[G.R. No. 147188.

September 14, 2004]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. THE ESTATE OF BENIGNO P. TODA, JR.,
Represented by Special Co-administrators Lorna Kapunan and Mario Luza Bautista, respondents.

DECISION
DAVIDE, JR., C.J.:

This Court is called upon to determine in this case whether the tax planning scheme adopted by a corporation
constitutes tax evasion that would justify an assessment of deficiency income tax.
The petitioner seeks the reversal of the Decision[1] of the Court of Appeals of 31 January 2001 in CA-G.R. SP
No. 57799 affirming the 3 January 2000 Decision[2] of the Court of Tax Appeals (CTA) in C.T.A. Case No.
5328,[3] which held that the respondent Estate of Benigno P. Toda, Jr. is not liable for the deficiency income tax of
Cibeles Insurance Corporation (CIC) in the amount of P79,099,999.22 for the year 1989, and ordered the cancellation
and setting aside of the assessment issued by Commissioner of Internal Revenue Liwayway Vinzons-Chato on 9
January 1995.
The case at bar stemmed from a Notice of Assessment sent to CIC by the Commissioner of Internal Revenue for
deficiency income tax arising from an alleged simulated sale of a 16-storey commercial building known as Cibeles
Building, situated on two parcels of land on Ayala Avenue, Makati City.
On 2 March 1989, CIC authorized Benigno P. Toda, Jr., President and owner of 99.991% of its issued and
outstanding capital stock, to sell the Cibeles Building and the two parcels of land on which the building stands for an
amount of not less than P90 million.[4]
On 30 August 1989, Toda purportedly sold the property for P100 million to Rafael A. Altonaga, who, in turn, sold
the same property on the same day to Royal Match Inc. (RMI) for P200 million. These two transactions were evidenced
by Deeds of Absolute Sale notarized on the same day by the same notary public.[5]
For the sale of the property to RMI, Altonaga paid capital gains tax in the amount of P10 million.[6]
On 16 April 1990, CIC filed its corporate annual income tax return[7] for the year 1989, declaring, among other
things, its gain from the sale of real property in the amount of P75,728.021. After crediting withholding taxes
of P254,497.00, it paid P26,341,207[8] for its net taxable income of P75,987,725.
On 12 July 1990, Toda sold his entire shares of stocks in CIC to Le Hun T. Choa for P12.5 million, as evidenced
by a Deed of Sale of Shares of Stocks.[9] Three and a half years later, or on 16 January 1994, Toda died.
On 29 March 1994, the Bureau of Internal Revenue (BIR) sent an assessment notice [10] and demand letter to the
CIC for deficiency income tax for the year 1989 in the amount of P79,099,999.22.
The new CIC asked for a reconsideration, asserting that the assessment should be directed against the old CIC,
and not against the new CIC, which is owned by an entirely different set of stockholders; moreover, Toda had
undertaken to hold the buyer of his stockholdings and the CIC free from all tax liabilities for the fiscal years 1987-
1989.[11]
On 27 January 1995, the Estate of Benigno P. Toda, Jr., represented by special co-administrators Lorna Kapunan
and Mario Luza Bautista, received a Notice of Assessment[12] dated 9 January 1995 from the Commissioner of Internal
Revenue for deficiency income tax for the year 1989 in the amount of P79,099,999.22, computed as follows:
Income Tax 1989 Less: Payment already made

Net Income per return P75,987,725.00 1. Per return P26,595,704.00

Add: Additional gain on sale 2. Thru Capital Gains
of real property taxable under Tax made by R.A.
ordinary corporate income Altonaga 10,000,000.00 36,595,704.
but were substituted with 00
individual capital gains Balance of tax due P 24,999,999.75
(P200M 100M) 100,000,000.00 Add: 50% Surcharge 12,499,999.88
Total Net Taxable Income P175,987,725.00 25% Surcharge 6,249,999.94
per investigation Total P 43,749,999.57
Add: Interest 20% from
Tax Due thereof at 35% P 61,595,703.75 4/16/90-4/30/94 (.808) 35,349,999.65
TOTAL AMT. DUE &
COLLECTIBLE P 79,099,999.22
 ============
The Estate thereafter filed a letter of protest. [13]
In the letter dated 19 October 1995,[14] the Commissioner dismissed the protest, stating that a fraudulent scheme
was deliberately perpetuated by the CIC wholly owned and controlled by Toda by covering up the additional gain
of P100 million, which resulted in the change in the income structure of the proceeds of the sale of the two parcels of
land and the building thereon to an individual capital gains, thus evading the higher corporate income tax rate of 35%.
On 15 February 1996, the Estate filed a petition for review[15] with the CTA alleging that the Commissioner erred
in holding the Estate liable for income tax deficiency; that the inference of fraud of the sale of the properties is
unreasonable and unsupported; and that the right of the Commissioner to assess CIC had already prescribed.
In his Answer[16] and Amended Answer,[17] the Commissioner argued that the two transactions actually
constituted a single sale of the property by CIC to RMI, and that Altonaga was neither the buyer of the property from
CIC nor the seller of the same property to RMI. The additional gain of P100 million (the difference between the second
simulated sale for P200 million and the first simulated sale for P100 million) realized by CIC was taxed at the rate of
only 5% purportedly as capital gains tax of Altonaga, instead of at the rate of 35% as corporate income tax of CIC.
The income tax return filed by CIC for 1989 with intent to evade payment of the tax was thus false or fraudulent. Since
such falsity or fraud was discovered by the BIR only on 8 March 1991, the assessment issued on 9 January 1995 was
well within the prescriptive period prescribed by Section 223 (a) of the National Internal Revenue Code of 1986, which
provides that tax may be assessed within ten years from the discovery of the falsity or fraud. With the sale being
tainted with fraud, the separate corporate personality of CIC should be disregarded. Toda, being the registered owner
of the 99.991% shares of stock of CIC and the beneficial owner of the remaining 0.009% shares registered in the
name of the individual directors of CIC, should be held liable for the deficiency income tax, especially because the
gains realized from the sale were withdrawn by him as cash advances or paid to him as cash dividends. Since he is
already dead, his estate shall answer for his liability.
In its decision[18] of 3 January 2000, the CTA held that the Commissioner failed to prove that CIC committed fraud
to deprive the government of the taxes due it. It ruled that even assuming that a pre-conceived scheme was adopted
by CIC, the same constituted mere tax avoidance, and not tax evasion. There being no proof of fraudulent transaction,
the applicable period for the BIR to assess CIC is that prescribed in Section 203 of the NIRC of 1986, which is three
years after the last day prescribed by law for the filing of the return. Thus, the governments right to assess CIC
prescribed on 15 April 1993. The assessment issued on 9 January 1995 was, therefore, no longer valid. The CTA
also ruled that the mere ownership by Toda of 99.991% of the capital stock of CIC was not in itself sufficient ground
for piercing the separate corporate personality of CIC. Hence, the CTA declared that the Estate is not liable for
deficiency income tax of P79,099,999.22 and, accordingly, cancelled and set aside the assessment issued by the
Commissioner on 9 January 1995.
In its motion for reconsideration,[19] the Commissioner insisted that the sale of the property owned by CIC was
the result of the connivance between Toda and Altonaga. She further alleged that the latter was a representative,
dummy, and a close business associate of the former, having held his office in a property owned by CIC and derived
his salary from a foreign corporation (Aerobin, Inc.) duly owned by Toda for representation services rendered. The
CTA denied[20] the motion for reconsideration, prompting the Commissioner to file a petition for review [21] with the
Court of Appeals.
In its challenged Decision of 31 January 2001, the Court of Appeals affirmed the decision of the CTA, reasoning
that the CTA, being more advantageously situated and having the necessary expertise in matters of taxation, is better
situated to determine the correctness, propriety, and legality of the income tax assessments assailed by the Toda
Estate.[22]
Unsatisfied with the decision of the Court of Appeals, the Commissioner filed the present petition invoking the
following grounds:
I. THE COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENT COMMITTED NO FRAUD WITH
INTENT TO EVADE THE TAX ON THE SALE OF THE PROPERTIES OF CIBELES INSURANCE
CORPORATION.
II. THE COURT OF APPEALS ERRED IN NOT DISREGARDING THE SEPARATE CORPORATE
PERSONALITY OF CIBELES INSURANCE CORPORATION.
III. THE COURT OF APPEALS ERRED IN HOLDING THAT THE RIGHT OF PETITIONER TO ASSESS
RESPONDENT FOR DEFICIENCY INCOME TAX FOR THE YEAR 1989 HAD PRESCRIBED.
The Commissioner reiterates her arguments in her previous pleadings and insists that the sale by CIC of the
Cibeles property was in connivance with its dummy Rafael Altonaga, who was financially incapable of purchasing it.
She further points out that the documents themselves prove the fact of fraud in that (1) the two sales were done
simultaneously on the same date, 30 August 1989; (2) the Deed of Absolute Sale between Altonaga and RMI was
notarized ahead of the alleged sale between CIC and Altonaga, with the former registered in the Notarial Register of
Jocelyn H. Arreza Pabelana as Doc. 91, Page 20, Book I, Series of 1989; and the latter, as Doc. No. 92, Page 20,
Book I, Series of 1989, of the same Notary Public; (3) as early as 4 May 1989, CIC received P40 million from RMI,
and not from Altonaga. The said amount was debited by RMI in its trial balance as of 30 June 1989 as investment in
Cibeles Building. The substantial portion of P40 million was withdrawn by Toda through the declaration of cash
dividends to all its stockholders.
 For its part, respondent Estate asserts that the Commissioner failed to present the income tax return of Altonaga
to prove that the latter is financially incapable of purchasing the Cibeles property.
To resolve the grounds raised by the Commissioner, the following questions are pertinent:

