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1. Lorenzo vs.



On 27 May 1922, Thomas Hanley died in Zamboanga, leaving a will and considerable amount
of real and personal properties. Hanleys will provides the following: his money will be given to
his nephew, Matthew Hanley, as well as the real estate owned by him. It further provided that
the property will only be given ten years after Thomas Hanleys death. Thus, in the
testamentary proceedings, the Court of First Instance of Zamboanga appointed P.J.M. Moore as
trustee of the estate. Moore took oath of office on March 10, 1924, and resigned on Feb. 29,
1932. Pablo Lorenzo was appointed in his stead. Juan Posadas, Collector of Internal Revenue,
assessed inheritance tax against the estate amounting to P2,057.74 which includes penalty
and surcharge. He filed a motion in the testamentary proceedings so that Lorenzo will be
ordered to pay the amount due. Lorenzo paid the amount in protest after CFI granted Posadas
motion. He claimed that the inheritance tax should have been assessed after 10 years. He
asked for a refund but Posadas declined to do so. The latter counterclaimed for the additional
amount of P1,191.27 which represents interest due on the tax and which was not included in
the original assessment. However, CFI dismissed this counterclaim. It also denied Lorenzos
claim for refund against Posadas. Hence, both appealed.

Issue: Whether the estate was delinquent in paying the inheritance tax and therefore liable for
the P1,191.27 that Posadas is asking for?

Held: Yes. It was delinquent because according to Sec. 1544 (b) of the Revised Administrative
Code, payment of the inheritance tax shall be made before delivering to each beneficiary his
share. This payment should have been made before March 10, 1924, the date when P.J.M.
Moore formally assumed the function of trustee.

Although the property was only to be given after 10 years from the death of Hanley, the court
considered that delivery to the trustee is delivery to cestui que trust, the beneficiary within
the meaning of Sec. 1544 (b).

Even though there was no express mention of the word trust in the will, the court of first
instance was correct in appointing a trustee because no particular or technical words are
required to create a testamentary trust (69 C.J.,p. 711). The requisites of a valid testamentary
trust are: 1) sufficient words to raise a trust, 2) a definite subject, 3) a certain or ascertained
object. There is no doubt that Hanley intended to create a trust since he ordered in his will
that certain of his properties be kept together undisposed during a fixed period or for a stated

2. Dison v Posadas

Facts: Don Felix Dison, before his death, made a gift inter vivos in favor of plaintiff Luis Dison.
Luis was the legitimate and only child of Felix. The Collector of Internal Revenue, Juan Posadas
Jr. taxed him. Luis filed for the recovery of an inheritance tax in the sum of P2,808.73 paid
under protest. He alleged in his complaint that the tax is illegal because he received the
property 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. He contends that he received and held the
property by a consummated gift and that Act No. 2601 being the inheritance tax statute, does
not tax gifts.

Issue: Whether or not Dison should pay inheritance tax.

Held: Yes. Dison should pay tax. Section 1540 of the Administrative Code is applicable. It
states that:

Addition of Gifts and Advances- After the aforementioned deductions have been made, there
shall be added to the resulting amount the value of all gifts/advances made by the
predecessor to any of those, who, after his death, shall prove to be his heirs, devisees,
legatees or donees mortis causa.

That Dison occupies the status of heir to his deceased father cannot be questioned. The
conveyance is deemed to be 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 tax has been properly assessed by the CIR.

As regards Act 2601, it is not applicable since the Act does not make any reference to a tax on

3. Vidal de Roces v. Posadas

G.R. No. 34937 March 13, 1933


1. Sometime in 1925, plaintiffs Concepcion Vidal de Roces and her husband, as well as one
Elvira Richards, received as donation several parcels of land from Esperanza Tuazon. They
took possession of the lands thereafter and likewise obtained the respective transfer

2.The donor died a year after without leaving any forced heir. In her will, which was admitted
to probate, she bequeathed to each of the donees the sum of P5,000. After the distribution of
the estate but before the delivery of their shares, the CIR (appellee) ruled that plaintiffs as
donees and legatees should pay inheritance taxes. The plaintiffs paid the taxes under protest.

3. CIR filed a demurrer on ground that the facts alleged were not sufficient to constitute a
cause of action. The court sustained the demurrer and ordered the amendment of the
complaint but the appellants failed to do so. Hence, the trial court dismissed the action on
ground that plaintiffs, herein appellants, did not really have a right of action.

4. Plaintiffs (appellant) contend that Sec. 1540 of the Administrative Code does not include
donation inter vivos and if it does, it is unconstitutional, null and void for violating SEC. 3 of
the Jones Law (providing that no law shall embrace more than one subject and that the
subject should be expressed in its titles ; that the Legislature has no authority to tax donation
inter vivos; finally, that said provision violates the rule on uniformity of taxation.

5. CIR however contends that the word 'all gifts' refer clearly to donation inter vivos and cited
the doctrine in Tuason v. Posadas.

Issue: Whether or not the donations should be subjected to inheritance tax

Ruling: YES. Sec. 1540 of the Administrative Code clearly refers to those donation inter vivos
that take effect immediately or during the lifetime of the donor, but made in consideration of
the death of the decedent. Those donations not made in contemplation of the decedent's
death are not included as it would be equivalent to imposing a direct tax on property and not
on its transmission.
The phrase 'all gifts' as held in Tuason v. Posadas refers to gifts inter vivos as they are
considered as advances in anticipation of inheritance since they are made in consideration of

4. Collector of Internal Revenue vs. Fisher GR. No. L-11622 January 28,

Reciprocity must be total. If any of the two states collects or imposes or does not exempt
any transfer, death, legacy or succession tax of any character, the reciprocity does not work.


Walter G. Stevenson was born in the Philippines of British parents, married inManila to another
British subject, Beatrice. He died in California where he and his wife moved to. In his will, he
instituted Beatrice as his sole heiress to certain real and personal properties, among which
are %1&,&&& shares of stoc's in MindanaoMother (ode Mines )Mines*. #an Murra+ Statt )
Statt*, the appointed ancillar+ administrator of his estateled an estate and inheritance ta-
return. He made a preliminar+ return tosecure the waiver of the "# on the inheritance of
the Mines shares of stoc'. #n 1!%, Beatrice assi$ned all her ri$hts and interests in the
estate to thespouses /isher. Statt led an amended estate and inheritance ta- return
claimin$0#2#304( 565MP2#34S, one of which is the estate and inheritance ta- onthe
Mines7 shares of stoc' pursuant to a reciprocit+ proviso in the 4# ",hence, warrantin$ a
refund from what he initiall+ paid. 2he collector deniedthe claim. He then led in the "/# of
Manila for the said amount."/# ruled that )a* the 8 share of Beatrice should be deducted from
the netestate of Walter, )b* the intan$ible personal propert+ belon$in$ to the estateof Walter
is e-empt from inheritance ta- pursuant to the reciprocit+ provisoin 4# ".


