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JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant. Pablo Lorenzo and Delfin Joven for plaintiff-appellant. Office of the Solicitor-General Hilado for defendant-appellant. LAUREL, J.: On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as trustee of the estate of Thomas Hanley, deceased, brought this action in the Court of First Instance of Zamboanga against the defendant, Juan Posadas, Jr., then the Collector of Internal Revenue, for the refund of the amount of P2,052.74, paid by the plaintiff as inheritance tax on the estate of the deceased, and for the collection of interst thereon at the rate of 6 per cent per annum, computed from September 15, 1932, the date when the aforesaid tax was [paid under protest. The defendant set up a counterclaim for P1,191.27 alleged to be interest due on the tax in question and which was not included in the original assessment. From the decision of the Court of First Instance of Zamboanga dismissing both the plaintiff’s complaint and the defendant’s counterclaim, both parties appealed to this court. It appears that on May 27, 1922, one Thomas Hanley died in Zamboanga, Zamboanga, leaving a will (Exhibit 5) and considerable amount of real and personal properties. On june 14, 1922, proceedings for the probate of his will and the settlement and distribution of his estate were begun in the Court of First Instance of Zamboanga. The will was admitted to probate. Said will provides, among other things, as follows: 4. I direct that any money left by me be given to my nephew Matthew Hanley. 5. I direct that all real estate owned by me at the time of my death be not sold or otherwise disposed of for a period of ten (10) years after my death, and that the same be handled and managed by the executors, and proceeds thereof to be given to my nephew, Matthew Hanley, at Castlemore, Ballaghaderine, County of Rosecommon, Ireland, and that he be directed that the same be used only for the education of my brother’s children and their descendants. 6. I direct that ten (10) years after my death my property be given to the above mentioned Matthew Hanley to be disposed of in the way he thinks most advantageous. xxxxxxxxx 8. I state at this time I have one brother living, named Malachi Hanley, and that my nephew, Matthew Hanley, is a son of my said brother, Malachi Hanley. The Court of First Instance of Zamboanga considered it proper for the best interests of the estate to appoint a trustee to administer the real properties which, under the will, were to pass to Matthew Hanley ten years after the two executors named in the will, was, on March 8, 1924, appointed trustee. Moore took his oath of office and gave bond on March 10, 1924. He acted as trustee until February 29, 1932, when he resigned and the plaintiff herein was appointed in his stead. During the incumbency of the plaintiff as trustee, the defendant Collector of Internal Revenue, alleging that the estate left by the deceased at the time of his death consisted of realty valued at P27,920 and personalty valued at P1,465, and allowing a deduction of P480.81, assessed against the estate an inheritance tax in the amount of P1,434.24 which, together with the penalties for delinquency in payment consisting of a 1 per cent monthly interest from July 1, 1931 to the date of payment and a surcharge of 25 per cent on the tax, amounted to P2,052.74. On March 15, 1932, the defendant filed a motion in the testamentary proceedings pending before the Court of First Instance of Zamboanga (Special proceedings No. 302) praying that the trustee, plaintiff herein, be ordered to pay to the Government the said sum of P2,052.74. The motion was granted. On September 15, 1932, the plaintiff paid said amount under protest, notifying the defendant at the same time that unless the amount was promptly refunded suit would be brought for its recovery. The defendant overruled the plaintiff’s protest and refused to refund the said amount hausted, plaintiff went to court with the result herein above indicated. In his appeal, plaintiff contends that the lower court erred: I. In holding that the real property of Thomas Hanley, deceased, passed to his instituted heir, Matthew Hanley, from the moment of the death of the former, and that from the time, the latter became the owner thereof. II. In holding, in effect, that there was delinquency in the payment of inheritance tax due on the estate of said deceased. III. In holding that the inheritance tax in question be based upon the value of the estate upon the death of the testator, and not, as it should have been held, upon the value thereof at the expiration of the period of ten years after which, according to the testator’s will, the property could be and was to be delivered to the instituted heir. IV. In not allowing as lawful deductions, in the determination of the net amount of the estate subject to said tax, the amounts allowed by the court as compensation to the “trustees” and paid to them from the decedent’s estate. V. In not rendering judgment in favor of the plaintiff and in denying his motion for new trial.