1. Is this a case of tax evasion or tax avoidance?

2. Has the period for assessment of deficiency income tax for the year 1989 prescribed? and

3. Can respondent Estate be held liable for the deficiency income tax of CIC for the year 1989, if any?

We shall discuss these questions in seriatim.

Is this a case of tax evasion

or tax avoidance?

Tax avoidance and tax evasion are the two most common ways used by taxpayers in escaping from taxation.
Tax avoidance is the tax saving device within the means sanctioned by law. This method should be used by the
taxpayer in good faith and at arms length. Tax evasion, on the other hand, is a scheme used outside of those lawful
means and when availed of, it usually subjects the taxpayer to further or additional civil or criminal liabilities. [23]
Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e., the payment of less than
that known by the taxpayer to be legally due, or the non-payment of tax when it is shown that a tax is due; (2) an
accompanying state of mind which is described as being evil, in bad faith, willfull,or deliberate and not accidental; and
(3) a course of action or failure of action which is unlawful. [24]
All these factors are present in the instant case. It is significant to note that as early as 4 May 1989, prior to the
purported sale of the Cibeles property by CIC to Altonaga on 30 August 1989, CIC received P40 million from
RMI,[25] and not from Altonaga. That P40 million was debited by RMI and reflected in its trial balance [26] as other inv.
Cibeles Bldg. Also, as of 31 July 1989, another P40 million was debited and reflected in RMIs trial balance as other
inv. Cibeles Bldg. This would show that the real buyer of the properties was RMI, and not the intermediary Altonaga.
The investigation conducted by the BIR disclosed that Altonaga was a close business associate and one of the
many trusted corporate executives of Toda. This information was revealed by Mr. Boy Prieto, the assistant accountant
of CIC and an old timer in the company. [27] But Mr. Prieto did not testify on this matter, hence, that information remains
to be hearsay and is thus inadmissible in evidence. It was not verified either, since the letter-request for investigation
of Altonaga was unserved,[28] Altonaga having left for the United States of America in January 1990. Nevertheless,
that Altonaga was a mere conduit finds support in the admission of respondent Estate that the sale to him was part of
the tax planning scheme of CIC. That admission is borne by the records. In its Memorandum, respondent Estate
declared:

Petitioner, however, claims there was a change of structure of the proceeds of sale. Admitted one hundred percent. But isnt this
precisely the definition of tax planning? Change the structure of the funds and pay a lower tax. Precisely, Sec. 40 (2) of the Tax
Code exists, allowing tax free transfers of property for stock, changing the structure of the property and the tax to be paid. As
long as it is done legally, changing the structure of a transaction to achieve a lower tax is not against the law. It is absolutely
allowed.

Tax planning is by definition to reduce, if not eliminate altogether, a tax. Surely petitioner [sic] cannot be faulted for wanting to
reduce the tax from 35% to 5%.[29] [Underscoring supplied].

