Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. Nos. L-9456 and L-9481 January 6, 1958

THE COLLECTOR OF INTERNAL REVENUE, petitioner,

vs.
DOMINGO DE LARA, as ancilliary administrator of the estate of HUGO H. MILLER (Deceased), and the
COURT OF TAX APPEALS, respondents.

Allison J. Gibbs, Zafra, De Leon and Veneracion for Domingo E. de Lara.

Assistant Solicitor General Ramon L. Avancena and Cezar L. Kierulf for the Collector of Internal Revenue.

MONTEMAYOR, J.:

These are two separate appeals, one by the Collector of Internal Revenue, later on referred to as the Collector, and
the other by Domingo de Lara as Ancilliary Administrator of the estate of Hugo H. Miller, from the decision of the
Court of Tax Appeals of June 25, 1955, with the following dispositive part:

WHEREFORE, respondent's assessment for estate and inheritance taxes upon the estate of the decedent
Hugo H. Miller is hereby modified in accordance with the computation attached as Annex "A" of this
decision. Petitioner is hereby ordered to pay the amount of P2,047.22 representing estate taxes due,
together with the interests and other increments. In case of failure to pay the amount of P2,047.22 within
thirty (30) days from the time this decision has become final, the 5 per cent surcharge and the corresponding
interest due thereon shall be paid as a part of the tax.

The facts in the case gathered from the record and as found by the Court of Tax Appeals may be briefly stated as
follows: Hugo H. Miller, an American citizen, was born in Santa Cruz, California, U.S.A., in 1883. In 1905, he came
to the Philippines. From 1906 to 1917, he was connected with the public school system, first as a teacher and later
as a division superintendent of schools, later retiring under the Osmeiia Retirement Act. After his retirement, Miller
accepted an executive position in the local branch of Ginn & Co., book publishers with principal offices in New York
and Boston, U.S.A., up to the outbreak of the Pacific War. From 1922 up to December 7, 1941, he was stationed in
the Philippines as Oriental representative of Ginn & Co., covering not only the Philippines, but also China and
Japan. His principal work was selling books specially written for Philippine schools. In or about the year 1922, Miller
lived at the Manila Hotel. His wife remained at their home in Ben-Lomond, Santa Cruz, California, but she used to
come to the Philippines for brief visits with Miller, staying three or four months. Miller also used to visit his wife in
California. He never lived in any residential house in the Philippines. After the death of his wife in 1931, he
transferred from the Manila Hotel to the Army and Navy Club, where he was staying at the outbreak of the Pacific
War. On January 17, 1941, Miller executed his last will and testament in Santa Cruz, California, in which he
declared that he was "of Santa Cruz, California". On December 7, 1941, because of the Pacific War, the office of
Ginn & Co. was closed, and Miller joined the Board of Censors of the United States Navy. During the war, he was
taken prisoner by the Japanese forces in Leyte, and in January, 1944, he was transferred to Catbalogan, Samar,
where he was reported to have been executed by said forces on March 11, 1944, and since then, nothing has been
heard from him. At the time of his death in 1944, Miller owned the following properties:

Real Property situated in Ben-Lomond, Santa Cruz,

California valued at
...................................................................... P 5,000.00
Real property situated in Burlingame, San Mateo,
California valued at
........................................................................................ 16,200.00
Tangible Personal property,
worth............................................. 2,140.00
 Cash in the banks in the United
States.................................... 21,178.20
Accounts Receivable from various persons in the
United States including notes
............................................................... 36,062.74
Stocks in U.S. Corporations and U.S. Savings Bonds,
valued at
........................................................................................ 123,637.16
Shares of stock in Philippine Corporations, valued at
.......... 51,906.45

Testate proceedings were instituted before the Court of California in Santa Cruz County, in the course of which
Miller's will of January 17, 1941 was admitted to probate on May 10, 1946. Said court subsequently issued an order
and decree of settlement of final account and final distribution, wherein it found that Miller was a "resident of the
County of Santa Cruz, State of California" at the time of his death in 1944. Thereafter ancilliary proceedings were
filed by the executors of the will before the Court of First Instance of Manila, which court by order of November 21,
1946, admitted to probate the will of Miller was probated in the California court, also found that Miller was a resident
of Santa Cruz, California, at the time of his death. On July 29, 1949, the Bank of America, National Trust and
Savings Association of San Francisco California, co-executor named in Miller's will, filed an estate and inheritance
tax return with the Collector, covering only the shares of stock issued by Philippines corporations, reporting a liability
of P269.43 for taxes and P230.27 for inheritance taxes. After due investigation, the Collector assessed estate and
inheritance taxes, which was received by the said executor on April 3, 1950. The estate of Miller protested the
assessment of the liability for estate and inheritance taxes, including penalties and other increments at P77,300.92,
as of January 16, 1954. This assessment was appealed by De Lara as Ancilliary Administrator before the Board of
Tax Appeals, which appeal was later heard and decided by the Court of Tax Appeals.

In determining the "gross estate" of a decedent, under Section 122 in relation to section 88 of our Tax Code, it is first
necessary to decide whether the decedent was a resident or a non-resident of the Philippines at the time of his
death. The Collector maintains that under the tax laws, residence and domicile have different meanings; that tax
laws on estate and inheritance taxes only mention resident and non-resident, and no reference whatsoever is made
to domicile except in Section 93 (d) of the Tax Code; that Miller during his long stay in the Philippines had required a
"residence" in this country, and was a resident thereof at the time of his death, and consequently, his intangible
personal properties situated here as well as in the United States were subject to said taxes. The Ancilliary
Administrator, however, equally maintains that for estate and inheritance tax purposes, the term "residence" is
synonymous with the term domicile.

We agree with the Court of Tax Appeals that at the time that The National Internal Revenue Code was promulgated
in 1939, the prevailing construction given by the courts to the "residence" was synonymous with domicile. and that
the two were used intercnangeabiy. Cases were cited in support of this view, paricularly that of Velilla vs. Posadas,
62 Phil. 624, wherein this Tribunal used the terms "residence" and "domicile" interchangeably and without
distinction, the case involving the application of the term residence employed in the inheritance tax law at the time
(section 1536- 1548 of the Revised Administrative Code), and that consequently, it will be presumed that in using
the term residence or resident in the meaning as construed and interpreted by the Court. Moreover, there is reason
to believe that the Legislature adopted the American (Federal and State) estate and inheritance tax system (see e.g.
Report to the Tax Commision of the Philippines, Vol. II, pages 122-124, cited in I Dalupan, National Internal
Revenue Code Annotated, p. 469-470). In the United States, for estate tax purposes, a resident is considered one
who at the time of his death had his domicile in the United States, and in American jurisprudence, for purposes of
estate and taxation, "residence" is interpreted as synonymous with domicile, and that—

The incidence of estate and succession has historically been determined by domicile and situs and not by
the fact of actual residence. (Bowring vs. Bowers, (1928) 24 F 2d 918, at 921, 6 AFTR 7498, cert. den
(1928) 272 U.S.608).

We also agree with the Court of Tax Appeals that at the time of his death, Miller had his residence or domicile in
Santa Cruz, California. During his country, Miller never acquired a house for residential purposes for he stayed at
the Manila Hotel and later on at the Army and Navy Club. Except this wife never stayed in the Philippines. The bulk
of his savings and properties were in the United States. To his home in California, he had been sending souvenirs,
such as carvings, curios and other similar collections from the Philippines and the Far East. In November, 1940,
Miller took out a property insurance policy and indicated therein his address as Santa Cruz, California, this aside
from the fact that Miller, as already stated, executed his will in Santa Cruz, California, wherein he stated that he was
"of Santa Cruz, California". From the foregoing, it is clear that as a non-resident of the Philippines, the only
properties of his estate subject to estate and inheritance taxes are those shares of stock issued by Philippines
corporations, valued at P51,906.45. It is true, as stated by the Tax Court, that while it may be the general rule that
personal property, like shares of stock in the Philippines, is taxable at the domicile of the owner (Miller) under the
doctrine of mobilia secuuntur persona, nevertheless, when he during his life time,

. . . extended his activities with respect to his intangibles, so as to avail himself of the protection and benefits
of the laws of the Philippines, in such a way as to bring his person or property within the reach of the
Philippines, the reason for a single place of taxation no longer obtains- protection, benefit, and power over
the subject matter are no longer confined to California, but also to the Philippines (Wells Fargo Bank &
Union Trust Co. vs. Collector (1940), 70 Phil. 325). In the instant case, the actual situs of the shares of stock
is in the Philippines, the corporation being domiciled herein: and besides, the right to vote the certificates at
stockholders' meetings, the right to collect dividends, and the right to dispose of the shares including the
transmission and acquisition thereof by succession, all enjoy the protection of the Philippines, so that the
right to collect the estate and inheritance taxes cannot be questioned (Wells Fargo Bank & Union Trust Co.
vs. Collector supra). It is recognized that the state may, consistently with due process, impose a tax upon
transfer by death of shares of stock in a domestic corporation owned by a decedent whose domicile was
outside of the state (Burnett vs. Brooks, 288 U.S. 378; State Commission vs. Aldrich, (1942) 316 U.S. 174,
86 L. Ed. 1358, 62 ALR 1008)." (Brief for the Petitioner, p. 79-80).

The Ancilliary Administrator for purposes of exemption invokes the proviso in Section 122 of the Tax Code, which
provides as follows:

. . ."And Provided, however, That no tax shall be collected under this Title in respect of intangible personal
property (a) if the decedent at the time of his death was a resident of a foreign country which at the time of
his death did not impose a transfer tax or death tax of any character in respect of intangible personal
property of citizens of the Philippines not residing in that country, or (b) if the laws of the foreign country of
which the decedent was resident at the tune of his death allow a similar exemption from transfer taxes or
death taxes of every character in respect of intangible personal property owned by citizen, of the Philippine
not residing in that foreign country.

The Ancilliary Administrator bases his claim of exemption on (a) the exemption of non-residents from the California
inheritance taxes with respect to intangibles, and (b) the exemption by way of reduction of P4,000 from the estates
of non-residents, under the United States Federal Estate Tax Law. Section 6 of the California Inheritance Tax Act of
1935, now reenacted as Section 13851, California Revenue and Taxation Code, reads as follows:

SEC. 6. The following exemption from the tax are hereby allowed:

xxx xxx xxx.

(7) The tax imposed by this act in respect of intangible personal property shall not be payable if decedent is
a resident of a State or Territory of the United States or a foreign state or country which at the time of his
death imposed a legacy, succession of death tax in respect of intangible personal property within the State
or Territory or foreign state or country of residents of the States or Territory or foreign state or country of
residence of the decedent at the time of his death contained a reciprocal provision under which non-
residents were exempted from legacy or succession taxes or death taxes of every character in respect of
intangible personal property providing the State or Territory or foreign state or country of residence of such
non-residents allowed a similar exemption to residents of the State, Territory or foreign state or country of
residence of such decedent.

Considering the State of California as a foreign country in relation to section 122 of Our Tax Code we beleive and
hold, as did the Tax Court, that the Ancilliary Administrator is entitled to exemption from the tax on the intangible
personal property found in the Philippines. Incidentally, this exemption granted to non-residents under the provision
of Section 122 of our Tax Code, was to reduce the burden of multiple taxation, which otherwise would subject a
decedent's intangible personal property to the inheritance tax, both in his place of residence and domicile and the
place where those properties are found. As regards the exemption or reduction of P4,000 based on the reduction
under the Federal Tax Law in the amount of $2,000, we agree with the Tax Court that the amount of $2,000 allowed
under the Federal Estate Tax Law is in the nature of deduction and not of an exemption. Besides, as the Tax Court
observes--.

. . . this exemption is allowed on all gross estate of non-residents of the United States, who are not citizens
thereof, irrespective of whether there is a corresponding or similar exemption from transfer or death taxes of
non-residents of the Philippines, who are citizens of the United States; and thirdly, because this exemption is
allowed on all gross estates of non-residents irrespective of whether it involves tangible or intangible, real or
personal property; so that for these reasons petitioner cannot claim a reciprocity. . .