The defendant-appellant contradicts the theories of the plaintiff and assigns the following error besides: The lower court erred in not ordering the plaintiff to pay to the defendant the sum of P1,191.27, representing part of the interest at the rate of 1 per cent per month from April 10, 1924, to June 30, 1931, which the plaintiff had failed to pay on the inheritance tax assessed by the defendant against the estate of Thomas Hanley. The following are the principal questions to be decided by this court in this appeal: (a) When does the inheritance tax accrue and when must it be satisfied? (b) Should the inheritance tax be computed on the basis of the value of the estate at the time of the testator’s death, or on its value ten years later? (c) In determining the net value of the estate subject to tax, is it proper to deduct the compensation due to trustees? (d) What law governs the case at bar? Should the provisions of Act No. 3606 favorable to the tax-payer be given retroactive effect? (e) Has there been delinquency in the payment of the inheritance tax? If so, should the additional interest claimed by the defendant in his appeal be paid by the estate? Other points of incidental importance, raised by the parties in their briefs, will be touched upon in the course of this opinion. (a) The accrual of the inheritance tax is distinct from the obligation to pay the same. Section 1536 as amended, of the Administrative Code, imposes the tax upon “every transmission by virtue of inheritance, devise, bequest, gift mortis causa, or advance in anticipation of inheritance,devise, or bequest.” The tax therefore is upon transmission or the transfer or devolution of property of a decedent, made effective by his death. (61 C. J., p. 1592.) It is in reality an excise or privilege tax imposed on the right to succeed to, receive, or take property by or under a will or the intestacy law, or deed, grant, or gift to become operative at or after death. According to article 657 of the Civil Code, “the rights to the succession of a person are transmitted from the moment of his death.” “In other words”, said Arellano, C. J., “. . . the heirs succeed immediately to all of the property of the deceased ancestor. The property belongs to the heirs at the moment of the death of the ancestor as completely as if the ancestor had executed and delivered to them a deed for the same before his death.” (Bondad vs. Bondad, 34 Phil. 232. See also, Mijares vs. Nery, 3 Phil. 195; Suilong & Co., vs. Chio-Taysan, 12 Phil. 13; Lubrico vs. Arbado, 12 Phil. 391; Innocencio vs. Gat-Pandan, 14 Phil. 491; Aliasas vs.Alcantara, 16 Phil. 489; Ilustre vs. Alaras Frondosa, 17 Phil. 321; Malahacan vs. Ignacio, 19 Phil. 434; Bowa vs. Briones, 38 Phil. 27; Osario vs. Osario & Yuchausti Steamship Co., 41 Phil. 531; Fule vs. Fule, 46 Phil. 317; Dais vs. Court of First Instance of Capiz, 51 Phil. 396; Baun vs. Heirs of Baun, 53 Phil. 654.) Plaintiff, however, asserts that while article 657 of the Civil Code is applicable to testate as well as intestate succession, it operates only in so far as forced heirs are concerned. But the language of article 657 of the Civil Code is broad and makes no distinction between different classes of heirs. That article does not speak of forced heirs; it does not even use the word “heir”. It speaks of the rights of succession and the transmission thereof from the moment of death. The provision of section 625 of the Code of Civil Procedure regarding the authentication and probate of a will as a necessary condition to effect transmission of property does not affect the general rule laid down in article 657 of the Civil Code. The authentication of a will implies its due execution but once probated and allowed the transmission is effective as of the death of the testator in accordance with article 657 of the Civil Code. Whatever may be the time when actual transmission of the inheritance takes place, succession takes place in any event at the moment of the decedent’s death. The time when the heirs legally succeed to the inheritance may differ from the time when the heirs actually receive such inheritance. “Poco importa”, says Manresa commenting on article 657 of the Civil Code, “que desde el falleimiento del causante, hasta que el heredero o legatario entre en posesion de los bienes de la herencia o del legado, transcurra mucho o poco tiempo, pues la adquisicion ha de retrotraerse al momento de la muerte, y asi lo ordena el articulo 989, que debe considerarse como complemento del presente.” (5 Manresa, 305; see also, art. 440, par. 1, Civil Code.) Thomas Hanley having died on May 27, 1922, the inheritance tax accrued as of the date. From the fact, however, that Thomas Hanley died on May 27, 1922, it does not follow that the obligation to pay the tax arose as of the date. The time for the payment on inheritance tax is clearly fixed by section 1544 of the Revised Administrative Code as amended by Act No. 3031, in relation to section 1543 of the same Code. The two sections follow: SEC. 1543. Exemption of certain acquisitions and transmissions. – The following shall not be taxed: (a) The merger of the usufruct in the owner of the naked title. (b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the trustees. (c) The transmission from the first heir, legatee, or donee in favor of another beneficiary, in accordance with the desire of the predecessor. In the last two cases, if the scale of taxation appropriate to the new beneficiary is greater than that paid by the first, the former must pay the difference. SEC. 1544. When tax to be paid. – The tax fixed in this article shall be paid: (a) In the second and third cases of the next preceding section, before entrance into possession of the property. (b) In other cases, within the six months subsequent to the death of the predecessor; but if judicial testamentary or intestate proceedings shall be instituted prior to the expiration of said period, the payment shall be made by the executor or administrator before delivering to each beneficiary his share. If the tax is not paid within the time hereinbefore prescribed, interest at the rate of twelve per centum per annum shall be added as part of the tax; and to the tax and interest due and unpaid within ten days after the date of notice and demand thereof by the collector, there shall be further added a surcharge of twenty-five per centum.
