B.

DONOR’S TAX

1. G.R. No. 210987 November 24, 2014

THE PHILIPPINE AMERICAN LIFE AND GENERAL INSURANCE COMPANY,

Petitioner,
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE, Respondents.

DECISION

VELASCO, JR., J.:

Nature of the Case

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court assailing and seeking the reversal of the Resolutions of the Court of Appeals
(CA) in CA-G.R. SP No. 127984, dated May 23, 20131 and January 21, 2014, which
dismissed outright the petitioner's appeal from the Secretary of Finance's review of
BIR Ruling No. 015-122 for lack of jurisdiction.

The Facts

Petitioner The Philippine American Life and General Insurance Company (Philamlife)
used to own 498,590 Class A shares in Philam Care Health Systems, Inc.
(PhilamCare), representing 49.89% of the latter's outstanding capital stock. In 2009,
petitioner, in a bid to divest itself of its interests in the health maintenance
organization industry, offered to sell its shareholdings in PhilamCare through
competitive bidding. Thus, on September 24, 2009, petitioner's Class A shares were
sold for USD 2,190,000, or PhP 104,259,330 based on the prevailing exchange rate
at the time of the sale, to STI Investments, Inc., who emerged as the highest bidder.3

After the sale was completed and the necessary documentary stamp and capital
gains taxes were paid, Philamlife filed an application for a certificate authorizing
registration/tax clearance with the Bureau of Internal Revenue (BIR) Large
Taxpayers Service Division to facilitate the transfer of the shares. Months later,
petitioner was informed that it needed to secure a BIR ruling in connection with its
application due to potential donor’s tax liability. In compliance, petitioner, on January
4, 2012, requested a ruling4 to confirm that the sale was not subject to donor’s tax,
pointing out, in its request, the following: that the transaction cannot attract donor’s
tax liability since there was no donative intent and,ergo, no taxable donation, citing
BIR Ruling [DA-(DT-065) 715-09] dated November 27, 2009;5 that the shares were
sold at their actual fair market value and at arm’s length; that as long as the
transaction conducted is at arm’s length––such that a bona fide business
1
arrangement of the dealings is done inthe ordinary course of business––a sale for
less than an adequate consideration is not subject to donor’s tax; and that donor’s
tax does not apply to saleof shares sold in an open bidding process.

On January 4, 2012, however, respondent Commissioner on Internal Revenue

(Commissioner) denied Philamlife’s request through BIR Ruling No. 015-12. As
determined by the Commissioner, the selling price of the shares thus sold was lower
than their book value based on the financial statements of PhilamCare as of the end
of 2008.6 As such, the Commisioner held, donor’s tax became imposable on the
price difference pursuant to Sec. 100 of the National Internal Revenue Code (NIRC),
viz:

SEC. 100. Transfer for Less Than Adequate and full Consideration.- Where property,
other than real property referred to in Section 24(D), is transferred for less than an
adequate and full consideration in money or money’s worth, then the amount by
which the fair market value of the property exceeded the value of the consideration
shall, for the purpose of the tax imposed by this Chapter, be deemed a gift, and shall
be included in computing the amount of gifts made during the calendar year.

The afore-quoted provision, the Commissioner added, is implemented by Revenue

Regulation 6-2008 (RR 6-2008), which provides:

SEC. 7. SALE, BARTER OR EXCHANGE OF SHARES OF STOCK NOT TRADED

THROUGH A LOCAL STOCK EXCHANGE PURSUANT TO SECS. 24(C), 25(A)(3),
25(B), 27(D)(2), 28(A)(7)(c), 28(B)(5)(c) OF THE TAX CODE, AS AMENDED. —

xxxx

(c) Determination of Amount and Recognition of Gain or Loss –

(c.1) In the case of cash sale, the selling price shall be the consideration per deed of
sale.

xxxx

(c.1.4) In case the fair market value of the shares of stock sold, bartered, or
exchanged is greater than the amount of money and/or fair market value of the
property received, the excess of the fair market value of the shares of stock sold,
bartered or exchanged overthe amount of money and the fair market value of the
property, if any, received as consideration shall be deemed a gift subject to the
donor’stax under Section 100 of the Tax Code, as amended.

xxxx

(c.2) Definition of ‘fair market value’of Shares of Stock. – For purposes of this
Section, ‘fair market value’ of the share of stock sold shall be:

2
xxxx

(c.2.2) In the case of shares of stock not listed and traded in the local stock
exchanges, the book value of the shares of stock as shown in the financial
statements duly certified by an independent certified public accountant nearest to the
date of sale shall be the fair market value.

In view of the foregoing, the Commissioner ruled that the difference between the
book value and the selling price in the sales transaction is taxable donation subject
to a 30% donor’s tax under Section 99(B) of the NIRC.7 Respondent Commissioner
likewise held that BIR Ruling [DA-(DT-065) 715-09], on which petitioner anchored its
claim, has already been revoked by Revenue Memorandum Circular (RMC) No. 25-
2011.8

Aggrieved, petitioner requested respondent Secretary of Finance (Secretary) to

review BIR Ruling No. 015-12, but to no avail. For on November 26, 2012,
respondent Secretary affirmed the Commissioner’s assailed ruling in its entirety.9

Ruling of the Court of Appeals

Not contented with the adverse results, petitioner elevated the case to the CA via a
petition for review under Rule 43, assigning the following errors:10

A.

The Honorable Secretary of Finance gravely erred in not finding that the application
of Section 7(c.2.2) of RR 06-08 in the Assailed Ruling and RMC 25-11 is void insofar
as it altersthe meaning and scope of Section 100 of the Tax Code.

B.

The Honorable Secretary of Finance gravely erred in finding that Section 100 of the
Tax Code is applicable tothe sale of the Sale of Shares.

1.

The Sale of Shares were sold at their fair market value and for fair and full
consideration in money or money’s worth.

2.

The sale of the Sale Shares is a bona fide business transaction without any
donative intent and is therefore beyond the ambit of Section 100 of the Tax
Code.

3
 3.

It is superfluous for the BIR to require an express provision for the exemption
of the sale of the Sale Shares from donor’s tax since Section 100 of the Tax
Code does not explicitly subject the transaction to donor’s tax.

C.

The Honorable Secretary of Finance gravely erred in failing to find that in the
absence of any of the grounds mentioned in Section 246 of the Tax Code, rules and
regulations, rulings or circulars – such as RMC 25-11 – cannot be given retroactive
application to the prejudice of Philamlife.

On May 23, 2013, the CA issued the assailed Resolution dismissing the CA Petition,
thusly:

WHEREFORE, the Petition for Review dated January 9, 2013 is DISMISSED for lack
of jurisdiction.

SO ORDERED.

In disposing of the CA petition, the appellate court ratiocinated that it is the Court of
Tax Appeals (CTA), pursuant to Sec. 7(a)(1) of Republic Act No. 1125 (RA 1125),11
as amended, which has jurisdiction over the issues raised. The outright dismissal, so
the CA held, is predicated on the postulate that BIR Ruling No. 015-12 was issued in
the exercise of the Commissioner’s power to interpret the NIRC and other tax laws.
Consequently, requesting for its review can be categorized as "other matters arising
under the NIRC or other laws administered by the BIR," which is under the
jurisdiction of the CTA, not the CA.

Philamlife eventually sought reconsideration but the CA, in its equally assailed
January 21, 2014 Resolution, maintained its earlier position. Hence, the instant
recourse.

Issues

Stripped to the essentials, the petition raises the following issues in both procedure
and substance:

1. Whether or not the CA erred in dismissing the CA Petition for lack of

jurisdiction; and

2. Whether or not the price difference in petitioner’s adverted sale of shares in

PhilamCare attracts donor’s tax.

Procedural Arguments

4
a. Petitioner’s contentions

Insisting on the propriety of the interposed CA petition, Philamlife, while conceding

that respondent Commissioner issued BIR Ruling No. 015-12 in accordance with her
authority to interpret tax laws, argued nonetheless that such ruling is subject to
review by the Secretary of Finance under Sec. 4 of the NIRC, to wit:

SECTION 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax
Cases. – The power to interpret the provisions of this Code and other tax laws shall
be under the exclusive and original jurisdiction of the Commissioner, subject to
review by the Secretary of Finance.

The power to decide disputed assessments, refunds of internal revenue taxes, fees
or other charges, penalties imposed in relation thereto, or other matters arising under
this Code orother laws or portions thereof administered by the Bureau of Internal
Revenue is vested in the Commissioner, subject to the exclusive appellate
jurisdiction of the Court of Tax Appeals. Petitioner postulates that there is a need to
differentiate the rulings promulgated by the respondent Commissioner relating to
those rendered under the first paragraph of Sec. 4 of the NIRC, which are
appealable to the Secretary of Finance, from those rendered under the second
paragraph of Sec. 4 of the NIRC, which are subject to review on appeal with the
CTA.

This distinction, petitioner argues, is readily made apparent by Department Order No.
7-02,12 as circularized by RMC No. 40-A-02.

Philamlife further averred that Sec.7 of RA 1125, as amended, does not find
application in the case at bar since it only governs appeals from the Commissioner’s
rulings under the second paragraph and does not encompass rulings from the
Secretary of Finance in the exercise of his power of review under the first, as what
was elevated to the CA. It added that under RA 1125, as amended, the only
decisions of the Secretary appealable to the CTA are those rendered in customs
cases elevated to him automatically under Section 2315 of the Tariff and Customs
Code.13

There is, thus, a gap in the law when the NIRC, as couched, and RA 1125, as
amended, failed to supply where the rulings of the Secretary in its exercise of its
power of review under Sec. 4 of the NIRC are appealable to. This gap, petitioner
submits, was remedied by British American Tobacco v. Camacho14 wherein the
Court ruled that where what is assailed is the validity or constitutionality of a law, or a
rule or regulation issued by the administrative agency, the regular courts have
jurisdiction to pass upon the same.

In sum, appeals questioning the decisions of the Secretary of Finance in the exercise
of its power of review under Sec. 4 of the NIRC are not within the CTA’s limited

5
special jurisdiction and, according to petitioner, are appealable to the CA via a Rule
43 petition for review.

b. Respondents’ contentions

Before the CA, respondents countered petitioner’s procedural arguments by claiming

that even assuming arguendo that the CTA does not have jurisdiction over the case,
Philamlife, nevertheless,committed a fatal error when it failed to appeal the Secretary
of Finance’s ruling to the Office of the President (OP). As made apparent by the
rules, the Department of Finance is not among the agencies and quasi-judicial
bodies enumerated under Sec. 1, Rule 43 of the Rules of Court whose decisions and
rulings are appealable through a petition for review.15 This is in stark contrast to the
OP’s specific mention under the same provision, so respondents pointed out.

To further reinforce their argument, respondents cite the President’s power of review
emanating from his power of control as enshrined under Sec. 17 of Article VII of the
Constitution, which reads:

Section 17.The President shall have control of all the executive departments,
bureaus, and offices. He shall ensure that the laws be faithfully executed.

The nature and extent of the President’s constitutionally granted power of control
have beendefined in a plethora of cases, most recently in Elma v. Jacobi,16 wherein
it was held that:

x x x This power of control, which even Congress cannot limit, let alone withdraw,
means the power of the Chief Executive to review, alter, modify, nullify, or set aside
what a subordinate, e.g., members of the Cabinet and heads of line agencies, had
done in the performance of their duties and to substitute the judgment of the former
for that of the latter.