The scheme resorted to by CIC in making it appear that there were two sales of the subject properties, i.e., from
CIC to Altonaga, and then from Altonaga to RMI cannot be considered a legitimate tax planning. Such scheme is
tainted with fraud.
Fraud in its general sense, is deemed to comprise anything calculated to deceive, including all acts, omissions,
and concealment involving a breach of legal or equitable duty, trust or confidence justly reposed, resulting in the
damage to another, or by which an undue and unconscionable advantage is taken of another. [30]
Here, it is obvious that the objective of the sale to Altonaga was to reduce the amount of tax to be paid especially
that the transfer from him to RMI would then subject the income to only 5% individual capital gains tax, and not the
35% corporate income tax. Altonagas sole purpose of acquiring and transferring title of the subject properties on the
same day was to create a tax shelter. Altonaga never controlled the property and did not enjoy the normal benefits
and burdens of ownership. The sale to him was merely a tax ploy, a sham, and without business purpose and
economic substance. Doubtless, the execution of the two sales was calculated to mislead the BIR with the end in view
of reducing the consequent income tax liability.
In a nutshell, the intermediary transaction, i.e., the sale of Altonaga, which was prompted more on the mitigation
of tax liabilities than for legitimate business purposes constitutes one of tax evasion. [31]
Generally, a sale or exchange of assets will have an income tax incidence only when it is consummated. [32] The
incidence of taxation depends upon the substance of a transaction. The tax consequences arising from gains from a
sale of property are not finally to be determined solely by the means employed to transfer legal title. Rather, the
transaction must be viewed as a whole, and each step from the commencement of negotiations to the consummation
of the sale is relevant. A sale by one person cannot be transformed for tax purposes into a sale by another by using
the latter as a conduit through which to pass title. To permit the true nature of the transaction to be disguised by mere
formalisms, which exist solely to alter tax liabilities, would seriously impair the effective administration of the tax
policies of Congress.[33]
To allow a taxpayer to deny tax liability on the ground that the sale was made through another and distinct entity
when it is proved that the latter was merely a conduit is to sanction a circumvention of our tax laws. Hence, the sale
to Altonaga should be disregarded for income tax purposes. [34] The two sale transactions should be treated as a single
direct sale by CIC to RMI.
Accordingly, the tax liability of CIC is governed by then Section 24 of the NIRC of 1986, as amended (now 27 (A)
of the Tax Reform Act of 1997), which stated as follows:

Sec. 24. Rates of tax on corporations. (a) Tax on domestic corporations.- A tax is hereby imposed upon the taxable net
income received during each taxable year from all sources by every corporation organized in, or existing under the laws of the
Philippines, and partnerships, no matter how created or organized but not including general professional partnerships, in
accordance with the following:

Twenty-five percent upon the amount by which the taxable net income does not exceed one hundred thousand pesos; and

Thirty-five percent upon the amount by which the taxable net income exceeds one hundred thousand pesos.

CIC is therefore liable to pay a 35% corporate tax for its taxable net income in 1989. The 5% individual capital gains
tax provided for in Section 34 (h) of the NIRC of 1986[35] (now 6% under Section 24 (D) (1) of the Tax Reform Act of
1997) is inapplicable. Hence, the assessment for the deficiency income tax issued by the BIR must be upheld.

Has the period of

assessment prescribed?

No. Section 269 of the NIRC of 1986 (now Section 222 of the Tax Reform Act of 1997) read:

Sec. 269. Exceptions as to period of limitation of assessment and collection of taxes.-(a) In the case of a false or fraudulent
return with intent to evade tax or of failure to file a return, the tax may be assessed, or a proceeding in court after the collection
of such tax may be begun without assessment, at any time within ten years after the discovery of the falsity, fraud or
omission: Provided, That in a fraud assessment which has become final and executory, the fact of fraud shall be judicially
taken cognizance of in the civil or criminal action for collection thereof .

Put differently, in cases of (1) fraudulent returns; (2) false returns with intent to evade tax; and (3) failure to file a
return, the period within which to assess tax is ten years from discovery of the fraud, falsification or omission, as the
case may be.
It is true that in a query dated 24 August 1989, Altonaga, through his counsel, asked the Opinion of the BIR on
the tax consequence of the two sale transactions. [36] Thus, the BIR was amply informed of the transactions even prior
to the execution of the necessary documents to effect the transfer. Subsequently, the two sales were openly made
with the execution of public documents and the declaration of taxes for 1989. However, these circumstances do not
negate the existence of fraud. As earlier discussed those two transactions were tainted with fraud. And even
assuming arguendo that there was no fraud, we find that the income tax return filed by CIC for the year 1989 was
false. It did not reflect the true or actual amount gained from the sale of the Cibeles property. Obviously, such was
done with intent to evade or reduce tax liability.
As stated above, the prescriptive period to assess the correct taxes in case of false returns is ten years from the
discovery of the falsity. The false return was filed on 15 April 1990, and the falsity thereof was claimed to have been
discovered only on 8 March 1991.[37] The assessment for the 1989 deficiency income tax of CIC was issued on 9
January 1995. Clearly, the issuance of the correct assessment for deficiency income tax was well within the
prescriptive period.

Is respondent Estate liable

for the 1989 deficiency
income tax of Cibeles
Insurance Corporation?

A corporation has a juridical personality distinct and separate from the persons owning or composing it. Thus,
the owners or stockholders of a corporation may not generally be made to answer for the liabilities of a corporation
and vice versa. There are, however, certain instances in which personal liability may arise. It has been held in a
number of cases that personal liability of a corporate director, trustee, or officer along, albeit not necessarily, with the
corporation may validly attach when:
1. He assents to the (a) patently unlawful act of the corporation, (b) bad faith or gross negligence in directing
its affairs, or (c) conflict of interest, resulting in damages to the corporation, its stockholders, or other
persons;
2. He consents to the issuance of watered down stocks or, having knowledge thereof, does not forthwith file
with the corporate secretary his written objection thereto;
3. He agrees to hold himself personally and solidarily liable with the corporation; or
4. He is made, by specific provision of law, to personally answer for his corporate action. [38]
It is worth noting that when the late Toda sold his shares of stock to Le Hun T. Choa, he knowingly and voluntarily
held himself personally liable for all the tax liabilities of CIC and the buyer for the years 1987, 1988, and 1989.
Paragraph g of the Deed of Sale of Shares of Stocks specifically provides:

g. Except for transactions occurring in the ordinary course of business, Cibeles has no liabilities or obligations, contingent or
otherwise, for taxes, sums of money or insurance claims other than those reported in its audited financial statement as of
December 31, 1989, attached hereto as Annex B and made a part hereof. The business of Cibeles has at all times been
conducted in full compliance with all applicable laws, rules and regulations. SELLER undertakes and agrees to hold the
BUYER and Cibeles free from any and all income tax liabilities of Cibeles for the fiscal years 1987, 1988 and
1989.[39][Underscoring Supplied].

When the late Toda undertook and agreed to hold the BUYER and Cibeles free from any all income tax liabilities
of Cibeles for the fiscal years 1987, 1988, and 1989, he thereby voluntarily held himself personally liable therefor.
Respondent estate cannot, therefore, deny liability for CICs deficiency income tax for the year 1989 by invoking the
separate corporate personality of CIC, since its obligation arose from Todas contractual undertaking, as contained in
the Deed of Sale of Shares of Stock.
WHEREFORE, in view of all the foregoing, the petition is hereby GRANTED. The decision of the Court of Appeals
of 31 January 2001 in CA-G.R. SP No. 57799 is REVERSED and SET ASIDE, and another one is hereby rendered
ordering respondent Estate of Benigno P. Toda Jr. to pay P79,099,999.22 as deficiency income tax of Cibeles
Insurance Corporation for the year 1989, plus legal interest from 1 May 1994 until the amount is fully paid.
Costs against respondent.
SO ORDERED.
 [G.R. No. 149636. June 8, 2005]
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. BANK OF COMMERCE, respondent.

