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I direct that any money left by me be given to my nephew
Matthew Hanley.
ESTATE TAX 5. I direct that all real estate owned by me at the time of my
death be not sold or otherwise disposed of for a period of
G.R. No. L-43082 June 18, 1937 ten (10) years after my death, and that the same be handled
PABLO LORENZO, as trustee of the estate of Thomas Hanley, and managed by the executors, and proceeds thereof to be
deceased, plaintiff-appellant, given to my nephew, Matthew Hanley, at Castlemore,
vs. Ballaghaderine, County of Rosecommon, Ireland, and that he
JUAN POSADAS, JR., Collector of Internal Revenue, defendant- be directed that the same be used only for the education of
appellant. my brother's children and their descendants.
Pablo Lorenzo and Delfin Joven for plaintiff-appellant. 6. I direct that ten (10) years after my death my property be
Office of the Solicitor-General Hilado for defendant-appellant. given to the above mentioned Matthew Hanley to be
LAUREL, J.: disposed of in the way he thinks most advantageous.
On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as xxx xxx xxx
trustee of the estate of Thomas Hanley, deceased, brought this 8. I state at this time I have one brother living, named
action in the Court of First Instance of Zamboanga against the Malachi Hanley, and that my nephew, Matthew Hanley, is a
defendant, Juan Posadas, Jr., then the Collector of Internal Revenue, son of my said brother, Malachi Hanley.
for the refund of the amount of P2,052.74, paid by the plaintiff as The Court of First Instance of Zamboanga considered it proper for
inheritance tax on the estate of the deceased, and for the collection the best interests of ther estate to appoint a trustee to administer the
of interst thereon at the rate of 6 per cent per annum, computed real properties which, under the will, were to pass to Matthew Hanley
from September 15, 1932, the date when the aforesaid tax was [paid ten years after the two executors named in the will, was, on March 8,
under protest. The defendant set up a counterclaim for P1,191.27 1924, appointed trustee. Moore took his oath of office and gave
alleged to be interest due on the tax in question and which was not bond on March 10, 1924. He acted as trustee until February 29, 1932,
included in the original assessment. From the decision of the Court when he resigned and the plaintiff herein was appointed in his stead.
of First Instance of Zamboanga dismissing both the plaintiff's During the incumbency of the plaintiff as trustee, the defendant
complaint and the defendant's counterclaim, both parties appealed Collector of Internal Revenue, alleging that the estate left by the
to this court. deceased at the time of his death consisted of realty valued at
It appears that on May 27, 1922, one Thomas Hanley died in P27,920 and personalty valued at P1,465, and allowing a deduction
Zamboanga, Zamboanga, leaving a will (Exhibit 5) and considerable of P480.81, assessed against the estate an inheritance tax in the
amount of real and personal properties. On june 14, 1922, amount of P1,434.24 which, together with the penalties for
proceedings for the probate of his will and the settlement and deliquency in payment consisting of a 1 per cent monthly interest
distribution of his estate were begun in the Court of First Instance of from July 1, 1931 to the date of payment and a surcharge of 25 per
Zamboanga. The will was admitted to probate. Said will provides, cent on the tax, amounted to P2,052.74. On March 15, 1932, the
among other things, as follows: defendant filed a motion in the testamentary proceedings pending
before the Court of First Instance of Zamboanga (Special

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proceedings No. 302) praying that the trustee, plaintiff herein, be on the inheritance tax assessed by the defendant against the
ordered to pay to the Government the said sum of P2,052.74. The estate of Thomas Hanley.
motion was granted. On September 15, 1932, the plaintiff paid said The following are the principal questions to be decided by this court
amount under protest, notifying the defendant at the same time that in this appeal: (a) When does the inheritance tax accrue and when
unless the amount was promptly refunded suit would be brought for must it be satisfied? (b) Should the inheritance tax be computed on
its recovery. The defendant overruled the plaintiff's protest and the basis of the value of the estate at the time of the testator's death,
refused to refund the said amount hausted, plaintiff went to court or on its value ten years later? (c) In determining the net value of the
with the result herein above indicated. estate subject to tax, is it proper to deduct the compensation due to
In his appeal, plaintiff contends that the lower court erred: trustees? (d) What law governs the case at bar? Should the provisions
I. In holding that the real property of Thomas Hanley, of Act No. 3606 favorable to the tax-payer be given retroactive
deceased, passed to his instituted heir, Matthew Hanley, effect? (e) Has there been deliquency in the payment of the
from the moment of the death of the former, and that from inheritance tax? If so, should the additional interest claimed by the
the time, the latter became the owner thereof. defendant in his appeal be paid by the estate? Other points of
II. In holding, in effect, that there was deliquency in the incidental importance, raised by the parties in their briefs, will be
payment of inheritance tax due on the estate of said touched upon in the course of this opinion.
deceased. (a) The accrual of the inheritance tax is distinct from the obligation to
III. In holding that the inheritance tax in question be based pay the same. Section 1536 as amended, of the Administrative Code,
upon the value of the estate upon the death of the testator, imposes the tax upon "every transmission by virtue of inheritance,
and not, as it should have been held, upon the value thereof devise, bequest, gift mortis causa, or advance in anticipation of
at the expiration of the period of ten years after which, inheritance,devise, or bequest." The tax therefore is upon
according to the testator's will, the property could be and transmission or the transfer or devolution of property of a decedent,
was to be delivered to the instituted heir. made effective by his death. (61 C. J., p. 1592.) It is in reality an excise
IV. In not allowing as lawful deductions, in the determination or privilege tax imposed on the right to succeed to, receive, or take
of the net amount of the estate subject to said tax, the property by or under a will or the intestacy law, or deed, grant, or gift
amounts allowed by the court as compensation to the to become operative at or after death. Acording to article 657 of the
"trustees" and paid to them from the decedent's estate. Civil Code, "the rights to the succession of a person are transmitted
V. In not rendering judgment in favor of the plaintiff and in from the moment of his death." "In other words", said Arellano, C. J.,
denying his motion for new trial. ". . . the heirs succeed immediately to all of the property of the
The defendant-appellant contradicts the theories of the plaintiff and deceased ancestor. The property belongs to the heirs at the moment
assigns the following error besides: of the death of the ancestor as completely as if the ancestor had
The lower court erred in not ordering the plaintiff to pay to executed and delivered to them a deed for the same before his
the defendant the sum of P1,191.27, representing part of the death." (Bondad vs. Bondad, 34 Phil., 232. See also, Mijares vs. Nery, 3
interest at the rate of 1 per cent per month from April 10, Phil., 195; Suilong & Co., vs. Chio-Taysan, 12 Phil., 13; Lubrico vs.
1924, to June 30, 1931, which the plaintiff had failed to pay Arbado, 12 Phil., 391; Innocencio vs. Gat-Pandan, 14 Phil., 491; Aliasas
vs.Alcantara, 16 Phil., 489; Ilustre vs. Alaras Frondosa, 17 Phil., 321;

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Malahacan vs. Ignacio, 19 Phil., 434; Bowa vs. Briones, 38 Phil., 27; No. 3031, in relation to section 1543 of the same Code. The two
Osario vs. Osario & Yuchausti Steamship Co., 41 Phil., 531; Fule vs. sections follow:
Fule, 46 Phil., 317; Dais vs. Court of First Instance of Capiz, 51 Phil., SEC. 1543. Exemption of certain acquisitions and
396; Baun vs. Heirs of Baun, 53 Phil., 654.) Plaintiff, however, asserts transmissions. — The following shall not be taxed:
that while article 657 of the Civil Code is applicable to testate as well (a) The merger of the usufruct in the owner of the
as intestate succession, it operates only in so far as forced heirs are naked title.
concerned. But the language of article 657 of the Civil Code is broad (b) The transmission or delivery of the inheritance or
and makes no distinction between different classes of heirs. That legacy by the fiduciary heir or legatee to the
article does not speak of forced heirs; it does not even use the word trustees.
"heir". It speaks of the rights of succession and the transmission (c) The transmission from the first heir, legatee, or
thereof from the moment of death. The provision of section 625 of donee in favor of another beneficiary, in accordance
the Code of Civil Procedure regarding the authentication and with the desire of the predecessor.
probate of a will as a necessary condition to effect transmission of In the last two cases, if the scale of taxation appropriate to
property does not affect the general rule laid down in article 657 of the new beneficiary is greater than that paid by the first, the
the Civil Code. The authentication of a will implies its due execution former must pay the difference.
but once probated and allowed the transmission is effective as of the SEC. 1544. When tax to be paid. — The tax fixed in this article
death of the testator in accordance with article 657 of the Civil Code. shall be paid:
Whatever may be the time when actual transmission of the (a) In the second and third cases of the next
inheritance takes place, succession takes place in any event at the preceding section, before entrance into possession
moment of the decedent's death. The time when the heirs legally of the property.
succeed to the inheritance may differ from the time when the heirs (b) In other cases, within the six months subsequent
actually receive such inheritance. "Poco importa", says Manresa to the death of the predecessor; but if judicial
commenting on article 657 of the Civil Code, "que desde el testamentary or intestate proceedings shall be
falleimiento del causante, hasta que el heredero o legatario entre en instituted prior to the expiration of said period, the
posesion de los bienes de la herencia o del legado, transcurra mucho o payment shall be made by the executor or
poco tiempo, pues la adquisicion ha de retrotraerse al momento de la administrator before delivering to each beneficiary
muerte, y asi lo ordena el articulo 989, que debe considerarse como his share.
complemento del presente." (5 Manresa, 305; see also, art. 440, par. 1, If the tax is not paid within the time hereinbefore prescribed,
Civil Code.) Thomas Hanley having died on May 27, 1922, the interest at the rate of twelve per centum per annum shall be
inheritance tax accrued as of the date. added as part of the tax; and to the tax and interest due and
From the fact, however, that Thomas Hanley died on May 27, 1922, it unpaid within ten days after the date of notice and demand
does not follow that the obligation to pay the tax arose as of the thereof by the collector, there shall be further added a
date. The time for the payment on inheritance tax is clearly fixed by surcharge of twenty-five per centum.
section 1544 of the Revised Administrative Code as amended by Act

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A certified of all letters testamentary or of admisitration shall value at that time of such property as passes to him. Subsequent
be furnished the Collector of Internal Revenue by the Clerk appreciation or depriciation is immaterial." (Ross, Inheritance
of Court within thirty days after their issuance. Taxation, p. 72.)
It should be observed in passing that the word "trustee", appearing Our attention is directed to the statement of the rule in Cyclopedia of
in subsection (b) of section 1543, should read "fideicommissary" or Law of and Procedure (vol. 37, pp. 1574, 1575) that, in the case of
"cestui que trust". There was an obvious mistake in translation from contingent remainders, taxation is postponed until the estate vests in
the Spanish to the English version. possession or the contingency is settled. This rule was formerly
The instant case does fall under subsection (a), but under subsection followed in New York and has been adopted in Illinois, Minnesota,
(b), of section 1544 above-quoted, as there is here no fiduciary heirs, Massachusetts, Ohio, Pennsylvania and Wisconsin. This rule, horever,
first heirs, legatee or donee. Under the subsection, the tax should is by no means entirely satisfactory either to the estate or to those
have been paid before the delivery of the properties in question to P. interested in the property (26 R. C. L., p. 231.). Realizing, perhaps, the
J. M. Moore as trustee on March 10, 1924. defects of its anterior system, we find upon examination of cases and
(b) The plaintiff contends that the estate of Thomas Hanley, in so far authorities that New York has varied and now requires the immediate
as the real properties are concerned, did not and could not legally appraisal of the postponed estate at its clear market value and the
pass to the instituted heir, Matthew Hanley, until after the expiration payment forthwith of the tax on its out of the corpus of the estate
of ten years from the death of the testator on May 27, 1922 and, that transferred. (In re Vanderbilt, 172 N. Y., 69; 69 N. E., 782; In re Huber,
the inheritance tax should be based on the value of the estate in 86 N. Y. App. Div., 458; 83 N. Y. Supp., 769; Estate of Tracy, 179 N. Y.,
1932, or ten years after the testator's death. The plaintiff introduced 501; 72 N. Y., 519; Estate of Brez, 172 N. Y., 609; 64 N. E., 958; Estate
evidence tending to show that in 1932 the real properties in question of Post, 85 App. Div., 611; 82 N. Y. Supp., 1079. Vide also, Saltoun vs.
had a reasonable value of only P5,787. This amount added to the Lord Advocate, 1 Peter. Sc. App., 970; 3 Macq. H. L., 659; 23 Eng. Rul.
value of the personal property left by the deceased, which the Cas., 888.) California adheres to this new rule (Stats. 1905, sec. 5, p.
plaintiff admits is P1,465, would generate an inheritance tax which, 343).
excluding deductions, interest and surcharge, would amount only to But whatever may be the rule in other jurisdictions, we hold that a
about P169.52. transmission by inheritance is taxable at the time of the
If death is the generating source from which the power of the estate predecessor's death, notwithstanding the postponement of the
to impose inheritance taxes takes its being and if, upon the death of actual possession or enjoyment of the estate by the beneficiary, and
the decedent, succession takes place and the right of the estate to the tax measured by the value of the property transmitted at that
tax vests instantly, the tax should be measured by the vlaue of the time regardless of its appreciation or depreciation.
estate as it stood at the time of the decedent's death, regardless of (c) Certain items are required by law to be deducted from the
any subsequent contingency value of any subsequent increase or appraised gross in arriving at the net value of the estate on which the
decrease in value. (61 C. J., pp. 1692, 1693; 26 R. C. L., p. 232; inheritance tax is to be computed (sec. 1539, Revised Administrative
Blakemore and Bancroft, Inheritance Taxes, p. 137. See also Knowlton Code). In the case at bar, the defendant and the trial court allowed a
vs. Moore, 178 U.S., 41; 20 Sup. Ct. Rep., 747; 44 Law. ed., 969.) "The deduction of only P480.81. This sum represents the expenses and
right of the state to an inheritance tax accrues at the moment of disbursements of the executors until March 10, 1924, among which
death, and hence is ordinarily measured as to any beneficiary by the were their fees and the proven debts of the deceased. The plaintiff

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contends that the compensation and fees of the trustees, which expenses should be taken into consideration in fixing the value of the
aggregate P1,187.28 (Exhibits C, AA, EE, PP, HH, JJ, LL, NN, OO), estate for the purpose of this tax."
should also be deducted under section 1539 of the Revised (d) The defendant levied and assessed the inheritance tax due from
Administrative Code which provides, in part, as follows: "In order to the estate of Thomas Hanley under the provisions of section 1544 of
determine the net sum which must bear the tax, when an inheritance the Revised Administrative Code, as amended by section 3 of Act No.
is concerned, there shall be deducted, in case of a resident, . . . the 3606. But Act No. 3606 went into effect on January 1, 1930. It,
judicial expenses of the testamentary or intestate proceedings, . . . ." therefore, was not the law in force when the testator died on May 27,
A trustee, no doubt, is entitled to receive a fair compensation for his 1922. The law at the time was section 1544 above-mentioned, as
services (Barney vs. Saunders, 16 How., 535; 14 Law. ed., 1047). But amended by Act No. 3031, which took effect on March 9, 1922.
from this it does not follow that the compensation due him may It is well-settled that inheritance taxation is governed by the statute
lawfully be deducted in arriving at the net value of the estate subject in force at the time of the death of the decedent (26 R. C. L., p. 206; 4
to tax. There is no statute in the Philippines which requires trustees' Cooley on Taxation, 4th ed., p. 3461). The taxpayer can not foresee
commissions to be deducted in determining the net value of the and ought not to be required to guess the outcome of pending
estate subject to inheritance tax (61 C. J., p. 1705). Furthermore, measures. Of course, a tax statute may be made retroactive in its
though a testamentary trust has been created, it does not appear operation. Liability for taxes under retroactive legislation has been
that the testator intended that the duties of his executors and "one of the incidents of social life." (Seattle vs. Kelleher, 195 U. S.,
trustees should be separated. (Ibid.; In re Vanneck's Estate, 161 N. Y. 360; 49 Law. ed., 232 Sup. Ct. Rep., 44.) But legislative intent that a
Supp., 893; 175 App. Div., 363; In re Collard's Estate, 161 N. Y. Supp., tax statute should operate retroactively should be perfectly clear.
455.) On the contrary, in paragraph 5 of his will, the testator (Scwab vs. Doyle, 42 Sup. Ct. Rep., 491; Smietanka vs. First Trust &
expressed the desire that his real estate be handled and managed by Savings Bank, 257 U. S., 602; Stockdale vs. Insurance Co., 20 Wall.,
his executors until the expiration of the period of ten years therein 323; Lunch vs. Turrish, 247 U. S., 221.) "A statute should be
provided. Judicial expenses are expenses of administration (61 C. J., considered as prospective in its operation, whether it enacts, amends,
p. 1705) but, in State vs. Hennepin County Probate Court (112 N. W., or repeals an inheritance tax, unless the language of the statute
878; 101 Minn., 485), it was said: ". . . The compensation of a trustee, clearly demands or expresses that it shall have a retroactive effect, . . .
earned, not in the administration of the estate, but in the ." (61 C. J., P. 1602.) Though the last paragraph of section 5 of
management thereof for the benefit of the legatees or devises, does Regulations No. 65 of the Department of Finance makes section 3 of
not come properly within the class or reason for exempting Act No. 3606, amending section 1544 of the Revised Administrative
administration expenses. . . . Service rendered in that behalf have no Code, applicable to all estates the inheritance taxes due from which
reference to closing the estate for the purpose of a distribution have not been paid, Act No. 3606 itself contains no provisions
thereof to those entitled to it, and are not required or essential to the indicating legislative intent to give it retroactive effect. No such effect
perfection of the rights of the heirs or legatees. . . . Trusts . . . of the can begiven the statute by this court.
character of that here before the court, are created for the the The defendant Collector of Internal Revenue maintains, however, that
benefit of those to whom the property ultimately passes, are of certain provisions of Act No. 3606 are more favorable to the taxpayer
voluntary creation, and intended for the preservation of the estate. than those of Act No. 3031, that said provisions are penal in nature
No sound reason is given to support the contention that such and, therefore, should operate retroactively in conformity with the

