G.R. No.

L-19495

November 24, 1966

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. LILIA USA GON!ALES "#$ T%E COURT OF TA& A''EALS, respondents. Office of the Ramon A. Gonzales for respondent Lilia Yusay Gonzales. (ENG!ON, ).'., J.: Matias Yusay, a resident of Pototan, Iloilo, died intestate on May 13, 1948, leaving two heirs, namely, ose !. Yusay, a legitimate "hild, and #ilia Yusay $on%ales, an a"&nowledged natural "hild. Intestate pro"eedings for the settlement of his estate were instituted in the 'ourt of (irst Instan"e of Iloilo )!pe"ial Pro"eedings *o. 4+9,. ose !. Yusay was therein appointed administrator. -n May 11, 1949 ose !. Yusay filed with the .ureau of Internal /evenue an estate and inheritan"e ta0 return de"laring therein the following properties1 Personal properties Palay 'ara2aos /eal 'apital, 54 par"els , 'on6ugal 19 par"els, 7otal gross estate 7he return mentioned no heir. 9pon investigation however the .ureau of Internal /evenue found the following properties1 Personal properties1 Palay 'ara2aos Pa"&ard 8 :paradors /eal 'apital, 8+ par"els assessed at P3,444.44 1,+44.44 8,444.44 +44.44 P85,51+.38 P181,48+.44 P849,144.38 P819,+84.38 properties1 assessed at P159,534.44 P185,844.44 P3,444.44 1,444.44 P5,444.44 Solicitor General for the petitioner.

:utomo2ile properties1

P14,444.44

1;8 of 'on6ugal, 134 par"els assessed at 7otal

7he fair mar&et value of the real properties was "omputed 2y in"reasing the assessed value 2y forty per"ent. .ased on the a2ove findings, the .ureau of Internal /evenue assessed on -"to2er 89, 19+3 estate and inheritan"e ta0es in the sums of P3,849.58 and P13,954.33, respe"tively. -n anuary 8+, 19++ the .ureau of Internal /evenue in"reased the assessment to P8,88+.89 as estate ta0 and P88,115.14 as inheritan"e ta0 plus delin<uen"y interest and demanded payment thereof on or 2efore (e2ruary 88, 19++. Meanwhile, on (e2ruary 13, 19++, the 'ourt of (irst Instan"e of Iloilo re<uired ose !. Yusay to show proof of payment of said estate and inheritan"e ta0es. -n Mar"h 3, 19++ ose !. Yusay re<uested an e0tension of time within whi"h to pay the ta0. =e posted a surety 2ond to guarantee payment of the ta0es in <uestion within one year. 7he 'ommissioner of Internal /evenue however denied the re<uest. 7hen he issued a warrant of distraint and levy whi"h he transmitted to the Muni"ipal 7reasurer of Pototan for e0e"ution. 7his warrant was not enfor"ed 2e"ause all the personal properties su26e"t to distraint were lo"ated in Iloilo 'ity. -n May 84, 19++ the Provin"ial 7reasurer of Iloilo re<uested the .I/ Provin"ial /evenue -ffi"er to furnish him "opies of the assessment noti"es to support a motion for payment of ta0es whi"h the Provin"ial (is"al would file in !pe"ial Pro"eedings *o. 4+9 2efore the 'ourt of (irst Instan"e of Iloilo. 7he papers re<uested were sent 2y the 'ommissioner of Internal /evenue to the Provin"ial /evenue -ffi"er of Iloilo to 2e transmitted to the Provin"ial 7reasurer. 7he re"ords do not however show whether the Provin"ial (is"al filed a "laim with the 'ourt of (irst Instan"e for the ta0es due. -n May 34, 19+3 the "ommissioner appointed 2y the 'ourt of (irst Instan"e for the purpose, su2mitted a reamended pro6e"t of partition whi"h listed the following properties1 Personal properties1 .ui"& Pa"&ard :paradors 'ash in Palay 'ara2aos /eal properties1 #and, 154 par"els assessed at .uildings P384,595.81 4,+44.44 P389,895.81 !edan "ar .an& )P*., P8,144.44 8,444.44 +44.44 8,8+8.43 3,444.44 1,+44.44