Whether or not the estate can avail itself of the reciprocit+ proviso in the4# " $rantin$ e-
emption from the pa+ment of ta-es for the Mines shares of stoc'.


eciprocit+ must be total. #f an+ of the two states collects or imposes or doesnot e-empt
an+ transfer, death, le$ac+ or succession ta- of an+ character,the reciprocit+ does not wor'.

In the Philippines, upon the death of any citizen or resident, or non-resident with properties,
there are imposed upon his estate, bothan estate and an inheritance tax.

*ut, un+er the las of California, only inheritance ta is i /ose+.

0lso, althou$h the /ederal #nternal evenue "ode imposes an estate ta-, itdoes not $rant e-
emption on the basis of reciprocit+. 2hus, a /ilipino citi9enshall alwa+s be at a disadvanta$e.
2his is not what the le$islators intended.SP5"#/#"0((:;Section1%% of the 4# " provides that
<4o ta- shall be collected under this 2itle in respect of intan$ible personal propert+ )a* if the
decedent at the time of his death was a resident of a forei$ncountr+ which at the time of his

did not impose a transfer of tax or death tax of any character in respect of intangible personal
property of citizens of the Philippines not residing in that foreigncountry, or

)b* if the laws of the forei$n countr+ of which the decedent was a resident at the time of his
death allow a similar e-emption from transfer ta-es or deathta-es of ever+ character in
respect of intan$ible personal propert+ owned b+citi9ens of the Philippines not residin$ in
that forei$n countr+.= 3n the other hand, Section 1>?!1 of the "alifornia #nheritance 2a-
(awprovides that intan$ible personal propert+ is e-empt from ta- if the decedentat the time of
his death was a resident of a territor+ or another State of the@nited States or of a forei$n
state or countr+ which then imposed a le$ac+,succession, or death ta- in respect to
intan$ible personal propert+ of its ownresidents, but either;. id not impose a le$ac+,
succession, or death ta- of an+ character in respectto intan$ible personal propert+ of
residents of this State, orHad in its laws a reciprocal provision under which intan$ible
personalpropert+ of a nonAresident was e-empt from le$ac+, succession, or deathta-es of
ever+ character if the 2erritor+ or other State of the @nited States orforei$n state or countr+
in which the nonresident resided allowed a similare-emption in respect to intan$ible personal
propert+ of residents of the 2erritor+ or State of the @nited States or forei$n state or countr+
of residence of the decedent.

5. Wells Fargo Banks & Union Trust Company vs Collector of Internal Revenue


In September 1932, Birdie Lillian Eye died in Los Angeles, California, USA which was also her
place of domicile. She left various properties. Among those properties include some
intangibles consisting of 70,000 shares in the Benguet Consolidated Mining Company, a
corporation organized and existing under Philippine laws.

The Collector of Internal Revenue sought to assess and collect estate tax on the said shares.
Wells Fargo Banks & Union Trust Company, the trustee of the estate of the decedent Eye,
objected to said assessment. Wells Fargo averred that said shares were already subjected to
inheritance tax in California and hence cannot be taxed again in the Philippines (note at that
time the Philippines was still under the Commonwealth and were not yet totally independent
from the US).

ISSUE: Whether or not the shares are subject to estate tax in the Philippines.

HELD: Yes. The Supreme Court ruled that even though the Philippines was considered a US
territory at that time, it is still a separate jurisdiction from the US in several aspects
particularly taxation. Hence, the Philippines has the power to tax said shares. The situs of
taxation is here in the Philippines because the situs of the shares of stock concerned is here in
the Philippines because of the fact that the said shares were issued here by a corporation
organized and existing under the laws of the Philippines which is also domiciled here. Further,
(and this is the deeper reason), when Eye was alive, she actually delivered the title to said
shares to the resident secretary of the corporation here in the Philippines hence the shares
never left the Philippines.

Note: As a rule, intangibles follow the person (mobilia sequuntur personam). Hence,
intangibles are taxable in the place where their owner may be domiciled. However, Section
104 of the NIRC provides that if the shares have attained business situs here in the
Philippines, then said shares are taxable here even if the owner of said shares are domiciled
7. CIR vs. Domingo de Lara, ancillary administrator of the estate Hugo Miller
Deceased and CTA respo


Hugo Miller, an America citizen, was born in Sta Cruz, California, USA in 1883. In 1905, he
came to the Phil. From 1906 to 1917, he was connected with the public school system, first as
a teacher and later as a division superintendent in schools, later retiring under Osmena
Retirement Act. After his retirement, Miller accepted an executive position on the local branch
of Ginn & Co., book publisher with principal offices in N.Y. & Boston,USA. From 1922 up to
December of 1941, he was stationed in the Phil. As well as China and Japan s Oriental
representative, he lived in Manila Hotel and used to visit his wife in California. He never lived
in any residential house in the Phil. After the death of his wife in 1931, he transferred from
Manila Hotel to the Army Navy Club where he was staying during the outbreak of Pacific war
and Ginn & Co. was closed.

January 17, 1941, he executed his last will and testament in Sta Cruz, California and declared
he was of Sta. Cruz, California. He then joined the Board of Censors of the US Navy. During
the war he was taken as prisoner by the Japanese forces in Leyte. In January 1944, he was
transferred in Catbalogan, Samar where he was executed by the said forces on March 11,
1944 at the time of his death in 1944.