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provisions of article 22 of the Revised Penal Code. This is the reason the trustee was delivery to the cestui que trust, the beneficiery in this
why he applied Act No. 3606 instead of Act No. 3031. Indeed, under case, within the meaning of the first paragraph of subsection (b) of
Act No. 3606, (1) the surcharge of 25 per cent is based on the tax section 1544 of the Revised Administrative Code. This contention is
only, instead of on both the tax and the interest, as provided for in well taken and is sustained. The appointment of P. J. M. Moore as
Act No. 3031, and (2) the taxpayer is allowed twenty days from notice trustee was made by the trial court in conformity with the wishes of
and demand by rthe Collector of Internal Revenue within which to the testator as expressed in his will. It is true that the word "trust" is
pay the tax, instead of ten days only as required by the old law. not mentioned or used in the will but the intention to create one is
Properly speaking, a statute is penal when it imposes punishment for clear. No particular or technical words are required to create a
an offense committed against the state which, under the testamentary trust (69 C. J., p. 711). The words "trust" and "trustee",
Constitution, the Executive has the power to pardon. In common use, though apt for the purpose, are not necessary. In fact, the use of
however, this sense has been enlarged to include within the term these two words is not conclusive on the question that a trust is
"penal statutes" all status which command or prohibit certain acts, created (69 C. J., p. 714). "To create a trust by will the testator must
and establish penalties for their violation, and even those which, indicate in the will his intention so to do by using language sufficient
without expressly prohibiting certain acts, impose a penalty upon to separate the legal from the equitable estate, and with sufficient
their commission (59 C. J., p. 1110). Revenue laws, generally, which certainty designate the beneficiaries, their interest in the ttrust, the
impose taxes collected by the means ordinarily resorted to for the purpose or object of the trust, and the property or subject matter
collection of taxes are not classed as penal laws, although there are thereof. Stated otherwise, to constitute a valid testamentary trust
authorities to the contrary. (See Sutherland, Statutory Construction, there must be a concurrence of three circumstances: (1) Sufficient
361; Twine Co. vs. Worthington, 141 U. S., 468; 12 Sup. Ct., 55; Rice vs. words to raise a trust; (2) a definite subject; (3) a certain or ascertain
U. S., 4 C. C. A., 104; 53 Fed., 910; Com. vs. Standard Oil Co., 101 Pa. object; statutes in some jurisdictions expressly or in effect so
St., 150; State vs. Wheeler, 44 P., 430; 25 Nev. 143.) Article 22 of the providing." (69 C. J., pp. 705,706.) There is no doubt that the testator
Revised Penal Code is not applicable to the case at bar, and in the intended to create a trust. He ordered in his will that certain of his
absence of clear legislative intent, we cannot give Act No. 3606 a properties be kept together undisposed during a fixed period, for a
retroactive effect. stated purpose. The probate court certainly exercised sound
(e) The plaintiff correctly states that the liability to pay a tax may arise judgment in appointment a trustee to carry into effect the provisions
at a certain time and the tax may be paid within another given time. of the will (see sec. 582, Code of Civil Procedure).
As stated by this court, "the mere failure to pay one's tax does not P. J. M. Moore became trustee on March 10, 1924. On that date trust
render one delinqent until and unless the entire period has eplased estate vested in him (sec. 582 in relation to sec. 590, Code of Civil
within which the taxpayer is authorized by law to make such payment Procedure). The mere fact that the estate of the deceased was placed
without being subjected to the payment of penalties for fasilure to in trust did not remove it from the operation of our inheritance tax
pay his taxes within the prescribed period." (U. S. vs. Labadan, 26 laws or exempt it from the payment of the inheritance tax. The
Phil., 239.) corresponding inheritance tax should have been paid on or before
The defendant maintains that it was the duty of the executor to pay March 10, 1924, to escape the penalties of the laws. This is so for the
the inheritance tax before the delivery of the decedent's property to reason already stated that the delivery of the estate to the trustee
the trustee. Stated otherwise, the defendant contends that delivery to was in esse delivery of the same estate to the cestui que trust, the

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beneficiary in this case. A trustee is but an instrument or agent for Rep., 46) they also will not place upon tax laws so loose a
the cestui que trust (Shelton vs. King, 299 U. S., 90; 33 Sup. Ct. Rep., construction as to permit evasions on merely fanciful and
689; 57 Law. ed., 1086). When Moore accepted the trust and took insubstantial distictions. (U. S. vs. Watts, 1 Bond., 580; Fed. Cas. No.
possesson of the trust estate he thereby admitted that the estate 16,653; U. S. vs. Wigglesirth, 2 Story, 369; Fed. Cas. No. 16,690,
belonged not to him but to his cestui que trust (Tolentino vs. Vitug, followed in Froelich & Kuttner vs. Collector of Customs, 18 Phil., 461,
39 Phil.,126, cited in 65 C. J., p. 692, n. 63). He did not acquire any 481; Castle Bros., Wolf & Sons vs. McCoy, 21 Phil., 300; Muñoz & Co.
beneficial interest in the estate. He took such legal estate only as the vs. Hord, 12 Phil., 624; Hongkong & Shanghai Banking Corporation
proper execution of the trust required (65 C. J., p. 528) and, his estate vs. Rafferty, 39 Phil., 145; Luzon Stevedoring Co. vs. Trinidad, 43 Phil.,
ceased upon the fulfillment of the testator's wishes. The estate then 803.) When proper, a tax statute should be construed to avoid the
vested absolutely in the beneficiary (65 C. J., p. 542). possibilities of tax evasion. Construed this way, the statute, without
The highest considerations of public policy also justify the conclusion resulting in injustice to the taxpayer, becomes fair to the
we have reached. Were we to hold that the payment of the tax could government.
be postponed or delayed by the creation of a trust of the type at That taxes must be collected promptly is a policy deeply intrenched
hand, the result would be plainly disastrous. Testators may provide, in our tax system. Thus, no court is allowed to grant injunction to
as Thomas Hanley has provided, that their estates be not delivered to restrain the collection of any internal revenue tax ( sec. 1578, Revised
their beneficiaries until after the lapse of a certain period of time. In Administrative Code; Sarasola vs. Trinidad, 40 Phil., 252). In the case
the case at bar, the period is ten years. In other cases, the trust may of Lim Co Chui vs. Posadas (47 Phil., 461), this court had occassion to
last for fifty years, or for a longer period which does not offend the demonstrate trenchment adherence to this policy of the law. It held
rule against petuities. The collection of the tax would then be left to that "the fact that on account of riots directed against the Chinese on
the will of a private individual. The mere suggestion of this result is a October 18, 19, and 20, 1924, they were prevented from praying their
sufficient warning against the accpetance of the essential to the very internal revenue taxes on time and by mutual agreement closed their
exeistence of government. (Dobbins vs. Erie Country, 16 Pet., 435; 10 homes and stores and remained therein, does not authorize the
Law. ed., 1022; Kirkland vs. Hotchkiss, 100 U. S., 491; 25 Law. ed., 558; Collector of Internal Revenue to extend the time prescribed for the
Lane County vs. Oregon, 7 Wall., 71; 19 Law. ed., 101; Union payment of the taxes or to accept them without the additional
Refrigerator Transit Co. vs. Kentucky, 199 U. S., 194; 26 Sup. Ct. Rep., penalty of twenty five per cent." (Syllabus, No. 3.)
36; 50 Law. ed., 150; Charles River Bridge vs. Warren Bridge, 11 Pet., ". . . It is of the utmost importance," said the Supreme Court of the
420; 9 Law. ed., 773.) The obligation to pay taxes rests not upon the United States, ". . . that the modes adopted to enforce the taxes
privileges enjoyed by, or the protection afforded to, a citizen by the levied should be interfered with as little as possible. Any delay in the
government but upon the necessity of money for the support of the proceedings of the officers, upon whom the duty is developed of
state (Dobbins vs. Erie Country, supra). For this reason, no one is collecting the taxes, may derange the operations of government, and
allowed to object to or resist the payment of taxes solely because no thereby, cause serious detriment to the public." (Dows vs. Chicago,
personal benefit to him can be pointed out. (Thomas vs. Gay, 169 U. 11 Wall., 108; 20 Law. ed., 65, 66; Churchill and Tait vs. Rafferty, 32
S., 264; 18 Sup. Ct. Rep., 340; 43 Law. ed., 740.) While courts will not Phil., 580.)
enlarge, by construction, the government's power of taxation
(Bromley vs. McCaughn, 280 U. S., 124; 74 Law. ed., 226; 50 Sup. Ct.

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It results that the estate which plaintiff represents has been plus an additional two hundred per centum. One per centum of ten
delinquent in the payment of inheritance tax and, therefore, liable for thousand pesos is P100. Two per centum of P18,904.19 is P378.08.
the payment of interest and surcharge provided by law in such cases. Adding to these two sums an additional two hundred per centum, or
The delinquency in payment occurred on March 10, 1924, the date P965.16, we have as primary tax, correctly computed by the
when Moore became trustee. The interest due should be computed defendant, the sum of P1,434.24.
from that date and it is error on the part of the defendant to To the primary tax thus computed should be added the sums
compute it one month later. The provisions cases is mandatory collectible under section 1544 of the Revised Administrative Code.
(see and cf. Lim Co Chui vs. Posadas, supra), and neither the Collector First should be added P1,465.31 which stands for interest at the rate
of Internal Revenuen or this court may remit or decrease such of twelve per centum per annum from March 10, 1924, the date of
interest, no matter how heavily it may burden the taxpayer. delinquency, to September 15, 1932, the date of payment under
To the tax and interest due and unpaid within ten days after the date protest, a period covering 8 years, 6 months and 5 days. To the tax
of notice and demand thereof by the Collector of Internal Revenue, a and interest thus computed should be added the sum of P724.88,
surcharge of twenty-five per centum should be added (sec. 1544, representing a surhcarge of 25 per cent on both the tax and interest,
subsec. (b), par. 2, Revised Administrative Code). Demand was made and also P10, the compromise sum fixed by the defendant (Exh. 29),
by the Deputy Collector of Internal Revenue upon Moore in a giving a grand total of P3,634.43.
communiction dated October 16, 1931 (Exhibit 29). The date fixed for As the plaintiff has already paid the sum of P2,052.74, only the sums
the payment of the tax and interest was November 30, 1931. of P1,581.69 is legally due from the estate. This last sum is P390.42
November 30 being an official holiday, the tenth day fell on more than the amount demanded by the defendant in his
December 1, 1931. As the tax and interest due were not paid on that counterclaim. But, as we cannot give the defendant more than what
date, the estate became liable for the payment of the surcharge. he claims, we must hold that the plaintiff is liable only in the sum of
In view of the foregoing, it becomes unnecessary for us to discuss P1,191.27 the amount stated in the counterclaim.
the fifth error assigned by the plaintiff in his brief. The judgment of the lower court is accordingly modified, with costs
We shall now compute the tax, together with the interest and against the plaintiff in both instances. So ordered.
surcharge due from the estate of Thomas Hanley inaccordance with G.R. No. L-36770 November 4, 1932
the conclusions we have reached. LUIS W. DISON, plaintiff-appellant,
At the time of his death, the deceased left real properties valued at vs.
P27,920 and personal properties worth P1,465, or a total of P29,385. JUAN POSADAS, JR., Collector of Internal Revenue, defendant-
Deducting from this amount the sum of P480.81, representing appellant.
allowable deductions under secftion 1539 of the Revised Marcelino Aguas for plaintiff-appellant.
Administrative Code, we have P28,904.19 as the net value of the Attorney-General Jaranilla for defendant-appellant.
estate subject to inheritance tax.
The primary tax, according to section 1536, subsection (c), of the
Revised Administrative Code, should be imposed at the rate of one BUTTE, J.:
per centum upon the first ten thousand pesos and two per centum This is an appeal from the decision of the Court of First Instance of
upon the amount by which the share exceed thirty thousand pesos, Pampanga in favor of the defendant Juan Posadas, Jr., Collector of

Page 8 of 43
Internal Revenue, in a suit filed by the plaintiffs, Luis W. Dison, for the It is inferred from Exhibit D that Felix Dison was a widower at the
recovery of an inheritance tax in the sum of P2,808.73 paid under time of his death.
protest. The petitioner alleged in his complaint that the tax is illegal The theory of the plaintiff-appellant is that he received and holds the
because he received the property, which is the basis of the tax, from property mentioned by a consummated gift and that Act No. 2601
his father before his death by a deed of gift inter vivos which was (Chapter 40 of the Administrative Code) being the inheritance tax
duly accepted and registered before the death of his father. The statute, does not tax gifts. The provision directly here involved is
defendant answered with a general denial and with a section 1540 of the Administrative Code which reads as follows:
counterdemand for the sum of P1,245.56 which it was alleged is a Additions of Gifts and Advances. — After the aforementioned
balance still due and unpaid on account of said tax. The plaintiff deductions have been made, there shall be added to the
replied to the counterdemand with a general denial. The court a resulting amount the value of all gifts or advances made by
quo held that the cause of action set up in the counterdemand was the predecessor to any of those who, after his death, shall
not proven and dismissed the same. Both sides appealed to this prove to be his heirs, devises, legatees, or donees mortis
court, but the cross-complaint and appeal of the Collector of Internal causa.
Revenue were dismissed by this court on March 17, 1932, on motion The question to be resolved may be stated thus: Does section 1540
of the of the Administrative Code subject the plaintiff-appellant to the
The only evidence introduced at the trial of this cause was the proof payment of an inheritance tax?
of payment of the tax under protest, as stated, and the deed of gift The appellant argues that there is no evidence in this case to support
executed by Felix Dison on April 9, 1928, in favor of his sons Luis W. a finding that the gift was simulated and that it was an artifice for
Dison, the plaintiff-appellant. This deed of gift transferred twenty- evading the payment of the inheritance tax, as is intimated in the
two tracts of land to the donee, reserving to the donor for his life the decision of the court below and the brief of the Attorney-General.
usufruct of three tracts. This deed was acknowledged by the donor We see no reason why the court may not go behind the language in
before a notary public on April 16, 1928. Luis W. Dison, on April 17, which the transaction is masked in order to ascertain its true
1928, formally accepted said gift by an instrument in writing which character and purpose. In this case the scanty facts before us may
he acknowledged before a notary public on April 20, 1928. not warrant the inference that the conveyance, acknowledged by the
At the trial the parties agreed to and filed the following ingenious donor five days before his death and accepted by the donee one day
stipulation of fact: before the donor's death, was fraudulently made for the purpose of
1. That Don Felix Dison died on April 21, 1928; evading the inheritance tax. But the facts, in our opinion, do warrant
2. That Don Felix Dison, before his death, made a gift inter the inference that the transfer was an advancement upon the
vivos in favor of the plaintiff Luis W. Dison of all his property inheritance which the donee, as the sole and forced heir of the
according to a deed of gift (Exhibit D) which includes all the donor, would be entitled to receive upon the death of the donor.
property of Don Felix Dizon; The argument advanced by the appellant that he is not an heir of his
3. That the plaintiff did not receive property of any kind of deceased father within the meaning of section 1540 of the
Don Felix Dison upon the death of the latter; Administrative Code because his father in his lifetime had given the
4. That Don Luis W. Dison was the legitimate and only child appellant all his property and left no property to be inherited, is so
of Don Felix Dison. fallacious that the urging of it here casts a suspicion upon the

Page 9 of 43
appellants reason for completing the legal formalities of the transfer formalities of a will, and can only take effect after the donor's
on the eve of the latter's death. We do not know whether or not the death. Any other construction would virtually change this
father in this case left a will; in any event, this appellant could not be provision into:
deprived of his share of the inheritance because the Civil Code ". . . there shall be added to the resulting amount the value of all
confers upon him the status of a forced heir. We construe the gifts mortis causa . . . made by the predecessor to those who, after
expression in section 1540 "any of those who, after his death, shall his death, shall prove to be his . . . donees mortis causa." We cannot
prove to be his heirs", to include those who, by our law, are given the give to the law an interpretation that would so vitiate its language.
status and rights of heirs, regardless of the quantity of property they The truth of the matter is that in this section (1540) the law presumes
may receive as such heirs. That the appellant in this case occupies the that such gifts have been made in anticipation of inheritance, devise,
status of heir to his deceased father cannot be questioned. bequest, or gift mortis causa, when the donee, after the death of the
Construing the conveyance here in question, under the facts donor proves to be his heir, devisee or donee mortis causa, for the
presented, as an advance made by Felix Dison to his only child, we purpose of evading the tax, and it is to prevent this that it provides
hold section 1540 to be applicable and the tax to have been properly that they shall be added to the resulting amount." However much
assessed by the Collector of Internal Revenue. appellant's argument on this point may fit his preconceived notion
This appeal was originally assigned to a Division of five but referred that the transaction between him and his father was a consummated
to the court in banc by reason of the appellant's attack upon the gift with no relation to the inheritance, we hold that there is not
constitutionality of section 1540. This attack is based on the sole merit in this attack upon the constitutionality of section 1540 under
ground that insofar as section 1540 levies a tax upon gifts inter vivos, our view of the facts. No other constitutional questions were raised in
it violates that provision of section 3 of the organic Act of the this case.
Philippine Islands (39 Stat. L., 545) which reads as follows: "That no The judgment below is affirmed with costs in this instance against
bill which may be enacted into law shall embraced more than one the appellant. So ordered.
subject, and that subject shall be expressed in the title of the bill." G.R. No. L-34937 March 13, 1933
Neither the title of Act No. 2601 nor chapter 40 of the Administrative CONCEPCION VIDAL DE ROCES and her husband,
Code makes any reference to a tax on gifts. Perhaps it is enough to MARCOS ROCES, and ELVIRA VIDAL DE RICHARDS, plaintiff-
say of this contention that section 1540 plainly does not tax gifts per appellants,
se but only when those gifts are made to those who shall prove to be vs.
the heirs, devisees, legatees or donees mortis causa of the donor. JUAN POSADAS, JR., Collector of Internal Revenue, defendant-
This court said in the case of Tuason and Tuason vs. Posadas 954 appellee.
Phil., 289) Feria and La O for appellants.
When the law says all gifts, it doubtless refers to gifts inter Attorney-General Jaranilla for appellee.
vivos, and not mortis causa. Both the letter and the spirit of IMPERIAL, J.:
the law leave no room for any other interpretation. Such, The plaintiffs herein brought this action to recover from the
clearly, is the tenor of the language which refers to defendant, Collector of Internal Revenue, certain sums of money paid
donations that took effect before the donor's death, and not by them under protest as inheritance tax. They appealed from the
to mortis causa donations, which can only be made with the