DECISION
CALLEJO, SR., J.:

This is a petition for review on certiorari of the Decision[1] of the Court of Appeals (CA) in CA-G.R. SP No. 52706,
affirming the ruling of the Court of Tax Appeals (CTA)[2] in CTA Case No. 5415.
The facts of the case are undisputed.
In 1994 and 1995, the respondent Bank of Commerce derived passive income in the form of interests or discounts
from its investments in government securities and private commercial papers. On several occasions during the said
period, it paid 5% gross receipts tax on its income, as reflected in its quarterly percentage tax returns. Included therein
were the respondent banks passive income from the said investments amounting to P85,384,254.51, which had
already been subjected to a final tax of 20%.
Meanwhile, on January 30, 1996, the CTA rendered judgment in Asia Bank Corporation v. Commissioner of
Internal Revenue, CTA Case No. 4720, holding that the 20% final withholding tax on interest income from banks does
not form part of taxable gross receipts for Gross Receipts Tax (GRT) purposes. The CTA relied on Section 4(e) of
Revenue Regulations (Rev. Reg.) No. 12-80.
Relying on the said decision, the respondent bank filed an administrative claim for refund with the Commissioner
of Internal Revenue on July 19, 1996. It claimed that it had overpaid its gross receipts tax for 1994 to 1995
by P853,842.54, computed as follows:

Gross receipts subjected to

Final Tax Derived from Passive
Investment P85,384,254.51
x 20%
20% Final Tax Withheld 17,076,850.90
at Source x 5%
P 853,842.54

Before the Commissioner could resolve the claim, the respondent bank filed a petition for review with the CTA,
lest it be barred by the mandatory two-year prescriptive period under Section 230 of the Tax Code (now Section 229
of the Tax Reform Act of 1997).
In his answer to the petition, the Commissioner interposed the following special and affirmative defenses:

5. The alleged refundable/creditable gross receipts taxes were collected and paid pursuant to law and pertinent BIR
implementing rules and regulations; hence, the same are not refundable. Petitioner must prove that the income from which the
refundable/creditable taxes were paid from, were declared and included in its gross income during the taxable year under
review;

6. Petitioners allegation that it erroneously and excessively paid its gross receipt tax during the year under review does not ipso
facto warrant the refund/credit. Petitioner must prove that the exclusions claimed by it from its gross receipts must be an
allowable exclusion under the Tax Code and its pertinent implementing Rules and Regulations. Moreover, it must be supported
by evidence;

7. Petitioner must likewise prove that the alleged refundable/creditable gross receipt taxes were neither automatically applied as
tax credit against its tax liability for the succeeding quarter/s of the succeeding year nor included as creditable taxes declared
and applied to the succeeding taxable year/s;

8. Claims for tax refund/credit are construed in strictissimi juris against the taxpayer as it partakes the nature of an exemption
from tax and it is incumbent upon the petitioner to prove that it is entitled thereto under the law. Failure on the part of the
petitioner to prove the same is fatal to its claim for tax refund/credit;

9. Furthermore, petitioner must prove that it has complied with the provision of Section 230 (now Section 229) of the Tax Code,
as amended.[3]

The CTA summarized the issues to be resolved as follows: whether or not the final income tax withheld should
form part of the gross receipts[4] of the taxpayer for GRT purposes; and whether or not the respondent bank was
entitled to a refund of P853,842.54.[5]
The respondent bank averred that for purposes of computing the 5% gross receipts tax, the final withholding tax
does not form part of gross receipts.[6] On the other hand, while the Commissioner conceded that the Court defined
gross receipts as all receipts of taxpayers excluding those which have been especially earmarked by law or regulation
for the government or some person other than the taxpayer in CIR v. Manila Jockey Club, Inc.,[7] he claimed that such
definition was applicable only to a proprietor of an amusement place, not a banking institution which is an entirely
different entity altogether. As such, according to the Commissioner, the ruling of the Court in Manila Jockey Club was
inapplicable.
In its Decision dated April 27, 1999, the CTA by a majority decision[8] partially granted the petition and ordered
that the amount of P355,258.99 be refunded to the respondent bank. The fallo of the decision reads:

WHEREFORE, in view of all the foregoing, respondent is hereby ORDERED to REFUND in favor of petitioner Bank of
Commerce the amount of P355,258.99 representing validly proven erroneously withheld taxes from interest income derived
from its investments in government securities for the years 1994 and 1995. [9]

In ruling for respondent bank, the CTA relied on the ruling of the Court in Manila Jockey Club, and held that the
term gross receipts excluded those which had been especially earmarked by law or regulation for the government or
persons other than the taxpayer. The CTA also cited its rulings in China Banking Corporation v. CIR[10] and Equitable
Banking Corporation v. CIR.[11]
The CTA ratiocinated that the aforesaid amount of P355,258.99 represented the claim of the respondent bank,
which was filed within the two-year mandatory prescriptive period and was substantiated by material and relevant
evidence. The CTA applied Section 204(3) of the National Internal Revenue Code (NIRC). [12]
The Commissioner then filed a petition for review under Rule 43 of the Rules of Court before the CA, alleging
that:

(1) There is no provision of law which excludes the 20% final income tax withheld under Section 50(a) of the Tax Code in
the computation of the 5% gross receipts tax.

(2) The Tax Court erred in applying the ruling in Collector of Internal Revenue vs. Manila Jockey Club (108 Phil. 821) in
the resolution of the legal issues involved in the instant case. [13]

The Commissioner reiterated his stand that the ruling of this Court in Manila Jockey Club, which was affirmed
in Visayan Cebu Terminal Co., Inc. v. Commissioner of Internal Revenue, [14] is not decisive. He averred that the factual
milieu in the said case is different, involving as it did the wager fund. The Commissioner further pointed out that
in Manila Jockey Club, the Court ruled that the race tracks commission did not form part of the gross receipts, and as
such were not subjected to the 20% amusement tax. On the other hand, the issue in Visayan Cebu Terminal was
whether or not the gross receipts corresponding to 28% of the total gross income of the service contractor delivered
to the Bureau of Customs formed part of the gross receipts was subject to 3% of contractors tax under Section 191 of
the Tax Code. It was further pointed out that the respondent bank, on the other hand, was a banking institution and
not a contractor. The petitioner insisted that the term gross receipts is self-evident; it includes all items of income of
the respondent bank regardless of whether or not the same were allocated or earmarked for a specific purpose, to
distinguish it from net receipts.
On August 14, 2001, the CA rendered judgment dismissing the petition. Citing Sections 51 and 58(A) of the NIRC,
Section 4(e) of Rev. Reg. No. 12-80[15] and the ruling of this Court in Manila Jockey Club, the CA held that
the P17,076,850.90 representing the final withholding tax derived from passive investments subjected to final tax
should not be construed as forming part of the gross receipts of the respondent bank upon which the 5% gross receipts
tax should be imposed. The CA declared that the final withholding tax in the amount of P17,768,509.00 was a trust
fund for the government; hence, does not form part of the respondents gross receipts. The legal ownership of the
amount had already been vested in the government. Moreover, the CA declared, the respondent did not reap any
benefit from the said amount. As such, subjecting the said amount to the 5% gross receipts tax would result in double
taxation. The appellate court further cited CIR v. Tours Specialists, Inc.,[16] and declared that the ruling of the Court
in Manila Jockey Club was decisive of the issue.
The Commissioner now assails the said decision before this Court, contending that:

