. On 04 October 1991, however, petitioner received from the Commissioner
notice insisting payment of the tax due on or before the lapse of thirty (30) days from receipt thereof.
The deficiency estate tax of P538,509.50 was not paid until 19 December 1991. 6
The delay in the payment of the deficiency tax within the time prescribed for its payment in the notice
of assessment justifies the imposition of a 25% surcharge in consonance with Section 248A(3) of the
Tax Code. The basic deficiency tax in this case being P538,509.50, the twenty-five percent thereof
comes to P134,627.37. Section 249 of the Tax Code states that any deficiency in the tax due would
be subject to interest at the rate of twenty percent (20%) per annum, which interest shall be
assessed and collected from the date prescribed for its payment until full payment is made. The
computation of interest by the Court of Tax Appeals -

"Deficiency estate
tax
P538,509.50

Interest Rate
20% per annum

Terms
11/2 mo./12 mos
(11/04/91 to 12/19/91)

= P13,462.74"7

conforms with the law, i.e., computed on the deficiency tax from the date prescribed for its payment
until it is paid.
The Court of Tax Appeals correctly held that the compromise penalty of P20,000.00 could not be
imposed on petitioner, a compromise being, by its nature, mutual in essence. The payment made
under protest by petitioner could only signify that there was no agreement that had effectively been
reached between the parties.
Regrettably for petitioner, the need for an authority from the probate court in the payment of the
deficiency estate tax, over which respondent Commissioner has hardly any control, is not one that
can negate the application of the Tax Code provisions aforequoted. Taxes, the lifeblood of the
government, are meant to be paid without delay and often oblivious to contingencies or conditions.
In. sum, the tax liability of the estate includes a surcharge of P134,627.37 and interest of P13,462.74
or a total of P148,090.00.
WHEREFORE, the instant petition is partly GRANTED. The deficiency assessment for surcharge,
interest and penalties is modified and recomputed to be in the amount of P148,090.00 surcharge of
P134,627.37 and interest of P13,462.74. Petitioner estate having since paid the sum of
P438,040.38, respondent Commissioner is hereby ordered to refund to the Estate of Jose San
Agustin the overpaid amount of P289,950.38. No costs.
SO ORDERED.

1wphi1.nt

Melo, Panganiban, Gonzaga-Reyes, Sandoval-Gutierrez, JJ., concur

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-19201

June 16, 1965

REV. FR. CASIMIRO LLADOC, petitioner,

vs.
The COMMISSIONER OF INTERNAL REVENUE and The COURT of TAX
APPEALS, respondents.
Hilado and Hilado for petitioner.
Office of the Solicitor General for respondents.
PAREDES, J.:
Sometime in 1957, the M.B. Estate, Inc., of Bacolod City, donated P10,000.00 in cash to Rev. Fr.
Crispin Ruiz, then parish priest of Victorias, Negros Occidental, and predecessor of herein petitioner,
for the construction of a new Catholic Church in the locality. The total amount was actually spent for
the purpose intended.
On March 3, 1958, the donor M.B. Estate, Inc., filed the donor's gift tax return. Under date of April
29, 1960, the respondent Commissioner of Internal Revenue issued an assessment for donee's gift
tax against the Catholic Parish of Victorias, Negros Occidental, of which petitioner was the priest.
The tax amounted to P1,370.00 including surcharges, interests of 1% monthly from May 15, 1958 to
June 15, 1960, and the compromise for the late filing of the return.
Petitioner lodged a protest to the assessment and requested the withdrawal thereof. The protest and
the motion for reconsideration presented to the Commissioner of Internal Revenue were denied. The
petitioner appealed to the Court of Tax Appeals on November 2, 1960. In the petition for review, the

Rev. Fr. Casimiro Lladoc claimed, among others, that at the time of the donation, he was not the
parish priest in Victorias; that there is no legal entity or juridical person known as the "Catholic Parish
Priest of Victorias," and, therefore, he should not be liable for the donee's gift tax. It was also
asserted that the assessment of the gift tax, even against the Roman Catholic Church, would not be
valid, for such would be a clear violation of the provisions of the Constitution.
After hearing, the CTA rendered judgment, the pertinent portions of which are quoted below:
... . Parish priests of the Roman Catholic Church under canon laws are similarly situated as
its Archbishops and Bishops with respect to the properties of the church within their parish.
They are the guardians, superintendents or administrators of these properties, with the right
of succession and may sue and be sued.
xxx

xxx

xxx

The petitioner impugns the, fairness of the assessment with the argument that he should not
be held liable for gift taxes on donation which he did not receive personally since he was not
yet the parish priest of Victorias in the year 1957 when said donation was given. It is
intimated that if someone has to pay at all, it should be petitioner's predecessor, the Rev. Fr.
Crispin Ruiz, who received the donation in behalf of the Catholic parish of Victorias or the
Roman Catholic Church. Following petitioner's line of thinking, we should be equally unfair to
hold that the assessment now in question should have been addressed to, and collected
from, the Rev. Fr. Crispin Ruiz to be paid from income derived from his present parish where
ever it may be. It does not seem right to indirectly burden the present parishioners of Rev. Fr.
Ruiz for donee's gift tax on a donation to which they were not benefited.
xxx

xxx

xxx

We saw no legal basis then as we see none now, to include within the Constitutional
exemption, taxes which partake of the nature of an excise upon the use made of the
properties or upon the exercise of the privilege of receiving the properties. (Phipps vs.
Commissioner of Internal Revenue, 91 F [2d] 627; 1938, 302 U.S. 742.)
It is a cardinal rule in taxation that exemptions from payment thereof are highly disfavored by
law, and the party claiming exemption must justify his claim by a clear, positive, or express
grant of such privilege by law. (Collector vs. Manila Jockey Club, G.R. No. L-8755, March 23,
1956; 53 O.G. 3762.)
The phrase "exempt from taxation" as employed in Section 22(3), Article VI of the
Constitution of the Philippines, should not be interpreted to mean exemption from all kinds of
taxes. Statutes exempting charitable and religious property from taxation should be
construed fairly though strictly and in such manner as to give effect to the main intent of the
lawmakers. (Roman Catholic Church vs. Hastrings 5 Phil. 701.)
xxx

xxx

xxx

WHEREFORE, in view of the foregoing considerations, the decision of the respondent

Commissioner of Internal Revenue appealed from, is hereby affirmed except with regard to
the imposition of the compromise penalty in the amount of P20.00 (Collector of Internal
Revenue v. U.S.T., G.R. No. L-11274, Nov. 28, 1958); ..., and the petitioner, the Rev. Fr.
Casimiro Lladoc is hereby ordered to pay to the respondent the amount of P900.00 as
donee's gift tax, plus the surcharge of five per centum (5%) as ad valorem penalty under
Section 119 (c) of the Tax Code, and one per centum (1%) monthly interest from May 15,
1958 to the date of actual payment. The surcharge of 25% provided in Section 120 for failure
to file a return may not be imposed as the failure to file a return was not due to willful neglect.
( ... ) No costs.
The above judgment is now before us on appeal, petitioner assigning two (2) errors allegedly
committed by the Tax Court, all of which converge on the singular issue of whether or not petitioner
should be liable for the assessed donee's gift tax on the P10,000.00 donated for the construction of
the Victorias Parish Church.
Section 22 (3), Art. VI of the Constitution of the Philippines, exempts from taxation
cemeteries, churches and parsonages or convents, appurtenant thereto, and all lands, buildings,
and improvements used exclusively for religious purposes. The exemption is only from the payment
of taxes assessed on such properties enumerated, as property taxes, as contra distinguished from
excise taxes. In the present case, what the Collector assessed was a donee's gift tax; the
assessment was not on the properties themselves. It did not rest upon general ownership; it was an
excise upon the use made of the properties, upon the exercise of the privilege of receiving the
properties (Phipps vs. Com. of Int. Rec. 91 F 2d 627). Manifestly, gift tax is not within the exempting
provisions of the section just mentioned. A gift tax is not a property tax, but an excise tax imposed on
the transfer of property by way of gift inter vivos, the imposition of which on property used
exclusively for religious purposes, does not constitute an impairment of the Constitution. As well
observed by the learned respondent Court, the phrase "exempt from taxation," as employed in the
Constitution (supra) should not be interpreted to mean exemption from all kinds of taxes. And there
being no clear, positive or express grant of such privilege by law, in favor of petitioner, the exemption
herein must be denied.
The next issue which readily presents itself, in view of petitioner's thesis, and Our finding that a tax
liability exists, is, who should be called upon to pay the gift tax? Petitioner postulates that he should
not be liable, because at the time of the donation he was not the priest of Victorias. We note the
merit of the above claim, and in order to put things in their proper light, this Court, in its Resolution of
March 15, 1965, ordered the parties to show cause why the Head of the Diocese to which the parish
of Victorias pertains, should not be substituted in lieu of petitioner Rev. Fr. Casimiro Lladoc it
appearing that the Head of such Diocese is the real party in interest. The Solicitor General, in
representation of the Commissioner of Internal Revenue, interposed no objection to such a
substitution. Counsel for the petitioner did not also offer objection thereto.
On April 30, 1965, in a resolution, We ordered the Head of the Diocese to present whatever legal
issues and/or defenses he might wish to raise, to which resolution counsel for petitioner, who also
appeared as counsel for the Head of the Diocese, the Roman Catholic Bishop of Bacolod,
manifested that it was submitting itself to the jurisdiction and orders of this Court and that it was

presenting, by reference, the brief of petitioner Rev. Fr. Casimiro Lladoc as its own and for all
purposes.
In view here of and considering that as heretofore stated, the assessment at bar had been properly
made and the imposition of the tax is not a violation of the constitutional provision exempting
churches, parsonages or convents, etc. (Art VI, sec. 22 [3], Constitution), the Head of the Diocese,
to which the parish Victorias Pertains, is liable for the payment thereof.
The decision appealed from should be, as it is hereby affirmed insofar as tax liability is concerned; it
is modified, in the sense that petitioner herein is not personally liable for the said gift tax, and that the
Head of the Diocese, herein substitute petitioner, should pay, as he is presently ordered to pay, the
said gift tax, without special, pronouncement as to costs.
Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon,
J.P., and Zaldivar, JJ., concur.
Barrera, J., took no part.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-36770

November 4, 1932

LUIS W. DISON, plaintiff-appellant,

vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.
Marcelino Aguas for plaintiff-appellant.
Attorney-General Jaranilla for defendant-appellant.