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judgment rendered by the Court of First Instance of Manila SEC. 1540. Additions of gifts and advances. — After the
dismissing the action, without costs. aforementioned deductions have been made, there shall be
On March 10 and 12, 1925, Esperanza Tuazon, by means of public added to the resulting amount the value of all gifts or
documents, donated certain parcels of land situated in Manila to the advances made by the predecessor to any those who, after
plaintiffs herein, who, with their respective husbands, accepted them his death, shall prove to be his heirs, devisees, legatees, or
in the same public documents, which were duly recorded in the donees mortis causa.
registry of deeds. By virtue of said donations, the plaintiffs took The appellants contend that the above-mentioned legal provision
possession of the said lands, received the fruits thereof and obtained does not include donations inter vivos and if it does, it is
the corresponding transfer certificates of title. unconstitutional, null and void for the following reasons: first,
On January 5, 1926, the donor died in the City of Manila without because it violates section 3 of the Jones Law which provides that no
leaving any forced heir and her will which was admitted to probate, law should embrace more than one subject, and that subject should
she bequeathed to each of the donees the sum of P5,000. After the be expressed in the title thereof; second that the Legislature has no
estate had been distributed among the instituted legatees and authority to impose inheritance tax on donations inter vivos; and
before delivery of their respective shares, the appellee herein, as third, because a legal provision of this character contravenes the
Collector of Internal Revenue, ruled that the appellants, as donees fundamental rule of uniformity of taxation. The appellee, in turn,
and legatees, should pay as inheritance tax the sums of P16,673 and contends that the words "all gifts" refer clearly to donations inter
P13,951.45, respectively. Of these sums P15,191.48 was levied as tax vivos and, in support of his theory, cites the doctrine laid in the case
on the donation to Concepcion Vidal de Roces and P1,481.52 on her of Tuason and Tuason vs. Posadas (54 Phil., 289). After a careful study
legacy, and, likewise, P12,388.95 was imposed upon the donation of the law and the authorities applicable thereto, we are the opinion
made to Elvira Vidal de Richards and P1,462.50 on her legacy. At first that neither theory reflects the true spirit of the aforementioned
the appellants refused to pay the aforementioned taxes but, at the provision. The gifts referred to in section 1540 of the Revised
insistence of the appellee and in order not to delay the adjudication Administration Code are, obviously, those donations inter vivos that
of the legacies, they agreed at last, to pay them under protest. take effect immediately or during the lifetime of the donor but are
The appellee filed a demurrer to the complaint on the ground that made in consideration or in contemplation of death. Gifts inter vivos,
the facts alleged therein were not sufficient to constitute a cause of the transmission of which is not made in contemplation of the
action. After the legal questions raised therein had been discussed, donor's death should not be understood as included within the said
the court sustained the demurrer and ordered the amendment of the legal provision for the reason that it would amount to imposing a
complaint which the appellants failed to do, whereupon the trial direct tax on property and not on the transmission thereof, which act
court dismissed the action on the ground that the afore- mentioned does not come within the scope of the provisions contained in Article
appellants did not really have a right of action. XI of Chapter 40 of the Administrative Code which deals expressly
In their brief, the appellants assign only one alleged error, to wit: that with the tax on inheritances, legacies and other acquisitions mortis
the demurrer interposed by the appellee was sustained without causa.
sufficient ground. Our interpretation of the law is not in conflict with the rule laid down
The judgment appealed from was based on the provisions of section in the case of Tuason and Tuason vs. Posadas, supra. We said therein,
1540 Administrative Code which reads as follows: as we say now, that the expression "all gifts" refers to gifts inter

Page 11 of 43
vivos inasmuch as the law considers them as advances on inheritance and nothing therein violates any constitutional provision,
inheritance, in the sense that they are gifts inter vivos made in inasmuch as said legislation is within the power of the Legislature.
contemplation or in consideration of death. In that case, it was not Property Subject to Inheritance Tax. — The inheritance tax
held that that kind of gifts consisted in those made completely ordinarily applies to all property within the power of the
independent of death or without regard to it. state to reach passing by will or the laws regulating intestate
Said legal provision is not null and void on the alleged ground that succession or by gift inter vivos in the manner designated by
the subject matter thereof is not embraced in the title of the section statute, whether such property be real or personal, tangible
under which it is enumerated. On the contrary, its provisions are or intangible, corporeal or incorporeal. (26 R.C.L., p. 208, par.
perfectly summarized in the heading, "Tax on Inheritance, etc." which 177.)
is the title of Article XI. Furthermore, the constitutional provision In the case of Tuason and Tuason vs. Posadas, supra, it was also held
cited should not be strictly construed as to make it necessary that the that section 1540 of the Administrative Code did not violate the
title contain a full index to all the contents of the law. It is sufficient if constitutional provision regarding uniformity of taxation. It cannot be
the language used therein is expressed in such a way that in case of null and void on this ground because it equally subjects to the same
doubt it would afford a means of determining the legislators tax all of those donees who later become heirs, legatees or
intention. (Lewis' Sutherland Statutory Construction, Vol. II, p. 651.) donees mortis causa by the will of the donor. There would be a
Lastly, the circumstance that the Administrative Code was prepared repugnant and arbitrary exception if the provisions of the law were
and compiled strictly in accordance with the provisions of the Jones not applicable to all donees of the same kind. In the case cited
Law on that matter should not be overlooked and that, in a above, it was said: "At any rate the argument adduced against its
compilation of laws such as the Administrative Code, it is but natural constitutionality, which is the lack of Uniformity, does not seem to be
and proper that provisions referring to diverse matters should be well founded. It was said that under such an interpretation, while a
found. (Ayson and Ignacio vs. Provincial Board of Rizal and Municipal donee inter vivos who, after the predecessor's death proved to be an
Council of Navotas, 39 Phil., 931.) heir, a legatee, or a donee mortis causa, would have to pay the tax,
The appellants question the power of the Legislature to impose taxes another donee inter vivos who did not prove to he an heir, a legatee,
on the transmission of real estate that takes effect immediately and or a donee mortis causa of the predecessor, would be exempt from
during the lifetime of the donor, and allege as their reason that such such a tax. But as these are two different cases, the principle of
tax partakes of the nature of the land tax which the law has already uniformity is inapplicable to them."
created in another part of the Administrative Code. Without making The last question of a procedural nature arising from the case at bar,
express pronouncement on this question, for it is unnecessary, we which should be passed upon, is whether the case, as it now stands,
wish to state that such is not the case in these instance. The tax can be decided on the merits or should be remanded to the court a
collected by the appellee on the properties donated in 1925 really quo for further proceedings. According to our view of the case, it
constitutes an inheritance tax imposed on the transmission of said follows that, if the gifts received by the appellants would have the
properties in contemplation or in consideration of the donor's death right to recover the sums of money claimed by them. Hence the
and under the circumstance that the donees were later instituted as necessity of ascertaining whether the complaint contains an
the former's legatees. For this reason, the law considers such allegation to that effect. We have examined said complaint and
transmissions in the form of gifts inter vivos, as advances on found nothing of that nature. On the contrary, it be may be inferred

Page 12 of 43
from the allegations contained in paragraphs 2 and 7 thereof that right; and another which is formed by the judge from circumstances
said donations inter vivos were made in consideration of the donor's antecedent to, coincident with or subsequent to the principal fact
death. We refer to the allegations that such transmissions were under investigation, which is also called presumption of
effected in the month of March, 1925, that the donor died in January, man (presuncion de hombre). (Escriche, Vol. IV, p. 662.) The Civil Code
1926, and that the donees were instituted legatees in the donor's will as well as the code of Civil Procedure establishes presumptions juris
which was admitted to probate. It is from these allegations, especially et de jure and juris tantum which the courts should take into account
the last, that we infer a presumption juris tantum that said donations in deciding questions of law submitted to them for decision. The
were made mortis causa and, as such, are subject to the payment of presumption which majority opinion wishes to draw from said
inheritance tax. section 1540 of the Administrative Code can neither be found in this
Wherefore, the demurrer interposed by the appellee was well- Code nor in any of the aforementioned Civil Code and Code of Civil
founded because it appears that the complaint did not allege fact Procedure. Therefore, said presumption cannot be called legal or of
sufficient to constitute a cause of action. When the appellants law. Neither can it be called a presumption of man (presuncion de
refused to amend the same, spite of the court's order to that effect, hombre) inasmuch as the majority opinion did not infer it from
they voluntarily waived the opportunity offered them and they are circumstances antecedent to, coincident with or subsequent to the
not now entitled to have the case remanded for further proceedings, principal fact with is the donation itself. In view of the nature, mode
which would serve no purpose altogether in view of the insufficiency of making and effects of donations inter vivos, the contrary
of the complaint. presumption would be more reasonable and logical; in other words,
Wherefore, the judgment appealed from is hereby affirmed, with donations inter vivos made to persons who are not forced heirs, but
costs of this instance against the appellants. So ordered. who are instituted legatees in the donor's will, should be presumed
Avanceña, C.J., Villamor, Ostrand, Abad Santos, Hull, Vickers and as not made mortis causa, unless the contrary is proven. In the case
Buttes, JJ., concur. under consideration, the burden of the proof rests with the person
who contends that the donation inter vivos has been made mortis
Separate Opinions It is therefore, the undersigned's humble opinion that the order
VILLA-REAL, J., dissenting: appealed from should be reversed and the demurrer overruled, and
I sustain my concurrence in Justice Street's dissenting opinion in the the defendant ordered to file his answer to the complaint.
case of Tuason and Tuason vs. Posadas (54 Phil., 289). Street, J., concurs.
The majority opinion to distinguish the present case from above- G.R. No. L-15939 January 31, 1966
mentioned case of Tuason and Tuason vs. Posadas, by interpreting ANGELES UBALDE PUIG, ET AL., plaintiffs-appellants,
section 1540 of the Administrative Code in the sense that it vs.
establishes the legal presumption juris tantum that all gifts inter ESTELLA MAGBANUA PEÑAFLORIDA, ET AL., defendants-
vivos made to persons who are not forced heirs but who are appellants.
instituted legatees in the donor's will, have been made in Salonga and Ordonez for the plaintiffs-appellants.
contemplation of the donor's death. Presumptions are of two kinds: Fulgencio Vega for the defendants-appellants.
One determined by law which is also called presumption of law or of RESOLUTION

Page 13 of 43
(Main opinion was promulgated on November 29, 1965). was to be made on the date the donee took possession of Lot No.
REYES, J.B.L., J.: 58. As the obligation to pay the legacy to Caridad Ubalde would not
Defendants-appellants Estela Magbanua Peñaflorida, et al., insist that definitely arise until after the death of the donor, because only by
the reservation by the donor of the right to dispose of the property then would it become certain that the "donor" could not transfer the
during her lifetime in the deed of December 28, 1949 indicates that property to someone else, and such payment must precede the
title had passed to the donee in her lifetime, otherwise, it is argued, taking possession of the property "donated", it necessarily follows
the reservation would be superfluous, and they cite American that the "donee's" taking of possession could not occur before the
authorities in support. death of the donor.
This thesis would be plausible if the reservation of the power to It being thus clear that the disposition contained in the deed is one
dispose were the only indication to be considered in deciding that produces no effect until the death of the grantor, we are clearly
whether the donation of December 28, 1949 was mortis faced by an act mortis causa of the Roman and Spanish law. We thus
causa or inter vivos. But such is not the case. The Court in its decision see no need of resorting to American authorities as to the import of
took to account not only the foregoing circumstance but also the the reservation of the donor's right to dispose of the donated
fact that the deceased expressly and consistently declared her property, for the Spanish authorities are very clear on this point:
conveyance to be one of donation mortis causa, and further forbade Desde el momento en que la muerte del donante es la que
the registration of the deed until after her death. All these features determina la adquisicion o el derecho a los bienes; desde el
concordantly indicated that the conveyance was not intended to montento en que la disposicion puede ser revocada
produce any definitive effects, nor to finally pass any interest to the voluntariamente, se salva la linea divisoria entre unos y otros
grantee, except from and after the death of the grantor. actos: la donacion equivale a un legado; mas aun que esto: es
We see nothing in the deed itself to indicate that any right, title or un legado en realidad. (5 Manresa, 5th Ed., p. 107)
interest in the properties described was meant to be transferred to Ahora bien: si el mal llamado donante no solo dilata la fecha
Doña Estela Magbanua prior to the death of the grantor, Carmen de la ejecucion para el momento de su muerte, sino
Ubalde Vda. de Parcon. Not ownership, certainly, for the stipulation: que ademas se reserva la facultad de revocar a su arbitrio la
Que esta escritura de donacion mortis causa no se registrara disposicion, entonces el acto no es valido bajo la forma de
en la oficina del Registrador de Titulos de Iloilo sino despues contrato; hay en realidad una disposicion mortis causa que
del fallecimiento de la Donante exige las solemnidades del testamento. (V Manresa, 5th Ed., p.
necessarily meant, according to section 50 of the Land Registration 109) (Emphasis supplied)
Act, that the deed in question should not take effect as a The presence of an acceptance is but a consequence of the
conveyance nor bind the land until after the death of the "donor". erroneous concept of the true nature of the juridical act, and does
Neither did the document operate to vest possession upon Doña not indicate that in the same is a true donation inter vivos.
Estela Magbanua, in view of the express condition that (paragraph Appellant Magbanua further argues that the reserved power of the
3) if at the date of her death the donor had not transferred, sold, or donor to convey the donated property to other parties during her
conveyed one-half of lot 58 of the Pototan Cadastre to other persons lifetime is but a resolutory condition (albeit a potestative one) that
or entities, the donee would be bound to pay to Caridad Ubalde, confirms the passing of the title to the donee. In reality, this
married to Tomas Pedrola, the amount of P600.00, and such payment argument is a veritable petitio principii; it takes for granted what has

Page 14 of 43
to be proved, i.e., that some proprietary right has passed under the main decision, signifies that the liberality is testamentary in nature,
terms of the deed, which, as we have shown, is not true until and must appear with the solemnities required of last wills and
thedonor has died. testaments in order to be legally valid.
It is highly illuminating to compare the condition imposed in the Wherefore, the motion to reconsider is denied.
deed of donation of December 28, 1949 with that established in the G.R. No. L-14522 May 31, 1961
contract dealt with in Taylor vs. Uy Tieng Piao & Tau Liuan, 43 Phil. THE COLLECTOR OF INTERNAL REVENUE, petitioner,
874, invoked by appellants. vs.
In the alleged deed of donation of December 28, 1949, the late Doña MANUEL B. PINEDA as one of the heirs of the deceased
Carmen Ubalde imposed expressly that: ATANASIO PINEDA, respondent.
Que antes de su muerte, la Donante podra enajenar, vender, Office of the Solicitor General for petitioner.
traspasar e hipotecar a cualesquiera personas o entidades los Manuel B. Pineda for and in his own behalf as respondent.
bienes aqui donados a favor de la Donataria en concepto de CONCEPCION, J.:
Donacion mortis causa. Petition for review of a decision of the Court of Tax Appeal reversing
In the Taylor vs. Uy Tieng Piao case, on the other hand, the condition that of petitioner Collector of Internal Revenue with respect of
read: deficiency income taxes for the years 1946, 1949 and 1947, as well as
It is understood and agreed that should the machinery to be residence tax for the year 1945 and real estate dealer fixed tar for the
installed in said factory fail, for any reason, to arrive, in the fast quarter of 1946, and the whole year of 1947, allegedly due from
City of Manila within the period of six (6) months from date the estate of Atanasio Pineda, deceased, without pronouncement as
hereof, this contract may be cancelled by the party of the to costs.
second part at its option, such cancellation, however, not to Atanasio Pineda died on May 23, 1945. He was survived by his
occur before the expiration of such six (6) months. (pp. 874- widow, Felicisima Bagtas, hereafter referred to as Mrs. Pineda, and
875, cas. cit.). fifteen (15) children, one of whom is herein respondents, Manuel B.
In the Uy Tieng Piao case the contract could only be cancelled after Pineda. On August 30, 1945, proceedings for the settlement of the
six months, so that there could be no doubt that it was in force at estate of the deceased were commenced in the Court of First
least for that long, and the optional cancellation can be viewed as a Instance of Manila as Case No. 71129 thereof, in which Mrs. Pineda
resolutory condition (or more properly, a non-retroactive revocatory was appointed administratrix of the estate. Mrs. Pineda performed
one); but no such restriction limited the power of the donor, Doña her duties as such administratrix until June 8, 1948, when said case
Carmen Ubalde, to set at naught the alleged conveyance in favor of was closed and she was relieved of her aforementioned duties. Over
Doña Estela Magbanua by conveying the property to other parties at two (2) years and a half later, Internal Revenue Examiner Espinosa
any time, even at the very next instant after executing the donation, if investigated the income tax liability of some heirs of the deceased. In
she so chose. It requires no argument to demonstrate that the the course of her investigation, she allegedly found that no income
power, as reserved in the deed, was a power to destroy the tax return for the years 1945, 1946, 1947 and 1948 had been filed on
donation at any time, and that it meant that the transfer is not behalf of his estate. When Mrs. Pineda and her children, some of
binding on the grantor until her death made it impossible to channel whom were minors, were contacted by examiner Espinosa, the latter
the property elsewhere. Which, in the last analysis, as held in our was referred to respondent Manuel B. Pineda. Inasmuch, however, as