Furthermore, in the Philippines, there is already a reduction on gross estate tax in the amount of P3,000 under
section 85 of the Tax Code, before it was amended, which in part provides as follows:

SEC. 85. Rates of estate tax.—There shall be levied, assessed, collected, and paid upon the transfer of the
net estate of every decedent, whether a resident or non-resident of the Philippines, a tax equal to the sum of
the following percentages of the value of the net estate determined as provided in sections 88 and 89:

One per centrum of the amount by which the net estate exceeds three thousand pesos and does not exceed
ten thousand pesos;. . .

It will be noticed from the dispositive part of the appealed decision of the Tax Court that the Ancilliary Administrator
was ordered to pay the amount of P2,047.22, representing estate taxes due, together with interest and other
increments. Said Ancilliary Administrator invokes the provisions of Republic Act No. 1253, which was passed for the
benefit of veterans, guerrillas or victims of Japanese atrocities who died during the Japanese occupation. The
provisions of this Act could not be invoked during the hearing before the Tax Court for the reason that said Republic
Act was approved only on June 10, 1955. We are satisfied that inasmuch as Miller, not only suffered deprivation of
the war, but was killed by the Japanese military forces, his estate is entitled to the benefits of this Act. Consequently,
the interests and other increments provided in the appealed judgment should not be paid by his estate.

With the above modification, the appealed decision of the Court of Tax Appeals is hereby affirmed. We deem it
unnecessary to pass upon the other points raised in the appeal. No costs.

Bengzon, Paras, C.J., Padilla, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Endencia, and
Felix, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-46720 June 28, 1940

WELLS FARGO BANK & UNION TRUST COMPANY, petitioner-appellant,

vs.
THE COLLECTOR OF INTERNAL REVENUE, respondent-appellee.

De Witt, Perkins and Ponce Enrile for appellant.

Office of the Solicitor-General Ozaeta and Assistant Solicitor-General Concepcion for appellee.
Ross, Lawrence, Selph and Carrascoso, James Madison Ross and Federico Agrava as amici curiæ.

MORAN, J.:

An appeal from a declaratory judgment rendered by the Court of First Instance of Manila.

Birdie Lillian Eye, wife of Clyde Milton Eye, died on September 16, 1932, at Los Angeles, California, the place of her
alleged last residence and domicile. Among the properties she left her one-half conjugal share in 70,000 shares of
stock in the Benguet Consolidated Mining Company, an anonymous partnership (sociedad anonima), organized and
existing under the laws of the Philippines, with is principal office in the City of Manila. She left a will which was duly
admitted to probate in California where her estate was administered and settled. Petitioner-appellant, Wells Fargo
Bank & Union Trust Company, was duly appointed trustee of the created by the said will. The Federal and State of
California's inheritance taxes due on said shares have been duly paid. Respondent Collector of Internal Revenue
sought to subject anew the aforesaid shares of stock to the Philippine inheritance tax, to which petitioner-appellant
objected. Wherefore, a petition for a declaratory judgment was filed in the lower court, with the statement that, "if it
should be held by a final declaratory judgment that the transfer of the aforesaid shares of stock is legally subject to
the Philippine inheritance tax, the petitioner will pay such tax, interest and penalties (saving error in computation)
without protest and will not file to recover the same; and the petitioner believes and t herefore alleges that it should
be held that such transfer is not subject to said tax, the respondent will not proceed to assess and collect the same."
The Court of First Instance of Manila rendered judgment, holding that the transmission by will of the said 35,000
shares of stock is subject to Philippine inheritance tax. Hence, this appeal by the petitioner.

Petitioner concedes (1) that the Philippine inheritance tax is not a tax property, but upon transmission by inheritance
(Lorenzo vs. Posadas, 35 Off. Gaz., 2393, 2395), and (2) that as to real and tangible personal property of a non-
resident decedent, located in the Philippines, the Philippine inheritance tax may be imposed upon their transmission
by death, for the self-evident reason that, being a property situated in this country, its transfer is, in some way,
defendant, for its effectiveness, upon Philippine laws. It is contended, however, that, as to intangibles, like the
shares of stock in question, their situs is in the domicile of the owner thereof, and, therefore, their transmission by
death necessarily takes place under his domiciliary laws.

Section 1536 of the Administrative Code, as amended, provides that every transmission by virtue of inheritance of
any share issued by any corporation of sociedad anonima organized or constituted in the Philippines, is subject to
the tax therein provided. This provision has already been applied to shares of stock in a domestic corporation which
were owned by a British subject residing and domiciled in Great Britain. (Knowles vs. Yatco, G. R. No. 42967. See
also Gibbs vs. Government of P. I., G. R. No. 35694.) Petitioner, however, invokes the rule laid down by the United
States Supreme Court in four cases (Farmers Loan & Trust Company vs. Minnesota, 280 U.S. 204; 74 Law. ed.,
371; Baldwin vs. Missouri, 281 U.S., 586; 74 Law. ed., 1056, Beidler vs. South Carolina Tax Commission 282 U. S.,
1; 75 Law. ed., 131; First National Bank of Boston vs. Maine, 284 U. S., 312; 52 S. Ct., 174, 76 Law. ed., 313; 77 A.
L. R., 1401), to the effect that an inheritance tax can be imposed with respect to intangibles only by the State where
the decedent was domiciled at the time of his death, and that, under the due-process clause, the State in which a
corporation has been incorporated has no power to impose such tax if the shares of stock in such corporation are
owned by a non-resident decedent. It is to be observed, however, that in a later case (Burnet vs. Brooks, 288 U. S.,
378; 77 Law. ed., 844), the United States Supreme Court upheld the authority of the Federal Government to impose
an inheritance tax on the transmission, by death of a non-resident, of stock in a domestic (America) corporation,
irrespective of the situs of the corresponding certificates of stock. But it is contended that the doctrine in the
foregoing case is not applicable, because the due-process clause is directed at the State and not at the Federal
Government, and that the federal or national power of the United States is to be determined in relation to other
countries and their subjects by applying the principles of jurisdiction recognized in international relations. Be that as
it may, the truth is that the due-process clause is "directed at the protection of the individual and he is entitled to its
immunity as much against the state as against the national government." (Curry vs. McCanless, 307 U. S., 357,
370; 83 Law. ed., 1339, 1349.) Indeed, the rule laid down in the four cases relied upon by the appellant was
predicated on a proper regard for the relation of the states of the American Union, which requires that property
should be taxed in only one state and that jurisdiction to tax is restricted accordingly. In other words, the application
to the states of the due-process rule springs from a proper distribution of their powers and spheres of activity as
ordained by the United States Constitution, and such distribution is enforced and protected by not allowing one state
to reach out and tax property in another. And these considerations do not apply to the Philippines. Our status rests
upon a wholly distinct basis and no analogy, however remote, cam be suggested in the relation of one state of the
Union with another or with the United States. The status of the Philippines has been aptly defined as one which,
though a part of the United States in the international sense, is, nevertheless, foreign thereto in a domestic sense.
(Downes vs. Bidwell, 182 U. S., 244, 341.)

At any rate, we see nothing of consequence in drawing any distinct between the operation and effect of the due-
process clause as it applies to the individual states and to the national government of the United States. The
question here involved is essentially not one of due-process, but of the power of the Philippine Government to tax. If
that power be conceded, the guaranty of due process cannot certainly be invoked to frustrate it, unless the law
involved is challenged, which is not, on considerations repugnant to such guaranty of due process of that of the
equal protection of the laws, as, when the law is alleged to be arbitrary, oppressive or discriminatory.

Originally, the settled law in the United States is that intangibles have only one situs for the purpose of inheritance
tax, and that such situs is in the domicile of the decedent at the time of his death. But this rule has, of late, been
relaxed. The maxim mobilia sequuntur personam, upon which the rule rests, has been described as a mere "fiction
of law having its origin in consideration of general convenience and public policy, and cannot be applied to limit or
control the right of the state to tax property within its jurisdiction" (State Board of Assessors vs. Comptoir National
D'Escompte, 191 U. S., 388, 403, 404), and must "yield to established fact of legal ownership, actual presence and
control elsewhere, and cannot be applied if to do so result in inescapable and patent injustice." (Safe Deposit &
Trust Co. vs. Virginia, 280 U. S., 83, 91-92) There is thus a marked shift from artificial postulates of law, formulated
for reasons of convenience, to the actualities of each case.

An examination of the adjudged cases will disclose that the relaxation of the original rule rests on either of two
fundamental considerations: (1) upon the recognition of the inherent power of each government to tax persons,
properties and rights within its jurisdiction and enjoying, thus, the protection of its laws; and (2) upon the principle
that as o intangibles, a single location in space is hardly possible, considering the multiple, distinct relationships
which may be entered into with respect thereto. It is on the basis of the first consideration that the case of
Burnet vs.Brooks, supra, was decided by the Federal Supreme Court, sustaining the power of the Government to
impose an inheritance tax upon transmission, by death of a non-resident, of shares of stock in a domestic (America)
corporation, regardless of the situs of their corresponding certificates; and on the basis of the second consideration,
the case of Cury vs. McCanless, supra.

In Burnet vs. Brooks, the court, in disposing of the argument that the imposition of the federal estate tax is precluded
by the due-process clause of the Fifth Amendment, held:

The point, being solely one of jurisdiction to tax, involves none of the other consideration raised by
confiscatory or arbitrary legislation inconsistent with the fundamental conceptions of justice which are
embodied in the due-process clause for the protection of life, liberty, and property of all persons — citizens
and friendly aliens alike. Russian Volunteer Fleet vs. United States, 282 U. S., 481, 489; 75 Law ed., 473,
476; 41 S. Ct., 229; Nicholas vs. Coolidge, 274 U. S., 531; 542, 71 Law ed., 1184, 1192; 47 S. Ct., 710; 52
A. L. R., 1081; Heiner vs. Donnon, 285 U.S., 312, 326; 76 Law ed., 772, 779; 52 S. Ct., 358. If in the instant
case the Federal Government had jurisdiction to impose the tax, there is manifestly no ground for assailing
it. Knowlton vs. Moore, 178 U.S., 41, 109; 44 Law. ed., 969, 996; 20 S. Ct., 747; MaGray vs. United States,
195 U.S., 27, 61; 49 Law. ed., 78; 97; 24 S. Ct., 769; 1 Ann. Cas., 561; Flint vs. Stone Tracy Co., 220 U.S.,
107, 153, 154; 55 Law. ed., 389, 414, 415; 31 S. Ct., 342; Ann. Cas., 1912B, 1312; Brushaber vs. Union p.
 R. Co., 240 U.S., 1, 24; 60 Law. ed., 493, 504; 36 S. Ct., 236; L. R. A., 1917 D; 414, Ann. Cas, 1917B, 713;
United States vs. Doremus, 249 U. S., 86, 93; 63 Law. ed., 439, 496; 39 S. Ct., 214. (Emphasis ours.)

And, in sustaining the power of the Federal Government to tax properties within its borders, wherever its owner may
have been domiciled at the time of his death, the court ruled:

. . . There does not appear, a priori, to be anything contrary to the principles of international law, or hurtful to
the polity of nations, in a State's taxing property physically situated within its borders, wherever its owner
may have been domiciled at the time of his death. . . .

As jurisdiction may exist in more than one government, that is, jurisdiction based on distinct grounds — the
citizenship of the owner, his domicile, the source of income, the situs of the property — efforts have been
made to preclude multiple taxation through the negotiation of appropriate international conventions. These
endeavors, however, have proceeded upon express or implied recognition, and not in denial, of the
sovereign taxing power as exerted by governments in the exercise of jurisdiction upon any one of these
grounds. . . . (See pages 396-397; 399.)