A certified of all letters testamentary or of administration shall be furnished the Collector of Internal Revenue by the Clerk of Court within thirty days after their issuance. It should be observed in passing that the word “trustee”, appearing in subsection (b) of section 1543, should read “fideicommissary” or “cestui que trust”. There was an obvious mistake in translation from the Spanish to the English version. The instant case does fall under subsection (a), but under subsection (b), of section 1544 above-quoted, as there is here no fiduciary heirs, first heirs, legatee or donee. Under the subsection, the tax should have been paid before the delivery of the properties in question to P. J. M. Moore as trustee on March 10, 1924. (b) The plaintiff contends that the estate of Thomas Hanley, in so far as the real properties are concerned, did not and could not legally pass to the instituted heir, Matthew Hanley, until after the expiration of ten years from the death of the testator on May 27, 1922 and, that the inheritance tax should be based on the value of the estate in 1932, or ten years after the testator’s death. The plaintiff introduced evidence tending to show that in 1932 the real properties in question had a reasonable value of only P5,787. This amount added to the value of the personal property left by the deceased, which the plaintiff admits is P1,465, would generate an inheritance tax which, excluding deductions, interest and surcharge, would amount only to about P169.52. If death is the generating source from which the power of the estate to impose inheritance taxes takes its being and if, upon the death of the decedent, succession takes place and the right of the estate to tax vests instantly, the tax should be measured by the value of the estate as it stood at the time of the decedent’s death, regardless of any subsequent contingency value of any subsequent increase or decrease in value. (61 C. J., pp. 1692, 1693; 26 R. C. L., p. 232; Blakemore and Bancroft, Inheritance Taxes, p. 137. See also Knowlton vs. Moore, 178 U.S., 41; 20 Sup. Ct. Rep., 747; 44 Law. ed., 969.) “The right of the state to an inheritance tax accrues at the moment of death, and hence is ordinarily measured as to any beneficiary by the value at that time of such property as passes to him. Subsequent appreciation or depreciation is immaterial.” (Ross, Inheritance Taxation, p. 72.) Our attention is directed to the statement of the rule in Cyclopedia of Law of and Procedure (vol. 37, pp. 1574, 1575) that, in the case of contingent remainders, taxation is postponed until the estate vests in possession or the contingency is settled. This rule was formerly followed in New York and has been adopted in Illinois, Minnesota, Massachusetts, Ohio, Pennsylvania and Wisconsin. This rule, however, is by no means entirely satisfactory either to the estate or to those interested in the property (26 R. C. L., p. 231.). Realizing, perhaps, the defects of its anterior system, we find upon examination of cases and authorities that New York has varied and now requires the immediate appraisal of the postponed estate at its clear market value and the payment forthwith of the tax on its out of the corpus of the estate transferred. (In re Vanderbilt, 172 N. Y., 69; 69 N. E., 782; In re Huber, 86 N. Y. App. Div., 458; 83 N. Y. Supp., 769; Estate of Tracy, 179 N. Y., 501; 72 N. Y., 519; Estate of Brez, 172 N. Y., 609; 64 N. E., 958; Estate of Post, 85 App. Div., 611; 82 N. Y. Supp., 1079. Vide also, Saltoun vs. Lord Advocate, 1 Peter. Sc. App., 970; 3 Macq. H. L., 659; 23 Eng. Rul. Cas., 888.) California adheres to this new rule (Stats. 1905, sec. 5, p. 343). But whatever may be the rule in other jurisdictions, we hold that a transmission by inheritance is taxable at the time of the predecessor’s death, notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary, and the tax measured by the value of the property transmitted at that time regardless of its appreciation or depreciation. (c) Certain items are required by law to be deducted from the appraised gross in arriving at the net value of the estate on which the inheritance tax is to be computed (sec. 1539, Revised Administrative Code). In the case at bar, the defendant and the trial court allowed a deduction of only P480.81. This sum represents the expenses and disbursements of the executors until March 10, 1924, among which were their fees and the proven debts of the deceased. The plaintiff contends that the compensation and fees of the trustees, which aggregate P1,187.28 (Exhibits C, AA, EE, PP, HH, JJ, LL, NN, OO), should also be deducted under section 1539 of the Revised Administrative Code which provides, in part, as follows: “In order to determine the net sum which must bear the tax, when an inheritance is concerned, there shall be deducted, in case of a resident, . . . the judicial expenses of the testamentary or intestate proceedings, . . . .” A trustee, no doubt, is entitled to receive a fair compensation for his services (Barney vs. Saunders, 16 How., 535; 14 Law. ed., 1047). But from this it does not follow that the compensation due him may lawfully be deducted in arriving at the net value of the estate subject to tax. There is no statute in the Philippines which requires trustees’ commissions to be deducted in determining the net value of the estate subject to inheritance tax (61 C. J., p. 1705). Furthermore, though a testamentary trust has been created, it does not appear that the testator intended that the duties of his executors and trustees should be separated. (Ibid.; In re Vanneck’s Estate, 161 N. Y. Supp., 893; 175 App. Div., 363; In re Collard’s Estate, 161 N. Y. Supp., 455.) On the contrary, in paragraph 5 of his will, the testator expressed the desire that his real estate be handled and managed by his executors until the expiration of the period of ten years therein provided. Judicial expenses are expenses of administration (61 C. J., p. 1705) but, in State vs. Hennepin County Probate Court (112 N. W., 878; 101 Minn., 485), it was said: “. . . The compensation of a trustee, earned, not in the administration of the estate, but in the management thereof for the benefit of the legatees or devises, does not come properly within the class or reason for exempting administration expenses. . . . Service rendered in that behalf have no reference to closing the estate for the purpose of a distribution thereof to those entitled to it, and are not required or essential to the perfection of the rights of the heirs or legatees. . . . Trusts . . . of the character of that here before the court, are created for the the benefit of those to whom the property ultimately passes, are of voluntary creation, and intended for the preservation of the estate. No sound reason is given to support the contention that such expenses should be taken into consideration in fixing the value of the estate for the purpose of this tax.”