In their Comment on the instant petition, however, respondents asseverate that the
CA did not err in its holding respecting the CTA’s jurisdiction over the controversy.

The Court’s Ruling

The petition is unmeritorious.

Reviews by the Secretary of Finance pursuant to Sec. 4 of the NIRC are appealable
to the CTA

To recapitulate, three different, if not conflicting, positions as indicated below have

been advanced by the parties and by the CA as the proper remedy open for assailing
respondents’ rulings:

6
 1. Petitioners: The ruling of the Commissioner is subject to review by the
Secretary under Sec. 4 of the NIRC, and that of the Secretary to the CA via
Rule 43;

2. Respondents: The ruling of the Commissioner is subject to review by the

Secretary under Sec. 4 of the NIRC, and that of the Secretary to the Office of
the President before appealing to the CA via a Rule 43 petition; and

3. CA: The ruling of the Commissioner is subject to review by the CTA.

We now resolve.

Preliminarily, it bears stressing that there is no dispute that what is involved herein is
the respondent Commissioner’s exercise of power under the first paragraph of Sec. 4
of the NIRC––the power to interpret tax laws. This, in fact, was recognized by the
appellate court itself, but erroneously held that her action in the exercise of such
power is appealable directly to the CTA. As correctly pointed out by petitioner, Sec. 4
of the NIRC readily provides that the Commissioner’s power to interpret the
provisions of this Code and other tax laws is subject to review by the Secretary of
Finance. The issue that now arises is this––where does one seek immediate
recourse from the adverse ruling of the Secretary of Finance in its exercise of its
power of review under Sec. 4?

Admittedly, there is no provision in law that expressly provides where exactly the
ruling of the Secretary of Finance under the adverted NIRC provision is appealable
to. However, We find that Sec. 7(a)(1) of RA 1125, as amended, addresses the
seeming gap in the law asit vests the CTA, albeit impliedly, with jurisdiction over the
CA petition as "other matters" arising under the NIRC or other laws administered by
the BIR. As stated:

Sec. 7. Jurisdiction.- The CTA shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

1. Decisions of the Commissioner of Internal Revenue in cases involving disputed

assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National Internal Revenue or other
laws administered by the Bureau of Internal Revenue. (emphasis supplied)

Even though the provision suggests that it only covers rulings of the Commissioner,
We hold that it is, nonetheless, sufficient enough to include appeals from the
Secretary’s review under Sec. 4 of the NIRC.

It is axiomatic that laws should be given a reasonable interpretation which does not
defeat the very purpose for which they were passed.17 Courts should not follow the
letter of a statute when to do so would depart from the true intent of the legislature or
would otherwise yield conclusions inconsistent with the purpose of the act.18 This
7
Court has, in many cases involving the construction of statutes, cautioned against
narrowly interpreting a statute as to defeat the purpose of the legislator, and rejected
the literal interpretation of statutes if todo so would lead to unjust or absurd results.19

Indeed, to leave undetermined the mode of appeal from the Secretary of Finance
would be an injustice to taxpayers prejudiced by his adverse rulings. To remedy this
situation, Weimply from the purpose of RA 1125 and its amendatory laws that the
CTA is the proper forum with which to institute the appeal. This is not, and should
not, in any way, be taken as a derogation of the power of the Office of President but
merely as recognition that matters calling for technical knowledge should be handled
by the agency or quasi-judicial body with specialization over the controversy. As the
specialized quasi-judicial agency mandated to adjudicate tax, customs, and
assessment cases, there can be no other court of appellate jurisdiction that can
decide the issues raised inthe CA petition, which involves the tax treatment of the
shares of stocks sold. Petitioner, though, nextinvites attention to the ruling in Ursal v.
Court of Tax Appeals20 to argue against granting the CTA jurisdiction by implication,
viz:

Republic Act No. 1125 creating the Court of Tax Appeals did not grant it blanket
authority to decide any and all tax disputes. Defining such special court’s jurisdiction,
the Act necessarily limited its authority to those matters enumerated therein. Inline
with this idea we recently approved said court’s order rejecting an appeal to it by
Lopez & Sons from the decision of the Collector ofCustoms, because in our opinion
its jurisdiction extended only to a review of the decisions of the Commissioner of
Customs, as provided bythe statute — and not to decisions of the Collector of
Customs. (Lopez & Sons vs. The Court of Tax Appeals, 100 Phil., 850, 53 Off. Gaz.,
[10] 3065).

xxxx

x x x Republic Act No. 1125 is a complete law by itself and expressly enumerates the
matters which the Court of Tax Appeals may consider; such enumeration excludes
all others by implication. Expressio unius est exclusio alterius.

Petitioner’s contention is untenable. Lest the ruling in Ursalbe taken out of context,
but worse as a precedent, it must be noted that the primary reason for the dismissal
of the said case was that the petitioner therein lacked the personality to file the suit
with the CTA because he was not adversely affected by a decision or ruling of the
Collector of Internal Revenue, as was required under Sec. 11 of RA 1125.21 As held:

We share the view that the assessor had no personality to resort to the Court of Tax
Appeals. The rulings of the Board of Assessment Appeals did not "adversely affect"
him. At most it was the City of Cebu that had been adversely affected in the sense
that it could not thereafter collect higher realty taxes from the abovementioned
property owners. His opinion, it is true had been overruled; but the overruling inflicted
no material damage upon him or his office. And the Court of Tax Appeals was not
8
created to decide mere conflicts of opinion between administrative officers or
agencies. Imagine an income tax examiner resorting to the Court of Tax Appeals
whenever the Collector of Internal Revenue modifies, or lower his assessment on the
return of a tax payer!22

The appellate power of the CTA includes certiorari

Petitioner is quick to point out, however, that the grounds raised in its CA petition
included the nullity of Section 7(c.2.2) of RR 06-08 and RMC 25-11. In an attempt to
divest the CTA jurisdiction over the controversy, petitioner then cites British
American Tobacco, wherein this Court has expounded on the limited jurisdiction of
the CTA in the following wise:

While the above statute confers on the CTA jurisdiction to resolve tax disputes in
general, this does not include cases where the constitutionality of a law or rule is
challenged. Where what is assailed is the validity or constitutionality of a law, or a
rule or regulation issued by the administrative agency in the performance of its quasi
legislative function, the regular courts have jurisdiction to pass upon the same. The
determination of whether a specific rule or set of rules issued by an administrative
agency contravenes the law or the constitution is within the jurisdiction of the regular
courts. Indeed, the Constitution vests the power of judicial review or the power to
declare a law, treaty, international or executive agreement, presidential decree,
order, instruction, ordinance, or regulation inthe courts, including the regional trial
courts. This is within the scope of judicial power, which includes the authority of the
courts to determine inan appropriate action the validity of the acts of the political
departments. Judicial power includes the duty of the courts of justice to settle actual
controversies involving rights which are legally demandable and enforceable, and to
determine whether or not there has been a grave abuse of discretion amounting to
lack or excess of jurisdiction on the part of any branch or instrumentality of the
Government.23

Vis-a-vis British American Tobacco, it bears to stress what appears to be a

contrasting ruling in Asia International Auctioneers, Inc. v. Parayno, Jr., to wit:

Similarly, in CIR v. Leal, pursuant to Section 116 of Presidential Decree No. 1158
(The National Internal Revenue Code, as amended) which states that "[d]ealers in
securities shall pay a tax equivalent to six (6%) per centum of their gross income.
Lending investors shall pay a tax equivalent to five (5%) per cent, of their gross
income," the CIR issued Revenue Memorandum Order (RMO) No. 15-91 imposing
5% lending investor’s tax on pawnshops based on their gross income and requiring
all investigating units of the BIR to investigate and assess the lending investor’s tax
due from them. The issuance of RMO No. 15-91 was an offshoot of the CIR’s finding
that the pawnshop business is akin to that of "lending investors" as defined in
Section 157(u) of the Tax Code. Subsequently, the CIR issued RMC No. 43-91
subjecting pawn tickets to documentary stamp tax. Respondent therein, Josefina
Leal, owner and operator of Josefina’s Pawnshop, asked for a reconsideration of
9
both RMO No. 15-91 and RMC No. 43-91, but the same was denied by petitioner
CIR. Leal then filed a petition for prohibition with the RTC of San Mateo, Rizal,
seeking to prohibit petitioner CIR from implementing the revenue orders. The CIR,
through the OSG, filed a motion to dismiss on the ground of lack of jurisdiction. The
RTC denied the motion. Petitioner filed a petition for certiorari and prohibition with
the CA which dismissed the petition "for lack of basis." In reversing the CA,
dissolving the Writ of Preliminary Injunction issued by the trial court and ordering the
dismissal of the case before the trial court, the Supreme Court held that "[t]he
questioned RMO No. 15-91 and RMC No. 43-91 are actually rulings or opinions of
the Commissioner implementing the Tax Code on the taxability of pawnshops." They
were issued pursuant to the CIR’s power under Section 245 of the Tax Code "to
make rulings or opinions in connection with the implementation of the provisions of
internal revenue laws, including ruling on the classification of articles of sales and
similar purposes."The Court held that under R.A. No. 1125 (An Act Creating the
Court of Tax Appeals), as amended, such rulings of the CIR are appealable to the
CTA.

In the case at bar, the assailed revenue regulations and revenue memorandum
circulars are actually rulings or opinions of the CIR on the tax treatment of motor
vehicles sold at public auction within the SSEZ to implement Section 12 of R.A. No.
7227 which provides that "exportation or removal of goods from the territory of the
[SSEZ] to the other parts of the Philippine territory shall be subject to customs duties
and taxes under the Customs and Tariff Codeand other relevant tax laws of the
Philippines." They were issued pursuant to the power of the CIR under Section 4 of
the National Internal Revenue Code x x x.24 (emphasis added)

The respective teachings in British American Tobacco and Asia International

Auctioneers, at first blush, appear to bear no conflict––that when the validity or
constitutionality of an administrative rule or regulation is assailed, the regular courts
have jurisdiction; and if what is assailed are rulings or opinions of the Commissioner
on tax treatments, jurisdiction over the controversy is lodged with the CTA. The
problem with the above postulates, however, is that they failed to take into
consideration one crucial point––a taxpayer can raise both issues simultaneously.

Petitioner avers that there is now a trend wherein both the CTA and the CA disclaim
jurisdiction over tax cases: on the one hand, mere prayer for the declaration of a tax
measure’s unconstitutionality or invalidity before the CTA can result in a petition’s
outright dismissal, and on the other hand, the CA will likewise dismiss the same
petition should it find that the primary issue is not the tax measure’s validity but the
assessment or taxability of the transaction or subject involved. To illustrate this point,
petitioner cites the assailed Resolution, thusly: Admittedly, in British American
Tobacco vs. Camacho, the Supreme Court has ruled that the determination of
whether a specific rule or set of rules issued by an administrative agency
contravenes the law or the constitution is within the jurisdiction of the regular courts,
not the CTA.