In Curry vs. McCanless, supra, the court, in deciding the question of whether the States of Alabama and Tennessee
may each constitutionally impose death taxes upon the transfer of an interest in intangibles held in trust by an
Alabama trustee but passing under the will of a beneficiary decedent domiciles in Tennessee, sustained the power
of each State to impose the tax. In arriving at this conclusion, the court made the following observations:

In cases where the owner of intangibles confines his activity to the place of his domicile it has been found
convenient to substitute a rule for a reason, cf. New York ex rel., Cohn vs. Graves, 300 U.S., 308, 313; 81
Law. ed., 666, 670; 57 S. Ct., 466; 108 A. L. R., 721; First Bank Stock Corp. vs. Minnesota, 301 U. S., 234,
241; 81 Law. ed., 1061, 1065; 57 S. Ct., 677; 113 A. L. R., 228, by saying that his intangibles are taxed at
their situs and not elsewhere, or perhaps less artificially, by invoking the maxim mobilia sequuntur
personam. Blodgett vs. Silberman, 277 U.S., 1; 72 Law. ed., 749; S. Ct., 410, supra; Baldwin vs. Missouri,
281 U. S., 568; 74 Law. ed., 1056; 50 S. Ct., 436; 72 A. L. R., 1303, supra, which means only that it is the
identify owner at his domicile which gives jurisdiction to tax. But when the taxpayer extends his activities with
respect to his intangibles, so as to avail himself of the protection and benefit of the laws of another state, in
such a way as to bring his person or properly within the reach of the tax gatherer there, the reason for a
single place of taxation no longer obtains, and the rule even workable substitute for the reasons may exist in
any particular case to support the constitutional power of each state concerned to tax. Whether we regard
the right of a state to tax as founded on power over the object taxed, as declared by Chief Justice Marshall
in McCulloch vs. Maryland, 4 Wheat., 316; 4 Law. ed., 579, supra, through dominion over tangibles or over
persons whose relationships are source of intangibles rights, or on the benefit and protection conferred by
the taxing sovereignty, or both, it is undeniable that the state of domicile is not deprived, by the taxpayer's
activities elsewhere, of its constitutional jurisdiction to tax, and consequently that there are many
circumstances in which more than one state may have jurisdiction to impose a tax and measure it by some
or all of the taxpayer's intangibles. Shares or corporate stock be taxed at the domicile of the shareholder and
also at that of the corporation which the taxing state has created and controls; and income may be taxed
both by the state where it is earned and by the state of the recipient's domicile. protection, benefit, and
power over the subject matter are not confined to either state. . . .(p. 1347-1349.)

. . . We find it impossible to say that taxation of intangibles can be reduced in every case to the mere
mechanical operation of locating at a single place, and there taxing, every legal interest growing out of all
the complex legal relationships which may be entered into between persons. This is the case because in
point of actuality those interests may be too diverse in their relationships to various taxing jurisdictions to
admit of unitary treatment without discarding modes of taxation long accepted and applied before the
Fourteen Amendment was adopted, and still recognized by this Court as valid. (P. 1351.)

We need not belabor the doctrines of the foregoing cases. We believe, and so hold, that the issue here involved is
controlled by those doctrines. In the instant case, the actual situs of the shares of stock is in the Philippines, the
corporation being domiciled therein. And besides, the certificates of stock have remained in this country up to the
time when the deceased died in California, and they were in possession of one Syrena McKee, secretary of the
Benguet Consolidated Mining Company, to whom they have been delivered and indorsed in blank. This indorsement
gave Syrena McKee the right to vote the certificates at the general meetings of the stockholders, to collect
dividends, and dispose of the shares in the manner she may deem fit, without prejudice to her liability to the owner
for violation of instructions. For all practical purposes, then, Syrena McKee had the legal title to the certificates of
stock held in trust for the true owner thereof. In other words, the owner residing in California has extended here her
activities with respect to her intangibles so as to avail herself of the protection and benefit of the Philippine laws.
Accordingly, the jurisdiction of the Philippine Government to tax must be upheld.

Judgment is affirmed, with costs against petitioner-appellant.

Avanceña, C.J., Imperial, Diaz and Concepcion, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-43082 June 18, 1937

PABLO LORENZO, as trustee of the estate of Thomas Hanley, deceased, plaintiff-appellant,

vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.

Pablo Lorenzo and Delfin Joven for plaintiff-appellant.

Office of the Solicitor-General Hilado for defendant-appellant.

LAUREL, J.:

On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as trustee of the estate of Thomas Hanley,
deceased, brought this action in the Court of First Instance of Zamboanga against the defendant, Juan Posadas, Jr.,
then the Collector of Internal Revenue, for the refund of the amount of P2,052.74, paid by the plaintiff as inheritance
tax on the estate of the deceased, and for the collection of interst thereon at the rate of 6 per cent per annum,
computed from September 15, 1932, the date when the aforesaid tax was [paid under protest. The defendant set up
a counterclaim for P1,191.27 alleged to be interest due on the tax in question and which was not included in the
original assessment. From the decision of the Court of First Instance of Zamboanga dismissing both the plaintiff's
complaint and the defendant's counterclaim, both parties appealed to this court.

It appears that on May 27, 1922, one Thomas Hanley died in Zamboanga, Zamboanga, leaving a will (Exhibit 5) and
considerable amount of real and personal properties. On june 14, 1922, proceedings for the probate of his will and
the settlement and distribution of his estate were begun in the Court of First Instance of Zamboanga. The will was
admitted to probate. Said will provides, among other things, as follows:

4. I direct that any money left by me be given to my nephew Matthew Hanley.

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 ten (10) years after my death, and that the same be handled and managed by the executors, and
proceeds thereof to be given to my nephew, Matthew Hanley, at Castlemore, Ballaghaderine, County of
Rosecommon, Ireland, and that he be directed that the same be used only for the education of my brother's
children and their descendants.

6. I direct that ten (10) years after my death my property be given to the above mentioned Matthew Hanley
to be disposed of in the way he thinks most advantageous.

xxx xxx xxx

8. I state at this time I have one brother living, named Malachi Hanley, and that my nephew, Matthew
Hanley, is a son of my said brother, Malachi Hanley.

The Court of First Instance of Zamboanga considered it proper for the best interests of ther estate to appoint a
trustee to administer the real properties which, under the will, were to pass to Matthew Hanley ten years after the
two executors named in the will, was, on March 8, 1924, appointed trustee. Moore took his oath of office and gave
bond on March 10, 1924. He acted as trustee until February 29, 1932, when he resigned and the plaintiff herein was
appointed in his stead.

During the incumbency of the plaintiff as trustee, the defendant Collector of Internal Revenue, alleging that the
estate left by the deceased at the time of his death consisted of realty valued at P27,920 and personalty valued at
P1,465, and allowing a deduction of P480.81, assessed against the estate an inheritance tax in the amount of
P1,434.24 which, together with the penalties for deliquency in payment consisting of a 1 per cent monthly interest
from July 1, 1931 to the date of payment and a surcharge of 25 per cent on the tax, amounted to P2,052.74. On
March 15, 1932, the defendant filed a motion in the testamentary proceedings pending before the Court of First
Instance of Zamboanga (Special proceedings No. 302) praying that the trustee, plaintiff herein, be ordered to pay to
the Government the said sum of P2,052.74. The motion was granted. On September 15, 1932, the plaintiff paid said
amount under protest, notifying the defendant at the same time that unless the amount was promptly refunded suit
would be brought for its recovery. The defendant overruled the plaintiff's protest and refused to refund the said
amount hausted, plaintiff went to court with the result herein above indicated.

In his appeal, plaintiff contends that the lower court erred:

I. In holding that the real property of Thomas Hanley, deceased, passed to his instituted heir, Matthew
Hanley, from the moment of the death of the former, and that from the time, the latter became the owner
thereof.

II. In holding, in effect, that there was deliquency in the payment of inheritance tax due on the estate of said
deceased.

III. In holding that the inheritance tax in question be based upon the value of the estate upon the death of the
testator, and not, as it should have been held, upon the value thereof at the expiration of the period of ten
years after which, according to the testator's will, the property could be and was to be delivered to the
instituted heir.

IV. In not allowing as lawful deductions, in the determination of the net amount of the estate subject to said
tax, the amounts allowed by the court as compensation to the "trustees" and paid to them from the
decedent's estate.

V. In not rendering judgment in favor of the plaintiff and in denying his motion for new trial.

The defendant-appellant contradicts the theories of the plaintiff and assigns the following error besides:

The lower court erred in not ordering the plaintiff to pay to the defendant the sum of P1,191.27, representing
part of the interest at the rate of 1 per cent per month from April 10, 1924, to June 30, 1931, which the
plaintiff had failed to pay on the inheritance tax assessed by the defendant against the estate of Thomas
Hanley.

The following are the principal questions to be decided by this court in this appeal: (a) When does the inheritance
tax accrue and when must it be satisfied? (b) Should the inheritance tax be computed on the basis of the value of
the estate at the time of the testator's death, or on its value ten years later? (c) In determining the net value of the
estate subject to tax, is it proper to deduct the compensation due to trustees? (d) What law governs the case at bar?
Should the provisions of Act No. 3606 favorable to the tax-payer be given retroactive effect? (e) Has there been
deliquency in the payment of the inheritance tax? If so, should the additional interest claimed by the defendant in his
appeal be paid by the estate? Other points of incidental importance, raised by the parties in their briefs, will be
touched upon in the course of this opinion.

(a) The accrual of the inheritance tax is distinct from the obligation to pay the same. Section 1536 as amended, of
the Administrative Code, imposes the tax upon "every transmission by virtue of inheritance, devise, bequest,
gift mortis causa, or advance in anticipation of inheritance,devise, or bequest." The tax therefore is upon
transmission or the transfer or devolution of property of a decedent, made effective by his death. (61 C. J., p. 1592.)
It is in reality an excise or privilege tax imposed on the right to succeed to, receive, or take property by or under a
will or the intestacy law, or deed, grant, or gift to become operative at or after death. Acording to article 657 of the
Civil Code, "the rights to the succession of a person are transmitted from the moment of his death." "In other words",
said Arellano, C. J., ". . . the heirs succeed immediately to all of the property of the deceased ancestor. The property
belongs to the heirs at the moment of the death of the ancestor as completely as if the ancestor had executed and
delivered to them a deed for the same before his death." (Bondad vs. Bondad, 34 Phil., 232. See also, Mijares vs.
Nery, 3 Phil., 195; Suilong & Co., vs. Chio-Taysan, 12 Phil., 13; Lubrico vs. Arbado, 12 Phil., 391; Innocencio vs.
Gat-Pandan, 14 Phil., 491; Aliasas vs.Alcantara, 16 Phil., 489; Ilustre vs. Alaras Frondosa, 17 Phil., 321; Malahacan
vs. Ignacio, 19 Phil., 434; Bowa vs. Briones, 38 Phil., 27; Osario vs. Osario & Yuchausti Steamship Co., 41 Phil.,
531; Fule vs. Fule, 46 Phil., 317; Dais vs. Court of First Instance of Capiz, 51 Phil., 396; Baun vs. Heirs of Baun, 53
Phil., 654.) Plaintiff, however, asserts that while article 657 of the Civil Code is applicable to testate as well as
intestate succession, it operates only in so far as forced heirs are concerned. But the language of article 657 of the
Civil Code is broad and makes no distinction between different classes of heirs. That article does not speak of
forced heirs; it does not even use the word "heir". It speaks of the rights of succession and the transmission thereof
from the moment of death. The provision of section 625 of the Code of Civil Procedure regarding the authentication
and probate of a will as a necessary condition to effect transmission of property does not affect the general rule laid
down in article 657 of the Civil Code. The authentication of a will implies its due execution but once probated and
allowed the transmission is effective as of the death of the testator in accordance with article 657 of the Civil Code.
Whatever may be the time when actual transmission of the inheritance takes place, succession takes place in any
event at the moment of the decedent's death. The time when the heirs legally succeed to the inheritance may differ
from the time when the heirs actually receive such inheritance. "Poco importa", says Manresa commenting on article
657 of the Civil Code, "que desde el falleimiento del causante, hasta que el heredero o legatario entre en posesion
de los bienes de la herencia o del legado, transcurra mucho o poco tiempo, pues la adquisicion ha de retrotraerse al
momento de la muerte, y asi lo ordena el articulo 989, que debe considerarse como complemento del presente." (5
Manresa, 305; see also, art. 440, par. 1, Civil Code.) Thomas Hanley having died on May 27, 1922, the inheritance
tax accrued as of the date.