Testate proceedings were instituted in court of California and admitted to probate on May 10,
1946, and said court order and decree of settlement of final account and distribution and
found that he is a resident of California, at the time of his death. Thereafter, ancillary
proceedings were filed by the executors of the will before the FI in Manila. On July 1949, The
Bank of America, Trust and Savings Asso. of, California, co -executor named in Millers will,
filed an estate and inheritance tax return with the collector, covering only the stock issued by
the Phil corps . reporting a liability of P269.43 for estate taxes and P230.27 for inheritance
taxes and it was protested. The collector assessment for the liability for estate and
inheritance taxes, including penalties and other increments at P77,300.92 as of January 16,


1. whether the decedent (Miller) was a resident or nonresident of the Phil at the time of his

2. Whether the decedent was exempted from estate and inheritance taxes.

Ruling CTA:

1. At the time that the national internal revenue code was promulgated in 1939, the prevailing
construction given

by the courts to the term residence was synonymous with domicile, and the two were used

(Velilla vs. Posadas).

The incidence of estate and succession taxes has historically been determined by the
domicile and situs and not

by the fact of actual residence. (Bowring vs. Bowers). At the time of his death, Miller had his
residence or
domicile in Sta Cruz, California. During his long stay in this country, Miller never acquired a
house for residential purposes for he stayed at manila Hotel and later on Army and Navy Club.
It is clear that as a non-resident of the Phil, the only properties of his estate and inheritance
taxes are those shares of stock issued by Phil corp, valued 51,906.45. General rule that
personal property, like shares of stock in the Phil., is taxable at the domicile of the owner
(Miller) under the doctrine of mobilia sucuuntur persona.

2. The decedent, being a non resident of the Phil. The only property subject to estate and
inheritance taxes are those shares of stock issued by Phil. Corps. Under the Tax Code section
122, the decedent is entitled to tax exemption granted to non0 residents under the provision
of multiple taxation, which otherwise subject the decedents intangible property to the
inheritance tax, on in his place of residence and domicile and the place where those
properties are found.

3. Republic Act No. 1253; When estate of decedent entitled to benefits of the act.- In as much
the decedent not only suffered deprivations of the war, but was killed by the Japanese military
forces, his estate is entitled to the benefits of RA 153, which passed for the benefit of
veterans, guerillas, or victims of Japanese atrocities. Consequently, the interest and other
increments imposed on the decedents estate should not be paid.


The interest and other increments provided in the appealed judgment should not be paid by
his estate. With the above modification, the appealed decision of the CTA is hereby affirmed.

8. DELPHER TRADES CORPORATION vs. IAC G.R. No. L-69259 January 26, 1988

Facts: Delfin Pacheco and sister Pelagia were the owners of a parcel of land in Polo (now
Valenzuela). On April 3, 1974, they leased to Construction Components International Inc. the
property and providing for a right of first refusal should it decide to buy the said property.
Construction Components International, Inc. assigned its rights and obligations under the
contract of lease in favor of Hydro Pipes Philippines, Inc. with the signed conformity and
consent of Delfin and Pelagia. In 1976, a deed of exchange was executed between lessors
Delfin and Pelagia Pacheco and defendant Delpher Trades Corporation whereby the Pachecos
conveyed to the latter the leased property together with another parcel of land also located in
Malinta Estate, Valenzuela for 2,500 shares of stock of defendant corporation with a total
value of P1.5M

FACTS: The CFI of Manila sentenced defendant Morales to pay Gallrdo the sum of Php 7,ooo.
The sheriff of Manila, in enforcing the writ of execution, garnished and levied on Php 7,ooo out
of Php 30,000 from Capital Insurance as a beneficiary under a personal accident policy issued
by said company to defendant

under a personal accident insurance policy issued by the said company to defendants
husband who

died by assassination. Defendant questioned the garnishment made arguing that the said
proceeds same from a life insurance policy, thus, exempt from execution.

ISSUE: Whether or not a personal accident insurance which insures injuries and/or death as
a result of assault or attempt thereat is a life insurance

HELD: Yes, the personal accident insurance policy is a life insurance policy. It is not disputed
that a life insurance policy is different from an accident insurance. However, when one of the
risks insured in the latter is the death of the insured by accident, then the authorities are
inclined to consider such insurance as a life insurance policy. Although intended primarily for
indemnity for risks arising from accident and , likewise, insures against loss due to accidental
causes or to the willful and criminal act, as long as the nature if the insurance is to enable the
head of the family to secure his widow and children from becoming a burden to the
community, it should merit a liberal consideration.

10. BPI vs. Posadas GR No. 34583, October 22, 1931


BPI, as administrator of the estate of deceased Adolphe Schuetze, appealed to CFI Manila
absolving defendant, Collector of Internal Revenue, from the complaint filed against him in
recovering the inheritance tax amounting to P1209 paid by the plaintiff, Rosario Gelano Vda
de Schuetze, under protest, and sum of P20,150 representing the proceeds of the insurance
policy of the deceased.

Rosario and Adolphe were married in January 1914. The wife was actually residing and living
in Germany when Adolphe died in December 1927. The latter while in Germany, executed a
will in March 1926, pursuant with its law wherein plaintiff was named his universal heir. The
deceased possessed not only real property situated in the Philippines but also personal
property consisting of shares of stocks in 19 domestic corporations. Included in the personal
property is a life insurance policy issued at Manila on January 1913 for the sum of $10,000 by
the Sun Life Assurance Company of Canada, Manila Branch. In the insurance policy, the
estate of the deceased was named the beneficiary without any qualification. Rosario is the
sole and only heir of the deceased. BPI, as administrator of the decedents estate and
attorney in fact of the plaintiff, having been demanded by Posadas to pay the inheritance tax,
paid under protest. Notwithstanding various demands made by plaintiff, Posadas refused to
refund such amount.

ISSUE: WON the plaintiff is entitled to the proceeds of the insurance.


SC ruled that(1)the proceeds of a life-insurance policy payable to the insured's estate, on

which the premiums were paid by the conjugal partnership, constitute community property,
and belong one-half to the husband and the other half to the wife, exclusively; (2)if the
premiums were paid partly with paraphernal and partly conjugal funds, the proceeds are
likewise in like proportion paraphernal in part and conjugal in part; and (3)the proceeds of a
life-insurance policy payable to the insured's estate as the beneficiary, if delivered to the
testamentary administrator of the former as part of the assets of said estate under probate
administration, are subject to the inheritance tax according to the law on the matter, if they
belong to the assured exclusively, and it is immaterial that the insured was domiciled in these
Islands or outside.