THE COURT OF APPEALS ERRED IN HOLDING THAT THE 20% FINAL WITHHOLDING TAX ON BANKS
INTEREST INCOME DOES NOT FORM PART OF THE TAXABLE GROSS RECEIPTS IN COMPUTING THE 5%
GROSS RECEIPTS TAX (GRT, for brevity).[17]

The petitioner avers that the reliance by the CTA and the CA on Section 4(e) of Rev. Reg. No. 12-80 is misplaced;
the said provision merely authorizes the determination of the amount of gross receipts based on the taxpayers method
of accounting under then Section 37 (now Section 43) of the Tax Code. The petitioner asserts that the said provision
ceased to exist as of October 15, 1984, when Rev. Reg. No. 17-84 took effect. The petitioner further points out that
under paragraphs 7(a) and (c) of Rev. Reg. No. 17-84, interest income of financial institutions (including banks) subject
to withholding tax are included as part of the gross receipts upon which the gross receipts tax is to be imposed. Citing
the ruling of the CA in Commissioner of Internal Revenue v. Asianbank Corporation[18] (which likewise cited Bank of
America NT & SA v. Court of Appeals,[19]) the petitioner posits that in computing the 5% gross receipts tax, the income
need not be actually received. For income to form part of the taxable gross receipts, constructive receipt is enough.
The petitioner is, likewise, adamant in his claim that the final withholding tax from the respondent banks income forms
part of the taxable gross receipts for purposes of computing the 5% of gross receipts tax. The petitioner posits that
the ruling of this Court in Manila Jockey Club is not decisive of the issue in this case.
The petition is meritorious.
 The issues in this case had been raised and resolved by this Court in China Banking Corporation v. Court of
Appeals,[20] and CIR v. Solidbank Corporation.[21]
Section 27(D)(1) of the Tax Code reads:

(D) Rates of Tax on Certain Passive Incomes.

(1) Interest from Deposits and Yield or any other Monetary Benefit from Deposit Substitutes and from Trust Funds and
Similar Arrangements, and Royalties. A final tax at the rate of twenty percent (20%) is hereby imposed upon the amount of
interest on currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and
similar arrangements received by domestic corporations, and royalties, derived from sources within the Philippines: Provided,
however, That interest income derived by a domestic corporation from a depository bank under the expanded foreign currency
deposit system shall be subject to a final income tax at the rate of seven and one-half percent (7%) of such interest income.

On the other hand, Section 57(A)(B) of the Tax Code authorizes the withholding of final tax on certain income
creditable at source:

SEC. 57. Withholding of Tax at Source.

(A) Withholding of Final Tax on Certain Incomes. Subject to rules and regulations, the Secretary of Finance may
promulgate, upon the recommendation of the Commissioner, requiring the filing of income tax return by certain income payees,
the tax imposed or prescribed by Sections 24(B)(1), 24(B)(2), 24(C), 24(D)(1); 25(A)(2), 25(A)(3), 25(B), 25(C), 25(D), 25(E);
27(D)(1), 27(D)(2), 27(D)(3), 27(D)(5); 28(A)(4), 28(A)(5), 28(A)(7)(a), 28(A)(7)(b), 28(A)(7)(c), 28(B)(1), 28(B)(2), 28(B)(3),
28(B)(4), 28(B)(5)(a), 28(B)(5)(b), 28(B)(5)(c); 33; and 282 of this Code on specified items of income shall be withheld by
payor-corporation and/or person and paid in the same manner and subject to the same conditions as provided in Section 58 of
this Code.

(B) Withholding of Creditable Tax at Source. The Secretary of Finance may, upon the recommendation of the Commissioner,
require the withholding of a tax on the items of income payable to natural or juridical persons, residing in the Philippines, by
payor-corporation/persons as provided for by law, at the rate of not less than one percent (1%) but not more than thirty-two
percent (32%) thereof, which shall be credited against the income tax liability of the taxpayer for the taxable year.

The tax deducted and withheld by withholding agents under the said provision shall be held as a special fund in
trust for the government until paid to the collecting officer. [22]
Section 121 (formerly Section 119) of the Tax Code provides that a tax on gross receipts derived from sources
within the Philippines by all banks and non-bank financial intermediaries shall be computed in accordance with the
schedules therein:

(a) On interest, commissions and discounts from lending activities as well as income from financial leasing, on the basis of
remaining maturities of instruments from which such receipts are derived:

Short-term maturity (not in excess of two (2) years) 5% (b) On dividends 0%

Medium-term maturity (over two (2) years but (c) On royalties, rentals of property, real or personal,
not exceeding four (4) years) 3% profits from exchange and all other items treated
as gross income under Section 32 of this Code 5%
Long-term maturity

(1) Over four (4) years but not exceeding

seven (7) years 1%

(2) Over seven (7) years 0%

Provided, however, That in case the maturity period referred to in paragraph (a) is shortened thru pre-termination, then the
maturity period shall be reckoned to end as of the date of pre-termination for purposes of classifying the transaction as short,
medium or long-term and the correct rate of tax shall be applied accordingly.

Nothing in this Code shall preclude the Commissioner from imposing the same tax herein provided on persons performing
similar banking activities.

The Tax Code does not define gross receipts. Absent any statutory definition, the Bureau of Internal Revenue
has applied the term in its plain and ordinary meaning. [23]
In National City Bank v. CIR,[24] the CTA held that gross receipts should be interpreted as the whole amount
received as interest, without deductions; otherwise, if deductions were to be made from gross receipts, it would be
considered as net receipts. The CTA changed course, however, when it promulgated its decision in Asia Bank; it
applied Section 4(e) of Rev. Reg. No. 12-80 and the ruling of this Court in Manila Jockey Club, holding that the 20%
final withholding tax on the petitioner banks interest income should not form part of its taxable gross receipts, since
the final tax was not actually received by the petitioner bank but went to the coffers of the government.
 The Court agrees with the contention of the petitioner that the appellate courts reliance on Rev. Reg. No. 12-80,
the rulings of the CTA in Asia Bank, and of this Court in Manila Jockey Club has no legal and factual bases. Indeed,
the Court ruled in China Banking Corporation v. Court of Appeals[25] that:

In Far East Bank & Trust Co. v. Commissioner and Standard Chartered Bank v. Commissioner, both promulgated on 16
November 2001, the tax court ruled that the final withholding tax forms part of the banks gross receipts in computing the gross
receipts tax. The tax court held that Section 4(e) of Revenue Regulations No. 12-80 did not prescribe the computation of the
amount of gross receipts but merely authorized the determination of the amount of gross receipts on the basis of the method of
accounting being used by the taxpayer.