From the fact, however, that Thomas Hanley died on May 27, 1922, it does not follow that the obligation to pay the
tax arose as of the date. The time for the payment on inheritance tax is clearly fixed by section 1544 of the Revised
Administrative Code as amended by Act No. 3031, in relation to section 1543 of the same Code. The two sections
follow:

SEC. 1543. Exemption of certain acquisitions and transmissions. — The following shall not be taxed:

(a) The merger of the usufruct in the owner of the naked title.

(b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the
trustees.

(c) The transmission from the first heir, legatee, or donee in favor of another beneficiary, in
accordance with the desire of the predecessor.

In the last two cases, if the scale of taxation appropriate to the new beneficiary is greater than that paid by
the first, the former must pay the difference.

SEC. 1544. When tax to be paid. — The tax fixed in this article shall be paid:

(a) In the second and third cases of the next preceding section, before entrance into possession of
the property.

(b) In other cases, within the six months subsequent to the death of the predecessor; but if judicial
testamentary or intestate proceedings shall be instituted prior to the expiration of said period, the
payment shall be made by the executor or administrator before delivering to each beneficiary his
share.

If the tax is not paid within the time hereinbefore prescribed, interest at the rate of twelve per centum per
annum shall be added as part of the tax; and to the tax and interest due and unpaid within ten days after the
date of notice and demand thereof by the collector, there shall be further added a surcharge of twenty-five
per centum.

A certified of all letters testamentary or of admisitration shall be furnished the Collector of Internal Revenue
by the Clerk of Court within thirty days after their issuance.

It should be observed in passing that the word "trustee", appearing in subsection (b) of section 1543, should read
"fideicommissary" or "cestui que trust". There was an obvious mistake in translation from the Spanish to the English
version.
The instant case does fall under subsection (a), but under subsection (b), of section 1544 above-quoted, as there is
here no fiduciary heirs, first heirs, legatee or donee. Under the subsection, the tax should have been paid before the
delivery of the properties in question to P. J. M. Moore as trustee on March 10, 1924.

(b) The plaintiff contends that the estate of Thomas Hanley, in so far as the real properties are concerned, did not
and could not legally pass to the instituted heir, Matthew Hanley, until after the expiration of ten years from the death
of the testator on May 27, 1922 and, that the inheritance tax should be based on the value of the estate in 1932, or
ten years after the testator's death. The plaintiff introduced evidence tending to show that in 1932 the real properties
in question had a reasonable value of only P5,787. This amount added to the value of the personal property left by
the deceased, which the plaintiff admits is P1,465, would generate an inheritance tax which, excluding deductions,
interest and surcharge, would amount only to about P169.52.

If death is the generating source from which the power of the estate to impose inheritance taxes takes its being and
if, upon the death of the decedent, succession takes place and the right of the estate to tax vests instantly, the tax
should be measured by the vlaue of the estate as it stood at the time of the decedent's death, regardless of any
subsequent contingency value of any subsequent increase or decrease in value. (61 C. J., pp. 1692, 1693; 26 R. C.
L., p. 232; Blakemore and Bancroft, Inheritance Taxes, p. 137. See also Knowlton vs. Moore, 178 U.S., 41; 20 Sup.
Ct. Rep., 747; 44 Law. ed., 969.) "The right of the state to an inheritance tax accrues at the moment of death, and
hence is ordinarily measured as to any beneficiary by the value at that time of such property as passes to him.
Subsequent appreciation or depriciation is immaterial." (Ross, Inheritance Taxation, p. 72.)

Our attention is directed to the statement of the rule in Cyclopedia of Law of and Procedure (vol. 37, pp. 1574, 1575)
that, in the case of contingent remainders, taxation is postponed until the estate vests in possession or the
contingency is settled. This rule was formerly followed in New York and has been adopted in Illinois, Minnesota,
Massachusetts, Ohio, Pennsylvania and Wisconsin. This rule, horever, is by no means entirely satisfactory either to
the estate or to those interested in the property (26 R. C. L., p. 231.). Realizing, perhaps, the defects of its anterior
system, we find upon examination of cases and authorities that New York has varied and now requires the
immediate appraisal of the postponed estate at its clear market value and the payment forthwith of the tax on its out
of the corpus of the estate transferred. (In re Vanderbilt, 172 N. Y., 69; 69 N. E., 782; In re Huber, 86 N. Y. App.
Div., 458; 83 N. Y. Supp., 769; Estate of Tracy, 179 N. Y., 501; 72 N. Y., 519; Estate of Brez, 172 N. Y., 609; 64 N.
E., 958; Estate of Post, 85 App. Div., 611; 82 N. Y. Supp., 1079. Vide also, Saltoun vs. Lord Advocate, 1 Peter. Sc.
App., 970; 3 Macq. H. L., 659; 23 Eng. Rul. Cas., 888.) California adheres to this new rule (Stats. 1905, sec. 5, p.
343).

But whatever may be the rule in other jurisdictions, we hold that a transmission by inheritance is taxable at the time
of the predecessor's death, notwithstanding the postponement of the actual possession or enjoyment of the estate
by the beneficiary, and the tax measured by the value of the property transmitted at that time regardless of its
appreciation or depreciation.

(c) Certain items are required by law to be deducted from the appraised gross in arriving at the net value of the
estate on which the inheritance tax is to be computed (sec. 1539, Revised Administrative Code). In the case at bar,
the defendant and the trial court allowed a deduction of only P480.81. This sum represents the expenses and
disbursements of the executors until March 10, 1924, among which were their fees and the proven debts of the
deceased. The plaintiff contends that the compensation and fees of the trustees, which aggregate P1,187.28
(Exhibits C, AA, EE, PP, HH, JJ, LL, NN, OO), should also be deducted under section 1539 of the Revised
Administrative Code which provides, in part, as follows: "In order to determine the net sum which must bear the tax,
when an inheritance is concerned, there shall be deducted, in case of a resident, . . . the judicial expenses of the
testamentary or intestate proceedings, . . . ."

A trustee, no doubt, is entitled to receive a fair compensation for his services (Barney vs. Saunders, 16 How., 535;
14 Law. ed., 1047). But from this it does not follow that the compensation due him may lawfully be deducted in
arriving at the net value of the estate subject to tax. There is no statute in the Philippines which requires trustees'
commissions to be deducted in determining the net value of the estate subject to inheritance tax (61 C. J., p. 1705).
Furthermore, though a testamentary trust has been created, it does not appear that the testator intended that the
duties of his executors and trustees should be separated. (Ibid.; In re Vanneck's Estate, 161 N. Y. Supp., 893; 175
App. Div., 363; In re Collard's Estate, 161 N. Y. Supp., 455.) On the contrary, in paragraph 5 of his will, the testator
expressed the desire that his real estate be handled and managed by his executors until the expiration of the period
of ten years therein provided. Judicial expenses are expenses of administration (61 C. J., p. 1705) but, in State vs.
Hennepin County Probate Court (112 N. W., 878; 101 Minn., 485), it was said: ". . . The compensation of a trustee,
earned, not in the administration of the estate, but in the management thereof for the benefit of the legatees or
devises, does not come properly within the class or reason for exempting administration expenses. . . . Service
rendered in that behalf have no reference to closing the estate for the purpose of a distribution thereof to those
entitled to it, and are not required or essential to the perfection of the rights of the heirs or legatees. . . . Trusts . . . of
the character of that here before the court, are created for the the benefit of those to whom the property ultimately
passes, are of voluntary creation, and intended for the preservation of the estate. No sound reason is given to
support the contention that such expenses should be taken into consideration in fixing the value of the estate for the
purpose of this tax."

(d) The defendant 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. But Act
No. 3606 went into effect on January 1, 1930. It, therefore, was not the law in force when the testator died on May
27, 1922. The law at the time was section 1544 above-mentioned, as amended by Act No. 3031, which took effect
on March 9, 1922.

It is well-settled that inheritance taxation is governed by the statute in force at the time of the death of the decedent
(26 R. C. L., p. 206; 4 Cooley on Taxation, 4th ed., p. 3461). The taxpayer can not foresee and ought not to be
required to guess the outcome of pending measures. Of course, 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." (Seattle vs.
Kelleher, 195 U. S., 360; 49 Law. ed., 232 Sup. Ct. Rep., 44.) But legislative intent that a tax statute should operate
retroactively should be perfectly clear. (Scwab vs. Doyle, 42 Sup. Ct. Rep., 491; Smietanka vs. First Trust & Savings
Bank, 257 U. S., 602; Stockdale vs. Insurance Co., 20 Wall., 323; Lunch vs. Turrish, 247 U. S., 221.) "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, . . . ." (61 C.
J., P. 1602.) Though the last paragraph of section 5 of Regulations No. 65 of the Department of Finance makes
section 3 of Act No. 3606, amending section 1544 of the Revised Administrative Code, applicable to all estates the
inheritance taxes due from which have not been paid, Act No. 3606 itself contains no provisions indicating legislative
intent to give it retroactive effect. No such effect can begiven the statute by this court.

The defendant Collector of Internal Revenue maintains, however, that certain provisions of Act No. 3606 are more
favorable to the taxpayer than those of Act No. 3031, that said provisions are penal in nature and, therefore, should
operate retroactively in conformity with the provisions of article 22 of the Revised Penal Code. This is the reason
why he applied Act No. 3606 instead of Act No. 3031. Indeed, under Act No. 3606, (1) the surcharge of 25 per cent
is based on the tax only, instead of on both the tax and the interest, as provided for in Act No. 3031, and (2) the
taxpayer is allowed twenty days from notice and demand by rthe Collector of Internal Revenue within which to pay
the tax, instead of ten days only as required by the old law.

Properly speaking, a statute is penal when it imposes punishment for an offense committed against the state which,
under the Constitution, the Executive has the power to pardon. In common use, however, this sense has been
enlarged to include within the term "penal statutes" all status which command or prohibit certain acts, and establish
penalties for their violation, and even those which, without expressly prohibiting certain acts, impose a penalty upon
their commission (59 C. J., p. 1110). Revenue laws, generally, which impose taxes collected by the means ordinarily
resorted to for the collection of taxes are not classed as penal laws, although there are authorities to the contrary.
(See Sutherland, Statutory Construction, 361; Twine Co. vs. Worthington, 141 U. S., 468; 12 Sup. Ct., 55; Rice vs.
U. S., 4 C. C. A., 104; 53 Fed., 910; Com. vs. Standard Oil Co., 101 Pa. St., 150; State vs. Wheeler, 44 P., 430; 25
Nev. 143.) Article 22 of the Revised Penal Code is not applicable to the case at bar, and in the absence of clear
legislative intent, we cannot give Act No. 3606 a retroactive effect.

(e) The plaintiff correctly states that the liability to pay a tax may arise at a certain time and the tax may be paid
within another given time. As stated by this court, "the mere failure to pay one's tax does not render one delinqent
until and unless the entire period has eplased within which the taxpayer is authorized by law to make such payment
without being subjected to the payment of penalties for fasilure to pay his taxes within the prescribed period." (U. S.
vs. Labadan, 26 Phil., 239.)