Hence, the defendant was ordered to return to the plaintiff one-half of the tax collected upon
the amount of P20,150, being the proceeds of the insurance policy on the life of the late
Adolphe Oscar Schuetze, after deducting the proportional part corresponding to the first

11. Marcos II v CA (1997)

GR No 120880, June 5, 1997


The Cir is being questioned by petitioner for assessing and collecting through the summary
remedy of levy on real property, estate and income tax delinquencies upon the estate and
properties of the late Ferdinand Marcos despite the pendency of the proceedings on the
probate of the will of the late president.


Are summary tax remedies affected by the probate proceedings?


No. 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 be therefore be argued that the tax bureau erred in proceeding with
the levying sale of the properties on the ground that it was required to seek court approval.

12. Balboa v Farrales

G.R. No. L-27059 February 14, 1928


Sometime in the year 1913, the plaintiff Buenaventura Balboa filled with the Bureau of Lands
an application for homestead, No. 10619, under the provisions of Act No. 926, covering a tract
of land in Culis, Hermosa, Bataan. On July 1, 1919, said Act No. 926 was repealed by Act No.

On August 11, 1924, said Buenaventura Balboa, for and in consideration of the sum of P950,
sold said land to the defendant Cecilio L. Farrales.

On March 6, 1926, the plaintiff commenced the present action for the purpose of having said
sale declared null and void on the ground of lack of consent on his part and fraud on the part
of the defendant, and on the further ground that said sale was contrary to, and in violation of
the provisions of section 116 of Act No. 2874.
trial judge rendered a judgment in favor of the plaintiff and against the defendant, ordering
the latter to return to the plaintiff the land


which of the two Acts 926 and 2874 shall be applied in determining whether the sale in
question is valid or not?


Act 926 applies and the sale is valid.

The moment the plaintiff had received a certificate from the Government and had done all
that was necessary under the law to secure his patent, his right had become vested before
the patent was issued. His right had already vested prior to the issuance of the patent, and
his rights to the land cannot be affected by a subsequent law or by a subsequent grant by the
Government to any other person.

It follows, therefore that the sale of the land in question by the plaintiff Buenventura Balboa to
the defendant Cecilio L. Farrales does not infringe said prohibition, and consequently said sale
is valid and binding, and should be given full force and effect.

13. Vera v Navarro

G.R. No. L-27745 October 18, 1977


Elsie M. Gaches died on March 9, 1966 without a child. The deceased, however, left a last will
and testament giving properties to several persons.

Judge Tan was appointed as executor of the testate estate of Elsie M. Gaches without a bond.

In a letter, dated June 3, 1966, Judge Tan informed the Commissioner that the testate estate
was worth about ten million (P10 million) pesos and that the estate and inheritance taxes due
thereon were about P9.5 million.

After several reassessments, the case ultimately came to the Supreme Court.


(1) Should the herein respondent heirs be required to pay first the inheritance tax before the
probate court may authorize the delivery of the hereditary share pertaining to each of them?

(2) Are the respondent heirs herein who are citizens and residents of the Philippines liable for
the payment of the Philippine inheritance tax corresponding to the hereditary share of
another heir who is a citizen and resident of the United States of America. said share of the
latter consisting of personal (cash deposits and, shares) properties located in the mentioned

(3) Does the assignment of a certificate of time deposit to the comissioner of Internal Revenue
for the purpose of paying t I hereby the estate tax constitute payment of such tax?

(4) Should the herein respondent heirs be held liable for the payment of surcharge and
interest on the amount (P700,000.00) representing the face value of time deposit certificates
assigned to the Commissioner which could not be converted into cash?

(1) No. the distribution of a decedent's assets may only be ordered under any of the following
three circumstances, namely, (1) when the inheritance tax, among others, is paid; (2) who
bond a suffered bond is given to meet the payment of the tax and all the other options of the
nature enumerated in the above-cited provision; etc. This was not complied with

(2) No. An analysis of our tax statutes supplies no sufficient indication that the inheritance
tax, as a rule, was meant to be the joint and solidary liability of the heirs of a decedent. the
payment of the inheritance tax should be taken as'the individual responsibility, to the extent
of the benefits received, of each heir.

3. No. a time deposit certificate is a mercantile document and is essentially a promissory note.
5 By the express terms of Article 1249 of the Civil Code of the Philippines, the use of this
medium to clear an obligation will "produce the effect of payment only when they have been
cashed, or when through the fault of the creditor they have been impaired." Consequently,
the value of the said certificates (P700,000.00) should still be considered outstanding.

4. Yes. The Interest charge for 1% per month imposed under Section 101 (a) (1) of the Tax
Code is essentially a commotion to the State for delay in the payment of the tax due thereto

The estate cannot likewise be exempted from the payment of the 5% surcharge imposed by
Section 101 (c) of the Tax Code

14. Ozaeta v Palanca

G.R. No. L-9776 July 31, 1957


On May 5, 1955, the special administrator filed a petition in court for authority to pay the
accounting firm of Sycip, Gorres, Velayo & Co. the sum of P3,650, for services rendered in
taking inventory of assets in 1950, tax consultations in 1950 to 1954, and preparation of
income tax returns for 1953 and 1954. The court below denied this motion, on the ground that
the services covered by the fees of the accounting firm were rendered to the former special
administrator Philippine Trust Company


whether the services rendered to the special administrator named in the will, previous to his
actual appointment as such and at his instance, are chargeable against the estate.


Yes. Whoever may have contracted the services of the accountants, whether it was Mr. Ozaeta
before his appointment or the Philippine Trust, such services were for the benefit of the estate
and have redounded to the estate's benefit.

The general rule is that acts done by an executor in the interest of his trust, prior to his
qualification as such, become binding on the estate upon his qualification

There is no question that the services rendered were for the benefit of the estate. The Rules
require that the administrator should submit an inventory of the properties of the estate
within three months from his appointment
15. Moran Sison vs. Teodoro

G.R. No. L-9271 March 29, 1957


1. The CFI of Manila which had jurisdiction over the estate of Margarita David, issued an order
appointing appellantCarlos Moran Sison as judicial administrator without compensation after
filing a bond. After entering into his duties as administrator, he filed an accounting of his
administration which included items as an expense of administration the premiums he paid on
his bond.

2. One of the heirs, herein appellee Narcisa Teodoro, objected to the approval of the items.
The court approved the report but disallowed the items objected to on the ground that these
cannot be considered as expenses of administration. Moran Sison filed a motion for
reconsideration but was denied hence this appeal.