BUTTE, J.:
This is an appeal from the decision of the Court of First Instance of Pampanga in favor of the
defendant Juan Posadas, Jr., Collector of Internal Revenue, in a suit filed by the plaintiffs, Luis W.
Dison, for the recovery of an inheritance tax in the sum of P2,808.73 paid under protest. The
petitioner alleged in his complaint that the tax is illegal because he received the property, which is
the basis of the tax, from his father before his death by a deed of gift inter vivos which was duly
accepted and registered before the death of his father. The defendant answered with a general
denial and with a counterdemand for the sum of P1,245.56 which it was alleged is a balance still due
and unpaid on account of said tax. The plaintiff replied to the counterdemand with a general denial.

The court a quo held that the cause of action set up in the counterdemand was not proven and
dismissed the same. Both sides appealed to this court, but the cross-complaint and appeal of the
Collector of Internal Revenue were dismissed by this court on March 17, 1932, on motion of the
Attorney-General.
1awphil.net

The only evidence introduced at the trial of this cause was the proof of payment of the tax
under protest, as stated, and the deed of gift executed by Felix Dison on April 9, 1928, in favor of his
sons Luis W. Dison, the plaintiff-appellant. This deed of gift transferred twenty-two tracts of land to
the donee, reserving to the donor for his life the usufruct of three tracts. This deed was
acknowledged by the donor before a notary public on April 16, 1928. Luis W. Dison, on April 17,
1928, formally accepted said gift by an instrument in writing which he acknowledged before a notary
public on April 20, 1928.
At the trial the parties agreed to and filed the following ingenious stipulation of fact:
1. That Don Felix Dison died on April 21, 1928;
2. That Don Felix Dison, before his death, made a gift inter vivos in favor of the plaintiff Luis
W. Dison of all his property according to a deed of gift (Exhibit D) which includes all the
property of Don Felix Dizon;
3. That the plaintiff did not receive property of any kind of Don Felix Dison upon the death of
the latter;
4. That Don Luis W. Dison was the legitimate and only child of Don Felix Dison.
It is inferred from Exhibit D that Felix Dison was a widower at the time of his death.
The theory of the plaintiff-appellant is that he received and holds the property mentioned by a
consummated gift and that Act No. 2601 (Chapter 40 of the Administrative Code) being the
inheritance tax statute, does not tax gifts. The provision directly here involved is section 1540 of the
Administrative Code which reads as follows:
Additions of Gifts and Advances. After the aforementioned deductions have been
made, there shall be added to the resulting amount the value of all gifts or advances made
by the predecessor to any of those who, after his death, shall prove to be his heirs, devises,
legatees, or donees mortis causa.
The question to be resolved may be stated thus: Does section 1540 of the Administrative
Code subject the plaintiff-appellant to the payment of an inheritance tax?
The appellant argues that there is no evidence in this case to support a finding that the gift
was simulated and that it was an artifice for evading the payment of the inheritance tax, as is
intimated in the decision of the court below and the brief of the Attorney-General. We see no reason
why the court may not go behind the language in which the transaction is masked in order to
ascertain its true character and purpose. In this case the scanty facts before us may not warrant the

inference that the conveyance, acknowledged by the donor five days before his death and accepted
by the donee one day before the donor's death, was fraudulently made for the purpose of evading
the inheritance tax. But the facts, in our opinion, do warrant the inference that the transfer was an
advancement upon the inheritance which the donee, as the sole and forced heir of the donor, would
be entitled to receive upon the death of the donor.
The argument advanced by the appellant that he is not an heir of his deceased father within
the meaning of section 1540 of the Administrative Code because his father in his lifetime had given
the appellant all his property and left no property to be inherited, is so fallacious that the urging of it
here casts a suspicion upon the appellants reason for completing the legal formalities of the transfer
on the eve of the latter's death. We do not know whether or not the 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 facts presented, as an advance
made by Felix Dison to his only child, we hold section 1540 to be applicable and the tax to have
been properly assessed by the Collector of Internal Revenue.
This appeal was originally assigned to a Division of five but referred to the court in banc by
reason of the appellant's attack upon the constitutionality of section 1540. This attack is based on
the sole ground that insofar as section 1540 levies a tax upon gifts inter vivos, it violates that
provision of section 3 of the organic Act of the Philippine Islands (39 Stat. L., 545) which reads as
follows: "That no bill which may be enacted into law shall embraced more than one subject, and that
subject shall be expressed in the title of the bill." Neither the title of Act No. 2601 nor chapter 40 of
the Administrative Code makes any reference to a tax on gifts. Perhaps it is enough to say of this
contention that section 1540 plainly does not tax gifts per se but only when those gifts are made to
those who shall prove to be the heirs, devisees, legatees or donees mortis causa of the donor. This
court said in the case of Tuason and Tuason vs. Posadas 954 Phil., 289):
lawphil.net

When the law says all gifts, it doubtless refers to gifts inter vivos, and not mortis causa.
Both the letter and the spirit of the law leave no room for any other interpretation. Such,
clearly, is the tenor of the language which refers to donations that took effect before the
donor's death, and not to mortis causadonations, which can only be made with the
formalities of a will, and can only take effect after the donor's death. Any other construction
would virtually change this provision into:
". . . there shall be added to the resulting amount the value of all gifts mortis causa . . . made
by the predecessor to those who, after his death, shall prove to be his . . . donees mortis causa." We
cannot give to the law an interpretation that would so vitiate its language. The truth of the matter is
that in this section (1540) the law presumes that such gifts have been made in anticipation of
inheritance, devise, bequest, or gift mortis causa, when the donee, after the death of the donor
proves to be his heir, devisee or donee mortis causa, for the purpose of evading the tax, and it is to
prevent this that it provides that they shall be added to the resulting amount." However much
appellant's argument on this point may fit his preconceived notion that the transaction between him

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.
The judgment below is affirmed with costs in this instance against the appellant. So ordered.
Avancea, C.J., Street, Malcolm, Ostrand, Abad Santos, Vickers and Imperial, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-34937

March 13, 1933

CONCEPCION VIDAL DE ROCES and her husband,

MARCOS ROCES, and ELVIRA VIDAL DE RICHARDS, plaintiff-appellants,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellee.
Feria and La O for appellants.
Attorney-General Jaranilla for appellee.
IMPERIAL, J.:
The plaintiffs herein brought this action to recover from the defendant, Collector of Internal Revenue,
certain sums of money paid by them under protest as inheritance tax. They appealed from the
judgment rendered by the Court of First Instance of Manila dismissing the action, without costs.
On March 10 and 12, 1925, Esperanza Tuazon, by means of public documents, donated certain
parcels of land situated in Manila to the plaintiffs herein, who, with their respective husbands,
accepted them in the same public documents, which were duly recorded in the registry of deeds. By
virtue of said donations, the plaintiffs took possession of the said lands, received the fruits thereof
and obtained the corresponding transfer certificates of title.
On January 5, 1926, the donor died in the City of Manila without leaving any forced heir and her will
which was admitted to probate, she bequeathed to each of the donees the sum of P5,000. After the
estate had been distributed among the instituted legatees and before delivery of their respective
shares, the appellee herein, as Collector of Internal Revenue, ruled that the appellants, as donees
and legatees, should pay as inheritance tax the sums of P16,673 and P13,951.45, respectively. Of
these sums P15,191.48 was levied as tax on the donation to Concepcion Vidal de Roces and
P1,481.52 on her legacy, and, likewise, P12,388.95 was imposed upon the donation made to Elvira
Vidal de Richards and P1,462.50 on her legacy. At first the appellants refused to pay the

aforementioned taxes but, at the insistence of the appellee and in order not to delay the adjudication
of the legacies, they agreed at last, to pay them under protest.
The appellee filed a demurrer to the complaint on the ground that the facts alleged therein were not
sufficient to constitute a cause of action. After the legal questions raised therein had been discussed,
the court sustained the demurrer and ordered the amendment of the complaint which the appellants
failed to do, whereupon the trial court dismissed the action on the ground that the afore- mentioned
appellants did not really have a right of action.
In their brief, the appellants assign only one alleged error, to wit: that the demurrer interposed by the
appellee was sustained without sufficient ground.
The judgment appealed from was based on the provisions of section 1540 Administrative Code
which reads as follows:
SEC. 1540. Additions of gifts and advances. After the aforementioned deductions have
been made, there shall be added to the resulting amount the value of all gifts or advances
made by the predecessor to any those who, after his death, shall prove to be his heirs,
devisees, legatees, or donees mortis causa.
The appellants contend that the above-mentioned legal provision does not include donations inter
vivos and if it does, it is unconstitutional, null and void for the following reasons: first, because it
violates section 3 of the Jones Law which provides that no law should embrace more than one
subject, and that subject should be expressed in the title thereof; second that the Legislature has no
authority to impose inheritance tax on donations inter vivos; and third, because a legal provision of
this character contravenes the fundamental rule of uniformity of taxation. The appellee, in turn,
contends that the words "all gifts" refer clearly to donations inter vivos and, in support of his theory,
cites the doctrine laid in the case of Tuason and Tuason vs. Posadas (54 Phil., 289). After a careful
study of the law and the authorities applicable thereto, we are the opinion that neither theory reflects
the true spirit of the aforementioned provision. The gifts referred to in section 1540 of the Revised
Administration Code are, obviously, those donations inter vivos that take effect immediately or during
the lifetime of the donor but are made in consideration or in contemplation of death. Gifts inter vivos,
the transmission of which is not made in contemplation of the donor's death should not be
understood as included within the said legal provision for the reason that it would amount to
imposing a direct tax on property and not on the transmission thereof, which act does not come
within the scope of the provisions contained in Article XI of Chapter 40 of the Administrative Code
which deals expressly with the tax on inheritances, legacies and other acquisitions mortis causa.
Our interpretation of the law is not in conflict with the rule laid down in the case of Tuason and
Tuason vs. Posadas, supra. We said therein, as we say now, that the expression "all gifts" refers to
gifts inter vivosinasmuch as the law considers them as advances on inheritance, in the sense that
they are gifts inter vivosmade in contemplation or in consideration of death. In that case, it was not
held that that kind of gifts consisted in those made completely independent of death or without
regard to it.
Said legal provision is not null and void on the alleged ground that the subject matter thereof is not
embraced in the title of the section under which it is enumerated. On the contrary, its provisions are
perfectly summarized in the heading, "Tax on Inheritance, etc." which is the title of Article XI.
Furthermore, the constitutional provision cited should not be strictly construed as to make it
necessary that the title contain a full index to all the contents of the law. It is sufficient if the language
used therein is expressed in such a way that in case of doubt it would afford a means of determining
the legislators intention. (Lewis' Sutherland Statutory Construction, Vol. II, p. 651.) Lastly, the