P85,448.43

7otal

P3+3,399.35

More than a year later, parti"ularly on uly 18, 19+5, an agent of the .ureau of Internal /evenue apprised the 'ommissioner of Internal /evenue of the e0isten"e of said reamended pro6e"t of partition. >hereupon, the Internal /evenue 'ommissioner "aused the estate of Matias Yusay to 2e reinvestigated for estate and inheritan"e ta0 lia2ility. :""ordingly, on (e2ruary 13, 19+8 he issued the following assessment1 ?state ta0 +@ sur"harge Aelin<uen"y interest 'ompromise *o noti"e #ate payment 7otal Inheritan"e 7a0 +@ sur"harge Aelin<uen"y interest 'ompromise for late payment 7otal 7otal estate and inheritan"e ta0es of death P1+.44 44.44 P13,843.44 411.89 11,838.94

++.44 P88,+81.83 P38,158.18 1,14+.83 88,848.5+ +4.44 P39,148.53 P95,583.93

#i&e in previous assessments, the fair mar&et value of the real properties was arrived at 2y adding 44@ to the assessed value. In view of the demise of ose !. Yusay, said assessment was sent to his widow, Mrs. (loren"ia Pi""io Bda. de Yusay, who su""eeded him in the administration of the estate of Matias Yusay. *o payment having 2een made despite repeated demands, the 'ommissioner of Internal /evenue filed a proof of "laim for the estate and inheritan"e ta0es due and a motion for its allowan"e with the settlement "ourt in voting priority of lien pursuant to !e"tion 31+ of the 7a0 'ode. -n une 1, 19+9, #ilia Yusay, through her "ounsel, /amon $on%ales, filed an answer to the proof of "laim alleging nonCre"eipt of the assessment of (e2ruary 13, 19+8, the e0isten"e of two administrators, namely (loren"ia Pi""io Bda. de Yusay who administered twoCthirds of the estate, and #ilia Yusay, who administered the remaining oneCthird, and her willingness to pay the ta0es "orresponding to her share, and praying for deferment of the resolution on the motion for the payment of ta0es until after a new assessment "orresponding to her share was issued. -n *ovem2er 15, 19+9 #ilia Yusay disputed the legality of the assessment dated (e2ruary 13, 19+8. !he "laimed that the right to ma&e the same had pres"ri2ed inasmu"h as more than five years had elapsed sin"e the filing of the estate and inheritan"e ta0 return on May 11, 1949. !he therefore re<uested that the assessment 2e de"lared invalid and without for"e and effe"t. 7his re<uest was re6e"ted 2y the 'ommissioner in his letter dates anuary 84, 1934, re"eived 2y #ilia Yusay on Mar"h 14, 1934, for the reasons, namely, )1, that the right to assess the ta0es in <uestion has not 2een lost 2y pres"ription sin"e the return whi"h did not name the heirs "annot 2e "onsidered a true and "omplete return suffi"ient to start the running of the period of limitations of five years under !e"tion 331 of the 7a0 'ode and pursuant to !e"tion 338 of the same 'ode he has ten years within whi"h to ma&e the assessment "ounted from the dis"overy on !eptem2er 84, 19+3 of the identity of the heirsD and )8, that the estateEs administrator waived the defense of pres"ription when he filed a surety 2ond on Mar"h 3, 19++ to guarantee payment of the ta0es in <uestion and when he re<uested postponement of the payment of the ta0es pending determination of who the heirs are 2y the settlement "ourt. -n :pril 13, 1934 #ilia Yusay filed a petition for review in the 'ourt of 7a0 :ppeals assailing the legality of the assessment dated (e2ruary 13, 19+8. :fter hearing the parties, said 'ourt de"lared the right of the 'ommissioner of Internal /evenue to assess the estate and inheritan"e ta0es in <uestion to have pres"ri2ed and rendered the following 6udgment1 >=?