The defendant maintains that it was the duty of the executor to pay the inheritance tax before the delivery of the
decedent's property to the trustee. Stated otherwise, the defendant contends that delivery to the trustee was
delivery to the cestui que trust, the beneficiery in this case, within the meaning of the first paragraph of subsection
(b) of section 1544 of the Revised Administrative Code. This contention is well taken and is sustained. The
appointment of P. J. M. Moore as trustee was made by the trial court in conformity with the wishes of the testator as
expressed in his will. It is true that the word "trust" is not mentioned or used in the will but the intention to create one
is clear. No particular or technical words are required to create a testamentary trust (69 C. J., p. 711). The words
"trust" and "trustee", though apt for the purpose, are not necessary. In fact, the use of these two words is not
conclusive on the question that a trust is created (69 C. J., p. 714). "To create a trust by will the testator must
indicate in the will his intention so to do by using language sufficient to separate the legal from the equitable estate,
and with sufficient certainty designate the beneficiaries, their interest in the ttrust, the purpose or object of the trust,
and the property or subject matter thereof. Stated otherwise, to constitute a valid testamentary trust there must be a
concurrence of three circumstances: (1) Sufficient words to raise a trust; (2) a definite subject; (3) a certain or
ascertain object; statutes in some jurisdictions expressly or in effect so providing." (69 C. J., pp. 705,706.) There is
no doubt that the testator intended to create a trust. He ordered in his will that certain of his properties be kept
together undisposed during a fixed period, for a stated purpose. The probate court certainly exercised sound
judgment in appointment a trustee to carry into effect the provisions of the will (see sec. 582, Code of Civil
Procedure).

P. J. M. Moore became trustee on March 10, 1924. On that date trust estate vested in him (sec. 582 in relation to
sec. 590, Code of Civil Procedure). The mere fact that the estate of the deceased was placed in trust did not remove
it from the operation of our inheritance tax laws or exempt it from the payment of the inheritance tax. The
corresponding inheritance tax should have been paid on or before March 10, 1924, to escape the penalties of the
laws. This is so for the reason already stated that the delivery of the estate to the trustee was in esse delivery of the
same estate to the cestui que trust, the beneficiary in this case. A trustee is but an instrument or agent for the cestui
que trust (Shelton vs. King, 299 U. S., 90; 33 Sup. Ct. Rep., 689; 57 Law. ed., 1086). When Moore accepted the
trust and took possesson of the trust estate he thereby admitted that the estate belonged not to him but to his cestui
que trust (Tolentino vs. Vitug, 39 Phil.,126, cited in 65 C. J., p. 692, n. 63). He did not acquire any beneficial interest
in the estate. He took such legal estate only as the proper execution of the trust required (65 C. J., p. 528) and, his
estate ceased upon the fulfillment of the testator's wishes. The estate then vested absolutely in the beneficiary (65
C. J., p. 542).

The highest considerations of public policy also justify the conclusion we have reached. Were we to hold that the
payment of the tax could be postponed or delayed by the creation of a trust of the type at hand, the result would be
plainly disastrous. Testators may provide, as Thomas Hanley has provided, that their estates be not delivered to
their beneficiaries until after the lapse of a certain period of time. In the case at bar, the period is ten years. In other
cases, the trust may last for fifty years, or for a longer period which does not offend the rule against petuities. The
collection of the tax would then be left to the will of a private individual. The mere suggestion of this result is a
sufficient warning against the accpetance of the essential to the very exeistence of government. (Dobbins vs. Erie
Country, 16 Pet., 435; 10 Law. ed., 1022; Kirkland vs. Hotchkiss, 100 U. S., 491; 25 Law. ed., 558; Lane County vs.
Oregon, 7 Wall., 71; 19 Law. ed., 101; Union Refrigerator Transit Co. vs. Kentucky, 199 U. S., 194; 26 Sup. Ct.
Rep., 36; 50 Law. ed., 150; Charles River Bridge vs. Warren Bridge, 11 Pet., 420; 9 Law. ed., 773.) The obligation to
pay taxes rests not upon the privileges enjoyed by, or the protection afforded to, a citizen by the government but
upon the necessity of money for the support of the state (Dobbins vs. Erie Country, supra). For this reason, no one
is allowed to object to or resist the payment of taxes solely because no personal benefit to him can be pointed out.
(Thomas vs. Gay, 169 U. S., 264; 18 Sup. Ct. Rep., 340; 43 Law. ed., 740.) While courts will not enlarge, by
construction, the government's power of taxation (Bromley vs. McCaughn, 280 U. S., 124; 74 Law. ed., 226; 50 Sup.
Ct. Rep., 46) they also will not place upon tax laws so loose a construction as to permit evasions on merely fanciful
and insubstantial distictions. (U. S. vs. Watts, 1 Bond., 580; Fed. Cas. No. 16,653; U. S. vs. Wigglesirth, 2 Story,
369; Fed. Cas. No. 16,690, followed in Froelich & Kuttner vs. Collector of Customs, 18 Phil., 461, 481; Castle Bros.,
Wolf & Sons vs. McCoy, 21 Phil., 300; Muñoz & Co. vs. Hord, 12 Phil., 624; Hongkong & Shanghai Banking
Corporation vs. Rafferty, 39 Phil., 145; Luzon Stevedoring Co. vs. Trinidad, 43 Phil., 803.) When proper, a tax
statute should be construed to avoid the possibilities of tax evasion. Construed this way, the statute, without
resulting in injustice to the taxpayer, becomes fair to the government.

That taxes must be collected promptly is a policy deeply intrenched in our tax system. Thus, no court is allowed to
grant injunction to restrain the collection of any internal revenue tax ( sec. 1578, Revised Administrative Code;
Sarasola vs. Trinidad, 40 Phil., 252). In the case of Lim Co Chui vs. Posadas (47 Phil., 461), this court had
occassion to demonstrate trenchment adherence to this policy of the law. It held that "the fact that on account of
riots directed against the Chinese on October 18, 19, and 20, 1924, they were prevented from praying their internal
revenue taxes on time and by mutual agreement closed their homes and stores and remained therein, does not
authorize the Collector of Internal Revenue to extend the time prescribed for the payment of the taxes or to accept
them without the additional penalty of twenty five per cent." (Syllabus, No. 3.)

". . . It is of the utmost importance," said the Supreme Court of the United States, ". . . that the modes adopted to
enforce the taxes levied should be interfered with as little as possible. Any delay in the proceedings of the officers,
upon whom the duty is developed of collecting the taxes, may derange the operations of government, and thereby,
cause serious detriment to the public." (Dows vs. Chicago, 11 Wall., 108; 20 Law. ed., 65, 66; Churchill and Tait vs.
Rafferty, 32 Phil., 580.)

It results that the estate which plaintiff represents has been delinquent in the payment of inheritance tax and,
therefore, liable for the payment of interest and surcharge provided by law in such cases.

The delinquency in payment occurred on March 10, 1924, the date when Moore became trustee. The interest due
should be computed from that date and it is error on the part of the defendant to compute it one month later. The
provisions cases is mandatory (see and cf. Lim Co Chui vs. Posadas, supra), and neither the Collector of Internal
Revenuen or this court may remit or decrease such interest, no matter how heavily it may burden the taxpayer.

To the tax and interest due and unpaid within ten days after the date of notice and demand thereof by the Collector
of Internal Revenue, a surcharge of twenty-five per centum should be added (sec. 1544, subsec. (b), par. 2, Revised
Administrative Code). Demand was made by the Deputy Collector of Internal Revenue upon Moore in a
communiction dated October 16, 1931 (Exhibit 29). The date fixed for the payment of the tax and interest was
November 30, 1931. November 30 being an official holiday, the tenth day fell on December 1, 1931. As the tax and
interest due were not paid on that date, the estate became liable for the payment of the surcharge.

In view of the foregoing, it becomes unnecessary for us to discuss the fifth error assigned by the plaintiff in his brief.

We shall now compute the tax, together with the interest and surcharge due from the estate of Thomas Hanley
inaccordance with the conclusions we have reached.

At the time of his death, the deceased left real properties valued at P27,920 and personal properties worth P1,465,
or a total of P29,385. Deducting from this amount the sum of P480.81, representing allowable deductions under
secftion 1539 of the Revised Administrative Code, we have P28,904.19 as the net value of the 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 per centum upon the first ten thousand pesos and two per centum upon the amount by which the
share exceed thirty thousand pesos, plus an additional two hundred per centum. One per centum of ten thousand
pesos is P100. Two per centum of P18,904.19 is P378.08. Adding to these two sums an additional two hundred per
centum, or P965.16, we have as primary tax, correctly computed by the defendant, the sum of P1,434.24.

To the primary tax thus computed should be added the sums collectible under section 1544 of the Revised
Administrative Code. First should be added P1,465.31 which stands for interest at the rate of twelve per centum per
annum from March 10, 1924, the date of delinquency, to September 15, 1932, the date of payment under protest, a
period covering 8 years, 6 months and 5 days. To the tax and interest thus computed should be added the sum of
P724.88, representing a surhcarge of 25 per cent on both the tax and interest, and also P10, the compromise sum
fixed by the defendant (Exh. 29), giving a grand total of P3,634.43.

As the plaintiff has already paid the sum of P2,052.74, only the sums of P1,581.69 is legally due from the estate.
This last sum is P390.42 more than the amount demanded by the defendant in his counterclaim. But, as we cannot
give the defendant more than what he claims, we must hold that the plaintiff is liable only in the sum of P1,191.27
the amount stated in the counterclaim.

The judgment of the lower court is accordingly modified, with costs against the plaintiff in both instances. So
ordered.

Avanceña, C.J., Abad Santos, Imperial, Diaz and Concepcion, JJ., concur.
Villa-Real, J., concurs.
 THIRD DIVISION

[G.R. No. 123206. March 22, 2000]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF APPEALS, COURT OF TAX

APPEALS and JOSEFINA P. PAJONAR, as Administratrix of the Estate of Pedro P.
Pajonar, respondents.

RESOLUTION

GONZAGA-REYES, J.: Supr-ema

Assailed in this petition for review on certiorari is the December 21, 1995 Decision of the Court of Appeals in
[1] [2]

CA-G.R. Sp. No. 34399 affirming the June 7, 1994 Resolution of the Court of Tax Appeals in CTA Case No.
4381 granting private respondent Josefina P. Pajonar, as administratrix of the estate of Pedro P. Pajonar, a tax
refund in the amount of P76,502.42, representing erroneously paid estate taxes for the year 1988.

Pedro Pajonar, a member of the Philippine Scout, Bataan Contingent, during the second World War, was a
part of the infamous Death March by reason of which he suffered shock and became insane. His sister
Josefina Pajonar became the guardian over his person, while his property was placed under the guardianship
of the Philippine National Bank (PNB) by the Regional Trial Court of Dumaguete City, Branch 31, in Special
Proceedings No. 1254. He died on January 10, 1988. He was survived by his two brothers Isidro P. Pajonar
and Gregorio Pajonar, his sister Josefina Pajonar, nephews Concordio Jandog and Mario Jandog and niece
Conchita Jandog.

On May 11, 1988, the PNB filed an accounting of the decedent's property under guardianship valued at
P3,037,672.09 in Special Proceedings No. 1254. However, the PNB did not file an estate tax return, instead it
advised Pedro Pajonar's heirs to execute an extrajudicial settlement and to pay the taxes on his estate. On
April 5, 1988, pursuant to the assessment by the Bureau of Internal Revenue (BIR), the estate of Pedro
Pajonar paid taxes in the amount of P2,557.

On May 19, 1988, Josefina Pajonar filed a petition with the Regional Trial Court of Dumaguete City for the
issuance in her favor of letters of administration of the estate of her brother. The case was docketed as Special
Proceedings No. 2399. On July 18, 1988, the trial court appointed Josefina Pajonar as the regular
administratrix of Pedro Pajonar's estate.