circumstance that the Administrative Code was prepared and compiled strictly in accordance with
the provisions of the Jones Law on that matter should not be overlooked and that, in a compilation of
laws such as the Administrative Code, it is but natural and proper that provisions referring to diverse
matters should be found. (Ayson and Ignacio vs. Provincial Board of Rizal and Municipal Council of
Navotas, 39 Phil., 931.)
The appellants question the power of the Legislature to impose taxes on the transmission of real
estate that takes effect immediately and during the lifetime of the donor, and allege as their reason
that such tax partakes of the nature of the land tax which the law has already created in another part
of the Administrative Code. Without making express pronouncement on this question, for it is
unnecessary, we wish to state that such is not the case in these instance. The tax collected by the
appellee on the properties donated in 1925 really constitutes an inheritance tax imposed on the
transmission of said properties in contemplation or in consideration of the donor's death and under
the circumstance that the donees were later instituted as the former's legatees. For this reason, the
law considers such transmissions in the form of gifts inter vivos, as advances on inheritance and
nothing therein violates any constitutional provision, inasmuch as said legislation is within the power
of the Legislature.
Property Subject to Inheritance Tax. The inheritance tax ordinarily applies to all property
within the power of the state to reach passing by will or the laws regulating intestate
succession or by gift inter vivos in the manner designated by statute, whether such property
be real or personal, tangible or intangible, corporeal or incorporeal. (26 R.C.L., p. 208, par.
177.)
In the case of Tuason and Tuason vs. Posadas, supra, it was also held that section 1540 of the
Administrative Code did not violate the constitutional provision regarding uniformity of taxation. It
cannot be null and void on this ground because it equally subjects to the same tax all of those
donees who later become heirs, legatees or donees mortis causa by the will of the donor. There
would be a repugnant and arbitrary exception if the provisions of the law were not applicable to all
donees of the same kind. In the case cited above, it was said: "At any rate the argument adduced
against its constitutionality, which is the lack of Uniformity, does not seem to be well founded. It was
said that under such an interpretation, while a donee inter vivos who, after the predecessor's death
proved to be an heir, a legatee, or a donee mortis causa, would have to pay the tax, another
donee inter vivos who did not prove to he an heir, a legatee, or a donee mortis causa of the
predecessor, would be exempt from such a tax. But as these are two different cases, the principle of
uniformity is inapplicable to them."
The last question of a procedural nature arising from the case at bar, which should be passed upon,
is whether the case, as it now stands, can be decided on the merits or should be remanded to the
court a quofor further proceedings. According to our view of the case, it follows that, if the gifts
received by the appellants would have the right to recover the sums of money claimed by them.
Hence the necessity of ascertaining whether the complaint contains an allegation to that effect. We
have examined said complaint and found nothing of that nature. On the contrary, it be may be
inferred from the allegations contained in paragraphs 2 and 7 thereof that said donations inter
vivos were made in consideration of the donor's death. We refer to the allegations that such
transmissions were effected in the month of March, 1925, that the donor died in January, 1926, and
that the donees were instituted legatees in the donor's will which was admitted to probate. It is from
these allegations, especially the last, that we infer a presumption juris tantum that said donations
were mademortis causa and, as such, are subject to the payment of inheritance tax.
Wherefore, the demurrer interposed by the appellee was well-founded because it appears that the
complaint did not allege fact sufficient to constitute a cause of action. When the appellants refused to

amend the same, spite of the court's order to that effect, they voluntarily waived the opportunity
offered them and they are not now entitled to have the case remanded for further proceedings,
which would serve no purpose altogether in view of the insufficiency of the complaint.
Wherefore, the judgment appealed from is hereby affirmed, with costs of this instance against the
appellants. So ordered.
Avancea, C.J., Villamor, Ostrand, Abad Santos, Hull, Vickers and Buttes, JJ., concur.

Separate Opinions
VILLA-REAL, J., dissenting:
I sustain my concurrence in Justice Street's dissenting opinion in the case of Tuason and Tuason vs.
Posadas(54 Phil., 289).
The majority opinion to distinguish the present case from above-mentioned case of Tuason and
Tuason vs. Posadas, by interpreting section 1540 of the Administrative Code in the sense that it
establishes the legal presumption juris tantum that all gifts inter vivos made to persons who are not
forced heirs but who are instituted legatees in the donor's will, have been made in contemplation of
the donor's death. Presumptions are of two kinds: One determined by law which is also called
presumption of law or of right; and another which is formed by the judge from circumstances
antecedent to, coincident with or subsequent to the principal fact under investigation, which is also
called presumption of man (presuncion de hombre). (Escriche, Vol. IV, p. 662.) The Civil Code as
well as the code of Civil Procedure establishes presumptions juris et de jure and juris tantum which
the courts should take into account in deciding questions of law submitted to them for decision. The
presumption which majority opinion wishes to draw from said section 1540 of the Administrative
Code can neither be found in this Code nor in any of the aforementioned Civil Code and Code of
Civil Procedure. Therefore, said presumption cannot be called legal or of law. Neither can it be called
a presumption of man(presuncion de hombre) inasmuch as the majority opinion did not infer it from
circumstances antecedent to, coincident with or subsequent to the principal fact with is the donation
itself. In view of the nature, mode of making and effects of donations inter vivos, the contrary
presumption would be more reasonable and logical; in other words, donations inter vivos made to
persons who are not forced heirs, but who are instituted legatees in the donor's will, should be
presumed as not made mortis causa, unless the contrary is proven. In the case under consideration,
the burden of the proof rests with the person who contends that the donationinter vivos has been
made mortis causa.
It is therefore, the undersigned's humble opinion that the order appealed from should be reversed
and the demurrer overruled, and the defendant ordered to file his answer to the complaint.
Street, J., concurs.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-19865

July 31, 1965

MARIA CARLA PIROVANO, etc., et al., petitioners-appellants,

vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent-appellee.
Angel S. Gamboa for petitioners-appellants.
Office of the Solicitor General for respondent-appellee.
REYES, J.B.L., J.:
This case is a sequel to the case of Pirovano vs. De la Rama Steamship Co., 96 Phil. 335.
Briefly, the facts of the aforestated case may be stated as follows:
Enrico Pirovano was the father of the herein petitioners-appellants. Sometime in the early part of
1941, De la Rama Steamship Co. insured the life of said Enrico Pirovano, who was then its
President and General Manager until the time of his death, with various Philippine and American
insurance companies for a total sum of one million pesos, designating itself as the beneficiary of the
policies, obtained by it. Due to the Japanese occupation of the Philippines during the second World
War, the Company was unable to pay the premiums on the policies issued by its Philippine insurers
and these policies lapsed, while the policies issued by its American insurers were kept effective and
subsisting, the New York office of the Company having continued paying its premiums from year to
year.
During the Japanese occupation , or more particularly in the latter part of 1944, said Enrico Pirovano
died.
After the liberation of the Philippines from the Japanese forces, the Board of Directors of De la Rama
Steamship Co. adopted a resolution dated July 10, 1946 granting and setting aside, out of the
proceeds expected to be collected on the insurance policies taken on the life of said Enrico
Pirovano, the sum of P400,000.00 for equal division among the four (4) minor children of the
deceased, said sum of money to be convertible into 4,000 shares of stock of the Company, at par, or
1,000 shares for each child. Shortly thereafter, the Company received the total sum of P643,000.00
as proceeds of the said life insurance policies obtained from American insurers.
Upon receipt of the last stated sum of money, the Board of Directors of the Company modified, on
January 6, 1947, the above-mentioned resolution by renouncing all its rights title, and interest to the

said amount of P643,000.00 in favor of the minor children of the deceased, subject to the express
condition that said amount should be retained by the Company in the nature of a loan to it, drawing
interest at the rate of five per centum (5%) per annum, and payable to the Pirovano children after the
Company shall have first settled in full the balance of its present remaining bonded indebtedness in
the sum of approximately P5,000,000.00. This latter resolution was carried out in a Memorandum
Agreement on January 10, 1947 and June 17, 1947., respectively, executed by the Company and
Mrs. Estefania R. Pirovano, the latter acting in her capacity as guardian of her children (petitionersappellants herein) find pursuant to an express authority granted her by the court.
On June 24, 1947, the Board of Directors of the Company further modified the last mentioned
resolution providing therein that the Company shall pay the proceeds of said life insurance policies
to the heirs of the said Enrico Pirovano after the Company shall have settled in full the balance of its
present remaining bonded indebtedness, but the annual interests accruing on the principal shall be
paid to the heirs of the said Enrico Pirovano, or their duly appointed representative, whenever the
Company is in a position to meet said obligation.
On February 26, 1948, Mrs. Estefania R. Pirovano, in behalf of her children, executed a public
document formally accepting the donation; and, on the same date, the Company through its Board of
Directors, took official notice of this formal acceptance.
On September 13, 1949, the stockholders of the Company formally ratified the various resolutions
hereinabove mentioned with certain clarifying modifications that the payment of the donation shall
not be effected until such time as the Company shall have first duly liquidated its present bonded
indebtedness in the amount of P3,260,855.77 with the National Development Company, or fully
redeemed the preferred shares of stock in the amount which shall be issued to the National
Development Company in lieu thereof; and that any and all taxes, legal fees, and expenses in any
way connected with the above transaction shall be chargeable and deducted from the proceeds of
the life insurance policies mentioned in the resolutions of the Board of Directors.
On March 8, 1951, however, the majority stockholders of the Company voted to revoke the
resolution approving the donation in favor of the Pirovano children.
As a consequence of this revocation and refusal of the Company to pay the balance of the donation
amounting to P564,980.90 despite demands therefor, the herein petitioners-appellants represented
by their natural guardian, Mrs. Estefania R. Pirovano, brought an action for the recovery of said
amount, plus interest and damages against De la Rama Steamship Co., in the Court of First
Instance of Rizal, which case ultimately culminated to an appeal to this Court. On December 29,
1954, this court rendered its decision in the appealed case (96 Phil. 335) holding that the donation
was valid and remunerative in nature, the dispositive part of which reads:
Wherefore, the decision appealed from should be modified as follows: (a) that the donation
in favor of the children of the late Enrico Pirovano of the proceeds of the insurance policies
taken on his life is valid and binding on the defendant corporation; (b) that said donation,
which amounts to a total of P583,813.59, including interest, as it appears in the books of the
corporation as of August 31, 1951, plus interest thereon at the rate of 5 per cent per annum
from the filing of the complaint, should be paid to the plaintiffs after the defendant corporation