/?(-/?, the de"ision of respondent assessing against the estate of the late Matias Yusay estate and inheritan"e ta0es is here2y reversed. *o "osts. 7he 'ommissioner of Internal /evenue appealed to this 'ourt and raises the following issues1 1. >as the petition for review in the 'ourt of 7a0 :ppeals within the 34Cday period provided for in !e"tion 11 of /epu2li" :"t 118+F 8. 'ould the 'ourt of 7a0 :ppeals ta&e "ogni%an"e of #ilia YusayEs appeal despite the penden"y of the GProof of 'laimG and GMotion for :llowan"e of 'laim and for an -rder of Payment of 7a0esG filed 2y the 'ommissioner of Internal /evenue in !pe"ial Pro"eedings *o. 4+9 2efore the 'ourt of (irst Instan"e of IloiloF 3. =as the right of the 'ommissioner of Internal /evenue to assess the estate and inheritan"e ta0es in <uestion pres"ri2edF -n *ovem2er 15, 19+9 #ilia Yusay disputed the legality of the assessment of (e2ruary 13, 19+8. -n Mar"h 14, 1934 she re"eived the de"ision of the 'ommissioner of Internal /evenue on the disputed assessment. -n :pril 13, 1934 she filed her petition for review in the 'ourt of 7a0 :ppeals. !aid 'ourt "orre"tly held that the appeal was seasona2ly interposed pursuant to !e"tion 11 of /epu2li" :"t 118+. >e already ruled in St. Stephen's Association v. Collector of Internal Revenue ,1 that the "ounting of the thirty days within whi"h to institute an appeal in the 'ourt of 7a0 :ppeals should "ommen"e from the date of re"eipt of the de"ision of the 'ommissioner on the disputed assessment, not from the date the assessment was issued. :""ordingly, the thirtyCday period should 2egin running from Mar"h 14, 1934, the date #ilia Yusay re"eived the appeala2le de"ision. (rom said date to :pril 13, 1934, when she filed her appeal in the 'ourt of 7a0 :ppeals, is e0a"tly thirty days. =en"e, the appeal was timely. *e0t, the 'ommissioner atta"&s the 6urisdi"tion of the 'ourt of 7a0 :ppeals to ta&e "ogni%an"e of #ilia YusayEs appeal on the ground of lis pendens. =e maintains that the penden"y of his motion for allowan"e of "laim and for order of payment of ta0es in the 'ourt of (irst Instan"e of Iloilo would pre"lude the 'ourt of 7a0 :ppeals from a"<uiring 6urisdi"tion over #ilia YusayEs appeal. 7his "ontention la"&s merit. #ilia YusayEs "ause see&s to resist the legality of the assessment in <uestion. !hould she maintain it in the settlement "ourt or should she elevate her "ause to the 'ourt of 7a0 :ppealsF >e say, she a"ted "orre"tly 2y appealing to the latter "ourt. :n a"tion involving a disputed assessment for internal revenue ta0es falls within the e0"lusive 6urisdi"tion of the 'ourt of 7a0 :ppeals.8 It is in that forum, to the e0"lusion of the 'ourt of (irst Instan"e, 3 where she "ould ventilate her defenses against the assessment.