On December 19, 1988, pursuant to a second assessment by the BIR for deficiency estate tax, the estate of
Pedro Pajonar paid estate tax in the amount of P1,527,790.98. Josefina Pajonar, in her capacity as
administratrix and heir of Pedro Pajonar's estate, filed a protest on January 11, 1989 with the BIR praying that
the estate tax payment in the amount of P1,527,790.98, or at least some portion of it, be returned to the
heirs. Jur-is
[3]

However, on August 15, 1989, without waiting for her protest to be resolved by the BIR, Josefina Pajonar filed
a petition for review with the Court of Tax Appeals (CTA), praying for the refund of P1,527,790.98, or in the
alternative, P840,202.06, as erroneously paid estate tax. The case was docketed as CTA Case No. 4381.
[4]

On May 6, 1993, the CTA ordered the Commissioner of Internal Revenue to refund Josefina Pajonar the
amount of P252,585.59, representing erroneously paid estate tax for the year 1988. [5]

Among the deductions from the gross estate allowed by the CTA were the amounts of P60,753 representing
the notarial fee for the Extrajudicial Settlement and the amount of P50,000 as the attorney's fees in Special
Proceedings No. 1254 for guardianship. Juri-ssc
[6]
On June 15, 1993, the Commissioner of Internal Revenue filed a motion for reconsideration of the CTA's May
[7]

6, 1993 decision asserting, among others, that the notarial fee for the Extrajudicial Settlement and the
attorney's fees in the guardianship proceedings are not deductible expenses.

On June 7, 1994, the CTA issued the assailed Resolution ordering the Commissioner of Internal Revenue to
[8]

refund Josefina Pajonar, as administratrix of the estate of Pedro Pajonar, the amount of P76,502.42
representing erroneously paid estate tax for the year 1988. Also, the CTA upheld the validity of the deduction
of the notarial fee for the Extrajudicial Settlement and the attorney's fees in the guardianship proceedings.

On July 5, 1994, the Commissioner of Internal Revenue filed with the Court of Appeals a petition for review of
the CTA's May 6, 1993 Decision and its June 7, 1994 Resolution, questioning the validity of the
abovementioned deductions. On December 21, 1995, the Court of Appeals denied the Commissioner's
petition. [9]

Hence, the present appeal by the Commissioner of Internal Revenue.

The sole issue in this case involves the construction of section 79 of the National Internal Revenue
[10]

Code (Tax Code) which provides for the allowable deductions from the gross estate of the decedent. More
[11]

particularly, the question is whether the notarial fee paid for the extrajudicial settlement in the amount of
P60,753 and the attorney's fees in the guardianship proceedings in the amount of P50,000 may be allowed as
deductions from the gross estate of decedent in order to arrive at the value of the net estate.

We answer this question in the affirmative, thereby upholding the decisions of the appellate courts. J-jlex

In its May 6, 1993 Decision, the Court of Tax Appeals ruled thus:

Respondent maintains that only judicial expenses of the testamentary or intestate proceedings
are allowed as a deduction to the gross estate. The amount of P60,753.00 is quite extraordinary
for a mere notarial fee.

This Court adopts the view under American jurisprudence that expenses incurred in the
extrajudicial settlement of the estate should be allowed as a deduction from the gross estate.
"There is no requirement of formal administration. It is sufficient that the expense be a
necessary contribution toward the settlement of the case." [ 34 Am. Jur. 2d, p. 765; Nolledo, Bar
Reviewer in Taxation, 10th Ed. (1990), p. 481 ]

xxx.....xxx.....xxx

The attorney's fees of P50,000.00, which were already incurred but not yet paid, refers to the
guardianship proceeding filed by PNB, as guardian over the ward of Pedro Pajonar, docketed
as Special Proceeding No. 1254 in the RTC (Branch XXXI) of Dumaguete City. x x x

xxx.....xxx.....xxx

The guardianship proceeding had been terminated upon delivery of the residuary estate to the
heirs entitled thereto. Thereafter, PNB was discharged of any further responsibility.

Attorney's fees in order to be deductible from the gross estate must be essential to the
collection of assets, payment of debts or the distribution of the property to the persons entitled
to it. The services for which the fees are charged must relate to the proper settlement of the
estate. [ 34 Am. Jur. 2d 767. ] In this case, the guardianship proceeding was necessary for the
distribution of the property of the late Pedro Pajonar to his rightful heirs. Sc-juris

xxx.....xxx.....xxx
 PNB was appointed as guardian over the assets of the late Pedro Pajonar, who, even at the
time of his death, was incompetent by reason of insanity. The expenses incurred in the
guardianship proceeding was but a necessary expense in the settlement of the decedent's
estate. Therefore, the attorney's fee incurred in the guardianship proceedings amounting to
P50,000.00 is a reasonable and necessary business expense deductible from the gross estate
of the decedent. [12]

Upon a motion for reconsideration filed by the Commissioner of Internal Revenue, the Court of Tax Appeals
modified its previous ruling by reducing the refundable amount to P76,502.43 since it found that a deficiency
interest should be imposed and the compromise penalty excluded. However, the tax court upheld its previous
[13]

ruling regarding the legality of the deductions -

It is significant to note that the inclusion of the estate tax law in the codification of all our national
internal revenue laws with the enactment of the National Internal Revenue Code in 1939 were
copied from the Federal Law of the United States. [UMALI, Reviewer in Taxation (1985), p. 285
] The 1977 Tax Code, promulgated by Presidential Decree No. 1158, effective June 3, 1977,
reenacted substantially all the provisions of the old law on estate and gift taxes, except the
sections relating to the meaning of gross estate and gift. [ Ibid, p. 286. ] Nc-mmis

In the United States, [a]dministrative expenses, executor's commissions and attorney's fees are
considered allowable deductions from the Gross Estate. Administrative expenses are limited to
such expenses as are actually and necessarily incurred in the administration of a decedent's
estate. [PRENTICE-HALL, Federal Taxes Estate and Gift Taxes (1936), p. 120, 533. ]
Necessary expenses of administration are such expenses as are entailed for the preservation
and productivity of the estate and for its management for purposes of liquidation, payment of
debts and distribution of the residue among the persons entitled thereto. [Lizarraga Hermanos
vs. Abada, 40 Phil. 124. ] They must be incurred for the settlement of the estate as a whole. [34
Am. Jur. 2d, p. 765. ] Thus, where there were no substantial community debts and it was
unnecessary to convert community property to cash, the only practical purpose of administration
being the payment of estate taxes, full deduction was allowed for attorney's fees and
miscellaneous expenses charged wholly to decedent's estate. [ Ibid., citing Estate of Helis, 26 T
.C. 143 (A). ]

Petitioner stated in her protest filed with the BIR that "upon the death of the ward, the PNB,
which was still the guardian of the estate, (Annex 'Z' ), did not file an estate tax return;
however, it advised the heirs to execute an extrajudicial settlement, to pay taxes and to post a
bond equal to the value of the estate, for which the estate paid P59,341.40 for the premiums.
(See Annex 'K')." [p. 17, CTA record. ] Therefore, it would appear from the records of the case
that the only practical purpose of settling the estate by means of an extrajudicial settlement
pursuant to Section 1 of Rule 74 of the Rules of Court was for the payment of taxes and the
distribution of the estate to the heirs. A fortiori, since our estate tax laws are of American origin,
the interpretation adopted by American Courts has some persuasive effect on the interpretation
of our own estate tax laws on the subject.

Anent the contention of respondent that the attorney's fees of P50,000.00 incurred in the
guardianship proceeding should not be deducted from the Gross Estate, We consider the same
unmeritorious. Attorneys' and guardians' fees incurred in a trustee's accounting of a
taxable inter vivos trust attributable to the usual issues involved in such an accounting was held
to be proper deductions because these are expenses incurred in terminating an inter vivos trust
that was includible in the decedent's estate. (Prentice Hall, Federal Taxes on Estate and Gift,
p.120, 861] Attorney's fees are allowable deductions if incurred for the settlement of the estate.
It is noteworthy to point that PNB was appointed the guardian over the assets of the deceased.
Necessarily the assets of the deceased formed part of his gross estate. Accordingly, all
expenses incurred in relation to the estate of the deceased will be deductible for estate tax
purposes provided these are necessary and ordinary expenses for administration of the
settlement of the estate. [14]
In upholding the June 7, 1994 Resolution of the Court of Tax Appeals, the Court of Appeals held that: Newmiso

2. Although the Tax Code specifies "judicial expenses of the testamentary or intestate
proceedings," there is no reason why expenses incurred in the administration and settlement of
an estate in extrajudicial proceedings should not be allowed. However, deduction is limited to
such administration expenses as are actually and necessarily incurred in the collection of the
assets of the estate, payment of the debts, and distribution of the remainder among those
entitled thereto. Such expenses may include executor's or administrator's fees, attorney's fees,
court fees and charges, appraiser's fees, clerk hire, costs of preserving and distributing the
estate and storing or maintaining it, brokerage fees or commissions for selling or disposing of
the estate, and the like. Deductible attorney's fees are those incurred by the executor or
administrator in the settlement of the estate or in defending or prosecuting claims against or due
the estate. (Estate and Gift Taxation in the Philippines, T. P. Matic, Jr., 1981 Edition, p. 176 ).

xxx.....xxx.....xxx

It is clear then that the extrajudicial settlement was for the purpose of payment of taxes and the
distribution of the estate to the heirs. The execution of the extrajudicial settlement necessitated
the notarization of the same. Hence the Contract of Legal Services of March 28, 1988 entered
into between respondent Josefina Pajonar and counsel was presented in evidence for the
purpose of showing that the amount of P60,753.00 was for the notarization of the Extrajudicial
Settlement. It follows then that the notarial fee of P60,753.00 was incurred primarily to settle the
estate of the deceased Pedro Pajonar. Said amount should then be considered an
administration expenses actually and necessarily incurred in the collection of the assets of the
estate, payment of debts and distribution of the remainder among those entitled thereto. Thus,
the notarial fee of P60,753 incurred for the Extrajudicial Settlement should be allowed as a
deduction from the gross estate.

3. Attorney's fees, on the other hand, in order to be deductible from the gross estate must be
essential to the settlement of the estate. Acctmis

The amount of P50,000.00 was incurred as attorney's fees in the guardianship proceedings in
Spec. Proc. No. 1254. Petitioner contends that said amount are not expenses of the
testamentary or intestate proceedings as the guardianship proceeding was instituted during the
lifetime of the decedent when there was yet no estate to be settled.

Again , this contention must fail.

The guardianship proceeding in this case was necessary for the distribution of the property of
the deceased Pedro Pajonar. As correctly pointed out by respondent CTA, the PNB was
appointed guardian over the assets of the deceased, and that necessarily the assets of the
deceased formed part of his gross estate. x x x

xxx.....xxx.....xxx

It is clear therefore that the attorney's fees incurred in the guardianship proceeding in Spec.
Proc. No. 1254 were essential to the distribution of the property to the persons entitled thereto.
Hence, the attorney's fees incurred in the guardianship proceedings in the amount of
P50,000.00 should be allowed as a deduction from the gross estate of the decedent. [15]

The deductions from the gross estate permitted under section 79 of the Tax Code basically reproduced the
deductions allowed under Commonwealth Act No. 466 (CA 466), otherwise known as the National Internal
Revenue Code of 1939, and which was the first codification of Philippine tax laws. Section 89 (a) (1) (B) of
[16]

CA 466 also provided for the deduction of the "judicial expenses of the testamentary or intestate proceedings"
for purposes of determining the value of the net estate. Philippine tax laws were, in turn, based on the federal
tax laws of the United States. In accord with established rules of statutory construction, the decisions of
[17]

American courts construing the federal tax code are entitled to great weight in the interpretation of our own tax
laws. Scc-alr
[18]

Judicial expenses are expenses of administration. Administration expenses, as an allowable deduction from
[19]

the gross estate of the decedent for purposes of arriving at the value of the net estate, have been construed by
the federal and state courts of the United States to include all expenses "essential to the collection of the
assets, payment of debts or the distribution of the property to the persons entitled to it." In other words, the
[20]

expenses must be essential to the proper settlement of the estate. Expenditures incurred for the individual
benefit of the heirs, devisees or legatees are not deductible. This distinction has been carried over to our
[21]

jurisdiction. Thus, in Lorenzo v. Posadas the Court construed the phrase "judicial expenses of the
[22]

testamentary or intestate proceedings" as not including the compensation paid to a trustee of the decedent's
estate when it appeared that such trustee was appointed for the purpose of managing the decedent's real
estate for the benefit of the testamentary heir. In another case, the Court disallowed the premiums paid on the
bond filed by the administrator as an expense of administration since the giving of a bond is in the nature of a
qualification for the office, and not necessary in the settlement of the estate. Neither may attorney's fees
[23]

incident to litigation incurred by the heirs in asserting their respective rights be claimed as a deduction from the
gross estate.[24]

Coming to the case at bar, the notarial fee paid for the extrajudicial settlement is clearly a deductible expense
since such settlement effected a distribution of Pedro Pajonar's estate to his lawful heirs. Similarly, the
attorney's fees paid to PNB for acting as the guardian of Pedro Pajonar's property during his lifetime should
also be considered as a deductible administration expense. PNB provided a detailed accounting of decedent's
property and gave advice as to the proper settlement of the latter's estate, acts which contributed towards the
collection of decedent's assets and the subsequent settlement of the estate.