10
xxxx

Petitioner essentially questions the CIR’s ruling that Petitioner’s sale of shares is a
taxable donation under Sec. 100 of the NIRC. The validity of Sec. 100 of the NIRC,
Sec. 7 (C.2.2) and RMC 25-11 is merely questioned incidentally since it was used by
the CIR as bases for its unfavourable opinion. Clearly, the Petition involves an issue
on the taxability of the transaction rather than a direct attack on the constitutionality
of Sec. 100, Sec.7 (c.2.2.) of RR 06-08 and RMC 25-11. Thus, the instant Petition
properly pertains to the CTA under Sec. 7 of RA 9282.

As a result of the seemingly conflicting pronouncements, petitioner submits that

taxpayers are now at a quandary on what mode of appeal should be taken, to which
court or agency it should be filed, and which case law should be followed.

Petitioner’s above submission is specious.

In the recent case of City of Manila v. Grecia-Cuerdo,25 the Court en banc has ruled
that the CTA now has the power of certiorari in cases within its appellate jurisdiction.
To elucidate:

The prevailing doctrine is that the authority to issue writs of certiorari involves the
exercise of original jurisdiction which must be expressly conferred by the Constitution
or by law and cannot be implied from the mere existence of appellate jurisdiction.
Thus, x x x this Court has ruled against the jurisdiction of courts or tribunals over
petitions for certiorari on the ground that there is no law which expressly gives these
tribunals such power. Itmust be observed, however, that x x x these rulings pertain
not to regular courts but to tribunals exercising quasijudicial powers. With respect
tothe Sandiganbayan, Republic Act No. 8249 now provides that the special criminal
court has exclusive original jurisdiction over petitions for the issuance of the writs of
mandamus, prohibition, certiorari, habeas corpus, injunctions, and other ancillary
writs and processes in aid of its appellate jurisdiction.

In the same manner, Section 5 (1), Article VIII of the 1987 Constitution grants power
to the Supreme Court, in the exercise of its original jurisdiction, to issue writs of
certiorari, prohibition and mandamus. With respect to the Court of Appeals, Section 9
(1) of Batas Pambansa Blg. 129 (BP 129) gives the appellate court, also in the
exercise of its original jurisdiction, the power to issue, among others, a writ of
certiorari, whether or not in aid of its appellate jurisdiction. As to Regional Trial
Courts, the power to issue a writ of certiorari, in the exercise of their original
jurisdiction, is provided under Section 21 of BP 129.

The foregoing notwithstanding, while there is no express grant of such power, with
respect to the CTA, Section 1, Article VIII of the 1987 Constitution provides,
nonetheless, that judicial power shall be vested in one Supreme Court and in such
lower courts as may be established by law and that judicial power includes the duty
of the courts of justice to settle actual controversies involving rights which are legally
11
demandable and enforceable, and to determine whether or not there has been a
grave abuse of discretion amounting to lack or excess of jurisdiction on the part of
any branch or instrumentality of the Government.

On the strength of the above constitutional provisions, it can be fairly interpreted that
the power of the CTA includes that of determining whether or not there has been
grave abuse of discretion amounting to lack or excess of jurisdiction on the part of
the RTC in issuing an interlocutory order in cases falling within the exclusive
appellate jurisdiction of the tax court. It, thus, follows that the CTA, by constitutional
mandate, is vested with jurisdiction to issue writs of certiorari in these cases.

Indeed, in order for any appellate court to effectively exercise its appellate
jurisdiction, it must have the authority to issue, among others, a writ of certiorari. In
transferring exclusive jurisdiction over appealed tax cases to the CTA, it can
reasonably be assumed that the law intended to transfer also such power as is
deemed necessary, if not indispensable, in aid of such appellate jurisdiction. There is
no perceivable reason why the transfer should only be considered as partial, not
total. (emphasis added)

Evidently, City of Manilacan be considered as a departure from Ursal in that in spite

of there being no express grant in law, the CTA is deemed granted with powers of
certiorari by implication. Moreover, City of Manila diametrically opposes British
American Tobacco to the effect that it is now within the power of the CTA, through its
power of certiorari, to rule on the validity of a particular administrative ruleor
regulation so long as it is within its appellate jurisdiction. Hence, it can now rule not
only on the propriety of an assessment or tax treatment of a certain transaction, but
also on the validity of the revenue regulation or revenue memorandum circular on
which the said assessment is based.

Guided by the doctrinal teaching in resolving the case at bar, the fact that the CA
petition not only contested the applicability of Sec. 100 of the NIRC over the sales
transaction but likewise questioned the validity of Sec. 7 (c.2.2) of RR 06-08 and
RMC 25-11 does not divest the CTA of its jurisdiction over the controversy, contrary
to petitioner's arguments.

The price difference is subject to donor's tax

Petitioner's substantive arguments are unavailing. The absence of donative intent, if

that be the case, does not exempt the sales of stock transaction from donor's tax
since Sec. 100 of the NIRC categorically states that the amount by which the fair
market value of the property exceeded the value of the consideration shall be
deemed a gift.1âwphi1 Thus, even if there is no actual donation, the difference in
price is considered a donation by fiction of law.

Moreover, Sec. 7(c.2.2) of RR 06-08 does not alter Sec. 100 of the NIRC but merely
sets the parameters for determining the "fair market value" of a sale of stocks. Such
12
issuance was made pursuant to the Commissioner's power to interpret tax laws and
to promulgate rules and regulations for their implementation.

Lastly, petitioner is mistaken in stating that RMC 25-11, having been issued after the
sale, was being applied retroactively in contravention to Sec. 246 of the NIRC.26
Instead, it merely called for the strict application of Sec. 100, which was already in
force the moment the NIRC was enacted.

WHEREFORE, the petition is hereby DISMISSED. The Resolutions of the Court of

Appeals in CA-G.R. SP No. 127984 dated May 23, 2013 and January 21, 2014 are
hereby AFFIRMED.

SO ORDERED.

DIGEST/ SUMMARY:

In Philippine American Life and General Insurance Co. (Philamlife) v. The Secretary
of Finance and Commissioner of Internal Revenue (CIR), GR 210987, November 24,
2014, the SC, likewise, reiterated that the CTA has the power of certiorari in cases
within its appellate jurisdiction. In the said case, the taxpayer requested a ruling from
the Bureau of Internal Revenue (BIR) to confirm that its sale is not subject to donor’s
tax. The CIR issued an adverse ruling. Aggrieved, the taxpayer requested the SOF
to review the ruling. The SOF, however, affirmed the ruling. The taxpayer elevated
the case to the CA via a petition for review under Rule 43 of the ROC. The CA
dismissed the petition and ruled that, pursuant to Section 7(a)(1) of Republic Act
(RA) 1125, as amended by RA 9282, it is the CTA that has jurisdiction. The SC ruled
that the review by the SOF of a BIR ruling is appealable to the CTA, not the CA, a
doctrine reiterated in the recent decision of Banco de Oro et al. v. Republic, GR
198756, January 13, 2015. What is important to note, however, in this case, is the
ruling of the SC to the effect that it is now within the power of the CTA, through its
power of certiorari, to rule on the validity of a particular administrative rule or
regulation so long as it is within its appellate jurisdiction. The SC ruled that the CTA
can now rule not only on the propriety of an assessment or tax treatment of a certain
transaction, but also on the validity of the revenue regulation or revenue
memorandum circular on which the assessment is based.

2. METRO PACIFIC CORPORATION (super long case)

DIGEST:

Metro Pacific Corporation vs. CIR

13
CTA Case No. 8318, June 11 2014

DOCTRINE:

In case where property is transferred for less than an adequate and full consideration
in money or money's worth, then the amount by which the fair market value (FMV) of
the property exceeded the value of the consideration shall be deemed a gift, and
shall be included in computing the amount of gifts made during the calendar year.

FACTS:

Petitioner MPC sold to ColmbusHoldings, Inc. (CHI) 2,597,197 common shares in

Bonifacio Land Corporation (BLC).

Further, petitioner, through Atty. Tagao, requested respondent for "confirmation that
the sale ofBonifacio Land Corporation (BLC) shares of stocks owned by MPC to
Columbus Holdings, Inc. (CHI) is not subject to donor's tax as provided in Section
100 of the Internal Revenue Code] as it is an ordinary business transaction
negotiated in good faith by unrelated parties for legitimate business purposes.

Petitioner, as seller, filed CGT Return with the BIR LTS-Regular and the DST. The
said CGT return showed that there was no tax due or paid for the transaction.

The CIR confirmed that the sales transaction over the BLC shares between petitioner
as seller and CHI as buyer is not subject to donor's tax because it is an ordinary
commercial transaction negotiated in good faith between unrelated parties and
motivated by legitimate business reasons.

Later, petitioner received a Notice for Informal Conference (Notice) from respondent
BIR LTS-Regular, informing petitioner that the subject transaction is actually subject
to donor's tax.

In response, petitioner wrote respondent requesting for the re-evaluation of the

factual information presented by petitioner and for the cancellation of the tax
assessment shown in the Notice, which was received by respondent through the BIR
LTS-Regular.
Petitioner received BIR LTSRegular a Final Assessment Notice (FAN), details of
discrepancy and Audit Result/ Assessment Notice, reiterating its demand for
payment of deficiency donor's tax.

14
Petitioner filed its formal protest, however, the same was denied by the respondent.

Thus, the petitioner filed the instant Petition for review.

ISSUE:

Whether or not MPC is liable for the deficiency donor's tax assessment.

HELD:

YES. Petitioners claim for donor’s tax exemption has no legal basis.

Section 100 of the 1997 NIRC, as amended, is clear that in case where property is
transferred for less than an adequate and full consideration in money or money's
worth, then the amount by which the fair market value (FMV) of the property
exceeded the value of the consideration shall be deemed a gift, and shall be
included in computing the amount of gifts made during the calendar year. It is thus,
important to determine the "fair market value" (FMV) of the property sold or
transferred, and whether it exceeded the value of the consideration.

Petitioner alleges, on the assumption that the subject shares were sold for less than
their "fair market value", that the subject transaction was an ordinary business
transaction negotiated in good faith by unrelated parties for legitimate purposes
operate to exclude the subject transaction from the coverage of Section 100 of the
NIRC, the same being a transfer which is bona fide, at arm's length.

After a careful reading of the bases cited by petitioner, the court find that the alleged
exemption/exception from the donor's tax under the said provision of law was not
clearly established therein.

3.G.R. No. 111904 October 5, 2000

SPS. AGRIPINO GESTOPA and ISABEL SILARIO GESTOPA, petitioners,

vs.
COURT OF APPEALS and MERCEDES DANLAG y PILAPIL, respondents.

DECISION

QUISUMBING, J.:

15
This petition for review,1 under Rule 45 of the Rules of Court, assails the decision2
of the Court of Appeals dated August 31, 1993, in CA-G.R. CV No. 38266, which
reversed the judgment3 of the Regional Trial Court of Cebu City, Branch 5.

The facts, as culled from the records, are as follows:

Spouses Diego and Catalina Danlag were the owners of six parcels of unregistered
lands. They executed three deeds of donation mortis causa, two of which are dated
March 4, 1965 and another dated October 13, 1966, in favor of private respondent
Mercedes Danlag-Pilapil.4 The first deed pertained to parcels 1 & 2 with Tax
Declaration Nos. 11345 and 11347, respectively. The second deed pertained to
parcel 3, with TD No. 018613. The last deed pertained to parcel 4 with TD No.
016821. All deeds contained the reservation of the rights of the donors (1) to amend,
cancel or revoke the donation during their lifetime, and (2) to sell, mortgage, or
encumber the properties donated during the donors' lifetime, if deemed necessary.