shall have fully redeemed the preferred shares issued to the National Development
Company under the terms and conditions stared in the resolutions of the Board of Directors
of January 6, 1947 and June 24, 1947, as amended by the resolution of the stockholders
adopted on September 13, 1949; and (c) defendant shall pay to plaintiffs an additional
amount equivalent to 10 per cent of said amount of P583,813.59 as damages by way of
attorney's fees, and to pay the costs of action. (Pirovano et al. vs. De la Rama Steamship
Co., 96 Phil. 367-368)
The above decision became final and executory. In compliance therewith, De la Rama Steamship
Co. made, on April 6, 1955, a partial payment on the amount of the judgment and paid the balance
thereof on May 12, 1955.
On March 6, 1955, respondent Commissioner of Internal Revenue assessed the amount of
P60,869.67 as donees' gift tax, inclusive of surcharges, interests and other penalties, against each
of the petitioners-appellants, or for the total sum of P243,478.68; and, on April 23, 1955, a donor's
gift tax in the total amount of P34,371.76 was also assessed against De la Rama Steamship Co.,
which the latter paid.
Petitioners-appellants herein contested respondent Commissioner's assessment and imposition of
the donees' gift taxes and donor's gift tax and also made a claim for refund of the donor's gift tax so
collected. Respondent Commissioner overruled petitioners' claims; hence, the latter presented two
(2) petitions for review against respondent's rulings before the Court of Tax Appeals, said petitions
having been docketed as CTA Cases Nos. 347 and 375. CTA Case No. 347 relates to the petition
disputing the legality of the assessment of donees' gift taxes and donor's gift tax while CTA Case No.
375 refers to the claim for refund of the donor's gift tax already paid.
After the filing of respondent's usual answers to the petitions, the two cases, being interrelated to
each other, were tried jointly and terminated.
On January 31, 1962, the Court of Tax Appeals rendered its decision in the two cases, the
dispositive part of which reads:
In resume, we are of the opinion, that (1) the donor's gift tax in the sum of P34,371.76 was
erroneously assessed and collected, hence, petitioners are entitled to the refund thereof; (2)
the donees' gift taxes were correctly assessed; (3) the imposition of the surcharge of 25% is
not proper; (4) the surcharge of 5% is legally due; and (5) the interest of 1% per month on
the deficiency donees' gift taxes is due from petitioners from March 8, 1955 until the taxes
are paid.
IN LINE WITH THE FOREGOING OPINION, petitioners are hereby ordered to pay the
donees' gift taxes as assessed by respondent, plus 5% surcharge and interest at the rate of
1% per month from March 8, 1955 to the date of payment of said donees' gift taxes.
Respondent is ordered to apply the sum of P34,371.76 which is refundable to petitioners,
against the amount due from petitioners. With costs against petitioners in Case No. 347.

Petitioners-appellants herein filed a motion to reconsider the above decision, which the lower court
denied. Hence, this appeal before us.
In the instant appeal, petitioners-appellants herein question only that portion of the decision of the
lower court ordering the payment of donees' gift taxes as assessed by respondent as well as the
imposition of surcharge and interest on the amount of donees' gift taxes.
In their brief and memorandum, they dispute the factual finding of the lower court that De la Rama
Steamship Company's renunciation of its rights, title, and interest over the proceeds of said life
insurance policies in favor of the Pirovano children "was motivated solely and exclusively by its
sense of gratitude, an act of pure liberality, and not to pay additional compensation for services
inadequately paid for." Petitioners now contend that the lower court's finding was erroneous in
seemingly considering the disputed grant as a simple donation, since our previous decision (96 Phil.
335) had already declared that the transfer to the Pirovano children was a remuneratory donation.
Petitioners further contend that the same was made not for an insufficient or inadequate
consideration but rather it a was made for a full and adequate compensation for the valuable
services rendered by the late Enrico Pirovano to the De la Rama Steamship Co.; hence, the
donation does not constitute a taxable gift under the provisions of Section 108 of the National
Internal Revenue Code.
The argument for petitioners-appellants fails to take into account the fact that neither in Spanish nor
in Anglo-American law was it considered that past services, rendered without relying on a
coetaneous promise, express or implied, that such services would be paid for in the future,
constituted cause or consideration that would make a conveyance of property anything else but a gift
or donation. This conclusion flows from the text of Article 619 of the Code of 1889 (identical with
Article 726 of the present Civil Code of the Philippines):
When a person gives to another a thing ... on account of the latter's merits or of the services
rendered by him to the donor, provided they do not constitute a demandable debt, ..., there is
also a donation. ... .
There is nothing on record to show that when the late Enrico Pirovano rendered services as
President and General Manager of the De la Rama Steamship Co. he was not fully compensated for
such services, or that, because they were "largely responsible for the rapid and very successful
development of the activities of the company" (Res. of July 10, 1946). Pirovano expected or was
promised further compensation over and in addition to his regular emoluments as President and
General Manager. The fact that his services contributed in a large measure to the success of the
company did not give rise to a recoverable debt, and the conveyances made by the company to his
heirs remain a gift or donation. This is emphasized by the directors' Resolution of January 6, 1947,
that "out of gratitude" the company decided to renounce in favor of Pirovano's heirs the proceeds of
the life insurance policies in question. The true consideration for the donation was, therefore, the
company's gratitude for his services, and not the services themselves.
That the tax court regarded the conveyance as a simple donation, instead of a remuneratory one as
it was declared to be in our previous decision, is but an innocuous error; whether remuneratory or

simple, the conveyance remained a gift, taxable under Chapter 2, Title III of the Internal Revenue
Code.
But then appellants contend, the entire property or right donated should not be considered as a gift
for taxation purposes; only that portion of the value of the property or right transferred, if any, which
is in excess of the value of the services rendered should be considered as a taxable gift. They cite in
support Section 111 of the Tax Code which provides that
Where property is transferred for less, than an adequate and full consideration in money or
money's worth, then the amount by which the value of the property exceeded the value of
the consideration shall, for the purpose of the tax imposed by this Chapter, be deemed a gift,
... .
The flaw in this argument lies in the fact that, as copied from American law, the term consideration
used in this section refers to the technical "consideration" defined by the American Law Institute
(Restatement of Contracts) as "anything that is bargained for by the promisor and given by the
promisee in exchange for the promise" (Also, Corbin on Contracts, Vol. I, p. 359). But, as we have
seen, Pirovano's successful activities as officer of the De la Rama Steamship Co. cannot be deemed
such consideration for the gift to his heirs, since the services were rendered long before the
Company ceded the value of the life policies to said heirs; cession and services were not the result
of one bargain or of a mutual exchange of promises.
And the Anglo-American law treats a subsequent promise to pay for past services (like one to pay for
improvements already made without prior request from the promisor) to be a nudum
pactum (Roscorla vs. Thomas, 3 Q.B. 234; Peters vs. Poro, 25 ALR 615; Carson vs. Clark, 25 Am.
Dec. 79; Boston vs. Dodge, 12 Am. Dec. 206), i.e., one that is unenforceable in view of the common
law rule that consideration must consist in a legal benefit to the promisee or some legal detriment to
the promisor.
What is more, the actual consideration for the cession of the policies, as previously shown, was the
Company's gratitude to Pirovano; so that under section 111 of the Code there is no consideration the
value of which can be deducted from that of the property transferred as a gift. Like "love and
affection," gratitude has no economic value and is not "consideration" in the sense that the word is
used in this section of the Tax Code.
As stated by Chief Justice Griffith of the Supreme Court of Mississippi in his well-known book,
"Outlines of the Law" (p. 204)
Love and affection are not considerations of value they are not estimable in terms of value. Nor
are sentiments of gratitude for gratuitous part favors or kindnesses; nor are obligations which are
merely moral. It has been well said that if a moral obligation were alone sufficient it would remove
the necessity for any consideration at all, since the fact of making a promise impose, the moral
obligation to perform it."
It is of course perfectly possible that a donation or gift should at the same time impose a burden or
condition on the donee involving some economic liability for him. A, for example, may donate a