Issue: Whether or not an executor or judicial administrator can validly charge the premiums
on his bond as an expense of administration against the estate


NO. The premiums paid by an executor or administrator serving without a compensation for
his bond cannot be charged against the estate. Further Sec. 7 of Rule 86 of the Rules of Court
does not authorize the executor or administrator to charge to the estate the money spent for
the bond. As held in the case of Sulit v. Santos (56 Phil 626), the position of an executor or
administrator is one of trust. The law safeguards the estates of deceased persons by making
as a requirement for qualification the ability to give a suitable bond. The execution of said
bond is therefore a condition precedent to acceptance of the responsibilities of the trust.

Further, the giving of the bond is not a necessary expense in the care, management, and
settlement of the estate within the meaning of Sec. 680 of the Civil Code of Procedure, since
such are the requirements after the executor or administrator has already qualified for the
office and has entered the performance of his duties.

16. Vera v Fernandez

GR No L-31364, March 30, 1979


The motion for allowance of claim and for payment of taxes dated May 28, 1969 was filed on
June 3, 1969 for the collection of the indebtedness to the government of the late Luis D.
Tongoy for deficiency income taxes in the total sum of P3,254.80. The administrator opposed
the motion solely on the ground that the claim was barred under Section 5, Rule 86 of the
Rules of Court. Jose Fernandez dismissed the motion for allowance of claim filed by the
Regional director of the BIR, being the judge of the Court of First Instance.


Whether the statute of non-claims Section 5, Rule 86 of the Rule of Court bars claim of the
government for unpaid taxes, still within the period of limitation prescribed in Section 331 and
332 of the National Internal Revenue Code

No. Section 5, Rule 86 of the Rules of Curt makes no mention of claims for monetary
obligation of the decedent created by law, such as taxes which is entirely of different
character from the claims enumerated, such as all claims for money against the decedent
arising from contract, express or implied, whether the same be due, or contingent, all claim
for funeral expenses and expenses for the last sickness of the decedent and judgment for
money against the decedent. Under the familiar rule of statutory construction, the mention
of one thing implies the exclusion of another thing not mentioned.

17. Estate of Hilario Ruiz v CA

G.R. No. 118671. January 29, 1996


Hilario M. Ruiz executed a holographic will naming as his heirs his only son, Edmond Ruiz, his
adopted daughter, private respondent Maria Pilar Ruiz Montes, and his three granddaughters,

On April 12, 1988, Hilario Ruiz died.

On June 29, 1992, four years after the testators death, it was private respondent Maria Pilar
Ruiz Montes who filed before the Regional Trial Court, Branch 156, Pasig, a petition for the
probate and approval of Hilario Ruizs will and for the issuance of letters testamentary to
Edmond Ruiz


whether the probate court, after admitting the will to probate but before payment of the
estates debts and obligations, has the authority: (1) to grant an allowance from the funds of
the estate for the support of the testators grandchildren; (2) to order the release of the titles
to certain heirs; and (3) to grant possession of all properties of the estate to the executor of
the will.


1. No. Be that as it may, grandchildren are not entitled to provisional support from the funds
of the decedents estate. The law clearly limits the allowance to widow and children and
does not extend it to the deceaseds grandchildren, regardless of their minority or incapacity.

2. No. No distribution shall be allowed until the payment of the obligations above-mentioned
has been made or provided for, unless the distributees, or any of them, give a bond, in a sum
to be fixed by the court, conditioned for the payment of said obligations within such time as
the court directs.

3. No. The right of an executor or administrator to the possession and management of the real
and personal properties of the deceased is not absolute and can only be exercised so long as
it is necessary for the payment of the debts and expenses of administration, He cannot
unilaterally assign to himself and possess all his parents properties and the fruits thereof
without first submitting an inventory and appraisal of all real and personal properties of the
deceased, rendering a true account of his administration, the expenses of administration, the
amount of the obligations and estate tax, all of which are subject to a determination by the
court as to their veracity, propriety and justness.
19. CIR v Pineda

GR No L-22734, September 15, 1967


BIR investigated the income tax liability of Anastacio Pinedas estate for the years 1945, 1946,
1947, and 1948 and it found that the corresponding income tax return were not filed. This
resulted to a P760.28 deficiency income tax for 1945 and 1946 and real estate dealers fixed
tax for the 4th quarter of 1946 and for the whole year 1947. Manuel Pineda, eldest son of
Anastacio, received the assessment. He contested the same alleging that only a proportionate
part should be his liability. CTA ruled that Pineda is liable only for taxes corresponding to his
share in the estate. Hence, the present petition.


Whether the Government can require Manuel Pineda to pay the full amount of the tax


Yes. As a holder of property belonging to the estate, Pineda is liable for the tax up to the
amount of the property in his possession. The BIR is given the discretion to avail of the most
expeditious way to collect the tax. This is, of course, without prejudice to Pinedas right of
contribution for his co-heirs. Put simply, the Supreme Court held that the rule on solidarity
applies to taxes because it is not an ordinary contract. Two persons liable for payment of
estate tax:

Executor or administrator;

Heirs up to the extent of their inheritance.

20. Gonzales v CTA G.R. No. L-14532 May 26, 1965


Both petitioners Jose and Juana Gonzales are co-heirs and co-owners, (one-sixth each) of a
tract of land of 871, [982.] square meters which they, along with four other co-heirs, inherited
from their mother. So on November 15, 1956, Jose Leon Gonzales and Juana F. Gonzales
submitted to the Court of Tax Appeals a joint petition seeking a refund, this time of the
amount of P86,166.00 for each of the two petitioners.


(1) Whether or not petitioners' claim for refund of the total of P86,166.00 may be properly
entertained; and

(2) Whether or not the sum of P89,309.61 which each of the petitioners received as interest
on the value of the land expropriated is taxable as ordinary income, and not as capital gain.


1. No. the requirement of prior timely claim for refund of the sum of P86,166.00 had not been
met in this case. The demand for refund must precede the suit, and this requirement is
mandatory; so much so that non-compliance therewith bars the action
2. It is ordinary income."the acquisition by the Government of private properties through the
exercise of the power of eminent domain, said properties being justly compensated, is
embraced within the meaning of the term 'sale' or 'disposition of property'" and the definition
of gross income laid down by Section 29 of the Tax Code of the Philippines. We also adhered
to the view that the transfer of property through condemnation proceedings is a sale or
exchange and that profit from the transaction constitutes capital gain.