Page 15 of 43
Pineda could not be found in his residence and did not come to see notices 3-A and 5-A, made on August 1, 1951, as well as the income
her, although examiner Espinosa had left word for him to do so, she tax assessment notice Exhibit 7-A, dated October 20, 1952, were,
examined the records of said Case No. 71129 and pertinent records cancelled and new income tax assessment notices (Exhibits 14, 15
of other offices of the Government, and on the basis of the data thus and 16, pp. 10, 36 and 58, BIR rec.) were issued on October 19, 1953,
gathered, she filed on January 29, 1951, income tax returns for the charging the following:
estate of the deceased corresponding to the aforementioned years 1. For the year 1945:
1945, 1946, 1947 and 1948. On August 1, 1951, income tax
a. Tax due ...................................................... P108.66
assessment notices Exhibits 3-A and 5-A (pp. 6 and 32, BIR rec.), for
the years 1945 and 1946, were sent to said estate "c/o Manuel B. b. 25% surcharge ......................................... 27.17
Pineda", respondent herein, who received said notices on September c. Compromise .............................................. 20.00
8, 1951. Four (4) days later, he submitted to petitioner herein a
Total amount due and collectible
"statement" contesting the accuracy of said assessment notices and
...... P155.83
alleging that the income of the estate had been included in income
tax returns filed by Mrs. Pineda (pp. 25-28, BIR rec.). 2. For the year 1946:
Soon, thereafter, or on October 12, 1951, petitioner assessed and a. Tax due ...................................................... P349.56
demanded from said estate dealer's fixed tax from the last quarter of
b. 25% surcharge ......................................... 87.39
1946 to 1950, plus P50.00 as compromise penalty. Respondent, who
received this assessment and demand on October 22, 1951, c. Compromise .............................................. 20.00
contested the same in letters written by him to the petitioner on Total amount due and collectible
October 31, 1951 (P. 20, BIR rec.) and March 30, 1953 (Exhibit 11, P., ........ P456.95
79, BIR rec.). Meanwhile, or on October 20, 1952, petitioner sent to
3. For the year 1947:
the estate of the deceased, through respondent, income tax
assessment notice, Exhibit 7-A (p. 49, BIR rec.), in the sum of a. Tax due ...................................................... P1,206.91
P2,223.51, plus P555.88 as 25% surcharge and P20 as compromise, b. Compromise .............................................. 20.00
for the year 1947. This assessment was impugned by respondent in
Total amount due and
another "statement" dated December 2, 1952, upon the ground that
collectible.......... P1,206.91
the income of the estate had been consolidated with that of Mrs.
Pineda in the income tax return for 1947 filed by the latter (pp. 117- Moreover, after another reinvestigation, on August 12, 1954,
118, BIR rec.) Subsequently, or on August 24, 1953, respondent filed, petitioner demanded from respondent the payment of P14.50, as
on behalf of the estate of the deceased, its income tax returns basic and additional residence tax for 1945 and P207.50 as real estate
Exhibits 2-A, 4-A and 6-A, for the years 1945, 1946 and 1947 (pp. 8, dealer's tax for the fourth quarter of 1946 and the whole year of
34 and 56, BIR rec.). 1947, as well as payment of the sums due as income tax for 1945,
Thereafter, upon reinvestigation made, owing to respondent's 1946 and 1947, according to said assessment notices of October 19,
aforementioned communications denying the alleged tax 1953. On September 27, 1954, respondent appealed the matter to
delinquency of the estate of his father, the income tax assessment the Conference Staff of the Bureau of Internal Revenue, which upheld

Page 16 of 43
the latest assessments made by petitioner herein. On March 15, 1957, the Court on June 8, 1948, long before the disputed
the latter demanded, therefore, payment of the following: assessments were made and served?;
1. As deficiency income tax 3. Whether or not the assessments under review are
supported by the facts of the case and the law applicable
a. For 1945 ........................ P135.83
thereto?; and
b. For 1946 ........................ 486.95 4. Whether or not the petitioner herein, Manuel B. Pineda,
c. For 1947........................ 1,206.91 may be held liable for all the taxes assessed against the
estate of his deceased father Atanasio Pineda?
T o t a l .......... P1,779.69
However, said Court did not deem it necessary to decide the last
Add: 5% Surcharge ................................ 88.98 three issues, having settled the first in the affirmative, upon the
1% monthly interest from November 30, 1953 ground that the income tax assessment notice for 1945, dated
to April 15, 1957 720.77 August 1, 1951, and received by respondent, Manuel B. Pineda, on
September 8, 1951, was made more than five (5) years after the filing
Compromise for late filing ..................... 80.00
of the income tax return for 1945, and beyond the period fixed in
section 331 of our Tax Code; that the present action must be deemed
Compromise for late payment................ 40.00 filed on August 7, 1957 — when petitioner herein filed his answer in
TOTAL AMOUNT DUE ON APRIL 15, 1957 P2,707.44 the Court of Tax Appeals — or nearly six (6) years after the income
tax assessments for the years 1945 and 1946 and beyond the period
2. As additional residence tax for 1945 14.50
fixed in section 332 (c) of said Code; that, although the original
3. As real estate dealer's tax for the fourth quarter income tax assessment for 1947 was made on November 12, 1952 (it
of 1946 and the whole year of 1947 P 207.50 was October 20, 1952) — within five (5) years from the filing of the
(Exhibit 19, p. 165, BIR record.) income tax return for 1947, on March 1, 1948 — said assessment was
cancelled and substituted by another assessment made on October
Eventually, respondent appealed the case to the Court of Tax Appeals
19, 1953, or after the expiration of said period of five (5) years; that
where the issues raised were:
the residence tax for 1945 was assessed on September 22, 1954, or
1. Whether or not the right of the Collector (now
long after the expiration of the same period; and that, although the
Commissioner) of Internal Revenue to assess against and
demand for payment of the real estate dealer's tax for the fourth
collect from the Estate of the deceased Atanasio Pineda the
quarter of 1946 and the whole year of 1947 was received by herein
taxes in question has already prescribed?;
respondent within the period aforementioned, or on October 31,
2. Whether or not the series of assessments made by the
1951, the action for its collection was commenced on August 7, 1957,
respondent against the Estate of the deceased Atanasio
or more than five (5) years later.
Pineda, served on the petitioner Manuel B. Pineda in his
Hence, this appeal by petitioner herein, who maintains that there is
personal capacity, are valid, considering the fact that the
no evidence that an income tax return had filed for the year 1945;
judicial administration of the estate was closed by order of
that, although there is some evidence that Mrs. Pineda had filed an
income tax return for the year 1946, it does not appear that said

Page 17 of 43
return had been submitted for and on behalf of the estate of the proceeding in court, but only if begun (1) within five years
deceased; that the income tax return for 1947, filed by her on behalf after the assessment of the tax, or (2) prior to the expiration
thereof, was void, and should be considered as non-existent because of any period for collection agreed upon in writing by the
her own income was included therein, so that petitioner had "no Collector of Internal Revenue and the taxpayer before the
means by which to determine which were the income of the widow, expiration of such five-year period. The period so agreed
and which were the income of the estate." upon may he extended by subsequent agreements in writing
Sections 331 and 332 of the Tax Code provide: made before the expiration of the period previously agreed
SEC. 331. Period of limitation upon assessment and collection. upon.
— Except as provided in the succeeding section, interval We agree with petitioner herein that the filing of an income tax
revenue taxes shall be assessed within five year after the return for 1945 has not been established. The statement in the
return was filed, and no proceeding in court without decision appealed from to the effect that said return had been filed
assessment for the collection of such taxes should be begun on February 28, 1946, is based upon a mere allegation in a
after the expiration of such period. For the purposes of this memorandum of respondent herein, which is not borne out by the
section a return filed before the last day prescribed by law record. Considering that the first income tax return of 1945, filed on
for the filing thereof shall be considered as filed on such last behalf of the estate of the deceased, was that submitted by examiner
day: Provided, That this limitation shall not apply to cases Espinosa on January 29, 1951; that the first assessment of the income
already investigated prior to the approval of this Code. tax due for 1945 was made on August 1, 1951; that on August 24,
SEC. 332. Exception as to period of limitation of assessment 1953, respondent filed an income tax return for 1945, on behalf of
and collection of taxes. — (a) In the case of a false or said estate; that said first assessment was superseded by another one
fraudulent with intent to evade tax or of a failure to file a dated October 19, 1953; and that the action to recover the tax is
return, the tax may be assessed, or a proceeding in court for deemed begun on August 7, 1957, it is clear that the said
the collection of such tax may be begun without assessment, assessments and action were made and filed within the periods
at any time within ten years after the discovery of the falsity, prescribed in sections 331 and 332 of the Tax Code.
fraud, or omission. As regards the income tax return for 1946, its photostatic copy
(b) Where before the expiration of the time prescribed in the (Exhibit E, p. 81, CTA record) shows that the original thereof was filed
preceding section for the assessment of the tax, both the on February 27, 1947 and that it was submitted in the name of
Collector of Internal Revenue and the taxpayer have Felicisima P. Pineda, unlike the income tax return for 1947, which
consented in writing to its assessment after such time, the appears to have been filed "for and in behalf of the estate of the late
tax may be assessed at any time prior to the expiration of the Atanasio Pineda". Inasmuch as said return for 1946 makes no
period agreed upon. The period so agreed may be extended reference whatsoever to the estate of the late Atanacio Pineda,
by subsequent agreements in writing made before the petitioner could not have assessed, on the basis thereof, the income
expiration of the period previously agreed upon. tax due from said estate. Hence, the period of 5 years, provided in
(c) Where the assessment of any internal revenue tax has said section 331 for the making of the assessment, should be
been made within the period of limitation above prescribed computed, not from February 27, 1947, but from January 29, 1951,
such tax may be collection by distraint or levy or by a when examiner Espinosa filed the income tax return for 1946 on

Page 18 of 43
behalf of the estate of the deceased. This notwithstanding, the Court the income tax assessment notice of October 19, 1953, must have
of Tax Appeals held that the action for the collection of the income been based. Petitioner relies, in support of his pretense, upon the
tax for 1946 is barred, under section 332(c) of said Code, more than case of Commissioner of Internal Revenue vs. Consolidated Mining
five (5) years having elapsed from August 1, 1951, when the first Co., L-11527 (November 25, 1958), in which we held that
assessment of said action was made. We must not overlook. . . . there are cases however where a taxpayer may be
however, that respondent filed an income tax return for 1946, on prevented from setting up the defense of prescription even if
behalf of the estate of the deceased, on August 24, 1953; that a he has not previously waived it in writing as when by
revised assessment of the income tax due for 1946, which took the his repeated requests or positive acts the Government has
place of the assessment dated August 1, 1951, was effected on been, for good reasons, persuaded to postpone collection to
October 19, 1953 (pp. 12 and 39, BIR rec.); and that less than five (5) make him feel that the demand was not unreasonable or that
years have elapsed, from either the date last mentioned, or that of no harassment or injustice is meant by the Government.
the filing of said income tax return by respondent herein August 24, (Emphasis supplied.)
1953), to the institution of the present proceeding (August 7, 1957). The Suyoc case is not in point for respondent herein had
In short, the right of the Government to collect the income tax for not requested or induced the petitioner by positive acts to delay the
1946 is not barred by the statute of limitations. making of the revised assessment notice of October 19, 1953. Up to
Referring now to the Income tax return for 1947, filed by Mrs. Pineda that time, respondent merely contended that the amounts sought to
on March 1, 1948, petitioner's theory to the effect that said return is be collected by petitioner were not due from the estate of the
void cannot be sustained. It is not true that petitioner could not have deceased and gave his reasons therefor. Petitioner had a perfectly
made an assessment of the income tax due, for the year 1947, from legitimate right to do this and the same does not suffice to estop
the estate of the deceased, because the income of Mrs. Pineda had him from invoking the statute of limitations. The rule applicable to
been included in said return. The same having been explicitly filed by the case at bar, with respect to the income tax liability for 1947, is
her "for and in behalf of the Estate of the late Atanasio Pineda", that laid down in Collector of Internal Revenue vs. Solano, L-11475
petitioner was entitled to consider all data contained in the return as (July 31, 1958). We quote from the decision therein rendered:
pertaining to said estate, and hence, to assess, on the basis of said . . . the petitioner Collector urges that respondent Solano is
return, the income tax for 1947 due from that estate. estopped from putting up the defense of prescription
Was its assessment made within the period of five (5) years fixed in because he repeatedly made verbal requests for extensions
section 331 of the Tax Code? Although the original assessment of time to pay his tax obligation for 1948, as allegedly shown
(Exhibit 7-A), dated on October 20, 1952, was, another one by the testimony of Bureau of Internal Revenue agent
substituted it on October 19, 1953, or after the lapse of said period. Benjamin S. Valenzuela. The argument is also untenable, first,
Petitioner contends, however, that respondent may not avail himself because Valenzuela categorically declared that respondent
of the plea of prescription, the delay in making the revised Solano did not request for an extension of time within which
assessment having been due mainly to his protest against the to pay his 1948 income tax liability (t.s.n. pp. 49-50); and
original assessment, thereby inducing petitioner herein to order second, the only agreement that could have suspended the
several reinvestigations, the first of which was made by examiner running of the prescriptive period for the collection of the
Espinosa, who submitted her report on August 27, 1953, upon which tax in question is, as correctly pointed out by the Court of

Page 19 of 43
Tax Appeals, a written agreement between Solano and the dated August 12, 1954, for the sum of P207.50, and covering only the
Collector, entered into before the expiration of the five-year period from the last quarter of 1946 to the whole year of 1947, was
prescriptive period, extending the period of limitation made; and that the present action was begun within five (5) years
prescribed by law (sec. 332 [c], N.I.R.C.) The rule is in accord after said revised assessment. Although the latter was made more
with the general law on prescription that requires a written than five (5) years after the period to which it refers, this fact does
acknowledgment of the debtor to renew the cause of action not affect either the validity of the revised assessment or the right to
or interrupt the running of the limitation period (Act 190, sec. enforce it by court proceedings, inasmuch as no return for the real
50; New Civil Code, Art. 1155). The Court of Tax Appeals estate dealer's fixed tax in question had been filed, and, accordingly,
found, and the records show, that no such written agreement "a proceeding in court for the collection of such tax may be begun
was ever entered into between respondent Solano and the without assessment at any time within ten years after discovery of
petitioner Collector." . the . . . omission" to file said return, pursuant to section 332(a) of the
It is true that in a letter to the petitioner, dated March 15, 1955 (pp. Tax Code (Visaya Land Transportation Co., Inc. vs. Col. of Int. Rev. and
138-139, BIR rec.), respondent had asked the former to defer action Col. of Int. Rev. vs. Visaya Land Transportation Co., Inc., L-12100 and
for the collection of the taxes in question, pending determination by L-11812, May 29, 1959).
the Conference Staff — to which respondent had appealed in For the reason just stated, the government is entitled to collect the
September, 1954 — and the petitioner of the legality of the residence tax for 1945 within ten (10) years from discovery of the
assessment impugned by said respondent. This communication, it failure to pay it or to make the statement necessary therefor, which
should be noted, was sent long after said assessment notice of in this case, took place on November 21, 1951 (p. 51 BIR rec.)
October 19, 1953, and could not have delayed, therefore, the Consequently, the plea of prescription as regards said residence tax
issuance thereof. Besides, said letter of March 15, 1955, referred to was erroneously sustained by the lower court.
the "collection" of the taxes, not to the assessment thereof. The decision appealed from should, accordingly, be, as it is hereby
Having been made beyond the period fixed in section 331 of the Tax reversed, insofar as it holds that the action for the collection of the
Code, the assessment of October 19, 1953, is void, therefore, insofar income taxes for 1945 and 1946, the real estate dealer's fixed tax for
as the income tax for 1947 is concerned and its payment may not, the fourth quarter of 1945 and the year 1946 and the residence tax
accordingly, be enforced by action. for 1945 is barred by the statute of limitation, and affirmed insofar as
Let us now consider the real estate dealer's fixed tax for the last the income tax for 1947 is concerned. Inasmuch, however, as no
quarter of 1946 and the whole year of 1947, amounting altogether to findings have been made in said decision with respect to three (3) of
P207.50. The Court of Tax Appeals sustained respondent's plea of the issues mentioned at the beginning of this decision, which are
prescription upon the ground that this action was instituted more material to the determination of respondent's liability, let the records
than five (5) years after the assessment of said amount, which was of this case be remanded to the Court of Tax Appeals, for further
allegedly made on October 12, 1951. Petitioner argues, however, that proceedings not inconsistent with this decision, without special
said assessment was not for P207.50, but for P687.50, and that it pronouncement as to costs. It is so ordered.
covered the period from the last quarter of 1946 to the year 1950, G.R. No. L-29276 May 18, 1978
inclusive; that said assessment of October 12, 1951 was, upon, Testate Estate of the Late Felix J. de Guzman. VICTORINO G. DE
reinvestigation, cancelled, and, in lieu thereof, another assessment, GUZMAN, administrator-appellee,

Page 20 of 43
vs. II. Living expenses of Librada de Guzman while occupying the family
HONORATA DE GUZMAN-MENDIOLA, oppositors-appellants. 1. For house helper — P1,170.00
Emiliano Samson & R. Balderama-Samson for appellants. 2. Light bills — 227.41
Cezar Paralejo for appellee. 3. Water bills — 150.80
4. Gas oil, floor wax
AQUINO, J.: and switch nail — 54.90 — P 1,603.11
This case is about the propriety of allowing as administration III. Other expenses:
expenses certain disbursements made by the administrator of the 1. Lawyer's subsistence — P 19.30
testate estate of the late Felix J. de Guzman of Gapan, Nueva Ecija. 2. Gratuity pay in lieu
The deceased testator was survived by eight children named of medical fee — 144.00
Victorino, Librada, Severino, Margarita, Josefina, Honorata, Arsenio 3. For stenographic notes — 100.00
and Crispina. His will was duly probated. Letters of administration 4. For food served on
were issued to his son, Doctor Victorino G. de Guzman, pursuant to decedent's first
the order dated September 17, 1964 of the Court of First Instance of death anniversary — 166.65
Nueva Ecija in Special Proceeding No. 1431. 5. Cost of publication of
One of the properties left by the dent was a residential house located death anniversary
in the poblacion. In conformity with his last will, that house and the of decedent — 102.00
lot on which it stands were adjudicated to his eight children, each 6. Representation
being given a one-eighth proindiviso share in the project of partition expenses — 26.25 — P558.20
dated March 19, 1966, which was signed by the eight heirs and which IV. Irrigation fee P1.049.58
was approved in the lower court's order of April 14, 1967 but without TOTAL P13,610.48
prejudice to the final outcome of the accounting. It should be noted that the probate court in its order of August 29,
The administrator submitted four accounting reports for the period 1966 directed the administrator "to refrain from spending the assets
from June 16, 1964 to September, 1967. Three heirs Crispina de of the estate for reconstructing and remodeling the house of the
Guzmans-Carillo Honorata de Guzman-Mendiola and Arsenio de deceased and to stop spending (sic) any asset of the estate without
Guzman interposed objections to the administrator's disbursements first during authority of the court to do so" (pp. 26-27, Record on
in the total sum of P13,610.48, broken down as follows: Appeal).
I. Expense for the improvement and renovation of the decedent's The lower court in its order of April 29, 1968 allowed the d items as
residential house. legitimate expenses of administration. From that order, the three
1. Construction of fence — P3,082.07 oppositors appealed to this Court. Their contention is that the
2. Renovation of bathroom — P1,389.52 probate court erred in approving the utilization of the income of the
3. Repair of terrace and estate (from rice harvests) to defray those expenditures which
interior of house — P5,928.00 — P10,399.59 allegedly are not allowable under the Rules of Court.