parcel of land to B on condition that the latter assume a mortgage existing on the donated land. In
this case the donee may rightfully insist that the gift tax be computed only on the value of the land
less the value of the mortgage. This, in fact, is contemplated by Article 619 of the Civil Code of 1889
(Art. 726 of the Tax Code) when it provides that there is also a donation "when the gift imposes upon
the donee a burden which is less than the value of the thing given." Section 111 of the Tax Code has
in view situations of this kind, since it also prescribes that "the amount by which the value of the
property exceeded the value of the consideration" shall be deemed a gift for the purpose of the tax. .
Petitioners finally contend that, even assuming that the donation in question is subject to donees' gift
taxes, the imposition of the surcharge of 5% and interest of 1% per month from March 8, 1955 was
not justified because the proceeds of the life insurance policies were actually received on April 6,
1955 and May 12, 1955 only and in accordance with Section 115(c) of the Tax Code; the filing of the
returns of such tax became due on March 1, 1956 and the tax became payable on May 15, 1956, as
provided for in Section 116(a) of the same Code. In other words, petitioners maintain that the
assessment and demand for donees' gift taxes was prematurely made and of no legal effect; hence,
they should not be held liable for such surcharge and interest.
It is well to note, and it is not disputed, that petitioners-donees have failed to file any gift tax return
and that they also failed to pay the amount of the assessment made against them by respondent in
1955. This situation is covered by Section 119(b) (1) and (c) and Section 120 of the Tax Code:
(b) Deficiency.
(1) Payment not extended. Where a deficiency, or any interest assessed in connection
therewith, or any addition to the taxes provided for in section one hundred twenty is not paid
in full within thirty days from the date of the notice and demand from the Commissioner,
there shall be collected as a part of the taxes, interest upon the unpaid amount at the rate of
one per centum a month from the date of such notice and demand until it is paid. (section
119)
(c) Surcharge. If any amount of the taxes included in the notice and demand from the
Commissioner of Internal Revenue is not paid in full within thirty days after such notice and
demand, there shall be collected in addition to the interest prescribed above as a part of the
taxes a surcharge of five per centum of the unpaid amount. (sec. 119)
The failure to file a return was found by the lower court to be due to reasonable cause and not to
willful neglect. On this score, the elimination by the lower court of the 25% surcharge is ad
valorem penalty which respondent Commissioner had imposed pursuant to Section 120 of the Tax
Code was proper, since said Section 120 vests in the Commissioner of Internal Revenue or in the
tax court power and authority to impose or not to impose such penalty depending upon whether or
not reasonable cause has been shown in the non-filing of such return.
On the other hand, unlike said Section 120, Section 119, paragraphs (b) (1) and (c) of the Tax Code,
does not confer on the Commissioner of Internal Revenue or on the courts any power and discretion
not to impose such interest and surcharge. It is likewise provided for by law that an appeal to the
Court of Tax Appeals from a decision of the Commissioner of Internal Revenue shall not suspend the

payment or collection of the tax liability of the taxpayer unless a motion to that effect shall have been
presented to the court and granted by it on the ground that such collection will jeopardize the interest
of the taxpayer (Sec. 11, Republic Act No. 1125; Rule 12, Rules of the Court of Tax Appeals). It
should further be noted that
It has been the uniform holding of this Court that no suit for enjoining the collection of a tax,
disputed or undisputed, can be brought, the remedy being to pay the tax first, formerly under
protest and now without need of protect, file the claim with the Collector, and if he denies it,
bring an action for recovery against him. (David v. Ramos, et al., 90 Phil. 351)
Section 306 of the National Internal Revenue Code ... lays down the procedure to be
followed in those cases wherein a taxpayer entertains some doubt about the correctness of a
tax sought to be collected. Said section provides that the tax, should first be paid and the
taxpayer should sue for its recovery afterwards. The purpose of the law obviously is to
prevent delay in the collection of taxes, upon which the Government depends for its
existence. To allow a taxpayer to first secure a ruling as regards the validity of the tax before
paying it would be to defeat this purpose. (National Dental Supply Co. vs. Meer, 90 Phil. 265)
Petitioners did not file in the lower court any motion for the suspension of payment or collection of
the amount of assessment made against them.
On the basis of the above-stated provisions of law and applicable authorities, it is evident that the
imposition of 1% interest monthly and 5% surcharge is justified and legal. As succinctly stated by the
court below, said imposition is "mandatory and may not be waived by the Commissioner of Internal
Revenue or by the courts" (Resolution on petitioners' motion for reconsideration, Annex XIV,
petition). Hence, said imposition of interest and surcharge by the lower court should be upheld.
WHEREFORE, the decision of the Court of Tax Appeals is affirmed. Costs against petitioners
Pirovano.
Bengzon, C.J., Bautista Angelo, Paredes, Dizon, Regala, Makalintal, Bengzon, J.P., and Zaldivar,
JJ., concur.
Concepcion, J., took no part.
Barrera, J., is on leave.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. L-5949

November 19, 1955

TANG HO, WILLIAM LEE, HENRI LEE, SOFIA LEE TEEHANKEE, THOMAS LEE, ANTHONY
LEE, JULIA LEE KAW, CHARLES LEE, VALERIANA LEE YU, VICTOR LEE, SILVINO LEE,
MARY LEE, JOHN LEE, and PETER LEE, for themselves and as heirs of LI SENG GIAP,
deceased, petitioners,
vs.
THE BOARD OF TAX APPEALS and THE COLLECTOR OF INTERNAL REVENUE, respondents.
Ozaeta, Roxas, Lichauco and Picazo for petitioners.
Office of the Solicitor General Juan R. Liwag and Solicitor Jose P. Alejandro for respondents.
REYES, J.B.L., J.:
This is a petition for the review of the petition of the defunct Board of Tax Appeals holding petitioner
Li Seng Giap, et al. liable for gift taxes in accordance with the assessments made by the respondent
Collector of Internal Revenue.
Petitioners Li Seng Giap (who died during the pendency of this appeal) and his wife Tang Ho and
their thirteen children appear to be the stockholder of two close family corporations named Li Seng
Giap & Sons, Inc. and Li Seng Giap & Co. On or about May, 1951, examiners of the Bureau of
Internal Revenue, then detailed to the Allas Committee of the Congress of the Philippines, made an
examination of the books of the two corporation aforementioned and found that each of Li Seng
Giap's 13 children had a total investment therein of approximately P63,195.00, in shares issued to
them by their father Li Seng Giap (who was the manager and controlling stockholder of the two
corporations) in the years 1940, 1942, 1948, 1949, and 1950 in the following amounts:

Donees

1940

1942

1948

1949

1950

William Lee

7,500

12,500

6,750

27,940

7,500

Henry Lee

7,500

12,500

6,750

27,940

7,500

Sofia Lee

7,500

12,500

16,500

26,690

Thomas Lee

7,500

12,500

7,500

28,190

7,500

18,000

7,500

28,190

7,500

Anthony Lee

Julia Lee

20,000

15,000

25,690

2,500

Charles Lee

20,000

7,500

60,690

7,500

Valeriana Lee

63,190

2,500

Victor Lee

63,190

Silvino Lee

63,190

Mary Lee

63,190

John Lee

63,190

Peter Lee

63,190

The Collector of Internal Revenue regarded these transfers as undeclared gifts made in the
respective years, and assessed against Li Seng Giap and his children donor's and donee's taxes in
the total amount of P76,995.31, including penalties, surcharges, interests, and compromise fee due
to the delayed payment of the taxes. The petitioners paid the sum of P53,434.50, representing the
amount of the basic taxes, and put up a surety bond to guarantee payment of the balance
demanded. And on June 25, 1951, they requested the Collector of Internal Revenue for a revision of
their tax assessments, and submitted donor's and donee's gift tax returns showing that each child
received by way of gift inter vivos, every year from 1939 to 1950 (except in 1947 and 1948) P4,000
in cash; that each of the eight children who married during the period aforesaid, were given an
additional P20,000 as dowry or gift propter nuptias; that the unmarried children received roughly
equivalent amount in 1949, also by way of gifts inter vivos, so that the total donations made to each
and every child, as of 1950, stood at P63,190. Appellants admit that these gifts were not reported;
but contend that as the cash donated came from the conjugal funds, they constituted individual
donations by each of the spouses Li Seng Giap and Tang Ho of one half of the amount received by
the donees in each instance, up to a total of P31,505 to each of the thirteen children from each
parent. They further alleged that the children's stockholding in the two family corporations were
purchased by them with savings from the aforesaid cash donations received from their parents.

Claiming the benefit of gift tax exemptions (under section 110 and 112 of the Internal Revenue Code)
at the rate of P2000 a year for each donation, plus P10,000 for each gift propter nuptias made by
either parent, and appellants' aggregate tax liability, according to their returns, would only be
P4,599.94 for the year 1949, and P228,28 for the year 1950, or a total of P4,838.22, computed as
follows:

DONORS

1939-44

1945-46

1949

1950

TOTAL

Li Seng Giap

Exempt

Exempt

P1,110.72

P74.14

P1,184.86

Tang Ho

Exempt

Exempt

1,110.72

74.14

1,184.86

None

None

P2,221.44

P148.28

P2,369.72

William Lee

Exempt

Exempt

P253.80

P30.00

P283.80

Henry Lee

Exempt

Exempt

Exempt

15.00

15.00

Sofia Lee

Exempt

Exempt

P51.90

None

51.90

Thomas Lee

Exempt

Exempt

Exempt

15.00

15.00

Anthony Lee

Exempt

Exempt

Exempt

15.00

15.00

Julia Lee

Exempt

Exempt

26.90

Exempt

26.90

Charles Lee

Exempt

Exempt

Exempt

15.00

15.00

Total

Valeriana Lee

Exempt

Exempt

26.90

Exempt

26.90

Victor Lee

Exempt

Exempt

403.80

None

403.80

Silvino Lee

Exempt

Exempt

403.80

None

403.80

Mary Lee

Exempt

Exempt

403.80

None

403.80

John Lee

Exempt

Exempt

403.80

None

403.80

Peter Lee

Exempt

Exempt

403.80

None

403.80

None

None

P2,378.50

P90.00

P2,468.50

Grand total liability of Donors and Donees

P4,599.94

P238.28

P4,838.22

Total

The Collector refused to revise his original assessments; and the petitioners appealed to the then
Board of Tax Appeals (created by Executive Order 401-A, in 1951) insisting that the entries in the
books of the corporation do not prove donations; that the true amount and date of the donation were
those appearing in their tax returns; and that the donees merely bought stocks in the corporation out
of savings made from the money received from their parents. The Board of Tax Appeals upheld the
decision of the respondent Collector of Internal Revenue; hence, this petition for review.
The questions in this appeal may be summarized as follows:
(1) Whether or not the dates and amounts of the donations taxable against petitioners were as found
by the Collector of Internal Revenue from the books of the corporations Li Seng Giap & Sons, Inc.
and Li Seng Giap & Co., or as set forth in petitioners' gift tax returns;
(2) Whether or not the donations made by petitioner Li Seng Giap to his children from the conjugal
property should be taxed against the husband alone, or against husband and wife; and
(3) Whether or not petitioners should be allowed the tax deduction claimed by them.