(d) The defendant levied and assessed the inheritance tax due from the estate of Thomas Hanley under the provisions of section 1544 of the Revised Administrative Code, as amended by section 3 of Act No. 3606. But Act No. 3606 went into effect on January 1, 1930. It, therefore, was not the law in force when the testator died on May 27, 1922. The law at the time was section 1544 above-mentioned, as amended by Act No. 3031, which took effect on March 9, 1922. It is well-settled that inheritance taxation is governed by the statute in force at the time of the death of the decedent (26 R. C. L., p. 206; 4 Cooley on Taxation, 4th ed., p. 3461). The taxpayer can not foresee and ought not to be required to guess the outcome of pending measures. Of course, a tax statute may be made retroactive in its operation. Liability for taxes under retroactive legislation has been “one of the incidents of social life.” (Seattle vs. Kelleher, 195 U. S., 360; 49 Law. ed., 232 Sup. Ct. Rep., 44.) But legislative intent that a tax statute should operate retroactively should be perfectly clear. (Scwab vs. Doyle, 42 Sup. Ct. Rep., 491; Smietanka vs. First Trust & Savings Bank, 257 U. S., 602; Stockdale vs. Insurance Co., 20 Wall., 323; Lunch vs. Turrish, 247 U. S., 221.) “A statute should be considered as prospective in its operation, whether it enacts, amends, or repeals an inheritance tax, unless the language of the statute clearly demands or expresses that it shall have a retroactive effect, . . . .” (61 C. J., P. 1602.) Though the last paragraph of section 5 of Regulations No. 65 of the Department of Finance makes section 3 of Act No. 3606, amending section 1544 of the Revised Administrative Code, applicable to all estates the inheritance taxes due from which have not been paid, Act No. 3606 itself contains no provisions indicating legislative intent to give it retroactive effect. No such effect can begiven the statute by this court. The defendant Collector of Internal Revenue maintains, however, that certain provisions of Act No. 3606 are more favorable to the taxpayer than those of Act No. 3031, that said provisions are penal in nature and, therefore, should operate retroactively in conformity with the provisions of article 22 of the Revised Penal Code. This is the reason why he applied Act No. 3606 instead of Act No. 3031. Indeed, under Act No. 3606, (1) the surcharge of 25 per cent is based on the tax only, instead of on both the tax and the interest, as provided for in Act No. 3031, and (2) the taxpayer is allowed twenty days from notice and demand by the Collector of Internal Revenue within which to pay the tax, instead of ten days only as required by the old law. Properly speaking, a statute is penal when it imposes punishment for an offense committed against the state which, under the Constitution, the Executive has the power to pardon. In common use, however, this sense has been enlarged to include within the term “penal statutes” all status which command or prohibit certain acts, and establish penalties for their violation, and even those which, without expressly prohibiting certain acts, impose a penalty upon their commission (59 C. J., p. 1110). Revenue laws, generally, which impose taxes collected by the means ordinarily resorted to for the collection of taxes are not classed as penal laws, although there are authorities to the contrary. (See Sutherland, Statutory Construction, 361; Twine Co. vs. Worthington, 141 U. S., 468; 12 Sup. Ct., 55; Rice vs. U. S., 4 C. C. A., 104; 53 Fed., 910; Com. vs. Standard Oil Co., 101 Pa. St., 150; State vs. Wheeler, 44 P., 430; 25 Nev. 143.) Article 22 of the Revised Penal Code is not applicable to the case at bar, and in the absence of clear legislative intent, we cannot give Act No. 3606 a retroactive effect. (e) The plaintiff correctly states that the liability to pay a tax may arise at a certain time and the tax may be paid within another given time. As stated by this court, “the mere failure to pay one’s tax does not render one delinquent until and unless the entire period has elapsed within which the taxpayer is authorized by law to make such payment without being subjected to the payment of penalties for failure to pay his taxes within the prescribed period.” (U. S. vs. Labadan, 26 Phil. 239.) The defendant maintains that it was the duty of the executor to pay the inheritance tax before the delivery of the decedent’s property to the trustee. Stated otherwise, the defendant contends that delivery to the trustee was delivery to the cestui que trust, the beneficiary in this case, within the meaning of the first paragraph of subsection (b) of section 1544 of the Revised Administrative Code. This contention is well taken and is sustained. The appointment of P. J. M. Moore as trustee was made by the trial court in conformity with the wishes of the testator as expressed in his will. It is true that the word “trust” is not mentioned or used in the will but the intention to create one is clear. No particular or technical words are required to create a testamentary trust (69 C. J., p. 711). The words “trust” and “trustee”, though apt for the purpose, are not necessary. In fact, the use of these two words is not conclusive on the question that a trust is created (69 C. J., p. 714). “To create a trust by will the testator must indicate in the will his intention so to do by using language sufficient to separate the legal from the equitable estate, and with sufficient certainty designate the beneficiaries, their interest in the trust, the purpose or object of the trust, and the property or subject matter thereof. Stated otherwise, to constitute a valid testamentary trust there must be a concurrence of three circumstances: (1) Sufficient words to raise a trust; (2) a definite subject; (3) a certain or ascertain object; statutes in some jurisdictions expressly or in effect so providing.” (69 C. J., pp. 705,706.) There is no doubt that the testator intended to create a trust. He ordered in his will that certain of his properties be kept together undisposed during a fixed period, for a stated purpose. The probate court certainly exercised sound judgment in appointment a trustee to carry into effect the provisions of the will (see sec. 582, Code of Civil Procedure). P. J. M. Moore became trustee on March 10, 1924. On that date trust estate vested in him (sec. 582 in relation to sec. 590, Code of Civil Procedure). The mere fact that the estate of the deceased was placed in trust did not remove it from the operation of our inheritance tax laws or exempt it from the payment of the inheritance tax. The corresponding inheritance tax should have been paid on or before March 10, 1924, to escape the penalties of the laws. This is so for the reason already stated that the delivery of the estate to the trustee was in esse delivery of the same estate to the cestui quetrust, the beneficiary in this case. A trustee is but an instrument or agent for the cestui que trust (Shelton vs. King, 299 U. S., 90; 33 Sup. Ct. Rep., 689; 57 Law. ed., 1086). When Moore accepted the trust and took possession of the trust estate he thereby admitted that the estate belonged not to him but to his cestui que trust (Tolentino vs. Vitug, 39 Phil.126, cited in 65 C. J., p. 692, n. 63). He did not acquire any beneficial interest in the estate. He took such legal estate only as the proper execution of the trust required (65 C. J., p. 528) and, his estate ceased upon the fulfillment of the testator’s wishes. The estate then vested absolutely in the beneficiary (65 C. J., p. 542).