The word gross must be used in its plain and ordinary meaning. It is defined as whole, entire, total, without
deduction. A common definition is without deduction. [26] Gross is also defined as taking in the whole; having no
deduction or abatement; whole, total as opposed to a sum consisting of separate or specified parts. [27] Gross is the
antithesis of net.[28] Indeed, in China Banking Corporation v. Court of Appeals,[29] the Court defined the term in this
wise:

As commonly understood, the term gross receipts means the entire receipts without any deduction. Deducting any amount from
the gross receipts changes the result, and the meaning, to net receipts. Any deduction from gross receipts is inconsistent with a
law that mandates a tax on gross receipts, unless the law itself makes an exception. As explained by the Supreme Court of
Pennsylvania in Commonwealth of Pennsylvania v. Koppers Company, Inc., -

Highly refined and technical tax concepts have been developed by the accountant and legal technician primarily because of the
impact of federal income tax legislation. However, this in no way should affect or control the normal usage of words in the
construction of our statutes; and we see nothing that would require us not to include the proceeds here in question in the gross
receipts allocation unless statutorily such inclusion is prohibited. Under the ordinary basic methods of handling accounts, the
term gross receipts, in the absence of any statutory definition of the term, must be taken to include the whole total gross receipts
without any deductions, x x x. [Citations omitted] (Emphasis supplied)

Likewise, in Laclede Gas Co. v. City of St. Louis, the Supreme Court of Missouri held:

The word gross appearing in the term gross receipts, as used in the ordinance, must have been and was there used as the direct
antithesis of the word net. In its usual and ordinary meaning gross receipts of a business is the whole and entire amount of the
receipts without deduction, x x x. On the contrary, net receipts usually are the receipts which remain after deductions are made
from the gross amount thereof of the expenses and cost of doing business, including fixed charges and depreciation. Gross
receipts become net receipts after certain proper deductions are made from the gross. And in the use of the words gross receipts,
the instant ordinance, of course, precluded plaintiff from first deducting its costs and expenses of doing business, etc., in
arriving at the higher base figure upon which it must pay the 5% tax under this ordinance. (Emphasis supplied)

Absent a statutory definition, the term gross receipts is understood in its plain and ordinary meaning. Words in a statute are
taken in their usual and familiar signification, with due regard to their general and popular use. The Supreme Court of Hawaii
held in Bishop Trust Company v. Burns that -

xxx It is fundamental that in construing or interpreting a statute, in order to ascertain the intent of the legislature, the language
used therein is to be taken in the generally accepted and usual sense. Courts will presume that the words in a statute were used
to express their meaning in common usage. This principle is equally applicable to a tax statute. [Citations omitted] (Emphasis
supplied)

The Court, likewise, declared that Section 121 of the Tax Code expressly subjects interest income of banks to
the gross receipts tax. Such express inclusion of interest income in taxable gross receipts creates a presumption that
the entire amount of the interest income, without any deduction, is subject to the gross receipts tax. Indeed, there is
a presumption that receipts of a person engaging in business are subject to the gross receipts tax. Such presumption
may only be overcome by pointing to a specific provision of law allowing such deduction of the final withholding tax
from the taxable gross receipts, failing which, the claim of deduction has no leg to stand on. Moreover, where such
an exception is claimed, the statute is construed strictly in favor of the taxing authority. The exemption must be clearly
and unambiguously expressed in the statute, and must be clearly established by the taxpayer claiming the right
thereto. Thus, taxation is the rule and the claimant must show that his demand is within the letter as well as the spirit
of the law.[30]
In this case, there is no law which allows the deduction of 20% final tax from the respondent banks interest
income for the computation of the 5% gross receipts tax. On the other hand, Section 8(a)(c), Rev. Reg. No. 17-84
provides that interest earned on Philippine bank deposits and yield from deposit substitutes are included as part of
the tax base upon which the gross receipts tax is imposed. Such earned interest refers to the gross interest without
deduction since the regulations do not provide for any such deduction. The gross interest, without deduction, is the
amount the borrower pays, and the income the lender earns, for the use by the borrower of the lenders money. The
amount of the final tax plainly covers for the interest earned and is consequently part of the taxable gross receipt of
the lender.[31]
The bare fact that the final withholding tax is a special trust fund belonging to the government and that the
respondent bank did not benefit from it while in custody of the borrower does not justify its exclusion from the
computation of interest income. Such final withholding tax covers for the respondent banks income and is the amount
to be used to pay its tax liability to the government. This tax, along with the creditable withholding tax, constitutes
payment which would extinguish the respondent banks obligation to the government. The bank can only pay the
money it owns, or the money it is authorized to pay. [32]
In the same vein, the respondent banks reliance on Section 4(e) of Rev. Reg. No. 12-80 and the ruling of the
CTA in Asia Bank is misplaced. The Courts discussion in China Banking Corporation[33] is instructive on this score:

CBC also relies on the Tax Courts ruling in Asia Bank that Section 4(e) of Revenue Regulations No. 12-80 authorizes the
exclusion of the final tax from the banks taxable gross receipts. Section 4(e) provides that:

Sec. 4. x x x

(e) Gross receipts tax on banks, non-bank financial intermediaries, financing companies, and other non-bank financial
intermediaries not performing quasi-banking functions. - The rates of taxes to be imposed on the gross receipts of such financial
institutions shall be based on all items of income actually received. Mere accrual shall not be considered, but once payment is
received on such accrual or in cases of prepayment, then the amount actually received shall be included in the tax base of such
financial institutions, as provided hereunder: x x x. (Emphasis supplied by Tax Court)

Section 4(e) states that the gross receipts shall be based on all items of income actually received. The tax court in Asia
Bank concluded that it is but logical to infer that the final tax, not having been received by petitioner but instead went to the
coffers of the government, should no longer form part of its gross receipts for the purpose of computing the GRT.

The Tax Court erred glaringly in interpreting Section 4(e) of Revenue Regulations No. 12-80. Income may be taxable either at
the time of its actual receipt or its accrual, depending on the accounting method of the taxpayer. Section 4(e) merely provides
for an exception to the rule, making interest income taxable for gross receipts tax purposes only upon actual receipt. Interest is
accrued, and not actually received, when the interest is due and demandable but the borrower has not actually paid and remitted
the interest, whether physically or constructively. Section 4(e) does not exclude accrued interest income from gross receipts but
merely postpones its inclusion until actual payment of the interest to the lending bank. This is clear when Section 4(e) states
that [m]ere accrual shall not be considered, but once payment is received on such accrual or in case of prepayment, then the
amount actually received shall be included in the tax base of such financial institutions x x x.