We find that the Court of Appeals did not commit reversible error in affirming the questioned resolution of the
Court of Tax Appeals.

WHEREFORE, the December 21, 1995 Decision of the Court of Appeals is AFFIRMED. The notarial fee for
the extrajudicial settlement and the attorney's fees in the guardianship proceedings are allowable deductions
from the gross estate of Pedro Pajonar.

SO ORDERED.

Melo, (Chairman), Vitug, Panganiban, and Purisima, JJ., concur. Calrs-pped

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-11622 January 28, 1961

THE COLLECTOR OF INTERNAL REVENUE, petitioner,

vs.
DOUGLAS FISHER AND BETTINA FISHER, and the COURT OF TAX APPEALS, respondents.

x---------------------------------------------------------x

G.R. No. L-11668 January 28, 1961.

DOUGLAS FISHER AND BETTINA FISHER, petitioner,

vs.
THE COLLECTOR OF INTERNAL REVENUE, and the COURT OF TAX APPEALS, respondents.

BARRERA, J.:

This case relates to the determination and settlement of the hereditary estate left by the deceased Walter G.
Stevenson, and the laws applicable thereto. Walter G. Stevenson (born in the Philippines on August 9, 1874 of
British parents and married in the City of Manila on January 23, 1909 to Beatrice Mauricia Stevenson another British
subject) died on February 22, 1951 in San Francisco, California, U.S.A. whereto he and his wife moved and
established their permanent residence since May 10, 1945. In his will executed in San Francisco on May 22, 1947,
and which was duly probated in the Superior Court of California on April 11, 1951, Stevenson instituted his wife
Beatrice as his sole heiress to the following real and personal properties acquired by the spouses while residing in
the Philippines, described and preliminary assessed as follows:

Gross Estate
Real Property — 2 parcels of land in
Baguio, covered by T.C.T. Nos. 378 and
379 P43,500.00
Personal Property
(1) 177 shares of stock of Canacao Estate
at P10.00 each 1,770.00
(2) 210,000 shares of stock of Mindanao
Mother Lode Mines, Inc. at P0.38 per
share 79,800.00
(3) Cash credit with Canacao Estate Inc. 4,870.88
(4) Cash, with the Chartered Bank of India,
Australia & China 851.97
Total Gross Assets P130,792.85

On May 22, 1951, ancillary administration proceedings were instituted in the Court of First Instance of Manila for the
settlement of the estate in the Philippines. In due time Stevenson's will was duly admitted to probate by our court
and Ian Murray Statt was appointed ancillary administrator of the estate, who on July 11, 1951, filed a preliminary
estate and inheritance tax return with the reservation of having the properties declared therein finally appraised at
their values six months after the death of Stevenson. Preliminary return was made by the ancillary administrator in
order to secure the waiver of the Collector of Internal Revenue on the inheritance tax due on the 210,000 shares of
stock in the Mindanao Mother Lode Mines Inc. which the estate then desired to dispose in the United States. Acting
upon said return, the Collector of Internal Revenue accepted the valuation of the personal properties declared
therein, but increased the appraisal of the two parcels of land located in Baguio City by fixing their fair market value
in the amount of P52.200.00, instead of P43,500.00. After allowing the deductions claimed by the ancillary
administrator for funeral expenses in the amount of P2,000.00 and for judicial and administration expenses in the
sum of P5,500.00, the Collector assessed the state the amount of P5,147.98 for estate tax and P10,875,26 or
inheritance tax, or a total of P16,023.23. Both of these assessments were paid by the estate on June 6, 1952.

On September 27, 1952, the ancillary administrator filed in amended estate and inheritance tax return in pursuance f
his reservation made at the time of filing of the preliminary return and for the purpose of availing of the right granted
by section 91 of the National Internal Revenue Code.

In this amended return the valuation of the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc. was
reduced from 0.38 per share, as originally declared, to P0.20 per share, or from a total valuation of P79,800.00 to
P42,000.00. This change in price per share of stock was based by the ancillary administrator on the market notation
of the stock obtaining at the San Francisco California) Stock Exchange six months from the death of Stevenson, that
is, As of August 22, 1931. In addition, the ancillary administrator made claim for the following deductions:

Funeral expenses ($1,04326) P2,086.52

Judicial Expenses:
(a) Administrator's Fee P1,204.34
(b) Attorney's Fee 6.000.00
(c) Judicial and Administration
expenses as of August 9, 1952 1,400.05
8,604.39
Real Estate Tax for 1951 on Baguio
real properties (O.R. No. B-1
686836) 652.50
Claims against the estate:
($5,000.00) P10,000.00 P10,000.00
Plus: 4% int. p.a. from Feb. 2 to 22,
1951 22.47 10,022.47
Sub-Total P21,365.88

In the meantime, on December 1, 1952, Beatrice Mauricia Stevenson assigned all her rights and interests in the
estate to the spouses, Douglas and Bettina Fisher, respondents herein.

On September 7, 1953, the ancillary administrator filed a second amended estate and inheritance tax return (Exh.
"M-N"). This return declared the same assets of the estate stated in the amended return of September 22, 1952,
except that it contained new claims for additional exemption and deduction to wit: (1) deduction in the amount of
P4,000.00 from the gross estate of the decedent as provided for in Section 861 (4) of the U.S. Federal Internal
Revenue Code which the ancillary administrator averred was allowable by way of the reciprocity granted by Section
122 of the National Internal Revenue Code, as then held by the Board of Tax Appeals in case No. 71 entitled
"Housman vs. Collector," August 14, 1952; and (2) exemption from the imposition of estate and inheritance taxes on
the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc. also pursuant to the reciprocity proviso of
Section 122 of the National Internal Revenue Code. In this last return, the estate claimed that it was liable only for
the amount of P525.34 for estate tax and P238.06 for inheritance tax and that, as a consequence, it had overpaid
the government. The refund of the amount of P15,259.83, allegedly overpaid, was accordingly requested by the
estate. The Collector denied the claim. For this reason, action was commenced in the Court of First Instance of
Manila by respondents, as assignees of Beatrice Mauricia Stevenson, for the recovery of said amount. Pursuant to
Republic Act No. 1125, the case was forwarded to the Court of Tax Appeals which court, after hearing, rendered
decision the dispositive portion of which reads as follows:

In fine, we are of the opinion and so hold that: (a) the one-half (½) share of the surviving spouse in the
conjugal partnership property as diminished by the obligations properly chargeable to such property should
be deducted from the net estate of the deceased Walter G. Stevenson, pursuant to Section 89-C of the
National Internal Revenue Code; (b) the intangible personal property belonging to the estate of said
 Stevenson is exempt from inheritance tax, pursuant to the provision of section 122 of the National Internal
Revenue Code in relation to the California Inheritance Tax Law but decedent's estate is not entitled to an
exemption of P4,000.00 in the computation of the estate tax; (c) for purposes of estate and inheritance
taxation the Baguio real estate of the spouses should be valued at P52,200.00, and 210,000 shares of stock
in the Mindanao Mother Lode Mines, Inc. should be appraised at P0.38 per share; and (d) the estate shall
be entitled to a deduction of P2,000.00 for funeral expenses and judicial expenses of P8,604.39.

From this decision, both parties appealed.

The Collector of Internal Revenue, hereinafter called petitioner assigned four errors allegedly committed by the trial
court, while the assignees, Douglas and Bettina Fisher hereinafter called respondents, made six assignments of
error. Together, the assigned errors raise the following main issues for resolution by this Court:

(1) Whether or not, in determining the taxable net estate of the decedent, one-half (½) of the net estate should be
deducted therefrom as the share of tile surviving spouse in accordance with our law on conjugal partnership and in
relation to section 89 (c) of the National Internal revenue Code;

(2) Whether or not the estate can avail itself of the reciprocity proviso embodied in Section 122 of the National
Internal Revenue Code granting exemption from the payment of estate and inheritance taxes on the 210,000 shares
of stock in the Mindanao Mother Lode Mines Inc.;

(3) Whether or not the estate is entitled to the deduction of P4,000.00 allowed by Section 861, U.S. Internal
Revenue Code in relation to section 122 of the National Internal Revenue Code;

(4) Whether or not the real estate properties of the decedent located in Baguio City and the 210,000 shares of stock
in the Mindanao Mother Lode Mines, Inc., were correctly appraised by the lower court;

(5) Whether or not the estate is entitled to the following deductions: P8,604.39 for judicial and administration
expenses; P2,086.52 for funeral expenses; P652.50 for real estate taxes; and P10,0,22.47 representing the amount
of indebtedness allegedly incurred by the decedent during his lifetime; and

(6) Whether or not the estate is entitled to the payment of interest on the amount it claims to have overpaid the
government and to be refundable to it.

In deciding the first issue, the lower court applied a well-known doctrine in our civil law that in the absence of any
ante-nuptial agreement, the contracting parties are presumed to have adopted the system of conjugal partnership as
to the properties acquired during their marriage. The application of this doctrine to the instant case is being disputed,
however, by petitioner Collector of Internal Revenue, who contends that pursuant to Article 124 of the New Civil
Code, the property relation of the spouses Stevensons ought not to be determined by the Philippine law, but by the
national law of the decedent husband, in this case, the law of England. It is alleged by petitioner that English laws do
not recognize legal partnership between spouses, and that what obtains in that jurisdiction is another regime of
property relation, wherein all properties acquired during the marriage pertain and belong Exclusively to the husband.
In further support of his stand, petitioner cites Article 16 of the New Civil Code (Art. 10 of the old) to the effect that in
testate and intestate proceedings, the amount of successional rights, among others, is to be determined by the
national law of the decedent.

In this connection, let it be noted that since the mariage of the Stevensons in the Philippines took place in 1909, the
applicable law is Article 1325 of the old Civil Code and not Article 124 of the New Civil Code which became effective
only in 1950. It is true that both articles adhere to the so-called nationality theory of determining the property relation
of spouses where one of them is a foreigner and they have made no prior agreement as to the administration
disposition, and ownership of their conjugal properties. In such a case, the national law of the husband becomes the
dominant law in determining the property relation of the spouses. There is, however, a difference between the two
articles in that Article 1241 of the new Civil Code expressly provides that it shall be applicable regardless of whether
the marriage was celebrated in the Philippines or abroad while Article 13252 of the old Civil Code is limited to
marriages contracted in a foreign land.
It must be noted, however, that what has just been said refers to mixed marriages between a Filipino citizen and a
foreigner. In the instant case, both spouses are foreigners who married in the Philippines. Manresa,3 in his
Commentaries, has this to say on this point:

La regla establecida en el art. 1.315, se refiere a las capitulaciones otorgadas en Espana y entre espanoles.
El 1.325, a las celebradas en el extranjero cuando alguno de los conyuges es espanol. En cuanto a la regla
procedente cuando dos extranjeros se casan en Espana, o dos espanoles en el extranjero hay que atender
en el primer caso a la legislacion de pais a que aquellos pertenezean, y en el segundo, a las reglas
generales consignadas en los articulos 9 y 10 de nuestro Codigo. (Emphasis supplied.)