The highest considerations of public policy also justify the conclusion we have reached. Were we to hold that the payment of the tax could be postponed or delayed by the creation of a trust of the type at hand, the result would be plainly disastrous. Testators may provide, as Thomas Hanley has provided, that their estates be not delivered to their beneficiaries until after the lapse of a certain period of time. In the case at bar, the period is ten years. In other cases, the trust may last for fifty years, or for a longer period which does not offend the rule against perpetuities. The collection of the tax would then be left to the will of a private individual. The mere suggestion of this result is a sufficient warning against the acceptance of the essential to the very existence of government. (Dobbins vs. Erie Country, 16 Pet., 435; 10 Law. ed., 1022; Kirkland vs. Hotchkiss, 100 U. S., 491; 25 Law. ed., 558; Lane County vs. Oregon, 7 Wall., 71; 19 Law. ed., 101; Union Refrigerator Transit Co. vs. Kentucky, 199 U. S., 194; 26 Sup. Ct. Rep., 36; 50 Law. ed., 150; Charles River Bridge vs. Warren Bridge, 11 Pet., 420; 9 Law. ed., 773.) The obligation to pay taxes rests not upon the privileges enjoyed by, or the protection afforded to, a citizen by the government but upon the necessity of money for the support of the state (Dobbins vs. Erie Country, supra). For this reason, no one is allowed to object to or resist the payment of taxes solely because no personal benefit to him can be pointed out. (Thomas vs. Gay, 169 U. S., 264; 18 Sup. Ct. Rep., 340; 43 Law. ed., 740.) While courts will not enlarge, by construction, the government’s power of taxation (Bromley vs. McCaughn, 280 U. S., 124; 74 Law. ed., 226; 50 Sup. Ct. Rep., 46) they also will not place upon tax laws so loose a construction as to permit evasions on merely fanciful and insubstantial distinctions. (U. S. vs. Watts, 1 Bond., 580; Fed. Cas. No. 16,653; U. S. vs. Wigglesirth, 2 Story, 369; Fed. Cas. No. 16,690, followed in Froelich & Kuttner vs. Collector of Customs, 18 Phil. 461, 481; Castle Bros., Wolf & Sons vs. McCoy, 21 Phil. 300; Muñoz & Co. vs. Hord, 12 Phil. 624; Hongkong & Shanghai Banking Corporation vs. Rafferty, 39 Phil. 145; Luzon Stevedoring Co. vs. Trinidad, 43 Phil. 803.) When proper, a tax statute should be construed to avoid the possibilities of tax evasion. Construed this way, the statute, without resulting in injustice to the taxpayer, becomes fair to the government. That taxes must be collected promptly is a policy deeply intrenched in our tax system. Thus, no court is allowed to grant injunction to restrain the collection of any internal revenue tax ( sec. 1578, Revised Administrative Code; Sarasola vs. Trinidad, 40 Phil. 252). In the case of Lim Co Chui vs. Posadas (47 Phil. 461), this court had occasion to demonstrate trenchment adherence to this policy of the law. It held that “the fact that on account of riots directed against the Chinese on October 18, 19, and 20, 1924, they were prevented from praying their internal revenue taxes on time and by mutual agreement closed their homes and stores and remained therein, does not authorize the Collector of Internal Revenue to extend the time prescribed for the payment of the taxes or to accept them without the additional penalty of twenty five per cent.” (Syllabus, No. 3.) “. . . It is of the utmost importance,” said the Supreme Court of the United States, “. . . that the modes adopted to enforce the taxes levied should be interfered with as little as possible. Any delay in the proceedings of the officers, upon whom the duty is developed of collecting the taxes, may derange the operations of government, and thereby, cause serious detriment to the public.” (Dows vs. Chicago, 11 Wall., 108; 20 Law. ed., 65, 66; Churchill and Tait vs. Rafferty, 32 Phil. 580.) It results that the estate which plaintiff represents has been delinquent in the payment of inheritance tax and, therefore, liable for the payment of interest and surcharge provided by law in such cases. The delinquency in payment occurred on March 10, 1924, the date when Moore became trustee. The interest due should be computed from that date and it is error on the part of the defendant to compute it one month later. The provisions cases is mandatory (see and cf. Lim Co Chui vs. Posadas,supra), and neither the Collector of Internal Revenue or this court may remit or decrease such interest, no matter how heavily it may burden the taxpayer. To the tax and interest due and unpaid within ten days after the date of notice and demand thereof by the Collector of Internal Revenue, a surcharge of twenty-five per centum should be added (sec. 1544, subsec. (b), par. 2, Revised Administrative Code). Demand was made by the Deputy Collector of Internal Revenue upon Moore in a communication dated October 16, 1931 (Exhibit 29). The date fixed for the payment of the tax and interest was November 30, 1931. November 30 being an official holiday, the tenth day fell on December 1, 1931. As the tax and interest due were not paid on that date, the estate became liable for the payment of the surcharge. In view of the foregoing, it becomes unnecessary for us to discuss the fifth error assigned by the plaintiff in his brief. We shall now compute the tax, together with the interest and surcharge due from the estate of Thomas Hanley in accordance with the conclusions we have reached. At the time of his death, the deceased left real properties valued at P27,920 and personal properties worth P1,465, or a total of P29,385. Deducting from this amount the sum of P480.81, representing allowable deductions under section 1539 of the Revised Administrative Code, we have P28,904.19 as the net value of the estate subject to inheritance tax. The primary tax, according to section 1536, subsection (c), of the Revised Administrative Code, should be imposed at the rate of one per centum upon the first ten thousand pesos and two per centum upon the amount by which the share exceed thirty thousand pesos, plus an additional two hundred per centum. One per centum of ten thousand pesos is P100. Two per centum of P18,904.19 is P378.08. Adding to these two sums an additional two hundred per centum, or P965.16, we have as primary tax, correctly computed by the defendant, the sum of P1,434.24. To the primary tax thus computed should be added the sums collectible under section 1544 of the Revised Administrative Code. First should be added P1,465.31 which stands for interest at the rate of twelve per centum per annum from March 10, 1924, the date of delinquency, to September 15, 1932, the date of payment under protest, a period covering 8 years, 6 months and 5 days. To the tax and interest thus computed should be added the sum of P724.88, representing a surcharge of 25 per cent on both the tax and interest, and also P10, the compromise sum fixed by the defendant (Exh. 29), giving a grand total of P3,634.43.
As the plaintiff has already paid the sum of P2,052.74, only the sums of P1,581.69 is legally due from the estate. This last sum is P390.42 more than the amount demanded by the defendant in his counterclaim. But, as we cannot give the defendant more than what he claims, we must hold that the plaintiff is liable only in the sum of P1,191.27 the amount stated in the counterclaim. The judgment of the lower court is accordingly modified, with costs against the plaintiff in both instances. So ordered. Avanceña, C.J., Abad Santos, Imperial, Diaz and Concepcion, JJ., concur. Villa-Real, J., concurs.