Page 21 of 43
An executor or administrator is allowed the necessary expenses in because an administrator has the duty to "maintain in tenantable
the care, management, and settlement of the estate. He is entitled to repair the houses and other structures and fences belonging to the
possess and manage the decedent's real and personal estate as long estate, and deliver the same in such repair to the heirs or devises"
as it is necessary for the payment of the debts and the expenses of when directed to do so by the court (Sec. 2, Rule 84, Rules of Court).
administration. He is accountable for the whole decedent's estate On the other hand, the oppositors-appellants contend that the trial
which has come into his possession, with all the interest, profit, and court erred in allowing those expenses because the same did not
income thereof, and with the proceeds of so much of such estate as come within the category of necessary expenses of administration
is sold by him, at the price at which it was sold (Sec. 3, Rule 84; Secs. which are understood to be the reasonable and necessary expenses
1 and 7, Rule 85, Rules of Court). of caring for the property and managing it until the debts are paid
One of the Conditions of the administrator's bond is that he should and the estate is partitioned and distributed among the heirs
render a true and just account of his administration to the court. The (Lizarraga Hermanos vs. Abada, 40 Phil. 124).
court may examine him upon oath With respect to every matter As clarified in the Lizarraga case, administration expenses should be
relating to his accounting 't and shall so examine him as to the those which are necessary for the management of the estate, for
correctness of his account before the same is allowed, except when protecting it against destruction or deterioration, and, possibly, for
no objection is made to the allowance of the account and its the production of fruits. They are expenses entailed for the
correctness is satisfactorily established by competent proof. The preservation and productivity of the estate and its management for
heirs, legatees, distributes, and creditors of the estate shall have the purposes of liquidation, payment of debts, and distribution of the
same privilege as the executor or administrator of being examined residue among the persons entitled thereto.
on oath on any matter relating to an administration account." (Sec. It should be noted that the family residence was
1[c] Rule 81 and secs. 8 and 9, Rule 85, Rules of Court). partitioned proindiviso among the decedent's eight children. Each
A hearing is usually held before an administrator's account is one of them was given a one-eighth share in conformity with the
approved, especially if an interested Party raises objections to certain testator's will. Five of the eight co-owners consented to the use of
items in the accounting report (Sec. 10, Rule 85). the funds of the estate for repair and improvement of the family
At that hearing, the practice is for the administrator to take the home. It is obvious that the expenses in question were incurred to
witness stand, testify under oath on his accounts and Identify the preserve the family home and to maintain the family's social standing
receipts, vouchers and documents evidencing his disbursements in the community.
which are offered as exhibits. He may be interrogated by the court Obviously, those expenses redounded to the benefit of an the co-
and crossed by the oppositors's counsel. The oppositors may present owners. They were necessary for the preservation and use of the
proofs to rebut the ad. administrator's evidence in support of his family residence. As a result of those expenses, the co-owners,
accounts. including the three oppositors, would be able to use the family home
I. Expenses for the renovation and improvement of the family in comfort, convenience and security.
residence — P10,399.59. — As already shown above, these expenses We hold that the probate court did not err in approving the use of
consisted of disbursements for the repair of the terrace and interior the income of the estate to defray those ex
of the family home, the renovation of the bathroom, and the II. Expenses incurred by Librada de Guzman as occupant of the family
construction of a fence. The probate court allowed those expenses residence without paying rent — P1 603.11 — The probate court

Page 22 of 43
allowed the income of the estate to be used for those expenses on The administrator in his comment filed on February 28, 1978
the theory that the occupancy of the house by one heir did not explained that the item of P1,320 represented the "allotments" for
deprive the other seven heirs from living in it. Those expenses consist irrigation fees to eight tenants who cultivated the Intan crop, which
of the salaries of the house helper, light and water bills, and the cost allotments were treated as "assumed expenses" deducted as farming
of gas, oil floor wax and switch nail expenses from the value of the net harvests.
We are of the opinion that those expenses were personal expenses The explanation is not quite clear but it was not disputed by the
of Librada de Guzman, inuring y to her benefit. Those expenses, not appellants. The fact is that the said sum of P1,049.58 was paid by the
being reasonable administration expenses incurred by the administrator to the Penaranda Irrigation System as shown in Official
administrator, should not be charged against the income of the Receipt No. 3596378 dated April 28, 1967. It was included in his
estate. accounting as part of the farming expenses. The amount was
Librada de Guzman, as an heir, is entitled to share in the net income properly allowed as a legitimate expense of administration.
of the estate. She occupied the house without paying rent. She WHEREFORE, the lower court's order of April 29, 1968 is affirmed
should use her income for her living expenses while occupying the with the modifications that the sum of (a) P1,603.11 as the living
family residence. expenses of Librada de Guzman. (b) P100 for stenographic notes, (c)
The trial court erred in approving those expenses in the P26.25 as representation expenses, and (d) P268.65 as expenses for
administrator's accounts. They should be, as they are hereby, the celebration of the first anniversary of the decedent's death are
disallowed (See 33 C.J.S 1239-40). disallowed in the administrator's accounts. No costs.
III. Other expenses — P558.20. — Among these expenses is the sum SO ORDERED.
of P100 for stenographic notes which, as admitted by the
administrator on page 24 of his brief, should be disallowed. Another G.R. No. 46242 October 20, 1939
item, "representation expenses" in the sum of P26.25 (2nd In re estate of the deceased DIEGO DE LA VIÑA.
accounting), was not explained. it should likewise be disallowed. JOSE MA. DE LA VIÑA Y DE LA ROSA, ex-administrator-appellant,
The probate court erred in allowing as expenses of ad. administration vs.
the sum of P268.65 which was incurred during the celebration of the THE COLLECTOR OF INTERNAL REVENUE, creditor-appellee.
first death anniversary of the deceased. Those expenses are Enrique Medina for appellant.
disallowed because they have no connection with the care, Raymundo Villanueva for the administrator of the estate of De la Viña.
management and settlement of the decedent's estate (Nicolas vs. Office of the Solicitor-General Ozaeta and Assistant Solicitor-General
Nicolas 63 Phil 332). Concepcion for appellee.
The other expenses, namely, P19.30 for the lawyer's subsistence and
P144 as the cost of the gift to the physician who attended to the
testator during his last s are allowable expenses. VILLA-REAL, J.:
IV. Irrigation fee — P1,049.58. —The appellants question the This is an appeal taken by the ex-administrator, Dr. Jose MA. de la
deductibility of that expense on the ground that it seems to be a Viña y de la Rosa, from the order of the Court of First Instance of
duplication of the item of P1,320 as irrigation fee for the same 1966- Negros Oriental, the dispositive part of which reads:
67 crop-year.

Page 23 of 43
Wherefore the Court reiterates the order of March 7, 1933, Narcisa Geopano et al.," an order approving the accounts of the said
only in so far as the claim of the Insular Government is Dr. Jose de la Viña, as outgoing administrator of the estate of Diego
concerned, and orders the Administrator herein to pay from de la Viña. It appears from the decision of this Court rendered in said
whatever available fund of the estate of the deceased Diego Civil Case G.R. No. 23747 that the following items were approved:
de la Viña the sum of P18,420.93 with the corresponding Special per diems of Jose de la Viña
legal interests from August 20, 1929 plus costs, to the as former adminstrator
Commonwealth of the Philippines. .............................. P12,552.00
It is also ordered that after the said claim shall have been
fully paid, the administrator herein shall pay to Dr. Jose de la Legal Commission ............................... 4,141.33
Viña y De la Rosa the sum of P19,342.93 and to other
claimants their respective claims in the order established by
Total ............................................................ 16,693.33
law out of the residue.
In support of his appeal the appellant assigns three alleged errors In the bill of exceptions in said case it also appears that the following
committed by the trial court in its order, to wit: expenses of Jose de la Viña were approved:
1. The trial court erred in holding that the income tax Balance in his favor as executor
claimed by the Collector of Internal Revenue, should be paid .................... P1,165.86
before the administration expenses claimed by the appellant
Balance on his aparceria
executor Dr. Jose Ma. de la Viña y de la Rosa.
................................ 7,528.64
2. The trial court erred in applying article 1923 of the Civil
Code and in not holding that the said article has been Total
repealed by section 735 of the Code of Civil Procedure (Act ...................................................................... 8,694.50
On July 16, 1927, the said Court of First Instance of Negros Oriental
3. Granting for the sake of argument that the payment of
ordered in the present case the payment to Dr. Jose de la Viña of the
income tax has preference over the payment of
amount of 146.025 piculs of sugar belonging to him, which product
administration expenses, the trial court erred in holding that
was applied to the payment of the administration expenses of the
said preference has been abandoned and lost due to the
estate of Diego de la Viña. The price of said sugar was fixed at P20
time that has elapsed from 1925 to 1938.
per picul by a subsequent order. Adding the sum of P2,925, the value
The following are undisputed facts:
of said 146.025 piculs of sugar, to the sum of P25,387.83, the result is
On April 8, 1920, after the death of Diego de la Viña, his brother, the
a total of P28,312.83. As the amount of P9,228.65 has been paid on
herein appellant Dr. Jose Ma. de la Viña, was appointed by the Court
account, there remains a balance of P19,048.18 in favor of the
of First Instance of Negros Oriental as special administrator of the
estate of the deceased; and on the 20th of the same month and year
It also appears that on February 23, 1932, this Court rendered
he was appointed executor.
judgment in G.R. No. 33870, entitled "The Collector of Internal
On January 23, 1926, this Court issued in civil case G.R. No. 23747,
Revenue vs. Espiridion Villegas, as administrator of the estate of
entitled "In re estate of Diego de la Viña, deceased, Jose de la Viña v.

Page 24 of 43
Diego de la Viña", ordering the said administrator to pay the Insular payment established by section 735 of Act No. 190 above quoted.
Government, by way of income tax for the year 1925, the sum of Section 680 of the same code of Civil Procedure provides as follows:
P18,420.93, with interest from August 20, 1939 until fully paid, and SEC. 680. — How allowed for services. — The executor or
the costs. administrator shall be allowed necessary expenses in the
The estate of Diego de la Viña does not have sufficient funds or care, management, and settlement of the estate, and for his
property to pay fully both judgments. When the Insular Government services, two dollars per day for the time actually and
attempted to collect the amount of the said judgment in its favor, Dr. necessarily employed, and a commission of three per cent
Jose de la Viña objected on the ground that the judgments obtained upon all sums disbursed in the payment of debts, expenses,
by him are preferred under section 735 of Act No. 190, and should and distributive shares, if the amount of such disbursements
first be paid. After the corresponding trial, the trial court overruled does not exceed one thousand dollars. If the amount
the opposition and entered the above-quoted order. exceeds one thousand dollars and does not exceed five
The first question to be decided in this appeal, which is raised by the thousand dollars and one-half per cent upon the excess, if
first assignments of error, is whether or not the trial court erred in the whole amount does not exceed five thousand dollars,
holding that the income tax claimed by the Collector of Internal then the percentage as above provided, and one per cent on
Revenue, should be paid before the administration expenses claimed the excess above five thousand dollars. But in any special
by the ex-executor, Dr. Jose Ma. de la Viña y de la Rosa. case, where the estate is large, and the settlement has been
Section 735 of the Code of Civil Procedure, as amended by Act No. attended with great difficulty, and has required a high
3960, provides as follows: degree of capacity on the part of the executor or
SEC. 735. Order of payment if estate insolvent. — If the assets administrator, a greater sum may be allowed. But if objection
which can be appropriated for the payment of debts are not to the fees allowed be taken, the allowance may be re-
sufficient for that purpose, the executor or administrator examined by the Supreme Court on appeal.
shall, after pay the debts against the estate in the following When the administrator or executor is a lawyer, he shall not
order: be allowed to charge against the estate any professional
1. The necessary funeral expenses; fees, as such, for services rendered by himself. When the
2. The expenses of the last sickness; deceased by will makes some other provision for
3. What is owing to the laborer for salaries and wages earned compensation to his executor, the provision shall be full
and for indemnities due to him, for the last year; satisfaction for his services, unless by a written instrument
4. Debts due to the United States; filed in the court he renounces all claim to the compensation
5. Taxes and assessments due to the Government, or any provided by the will.
branch or subdivision thereof; The legal provision just quoted enumerates the services for which the
6. Debts due to the province; administrator should be paid and the commission to which he is
7. Debts due to other creditors. entitled for collections and disbursement made by him. Among these
In view of the legal provision just quoted, the question is whether the payments, which constitutes the expenses of administration, are not
income tax which an estate owes the Insular Government partakes of included pending debts of the estate, whatever may be their nature.
the nature of administration expenses for purposes of the order of According to the said legal provision, only payments which the

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executor or administration may have made in the discharge of his lien of a mortgage executed on specific property by the
office and the commissions to which he may be entitled, partakes of deceased in his lifetime. The expenses under this category
the nature of administration expenses. the expenses of include those paid for probate of the will, as well in the
administration are due only to the executor or administrator, and he Probate court as on appeal, or other proceeding in a contest,
alone, and no other, may collect them. if carried on in good faith; and the executor nominated in
The Collector of internal Revenue contends that the tax of P18,420.93 such will is entitled to a settlement of his account, and
which he seeks to collect, having been laid on the profits realized in reimbursement for his expenses in preserving the estate and
the sale of the properties of the deceased Diego de la Viña, effected for the funeral, although the will be finally pronounced
on September 29, 1925 by the judicial administrator of the estate, the invalid; and, generally, all expenses necessary in the
said tax partake of the nature of administration expenses. As we have protection and preservation of the estate, which have been
said, the necessary expenses of administration whose payment is held to include the costs of establishing a claim against the
given preference in the said section 735 of the Code of Civil estate. But the general rule seems rather to be that costs
Procedure are those which the administrator may have incurred in incurred by the administrator in defense of claims against
the care, administration and liquidation of the properties of the the estate, or in prosecuting claims in favor of it, pertain to
estate and the commissions due to him for collections and the administration, and are to be allowed in full; but costs
disbursements which he may have made, and not those which he incurred by claimants in establishing their claims stand on
cold or might have wished to make out of his own pocket or but of the same footing with the claims themselves. The allowance
the funds of the estate. "Administration expenses," says Corpus Juris, of counsel fees and costs is discussed in connection with the
volume 24, page 424, "include expenditures in discovering and subject of accounting. Repairs necessary upon real estate of
preserving assets, attorneys fees incurred in connection with the which the executor or administrator has lawful possession
administration of the estate, incurred in connection with the also constitute expenses of administration; if the expenses
administration of the estate, cost recovered against the incurred is general, affecting all the property of the estate, it
representative in an action to recover assets, to established a claim should be charged generally, but if attaching to a specific
against the estate, to try title to land, and insurance premiums portion or piece of property, it should be charged against
expended for the protection of the property and it has even been such portion or piece.
considered that expenditures in carrying on decedent's business may The liability of the administrator as such cannot be treated as
be regarded as expenses of administration." And Woerner, volume 2, a continuation of a running account with the deceased in his
page 1197, paragraph 362, third edition, of his work entitled "The lifetime; nor can the defendant in an action by an
American Law of Administration of the Estate," says the following: administrator upon a contract made by him as such, or to
It has already been stated, that for the expenses attending recover assets of the estate, set off or counterclaim a debt
the accomplishment of the purpose of administration due him from the deceased. And it is held that one who
growing out of the contract or obligation entered into by the renders services for a trust has no recourse against the trust,
personal representative he is to be reimbursed out of the except to subject an equitable demand of the trustee to the
estate, and that his claim to reimbursed must be superior to payment of the debt.
the rights of the beneficiaries. They are subject only to the

Page 26 of 43
The mere fact, therefore, that the income tax claimed by the pay such claim, under protest if he is not agreeable, without
Collector of Internal Revenue had been imposed upon the profits prejudice to his right later to recover the taxes so paid, in the
obtained by the administrator of the estate in the sale of certain manner provided by law (Act No. 2711, sec. 1579, as
properties of the deceased Diego de la Viña, after the latter's death, amended by Act No. 3685).
does not make the said tax a necessary expense of administration, The Collector of Internal Revenue also contends that the income tax
unless the administrator had paid it either from his own pocket or in question, being a lien created by the law superior to any other
out of the funds of the estate: in the first case the tax paid is existing upon the property on which it is imposed, under the
converted into an expense of administration which the administrator provisions of section 1588 of the Revised Administrative Code, as
may fully recover, plus his commission; in the second case, he may amended, enjoys preference over the necessary expenses of
only collect his commission, which partakes of the nature of an administration.
expense of administration. The lien created by the said section 1588 of the Revised
In the decision promulgated on May 18, 1938, in the Estate of the Administrative Code, having reference to all internal revenue taxes,
deceased Claude E. Hoygood, The Collector of Internal Revenue, including the income tax here in question, is general in character, and
claimant and appellee, vs. Annie Laurie Haygood, administratix and the order of its payment as a lien is applicable to all properties
appellant, G.R. No. 44038, this Court said: subject to the payment of internal revenue tax; whereas the order of
In accordance with section 9, paragraph (a) of Act No. 2833, payment established by section 735 of the Code of Civil Procedure,
the assessment made by the Collector of Internal Revenue as amended by Act No. 3960, is special in character and is only
within three years after the discovery of an erroneous applicable to properties of deceased persons; consequently, in
declaration shall be paid by the maker of the return accordance with the cardinal rule of statutory construction, the latter
immediately upon being notified of the assessment. The provision of law should prevail over the former. In section last
procedure prescribed by law is, therefore summary, and mentioned, the taxes due to government of any branch or
collection must be made from the person liable is already subdivision thereof occupy the fifth place in the order of payment;
dead, collection must necessarily be made from the estate of wherefore, the indebtedness of the estate of Diego de la Viña for
the deceased, either in a state or intestate proceedings income tax not being a necessary expense of administration, and the
instituted before a competent court, by motion together with claim of the ex-administrator Dr. Jose Ma. de la Viña y de la Rosa
the sworn statement of the taxes due filed with said court, so being such necessary expense of administration, the latter has
that it may require the administrator to pay the claim if the preference over the former.
latter has funds available therefor, that is, following the order The appellee denies that the first claim for P12,552 for special per
of preference provided in section 735 of the Code of Civil diems partakes of the nature of necessary expenses of administration,
Procedure in case the said estate should insolvent. If the for lack of allegation or proof to that effect. Section 680 of the Code
testate or intestate is solvent, the court may order the of Civil Procedure already cited provides that "but in any special case,
payment of the claim without necessity of its being where the estate is large, and the settlement has been attended with
substantiated by evidence since the sworn statement great difficulty, and has required a high decree of capacity on the
constitutes prima facie evidence of the existence of the part of the executor or administrator, a greater sum may be allowed."
unpaid taxes, and the administrator is under obligation to There is no doubt that the estate of Diego de la Viña is large. The