On January 16, 1973, Diego Danlag, with the consent of his wife, Catalina Danlag,
executed a deed of donation inter vivos5 covering the aforementioned parcels of
land plus two other parcels with TD Nos. 11351 and 11343, respectively, again in
favor of private respondent Mercedes. This contained two conditions, that (1) the
Danlag spouses shall continue to enjoy the fruits of the land during their lifetime, and
that (2) the donee can not sell or dispose of the land during the lifetime of the said
spouses, without their prior consent and approval. Mercedes caused the transfer of
the parcels' tax declaration to her name and paid the taxes on them.

On June 28, 1979 and August 21, 1979, Diego and Catalina Danlag sold parcels 3
and 4 to herein petitioners, Mr. and Mrs. Agripino Gestopa. On September 29, 1979,
the Danlags executed a deed of revocation6 recovering the six parcels of land
subject of the aforecited deed of donation inter vivos.

On March 1, 1983, Mercedes Pilapil (herein private respondent) filed with the RTC a
petition against the Gestopas and the Danlags, for quieting of title7 over the above
parcels of land. She alleged that she was an illegitimate daughter of Diego Danlag;
that she lived and rendered incalculable beneficial services to Diego and his mother,
Maura Danlag, when the latter was still alive. In recognition of the services she
rendered, Diego executed a Deed of Donation on March 20, 1973, conveying to her
the six (6) parcels of land. She accepted the donation in the same instrument, openly
and publicly exercised rights of ownership over the donated properties, and caused
the transfer of the tax declarations to her name. Through machination, intimidation
and undue influence, Diego persuaded the husband of Mercedes, Eulalio Pilapil, to
buy two of the six parcels covered by the deed of donation. Said donation inter vivos
was coupled with conditions and, according to Mercedes, since its perfection, she
had complied with all of them; that she had not been guilty of any act of ingratitude;
and that respondent Diego had no legal basis in revoking the subject donation and
then in selling the two parcels of land to the Gestopas.

16
In their opposition, the Gestopas and the Danlags averred that the deed of donation
dated January 16, 1973 was null and void because it was obtained by Mercedes
through machinations and undue influence. Even assuming it was validly executed,
the intention was for the donation to take effect upon the death of the donor. Further,
the donation was void for it left the donor, Diego Danlag, without any property at all.

On December 27, 1991, the trial court rendered its decision, thus:

"WHEREFORE, the foregoing considered, the Court hereby renders judgment in

favor of the defendants and against the plaintiff:

1. Declaring the Donations Mortis Causa and Inter Vivos as revoked, and,
therefore, has (sic) no legal effect and force of law.

2. Declaring Diego Danlag the absolute and exclusive owner of the six (6)
parcels of land mentioned in the Deed of revocation (Exh. P-plaintiff, Exh. 6-
defendant Diego Danlag).

3. Declaring the Deeds of Sale executed by Diego Danlag in favor of spouses

Agripino Gestopa and Isabel Gestopa dated June 28, 1979 (Exh. S-plaintiff;
Exh. 18-defendant); Deed of Sale dated December 18, 1979 (Exh. T plaintiff;
Exh. 9-defendant); Deed of Sale dated September 14, 1979 (Exh. 8); Deed of
Sale dated June 30, 1975 (Exh. U); Deed of Sale dated March 13, 1978 (Exh.
X) as valid and enforceable duly executed in accordance with the formalities
required by law.

4. Ordering all tax declaration issued in the name of Mercedes Danlag Y Pilapil
covering the parcel of land donated cancelled and further restoring all the tax
declarations previously cancelled, except parcels nos. 1 and 5 described, in
the Deed of Donation Inter Vivos (Exh. "1") and Deed of Sale (Exh. "2")
executed by defendant in favor of plaintiff and her husband.

[5.] With respect to the contract of sale of abovestated parcels of land, vendor
Diego Danlag and spouse or their estate have the alternative remedies of
demanding the balance of the agreed price with legal interest, or rescission of
the contract of sale.

SO ORDERED."8

In rendering the above decision, the trial court found that the reservation clause in all
the deeds of donation indicated that Diego Danlag did not make any donation; that
the purchase by Mercedes of the two parcels of land covered by the Deed of
Donation Inter Vivos bolstered this conclusion; that Mercedes failed to rebut the
allegations of ingratitude she committed against Diego Danlag; and that Mercedes
committed fraud and machination in preparing all the deeds of donation without
explaining to Diego Danlag their contents.

17
Mercedes appealed to the Court of Appeals and argued that the trial court erred in
(1) declaring the donation dated January 16, 1973 as mortis causa and that the
same was already revoked on the ground of ingratitude; (2) finding that Mercedes
purchased from Diego Danlag the two parcels of land already covered by the above
donation and that she was only able to pay three thousand pesos, out of the total
amount of twenty thousand pesos; (3) failing to declare that Mercedes was an
acknowledged natural child of Diego Danlag.

On August 31, 1993, the appellate court reversed the trial court. It ruled:

"PREMISES CONSIDERED, the decision appealed from is REVERSED and a new

judgment is hereby rendered as follows:

1. Declaring the deed of donation inter vivos dated January 16, 1973 as not
having been revoked and consequently the same remains in full force and
effect;

2. Declaring the Revocation of Donation dated June 4, 1979 to be null and

void and therefore of no force and effect;

3. Declaring Mercedes Danlag Pilapil as the absolute and exclusive owner of

the six (6) parcels of land specified in the above-cited deed of donation inter
vivos;

4. Declaring the Deed of Sale executed by Diego Danlag in favor of spouses

Agripino and Isabel Gestopa dated June 28, 1979 (Exhibits S and 18), Deed of
Sale dated December 18, 1979 (Exhibits T and 19), Deed of Sale dated
September 14, 1979 (Exhibit 8), Deed of Sale dated June 30, 1975 (Exhibit U),
Deed of Sale dated March 13, 1978 (Exhibit X) as well as the Deed of Sale in
favor of Eulalio Danlag dated December 27, 1978 (Exhibit 2) not to have been
validly executed;

5. Declaring the above-mentioned deeds of sale to be null and void and

therefore of no force and effect;

6. Ordering spouses Agripino Gestopa and Isabel Silerio Gestopa to reconvey

within thirty (30) days from the finality of the instant judgment to Mercedes
Danlag Pilapil the parcels of land above-specified, regarding which titles have
been subsequently fraudulently secured, namely those covered by O.C.T. T-
17836 and O.C.T. No. 17523.

7. Failing to do so, ordering the Branch Clerk of Court of the Regional Trial
Court (Branch V) at Cebu City to effect such reconveyance of the parcels of
land covered by O.C.T. T-17836 and 17523.

SO ORDERED."9

18
The Court of Appeals held that the reservation by the donor of lifetime usufruct
indicated that he transferred to Mercedes the ownership over the donated properties;
that the right to sell belonged to the donee, and the donor's right referred to that of
merely giving consent; that the donor changed his intention by donating inter vivos
properties already donated mortis causa; that the transfer to Mercedes' name of the
tax declarations pertaining to the donated properties implied that the donation was
inter vivos; and that Mercedes did not purchase two of the six parcels of land
donated to her.

Hence, this instant petition for review filed by the Gestopa spouses, asserting that:

"THE HONORABLE COURT OF APPEALS, TWELFTH DIVISION, HAS GRAVELY

ERRED IN REVERSING THE DECISION OF THE COURT A QUO."10

Before us, petitioners allege that the appellate court overlooked the fact that the
donor did not only reserve the right to enjoy the fruits of the properties, but also
prohibited the donee from selling or disposing the land without the consent and
approval of the Danlag spouses. This implied that the donor still had control and
ownership over the donated properties. Hence, the donation was post mortem.

Crucial in resolving whether the donation was inter vivos or mortis causa is the
determination of whether the donor intended to transfer the ownership over the
properties upon the execution of the deed.11

In ascertaining the intention of the donor, all of the deed's provisions must be read
together.12 The deed of donation dated January 16, 1973, in favor of Mercedes
contained the following:

"That for and in consideration of the love and affection which the Donor inspires in
the Donee and as an act of liberality and generosity, the Donor hereby gives,
donates, transfer and conveys by way of donation unto the herein Donee, her heirs,
assigns and successors, the above-described parcels of land;

That it is the condition of this donation that the Donor shall continue to enjoy all the
fruits of the land during his lifetime and that of his spouse and that the donee cannot
sell or otherwise, dispose of the lands without the prior consent and approval by the
Donor and her spouse during their lifetime.

xxx

That for the same purpose as hereinbefore stated, the Donor further states that he
has reserved for himself sufficient properties in full ownership or in usufruct enough
for his maintenance of a decent livelihood in consonance with his standing in society.

That the Donee hereby accepts the donation and expresses her thanks and gratitude
for the kindness and generosity of the Donor."13

19
Note first that the granting clause shows that Diego donated the properties out of
love and affection for the donee. This is a mark of a donation inter vivos.14 Second,
the reservation of lifetime usufruct indicates that the donor intended to transfer the
naked ownership over the properties. As correctly posed by the Court of Appeals,
what was the need for such reservation if the donor and his spouse remained the
owners of the properties? Third, the donor reserved sufficient properties for his
maintenance in accordance with his standing in society, indicating that the donor
intended to part with the six parcels of land.15 Lastly, the donee accepted the
donation. In the case of Alejandro vs. Geraldez, 78 SCRA 245 (1977), we said that
an acceptance clause is a mark that the donation is inter vivos. Acceptance is a
requirement for donations inter vivos. Donations mortis causa, being in the form of a
will, are not required to be accepted by the donees during the donors' lifetime.

Consequently, the Court of Appeals did not err in concluding that the right to dispose
of the properties belonged to the donee. The donor's right to give consent was
merely intended to protect his usufructuary interests. In Alejandro, we ruled that a
limitation on the right to sell during the donors' lifetime implied that ownership had
passed to the donees and donation was already effective during the donors' lifetime.

The attending circumstances in the execution of the subject donation also

demonstrated the real intent of the donor to transfer the ownership over the subject
properties upon its execution.16 Prior to the execution of donation inter vivos, the
Danlag spouses already executed three donations mortis causa. As correctly
observed by the Court of Appeals, the Danlag spouses were aware of the difference
between the two donations. If they did not intend to donate inter vivos, they would
not again donate the four lots already donated mortis causa. Petitioners' counter
argument that this proposition was erroneous because six years after, the spouses
changed their intention with the deed of revocation, is not only disingenious but also
fallacious. Petitioners cannot use the deed of revocation to show the spouses' intent
because its validity is one of the issues in this case.

Petitioners aver that Mercedes' tax declarations in her name can not be a basis in
determining the donor's intent. They claim that it is easy to get tax declarations from
the government offices such that tax declarations are not considered proofs of
ownership. However, unless proven otherwise, there is a presumption of regularity in
the performance of official duties.17 We find that petitioners did not overcome this
presumption of regularity in the issuance of the tax declarations. We also note that
the Court of Appeals did not refer to the tax declarations as proofs of ownership but
only as evidence of the intent by the donor to transfer ownership.