Actual receipt of interest income is not limited to physical receipt. Actual receipt may either be physical receipt or constructive
receipt. When the depository bank withholds the final tax to pay the tax liability of the lending bank, there is prior to the
withholding a constructive receipt by the lending bank of the amount withheld. From the amount constructively received by the
lending bank, the depository bank deducts the final withholding tax and remits it to the government for the account of the
lending bank. Thus, the interest income actually received by the lending bank, both physically and constructively, is the net
interest plus the amount withheld as final tax.

The concept of a withholding tax on income obviously and necessarily implies that the amount of the tax withheld comes from
the income earned by the taxpayer. Since the amount of the tax withheld constitutes income earned by the taxpayer, then that
amount manifestly forms part of the taxpayers gross receipts. Because the amount withheld belongs to the taxpayer, he can
transfer its ownership to the government in payment of his tax liability. The amount withheld indubitably comes from income of
the taxpayer, and thus forms part of his gross receipts.

The Court went on to explain in that case that far from supporting the petitioners contention, its ruling in Manila
Jockey Club, in fact even buttressed the contention of the Commissioner. Thus:

CBC cites Collector of Internal Revenue v. Manila Jockey Club as authority that the final withholding tax on interest income
does not form part of a banks gross receipts because the final tax is earmarked by regulation for the government. CBCs reliance
on the Manila Jockey Club is misplaced. In this case, the Court stated that Republic Act No. 309 and Executive Order No. 320
apportioned the total amount of the bets in horse races as follows:

87 % as dividends to holders of winning tickets, 12 % as commission of the Manila Jockey Club, of which % was assigned to
the Board of Races and 5% was distributed as prizes for owners of winning horses and authorized bonuses for jockeys.

A subsequent law, Republic Act No. 1933 (RA No. 1933), amended the sharing by ordering the distribution of the bets as
follows:

Sec. 19. Distribution of receipts. The total wager funds or gross receipts from the sale of pari-mutuel tickets shall
be apportioned as follows: eighty-seven and one-half per centum shall be distributed in the form of dividends among the
holders of win, place and show horses, as the case may be, in the regular races; six and one-half per centum shall be set aside as
the commission of the person, racetrack, racing club, or any other entity conducting the races; five and one-half per centum
shall be set aside for the payment of stakes or prizes for win, place and show horses and authorized bonuses for jockeys; and
one-half per centum shall be paid to a special fund to be used by the Games and Amusements Board to cover its expenses and
such other purposes authorized under this Act. xxx. (Emphasis supplied)

Under the distribution of receipts expressly mandated in Section 19 of RA No. 1933, the gross receipts apportioned to Manila
Jockey Club referred only to its own 6 % commission. There is no dispute that the 5 % share of the horse-owners and jockeys,
and the % share of the Games and Amusements Board, do not form part of Manila Jockey Clubs gross receipts. RA No. 1933
took effect on 22 June 1957, three years before the Court decided Manila Jockey Club on 30 June 1960.

Even under the earlier law, Manila Jockey Club did not own the entire 12 % commission. Manila Jockey Club owned, and
could keep and use, only 7% of the total bets. Manila Jockey Club merely held in trust the balance of 5 % for the benefit of the
Board of Races and the winning horse-owners and jockeys, the real owners of the 5 1/2 % share.

The Court in Manila Jockey Club quoted with approval the following Opinion of the Secretary of Justice made prior to RA No.
1933:

There is no question that the Manila Jockey Club, Inc. owns only 7-1/2% [sic] of the bets registered by the Totalizer. This
portion represents its share or commission in the total amount of money it handles and goes to the funds thereof as its own
property which it may legally disburse for its own purposes. The 5% [sic] does not belong to the club. It is merely held in trust
for distribution as prizes to the owners of winning horses. It is destined for no other object than the payment of prizes and the
club cannot otherwise appropriate this portion without incurring liability to the owners of winning horses. It can not be
considered as an item of expense because the sum used for the payment of prizes is not taken from the funds of the club but
from a certain portion of the total bets especially earmarked for that purpose. (Emphasis supplied)

Consequently, the Court ruled that the 5 % balance of the commission, not being owned by Manila Jockey Club, did not form
part of its gross receipts for purposes of the amusement tax. Manila Jockey Club correctly paid the amusement tax based only
on its own 7% commission under RA No. 309 and Executive Order No. 320.

Manila Jockey Club does not support CBCs contention but rather the Commissioners position. The Court ruled in Manila
Jockey Club that receipts not owned by the Manila Jockey Club but merely held by it in trust did not form part of Manila Jockey
Clubs gross receipts. Conversely, receipts owned by the Manila Jockey Club would form part of its gross receipts. [34]

We reverse the ruling of the CA that subjecting the Final Withholding Tax (FWT) to the 5% of gross receipts tax
would result in double taxation. In CIR v. Solidbank Corporation,[35] we ruled, thus:

We have repeatedly said that the two taxes, subject of this litigation, are different from each other. The basis of their imposition
may be the same, but their natures are different, thus leading us to a final point. Is there double taxation?

The Court finds none.

Double taxation means taxing the same property twice when it should be taxed only once; that is, xxx taxing the same person
twice by the same jurisdiction for the same thing. It is obnoxious when the taxpayer is taxed twice, when it should be but once.
Otherwise described as direct duplicate taxation, the two taxes must be imposed on the same subject matter, for the same
purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period; and they must be of the same
kind or character.

First, the taxes herein are imposed on two different subject matters. The subject matter of the FWT is the passive income
generated in the form of interest on deposits and yield on deposit substitutes, while the subject matter of the GRT is the
privilege of engaging in the business of banking.

A tax based on receipts is a tax on business rather than on the property; hence, it is an excise rather than a property tax. It is not
an income tax, unlike the FWT. In fact, we have already held that one can be taxed for engaging in business and further taxed
differently for the income derived therefrom. Akin to our ruling in Velilla v. Posadas, these two taxes are entirely distinct and
are assessed under different provisions.

Second, although both taxes are national in scope because they are imposed by the same taxing authority the national
government under the Tax Code and operate within the same Philippine jurisdiction for the same purpose of raising revenues,
the taxing periods they affect are different. The FWT is deducted and withheld as soon as the income is earned, and is paid after
every calendar quarter in which it is earned. On the other hand, the GRT is neither deducted nor withheld, but is paid only after
every taxable quarter in which it is earned.

Third, these two taxes are of different kinds or characters. The FWT is an income tax subject to withholding, while the GRT is a
percentage tax not subject to withholding.