Page 27 of 43
determination of whether the administration and liquidation thereof of Negros Occidental, Branch V, and FRANCIS A. TONGOY,
have been attended with great difficulty and have required a high Administrator of the Estate of the late LUIS D.
degree of capacity on the part of the executor or administrator, rests TONGOY respondents.
in the sound discretion of the Court which took cognizance of the
said estate. It not appearing that the lower court committed an abuse DE CASTRO, J.:
of discretion in granting a greater remuneration to the appellant, we Appeal from two orders of the Court of First Instance of Negros
do not feel warranted in interfering with the exercise of said Occidental, Branch V in Special Proceedings No. 7794, entitled:
discretion. "Intestate Estate of Luis D. Tongoy," the first dated July 29, 1969
In view of the foregoing consideration, we are of the opinion and so dismissing the Motion for Allowance of Claim and for an Order of
hold: (1) that the income tax which an estate owes to the insular Payment of Taxes by the Government of the Republic of the
government for profits obtained in the sale of properties belonging Philippines against the Estate of the late Luis D. Tongoy, for
to it, after the death of the testator, does not partake of the nature of deficiency income taxes for the years 1963 and 1964 of the decedent
necessary expenses of administration; (2) that the lien created by in the total amount of P3,254.80, inclusive 5% surcharge, 1% monthly
section 1588 of the Revised Administrative Code for internal revenue interest and compromise penalties, and the second, dated October 7,
tax on properties subject to it, being general in character, yields to 1969, denying the Motion for reconsideration of the Order of
the preference established by section 735 of the Code of Civil dismissal.
Procedure, as amended by Act No. 3960, in favor of the necessary The Motion for allowance of claim and for payment of taxes dated
expenses of administration of the estate of a deceased person; and, May 28, 1969 was filed on June 3, 1969 in the abovementioned
(3) that the claim of an administrator for the necessary expenses of special proceedings, (par. 3, Annex A, Petition, pp. 1920, Rollo). The
administration enjoys preference over the claim for payment of claim represents the indebtedness to the Government of the late Luis
income tax. D. Tongoy for deficiency income taxes in the total sum of P3,254.80
Wherefore, the remedy prayed for is granted, the appealed decision as above stated, covered by Assessment Notices Nos. 11-50-29-1-
is reversed, and it is held that the claim of the appellant, Dr. Jose Ma. 11061-21-63 and 11-50-291-1 10875-64, to which motion was
de la Viña y de la Rosa, as ex-administrator of the estate of the attached Proof of Claim (Annex B, Petition, pp. 21-22, Rollo). The
deceased Diego de la Viña has preference over that of the Collector Administrator opposed the motion solely on the ground that the
of Internal Revenue for income tax, without special pronouncement claim was barred under Section 5, Rule 86 of the Rules of Court (par.
as to costs. So ordered. 4, Opposition to Motion for Allowance of Claim, pp. 23-24, Rollo).
Diaz, Concepcion and Moran, JJ., concur. Finding the opposition well-founded, the respondent Judge, Jose F.
Fernandez, dismissed the motion for allowance of claim filed by
G.R. No. L-31364 March 30, 1979 herein petitioner, Regional Director of the Bureau of Internal
MISAEL P. VERA, as Commissioner of Internal Revenue, and Revenue, in an order dated July 29, 1969 (Annex D, Petition, p. 26,
JAIME ARANETA, as Regional Director, Revenue Region No. 14, Rollo). On September 18, 1969, a motion for reconsideration was
Bureau of Internal Revenue, petitioners, filed, of the order of July 29, 1969, but was denied in an Order dated
vs. October 7, 1969.
HON. JOSE F. FERNANDEZ, Judge of the Court of First Instance

Page 28 of 43
Hence, this appeal on certiorari, petitioner assigning the following amount to determined shall be considered the true
errors: balance against the estate, as though the claim has
1. The lower court erred in holding that the claim for been presented directly before the court in the
taxes by the government against the estate of Luis D. administration proceedings. Claims not yet due, or
Tongoy was filed beyond the period provided in contingent may be approved at their present value.
Section 2, Rule 86 of the Rules of Court. A perusal of the aforequoted provisions shows that it makes no
2. The lower court erred in holding that the claim for mention of claims for monetary obligation of the decedent created
taxes of the government was already barred under by law, such as taxes which is entirely of different character from the
Section 5, Rule 86 of the Rules of Court. claims expressly enumerated therein, such as: "all claims for money
which raise the sole issue of whether or not the statute of non-claims against the decedent arising from contract, express or implied,
Section 5, Rule 86 of the New Rule of Court, bars claim of the whether the same be due, not due or contingent, all claim for funeral
government for unpaid taxes, still within the period of limitation expenses and expenses for the last sickness of the decedent and
prescribed in Section 331 and 332 of the National Internal Revenue judgment for money against the decedent." Under the familiar rule of
Code. statutory construction of expressio unius est exclusio alterius, the
Section 5, Rule 86, as invoked by the respondent Administrator in hid mention of one thing implies the exclusion of another thing not
Oppositions to the Motion for Allowance of Claim, etc. of the mentioned. Thus, if a statute enumerates the things upon which it is
petitioners reads as follows: to operate, everything else must necessarily, and by implication be
All claims for money against the decedent, arising excluded from its operation and effect (Crawford, Statutory
from contracts, express or implied, whether the same Construction, pp. 334-335).
be due, not due, or contingent, all claims for funeral In the case of Commissioner of Internal Revenue vs. Ilagan Electric &
expenses and expenses for the last sickness of the Ice Plant, et al., G.R. No. L-23081, December 30, 1969, it was held that
decedent, and judgment for money against the the assessment, collection and recovery of taxes, as well as the
decedent, must be filed within the time limited in matter of prescription thereof are governed by the provisions of the
they notice; otherwise they are barred forever, National Internal revenue Code, particularly Sections 331 and 332
except that they may be set forth as counter claims thereof, and not by other provisions of law. (See also Lim Tio, Dy
in any action that the executor or administrator may Heng and Dee Jue vs. Court of Tax Appeals & Collector of Internal
bring against the claimants. Where the executor or Revenue, G.R. No. L-10681, March 29, 1958). Even without being
administrator commence an action, or prosecutes an specifically mentioned, the provisions of Section 2 of Rule 86 of the
action already commenced by the deceased in his Rules of Court may reasonably be presumed to have been also in the
lifetime, the debtor may set forth may answer the mind of the Court as not affecting the aforecited Section of the
claims he has against the decedents, instead of National Internal Revenue Code.
presenting them independently to the court has In the case of Pineda vs. CFI of Tayabas, 52 Phil. 803, it was even
herein provided, and mutual claims may be set off more pointedly held that "taxes assessed against the estate of a
against each other in such action; and in final deceased person ... need not be submitted to the committee on
judgment is rendered in favored of the decedent, the claims in the ordinary course of administration. In the exercise of its

Page 29 of 43
control over the administrator, the court may direct the payment of of Tax Appeals, L-23272, November 26, 1970, 36 SCRA 77; E.
such taxes upon motion showing that the taxes have been assessed Rodriguez, Inc. vs. Collector of Internal Revenue, L- 23041, July 31,
against the estate." The abolition of the Committee on Claims does 1969, 28 SCRA 119.) As already shown, taxes may be collected even
not alter the basic ruling laid down giving exception to the claim for after the distribution of the estate of the decedent among his heirs
taxes from being filed as the other claims mentioned in the Rule (Government of the Philippines vs. Pamintuan, supra; Pineda vs. CFI
should be filed before the Court. Claims for taxes may be collected of Tayabas, supra Clara Diluangco Palanca vs. Commissioner of
even after the distribution of the decedent's estate among his heirs Internal Revenue, G. R. No. L-16661, January 31, 1962).
who shall be liable therefor in proportion of their share in the Furthermore, as held in Commissioner of Internal Revenue vs. Pineda,
inheritance. (Government of the Philippines vs. Pamintuan, 55 Phil. supra, citing the last paragraph of Section 315 of the Tax Code
13). payment of income tax shall be a lien in favor of the Government of
The reason for the more liberal treatment of claims for taxes against the Philippines from the time the assessment was made by the
a decedent's estate in the form of exception from the application of Commissioner of Internal Revenue until paid with interests, penalties,
the statute of non-claims, is not hard to find. Taxes are the lifeblood etc. By virtue of such lien, this court held that the property of the
of the Government and their prompt and certain availability are estate already in the hands of an heir or transferee may be subject to
imperious need. (Commissioner of Internal Revenue vs. Pineda, G. R. the payment of the tax due the estate. A fortiori before the
No. L-22734, September 15, 1967, 21 SCRA 105). Upon taxation inheritance has passed to the heirs, the unpaid taxes due the
depends the Government ability to serve the people for whose decedent may be collected, even without its having been presented
benefit taxes are collected. To safeguard such interest, neglect or under Section 2 of Rule 86 of the Rules of Court. It may truly be said
omission of government officials entrusted with the collection of that until the property of the estate of the decedent has vested in the
taxes should not be allowed to bring harm or detriment to the heirs, the decedent, represented by his estate, continues as if he were
people, in the same manner as private persons may be made to still alive, subject to the payment of such taxes as would be
suffer individually on account of his own negligence, the collectible from the estate even after his death. Thus in the case
presumption being that they take good care of their personal affairs. above cited, the income taxes sought to be collected were due from
This should not hold true to government officials with respect to the estate, for the three years 1946, 1947 and 1948 following his
matters not of their own personal concern. This is the philosophy death in May, 1945.
behind the government's exception, as a general rule, from the Even assuming arguendo that claims for taxes have to be filed within
operation of the principle of estoppel. (Republic vs. Caballero, L- the time prescribed in Section 2, Rule 86 of the Rules of Court, the
27437, September 30, 1977, 79 SCRA 177; Manila Lodge No. 761, claim in question may be filed even after the expiration of the time
Benevolent and Protective Order of the Elks Inc. vs. Court of Appeals, originally fixed therein, as may be gleaned from the italicized portion
L-41001, September 30, 1976, 73 SCRA 162; Sy vs. Central Bank of of the Rule herein cited which reads:
the Philippines, L-41480, April 30,1976, 70 SCRA 571; Balmaceda vs. Section 2. Time within which claims shall be filed. - In
Corominas & Co., Inc., 66 SCRA 553; Auyong Hian vs. Court of Tax the notice provided in the preceding section, the
Appeals, 59 SCRA 110; Republic vs. Philippine Rabbit Bus Lines, Inc., court shall state the time for the filing of claims
66 SCRA 553; Republic vs. Philippine Long Distance Telephone against the estate, which shall not be more than
Company, L-18841, January 27, 1969, 26 SCRA 620; Zamora vs. Court twelve (12) nor less than six (6) months after the date

Page 30 of 43
of the first publication of the notice. However, at any GONZAGA-REYES, J.:
time before an order of distribution is entered, on Assailed in this petition for review on certiorari is the December 21,
application of a creditor who has failed to file his 1995 Decision1 of the Court of Appeals2 in CA-G.R. Sp. No. 34399
claim within the time previously limited the court affirming the June 7, 1994 Resolution of the Court of Tax Appeals in
may, for cause shown and on such terms as are CTA Case No. 4381 granting private respondent Josefina P. Pajonar,
equitable, allow such claim to be flied within a time as administratrix of the estate of Pedro P. Pajonar, a tax refund in the
not exceeding one (1) month. (Emphasis supplied) amount of P76,502.42, representing erroneously paid estate taxes for
In the instant case, petitioners filed an application (Motion for the year 1988.
Allowance of Claim and for an Order of Payment of Taxes) which, Pedro Pajonar, a member of the Philippine Scout, Bataan Contingent,
though filed after the expiration of the time previously limited but during the second World War, was a part of the infamous Death
before an order of the distribution is entered, should have been March by reason of which he suffered shock and became insane. His
granted by the respondent court, in the absence of any valid ground, sister Josefina Pajonar became the guardian over his person, while
as none was shown, justifying denial of the motion, specially his property was placed under the guardianship of the Philippine
considering that it was for allowance Of claim for taxes due from the National Bank (PNB) by the Regional Trial Court of Dumaguete City,
estate, which in effect represents a claim of the people at large, the Branch 31, in Special Proceedings No. 1254. He died on January 10,
only reason given for the denial that the claim was filed out of the 1988. He was survived by his two brothers Isidro P. Pajonar and
previously limited period, sustaining thereby private respondents' Gregorio Pajonar, his sister Josefina Pajonar, nephews Concordio
contention, erroneously as has been demonstrated. Jandog and Mario Jandog and niece Conchita Jandog.
WHEREFORE, the order appealed from is reverse. Since the Tax On May 11, 1988, the PNB filed an accounting of the decedent's
Commissioner's assessment in the total amount of P3,254.80 with 5 property under guardianship valued at P3,037,672.09 in Special
% surcharge and 1 % monthly interest as provided in the Tax Code is Proceedings No. 1254. However, the PNB did not file an estate tax
a final one and the respondent estate's sole defense of prescription return, instead it advised Pedro Pajonar's heirs to execute an
has been herein overruled, the Motion for Allowance of Claim is extrajudicial settlement and to pay the taxes on his estate. On April 5,
herein granted and respondent estate is ordered to pay and 1988, pursuant to the assessment by the Bureau of Internal Revenue
discharge the same, subject only to the limitation of the interest (BIR), the estate of Pedro Pajonar paid taxes in the amount of P2,557.
collectible thereon as provided by the Tax Code. No pronouncement On May 19, 1988, Josefina Pajonar filed a petition with the Regional
as to costs. Trial Court of Dumaguete City for the issuance in her favor of letters
SO ORDERED. of administration of the estate of her brother. The case was docketed
G.R. No. 123206 March 22, 2000 as Special Proceedings No. 2399. On July 18, 1988, the trial court
COMMISSIONER OF INTERNAL REVENUE, petitioner, appointed Josefina Pajonar as the regular administratrix of Pedro
vs. Pajonar's estate.
COURT OF APPEALS, COURT OF TAX APPEALS and JOSEFINA P. On December 19, 1988, pursuant to a second assessment by the BIR
PAJONAR, as Administratrix of the Estate of Pedro P. for deficiency estate tax, the estate of Pedro Pajonar paid estate tax
Pajonar, respondents. in the amount of P1,527,790.98. Josefina Pajonar, in her capacity as
RESOLUTION administratrix and heir of Pedro Pajonar's estate, filed a protest on

Page 31 of 43
January 11, 1989 with the BIR praying that the estate tax payment in provides for the allowable deductions from the gross estate of the
the amount of P1,527,790.98, or at least some portion of it, be decedent. More particularly, the question is whether the notarial fee
returned to the heirs. 3 paid for the extrajudicial settlement in the amount of P60,753 and
However, on August 15, 1989, without waiting for her protest to be the attorney's fees in the guardianship proceedings in the amount of
resolved by the BIR, Josefina Pajonar filed a petition for review with P50,000 may be allowed as deductions from the gross estate of
the Court of Tax Appeals (CTA), praying for the refund of decedent in order to arrive at the value of the net estate.
P1,527,790.98, or in the alternative, P840,202.06, as erroneously paid We answer this question in the affirmative, thereby upholding the
estate tax. 4 The case was docketed as CTA Case No. 4381. decisions of the appellate courts.
On May 6, 1993, the CTA ordered the Commissioner of Internal In its May 6, 1993 Decision, the Court of Tax Appeals ruled thus:
Revenue to refund Josefina Pajonar the amount of P252,585.59, Respondent maintains that only judicial expenses of the
representing erroneously paid estate tax for the year 1988. 5 Among testamentary or intestate proceedings are allowed as a
the deductions from the gross estate allowed by the CTA were the deduction to the gross estate. The amount of P60,753.00 is
amounts of P60,753 representing the notarial fee for the Extrajudicial quite extraordinary for a mere notarial fee.
Settlement and the amount of P50,000 as the attorney's fees in This Court adopts the view under American jurisprudence
Special Proceedings No. 1254 for guardianship.6 that expenses incurred in the extrajudicial settlement of the
On June 15, 1993, the Commissioner of Internal Revenue filed a estate should be allowed as a deduction from the gross
motion for reconsideration7 of the CTA's May 6, 1993 decision estate. "There is no requirement of formal administration. It
asserting, among others, that the notarial fee for the Extrajudicial is sufficient that the expense be a necessary contribution
Settlement and the attorney's fees in the guardianship proceedings toward the settlement of the case." [ 34 Am. Jur. 2d, p. 765;
are not deductible expenses. Nolledo, Bar Reviewer in Taxation, 10th Ed. (1990), p. 481]
On June 7, 1994, the CTA issued the assailed Resolution8 ordering the xxx xxx xxx
Commissioner of Internal Revenue to refund Josefina Pajonar, as The attorney's fees of P50,000.00, which were already
administratrix of the estate of Pedro Pajonar, the amount of incurred but not yet paid, refers to the guardianship
P76,502.42 representing erroneously paid estate tax for the year proceeding filed by PNB, as guardian over the ward of Pedro
1988. Also, the CTA upheld the validity of the deduction of the Pajonar, docketed as Special Proceeding No. 1254 in the RTC
notarial fee for the Extrajudicial Settlement and the attorney's fees in (Branch XXXI) of Dumaguete City. . . .
the guardianship proceedings. xxx xxx xxx
On July 5, 1994, the Commissioner of Internal Revenue filed with the The guardianship proceeding had been terminated upon
Court of Appeals a petition for review of the CTA's May 6, 1993 delivery of the residuary estate to the heirs entitled thereto.
Decision and its June 7, 1994 Resolution, questioning the validity of Thereafter, PNB was discharged of any further responsibility.
the abovementioned deductions. On December 21, 1995, the Court Attorney's fees in order to be deductible from the gross
of Appeals denied the Commissioner's petition.9 estate must be essential to the collection of assets, payment
Hence, the present appeal by the Commissioner of Internal Revenue. of debts or the distribution of the property to the persons
The sole issue in this case involves the construction of section entitled to it. The services for which the fees are charged
79 10 of the National Internal Revenue Code 11 (Tax Code) which must relate to the proper settlement of the estate. [34 Am.