Petitioners assert that since private respondent purchased two of the six parcels of
land from the donor, she herself did not believe the donation was inter vivos. As aptly
noted by the Court of Appeals, however, it was private respondent's husband who
purchased the two parcels of land.

20
As a rule, a finding of fact by the appellate court, especially when it is supported by
evidence on record, is binding on us.18 On the alleged purchase by her husband of
two parcels, it is reasonable to infer that the purchase was without private
respondent's consent. Purchase by her husband would make the properties conjugal
to her own disadvantage. That the purchase is against her self-interest, weighs
strongly in her favor and gives credence to her claim that her husband was
manipulated and unduly influenced to make the purchase, in the first place.1âwphi1

Was the revocation valid? A valid donation, once accepted, becomes irrevocable,
except on account of officiousness, failure by the donee to comply with the charges
imposed in the donation, or ingratitude.19 The donor-spouses did not invoke any of
these reasons in the deed of revocation. The deed merely stated:

"WHEREAS, while the said donation was a donation Inter Vivos, our intention thereof
is that of Mortis Causa so as we could be sure that in case of our death, the above-
described properties will be inherited and/or succeeded by Mercedes Danlag de
Pilapil; and that said intention is clearly shown in paragraph 3 of said donation to the
effect that the Donee cannot dispose and/or sell the properties donated during our
life-time, and that we are the one enjoying all the fruits thereof."20

Petitioners cited Mercedes' vehemence in prohibiting the donor to gather coconut

trees and her filing of instant petition for quieting of title. There is nothing on record,
however, showing that private respondent prohibited the donors from gathering
coconuts. Even assuming that Mercedes prevented the donor from gathering
coconuts, this could hardly be considered an act covered by Article 765 of the Civil
Code.21 Nor does this Article cover respondent's filing of the petition for quieting of
title, where she merely asserted what she believed was her right under the law.

Finally, the records do not show that the donor-spouses instituted any action to
revoke the donation in accordance with Article 769 of the Civil Code.22
Consequently, the supposed revocation on September 29, 1979, had no legal effect.

WHEREFORE, the instant petition for review is DENIED. The assailed decision of
the Court of Appeals dated August 31, 1993, is AFFIRMED.

Costs against petitioners.

SO ORDERED.

DIGEST:

GESTOPA VS. CA FACTS- Acceptance in Donation

21
Acceptance is a mark that the donation is inter vivos. Donations mortis causa, being
in the form of a will, are not required to be accepted by the donee during the donor’s
lifetime.

FACTS:

Spouses Danlag own six parcels of land. To four parcels of land, they executed a
donation mortis causa in favor of respondent Mercedes Danlag-Pilapil, reserving
donor's rights to amend, cancel, or revoke the donation and to sell or encumber such
properties. Years later, they executed another donation, this time inter vivos, to six
parcels of land in favor of respondents, reserving their rights to the fruits of the land
during their lifetime and for prohibiting the donee to sell or dispose the properties
donated. Subsequently, the spouses sold 2 parcels to herein petitioners, spouses
Gestopa, and eventually revoking the donation. Respondent filed a petition to quiet
title, stating that she had already become the owner of the parcels of land. Trial
Court ruled in favor of petitioners, but CA reversed.

ISSUE:

Whether the (second) donation was inter vivos or mortis causa

RULING:

It was donation inter vivos. The spouses were aware of the difference between the
two donations, and that they needed to execute another deed of donation inter vivos,
since it has a different application to a donation mortis causa. Also, the court stated
four reasons to the matter: (1) that the spouses donated the parcels of land out of
love and affection, a clear indication of a donation inter vivos; (2) the reservation of a
lifetime usufruct; (3) reservation of sufficient properties for maintenance that shows
the intention to part with their six lot; and (4) respondent's acceptance, contained in
the deed of donation. Once a deed of donation has been accepted, it cannot be
revoked, except for officiousness or ingratitude, which the spouses failed to invoke.

4. G.R. No. L-5949 November 19, 1955

TANG HO, WILLIAM LEE, HENRI LEE, SOFIA LEE TEEHANKEE, THOMAS LEE,
ANTHONY LEE, JULIA LEE KAW, CHARLES LEE, VALERIANA LEE YU,
VICTOR LEE, SILVINO LEE, MARY LEE, JOHN LEE, and PETER LEE, for
themselves and as heirs of LI SENG GIAP, deceased, petitioners,
vs.

22
THE BOARD OF TAX APPEALS and THE COLLECTOR OF INTERNAL
REVENUE, respondents.

Ozaeta, Roxas, Lichauco and Picazo for petitioners.

Office of the Solicitor General Juan R. Liwag and Solicitor Jose P. Alejandro for
respondents.

REYES, J.B.L., J.:

This is a petition for the review of the petition of the defunct Board of Tax Appeals
holding petitioner Li Seng Giap, et al. liable for gift taxes in accordance with the
assessments made by the respondent Collector of Internal Revenue.

Petitioners Li Seng Giap (who died during the pendency of this appeal) and his wife
Tang Ho and their thirteen children appear to be the stockholder of two close family
corporations named Li Seng Giap & Sons, Inc. and Li Seng Giap & Co. On or about
May, 1951, examiners of the Bureau of Internal Revenue, then detailed to the Allas
Committee of the Congress of the Philippines, made an examination of the books of
the two corporation aforementioned and found that each of Li Seng Giap's 13
children had a total investment therein of approximately P63,195.00, in shares
issued to them by their father Li Seng Giap (who was the manager and controlling
stockholder of the two corporations) in the years 1940, 1942, 1948, 1949, and 1950
in the following amounts:

Donees 1940 1942 1948 1949 1950

William 7,500 12,500 6,750 27,940 7,500
Lee
Henry Lee 7,500 12,500 6,750 27,940 7,500
Sofia Lee 7,500 12,500 16,500 26,690
Thomas 7,500 12,500 7,500 28,190 7,500
Lee
Anthony 18,000 7,500 28,190 7,500
Lee
Julia Lee 20,000 15,000 25,690 2,500
Charles 20,000 7,500 60,690 7,500
Lee
Valeriana 63,190 2,500
Lee
Victor Lee 63,190

23
 Silvino 63,190
Lee
Mary Lee 63,190
John Lee 63,190
Peter Lee 63,190

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

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

DONORS 1939- 1945- 1949 1950 TOTAL

44 46
Li Seng Exempt Exempt P1,110.72 P74.14 P1,184.86
Giap
Tang Ho Exempt Exempt 1,110.72 74.14 1,184.86
Total None None P2,221.44 P148.28 P2,369.72
William Exempt Exempt P253.80 P30.00 P283.80
24
 Lee
Henry Lee Exempt Exempt Exempt 15.00 15.00
Sofia Lee Exempt Exempt P51.90 None 51.90
Thomas Exempt Exempt Exempt 15.00 15.00
Lee
Anthony Exempt Exempt Exempt 15.00 15.00
Lee
Julia Lee Exempt Exempt 26.90 Exempt 26.90
Charles Exempt Exempt Exempt 15.00 15.00
Lee
Valeriana Exempt Exempt 26.90 Exempt 26.90
Lee
Victor Lee Exempt Exempt 403.80 None 403.80
Silvino Lee Exempt Exempt 403.80 None 403.80
Mary Lee Exempt Exempt 403.80 None 403.80
John Lee Exempt Exempt 403.80 None 403.80
Peter Lee Exempt Exempt 403.80 None 403.80
Total None None P2,378.50 P90.00 P2,468.50
Grand total liability of Donors P4,599.94 P238.28 P4,838.22
and Donees

The Collector refused to revise his original assessments; and the petitioners
appealed to the then Board of Tax Appeals (created by Executive Order 401-A, in
1951) insisting that the entries in the books of the corporation do not prove
donations; that the true amount and date of the donation were those appearing in
their tax returns; and that the donees merely bought stocks in the corporation out of
savings made from the money received from their parents. The Board of Tax
Appeals upheld the decision of the respondent Collector of Internal Revenue; hence,
this petition for review.

The questions in this appeal may be summarized as follows:

(1) Whether or not the dates and amounts of the donations taxable against
petitioners were as found by the Collector of Internal Revenue from the books of the
corporations Li Seng Giap & Sons, Inc. and Li Seng Giap & Co., or as set forth in
petitioners' gift tax returns;
25
(2) Whether or not the donations made by petitioner Li Seng Giap to his children
from the conjugal property should be taxed against the husband alone, or against
husband and wife; and

(3) Whether or not petitioners should be allowed the tax deduction claimed by them.

On the first question, which is of fact the appellants take the preliminary stand that
because of Collector failed to specifically deny the allegation of their petition in the
Tax Board he must be deemed to have admitted the annual and propter nuptias
donations alleged by them, and that he is estopped from denying their existence. As
the proceedings before the Tax Board were administrative in character, not governed
by the Rules of Court (see Sec. 10, Executive Order 401-A),and as the Collector
actually submitted his own version of the transactions, we do not consider that the
Collector's failure to make specific denials should be given the same binding effect
as in strict court pleadings.

Going now to the merits of the issue. The appealed findings of the Board of Tax
Appeals and of the Collector of Internal Revenue (that the stock transfers from Li
Seng Giap to his children were donations) appear supported by the following
circumstances:

(1) That the transferor Li Seng Giap (now deceased) had in fact conveyed shares to
stock to his 13 children on the dates and in the amounts shown in the table on page
2 of this decision.

(2) That none of the transferees appeared to possess adequate independent means
to buy the shares, so much so that they claim now to have purchased the shares
with the cash donations made to them from time to time.

(3) That the total of the alleged cash donations to each child is practically identical to
the value of the shares supposedly purchased by each donee.

(4) That there is no evidence other than the belated sworn gift tax returns of the
spouses Li Seng Giap and Ang Tang Ho, and their children, appellants herein, to
support their contention that the shares were acquired by purchase. No contracts of
sale or other documents were presented, nor any witnesses introduced; not even the
claimants themselves have testified.

(5) The claim that the shares were acquired by the children by purchase was first
advanced only after the assessment of gift taxes and penalties due thereon (in the
sum of P76,995.31) had been made, and after the appellants had paid P53,434.50
on account, and had filed a bond to guarantee the balance.

(6) That for the parent to donate cash to enable the donee to buy from him shares of
equivalent value is, for all intents and purposes, a donation of such shares to the
purchaser donee.

26
We cannot say, under the circumstances, that there is no sufficient evidence on
record to support the findings of the Tax Board that the stock transfers above
indicated were made by way of donation, as would entitle us to disregard or reverse
the Board's finding.

The filing of the gift tax returns only after assessments and part payment of the taxes
demanded by the Collector, and the lack of corroboration of the alleged donations in
cash, amply justify the Tax Board's distrust of the veracity of the appellants' belated
tax returns "on or before the first of March following the close of the calendar year"
when the gifts were made (Sec. 115, par. [c]; and besides the return a written notice
to the Collector of each donation of P10,000 or more, must be given within thirty
days after the donation, Sec. 114). These yearly returns and notices are evidently
designed to enable the Collector to verify promptly their truth and correctness, while
the gifts are still recent and proof of the circumstances surrounding the making
thereof is still fresh and accessible. On their own admission, appellants failed to file
for ten successive years, the corresponding returns for the alleged yearly gifts of
P4,000 to each child, and likewise failed to give the notices for the P20,000 marriage
gifts to each married child. Hence, they are now scarcely in a position to complain if
their contentions are not accepted as truthful without satisfactory corroboration. Any
other view would leave the collection of taxes at the mercy of explanations concocted
ex post facto by evading taxpayers, drafted to suit any facts disclosed upon
investigation, and safe from contradiction because the passing years have erased all
trace of the truth.