In fact, the authorities support the conclusion that for income tax purposes, interest does not
form part of the price paid by the Government in condemnation proceedings; and may not be
treated as part of the capital gain.

21. CIR v. CA and Pajonar

G.R. No. 123206 March 22, 2000


By reason of the Bataan Death March during World War II, Pedro Pajonar became insane. His
property was placed under theguardianship of PNB, while his sister Josefina became the
guardian over his person, and eventually the administratrix of his estatewhen he died. After
his death, his heirs executed an extrajudicial settlement and paid the estate tax. Thereafter,
BIR assessed theestate of Pedro deficiency taxes. The estate paid under protest and filed a
case with the CTA, which in turn allowed P60,753representing the notarial fee for the
Extrajudicial Settlement and P50,000 attorney's fees for guardianship proceedings as
amongthe allowed deductions from the gross estate.Issue is

ISSUE: WON the notarial fee and attorney's fees allowed as deductions from the gross estate.

RULING: YES.The notarial fee paid for the extrajudicial settlement is a deductible expense
since such settlement effected a distribution of Pedros estate to his lawful heirs. Similarly,
attorney's fees paid to PNB for acting as the guardian of Pedros property during his
lifetimeshould also be considered as a deductible administration expense. This is because PNB
provided a detailed accounting of decedent'sproperty 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.

22. DIZON in his capacity as Administrator of deceased Fernandez vs.



There were claims against the estate which the BIR contested stating that lower amounts
were paid as compromise payments during the settlement of the estate and these amounts
should be what will be considered as deductions in arriving at the net estate.


Will the compromise amounts be the amounts considered as deductions to the gross estate?


NO. The deductions allowable are the amounts determined at the time of death. Post-death
developments are not material in determining the amount of deduction. Thus, the Court
applied the date-of-death valuation rule which is the US rule on deductions and which is
applicable also in the Philippines. The amount deductible is the debt which could have been
enforced against the deceased in his lifetime.



G.R. No. L-19865. July 31, 1965


De la Rama Steamship Co. insured the life of Enrico Pirovano, who was then its President and
General Manager until the time of his death. The Company then received the total sum of
P643,000.00 as proceeds of the said life insurance policies. The Company renounced all its
rights on the money in favor of the decendent's children.

After a case that marred Estefania Pirovano, the guardian and the Company (see Pirovano vs.
De la Rama Steamship Co., 96 Phil. 335.), the Company paid in favor of the children.

The CIR then assessed donees' gift tax against Pirovano and donor's tax against the Company.
Pirovano contested with the CIR which she lost and thus appealed with the CTA.

The CTA held that donees' gift tax were correctly assessed.

ISSUE: Whether Pirovano should pay the donees' gift tax.


YES. Pirovano contends that the Court itself declared that the donation was renumenatory and
not simple and it was made for a full and adequate compensation for the valuable services by
decedent to the Company; hence, the donation does not constitute a taxable gift under the
provisions of Section 108 of the National Internal Revenue Code (old law).

The Court states that it is a donation; that the consideration for the donation was, therefore,
the company's gratitude for his services, and not the services themselves and whether the
donation was simple or renumenatory, it was still a gift taxable under the law.



M.B. Estate, Inc. donated P10,000.00 in cash to the parish priest of Victorias, Negros
Occidental, for the construction of a new Catholic Church in the locality. The total amount was
actually spent for the purpose intended.

A year later, M.B. Estate, Inc., filed the donor's gift tax return. CIR issued an assessment for
donee's gift tax against the parish, of which petitioner was the priest.

Petitioner filed a protest which was denied by the CIR. He then filed an appeal with the CTA
citing that he was not the parish priest at the time of donation, 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 and that assessment of the gift tax is unconstitutional.

The CTA denied the appeal thus this case.

ISSUE: Whether petitioner and the parish are liable for the donee's gift tax.


Yes for the parish. The Constitution only made mention of property tax and not of excise tax
as stated in Section 22, par 3. The assessment of the CIR 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. 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.

No for the petitioner. The Court ordered petitioner to be substituted by the Head of Diocese to
pay the said gift tax after the CIR and Solicitor General did not object to such substitution.


97 PH 889


The BIR found that petitioners had an investment in shares issued to them from their family
corporation. The CIR regarded these transfers as undeclared gifts made in the respective
years, and assessed against petitioners. After paying the basic tax, petitioners asked for the
reassessment stating that each of them received by way of gift inter vivos, that those who got
married were given additional money as propter nuptias and those who did not received it by
inter vivos. Petitioners also contend that the cash donated came from conjugal funds, claiming
for exemption.

The CIR refused to revise his original assessment. Upon petition to the CTA, the CTA still
upheld the CIR's assessment.

ISSUE: Whether petitioners are liable for tax. Whether petitioners can claim tax exemptions
twice from the conjugal funds.


YES. As petitioners failed to pay taxes for the past ten years 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.

NO. The Court took a look at the Spanish Civil Code of 1889, which was the governing law in
this case. The provisions state that the donations of property "by the husband" from the
"donations by both spouses by common consent" differs. 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. 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.

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.
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



1994 Aug 25G.R. No. 115455235 SCRA 630FACTS:

The valued-added tax (VAT) is levied on the sale, barter or exchange of goodsand properties
as well as on the sale or exchange of services. It is equivalent to 10% of the gross selling price
or gross value in money of goods or properties sold, bartered or exchanged or of the gross
receipts from the sale or exchange of services. Republic ActNo. 7716 seeks to widen the tax
base of the existing VAT system and enhance itsadministration by amending the National
Internal Revenue Code.The Chamber of Real Estate and Builders Association (CREBA)
contends that theimposition of VAT on sales and leases by virtue of contracts entered into
prior to the

effectivity of the law would violate the constitutional provision of non-impairment of



Whether R.A. No. 7716 is unconstitutional on ground that it violates the contractclause under
Art. III, sec 10 of the Bill of Rights.