On the first question, which is of fact the appellants take the preliminary stand that because of
Collector failed to specifically deny the allegation of their petition in the Tax Board he must be
deemed to have admitted the annual and propter nuptias donations alleged by them, and that he is
estopped from denying their existence. As the proceedings before the Tax Board were administrative
in character, not governed by the Rules of Court (see Sec. 10, Executive Order 401-A),and as the
Collector actually submitted his own version of the transactions, we do not consider that the
Collector's failure to make specific denials should be given the same binding effect as in strict court
pleadings.
Going now to the merits of the issue. The appealed findings of the Board of Tax Appeals and of the
Collector of Internal Revenue (that the stock transfers from Li Seng Giap to his children were
donations) appear supported by the following circumstances:
(1) That the transferor Li Seng Giap (now deceased) had in fact conveyed shares to stock to his 13
children on the dates and in the amounts shown in the table on page 2 of this decision.
(2) That none of the transferees appeared to possess adequate independent means to buy the
shares, so much so that they claim now to have purchased the shares with the cash donations made
to them from time to time.
(3) That the total of the alleged cash donations to each child is practically identical to the value of the
shares supposedly purchased by each donee.
(4) That there is no evidence other than the belated sworn gift tax returns of the spouses Li Seng
Giap and Ang Tang Ho, and their children, appellants herein, to support their contention that the
shares were acquired by purchase. No contracts of sale or other documents were presented, nor
any witnesses introduced; not even the claimants themselves have testified.
(5) The claim that the shares were acquired by the children by purchase was first advanced only
after the assessment of gift taxes and penalties due thereon (in the sum of P76,995.31) had been
made, and after the appellants had paid P53,434.50 on account, and had filed a bond to guarantee
the balance.
(6) That for the parent to donate cash to enable the donee to buy from him shares of equivalent
value is, for all intents and purposes, a donation of such shares to the purchaser donee.
We cannot say, under the circumstances, that there is no sufficient evidence on record to support the
findings of the Tax Board that the stock transfers above indicated were made by way of donation, as
would entitle us to disregard or reverse the Board's finding.
The filing of the gift tax returns only after assessments and part payment of the taxes demanded by
the Collector, and the lack of corroboration of the alleged donations in cash, amply justify the Tax
Board's distrust of the veracity of the appellants' belated tax returns "on or before the first of March
following the close of the calendar year" when the gifts were made (Sec. 115, par. [c]; and besides
the return a written notice to the Collector of each donation of P10,000 or more, must be given within
thirty days after the donation, Sec. 114). These yearly returns and notices are evidently designed to
enable the Collector to verify promptly their truth and correctness, while the gifts are still recent and
proof of the circumstances surrounding the making thereof is still fresh and accessible. On their own
admission, appellants failed to file for ten successive years, the corresponding returns for the alleged
yearly gifts of P4,000 to each child, and likewise failed to give the notices for the P20,000 marriage
gifts to each married child. Hence, they are now scarcely in a position to complain if their contentions
are not accepted as truthful without satisfactory corroboration. Any other view would leave the

collection of taxes at the mercy of explanations concocted ex post facto by evading taxpayers,
drafted to suit any facts disclosed upon investigation, and safe from contradiction because the
passing years have erased all trace of the truth.
The second and third issues in this appeal revolve around appellants' thesis that inasmuch as the
property donated was community property (gananciales), and such property is jointly owned by their
parents, the total amount of the gifts made in each year should be divided between the father and
the mother, as separate donors, and should be taxed separately to each one of them.
In assessing the worth of this contention, it must be ever borne in mind that appellants have not only
failed to prove that the donations were actually made by both spouses, Li Seng Giap and Tang Ho,
but that precisely the contrary appears from their own evidence. In the original claim for tax refund,
filed with the Collector of Internal Revenue, under date of June 25, 1951 (copied in pages 6 and 7 of
the appellants' petition for review addressed to the Board of Tax Appeals), the father, Li Seng Giap,
describes himself as "the undersigned donor" (par. 1) and speaks of "cash donations made by the
undersigned" (par. 3), without in any way mentioning his wife as a co-participant in the donation. The
issue is thus reduced to the following: Is a donation of community property by the father alone
equivalent in law to a donation of one-half of its value by the father and one-half by the mother?
Appellants submit that all such donations of community property are to be regarded, for tax
purposes, as donations by both spouses, for which two separate exemptions may be claimed in
each instance, one for each spouse.
This presentation should be viewed in the light of the provisions of the Spanish Civil Code of 1889,
which was the governing law in the years herein involved, 1939 to 1950. the determinative rule is
that of Arts. 1409 and 1415, reading as follows:
Art. 1409. The conjugal partnership shall also be chargeable with anything which may have
been given or promised by the husband to the children born of the marriage solely in order to
obtain employment for them or give them a profession, or by both spouses by common
consent, should they not have stipulated that such expenditures should be borne in whole or
in part by the separate property of one of them.
ART. 1415, p. 1. The husband may dispone of the property of the conjugal partnership for
the purposes mentioned in Art. 1409.
In effect, these Articles clearly refute the appellants' theory that because the property donated is
community property, the donations should be viewed as made by both spouses. First, because the
law clearly differentiates the donations of such property "by the husband" from the "donations by
both spouses by common consent" ("por el marido . . . o por ambos conyuges de comun acuerdo,"
in the Spanish text).
Next, the wording of Arts. 1409 and 1415 indicates that the lawful donations by the husband to the
common children are valid and are chargeable to the community property, irrespective of whether
the wife agrees or objects thereof. Obviously, should the wife object to the donation, she can not be
regarded as a donor at all.
Even more: Suppose that the husband should make a donation of some community property to a
concubine or paramour. Undeniably, the wife cannot be regarded as joining in any such donation.
Yet under the old Civil Code, the donation would stand, with the only limitation that the wife should
not be prejudiced in the division of the profits after the conjugal partnership affairs are liquidated. So
that if the value of the donation should be found to fit within the limits of the husband's ultimate share
in the conjugal partnership profits, the donation by the husband would remain unassailable, over and

against the non-participation of the wife therein. This Court has so ruled in Baello vs. Villanueva (54
Phil. 213, 214):
According to article 1413 of the Civil Code, any transfer or agreement upon conjugal
property made by the husband in contravention of its provisions, shall not prejudice his wife
or her heirs. As the conjugal property belongs equally to husband and wife, the donation of
this property made by the husband prejudices the wife in so far as it includes a part or the
whole of the wife's half, and is to that extent invalid. Hence article 1419, in providing for the
liquidation of the conjugal partnership, directs that all illegal donations made by the husband
be charged against his estates and deducted from his capital. But it is only then, when the
conjugal partnership is in the process of liquidation, that it can be discovered whether or not
an illegal donation made by the husband prejudices the wife. And inasmuch as these gifts
are only to be held invalid in so far as they prejudice the wife, their nullity cannot be decided
until after the liquidation of the conjugal partnership and it is found that they encroach upon
the wife's portion.
Appellants herein are therefore in error when they contend that it is enough that the property
donated should belong to the conjugal partnership in order that the donation be considered and
taxed as a donation of bothhusband and wife, even if the husband should appear as the sole donor.
There is no blinking the fact that, under the old Civil Code, to be a donation by both spouses, taxable
to both, the wife must expressly join the husband in making the gift; her participation therein cannot
be implied.cdr444444444444444444
It is true, as appellants stress, that in Gibbs vs. Government of the Philippines, 59 Phil., 293, this
Court ruled that "the wife, upon acquisition of any conjugal property, becomes immediately vested
with an interest and title equal to that of the husband"; but this Court was careful to immediately add,
"subject to the power of management and disposition which the law vests on the husband." As has
been shown, this power of disposition may, within the legal limits, override the objections of the wife
and render the donation of the husband fully effective without need of the wife's joining therein. (Civil
Code of 1889, Arts 1409, 1415.)
It becomes unnecessary to discuss the nature of a conjugal partnership, there being specific rules
on donations of property belonging to it. The consequence of the husband's legal power to donate
community property is that, where made by the husband alone, the donation is taxable as his own
exclusive act. Hence, only one exemption or deduction can be claimed for every such gift, and not
two, as claimed by appellants herein. In thus holding, the Board of Tax Appeals committed no error.
Premises considered, we are of the opinion and so declare:
(a) That the finding of the defunct Board of Tax Appeals to the effect that shares transferred from Li
Seng Giap to his children were conveyed to them by way of donation inter vivos is supported by
adequate evidence, and therefore cannot be reviewed by this Court (Comm. of Internal
Revenue. vs. Court Holding Co., L. Ed. 981; Comm. of Internal Revenue vs. Scottish American
Investment Co., 89 L. Ed. 113; Comm. of Internal Revenuevs. Tower, 90 L. Ed. 670;
Helvering vs. Tax Penn. Oil Co., 81 L. Ed. 755).
(b) That under the old Civil Code, a donation by the husband alone does not become in law a
donation by both spouses merely because it involves property of the conjugal partnership;
(c) That such a donation of property belonging to the conjugal partnership, made during its
existence, by the husband alone in favor of the common children, is taxable to him exclusively as
sole donor.

Wherefore, the decision appealed from is affirmed with costs to the appellants. So ordered.
Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo, Jugo, Labrador, and
Concepcion, JJ.,concur.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 120721

February 23, 2005

MANUEL G. ABELLO, JOSE C. CONCEPCION, TEODORO D. REGALA, AVELINO V.