The second and third issues in this appeal revolve around appellants' thesis that
inasmuch as the property donated was community property (gananciales), and such
property is jointly owned by their parents, the total amount of the gifts made in each
year should be divided between the father and the mother, as separate donors, and
should be taxed separately to each one of them.

In assessing the worth of this contention, it must be ever borne in mind that
appellants have not only failed to prove that the donations were actually made by
both spouses, Li Seng Giap and Tang Ho, but that precisely the contrary appears
from their own evidence. In the original claim for tax refund, filed with the Collector of
Internal Revenue, under date of June 25, 1951 (copied in pages 6 and 7 of the
appellants' petition for review addressed to the Board of Tax Appeals), the father, Li
Seng Giap, describes himself as "the undersigned donor" (par. 1) and speaks of
"cash donations made by the undersigned" (par. 3), without in any way mentioning
his wife as a co-participant in the donation. The issue is thus reduced to the
following: Is a donation of community property by the father alone equivalent in law
to a donation of one-half of its value by the father and one-half by the mother?
Appellants submit that all such donations of community property are to be regarded,
for tax purposes, as donations by both spouses, for which two separate exemptions
may be claimed in each instance, one for each spouse.

27
This presentation should be viewed in the light of the provisions of the Spanish Civil
Code of 1889, which was the governing law in the years herein involved, 1939 to
1950. the determinative rule is that of Arts. 1409 and 1415, reading as follows:

Art. 1409. The conjugal partnership shall also be chargeable with anything
which may have been given or promised by the husband to the children born
of the marriage solely in order to obtain employment for them or give them a
profession, or by both spouses by common consent, should they not have
stipulated that such expenditures should be borne in whole or in part by the
separate property of one of them.

ART. 1415, p. 1. — The husband may dispone of the property of the conjugal
partnership for the purposes mentioned in Art. 1409.

In effect, these Articles clearly refute the appellants' theory that because the property
donated is community property, the donations should be viewed as made by both
spouses. First, because the law clearly differentiates the donations of such property
"by the husband" from the "donations by both spouses by common consent" ("por el
marido . . . o por ambos conyuges de comun acuerdo," in the Spanish text).

Next, the wording of Arts. 1409 and 1415 indicates that the lawful donations by the
husband to the common children are valid and are chargeable to the community
property, irrespective of whether the wife agrees or objects thereof. Obviously,
should the wife object to the donation, she can not be regarded as a donor at all.

Even more: Suppose that the husband should make a donation of some community
property to a concubine or paramour. Undeniably, the wife cannot be regarded as
joining in any such donation. Yet under the old Civil Code, the donation would stand,
with the only limitation that the wife should not be prejudiced in the division of the
profits after the conjugal partnership affairs are liquidated. So that if the value of the
donation should be found to fit within the limits of the husband's ultimate share in the
conjugal partnership profits, the donation by the husband would remain unassailable,
over and against the non-participation of the wife therein. This Court has so ruled in
Baello vs. Villanueva (54 Phil. 213, 214):

According to article 1413 of the Civil Code, any transfer or agreement upon
conjugal property made by the husband in contravention of its provisions, shall
not prejudice his wife or her heirs. As the conjugal property belongs equally to
husband and wife, the donation of this property made by the husband
prejudices the wife in so far as it includes a part or the whole of the wife's half,
and is to that extent invalid. Hence article 1419, in providing for the liquidation
of the conjugal partnership, directs that all illegal donations made by the
husband be charged against his estates and deducted from his capital. But it is
only then, when the conjugal partnership is in the process of liquidation, that it
can be discovered whether or not an illegal donation made by the husband
prejudices the wife. And inasmuch as these gifts are only to be held invalid in
28
 so far as they prejudice the wife, their nullity cannot be decided until after the
liquidation of the conjugal partnership and it is found that they encroach upon
the wife's portion.

Appellants herein are therefore in error when they contend that it is enough that the
property donated should belong to the conjugal partnership in order that the donation
be considered and taxed as a donation of both husband and wife, even if the
husband should appear as the sole donor. There is no blinking the fact that, under
the old Civil Code, to be a donation by both spouses, taxable to both, the wife must
expressly join the husband in making the gift; her participation therein cannot be
implied.

It is true, as appellants stress, that in Gibbs vs. Government of the Philippines, 59

Phil., 293, this Court ruled that "the wife, upon acquisition of any conjugal property,
becomes immediately vested with an interest and title equal to that of the husband";
but this Court was careful to immediately add, "subject to the power of management
and disposition which the law vests on the husband." As has been shown, this power
of disposition may, within the legal limits, override the objections of the wife and
render the donation of the husband fully effective without need of the wife's joining
therein. (Civil Code of 1889, Arts 1409, 1415.)

It becomes unnecessary to discuss the nature of a conjugal partnership, there being

specific rules on donations of property belonging to it. The consequence of the
husband's legal power to donate community property is that, where made by the
husband alone, the donation is taxable as his own exclusive act. Hence, only one
exemption or deduction can be claimed for every such gift, and not two, as claimed
by appellants herein. In thus holding, the Board of Tax Appeals committed no error.

Premises considered, we are of the opinion and so declare:

(a) That the finding of the defunct Board of Tax Appeals to the effect that shares
transferred from Li Seng Giap to his children were conveyed to them by way of
donation inter vivos is supported by adequate evidence, and therefore cannot be
reviewed by this Court (Comm. of Internal Revenue. vs. Court Holding Co., L. Ed.
981; Comm. of Internal Revenue vs. Scottish American Investment Co., 89 L. Ed.
113; Comm. of Internal Revenue vs. Tower, 90 L. Ed. 670; Helvering vs. Tax Penn.
Oil Co., 81 L. Ed. 755).

(b) That under the old Civil Code, a donation by the husband alone does not become
in law a donation by both spouses merely because it involves property of the
conjugal partnership;

(c) That such a donation of property belonging to the conjugal partnership, made
during its existence, by the husband alone in favor of the common children, is
taxable to him exclusively as sole donor.

29
Wherefore, the decision appealed from is affirmed with costs to the appellants. So
ordered.

DIGEST:

TANG HO V BOARD OF TAX APPEALS

97 PHIL 890
REYES, J.B.L.; November 19, 1955
Apple

FACTS
-Li Seng Giap (who died during the pendency of this appeal) and his wife Tang Ho
and their thirteen children appear to be stockholders of two close family corporations
named Li Seng Giap & Sons, Inc. and Li Seng Giap & Co.
-Examiners of the Bureau of Internal Revenue made an examination of the books of
the two corporations and found that each of Li Seng Giap's 13 children had a total
investment therein of approximately P63,195.00, in shares issued to them by their
father in the years 1940, 1942, 1948, 1949, and 1950
-The Collector of Internal Revenue regarded these transfers as undeclared gifts
made in the respective years, and assessed against Li Seng Giap and his children
donor's and donee's taxes in the total amount of P76,995.31, including penalties,
surcharges, interests, and compromise fee due to the delayed payment of the taxes.
- The petitioners paid P53,434.50 representing the amount of the basic taxes, and
put up a surety bond to guarantee payment of the balance demanded.

-On June 25, 1951, they requested the Collector of Internal Revenue for a revision of
their tax assessments, and submitted donor's and donee's gift tax returns
-Appellants admit that the gifts were not reported; but contend that as the cash
donated came from the conjugal funds, they constituted individual donations by each
of the spouses Li Seng Giap and Tang Ho of one half of the amount received by the
donees in each instance
-They also claimed the benefit of gift tax exemptions (under section 110 and 112 of
the Internal Revenue Code) at the rate of P2000 a year for each donation, plus
P10,000 for each gift propter nuptias made by either parent
-The Collector refused to revise his original assessments; and the petitioners
appealed to the then Board of Tax Appeals
30
-The Board of Tax Appeals upheld the decision of the respondent Collector of
Internal Revenue; hence, this petition for review

ISSUE
WON the donations made by petitioner Li Seng Giap to his children from the
conjugal property are taxable against husband and wife, and therefore, exemptions
may be claimed twice

HELD
No.
-Appellants submit that all such donations of community property are to be regarded,
for tax purposes, as donations by both spouses, for which two separate exemptions
may be claimed in each instance, one for each spouse.
-This presentation should be viewed in the light of the provisions of the Spanish Civil
Code of 1889. Arts. 1409 and 1415, reading as follows:
Art. 1409. The conjugal partnership shall also be chargeable with anything which
may have been given or promised by the husband to the children born of the
marriage solely in order to obtain employment for them or give them a profession, or
by both spouses by common consent, should they not have stipulated that such
expenditures should be borne in whole or in part by the separate property of one of
them.
ART. 1415. The husband may dispose of the property of the conjugal partnership for
the purposes mentioned in Art. 1409.
-In effect, these Articles clearly refute the appellants' theory that because the
property donated is community property, the donations should be viewed as made by
both spouses. First, because the law clearly differentiates the donations of such
property "by the husband" from the "donations by both spouses by common consent"
-Next, the wording of Arts. 1409 and 1415 indicates that the lawful donations by the
husband to the common children are valid and are chargeable to the community
property, irrespective of whether the wife agrees or objects thereof. Obviously,
should the wife object to the donation, she can not be regarded as a donor at all.
-Appellants herein are therefore in error when they contend that it is enough that the
property donated should belong to the conjugal partnership in order that the donation
be considered and taxed as a donation of both husband and wife, even if the
husband should appear as the sole donor. There is no blinking the fact that, under
the old Civil Code, to be a donation by both spouses, taxable to both, the wife
must expressly join the husband in making the gift; her participation therein cannot
be implied.
-The consequence of the husband's legal power to donate community

31
 5. G.R. No. L-14166 April 28, 1962

FINLEY J. GIBBS, as Trustee for JOHNSON KELLEY GIBBS, ALLISON

DEFRANCE GIBBS,
CANDACE GIBBS, DOUGLAS FLETCHER GIBBS, and REGINALD KELLEY
GIBBS, plaintiff-petitioner;
ALLISON J. GIBBS and ESTHER K. GIBBS, intervenors-petitioners,
vs.
COLLECTOR OF INTERNAL REVENUE and COURT of TAX APPEALS,
respondents.

-----------------------------

G.R. No. L-14320 April 28, 1962

COLLECTOR OF INTERNAL REVENUE, petitioner,

vs.
FINLEY J. GIBBS, as Trustee for JOHNSON KELLEY GIBBS, ALLISON
DEFRANCE GIBBS,
CANDACE GIBBS, DOUGLAS FLETCHER GIBBS and REGINALD KELLEY
GIBBS, respondent;
ALLISON J. GIBBS and ESTHER K. GIBBS, respondents-intervenors.

Ozaeta, Gibbs and Ozaeta for petitioner Finley J. Gibbs, et al.

Office of the Solicitor General for respondent Collector of Internal Revenue.