No. The Supreme Court the contention of CREBA, that the imposition of theVAT on the sales
and leases of real estate by virtue of contracts entered into prior to theeffectivity of the law
would violate the constitutional provision of non-impairment of contracts, is only slightly less
abstract but nonetheless hypothetical. It is enough to saythat the parties to a contract cannot,
through the exercise of prophetic discernment,fetter the exercise of the taxing power of the
State. For not only are existing laws readinto contracts in order to fix obligations as between
parties, but the reservation of essential attributes of sovereign power is also read into
contracts as a basic postulate of the legal order. The policy of protecting contracts against
impairment presupposes themaintenance of a government which retains adequate authority
to secure the peace andgood order of society. In truth, the Contract Clause has never been
thought as alimitation on the exercise of the State's power of taxation save only where a
taxexemption has been granted for a valid consideration.Such is not the case of PAL in G.R.
No. 115852, and the Court does not understand itto make this claim. Rather, its position, as
discussed above, is that the removal of its taxexemption cannot be made by a general, but
only by a specific, law.Further, the Supreme Court held the validity of Republic Act No. 7716 in
its formal andsubstantive aspects as this has been raised in the various cases before it. To
sum up,the Court holds:(1) That the procedural requirements of the Constitution have been
complied with byCongress in the enactment of the statute;(2) That judicial inquiry whether
the formal requirements for the enactment of statutes -beyond those prescribed by the
Constitution - have been observed is precluded by theprinciple of separation of powers;(3)
That the law does not abridge freedom of speech, expression or the press, nor interfere with
the free exercise of religion, nor deny to any of the parties the right to aneducation; and(4)
That, in view of the absence of a factual foundation of record, claims that the law isregressive,
oppressive and confiscatory and that it violates vested rights protectedunder the Contract
Clause are prematurely raised and do not justify the grant of prospective relief by writ of
prohibition.WHEREFORE, the petitions are DISMISSED.

27. Tolentino vs. Secretary of Finance,

(235 SCRA 630, 249 SCRA 628) August 25, 1994; October 30, 1995


There are various suits challenging the constitutionality of RA 7716 onvariousgrounds.The

value-added tax (VAT) is levied on the sale, barter or exchange of goodsand properties as well
as on the sale or exchange of services. It is equivalent to10% of the gross selling price or
gross value in money of goods or properties sold,bartered or exchanged or of the gross
receipts from the sale or exchange of services.Republic ActNo. 7716 seeks to widen the tax
base of the existing VAT system andenhance itsadministration by amending the National
Internal RevenueCode. Among the Petitioners was the Philippine Press Institute which claim
that R.A.7716 violates their press freedom and religious liberty, having removed them from
the exemption to pay Value Added Tax. It is contended by the PPI that by removing the
exemption of the press from the VAT while maintaining those granted to others, the law
discriminates against the press. At any rate, it is averred, "even nondiscriminatory taxation of
constitutionally guaranteed freedom is unconstitutional."PPI argued that the VAT is in the
nature of a license tax.


Whether or not the purpose of the VAT is the same as that of a license tax.


A license tax, which, unlike an ordinary tax, is mainly for regulation. Its imposition on the
press is unconstitutional because it lays a prior restraint on the exercise of its right. Hence,
although its application to others, such those selling goods, is valid, its application to the
press or to religious groups, such as the Jehovahs Witnesses, in connection with the latters
sale of religious books and pamphlets, is unconstitutional.

As the U.S. Supreme Court put it, it is one thing to impose a tax on income or property of a
preacher. It is quite another thing to exact a tax on him for delivering a sermon.

The VAT is, however, different. It is not a license tax.

It is not a tax on the exercise of a privilege, much less a constitutional right. It is imposed on
the sale, barter,lease or exchange of goods or properties or the sale or exchange of services
and the lease of properties purely for revenue purposes. To subject the press to its payment is
not to burden the exercise of its right any more than to make the press pay income tax or
subject it to general regulation is not to violate its freedom under the Constitution.

28. ABAKADA Guro Party List vs. Ermita

G.R. No. 168056 September 1, 2005

Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition
for prohibition on May 27, 2005 questioning the constitutionality of Sections 4, 5 and 6 of R.A.
No. 9337, amending Sections 106, 107 and 108, respectively, of the National Internal Revenue
Code (NIRC). Section 4 imposes a 10% VAT on sale of goods and properties, Section 5 imposes
a 10% VAT on importation of goods, and Section 6 imposes a 10% VAT on sale of services and
use or lease of properties. These questioned provisions contain a uniformp ro v is o
authorizing the President, upon recommendation of the Secretary of Finance, to raise the VAT
rate to 12%, effective January 1, 2006, after specified conditions have been satisfied.
Petitioners argue that the law is unconstitutional.


1. Whether or not there is a violation of Article VI, Section 24 of the Constitution.

2. Whether or not there is undue delegation of legislative power in violation of Article VI Sec
28(2) of the Constitution.

3. Whether or not there is a violation of the due process and equal protection under Article III
Sec. 1 of the Constitution.


1. Since there is no question that the revenue bill exclusively originated in the House of
Representatives, the Senate was acting within its constitutional power to introduce
amendments to the House bill when it included provisions in Senate Bill No. 1950 amending
corporate income taxes, percentage, and excise and franchise taxes.

2. There is no undue delegation of legislative power but only of the discretion as to the
execution of a law. This is constitutionally permissible. Congress does not abdicate its
functions or unduly delegate power when it describes what job must be done, who must do it,
and what is the scope of his authority; in our complex economy that is frequently the only way
in which the legislative process can go forward.

3. The power of the State to make reasonable and natural classifications for the purposes of
taxation has long been established. Whether it relates to the subject of taxation, the kind of
property, the rates to be levied, or the amounts to be raised, the methods of assessment,
valuation and collection, the States power is entitled to presumption of validity. As a rule, the
judiciary will not interfere with such power absent a clear showing of unreasonableness,
discrimination, or arbitrariness.


G.R. No. 125355March 30, 2000


The BIR issued an assessment to private respondent corporation for the deficiencyvalue-
added tax for taxable year 1988. The corporation averred that since it was not engagedin
business, it was not liable to pay VAT. Furthermore, it contended that the term in the courseof
trade or business required that the business be carried on with a view of profit. Since
theservices it offers were on a non-profit basis, thus, not engaged in business. The
petitioner however avers that VAT is a tax on the value added by the performance of the
service. It isimmaterial whether profit is derived in rendering the service.