CRUZ, petitioners,
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF APPEALS, respondents.
DECISION
AZCUNA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Civil Procedure, assailing the
decision of the Court of Appeals in CA G.R. SP No. 27134, entitled "Comissioner of Internal
Revenue v. Manuel G. Abello, Jose C. Concepcion, Teodoro D. Regala, Avelino V. Cruz and Court of
Tax Appeals," which reversed and set aside the decision of the Court of Tax Appeals (CTA), ordering
the Commissioner of Internal Revenue (Commissioner) to withdraw his letters dated April 21, 1988
and August 4, 1988 assessing donors taxes and to desist from collecting donors taxes from
petitioners.
During the 1987 national elections, petitioners, who are partners in the Angara, Abello, Concepcion,
Regala and Cruz (ACCRA) law firm, contributed P882,661.31 each to the campaign funds of
Senator Edgardo Angara, then running for the Senate. In letters dated April 21, 1988, the Bureau of
Internal Revenue (BIR) assessed each of the petitioners P263,032.66 for their contributions. On
August 2, 1988, petitioners questioned the assessment through a letter to the BIR. They claimed that
political or electoral contributions are not considered gifts under the National Internal Revenue Code
(NIRC), and that, therefore, they are not liable for donors tax. The claim for exemption was denied
by the Commissioner.1
1vvphi1.nt

On September 12, 1988, petitioners filed a petition for review with the CTA, which was decided on
October 7, 1991 in favor of the petitioners. As aforestated, the CTA ordered the Commissioner to
desist from collecting donors taxes from the petitioners.2
On appeal, the Court of Appeals reversed and set aside the CTA decision on April 20, 1994. 3 The
appellate Court ordered the petitioners to pay donors tax amounting to P263,032.66 each,
reasoning as follows:
The National Internal Revenue Code, as amended, provides:
Sec. 91. Imposition of Tax. (a) There shall be levied, assessed, collected, and paid upon the transfer
by any person, resident, or non-resident, of the property by gift, a tax, computed as provided in
Section 92. (b) The tax shall apply whether the transfer is in trust or otherwise, whether the gift is
direct or indirect, and whether the property is real or personal, tangible or intangible.
Pursuant to the above-quoted provisions of law, the transfer of property by gift, whether the transfer
is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or
personal, tangible or intangible, is subject to donors or gift tax.
A gift is generally defined as a voluntary transfer of property by one to another without any
consideration or compensation therefor (28 C.J. 620; Santos vs. Robledo, 28 Phil. 250).
In the instant case, the contributions are voluntary transfers of property in the form of money from
private respondents to Sen. Angara, without considerations therefor. Hence, they squarely fall under
the definition of donation or gift.
As correctly pointed out by the Solicitor General:
The fact that the contributions were given to be used as campaign funds of Sen. Angara does not
affect the character of the fund transfers as donation or gift. There was thereby no retention of
control over the disposition of the contributions. There was simply an indication of the purpose for
which they were to be used. For as long as the contributions were used for the purpose for which
they were intended, Sen. Angara had complete and absolute power to dispose of the contributions.
He was fully entitled to the economic benefits of the contributions.
Section 91 of the Tax Code is very clear. A donors or gift tax is imposed on the transfer of property
by gift.
1awphi1.nt

The Bureau of Internal Revenue issued Ruling No. 344 on July 20, 1988, which reads:
Political Contributions. For internal revenue purposes, political contributions in the Philippines are
considered taxable gift rather than taxable income. This is so, because a political contribution is
indubitably not intended by the giver or contributor as a return of value or made because of any
intent to repay another what is his due, but bestowed only because of motives of philanthropy or
charity. His purpose is to give and to bolster the morals, the winning chance of the candidate and/or
his party, and not to employ or buy. On the other hand, the recipient-donee does not regard himself

as exchanging his services or his product for the money contributed. But more importantly he
receives financial advantages gratuitously.
When the U.S. gift tax law was adopted in the Philippines (before May 7, 1974), the taxability of
political contributions was, admittedly, an unsettled issue; hence, it cannot be presumed that the
Philippine Congress then had intended to consider or treat political contributions as non-taxable gifts
when it adopted the said gift tax law. Moreover, well-settled is the rule that the Philippines need not
necessarily adopt the present rule or construction in the United States on the matter. Generally,
statutes of different states relating to the same class of persons or things or having the same
purposes are not considered to be in pari materia because it cannot be justifiably presumed that the
legislature had them in mind when enacting the provision being construed. (5206, Sutherland,
Statutory Construction, p. 546.) Accordingly, in the absence of an express exempting provision of
law, political contributions in the Philippines are subject to the donors gift tax. (cited in National
Internal Revenue Code Annotated by Hector S. de Leon, 1991 ed., p. 290).
In the light of the above BIR Ruling, it is clear that the political contributions of the private
respondents to Sen. Edgardo Angara are taxable gifts. The vagueness of the law as to what
comprise the gift subject to tax was made concrete by the above-quoted BIR ruling. Hence, there is
no doubt that political contributions are taxable gifts.4
Petitioners filed a motion for reconsideration, which the Court of Appeals denied in its resolution of
June 16, 1995.5
Petitioners thereupon filed the instant petition on July 26, 1995. Raised are the following issues:
1. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT FAILED TO CONSIDER IN
ITS DECISION THE PURPOSE BEHIND THE ENACTMENT OF OUR GIFT TAX LAW?
2. DID THE HONORABLE COURT OF APPEALS ERR IN NOT CONSIDERING THE
INTENTION OF THE GIVERS IN DETERMINING WHETHER OR NOT THE PETITIONERS
POLITICAL CONTRIBUTIONS WERE GIFTS SUBJECT TO DONORS TAX?
3. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT FAILED TO CONSIDER
THE DEFINITION OF AN "ELECTORAL CONTRIBUTION" UNDER THE OMNIBUS
ELECTION CODE IN DETERMINING WHETHER OR NOT POLITICAL CONTRIBUTIONS
ARE TAXABLE?
4. DID THE HONORABLE COURT OF APPEALS ERR IN NOT CONSIDERING THE
ADMINISTRATIVE PRACTICE OF CLOSE TO HALF A CENTURY OF NOT SUBJECTING
POLITICAL CONTRIBUTIONS TO DONORS TAX?
5. DID THE HONORABLE COURT OF APPEALS ERR IN NOT CONSIDERING THE
AMERICAN JURISPRUDENCE RELIED UPON BY THE COURT OF TAX APPEALS AND
BY THE PETITIONERS TO THE EFFECT THAT POLITICAL CONTRIBUTIONS ARE NOT
TAXABLE GIFTS?

6. DID THE HONORABLE COURT OF APPEALS ERR IN NOT APPLYING AMERICAN

JURISPRUDENCE ON THE GROUND THAT THIS WAS NOT KNOWN AT THE TIME THE
PHILIPPINES GIFT TAX LAW WAS ADOPTED IN 1939?
7. DID THE HONORABLE COURT OF APPEALS ERR IN RESOLVING THE CASE MAINLY
ON THE BASIS OF A RULING ISSUED BY THE RESPONDENT ONLY AFTER THE
ASSESSMENTS HAD ALREADY BEEN MADE?
8. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT DID NOT CONSTRUE
THE GIFT TAX LAW LIBERALLY IN FAVOR OF THE TAXPAYER AND STRICLTY AGAINST
THE GOVERNMENT IN ACCORDANCE WITH APPLICABLE PRINCIPLES OF
STATUTORY CONSTRUCTION?6
First, Fifth and Sixth Issues
Section 91 of the National Internal Revenue Code (NIRC) reads:
(A) There shall be levied, assessed, collected and paid upon the transfer by any person,
resident or nonresident, of the property by gift, a tax, computed as provided in Section 92
(B) The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct
or indirect, and whether the property is real or personal, tangible or intangible.
The NIRC does not define transfer of property by gift. However, Article 18 of the Civil Code, states:
In matters which are governed by the Code of Commerce and special laws, their deficiency shall be
supplied by the provisions of this Code.
Thus, reference may be made to the definition of a donation in the Civil Code. Article 725 of said
Code defines donation as:
. . . an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another,
who accepts it.
Donation has the following elements: (a) the reduction of the patrimony of the donor; (b) the increase
in the patrimony of the donee; and, (c) the intent to do an act of liberality or animus donandi.7
The present case falls squarely within the definition of a donation. Petitioners, the late Manuel G.
Abello8 , Jose C. Concepcion, Teodoro D. Regala and Avelino V. Cruz, each gave P882,661.31 to the
campaign funds of Senator Edgardo Angara, without any material consideration. All three elements
of a donation are present. The patrimony of the four petitioners were reduced by P882,661.31 each.
Senator Edgardo Angaras patrimony correspondingly increased by P3,530,645.249 . There was
intent to do an act of liberality or animus donandiwas present since each of the petitioners gave their
contributions without any consideration.

Taken together with the Civil Code definition of donation, Section 91 of the NIRC is clear and
unambiguous, thereby leaving no room for construction. In Rizal Commercial Banking Corporation v.
Intermediate Appellate Court10 the Court enunciated:
It bears stressing that the first and fundamental duty of the Court is to apply the law. When the law is
clear and free from any doubt or ambiguity, there is no room for construction or interpretation. As has
been our consistent ruling, where the law speaks in clear and categorical language, there is no
occasion for interpretation; there is only room for application (Cebu Portland Cement Co. v.
Municipality of Naga, 24 SCRA 708 [1968])
Where the law is clear and unambiguous, it must be taken to mean exactly what it says and the
court has no choice but to see to it that its mandate is obeyed (Chartered Bank Employees
Association v. Ople, 138 SCRA 273 [1985]; Luzon Surety Co., Inc. v. De Garcia, 30 SCRA 111
[1969]; Quijano v. Development Bank of the Philippines, 35 SCRA 270 [1970]).
Only when the law is ambiguous or of doubtful meaning may the court interpret or construe its true
intent. Ambiguity is a condition of admitting two or more meanings, of being understood in more
than one way, or of referring to two or more things at the same time. A statute is ambiguous if it is
admissible of two or more possible meanings, in which case, the Court is called upon to exercise
one of its judicial functions, which is to interpret the law according to its true intent.
l^vvphi1.net