Page 32 of 43
Jur. 2d 767.] In this case, the guardianship proceeding was preservation and productivity of the estate and for its
necessary for the distribution of the property of the late management for purposes of liquidation, payment of debts and
Pedro Pajonar to his rightful heirs. distribution of the residue among the persons entitled thereto.
xxx xxx xxx [Lizarraga Hermanos vs. Abada, 40 Phil. 124.] They must be incurred
PNB was appointed as guardian over the assets of the late for the settlement of the estate as a whole. [34 Am. Jur. 2d, p. 765.]
Pedro Pajonar, who, even at the time of his death, was Thus, where there were no substantial community debts and it was
incompetent by reason of insanity. The expenses incurred in unnecessary to convert community property to cash, the only
the guardianship proceeding was but a necessary expense in practical purpose of administration being the payment of estate
the settlement of the decedent's estate. Therefore, the taxes, full deduction was allowed for attorney's fees and
attorney's fee incurred in the guardianship proceedings miscellaneous expenses charged wholly to decedent's estate. [Ibid.,
amounting to P50,000.00 is a reasonable and necessary citing Estate of Helis, 26 T.C. 143 (A).]
business expense deductible from the gross estate of the Petitioner stated in her protest filed with the BIR that "upon the
decedent. 12 death of the ward, the PNB, which was still the guardian of the estate,
Upon a motion for reconsideration filed by the Commissioner of (Annex "Z"), did not file an estate tax return; however, it advised the
Internal Revenue, the Court of Tax Appeals modified its previous heirs to execute an extrajudicial settlement, to pay taxes and to post a
ruling by reducing the refundable amount to P76,502.43 since it bond equal to the value of the estate, for which the state paid
found that a deficiency interest should be imposed and the P59,341.40 for the premiums. (See Annex "K")." [p. 17, CTA record.]
compromise penalty excluded. 13 However, the tax court upheld its Therefore, it would appear from the records of the case that the only
previous ruling regarding the legality of the deductions — practical purpose of settling the estate by means of an extrajudicial
It is significant to note that the inclusion of the estate tax law in the settlement pursuant to Section 1 of Rule 74 of the Rules of Court was
codification of all our national internal revenue laws with the for the payment of taxes and the distribution of the estate to the
enactment of the National Internal Revenue Code in 1939 were heirs. A fortiori, since our estate tax laws are of American origin, the
copied from the Federal Law of the United States. [ UMALI, Reviewer interpretation adopted by American Courts has some persuasive
in Taxation (1985), p. 285 ] The 1977 Tax Code, promulgated by effect on the interpretation of our own estate tax laws on the subject.
Presidential Decree No. 1158, effective June 3, 1977, reenacted Anent the contention of respondent that the attorney's fees of
substantially all the provisions of the old law on estate and gift taxes, P50,000.00 incurred in the guardianship proceeding should not be
except the sections relating to the meaning of gross estate and gift. deducted from the Gross Estate, We consider the same
[ Ibid, p. 286. ] unmeritorious. Attorneys' and guardians' fees incurred in a trustee's
In the United States, [a]dministrative expenses, executor's accounting of a taxable inter vivos trust attributable to the usual
commissions and attorney's fees are considered allowable issues involved in such an accounting was held to be proper
deductions from the Gross Estate. Administrative expenses are deductions because these are expenses incurred in terminating an
limited to such expenses as are actually and necessarily incurred in inter vivos trust that was includible in the decedent's estate. [Prentice
the administration of a decedent's estate. [PRENTICE-HALL, Federal Hall, Federal Taxes on Estate and Gift, p. 120, 861] Attorney's fees are
Taxes Estate and Gift Taxes (1936), p. 120, 533.] Necessary expenses allowable deductions if incurred for the settlement of the estate. It is
of administration are such expenses as are entailed for the noteworthy to point that PNB was appointed the guardian over the

Page 33 of 43
assets of the deceased. Necessarily the assets of the deceased collection of the assets of the estate, payment of debts and
formed part of his gross estate. Accordingly, all expenses incurred in distribution of the remainder among those entitled thereto. Thus, the
relation to the estate of the deceased will be deductible for estate tax notarial fee of P60,753 incurred for the Extrajudicial Settlement
purposes provided these are necessary and ordinary expenses for should be allowed as a deduction from the gross estate.
administration of the settlement of the estate. 14 3. Attorney's fees, on the other hand, in order to be deductible from
In upholding the June 7, 1994 Resolution of the Court of Tax Appeals, the gross estate must be essential to the settlement of the estate.
the Court of Appeals held that: The amount of P50,000.00 was incurred as attorney's fees in the
2. Although the Tax Code specifies "judicial expenses of the guardianship proceedings in Spec. Proc. No. 1254. Petitioner
testamentary or intestate proceedings," there is no reason why contends that said amount are not expenses of the testamentary or
expenses incurred in the administration and settlement of an estate intestate proceedings as the guardianship proceeding was instituted
in extrajudicial proceedings should not be allowed. However, during the lifetime of the decedent when there was yet no estate to
deduction is limited to such administration expenses as are actually be settled.
and necessarily incurred in the collection of the assets of the estate, Again, this contention must fail.
payment of the debts, and distribution of the remainder among The guardianship proceeding in this case was necessary for the
those entitled thereto. Such expenses may include executor's or distribution of the property of the deceased Pedro Pajonar. As
administrator's fees, attorney's fees, court fees and charges, correctly pointed out by respondent CTA, the PNB was appointed
appraiser's fees, clerk hire, costs of preserving and distributing the guardian over the assets of the deceased, and that necessarily the
estate and storing or maintaining it, brokerage fees or commissions assets of the deceased formed part of his gross estate. . . .
for selling or disposing of the estate, and the like. Deductible xxx xxx xxx
attorney's fees are those incurred by the executor or administrator in It is clear therefore that the attorney's fees incurred in the
the settlement of the estate or in defending or prosecuting claims guardianship proceeding in Spec. Proc. No. 1254 were essential to
against or due the estate. (Estate and Gift Taxation in the Philippines, the distribution of the property to the persons entitled thereto.
T. P. Matic, Jr., 1981 Edition, p. 176). Hence, the attorney's fees incurred in the guardianship proceedings
xxx xxx xxx in the amount of P50,000.00 should be allowed as a deduction from
It is clear then that the extrajudicial settlement was for the purpose the gross estate of the decedent. 15
of payment of taxes and the distribution of the estate to the heirs. The deductions from the gross estate permitted under section 79 of
The execution of the extrajudicial settlement necessitated the the Tax Code basically reproduced the deductions allowed under
notarization of the same. Hence the Contract of Legal Services of Commonwealth Act No. 466 (CA 466), otherwise known as the
March 28, 1988 entered into between respondent Josefina Pajonar National Internal Revenue Code of 1939, 16 and which was the first
and counsel was presented in evidence for the purpose of showing codification of Philippine tax laws. Section 89 (a) (1) (B) of CA 466
that the amount of P60,753.00 was for the notarization of the also provided for the deduction of the "judicial expenses of the
Extrajudicial Settlement. It follows then that the notarial fee of testamentary or intestate proceedings" for purposes of determining
P60,753.00 was incurred primarily to settle the estate of the deceased the value of the net estate. Philippine tax laws were, in turn, based on
Pedro Pajonar. Said amount should then be considered an the federal tax laws of the United States. 17 In accord with established
administration expenses actually and necessarily incurred in the rules of statutory construction, the decisions of American courts

Page 34 of 43
construing the federal tax code are entitled to great weight in the We find that the Court of Appeals did not commit reversible error in
interpretation of our own tax laws. 18 affirming the questioned resolution of the Court of Tax Appeals.
Judicial expenses are expenses of administration. 19 Administration WHEREFORE, the December 21, 1995 Decision of the Court of
expenses, as an allowable deduction from the gross estate of the Appeals is AFFIRMED. The notarial fee for the extrajudicial settlement
decedent for purposes of arriving at the value of the net estate, have and the attorney's fees in the guardianship proceedings are
been construed by the federal and state courts of the United States allowable deductions from the gross estate of Pedro
to include all expenses "essential to the collection of the assets, Pajonar.1âwphi1.nêt
payment of debts or the distribution of the property to the persons SO ORDERED.
entitled to it." 20 In other words, the expenses must be essential to G.R. No. 140944 April 30, 2008
the proper settlement of the estate. Expenditures incurred for the RAFAEL ARSENIO S. DIZON, in his capacity as the Judicial
individual benefit of the heirs, devisees or legatees are not Administrator of the Estate of the deceased JOSE P.
deductible. 21 This distinction has been carried over to our FERNANDEZ, petitioner,
jurisdiction. Thus, in Lorenzo v. Posadas 22 the Court construed the vs.
phrase "judicial expenses of the testamentary or intestate COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL
proceedings" as not including the compensation paid to a trustee of REVENUE, respondents.
the decedent's estate when it appeared that such trustee was DECISION
appointed for the purpose of managing the decedent's real estate NACHURA, J.:
for the benefit of the testamentary heir. In another case, the Court Before this Court is a Petition for Review on Certiorari1 under Rule 45
disallowed the premiums paid on the bond filed by the administrator of the Rules of Civil Procedure seeking the reversal of the Court of
as an expense of administration since the giving of a bond is in the Appeals (CA) Decision2 dated April 30, 1999 which affirmed the
nature of a qualification for the office, and not necessary in the Decision3 of the Court of Tax Appeals (CTA) dated June 17, 1997.4
settlement of the estate. 23 Neither may attorney's fees incident to The Facts
litigation incurred by the heirs in asserting their respective rights be On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a
claimed as a deduction from the gross estate. 24 1âwphi1 petition for the probate of his will5 was filed with Branch 51 of the
Coming to the case at bar, the notarial fee paid for the extrajudicial Regional Trial Court (RTC) of Manila (probate court).[6] The probate
settlement is clearly a deductible expense since such settlement court then appointed retired Supreme Court Justice Arsenio P. Dizon
effected a distribution of Pedro Pajonar's estate to his lawful heirs. (Justice Dizon) and petitioner, Atty. Rafael Arsenio P. Dizon
Similarly, the attorney's fees paid to PNB for acting as the guardian (petitioner) as Special and Assistant Special Administrator,
of Pedro Pajonar's property during his lifetime should also be respectively, of the Estate of Jose (Estate). In a letter 7dated October
considered as a deductible administration expense. PNB provided a 13, 1988, Justice Dizon informed respondent Commissioner of the
detailed accounting of decedent's property and gave advice as to the Bureau of Internal Revenue (BIR) of the special proceedings for the
proper settlement of the latter's estate, acts which contributed Estate.
towards the collection of decedent's assets and the subsequent Petitioner alleged that several requests for extension of the period to
settlement of the estate. file the required estate tax return were granted by the BIR since the
assets of the estate, as well as the claims against it, had yet to be

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collated, determined and identified. Thus, in a letter8 dated March 14, 1988), Manila Banking Corporation (P84,199,160.46 as of February 28,
1990, Justice Dizon authorized Atty. Jesus M. Gonzales (Atty. 1989) and State Investment House, Inc. (P6,280,006.21). Petitioner
Gonzales) to sign and file on behalf of the Estate the required estate manifested that Manila Bank, a major creditor of the Estate was not
tax return and to represent the same in securing a Certificate of Tax included, as it did not file a claim with the probate court since it had
Clearance. Eventually, on April 17, 1990, Atty. Gonzales wrote a security over several real estate properties forming part of the
letter9 addressed to the BIR Regional Director for San Pablo City and Estate.16
filed the estate tax return10 with the same BIR Regional Office, However, on November 26, 1991, the Assistant Commissioner for
showing therein a NIL estate tax liability, computed as follows: Collection of the BIR, Themistocles Montalban, issued Estate Tax
COMPUTATION OF TAX Assessment Notice No. FAS-E-87-91-003269,17 demanding the
payment of P66,973,985.40 as deficiency estate tax, itemized as
Conjugal Real Property (Sch. 1) P10,855,020.00
Conjugal Personal Property (Sch.2) 3,460,591.34 Deficiency Estate Tax- 1987
Taxable Transfer (Sch. 3) Estate tax P31,868,414.48
Gross Conjugal Estate 14,315,611.34 25% surcharge- late filing 7,967,103.62
Less: Deductions (Sch. 4) 187,822,576.06 late payment 7,967,103.62
Net Conjugal Estate NIL Interest 19,121,048.68
Less: Share of Surviving Spouse NIL. Compromise-non filing 25,000.00
Net Share in Conjugal Estate NIL non payment 25,000.00
xxx no notice of death 15.00
Net Taxable Estate NIL. no CPA Certificate 300.00
Estate Tax Due NIL.11 Total amount due & collectible P66,973,985.4018
On April 27, 1990, BIR Regional Director for San Pablo City, Osmundo In his letter dated December 12, 1991, Atty. Gonzales moved for the
G. Umali issued Certification Nos. 2052[12]and 2053[13] stating that the reconsideration of the said estate tax assessment. However, in her
taxes due on the transfer of real and personal properties [14] of Jose letter20 dated April 12, 1994, the BIR Commissioner denied the
had been fully paid and said properties may be transferred to his request and reiterated that the estate is liable for the payment
heirs. Sometime in August 1990, Justice Dizon passed away. Thus, on of P66,973,985.40 as deficiency estate tax. On May 3, 1994, petitioner
October 22, 1990, the probate court appointed petitioner as the received the letter of denial. On June 2, 1994, petitioner filed a
administrator of the Estate.15 petition for review21 before respondent CTA. Trial on the merits
Petitioner requested the probate court's authority to sell several ensued.
properties forming part of the Estate, for the purpose of paying its As found by the CTA, the respective parties presented the following
creditors, namely: Equitable Banking Corporation (P19,756,428.31), pieces of evidence, to wit:
Banque de L'Indochine et. de Suez (US$4,828,905.90 as of January 31,

Page 36 of 43
In the hearings conducted, petitioner did not present Fernandez Hermanos, Inc., represented by Jose P. Fernandez,
testimonial evidence but merely documentary evidence as mortgagors, in the total amount of P240,479,693.17 as of
consisting of the following: February 28, 1989 (pp. 186-187, BIR records);
Nature of Document (sic) Exhibits 9. Claim of State Investment House, Inc. filed with the RTC, "
1. Letter dated October 13, 1988 from Arsenio P. Dizon "A" Branch VII of Manila, docketed as Civil Case No. 86-38599
addressed to the Commissioner of Internal Revenue entitled "State Investment House, Inc., Plaintiff, versus
informing the latter of the special proceedings for the Maritime Company Overseas, Inc. and/or Jose P. Fernandez,
settlement of the estate (p. 126, BIR records); Defendants," (pp. 200-215, BIR records);
2. 10.
Petition for the probate of the will and issuance of letter of "B" & "B-1" Letter dated March 14, 1990 of Arsenio P. Dizon addressed "
administration filed with the Regional Trial Court (RTC) of to Atty. Jesus M. Gonzales, (p. 184, BIR records);
Manila, docketed as Sp. Proc. No. 87-42980 (pp. 107-108, BIR 11. Letter dated April 17, 1990 from J.M. Gonzales addressed to "
records); the Regional Director of BIR in San Pablo City (p. 183, BIR
3. Pleading entitled "Compliance" filed with the probate Court "C" records);
submitting the final inventory of all the properties of the 12.
Estate Tax Return filed by the estate of the late Jose P. "
deceased (p. 106, BIR records); Fernandez through its authorized representative, Atty. Jesus
4. Attachment to Exh. "C" which is the detailed and complete "C-1" to "C-17" M. Gonzales, for Arsenio P. Dizon, with attachments (pp. 177-
listing of the properties of the deceased (pp. 89-105, BIR 182, BIR records);
rec.); 13. Certified true copy of the Letter of Administration issued by "
5. Claims against the estate filed by Equitable Banking Corp. "D" to "D-24" RTC Manila, Branch 51, in Sp. Proc. No. 87-42980 appointing
with the probate Court in the amount of P19,756,428.31 as of Atty. Rafael S. Dizon as Judicial Administrator of the estate of
March 31, 1988, together with the Annexes to the claim (pp. Jose P. Fernandez; (p. 102, CTA records) and
64-88, BIR records); 14. Certification of Payment of estate taxes Nos. 2052 and 2053, "
6. Claim filed by Banque de L' Indochine et de Suez with the "E" to "E-3" both dated April 27, 1990, issued by the Office of the
probate Court in the amount of US $4,828,905.90 as of Regional Director, Revenue Region No. 4-C, San Pablo City,
January 31, 1988 (pp. 262-265, BIR records); with attachments (pp. 103-104, CTA records.).
7. Claim of the Manila Banking Corporation (MBC) which as ofRespondent's
"F" to "F-3" [BIR] counsel presented on June 26, 1995
November 7, 1987 amounts to P65,158,023.54, but one witness in the person of Alberto Enriquez, who was
recomputed as of February 28, 1989 at a total amount one of the revenue examiners who conducted the
of P84,199,160.46; together with the demand letter from investigation on the estate tax case of the late Jose P.
MBC's lawyer (pp. 194-197, BIR records); Fernandez. In the course of the direct examination of the
witness, he identified the following:
8. Demand letter of Manila Banking Corporation prepared by "G" & "G-1"
Asedillo, Ramos and Associates Law Offices addressed to Documents/Signatures B