CONCEPCION, J.:

These are two (2) appeals, one by the plaintiff and the plaintiffs-intervenors and the
other by the Government, from a decision of the Court of Tax Appeals, hereafter
referred to as the lower court, promulgated on February 28, 1958, the dispositive part
of which reads:

IN VIEW OF THE FOREGOING, the decision appeal from is modified, and the
defendant Collector of Internal Revenue is hereby ordered to refund to the
plaintiff the sum P5,381.88, as computed in Annex "A" hereof, with interest the
legal rate from date of payment, Without special pronouncement as to costs.

as amended by a resolution of said lower court, dated July 25, 1958, the concluding
paragraph of which is as follows:

WHEREFORE, our decision of February 28, 1958 is modified in the sense that
the delinquency interest of one-half (1/2) of one (1%) percent should be
computed on the deficiency taxes only from July 1, 1954 to July 30, 1954, and
the defendant Collector of Internal Revenue is hereby ordered refund to
plaintiff the sum of P9,387.54 as computed in Annex "A" hereof, with interest

32
 at the legal rate from date of payment. Without special pronouncement as to
costs. 1äwphï1.ñët

On September 25, 1950, Allison J. Gibbs and his wife Esther K. Gibbs, hereinafter
referred to as trustors, executed five (5) separate documents each, entitled "Deed of
Sale and Declaration of Trust", whereby the respective trustors transferred, sold and
assigned, in trust, 53,000 shares of stock of the Lepanto Consolidated Mining Co., in
favor of each one of their five (5) children, namely Johnson Kelley Gibbs, Allison
Defrance Gibbs, Candace Gibbs, Douglas Fletcher Gibbs and Reginald Kelley Gibbs
in consideration of the sum of P26,227.70, to be paid "on or before December 23,
1950, by selling, mortgaging, hypothecating or pledging part or all of the corpus of
the trust." The market value of said 53,000 shares on September 25, 1950 was
P34,980.00.

The terms and conditions of the ten (10) deeds trust were identical. Instituted trustee,
without bond, in said ten (10) deeds, was Finley J. Gibbs, a brother of trustor Allison
J. Gibbs, who, as attorney-in-fact of the former, accepted the trust, in his (Finley J.
Gibbs') name, for and on behalf of the aforementioned beneficiaries. The trust was to
terminate upon the respective beneficiary reaching the age of 35. If the beneficiary
died before reaching that age, leaving legitimate issue the trust would continue, but
for the benefit of the latter, and the full distribution and termination of the trust with
respect to such issue would be effected not later than 20 years after the death of
said beneficiary. If the beneficiary died before reaching the age of 35 leaving no
legitimate issue, the trustee would turn over the trust corpus or the remainder thereof
and any accumulated income, share and share alike, to the other beneficiaries or
children of the trustors.

On October 24, 1950, the trustors gave notice to the then Collector of Internal
Revenue, hereafter referred to as defendant, of the execution of the ten (10) deeds
of trust and requested a ruling on whether or not gift taxes were due thereon. Soon,
thereafter, or on December 14, 1950, defendant assessed a donee gift tax of P75.00
on each of the beneficiaries in said trust agreements, or a total of P750.40, and a
donor gift tax of P774.04 on each of the trustors, or P1,548.08 for both. These
assessments were based upon the difference between said market value of the
shares of stock and the stipulated consideration for transfer thereof. On December
22, 1950, defendant revised his assessment of the donor gift tax by increasing it from
P774.04 to P342.84 for each trustor, or a total of P1,685.68. The next day, the donee
gift taxes were, also, increased, from the aforementioned total sum of P750.40 to
P17,856.90.

Within the period fixed by law, or on May 15, 1951, said donor and donee gift taxes
in the sums of P1,685.68 and P17,856.90, respectively, were paid. Subsequently,
the refund of P17,106.50, representing the difference between the amount if the first
assessment (P750.40) for donee gift taxes and that of the second assessment
thereof (P17,856.90), was demanded, but the demand was, on August 23, 1951,
turned down by the defendant. The trustee appealed to the Secretary of Finance.
33
Before the latter could pass upon the appeal, however, the Board of Tax Appeals
was created by Executive Order No. 401 of the President of the Philippines. The
pertinent records were then forwarded to said Board. Alleging fear of expiration of
the two-year period for the refund of said sum of P17,106.50, on May 12, 1953, the
trustee instituted Civil Case No. 19541 of the Court of First Instance of Manila
against the defendant for the recovery of such amount.

Meanwhile, or on December 28, 1951, the trustors, by five (5) separate documents
each, had created ten (10) additional and separate trusts, each involving 22,400
shares of stock of the same mining company, in favor of each of the aforementioned
beneficiaries, for the stipulated consideration of P17,430, to be paid by the trustees
within 120 days after the transfer of said stock has been effected in the books of the
mining company. In all other respects, the terms and conditions of this second set of
deeds of trusts are identical to those of the first set. Admittedly, the market value of
said 22,400 shares was then P19,264.00.

These additional deeds of trust impelled the defendant to assess, on April 8, 1952, a
donor gift tax of P304.42 on each trustor, or a total of P608.84 for both trustors, and
a donee gift tax of P36.69, on each of the beneficiaries, or a total of P366.90. These
amounts were paid on May 15, 1952, within the statutory period therefor.

Holding that gift taxes are available on the full market value of all the shares of stock
thus placed in trust — instead of upon the difference between said market value and
the stipulated considerations — on June 16, 1954, defendant assessed additional
donor gift taxes in the sums of P5,093.71 on each trustor, or a total of P10,187.42,
for the ten (10) trusts created on September 25, 1950, and P8,788.78, on each
trustor, or a total of P17,577.56 for the trusts created on December 28, 1951.
Additional donee gift taxes were, likewise, assessed in the sum of P12,040.30 for the
ten (10) additional trusts created on December 28, 1951. The corresponding
assessment notices demanded that these three (3) sums be paid on or before June
30, 1954. Upon request of the taxpayers, they were given an extension up to July 31,
1954, on which date said sums were paid under protest. Thus, the amounts paid
under protest for the two (2) sets of trusts in question aggregate P56,911.78,
itemized as follows: .

Donee gift taxes on the trusts created on September 25, 1950 P17,106.50
Donor gift taxes on the trusts created on September 25, 1950 10,187.42
Donee gift taxes on the trusts created on December 28, 1951 12,040.30
Donor gift taxes on the trusts created on December 28, 1951 17,577.56

TOTAL....................... P56,911.78
============

In the meantime, or on June 16, 1954, Republic Act No. 1125, creating the Court of
Tax Appeals, had been approved and become effective. Pursuant to section 22 of
34
said Act, the records of Civil Case No. 19541 of the Court of First Instance of Manila
were, on August 26, 1954, forwarded to the Court of Tax Appeals. In October, 1955,
the trustors intervened in the case as plaintiffs-intervenors. In their complaint in
intervention they prayed for the refund of the additional donor gift taxes paid by them
in the aggregate sum of P27,764.98, with interest and attorney's fees. In July, 1956,
the trustee amended his complaint to include therein the claim for refund of the
aggregate sum of P50,911.78 specified above. In due course, thereafter, the Court of
Tax Appeals rendered its aforementioned decision, which on motion for
reconsideration was amended as adverted to above. Hence, these appeals, one by
the trustee (plaintiff) and the trustors (plaintiffs-intervenors), G. R. No. L-14166, and
another by the defendant, G. R. No. L-14320.

The main issue raised in the first appeal is whether the gift taxes on the transfer of
the shares of stock aforementioned should be based on the full market value of said
shares of stock at the time of the respective transfers thereof or only upon the
difference between said market value and the consideration stipulated in the trust
agreements. The defendant adhered to the first alternative, which the Court of Tax
Appeals, likewise, adopted, upon the ground that the stipulated considerations were
— except as to the aggregate sum of P52,277.00 allegedly paid by the trustee in
June 1953 — in effect, simulated.

Indeed, the stipulated consideration of P262,277.00, for the transfer of the 530,000
shares of stock involved in first set of deeds of trust were to be paid, pursuant
thereto, "on or before December 23, 1950, by selling, mortgaging, hypothecating or
pledging part or all of the corpus the trust". On December 2, 1950, the Central Bank
granted plaintiff's application for license to sell, assign or encumber said shares of
stock. Yet nothing was done pay the stipulated consideration on the date set
therefor. What is more, the trustors did not demand payment of, or do anything to
collect, said consideration.

It is true that on June 15, 1953, or about three and a half years (3-1/2) after the latter
had become due, Allison Gibbs, as one of the trustors and as attorney-in-fact for the
trustee, as well as the other trustor, his wife, Esther K. Gibbs, executed ten (10)
documents entitled Compromise Agreement", stating that the parties had agreed to
suspend and defer payment of the sum of P26,277.70 stipulated in each of the first
ten (10) trust agreements, and to liquidate the obligation to make said payment as
follows: (a) the trustee would pay P5,227.70 on or before June 30, 1953; and (b) the
balance of P21,000.00 would be paid on or before the 21st birthday of the respective
beneficiaries or the date of termination of the trust, which ever date came first. The
trustee and the trustors have likewise, introduced in evidence, ten (10) promissory
notes of the trustee, for said sum of P21,000, allegedly executed in compliance with
said compromise agreements.

These did not merit, however, full faith and credence from the Court of Tax Appeals,
which regarded such agreements, as well as said promissory notes, as a mere
devise to avoid and evade payment of the corresponding gift taxes. Considering that
35
the trustee is a brother of trustor Allison J. Gibbs; that the ten (10) cash payment of
P5,277.70 each, referred to in the compromise agreements aforementioned, were
seemingly made to trustors Esther K. Gibbs and Allison J. Gibbs by the latter as
attorney-in-fact of the trustee, his brother Finley J. Gibbs; that there was absolutely
no consideration for the release of the trustee from the obligation to pay P26,227.70
on or before December 23, 1950, under each of the deeds of trust executed on
September 25, 1950; that the promissory notes adverted to above bear no date and
were not executed before any witness; and that the date of maturity therein set is so
distant, in relation to the due dates under said deeds of trust, we find no justification
for disturbing the conclusion reached by the lower court. In fact, said conclusion is
borne out by the following circumstances: .

1. In answer to the following question propounded by a Judge of said court .

If the trusts were created for the benefit of your children and as you said, one
of the consequences of which was your love and affection for your children,
what need was there for you to impose this burden of requiring them to pay for
those shares?

trustor Allison J. Gibbs answered:

Well, there were tax considerations involved, Your Honor, I have not only to
think of the Philippine tax problems but also the United States tax problems. I
very carefully went into the whole matter before my wife and I decided on
doing what we did. I studied and came to the conclusion that we could not
afford to make an outright gift of these shares, that the taxes that would result
not only to the Philippine government but to the United States government
would be too big for us to shoulder, considering the fact that we also are letting
off our control of transfers of our right into these substantial portion of our
assets. We could not have afforded to do it. It calls by way of future interest
under the United States gift tax laws for payment of gift taxes. We are allowed
an exemption both — for both my wife — for each of my wife and myself of
$30,000.00 under the United States Federal gift tax law. But these gifts, had
they been accepted ... had they been made 100% rather, these transfers had
they been made without any consideration would have been taxable 100% at
the market value on that date. That would have resulted on a tremendous tax
both to the Philippine government and to the United States government. We
could not afford to pay those taxes, and that is fundamentally one reason for
fixing the price that we did fix which was premised upon our cost.