Moreover, the settlement "ourt, where the 'ommissioner would wish #ilia Yusay to "ontest the assessment, is of limited 6urisdi"tion. :nd under the /ules, 4 its authority relates only to matters having to do with the settlement of estates and pro2ate of wills of de"eased persons. + !aid "ourt has no 6urisdi"tion to ad6udi"ate the "ontentions in <uestion, whi"h H assuming they do not "ome e0"lusively under the 7a0 'ourtEs "ogni%an"e H must 2e su2mitted to the 'ourt of (irst Instan"e in the e0er"ise of its general 6urisdi"tion. 3 >e now "ome to the issue of pres"ription. #ilia Yusay "laims that sin"e the latest assessment was issued only on (e2ruary 13, 19+8 or eight years, nine months and two days from the filing of the estate and inheritan"e ta0 return, the 'ommissionerEs right to ma&e it has e0pired. !he would rest her stand on !e"tion 331 of the 7a0 'ode whi"h limits the right of the 'ommissioner to assess the ta0 within five years from the filing of the return. 7he 'ommissioner "laims that fraud attended the filing of the returnD that this 2eing so, !e"tion 338)a, of the 7a0 'ode would apply. 5 It may 2e well to note that the assessment letter itself )?0hi2it 88, did not impute fraud in the return with intent to evade payment of ta0. Pre"isely, no sur"harge for fraud was imposed. In his answer to the petition for review filed 2y #ilia Yusay in the 'ourt of 7a0 :ppeals, the 'ommissioner alleged no fraud. Instead, he 2roa"hed the insuffi"ien"y of the return as 2arring the "ommen"ement of the running of the statute of limitations. =e raised the point of fraud for the first time in the pro"eedings, only in his memorandum filed with the 7a0 'ourt su2se<uent to resting his "ase. !aid 'ourt re6e"ted the plea of fraud for la"& of allegation and proof, and ruled that the return, although not a""urate, was suffi"ient to start the period of pres"ription. (raud is a <uestion of fa"t.8 7he "ir"umstan"es "onstituting it must 2e alleged and proved in the "ourt 2elow. 9:nd the finding of said "ourt as to its e0isten"e and nonCe0isten"e is final unless "learly shown to 2e erroneous. 14:s the "ourt a uo found that no fraud was alleged and proved therein, >e see no reason to entertain the 'ommissionerEs assertion that the return was fraudulent. 7he "on"lusion, however, that the return filed 2y ose !. Yusay was suffi"ient to "ommen"e the running of the pres"riptive period under !e"tion 331 of the 7a0 'ode rests on no solid ground. Paragraph )a, of !e"tion 93 of the 7a0 'ode lists the re<uirements of a valid return. It states1 )a, Re uirements .HIn all "ases of inheritan"e or transfers su26e"t to either the estate ta0 or the inheritan"e ta0, or 2oth, or where, though e0empt from 2oth ta0es, the gross value of the estate e0"eeds three thousand pesos, the e0e"utor, administrator, or anyone of the heirs, as the "ase may 2e, shall file a return under oath in dupli"ate, setting forth )1, the value of the gross estate of the de"edent at the time of his death, or, in "ase of a nonresident not a "iti%en of the Philippines D )8, the dedu"tions allowed from gross estate in determining net estate as defined in se"tion eightyCnineD )3, su"h part of su"h information as may at the time 2e as"ertaina2le and su"h supplemental data as may 2e ne"essary to esta2lish the "orre"t ta0es. : return need not 2e "omplete in all parti"ulars. It is suffi"ient if it "omplies su2stantially with the law. 7here is su2stantial "omplian"e )1, when the return is made in good faith and is not false or fraudulentD )8, when it "overs the entire period involvedD and )3, when it "ontains information as to the various items of in"ome, dedu"tion and "redit with su"h definiteness as to permit the "omputation and assessment of the ta0.11 7here is no <uestion that the state and inheritan"e ta0 return filed 2y ose !. Yusay was su2stantially defe"tive. (irst, it was in"omplete. It de"lared only ninetyCthree par"els of land representing a2out 444 he"tares and left out ninetyCtwo par"els "overing +43 he"tares. !aid huge under de"laration "ould not have 2een the result of an overCsight or mista&e. :s found in #C11358, supra note 5, ose !. Yusay very well &new of the e0isten"e of the ommited properties. Perhaps his motive in under de"laring the inventory of properties atta"hed to the return was to deprive #ilia Yusay from inheriting her legal share in the hereditary estate, 2ut "ertainly not 2e"ause he honestly 2elieved that they did not form part of the gross estate. !e"ond, the return mentioned no heir. 7hus, no inheritan"e ta0 "ould 2e assessed. :s a matter of law, on the 2asis of the return, there would 2e no o""asion for the imposition of estate and inheritan"e ta0es. >hen there is no heir C the return showed none C the intestate estate is es"heated to the !tate. 18 7he !tate ta0es not itself. In a "ase where the return was made on the wrong form, the !upreme 'ourt of the 9nited !tates held that the filing thereof did not start the running of the period of limitations. 