Does the phrase in the course of trade or business imply that the transactionsshould be
motivated by profit?


No. The phrase in the course of trade or business means the regular conduct or pursuit of a
commercial or an economic activity, including transactions incidental thereto, by anyperson
regardless of whether or not the person engaged therein is a non-stock, non-profitorganization
or government entity.VAT is a tax on transactions, imposed on every stage of distribution
process onthe sale, barter, exchange of goods or property, and on the performance of
services, even in theabsence of profit attributable thereto


GR 152609 | June 29, 2005


Respondent, a VAT taxpayer, is the Philippine Branch of AMEX USA and was tasked with
servicing a unit of AMEX-Hongkong Branch and facilitating the collections of AMEX-HK
receivables from card members situated in the Philippines and payment to service
establishments in the Philippines.

It filed with BIR a letter-request for the refund of its 1997 excess input taxes, citing as basis
Section 110B of the 1997 Tax Code, which held that xxx Any input tax attributable to the
purchase of capital goods or to zero-rated sales by a VAT-registered person may at his option
be refunded or credited against other internal revenue taxes, subject to the provisions of
Section 112.

In addition, respondent relied on VAT Ruling No. 080-89, which read, In Reply, please be
informed that, as a VAT registered entity whose service is paid for in acceptable foreign
currency which is remitted inwardly to the Philippine and accounted for in accordance with the
rules and regulations of the Central Bank of the Philippines, your service income is
automatically zero rated xxx

Petitioner claimed, among others, that the claim for refund should be construed strictly
against the claimant as they partake of the nature of tax exemption.

CTA rendered a decision in favor of respondent, holding that its services are subject to zero-
rate. CA affirmed this decision and further held that respondents services were services
other than the processing, manufacturing or repackaging of goods for persons doing business
outside the Philippines and paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of BSP.


W/N AMEX Phils is entitled to refund


Yes. Section 102 of the Tax Code provides for the VAT on sale of services and use or lease of
properties. Section 102B particularly provides for the services or transactions subject to 0%
(1) Processing, manufacturing or repacking goods for other persons doing business outside
the Philippines which goods are subsequently exported, where the services are paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations of
the BSP;

(2) Services other than those mentioned in the preceding subparagraph, e.g. those rendered
by hotels and other service establishments, the consideration for which is paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations of
the BSP

Under subparagraph 2, services performed by VAT-registered persons in the Philippines (other

than the processing, manufacturing or repackaging of goods for persons doing business
outside the Philippines), when paid in acceptable foreign currency and accounted for in
accordance with the R&R of BSP, are zero-rated. Respondent renders service falling under the
category of zero rating.

As a general rule, the VAT system uses the destination principle as a basis for the
jurisdictional reach of the tax. Goods and services are taxed only in the country where they
are consumed. Thus, exports are zero-rated, while imports are taxed.

In the present case, the facilitation of the collection of receivables is different from the
utilization of consumption of the outcome of such service. While the facilitation is done in the
Philippines, the consumption is not. The services rendered by respondent are performed upon
its sending to its foreign client the drafts and bulls it has gathered from service
establishments here, and are therefore, services also consumed in the Philippines. Under the
destination principle, such service is subject to 10% VAT.

However, the law clearly provides for an exception to the destination principle; that is 0% VAT
rate for services that are performed in the Philippines, paid for in acceptable foreign currency
and accounted for in accordance with the R&R of BSP. The respondent meets the following
requirements for exemption, and thus should be zero-rated:

(1) Service be performed in the Philippines

(2) The service fall under any of the categories in Section 102B of the Tax Code

(3) It be paid in acceptable foreign currency accounted for in accordance with BSP R&R.

31. CIR v Bursmeiters & Wain Scandinavian

GR 153205; January 22, 2007

Facts: A foreign consortium, parent company of Burmeister, entered into an O&M contract
with NPC. The foreign entity then subcontracted the actual O&M to Burmeister. NPC paid the
foreign consortium a mixture of currencies while the consortium, in turn, paid Burmeister
foreign currency inwardly remitted into the Philippines. BIR did not want to grant refund since
the services are not destined for consumption abroad (or the destination principle).

Issue: Are the receipts of Burmeister entitled to VAT zero-rated status?

Held: PARTIALLY. Respondent is entitled to the refund prayed for BUT ONLY for the period
covered prior to the filing of CIRs Answer in the CTA.
The claim has no merit since the consortium, which was the recipient of services rendered by
Burmeister, was deemed doing business within the Philippines since its 15-year O&M with NPC
can not be interpreted as an isolated transaction.

In addition, the services referring to processing, manufacturing, repacking and services

other than those in (1) of Sec. 102 both require (i) payment in foreign currency; (ii) inward
remittance; (iii) accounted for by the BSP; AND (iv) that the service recipient is doing business
outside the Philippines. The Court ruled that if this is not the case, taxpayers can circumvent
just by stipulating payment in foreign currency.

The refund was partially allowed since Burmeister secured a ruling from the BIR allowing zero-
rating of its sales to foreign consortium. However, the ruling is only valid until the time that
CIR filed its Answer in the CTA which is deemed revocation of the previously-issued ruling. The
Court said the revocation can not retroact since none of the instances in Section 246 (bad
faith, omission of facts, etc.) are present.

32. CIR vs. Magsaysay Lines, Inc. , et. al

G.R. 146984, 28 July 2006


Because of a government program of privatization, National Development Company(NDC)

decided to sell its National Marine Corporation(NMC) shares and five of its ships. In a VAT
Ruling, it was held that the sale was subject to VAT since NDC was a VAT-registered enterprise
and the transaction is incident to its normal VAT-registered activity of leasing out personal


Whether or not the sale by NDC whose VAT-registered activity is leasing out personal property
is subject to VAT considering that such sale was made pursuant to a government program of


No, the sale of the vessels is not subject to VAT since it was not in the ordinary course of trade
or business of NDC. Course of business is what is usually done in the management of trade
or business. It connotes regularity. In the case at bar, the sale was an isolated transaction. The
sale which was involuntary and made pursuant to the declared policy of government for
privatization could no longer be repeated or carried on with regularity. It should be
emphasized that the normal VAT-registered activity of NDC is leasing personal property. Any
sale, barter, or exchange of goods or services not in the course of trade or business is not
subject to tax.