March 30, 1921 G.R. No. L-16544 LEONARDO OSORIO, plaintiff-appellee, vs. TOMASA OSORIO, administratrix of the estate of Petrona Reyes, and THE YNCHAUSTI STEAMSHIP CO., defendants-appellants. Fernandez and Ansaldo for appellants. Carlos Ledesma for appellee. Villamor (Ignacio), J.: The plaintiff seeks to recover 610 shares of stock of “Ynchausti Steamship Co.” and the dividends corresponding to them, which were included in the inventory of the properties of the deceased Da. Maria Petrona Reyes, whose estate is administered by the defendant. The facts of this case are: D. Antonio Osorio had formed with Ynchausti & Co., a joint account association for the exploitation of the shipping business, he being the owner of the one-third of the company’s capital. This capital amounted to P500,000, of which P166,666.66, that is, one-third belonged to D. Antonio Osorio. Upon his death, his heirs agreed to authorize the defendant Da. Tomasa Osorio, then administratrix of the estate of the deceased, to present a project of partition, and said administratix inserted in the project with the consent of all the heirs, among the properties which belonged to the widow Da. Petrona Reyes, the sum of P94,000 as her part in the “share of the estate in the shipping business of Ynchausti & Co.,” that is, a little over P166,666.66, which was the share in said business of the deceased Osorio during his lifetime. The project of partition was approved on May 10, 1915, with the consent of the heirs, by the Court of First Instance of Cavite, which had cognizance of the testamentary and administration proceedings of the state of the deceased Osorio. On February 28, 1914, the widow of D. Antonio Osorio, Da. Petrona Reyes, now also deceased, executed before the notary D. Florencio Gonzales Diez a document of gift in favor of her son D. Leonardo Osorio, the plaintiff, giving to him one-half of her share in the one-third part which belonged to her husband in the shipping business of Ynchausti & Co., a donation which was duly accepted by the donee D. Leonardo Osorio, who signed said document with the plaintiff. On that date, February 28, 1914, the estate of D. Antonio Osorio was not yet distributed among his heirs, and the donor Da. Petrona Reyes in order to correct the error in said document, wherein it was stated that said half was adjudicated to her as part of her conjugal property, when the partition was yet being effected, executed another document dated July 3, 1915, maintaining said donation in effect in the sense that she ceded and donated to her son D. Leonardo Osorio, for the same reasons stated in the document of February 28, 1914, al interest or participation in said shipping business of Ynchausti & Co., which was adjudicated to her in the division of the estate of D. Antonio Osorio, which division was approved by the Court of First Instance of Cavite on May 10, 1915. After the death of D. Antonio Osorio and before the distribution of the estate, Ynchausti & Co. purchased the steamer Governor Forbes and recognized the heirs of D. Antonio Osorio as having an interest to the extent of one-third in the ownership and business of said steamer. It was agreed upon by all the interested parties that the share of Da. Petrona Reyes, widow of Osorio, in the vessel Governor Forbes, at the time of the incorporation of “The Ynchausti Steamship Co.” was P61,000, equivalent to 610 shares of stock of said corporation. Said sum was deposited with the Steamship Co. until the final settlement of the question that had arisen between the heirs of Da. Petrona Reyes as to the ownership thereof for, while the plaintiff alleges that, by virtue of the donation made in his favor by Da. Petrona Reyes, he is the owner of said shares and of their value which is P61,000; the defendant on the other hand contends that said shares are not included in the donation in question and belong to the heirs of Da. Petrona Reyes. Such as the facts which gave rise to this litigation. The trial court rendered judgment in the case, declaring that the 610 shares of stock in dispute and their dividends belong to the plaintiff, and ordered the defendant Da. Tomasa Osorio, administratrix of the estate of Da. Petrona Reyes, to exclude them from the inventory and her accounts, and the other defendant “The Ynchausti Steamship Co.” to inscribe them in the name of the plaintiff D. Leonardo Osorio, delivering to him the dividends corresponding thereto, and denied the counterclaim for the sum of P45,000, on the ground that said sum represents the dividends corresponding to the P94,000 adjudicated to Da. Petrona Reyes, in the partition of the estate of D. Antonio Osorio, and donated by her to the defendant in the counterclaim.
The case having been appealed to this court, counsel for the defendant and appellant, in summing up their arguments in support of the errors assigned in their brief, maintain the two following propositions: 1. The donation made by Da. Petrona Reyes in favor of the plaintiff was of no value and effect; and 2. That, supposing said donation valid, the 610 shares of stock, the value of which is P61,000, cannot be considered as included among them. The document of donation dated February 28, 1914, attacked by the appellant, is as follows: Know all me by these presents: That I, Petrona Reyes, of age, widow of D. Antonio Osorio and resident of the Province of Cavite, Philippine Islands, being in possession of all my senses, freely and voluntarily state: 1. That my husband, the deceased D. Antonio Osorio, was a shareholder to the extent of one-third in the joint account association “Ynchausti & Co.” of this place, which is engaged in the business of buying vessels and in the exploitation of six steam vessels acquired from the Compañia Maritima, the article of association of said joint account association having been executed in the city of Manila on July 3, 1906, before the notary public D. Florencio Gonzales Diez. 2. That upon the death of my husband D. Antonio Osorio and upon the partition of his estate, there was adjudicated to me as conjugal property, one-half of said one-third part in the business referred to, the other half thereof going to our four surviving children, such being the present condition of our interest in said company. 3. That in consideration of the continuous services and attention received by me from my son D. Leonardo Osorio, of age, married and a resident of Cavite also, and because of the affection he has always shown and still shows me, as well as because of the number of children that he has, I make a free and expressed donation to my said son D. Leonardo Osorio of all my interest and participation in said company “Ynchausti and Co.” which is neither transferred nor burdened in any manner whatever. 4. I also declare that the present donation does not in any way prejudice the right which may accrue to my other children with respect to inheriting my property and that therefore I can effect this donation, with all liberty, as I reserve for myself what is sufficient for me to live on in the manner which corresponds to my social position and needs. 5. In turn, I, Leonardo Osorio, of age, married and a resident of the Province of Cavite, state my conformity and acceptance of said donation which my dear mother makes to me, for which I am greatly thankful to her. In witness whereof we sign the present document in triplicate at Manila, Philippine Islands, this twenty-eighth day of February, nineteen hundred and fourteen. (Sgd.) PETRONA REYES.LEONARDO OSORIO. Signed in the presence of:(Sgd.) EUSEBIO ALBA.SALVADOR BARRIOS. Acknowledged before the notary public D. Florencio Gonzales Diez on February 28, 1914. The document rectifying the ratifying the preceding is literally as follows: Know all men by these presents: That I, Petrona Reyes, of age, widow of D. Antonio Osorio and resident of the Province of Cavite, Philippine Islands, being in the full possession of my senses, freely and voluntarily declare: 1. That on February 28, 1914, before the notary public of Manila, D. Florencio Gonzales Diez, I executed a document of donation in favor of my son D. Leonardo Osorio, of one-half of the one-third part which my deceased husband had in certain shipping business of the association “Ynchausti & Co.” 2. That in said document I stated, through error, that said half of one-third part of the business referred to was adjudicated to me as my part of the conjugal property in the partition of the properties left by my deceased husband, when the truth was that said partition had not yet been put in proper form or finished. 3. That in order to correct said error, I so state, declaring however in any event that I make said donation subsisting in the sense that I cede and donate to my side son D. Leonardo Osorio, in consideration of the same causes mentioned in said document of February 28, 1914, all interest or share in said shipping business of Ynchausti & Co. which was adjudicated to me in the partition of the estate of my deceased husband, and approved by the Court of First Instance of Cavite, on May 10, 1915. In witness whereof I sign the present document in triplicate of Cavite on July 3, 1915. (Sgd. by): PETRONA REYES. Signed in the presence of: (Sgd.) CARLOS LEDESMA.ISAURO GABALDON.