2. The deeds of trust state that the purpose thereof is "to establish an endowment for
the support, maintenance, care, health, higher education and travel of the beneficiary
and the launching of his career after he becomes of age". These purposes would be
materially impaired, if not entirely defeated, if the beneficiaries were to pay the
stipulated consideration aggregating P262,277, under the first set of deeds of trust,
and P174,300 under the second set, or a total of P436,577. If we deduct this sum
36
from the aggregate market value of all the shares of stock in question — which is
P542,540 — the net value of the whole trust would be reduced to P105,863 and the
net value of the aggregate trust for each beneficiary would be no more than
P21,172.60. And, if as the trustee and the trustors maintain, the taxes under
consideration (P56,911.78) should be deducted from the corpus of the trust, the net
value of the aggregate trust for each beneficiary would be further reduced to
P9,790.244. Certainly, this amount, as well as the aforementioned sum of
P21,172.60 could hardly be sufficient for the "support, maintenance, care, health,
higher education and travel" of each beneficiary and "the launching of his career
after he has become of age." .

3. The trustors are financially well off. When the first set of deeds of trust were
executed (September 25, 1950), their assets in the Philippines and United States
were worth P1,500,000.00 and P500,000.00, respectively, at the rate of P2.00 to a
$1.00. If the trustors were earnestly concerned, as they seemingly were, in providing
ample funds to assure the support, maintenance, care, health, higher education and
travel of their children and the launching of their career after they had become of
age, the trustors would not have really meant to require them to pay the
consideration stipulated in the trust agreements. The subsequent acts of the trustors
showed that they did not intend to collect said consideration. As the lower court had
correctly observed:

... We assume that the trustors were indeed serious about the purpose of the
trusts. With this in mind, we cannot conceive how the purpose of the trust may
readily and liberally be achieved if the trust were to be burdened by such
onerous monetary consideration. Without the consideration, the purpose or
purposes of the trusts could have been more readily obtained. Consequently,
we feel constrained to treat the monetary considerations of the trusts as an
intended superfluity if not a subtlety, to becloud the donative intent of trustors.

4. The corpus of the trust was never totally or partially sold, hypothecated or
encumbered. Instead, after December 7, 1950, when the Central Bank authorized
the conversion of the shares of stock covered by the first set of trust agreements
from resident stocks to non-resident stocks, the corresponding cash dividends and
stock dividends declared by the mining company were sent directly to the trustee in
the United States, thus enabling the trustors to create dollar assets in the United
States. The testimony of trustor Allison J. Gibbs on this point is illuminating.

JUDGE LUCIANO

If, as you said, one of the purposes of imposing a consideration on the

trustee in your favor and that of your wife, was to protect the interest of
both you and your wife, why is it that when these dividends were
declared by the Lepanto Consolidated Mining Company, and were so
declared, you did not collect the consideration from these dividends to
offset the stipulated consideration in the series of trust agreements? .
37
 A — Because that would defeat the very objectives for which we created
the trusts and at least, one of the objectives was to transfer as much as
possible of our Philippine assets to the United States in the form of
dollars so as to create dollar assets in the United States on which our
children could rely under the trust indentures. In fact, that was the prime
basis upon which I secured the eventual licensing by the Central Bank
of the transactions. In fact, I told the Central Bank if they did not license
it on the basis on which I had proposed which I considered absolutely
legal, then I would find some other way of accomplishing the objective. If
necessary, I would leave the Philippine Islands and become a resident
of the United States. And, in that instance, under their regulations, there
could be no question that all of my assets in the Philippines which were
earning dividends would be entitled to have the dividends remitted to the
United States. They saw the logic of my reasoning and they finally
agreed on the transaction of issuing the license, XL-530 on December 2,
1950, Exhibit J-2, plaintiff. There has been no question from the very
beginning of one of the prime purposes of this transaction — it was to
create a dollar estate for our children in the United States, premised
upon our conviction that Lepanto Consolidated Mining Company was
going to pay dividends and that the Central Bank regulations would
allow the remittance of dividends to non-resident stockholders.

The trustors could have easily collected the stipulated consideration or part of it from
said dividends, yet they did not do so — they even saw to it that the dividends were
sent to the United States.

In connection with the trust agreements executed on December 28, 1951, the
trustee, represented by his attorney-in-fact, Allison J. Gibbs, and the latter, as one of
the trustors, as well as his wife, trustor Esther K. Gibbs, executed on July 15, 1953,
another set of deeds, entitled "Compromise Agreement", stating that the trustee
thereby resold, retransferred and reassigned to the trustor the 22,400 shares
covered by each of said trust agreements, for and in consideration of the sum of
P19,264 to be paid by the trustors by crediting to the trustee the sum of P17,430, the
consideration stipulated in each one of said trust agreements, thereby leaving a
balance of P1,843 to be paid to the trustee upon the trustor's repossession of the
corresponding stock certificates.

The main reason given in said compromise agreements for the provisions thereof is
the alleged inability of the trustee to sell, mortgage, hypothecate, or pledge the said
shares of stock or otherwise deal with third parties with a view to raising funds for the
payment of the consideration stipulated in the trust agreements, pending registration
of the transfer of said stock, in the books of the mining company, in view of the
conditions — not described in the compromise agreements — imposed by the
Central Bank for the issuance of a license authorizing said transfer, which —
according to the compromise agreements — are rightly unacceptable to the trustee.

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This reason is clearly artificious. The stock involved in the trust agreements of
September 25, 1950 were so transferred. Still no payment was made thereon.
Moreover, the trustee could have authorized the trustors to sell, mortgage,
hypothecate or otherwise dispose of said stock to raise the necessary funds, if the
intent was really that the stipulated consideration be paid. Indeed, as attorney in-fact
for the trustee, trustor Allison J. Gibbs, with the ample powers that his acts revealed
he had, could have simply granted such authority to himself and his wife, Esther K.
Gibbs, as trustors. Considering that one of the prime objectives of the trustors in
executing the trust agreements was "to transfer as much as possible of our
Philippine assets to the United States in the form of dollars", it is understandable that
they did not wish the stock in question to be disposed of in the Philippines, for this
would surely defeat the accomplishment of said objectives. At the same time, it is
apparent that the reason given in said compromise agreements for the execution
thereof is not true.

It may not be amiss to note, also, that the compromise agreements affecting the
trusts constituted on December 28, 1951, virtually revoked said trusts, contrary to the
explicit provision in the trust agreements, to the effect that the trusts therein
established are "irrevocable".

Another factor that affects adversely the credence and weight due to all of the
compromise agreements is that the same were made with knowledge of the fact that
the defendant was already investigating whether the stipulated consideration was
real or fictitious and entertaining the idea of assessing the corresponding gift taxes
on the basis of the full market value of the stock involved.

The trustee and the trustors maintain that the lower court erred in not deducting the
amount of the donor gift taxes from the value of the property subject to the donee gift
taxes, in view of the provision of the trust agreement to the effect —

In addition to the foregoing, the TRUSTEE shall pay out of the property and/or
the gross income of the trust estate all income, estate, gift, succession or
inheritance taxes, if any, payable by the VENDOR, TRUSTEE or
BENEFICIARY by reason of this trust.

We find no merit in this pretense. The questions as to who shall pay any given tax
and what shall be the basis thereof are determined by law, the operation of which
can not be affected by the provisions of a contract to which the Government is not a
party. This, of course, is without prejudice to the right, if any, of a party to the trust
agreements to demand reimbursement from the other party. But such right of
reimbursement is independent of, and foreign to, the right and duty of the defendant
to collect the taxes in the manner and under the conditions prescribed by law.

The appeal taken up by the defendant refers to the interest chargeable on the
amounts representing the taxes in question, and the interest on the sum to be
refunded by the Government.
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In its resolution of June 25, 1958, the Court of Tax Appeals held that interest of one-
half (1/2) of one (1%) percent should be charged on the deficiency taxes only from
July 1, 1954 to July 30, 1954, because the defendant had demanded payment on or
before June 30, 1954, of the deficiency donor gift taxes — amounting to P10,187.42
and P17,577.56 — assessed on the first and the second set of trust agreements,
respectively, and the deficiency donee gift taxes of P12,040.30, assessed on the
second set of trust agreements. The defendant maintains that said interest should be
charged from the 15th day of May following the calendar year in which the gifts in
question had been made, for section 116 of the tax Code provides —

The gift taxes imposed by section one hundred nine and one hundred ten of
this Chapter shall be due and payable on or before the fifteenth day of May
following the close of the calendar year and shall be paid by the donor or
donee, as the case may be, to the Collector of Internal Revenue or the
treasurer of the province city or municipality of which the donor or the donee is
a resident.

Upon the other hand, section 118 (b) of the same Code, on which the lower court
relied, reads: .

In case an extension for the payment of a deficiency is granted, there shall be

collected, as a part of the taxes, interest on the part of the deficiency the time
for payment of which is so extended, at the rate of six per centum per annum
for the period of the extensions. (Emphasis supplied.) .

At this juncture, it should be noted that the taxes assessed on the basis of the
difference between the market value and the consideration were paid within the
period fixed by law or on May 15, 1951, as regards to trusts created in 1950, and on
May 15, 1952, as regards the trusts constituted in 1951. Even the donor gift taxes,
under a revised assessment, and the deficiency donor gift taxes due on the first set
of trusts were paid in due time (May 15, 1951). With respect to the deficiency donor
gift taxes on the two sets of trust agreements and the deficiency donee gifts taxes
assessed on the second set of trust agreements, the defendant demanded payment
thereof on or before June 30, 1954. Had these assessments been paid on that date,
no interest whatsoever would have been due thereon. It is but fair and just, therefore,
that interest be charged only for the period of the extension secured for the payment
of the trust assessments, pursuant to section 118(b).

In support of the theory that interest is due, not only for said period of extension but,
also, from the fifteenth day of May of the year following that in which the trust had
been constituted, defendant cites section 119(b) (2) of the Tax Code, according to
which: .

If the part of the deficiency the time for payment of which is extended is not
paid in accordance with the terms of the extension, there shall be collected, as

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 a part of the taxes, interest on such unpaid amount at the rate of one per
centum a month from the date the same was originally due until it is paid.

This provision applies only when the taxes are not paid within the extension granted
by the Collector or Commissioner of Internal Revenue. It is inapplicable to the case
at bar, for the taxes involved herein were paid within said extension of time.

It is urged by the defendant that the Government should not be required to pay
interest on the amount refundable to the trustee and the trustors. The matter of
payment of interest on sums collected by way of taxes, which the Government is
subsequently sentenced to refund to the taxpayer, depends upon whether or not the
collection of said sums is manifestly unwarranted (Collector of Internal Revenue vs.
Convention of the Philippine Baptist Churches, et al., L-11807, May 19, 1961
[Resolution]; Collector of Internal Revenue vs. Sweeney, L-12178, August 21, 1959;
Collector of Internal Revenue vs. St. Paul's Hospital, etc., L-12127, May 21, 1959). In
the case at bar, it is clearly not so, in the light of the attending circumstances. Hence,
the amount refundable by the Government, pursuant to the decision appealed from,
should draw no interest, and said decision should be modified accordingly.

Thus modified, said decision should be, as it is hereby affirmed, in all other respects,
without pronouncement as to costs. It is so ordered.

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