Second Issue
Since animus donandi or the intention to do an act of liberality is an essential element of a donation,
petitioners argue that it is important to look into the intention of the giver to determine if a political
contribution is a gift. Petitioners argument is not tenable. First of all, donative intent is a creature of
the mind. It cannot be perceived except by the material and tangible acts which manifest its
presence. This being the case, donative intent is presumed present when one gives a part of ones
patrimony to another without consideration. Second, donative intent is not negated when the person
donating has other intentions, motives or purposes which do not contradict donative intent. This
Court is not convinced that since the purpose of the contribution was to help elect a candidate, there
was no donative intent. Petitioners contribution of money without any material consideration
evinces animus donandi. The fact that their purpose for donating was to aid in the election of the
donee does not negate the presence of donative intent.
Third Issue
Petitioners maintain that the definition of an "electoral contribution" under the Omnibus Election
Code is essential to appreciate how a political contribution differs from a taxable gift. 11 Section 94(a)
of the said Code defines electoral contribution as follows:
The term "contribution" includes a gift, donation, subscription, loan, advance or deposit of money or
anything of value, or a contract, promise or agreement to contribute, whether or not legally
enforceable, made for the purpose of influencing the results of the elections but shall not include
services rendered without compensation by individuals volunteering a portion or all of their time in

behalf of a candidate or political party. It shall also include the use of facilities voluntarily donated by
other persons, the money value of which can be assessed based on the rates prevailing in the area.
Since the purpose of an electoral contribution is to influence the results of the election, petitioners
again claim that donative intent is not present. Petitioners attempt to place the barrier of mutual
exclusivity between donative intent and the purpose of political contributions. This Court reiterates
that donative intent is not negated by the presence of other intentions, motives or purposes which do
not contradict donative intent.
Petitioners would distinguish a gift from a political donation by saying that the consideration for a gift
is the liberality of the donor, while the consideration for a political contribution is the desire of the
giver to influence the result of an election by supporting candidates who, in the perception of the
giver, would influence the shaping of government policies that would promote the general welfare
and economic well-being of the electorate, including the giver himself.
Petitioners attempt is strained. The fact that petitioners will somehow in the future benefit from the
election of the candidate to whom they contribute, in no way amounts to a valuable material
consideration so as to remove political contributions from the purview of a donation. Senator Angara
was under no obligation to benefit the petitioners. The proper performance of his duties as a
legislator is his obligation as an elected public servant of the Filipino people and not a consideration
for the political contributions he received. In fact, as a public servant, he may even be called to enact
laws that are contrary to the interests of his benefactors, for the benefit of the greater good.
In fine, the purpose for which the sums of money were given, which was to fund the campaign of
Senator Angara in his bid for a senatorial seat, cannot be considered as a material consideration so
as to negate a donation.
Fourth Issue
Petitioners raise the fact that since 1939 when the first Tax Code was enacted, up to 1988 the BIR
never attempted to subject political contributions to donors tax. They argue that:
. . . It is a familiar principle of law that prolonged practice by the government agency charged with
the execution of a statute, acquiesced in and relied upon by all concerned over an appreciable
period of time, is an authoritative interpretation thereof, entitled to great weight and the highest
respect. . . .12
This Court holds that the BIR is not precluded from making a new interpretation of the law, especially
when the old interpretation was flawed. It is a well-entrenched rule that
. . . erroneous application and enforcement of the law by public officers do not block subsequent
correct application of the statute (PLDT v. Collector of Internal Revenue, 90 Phil. 676), and that the
Government is never estopped by mistake or error on the part of its agents (Pineda v. Court of First
Instance of Tayabas, 52 Phil. 803, 807; Benguet Consolidated Mining Co. v. Pineda, 98 Phil. 711,
724).13

Seventh Issue
Petitioners question the fact that the Court of Appeals decision is based on a BIR ruling, namely BIR
Ruling No. 88-344, which was issued after the petitioners were assessed for donors tax. This Court
does not need to delve into this issue. It is immaterial whether or not the Court of Appeals based its
decision on the BIR ruling because it is not pivotal in deciding this case. As discussed above,
Section 91 (now Section 98) of the NIRC as supplemented by the definition of a donation found in
Article 725 of the Civil Code, is clear and unambiguous, and needs no further elucidation.
Eighth Issue
Petitioners next contend that tax laws are construed liberally in favor of the taxpayer and strictly
against the government. This rule of construction, however, does not benefit petitioners because, as
stated, there is here no room for construction since the law is clear and unambiguous.
Finally, this Court takes note of the fact that subsequent to the donations involved in this case,
Congress approved Republic Act No. 7166 on November 25, 1991, providing in Section 13 thereof
that political/electoral contributions, duly reported to the Commission on Elections, are not subject to
the payment of any gift tax. This all the more shows that the political contributions herein made are
subject to the payment of gift taxes, since the same were made prior to the exempting legislation,
and Republic Act No. 7166 provides no retroactive effect on this point.
WHEREFORE, the petition is DENIED and the assailed Decision and Resolution of the Court of
Appeals are AFFIRMED.
No costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Quisumbing, and Carpio, JJ., concur.
Ynares-Santiago, J., no part.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-9271

March 29, 1957

In the matter of the testate estate of the late DA. MARGARITA DAVID. CARLOS MORAN
SISON, Judicial Administrator, petitioner-appellant,
vs.
NARCISA F. TEODORO, heiress, oppositor-appellee.
Teodoro R. Dominguez for appellant.
Manuel O. Chan for appellee.
BAUTISTA ANGELO, J.:
On December 20, 1948, the Court of First Instance of Manila, which has jurisdiction over the estate
of the late Margarita David, issued an order appointing Carlos Moran Sison as judicial administrator,
without compensation, after filing a bond in the amount of P5,000. The next day, Carlos Moran Sison
took his oath of office and put up the requisite bond which was duly approved by the court. On the
same day, letters of administration were issued to him.
On January 19, 1955, the judicial administrator filed an accounting of his administration which
contains, among others, the following disbursement items:

13. Paid to Visayan Surety & Insurance

Corporation on August 6, 1954, as renewal
premiums on the Administrator's bond of Judicial
Administrator Carlos Moran Sison covering the
period from December 20, 1949 to December 20,
1954, inclusive .................................
P380.70

15. Paid to Visayan Surety & Insurance

Corporation on December 21, 1954, for
premiums due on the Administrator's bond of
judicial Administrator Carlos Moran Sison for the
period from December 21, 1954 to December 21,
1955 ...............................................................

76.14

Narcisa F. Teodoro, one of the heirs, objected to the approval of the above- quoted items on the
grounds that they are not necessary expenses of administration and should not be charged against
the estate. On February 25, 1955, the court approved the report of the administrator but disallowed
the items objected to on the ground that they cannot be considered as expenses of administration.
The administrator filed a motion for reconsideration and when the same was denied, he took the
present appeal.
The only issue to be determined is "whether a judicial administrator, serving without compensation,
is entitled to charge as an expense of administration the premiums paid on his bond."
The lower court did not consider the premiums paid on the bond filed by the administrator as an
expense of administration taking into account undoubtedly the ruling laid down in the case of Sulit
vs. Santos, 56 Phil., 626. That is a case which also involves the payment of certain premium on the
bond put up by the judicial administrator and when he asked the court that the same be considered

as an expense of administration, it was disapproved for the same reasons advanced by the trial
court. In sustaining this finding, this Court ruled that the "expense incurred by an executor or
administrator to produce a bond is not a proper charge against the estate. Section 680 of the Code
of Civil Procedure (similar to section 7, Rule 86) does not authorize the executor or administrator to
charge against the estate the money spent for the presentation, filing, and substitution of a bond."
And elaborating on this matter, the Court made the following comment:
The aforementioned cases, in reality, seem superfluous in ascertaining the true principle.
The position of an executor or administrator is one of trust. In fact, the Philippine Code of
Civil Procedure so mentions it. It is proper for the law to safeguard the estate of deceased
persons by requiring the executor or administrator to give a suitable bond. The ability to give
this bond is in the nature of a qualification for the office. The execution and approval of the
bond constitute a condition precedent to acceptance of the responsibilities of the trust. If an
individual does not desire to assume the position of executor of administrator, he may refuse
to do so. On the other hand, when the individual prefers an adequate bond and has it
approved by the probate court, he thereby admits the adequacy of the compensation which
is permitted him pursuant to law. It would be a very far-fetched construction to deduce the
giving of a bond in order to qualify for the office of executor or administrator is a necessary
expense in the care, management, and settlement of the estate within the meaning of
section 680 of the Code of Civil Procedure, for these are expenses incurred after the
executor of administrator has met the requirements of the law and has entered upon the
performance of his duties. (See In re Eby's Estate [1894], 30 Atl., 124.)
We feel that the orders of Judge Mapa in this case rested on a fine sense of official duty,
sometimes lacking in cases of this character, to protect the residue of the estate of a
deceased person from unjustifiable inroads by an executor, and that as these orders conform
to the facts and the law, they are entitled to be fortified by an explicit pronouncement from
this court. We rule that the expense incurred by an execution or administrator to procure a
bond is not a proper charge against the estate, and that section 680 of the Code of Civil
Procedure does not authorize the executor or administrator to charge against the estate the
money spent for the presentation, filing, and substitution of a bond.
It is true that the Sulit case may be differentiated from the present in the sense that, in the former the
administrator accepted the trust with the emolument that the law allows, whereas in the latter the
administrator accepted the same without compensation, but this difference is of no moment, for
there is nothing in the decision that may justify the conclusion that the allowance or disallowance of
premiums paid on the bond of the administrator is made dependent on the receipt of compensation.
On the contrary, a different conclusion may be inferred considering the ratio decidendi on which the
ruling is predicated. Thus, it was there stated that the position of an executor or administrator is one
of trust: that it is proper for the law to safeguard the estates of deceased persons by requiring the
administrator to give a suitable bond, and that the ability to give this bond is in the nature of a
qualification for the office. It is also intimated therein that "If an individual does not desire to assume
the position of executor or administrator, he may refuse to do so," and it is far-fetched to conclude
that the giving of a bond by an administrator is an necessary expense in the care, management and
settlement of the estate within the meaning of the law, because these expenses are incurred "after
the executor or administrator has met the requirement of the law and has entered upon the
performance of his duties." Of course, a person may accept the position of executor or administrator
with all the incident appertaining thereto having in mind the compensation which the law allows for
the purpose, but he may waive this compensation in the same manner as he may refuse to serve
without it. Appellant having waived compensation, he cannot now be heard to complain of the
expenses incident to his qualification.

The orders appealed from are hereby affirmed, without costs.

Paras. C.J., Bengzon, Reyes, A., Labrador, Concepcion, Reyes, J.B.L., Endencia and Felix,
JJ., concur.