In support of the first proposition, the appellant invokes as the legal provision violated, article 635 of the Civil Code, which says: A donation can not include future property. By future property is understood that of which the donor can not dispose at the time of making the donation. Commenting on article 635 of the Civil Code, Manresa says, among other things: To close these fundamental ideas which the spirit of articles 634 and 635 develops we must fix our attention to the definition which the Code gives of future properties. They are those of which the donor cannot dispose at the time of making the donation. This definition in reality includes all properties which belong to others at the time of the donation, although they may or may not later belong to the donor, thus connecting two ideas which, although lacking apparently in relation, are merged in reality in the subject which we examine and which gives assurance to their application. Article 635 refers to the properties of third persons but it may be said that id does so in relation to a time to come; there can be properties which may latter belong to the donor; but these properties cannot be donated, because they are not at present his properties, because he cannot dispose of them at the moment of making the donation. The usufructuary for life or for a determined number of years of a vineyard may donate said usufruct to the whole extent that it belongs to him but never the property itself. The bare owner of said vineyard may donate his right of course; but he may also donate the usufruct which corresponds to the time that it will go back to him, because the case refers to a vested right of which he may dispose at the time of the donation. It is alleged that the donation made by Da. Petrona Reyes is void because she donated on February 28, 1914, a future property, such as the share in the business of the deceased Osorio, which was adjudicated to her on May 10, 1915, and because in 1914 she did not have the right to all or part of the share which her deceased husband had in the shipping business of Ynchausti & Co. Carefully examining said article 635 of the Civil Code, in relation to the worthy opinion of the commentator Manresa, we believe that the future properties, the donation of which is prohibited by said article, are those belonging to other, which, as such, cannot be the object of the disposal by the donor; but the properties of an existing inheritance as those of the case at bar, cannot be considered as another’s property with relation to the heirs who through a fiction of law continue the personality of the owner. Nor do they have the character of future property because the died before 1912, his heirs acquired a right to succeed him from the moment of his death, because of the principle announced in article 657 and applied by article 661 of the Civil Code, according to which the heirs succeed the deceased by the mere fact of his death. More of less time may elapse before the heirs enter into the possession of the hereditary property, but this is not an obstacle, for the acquisition of said property retroacts in any event to the moment of death, according to article 989 of the Civil Code. The right is acquired although subject to the adjudication of the corresponding hereditary portion. Furthermore the Civil Code does not prohibit absolutely that future inheritance should be the object of agreement, for there are certain cases (arts. 177, 827, 831, and 1331) in which agreements may be made as to them, beside that indicated in article 1271, and it may be deduced that an inheritance already existing, which is no longer future from the moment of death of the predecessor, may legally be the object of contract. A donation being of a contractual nature, inasmuch as for its efficacy the concurrence of two wills is required, that of the donor and the donee, we believe that which may be the object of contract may also be the object of a donation. Ubi eadem est ratio, ibi est eadem legis dispositio. We conclude that the donor Da. Petrona Reyes, on February 28, 1912, and could legally dispose of her right through an act of liberality, as she had done. With respect to the point that Da. Petrona Reyes did not have in 1914 any right to all or part of the share of her deceased husband in the shipping business of Ynchausti and Co., it must be observed that in the project of partition of the property of D. Antonio Osorio the following appears: The widow of the testator, Maria Petrona Reyes, her children Feliza, Tomasa, and Leonardo and her granddaugther Soledad Encarnacion Osorio y San Agustin are at present all living and are the only heirs of the deceased. The testator declares that all property left by him was acquired during his marriage with Petrona Reyes. The testator institutes as his only and universal heirs his said children and granddaugther, designates the parts which each of them must receive as legitime, betterment, and legacy, leaves to the disposition of his widow and amount equivalent to that set aside by him in payment of one-half part of the conjugal property and orders that the remainder should be equally distributed among his heirs. We do not have before us the will of D. Antonio Osorio but supposing that he had left no property but the share which he had in the shipping business of Ynchausti & Co., can it be denied that the donor by law had the right to half of said share as her part of the conjugal property? Clearly not. The defendant in her answer says: That Da. Maria Petrona Reyes did not donate to the plaintiff more that her share in the shipping business of the firm Ynchausti & Co. which was adjudicated to her in the partition of the property of D. Antonio Osorio and that said share amounts to P94,000. This admission of the defendant is conclusive, and makes it unnecessary for us to enter into another discussion in order to deduce that Da. Petrona Reyes had in 1914 a right to a certain part of the interest of the deceased Osorio in the shipping business of the firm Ynchausti & Co., and could donate it, as she did, to her son D. Leonardo Osorio.
