PABLO LORENZO, as trustee of the estate of Thomas Hanley, Deceased, Plaintiff-appellant, vs.

JUAN
POSADA, JR., Collector of Internal Revenue, Defendant-appellant.
G.R. No. L-43082, June 18, 1937

Facts:

On May 27, 1922, Thomas Hanley died and leaving a testamentary will and a considerable amount
of real and personal properties. In his testamentary will, among other things, he wishes and direct that
after ten years after his death, all of his real properties are to be given to his instituted heir and nephew,
Matthew Hanley. In the meantime, his real estate shall not be sold or otherwise disposed of for a period
of ten (10) years after his death, and the same shall be handled and managed by the executors.

In the probate or testamentary proceedings of his will, the Court of First Instance of Zamboanga
appoints on March 8, 1924, Moore as the trustee to administer the real properties which, under the will,
were to pass to Matthew Hanley. Moore acted as trustee until February 29, 1932, when he resigned and
the plaintiff Pablo Lorenzo was appointed in his stead.

On March 15, 1932, the defendant Collector filed a motion in the testamentary proceeding and
praying that the plaintiff trustee be ordered to pay to the Government the sum of P2,052.74. The
assessment was based on the value of the real and personal properties of the deceased at the time of his
death, i.e. in May 1922, which also includes all the penalties and interest.

Defendant Collector levied and assessed the inheritance tax due from the estate of Thomas
Hanley under the provisions of Section 1544 of the Revised Administrative Code, as amended by Section
3 of Act No. 3606. Be it noted that Act No. 3606 went into effect on January 1, 1930. It, therefore, was not
the law in force when the testator, Thomas Hanley, died, on May 27, 1922. The law at the time was Section
1544 of the Revised Administrative Code, as amended by Act No. 3031, which took effect on March 9,
1922.

On September 15, 1932, the plaintiff trustee paid the said P2,052.74 under protest, with notice
to refund the amount paid. The plaintiff trustee contend that the assessment of the inheritance tax should
be based on the value of the estate in 1932 because the said estate did not legally pass to the instituted
heir, Matthew Hanley, until after the expiration of ten (10) years from the death of testator, Thomas
Hanley.

Defendant Collector refused to refund and countered that the plaintiff has still P1,191.27 balance
as part of the interest, thus, this case.

ISSUE PERTINENT TO THE PRESENT SUBJECT:

1.) WHETHER OR NOT THE DEFENDANT COLLECTOR IS CORRECT IN APPLYING RETROACTIVELY THE
PROVISIONS OF ACT NO. 3606, WHICH WENT INTO EFFECT ON JANUARY 1, 1930, WHEN HE ASSESSED THE
INHERITANCE TAX.

RULING:

No. The Defendant Collector is not correct in applying retroactively the provisions of Act No. 3606
when he assessed the inheritance tax.
 It is well-settled rule that inheritance taxation is governed by the statute in force at the time of
the death of the decedent. It is true that a tax statute may be made retroactive in its operation. Liability
for taxes under retroactive legislation has been “one of the incidents of social life”.

But legislative intent that a tax statute should operate retroactively should be perfectly clear.

A statute should be considered as prospective in its operation, whether it enacts, amends, or

repeals an inheritance tax, UNLESS the language of the statute clearly demands or expresses that it shall
have a retroactive effect.

Act No. 3606 contains no provisions indicating legislative intent to give it retroactive effect.

In this case, defendant Collector contend that the provisions of Act No. 3606 are more favorable
to the taxpayer than those in Act No. 3031, because the latter provisions are penal in nature and therefore,
should operate retroactively in conformity with the provisions of Article 22 of the Revised Penal Code.

However, it was ruled by the Supreme Court that Article 22 of the Revised Penal Code is not applicable in
the instant case. It reasoned that revenue laws, generally, which impose taxes collected by the means
ordinarily resorted to for the collections of taxes are NOT classified as penal law.

Thus, Article 22 of the Revised Penal Code is not applicable to the instant case, and absence of clear
legislative intent, Act No. 3606 cannot be given a retroactive effect.