In short, there is no double taxation, because there is no taxing twice, by the same taxing authority, within the same jurisdiction,
for the same purpose, in different taxing periods, some of the property in the territory. Subjecting interest income to a 20%
FWT and including it in the computation of the 5% GRT is clearly not double taxation.

IN LIGHT OF THE FOREGOING, the petition is GRANTED. The decision of the Court of Appeals in CA-G.R. SP
No. 52706 and that of the Court of Tax Appeals in CTA Case No. 5415 are SET ASIDE and REVERSED. The CTA is
hereby ORDERED to DISMISS the petition of respondent Bank of Commerce. No costs.
SO ORDERED.
G.R. No. L-18994 June 29, 1963

MELECIO R. DOMINGO, as Commissioner of Internal Revenue, petitioner,

vs.
HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First Instance of Leyte,
and SIMEONA K. PRICE, as Administratrix of the Intestate Estate of the late Walter Scott Price, respondents.

Office of the Solicitor General and Atty. G. H. Mantolino for petitioner.

Benedicto and Martinez for respondents.

LABRADOR, J.:

This is a petition for certiorari and mandamus against the Judge of the Court of First Instance of Leyte, Ron.
Lorenzo C. Garlitos, presiding, seeking to annul certain orders of the court and for an order in this Court directing
the respondent court below to execute the judgment in favor of the Government against the estate of Walter Scott
Price for internal revenue taxes.

It appears that in Melecio R. Domingo vs. Hon. Judge S. C. Moscoso, G.R. No. L-14674, January 30, 1960, this
Court declared as final and executory the order for the payment by the estate of the estate and inheritance taxes,
charges and penalties, amounting to P40,058.55, issued by the Court of First Instance of Leyte in, special
proceedings No. 14 entitled "In the matter of the Intestate Estate of the Late Walter Scott Price." In order to enforce
the claims against the estate the fiscal presented a petition dated June 21, 1961, to the court below for the
execution of the judgment. The petition was, however, denied by the court which held that the execution is not
justifiable as the Government is indebted to the estate under administration in the amount of P262,200. The orders
of the court below dated August 20, 1960 and September 28, 1960, respectively, are as follows:

Atty. Benedicto submitted a copy of the contract between Mrs. Simeona K. Price, Administratrix of the estate
of her late husband Walter Scott Price and Director Zoilo Castrillo of the Bureau of Lands dated September
19, 1956 and acknowledged before Notary Public Salvador V. Esguerra, legal adviser in Malacañang to
Executive Secretary De Leon dated December 14, 1956, the note of His Excellency, Pres. Carlos P. Garcia,
to Director Castrillo dated August 2, 1958, directing the latter to pay to Mrs. Price the sum ofP368,140.00,
and an extract of page 765 of Republic Act No. 2700 appropriating the sum of P262.200.00 for the payment
to the Leyte Cadastral Survey, Inc., represented by the administratrix Simeona K. Price, as directed in the
above note of the President. Considering these facts, the Court orders that the payment of inheritance taxes
in the sum of P40,058.55 due the Collector of Internal Revenue as ordered paid by this Court on July 5,
1960 in accordance with the order of the Supreme Court promulgated July 30, 1960 in G.R. No. L-14674, be
deducted from the amount of P262,200.00 due and payable to the Administratrix Simeona K. Price, in this
estate, the balance to be paid by the Government to her without further delay. (Order of August 20, 1960)

The Court has nothing further to add to its order dated August 20, 1960 and it orders that the payment of the
claim of the Collector of Internal Revenue be deferred until the Government shall have paid its accounts to
the administratrix herein amounting to P262,200.00. It may not be amiss to repeat that it is only fair for the
Government, as a debtor, to its accounts to its citizens-creditors before it can insist in the prompt payment of
the latter's account to it, specially taking into consideration that the amount due to the Government draws
interests while the credit due to the present state does not accrue any interest. (Order of September 28,
1960)

The petition to set aside the above orders of the court below and for the execution of the claim of the Government
against the estate must be denied for lack of merit. The ordinary procedure by which to settle claims of
indebtedness against the estate of a deceased person, as an inheritance tax, is for the claimant to present a claim
before the probate court so that said court may order the administrator to pay the amount thereof. To such effect is
the decision of this Court in Aldamiz vs. Judge of the Court of First Instance of Mindoro, G.R. No. L-2360, Dec. 29,
1949, thus:

. . . a writ of execution is not the proper procedure allowed by the Rules of Court for the payment of debts
and expenses of administration. The proper procedure is for the court to order the sale of personal estate or
the sale or mortgage of real property of the deceased and all debts or expenses of administrator and with
the written notice to all the heirs legatees and devisees residing in the Philippines, according to Rule 89,
section 3, and Rule 90, section 2. And when sale or mortgage of real estate is to be made, the regulations
contained in Rule 90, section 7, should be complied with. 1äwphï1.ñët

Execution may issue only where the devisees, legatees or heirs have entered into possession of their
respective portions in the estate prior to settlement and payment of the debts and expenses of
administration and it is later ascertained that there are such debts and expenses to be paid, in which case
"the court having jurisdiction of the estate may, by order for that purpose, after hearing, settle the amount of
their several liabilities, and order how much and in what manner each person shall contribute, and
may issue execution if circumstances require" (Rule 89, section 6; see also Rule 74, Section 4; Emphasis
supplied.) And this is not the instant case.
The legal basis for such a procedure is the fact that in the testate or intestate proceedings to settle the estate of a
deceased person, the properties belonging to the estate are under the jurisdiction of the court and such jurisdiction
continues until said properties have been distributed among the heirs entitled thereto. During the pendency of the
proceedings all the estate is in custodia legis and the proper procedure is not to allow the sheriff, in case of the court
judgment, to seize the properties but to ask the court for an order to require the administrator to pay the amount due
from the estate and required to be paid.

Another ground for denying the petition of the provincial fiscal is the fact that the court having jurisdiction of the
estate had found that the claim of the estate against the Government has been recognized and an amount of
P262,200 has already been appropriated for the purpose by a corresponding law (Rep. Act No. 2700). Under the
above circumstances, both the claim of the Government for inheritance taxes and the claim of the intestate for
services rendered have already become overdue and demandable is well as fully liquidated. Compensation,
therefore, takes place by operation of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil
Code, and both debts are extinguished to the concurrent amount, thus:

ART. 1200. When all the requisites mentioned in article 1279 are present, compensation takes effect by
operation of law, and extinguished both debts to the concurrent amount, eventhough the creditors and
debtors are not aware of the compensation.

It is clear, therefore, that the petitioner has no clear right to execute the judgment for taxes against the estate of the
deceased Walter Scott Price. Furthermore, the petition for certiorari and mandamus is not the proper remedy for the
petitioner. Appeal is the remedy.

The petition is, therefore, dismissed, without costs.