Lorenzo vs Posada 64 Phil 803 (1937)

Oct 4, 1932 – Lorenzo brought action to CFI for refund of the inheritance tax he paid for the estate of
Thomas Hanley and for the collection of interest thereon at 6% from Sept. 1934 when he paid it under
protest.

May 27, 1922 – Thomas Hanley died with will. No disposal for 10 years. Given to nephew Matthew. CFI
considered it proper to appoint a trustee to administer the real properties. PJM Moore, one of the two
executors was appointed trustee. Moore took oath of office and gave bond on March 10, 1924 and
resigned on Feb 29, 1932, and this is when Lorenzo took his stead.

CIR collected inheritance tax from July 1, 1931 to the date o payment (Sept. 1934). CFI in favor of CIR.

Issue: WON real property passed to instituted heir from the moment of death and thus, inheritance tax
must be paid from that date and not after 10 years as stated in the will.

Held: The accrual of the inheritance tax is distinct from the obligation to pay the same. The tax is upon
transmission or the transfer or devolution of property of a decedent, made effective by his death. It is in
reality an exercise 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 of girt to become operative at or after death. Art. 667,
rights to the succession of a person are transmitted from the moment of his death.

The authentication of a will implies its due execution but once probated and allowed the transmission is
effective as of death of the testator in accordance with Art. 657 of the CC. 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.

Thomas died on May 27, 1922, inheritance tax accrued as of that date. But it does not follow that the
obligation to pay the tax arose as of that date. Sec. 1543 of Act. 3031 and sec. 1544(b) shall apply. “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 the said period, the
payment shall be made by the executor or administrator before delivering to each beneficiary his share.

If death is the generating source from which the power of the state to impose inheritance taxes takes its
being and if, upon the death of the decedent, succession takes place and the right of the state 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 affecting value or any subsequent
increase/decrease in value.

A trustee is entitled to receive a fair compensation for his services. 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 Phil which requires trustees’ commissions to be deducted in determining
the net value of the estate subject to inheritance tax.

Inheritance taxation is governed by the statue in force at the time of the death of the decedent. A
statute should be considered as prospective in its operation, whether it enacts, amends, or repeals an
inheritance tax, unless the language of the statue clearly demands or expresses that it shall have a
retroactive effect.
Liability to pay tax may arise at a certain time and the tax may be paid within another given time. 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 payments without being subjected
to the payment of penalties for failure to pay his taxes within the prescribed period.

The mere fact that the estate of the deceased was placed in trust did not remove it from the operation
of our inheritance tax law 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 law.
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 que trust, the beneficiary in this case.

On the case of Lim Co Chui vs Posadas, the fact that riots prevented the plaintiffs from paying their
internal revenue tax on time does not authorize the CIR to extend time prescribed for the payment and
to accept them without the additional penalty. Modes adopted to enforce the taxes levied should be
interfered with as little as possible.

Barrera, J.

Collector vs Fisher

Facts:

Walter G. Stevenson was born in the Philippines on to British parents and married in Manila to Beatrice
Mauricia Stevenson, another British subject. He died on Feb. 22, 1951 in San Francisco, California where he and his
wife moved and established their permanent residence since May 10, 1945. He executed his will in San Francisco
which was duly probated in the Superior Court of California. He instituted his wife as the sole heiress to all the
properties they acquired while residing in the Philippines. Ancillary administration proceedings were then
instituted in CFI Manila for the settlement of Stevenson’s estate in the Philippines. The CFI Manila probated
Stevenson’s will and Ian Murray Scott was appointed ancillary administrator. Scott then paid the necessary estate
and inheritance taxes.

Scott then filed two amended estate and inheritance tax returns, wherein he made claim for the following
deductions:

1) funeral expenses,

2) judicial expenses (administrator’s fee, attorney’s fee, judicial and administration expenses),

3) real estate tax for 1951 on Baguio real properties,

4) claims by creditors against the estate,

5) 4% interest per annum on the tax allegedly overpaid for the period from Feb. 2 to 22, 1951,

6) deduction of P4000 from the gross estate of the decedent as provided for in Section 861(4) of the US Federal
Internal Revenue Code; and
7) exemption from the imposition of estate and inheritance taxes on the 210,000 shares of stock in the Mindanao
other Lode Mines, Inc., in pursuance of reciprocity proviso of Section 122 of the NIRC.

The Court of Tax Appeals exempted the 210,000 shares of stock from taxation in accordance with the reciprocity
proviso. It also allowed the funeral and judicial expenses with regard to the administration of the estate, but
disallowed the P4000 exemption in the computation of the estate tax. Both parties appealed.

Issues:

 WON the estate can avail itself of the reciprocity proviso granting exemption from the payment of estate and
inheritance taxes on the 210,000 shares of stock in the Mindanao Mother Lode - NO
 WON the estate is entitled to the deduction of P4000 allowed in Sec. 861 of the US IRC vis-à-vis Sec 122 of the
NIRC - NO
 WON estate entitled to deduction of judicial and administration expenses, funeral expense, real estate
taxes, and the amount of indebtedness allegedly incurred by the decedent during his lifetime - YES
 WON estate entitled to the payment of interest on the amount it claims to have overpaid the government and
to be refundable to it – NO
The estate was made to pay tax on the expenses disallowed.

Rulings:

1. WRT to the reciprocity proviso, it is well-settled that foreign laws do not prove themselves in our jurisdiction
and our courts are not authorized to take judicial notice of them. Like any other fact, they must be alleged and
proved. Reading Sec. 122 of the NIRC vis-à-vis Sec. 13851 of the California Inheritance Tax Law, the reciprocity
must be total, that is, the two states must both tax the same subject. In this case, the US does not tax
intangible personal property of its residents, but the Philippines does. If then a Californian is allowed to be
exempt from payment of income tax on his shares of stocks here in the Philippines, but a Filipino is not
exempt, the Filipino is still taxed on his shares of stocks in California, would result in a disadvantage for the
Filipino.

2. The second issue has already been settled in Collector v. Lara, where the court ruled that only exemptions,
not deductions, are subject to reciprocity claimed under Sec. 122 of the NIRC.

3. As to the third issue, the probate court allowed the named expenses to be deducted, and the tax court found
no basis for departing from the same. The SC sees no ground to reverse the finding of fact of the two courts,
that indeed, the expenses were actually incurred.

4. Respondent’s claim for interest on the amount allegedly overpaid, if any, actually results after a
recomputation on the basis of this decision is hereby denied. In Collector v. St. Paul’s Hospital, the Court held
that “in the absence of statutory provision clearly or expressly directing or authorizing such payment, and
none has been cited by the respondents, the National Government cannot be required to pay interest.”