Page 37 of 43
1. Estate Tax Return prepared by the BIR; The CTA's Ruling
p. 138
On June 17, 1997, the CTA denied the said petition for review. Citing
2. Signatures of Ma. Anabella Abuloc and Alberto Enriquez, Jr. -do-
this Court's ruling in Vda. de Oñate v. Court of Appeals,23 the CTA
appearing at the lower Portion of Exh. "1";
opined that the aforementioned pieces of evidence introduced by
3. Memorandum for the Commissioner, dated July 19, the 1991,
BIR pp.
admissible in evidence. The CTA ratiocinated:
prepared by revenue examiners, Ma. Anabella A. Abuloc,
Although the above-mentioned documents were not formally
Alberto S. Enriquez and Raymund S. Gallardo; Reviewed by as evidence for respondent, considering that respondent has
Maximino V. Tagle been declared to have waived the presentation thereof during the
4. Signature of Alberto S. Enriquez appearing at the hearing
lower -do-on March 20, 1996, still they could be considered as
portion on p. 2 of Exh. "2"; evidence for respondent since they were properly identified during
the presentation of respondent's witness, whose testimony was duly
5. Signature of Ma. Anabella A. Abuloc appearing at the lower -do-
recorded as part of the records of this case. Besides, the documents
portion on p. 2 of Exh. "2";
marked as respondent's exhibits formed part of the BIR records of
6. Signature of Raymund S. Gallardo appearing at the the
Lower -do-
case. 24

portion on p. 2 of Exh. "2"; Nevertheless, the CTA did not fully adopt the assessment made by
7. Signature of Maximino V. Tagle also appearing on p.the
2 BIR and it came up with its own computation of the deficiency
of -do-
Exh. "2"; estate tax, to wit:
Conjugal Real Property P 5,062,016.00
8. Summary of revenue Enforcement Officers Audit Report, p. 139
dated July 19, 1991; Conjugal Personal Prop. 33,021,999.93
9. Gross Conjugal Estate
Signature of Alberto Enriquez at the lower portion of Exh. -do- 38,084,015.93
"3"; Less: Deductions 26,250,000.00
10. Signature of Ma. Anabella A. Abuloc at the lower portion of -do-
Net Conjugal Estate P 11,834,015.93
Exh. "3";
Less: Share of Surviving Spouse 5,917,007.96
11. Signature of Raymond S. Gallardo at the lower portion of -do-
Exh. "3"; Net Share in Conjugal Estate P 5,917,007.96

12. Add: Capital/Paraphernal
Signature of Maximino V. Tagle at the lower portion of Exh. -do-
"3"; Properties – P44,652,813.66
13. Demand letter (FAS-E-87-91-00), signed by the Asst. p. 169 Less: Capital/Paraphernal Deductions 44,652,813.66
Commissioner for Collection for the Commissioner of Net Taxable Estate P 50,569,821.62
Internal Revenue, demanding payment of the amount ============
of P66,973,985.40; and
14. Assessment Notice FAS-E-87-91-00 pp. 169-170
Tax Due P 29,935,342.97

Page 38 of 43
Add: 25% Surcharge for Late Filing 7,483,835.74 Appeals is contrary to the Rules of Court and rulings of this
Honorable Court;
Add: Penalties for-No notice of death 15.00
2. Whether or not the Court of Tax Appeals and the Court of
No CPA certificate 300.00 Appeals erred in recognizing/considering the estate tax
Total deficiency estate tax P 37,419,493.71 return prepared and filed by respondent BIR knowing that
============ the probate court appointed administrator of the estate of
exclusive of 20% interest from due date of its payment until Jose P. Fernandez had previously filed one as in fact, BIR
full payment thereof Certification Clearance Nos. 2052 and 2053 had been issued
[Sec. 283 (b), Tax Code of 1987].25 in the estate's favor;
Thus, the CTA disposed of the case in this wise: 3. Whether or not the Court of Tax Appeals and the Court of
WHEREFORE, viewed from all the foregoing, the Court finds Appeals erred in disallowing the valid and enforceable claims
the petition unmeritorious and denies the same. Petitioner of creditors against the estate, as lawful deductions despite
and/or the heirs of Jose P. Fernandez are hereby ordered to clear and convincing evidence thereof; and
pay to respondent the amount of P37,419,493.71 plus 20% 4. Whether or not the Court of Tax Appeals and the Court of
interest from the due date of its payment until full payment Appeals erred in validating erroneous double imputation of
thereof as estate tax liability of the estate of Jose P. values on the very same estate properties in the estate tax
Fernandez who died on November 7, 1987. return it prepared and filed which effectively bloated the
SO ORDERED.26 estate's assets.31
Aggrieved, petitioner, on March 2, 1998, went to the CA via a petition The petitioner claims that in as much as the valid claims of creditors
for review.27 against the Estate are in excess of the gross estate, no estate tax was
The CA's Ruling due; that the lack of a formal offer of evidence is fatal to BIR's cause;
On April 30, 1999, the CA affirmed the CTA's ruling. Adopting in full that the doctrine laid down in Vda. de Oñate has already been
the CTA's findings, the CA ruled that the petitioner's act of filing an abandoned in a long line of cases in which the Court held that
estate tax return with the BIR and the issuance of BIR Certification evidence not formally offered is without any weight or value; that
Nos. 2052 and 2053 did not deprive the BIR Commissioner of her Section 34 of Rule 132 of the Rules on Evidence requiring a formal
authority to re-examine or re-assess the said return filed on behalf of offer of evidence is mandatory in character; that, while BIR's witness
the Estate.28 Alberto Enriquez (Alberto) in his testimony before the CTA identified
On May 31, 1999, petitioner filed a Motion for the pieces of evidence aforementioned such that the same were
Reconsideration29 which the CA denied in its Resolution30 dated marked, BIR's failure to formally offer said pieces of evidence and
November 3, 1999. depriving petitioner the opportunity to cross-examine Alberto,
Hence, the instant Petition raising the following issues: render the same inadmissible in evidence; that
1. Whether or not the admission of evidence which were not assuming arguendo that the ruling in Vda. de Oñate is still applicable,
formally offered by the respondent BIR by the Court of Tax BIR failed to comply with the doctrine's requisites because the
Appeals which was subsequently upheld by the Court of documents herein remained simply part of the BIR records and were
not duly incorporated in the court records; that the BIR failed to

Page 39 of 43
consider that although the actual payments made to the Estate documents must be formally offered before the CTA.34 Pertinent is
creditors were lower than their respective claims, such were Section 34, Rule 132 of the Revised Rules on Evidence which reads:
compromise agreements reached long after the Estate's liability had SEC. 34. Offer of evidence. — The court shall consider no
been settled by the filing of its estate tax return and the issuance of evidence which has not been formally offered. The purpose
BIR Certification Nos. 2052 and 2053; and that the reckoning date of for which the evidence is offered must be specified.
the claims against the Estate and the settlement of the estate tax due The CTA and the CA rely solely on the case of Vda. de Oñate, which
should be at the time the estate tax return was filed by the judicial reiterated this Court's previous rulings in People v. Napat-
administrator and the issuance of said BIR Certifications and not at a35 and People v. Mate36 on the admission and consideration of
the time the aforementioned Compromise Agreements were entered exhibits which were not formally offered during the trial. Although in
into with the Estate's creditors.32 a long line of cases many of which were decided after Vda. de Oñate,
On the other hand, respondent counters that the documents, being we held that courts cannot consider evidence which has not been
part of the records of the case and duly identified in a duly recorded formally offered,37 nevertheless, petitioner cannot validly assume that
testimony are considered evidence even if the same were not the doctrine laid down in Vda. de Oñate has already been
formally offered; that the filing of the estate tax return by the Estate abandoned. Recently, in Ramos v. Dizon,38this Court, applying the
and the issuance of BIR Certification Nos. 2052 and 2053 did not said doctrine, ruled that the trial court judge therein committed no
deprive the BIR of its authority to examine the return and assess the error when he admitted and considered the respondents' exhibits in
estate tax; and that the factual findings of the CTA as affirmed by the the resolution of the case, notwithstanding the fact that the same
CA may no longer be reviewed by this Court via a petition for were not formally offered. Likewise, in Far East Bank & Trust
review.33 Company v. Commissioner of Internal Revenue,39 the Court made
The Issues reference to said doctrine in resolving the issues therein. Indubitably,
There are two ultimate issues which require resolution in this case: the doctrine laid down in Vda. De Oñate still subsists in this
First. Whether or not the CTA and the CA gravely erred in allowing jurisdiction. In Vda. de Oñate, we held that:
the admission of the pieces of evidence which were not formally From the foregoing provision, it is clear that for evidence to
offered by the BIR; and be considered, the same must be formally offered.
Second. Whether or not the CA erred in affirming the CTA in the Corollarily, the mere fact that a particular document is
latter's determination of the deficiency estate tax imposed against identified and marked as an exhibit does not mean that it
the Estate. has already been offered as part of the evidence of a party.
The Court’s Ruling In Interpacific Transit, Inc. v. Aviles [186 SCRA 385], we had
The Petition is impressed with merit. the occasion to make a distinction between identification of
Under Section 8 of RA 1125, the CTA is categorically described as a documentary evidence and its formal offer as an exhibit. We
court of record. As cases filed before it are litigated de novo, party- said that the first is done in the course of the trial and is
litigants shall prove every minute aspect of their cases. Indubitably, accompanied by the marking of the evidence as an exhibit
no evidentiary value can be given the pieces of evidence submitted while the second is done only when the party rests its case
by the BIR, as the rules on documentary evidence require that these and not before. A party, therefore, may opt to formally offer
his evidence if he believes that it will advance his cause or

Page 40 of 43
not to do so at all. In the event he chooses to do the latter, In this case, we find and so rule that these requirements have
the trial court is not authorized by the Rules to consider the been satisfied. The exhibits in question were presented
same. and marked during the pre-trial of the case thus, they
However, in People v. Napat-a [179 SCRA 403] citing People have been incorporated into the records. Further, Elpidio
v. Mate [103 SCRA 484], we relaxed the foregoing rule and himself explained the contents of these exhibits when he was
allowed evidence not formally offered to be admitted interrogated by respondents' counsel...
and considered by the trial court provided the following xxxx
requirements are present, viz.: first, the same must have But what further defeats petitioner's cause on this issue is
been duly identified by testimony duly recorded and, that respondents' exhibits were marked and admitted during
second, the same must have been incorporated in the the pre-trial stage as shown by the Pre-Trial Order quoted
records of the case.40 earlier.44
From the foregoing declaration, however, it is clear that Vda. de While the CTA is not governed strictly by technical rules of
Oñate is merely an exception to the general rule. Being an exception, evidence,45 as rules of procedure are not ends in themselves and are
it may be applied only when there is strict compliance with the primarily intended as tools in the administration of justice, the
requisites mentioned therein; otherwise, the general rule in Section presentation of the BIR's evidence is not a mere procedural
34 of Rule 132 of the Rules of Court should prevail. technicality which may be disregarded considering that it is the only
In this case, we find that these requirements have not been satisfied. means by which the CTA may ascertain and verify the truth of BIR's
The assailed pieces of evidence were presented and marked during claims against the Estate.46 The BIR's failure to formally offer these
the trial particularly when Alberto took the witness stand. Alberto pieces of evidence, despite CTA's directives, is fatal to its
identified these pieces of evidence in his direct testimony.41 He was cause.47 Such failure is aggravated by the fact that not even a single
also subjected to cross-examination and re-cross examination by reason was advanced by the BIR to justify such fatal omission. This,
petitioner.42 But Alberto’s account and the exchanges between we take against the BIR.
Alberto and petitioner did not sufficiently describe the contents of Per the records of this case, the BIR was directed to present its
the said pieces of evidence presented by the BIR. In fact, petitioner evidence48 in the hearing of February 21, 1996, but BIR's counsel
sought that the lead examiner, one Ma. Anabella A. Abuloc, be failed to appear.49 The CTA denied petitioner's motion to consider
summoned to testify, inasmuch as Alberto was incompetent to BIR's presentation of evidence as waived, with a warning to BIR that
answer questions relative to the working papers.43 The lead examiner such presentation would be considered waived if BIR's evidence
never testified. Moreover, while Alberto's testimony identifying the would not be presented at the next hearing. Again, in the hearing of
BIR's evidence was duly recorded, the BIR documents themselves March 20, 1996, BIR's counsel failed to appear.50 Thus, in its
were not incorporated in the records of the case. Resolution51 dated March 21, 1996, the CTA considered the BIR to
A common fact threads through Vda. de Oñate and Ramos that does have waived presentation of its evidence. In the same Resolution, the
not exist at all in the instant case. In the aforementioned cases, the parties were directed to file their respective memorandum. Petitioner
exhibits were marked at the pre-trial proceedings to warrant the complied but BIR failed to do so.52 In all of these proceedings, BIR
pronouncement that the same were duly incorporated in the records was duly notified. Hence, in this case, we are constrained to apply our
of the case. Thus, we held in Ramos: ruling in Heirs of Pedro Pasag v. Parocha:53

Page 41 of 43
A formal offer is necessary because judges are mandated to appreciation of facts.54 In this case, however, we find the decision of
rest their findings of facts and their judgment only and the CA affirming that of the CTA tainted with palpable error.
strictly upon the evidence offered by the parties at the trial. It is admitted that the claims of the Estate's aforementioned creditors
Its function is to enable the trial judge to know the purpose have been condoned. As a mode of extinguishing an
or purposes for which the proponent is presenting the obligation,55 condonation or remission of debt56 is defined as:
evidence. On the other hand, this allows opposing parties to an act of liberality, by virtue of which, without receiving any
examine the evidence and object to its admissibility. equivalent, the creditor renounces the enforcement of the
Moreover, it facilitates review as the appellate court will not obligation, which is extinguished in its entirety or in that part
be required to review documents not previously scrutinized or aspect of the same to which the remission refers. It is an
by the trial court. essential characteristic of remission that it be gratuitous, that
Strict adherence to the said rule is not a trivial matter. The there is no equivalent received for the benefit given; once
Court in Constantino v. Court of Appeals ruled that the such equivalent exists, the nature of the act changes. It may
formal offer of one's evidence is deemed waived after become dation in payment when the creditor receives a
failing to submit it within a considerable period of time. thing different from that stipulated; or novation, when the
It explained that the court cannot admit an offer of object or principal conditions of the obligation should be
evidence made after a lapse of three (3) months because changed; or compromise, when the matter renounced is in
to do so would "condone an inexcusable laxity if not litigation or dispute and in exchange of some concession
non-compliance with a court order which, in effect, which the creditor receives.57
would encourage needless delays and derail the speedy Verily, the second issue in this case involves the construction of
administration of justice." Section 7958 of the National Internal Revenue Code59 (Tax Code)
Applying the aforementioned principle in this case, we find which provides for the allowable deductions from the gross estate of
that the trial court had reasonable ground to consider that the decedent. The specific question is whether the actual claims of
petitioners had waived their right to make a formal offer of the aforementioned creditors may be fully allowed as deductions
documentary or object evidence. Despite several extensions from the gross estate of Jose despite the fact that the said claims
of time to make their formal offer, petitioners failed to were reduced or condoned through compromise agreements
comply with their commitment and allowed almost five entered into by the Estate with its creditors.
months to lapse before finally submitting it. Petitioners' "Claims against the estate," as allowable deductions from the gross
failure to comply with the rule on admissibility of estate under Section 79 of the Tax Code, are basically a reproduction
evidence is anathema to the efficient, effective, and of the deductions allowed under Section 89 (a) (1) (C) and (E) of
expeditious dispensation of justice. Commonwealth Act No. 466 (CA 466), otherwise known as the
Having disposed of the foregoing procedural issue, we proceed to National Internal Revenue Code of 1939, and which was the first
discuss the merits of the case. codification of Philippine tax laws. Philippine tax laws were, in turn,
Ordinarily, the CTA's findings, as affirmed by the CA, are entitled to based on the federal tax laws of the United States. Thus, pursuant to
the highest respect and will not be disturbed on appeal unless it is established rules of statutory construction, the decisions of American
shown that the lower courts committed gross error in the

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courts construing the federal tax code are entitled to great weight in ascertained, as nearly as possible, as of that time. This
the interpretation of our own tax laws.60 analysis supports broad application of the date-of-death
It is noteworthy that even in the United States, there is some dispute valuation rule.67
as to whether the deductible amount for a claim against the estate is We express our agreement with the date-of-death valuation rule,
fixed as of the decedent's death which is the general rule, or the made pursuant to the ruling of the U.S. Supreme Court in Ithaca Trust
same should be adjusted to reflect post-death developments, such as Co. v. United States.68 First. There is no law, nor do we discern any
where a settlement between the parties results in the reduction of legislative intent in our tax laws, which disregards the date-of-death
the amount actually paid.61 On one hand, the U.S. court ruled that valuation principle and particularly provides that post-death
the appropriate deduction is the "value" that the claim had at the developments must be considered in determining the net value of
date of the decedent's death.62 Also, as held in Propstra v. the estate. It bears emphasis that tax burdens are not to be imposed,
U.S., 63 where a lien claimed against the estate was certain and nor presumed to be imposed, beyond what the statute expressly and
enforceable on the date of the decedent's death, the fact that the clearly imports, tax statutes being construed strictissimi juris against
claimant subsequently settled for lesser amount did not preclude the the government.69 Any doubt on whether a person, article or activity
estate from deducting the entire amount of the claim for estate tax is taxable is generally resolved against taxation.70 Second. Such
purposes. These pronouncements essentially confirm the general construction finds relevance and consistency in our Rules on Special
principle that post-death developments are not material in Proceedings wherein the term "claims" required to be presented
determining the amount of the deduction. against a decedent's estate is generally construed to mean debts or
On the other hand, the Internal Revenue Service (Service) opines that demands of a pecuniary nature which could have been enforced
post-death settlement should be taken into consideration and the against the deceased in his lifetime, or liability contracted by the
claim should be allowed as a deduction only to the extent of the deceased before his death.71 Therefore, the claims existing at the
amount actually paid.64Recognizing the dispute, the Service released time of death are significant to, and should be made the basis of, the
Proposed Regulations in 2007 mandating that the deduction would determination of allowable deductions.
be limited to the actual amount paid.65 WHEREFORE, the instant Petition is GRANTED. Accordingly, the
In announcing its agreement with Propstra,66 the U.S. 5th Circuit Court assailed Decision dated April 30, 1999 and the Resolution dated
of Appeals held: November 3, 1999 of the Court of Appeals in CA-G.R. S.P. No. 46947
We are persuaded that the Ninth Circuit's are REVERSED and SET ASIDE. The Bureau of Internal Revenue's Propstra correctly apply the Ithaca Trust date-of- deficiency estate tax assessment against the Estate of Jose P.
death valuation principle to enforceable claims against the Fernandez is hereby NULLIFIED. No costs.
estate. As we interpret Ithaca Trust, when the Supreme Court SO ORDERED.
announced the date-of-death valuation principle, it was
making a judgment about the nature of the federal estate tax
specifically, that it is a tax imposed on the act of transferring
property by will or intestacy and, because the act on which
the tax is levied occurs at a discrete time, i.e., the instance of
death, the net value of the property transferred should be

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