The allegation that the document of July 3, 1915, is void, because it does not show the acceptance of the donee, is of no importance, because of the conclusion we have reached in discussing the document of donation of February 28, 1914. In the second document, the donor only tried to correct what she believed to be an error in the first, wherein it is stated that in the partition of the property of her husband there was adjudicated to her the part of the interest in the shipping business of Ynchausti & Co. which she donated to her son Leonardo, when in fact said partition was yet pending. After its approval by the Court of First Instance of Cavite, the donor executed the document of 1915, ratifying and correcting the document of donation. She did not make a new donation. She executed a personal act which did not require the concurrence of the donee. It is the duty of the donee, in order that the donation may produce legal effect, to accept to the donation and notify the donor thereof. The acceptance is necessary because nobody is obliged to receive a benefit against his will. And all this was complied with in the document of 1914. The wills of the donor and of the donee having concurred, the donation, as a mode of transferring ownership, becomes perfect, according to article 623 of the Civil Code. We will not pass to the second proposition of the appellant, that is, that the 610 shares, which are the subject matter of the suit, cannot be considered as included in the donation made by Da. Petrona Reyes in favor of the plaintiff, supposing that said donation was valied. The reasons alleged by the appellant are: (1) That the steam vessel Governor Forbes was purchased after the death of D. Antonio Osorio, with money borrowed and furnished by the heirs individually and not by the estate, and (2) that the plaintiff appellee has recognized that the capital used in the steamer Forbes is distinct from the money used in the purchase of other vessels in which the deceased Osorio had an interest. The question whether the streamer Governor Forbes was or was not purchased with money furnished by Ynchausti and the heirs of Osorio, indepedently of that former partnership in which the deceased Osorio had an interest, is one of the fact and must be resolved in view of the evidence adduced at the trial. D. Julio Gonzales, secretary and accountant of the firm Ynchausti, witness for the defendant, states that the Forbes was purchased with money which the shipping business of Unchaisti & Co. had. The appellant herself admits that his vessel took part in the general shipping business of Ynchausti & Co. for no new partnership was constituted for the purchase thereof, and, after its acquisition the Ynchausti firm accounted to the estate of D. Antonio Osorio for the profits obtained and the dividends to be distributed and no separate account was made of the earnings of the vessel, but only a general account, including the profits obtained in the shipping business, in which the Governor Forbes was but one of several vessels. D. Joaquin Elizalde, manager of the firm Ynchausti & Co., by agreement of the parties and with the approval of the court, made a deposition before the notary public D. Florencio Gonzales Diez, stating that when the steamer Forbes was acquired in 1912, the Ynchausti firm did not bring in any new capital, but obtained money for its purchase by mortgaging the vessel itself and other vesseles of the company; and that the heirs of D. Antonio Osorio did not bring in any new capital for the purchase of the vessel, but signed jointly with Ynchausti & Co. with the others, except Da. Soledad Osorio, the guaranty which the bank required. In our opinion the evidence shows conclusively that the vessel Governor Forbes forms part of the shipping business of Ynchausti & Co. in which D. Antonio Osorio and his estate had an interest. It is no argument against this conclusion that the heirs of Osorio signed with Ynchausti & Co. the guaranty required by the bank where the money used in the purchase of the Forbes was taken: (1) Because the guaranty is for the purpose only for securing the payment of the amount indebted and not for excluding the estate of Osorio from the result of that banking operation; (2) because, besides said guaranty, the other vessels of the joint account association of Osorio and Ynchausti & Co. were mortgage; (3) because no new partnership was formed between Ynchausti & Co. and the heirs of Osorio for the purchase of the vessel Forbes; and (4) because, when Unchausti & Co. agreed with the heirs of Osorio in that his share in the steamer Forbes was P108,333.33, this sum was distributed among said heirs, including Da. Soledad Osorio who did not sign the guaranty, the accruing to each P11, 833.33 and to the widow Da. Petrona Reyes P61,000, which is the object of this suit. All of the above shows that the estate of Osorio had a one-third part of the steamer Forbes represented by the capital which was distributed among the heirs, there accruing to the widow, by agreement of the interested parties, the sum of P61,000. And this sum being part of the one-half of one-third of the shipping business of Ynchausti & Co., which one-half part accrued to the widow in the distribution of the properties of Osorio; and the widow Da. Petrona Reyes having disposed of this half, donating it to her son D. Leonardo Osorio, it clearly results, in our opinion, that the sum of 61,000, or the corresponding shares of the new corporation “The Ynchausti Steamship Co.” are included in said donation, and therefore belong to the plaintiff-appellee. The other reason alleged by the appellant in support of her contention is that the plaintiff has recognized in his letter addressed to the defendant corporation, and inserted in the answer presented by the latter that the Forbes was acquired with money different from that of the joint account association theretofore mentioned. We have carefully read the letter in question and what appears is that said plaintiff agreed that the P61,000 should be deposited with Ynchausti & Co., as trustee, to be distributed with its accumulated dividends, when the question between the heirs of Da. Petrona Reyes had already been terminated, that is to say, according to the result of the present suit. There is nothing in said letter which indicates how the Governor Forbes was acquired. With respect to the counterclaim of P45,609,91, we are of the opinion that the evidence justifies the conclusion of the trial court that they are the profits or dividends accruing to the P94,000, which were adjudicated to the widow Da. Petrona Reyes in the distribution of the estate of the deceased Osorio and which were donated by her to the plaintiff, and as such profits they belong to the latter, upon the principle of law that ownership of property gives right by accession to all that it produces, or is united or incorporated thereto, naturally or artificially. (Art. 353 of the Civil Code.) In view of what has been said, the judgment appealed from should be, as it is hereby, affirmed, with costs against the appellant. So ordered.
Mapa, C.J., Araullo, Street and Malcolm, JJ., concur.
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