13 7he reason is that the return su2mitted did not "ontain the ne"essary information re<uired in the "orre"t form. In this 6urisdi"tion, however, the !upreme 'ourt refrained from applying the said ruling of the 9nited !tates !upreme 'ourt in Collector of Internal Revenue v. Central Azucarera de !arlac , #C11534C31, uly 31, 19+8, on the ground that the return was "omplete in itself although ina""urate. 7o our mind, it would not ma&e mu"h differen"e where a return is made on the "orre"t form pres"ri2ed 2y the .ureau of Internal /evenue if the data therein re<uired are not supplied 2y the ta0payer. ust the same, the ne"essary information for the assessment of the ta0 would 2e missing. 7he return filed in this "ase was so defi"ient that it prevented the 'ommissioner from "omputing the ta0es due on the estate. It was as though no return was made. 7he 'ommissioner had to determine and assess the ta0es on data o2tained, not from the return, 2ut from other sour"es. >e therefore hold the view that the return in <uestion was no return at all as re<uired in !e"tion 93 of the 7a0 'ode. 7he law imposes upon the ta0payer the 2urden of supplying 2y the return the information upon whi"h an assessment would 2e 2ased. 14 =is duty "omplied with, the ta0payer is not 2ound to do anything more than to wait for the 'ommissioner to assess the ta0. =owever, he is not re<uired to wait forever. !e"tion 331 of the 7a0 'ode gives the 'ommissioner five years within whi"h to ma&e his assessment. 1+ ?0"ept, of "ourse, if the ta0payer failed to o2serve the law, in whi"h "ase !e"tion 338 of the same 'ode grants the 'ommissioner a longer period. *onCo2servan"e "onsists in filing a false or fraudulent return with intent to evade the ta0 or in filing no return at all. :""ordingly, for purposes of determining whether or not the 'ommissionerEs assessment of (e2ruary 13, 19+8 is 2arred 2y pres"ription, !e"tion 338)a, whi"h is an e0"eption to !e"tion 331 of the 7a0 'ode finds appli"ation.13>e <uote !e"tion 338)a,1 !?'. 338. "#ceptions as to period of limitation of assessment and collection of ta#es .H )a, In the "ase of a false or fraudulent return with intent to evade ta0 or of a failure to file a return, the ta0 may 2e assessed, or a pro"eeding in "ourt for the "olle"tion of su"h ta0 may 2e 2egun without assessment, at any time within ten years after the dis"overy of the falsity, fraud or omission. :s stated, the 'ommissioner "ame to &now of the identity of the heirs on !eptem2er 84, 19+3 and the huge underde"laration in the gross estate on uly 18, 19+5. (rom the latter date, !e"tion 94 of the 7a0 'ode o2ligated him to ma&e a return or amend one already filed 2ased on his own &nowledge and information o2tained through testimony or otherwise, and su2se<uently to assess thereon the ta0es due. 7he running of the period of limitations under !e"tion 338)a, of the 7a0 'ode should therefore 2e re"&oned from said date for, as aforesaid, it is from that time that the 'ommissioner was e0pe"ted 2y law to ma&e his return and assess the ta0 due thereon. (rom uly 18, 19+5 to (e2ruary 13, 19+8, the date of the assessment now in dispute, less than ten years have elapsed. =en"e, pres"ription did not a2ate the 'ommissionerEs right to issue said assessment. :nent the 'ommissionerEs "ontention that #ilia Yusay is estopped from raising the defense of pres"ription 2e"ause she failed to raise the same in her answer to the motion for allowan"e of "laim and for the payment of ta0es filed in the settlement "ourt )'ourt of (irst Instan"e of Iloilo,, suffi"e it to state that it would 2e un6ust to the ta0payer if >e were to sustain su"h a view. 7he 'ourt of (irst Instan"e a"ting as a settlement "ourt is not the proper tri2unal to pass upon su"h defense, therefore it would 2e 2ut futile to raise it therein. Moreover, the 7a0 'ode does not 2ar the right to "ontest the legality of the ta0 after a ta0payer pays it. 9nder !e"tion 343 thereof, he "an pay the ta0 and "laim a refund therefor. : fortiori his willingness to pay the ta0 is no waiver to raise defenses against the ta0Es legality. >=?/?(-/?, the 6udgment appealed from is set aside and another entered affirming the assessment of the 'ommissioner of Internal /evenue dated (e2ruary 13, 19+8. #ilia Yusay $on%ales, as administratri0 of the intestate estate of Matias Yusay, is here2y ordered to pay the sums of P13,843.44 and P39,158.18 as estate and inheritan"e ta0es, respe"tively, plus interest and sur"harge for delin<uen"y in a""ordan"e with !e"tion 141 of the *ational Internal /evenue 'ode, without pre6udi"e to reim2ursement from her "oCadministratri0, (loren"ia Pi""io Bda. de Yusay for the latterEs "orresponding ta0 lia2ility. *o "osts. !o ordered. Concepcion$ C.%.$ +aldivar$ %.$ too& no part. Reyes$ %.&.L.$ &arrera$ 'izon$ Re(ala$ )a*alintal$ Sanchez and Castro$ %%.$ "on"ur.