If we adopt the view of Manresa, the law determinative of the property relation of the Stevensons, married in 1909,
would be the English law even if the marriage was celebrated in the Philippines, both of them being foreigners. But,
as correctly observed by the Tax Court, the pertinent English law that allegedly vests in the decedent husband full
ownership of the properties acquired during the marriage has not been proven by petitioner. Except for a mere
allegation in his answer, which is not sufficient, the record is bereft of any evidence as to what English law says on
the matter. In the absence of proof, the Court is justified, therefore, in indulging in what Wharton calls "processual
presumption," in presuming that the law of England on this matter is the same as our law.4

Nor do we believe petitioner can make use of Article 16 of the New Civil Code (art. 10, old Civil Code) to bolster his
stand. A reading of Article 10 of the old Civil Code, which incidentally is the one applicable, shows that it does not
encompass or contemplate to govern the question of property relation between spouses. Said article distinctly
speaks of amount of successional rights and this term, in speaks in our opinion, properly refers to the extent or
amount of property that each heir is legally entitled to inherit from the estate available for distribution. It needs to be
pointed out that the property relation of spouses, as distinguished from their successional rights, is governed
differently by the specific and express provisions of Title VI, Chapter I of our new Civil Code (Title III, Chapter I of
the old Civil Code.) We, therefore, find that the lower court correctly deducted the half of the conjugal property in
determining the hereditary estate left by the deceased Stevenson.

On the second issue, petitioner disputes the action of the Tax Court in the exempting the respondents from paying
inheritance tax on the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc. in virtue of the reciprocity
proviso of Section 122 of the National Internal Revenue Code, in relation to Section 13851 of the California Revenue
and Taxation Code, on the ground that: (1) the said proviso of the California Revenue and Taxation Code has not
been duly proven by the respondents; (2) the reciprocity exemptions granted by section 122 of the National Internal
Revenue Code can only be availed of by residents of foreign countries and not of residents of a state in the United
States; and (3) there is no "total" reciprocity between the Philippines and the state of California in that while the
former exempts payment of both estate and inheritance taxes on intangible personal properties, the latter only
exempts the payment of inheritance tax..

To prove the pertinent California law, Attorney Allison Gibbs, counsel for herein respondents, testified that as an
active member of the California Bar since 1931, he is familiar with the revenue and taxation laws of the State of
California. When asked by the lower court to state the pertinent California law as regards exemption of intangible
personal properties, the witness cited article 4, section 13851 (a) and (b) of the California Internal and Revenue
Code as published in Derring's California Code, a publication of the Bancroft-Whitney Company inc. And as part of
his testimony, a full quotation of the cited section was offered in evidence as Exhibits "V-2" by the respondents.

It is well-settled that foreign laws do not prove themselves in our jurisdiction and our courts are not authorized to
take judicial notice of them.5 Like any other fact, they must be alleged and proved.6

Section 41, Rule 123 of our Rules of Court prescribes the manner of proving foreign laws before our tribunals.
However, although we believe it desirable that these laws be proved in accordance with said rule, we held in the
case of Willamette Iron and Steel Works v. Muzzal, 61 Phil. 471, that "a reading of sections 300 and 301 of our
Code of Civil Procedure (now section 41, Rule 123) will convince one that these sections do not exclude the
presentation of other competent evidence to prove the existence of a foreign law." In that case, we considered the
testimony of an attorney-at-law of San Francisco, California who quoted verbatim a section of California Civil Code
and who stated that the same was in force at the time the obligations were contracted, as sufficient evidence to
establish the existence of said law. In line with this view, we find no error, therefore, on the part of the Tax Court in
considering the pertinent California law as proved by respondents' witness.
We now take up the question of reciprocity in exemption from transfer or death taxes, between the State of
California and the Philippines.F

Section 122 of our National Internal Revenue Code, in pertinent part, provides:

... And, provided, further, That no tax shall be collected under this Title in respect of intangible personal
property (a) if the decedent at the time of his death was a resident of a foreign country which at the time of
his death did not impose a transfer of tax or death tax of any character in respect of intangible personal
property of citizens of the Philippines not residing in that foreign country, or (b) if the laws of the foreign
country of which the decedent was a resident at the time of his death allow a similar exemption from transfer
taxes or death taxes of every character in respect of intangible personal property owned by citizens of the
Philippines not residing in that foreign country." (Emphasis supplied).

On the other hand, Section 13851 of the California Inheritance Tax Law, insofar as pertinent, reads:.

"SEC. 13851, Intangibles of nonresident: Conditions. Intangible personal property is exempt from the tax
imposed by this part if the decedent at the time of his death was a resident of a territory or another State of
the United States or of a foreign state or country which then imposed a legacy, succession, or death tax in
respect to intangible personal property of its own residents, but either:.

(a) Did not impose a legacy, succession, or death tax of any character in respect to intangible personal
property of residents of this State, or

(b) Had in its laws a reciprocal provision under which intangible personal property of a non-resident was
exempt from legacy, succession, or death taxes of every character if the Territory or other State of the
United States or foreign state or country in which the nonresident resided allowed a similar exemption in
respect to intangible personal property of residents of the Territory or State of the United States or foreign
state or country of residence of the decedent." (Id.)

It is clear from both these quoted provisions that the reciprocity must be total, that is, with respect to transfer or
death taxes of any and every character, in the case of the Philippine law, and to legacy, succession, or death taxes
of any and every character, in the case of the California law. Therefore, if any of the two states collects or imposes
and does not exempt any transfer, death, legacy, or succession tax of any character, the reciprocity does not work.
This is the underlying principle of the reciprocity clauses in both laws.

In the Philippines, upon the death of any citizen or resident, or non-resident with properties therein, there are
imposed upon his estate and its settlement, both an estate and an inheritance tax. Under the laws of California, only
inheritance tax is imposed. On the other hand, the Federal Internal Revenue Code imposes an estate tax on non-
residents not citizens of the United States,7 but does not provide for any exemption on the basis of reciprocity.
Applying these laws in the manner the Court of Tax Appeals did in the instant case, we will have a situation where a
Californian, who is non-resident in the Philippines but has intangible personal properties here, will the subject to the
payment of an estate tax, although exempt from the payment of the inheritance tax. This being the case, will a
Filipino, non-resident of California, but with intangible personal properties there, be entitled to the exemption clause
of the California law, since the Californian has not been exempted from every character of legacy, succession, or
death tax because he is, under our law, under obligation to pay an estate tax? Upon the other hand, if we exempt
the Californian from paying the estate tax, we do not thereby entitle a Filipino to be exempt from a similar estate tax
in California because under the Federal Law, which is equally enforceable in California he is bound to pay the same,
there being no reciprocity recognized in respect thereto. In both instances, the Filipino citizen is always at a
disadvantage. We do not believe that our legislature has intended such an unfair situation to the detriment of our
own government and people. We, therefore, find and declare that the lower court erred in exempting the estate in
question from payment of the inheritance tax.

We are not unaware of our ruling in the case of Collector of Internal Revenue vs. Lara (G.R. Nos. L-9456 & L-9481,
prom. January 6, 1958, 54 O.G. 2881) exempting the estate of the deceased Hugo H. Miller from payment of the
inheritance tax imposed by the Collector of Internal Revenue. It will be noted, however, that the issue of reciprocity
between the pertinent provisions of our tax law and that of the State of California was not there squarely raised, and
the ruling therein cannot control the determination of the case at bar. Be that as it may, we now declare that in view
of the express provisions of both the Philippine and California laws that the exemption would apply only if the law of
the other grants an exemption from legacy, succession, or death taxes of every character, there could not be partial
reciprocity. It would have to be total or none at all.

With respect to the question of deduction or reduction in the amount of P4,000.00 based on the U.S. Federal Estate
Tax Law which is also being claimed by respondents, we uphold and adhere to our ruling in the Lara case (supra)
that the amount of $2,000.00 allowed under the Federal Estate Tax Law is in the nature of a deduction and not of an
exemption regarding which reciprocity cannot be claimed under the provision of Section 122 of our National Internal
Revenue Code. Nor is reciprocity authorized under the Federal Law. .

On the issue of the correctness of the appraisal of the two parcels of land situated in Baguio City, it is contended
that their assessed values, as appearing in the tax rolls 6 months after the death of Stevenson, ought to have been
considered by petitioner as their fair market value, pursuant to section 91 of the National Internal Revenue Code. It
should be pointed out, however, that in accordance with said proviso the properties are required to be appraised at
their fair market value and the assessed value thereof shall be considered as the fair market value only when
evidence to the contrary has not been shown. After all review of the record, we are satisfied that such evidence
exists to justify the valuation made by petitioner which was sustained by the tax court, for as the tax court aptly
observed:

"The two parcels of land containing 36,264 square meters were valued by the administrator of the estate in
the Estate and Inheritance tax returns filed by him at P43,500.00 which is the assessed value of said
properties. On the other hand, defendant appraised the same at P52,200.00. It is of common knowledge,
and this Court can take judicial notice of it, that assessments for real estate taxation purposes are very much
lower than the true and fair market value of the properties at a given time and place. In fact one year after
decedent's death or in 1952 the said properties were sold for a price of P72,000.00 and there is no showing
that special or extraordinary circumstances caused the sudden increase from the price of P43,500.00, if we
were to accept this value as a fair and reasonable one as of 1951. Even more, the counsel for plaintiffs
himself admitted in open court that he was willing to purchase the said properties at P2.00 per square meter.
In the light of these facts we believe and therefore hold that the valuation of P52,200.00 of the real estate in
Baguio made by defendant is fair, reasonable and justified in the premises." (Decision, p. 19).

In respect to the valuation of the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc., (a domestic
corporation), respondents contend that their value should be fixed on the basis of the market quotation obtaining at
the San Francisco (California) Stock Exchange, on the theory that the certificates of stocks were then held in that
place and registered with the said stock exchange. We cannot agree with respondents' argument. The situs of the
shares of stock, for purposes of taxation, being located here in the Philippines, as respondents themselves concede
and considering that they are sought to be taxed in this jurisdiction, consistent with the exercise of our government's
taxing authority, their fair market value should be taxed on the basis of the price prevailing in our country.

Upon the other hand, we find merit in respondents' other contention that the said shares of stock commanded a
lesser value at the Manila Stock Exchange six months after the death of Stevenson. Through Atty. Allison Gibbs,
respondents have shown that at that time a share of said stock was bid for at only P.325 (p. 103, t.s.n.).
Significantly, the testimony of Atty. Gibbs in this respect has never been questioned nor refuted by petitioner either
before this court or in the court below. In the absence of evidence to the contrary, we are, therefore, constrained to
reverse the Tax Court on this point and to hold that the value of a share in the said mining company on August 22,
1951 in the Philippine market was P.325 as claimed by respondents..

It should be noted that the petitioner and the Tax Court valued each share of stock of P.38 on the basis of the
declaration made by the estate in its preliminary return. Patently, this should not have been the case, in view of the
fact that the ancillary administrator had reserved and availed of his legal right to have the properties of the estate
declared at their fair market value as of six months from the time the decedent died..

On the fifth issue, we shall consider the various deductions, from the allowance or disallowance of which by the Tax
Court, both petitioner and respondents have appealed..

Petitioner, in this regard, contends that no evidence of record exists to support the allowance of the sum of
P8,604.39 for the following expenses:.
 1) Administrator's fee P1,204.34
2) Attorney's fee 6,000.00
3) Judicial and Administrative expenses 2,052.55
Total Deductions P8,604.39

An examination of the record discloses, however, that the foregoing items were considered deductible by the Tax
Court on the basis of their approval by the probate court to which said expenses, we may presume, had also been
presented for consideration. It is to be supposed that the probate court would not have approved said items were
they not supported by evidence presented by the estate. In allowing the items in question, the Tax Court had before
it the pertinent order of the probate court which was submitted in evidence by respondents. (Exh. "AA-2", p. 100,
record). As the Tax Court said, it found no basis for departing from the findings of the probate court, as it must have
been satisfied that those expenses were actually incurred. Under the circumstances, we see no ground to reverse
this finding of fact which, under Republic Act of California National Association, which it would appear, that while still
living, Walter G. Stevenson obtained we are not inclined to pass upon the claim of respondents in respect to the
additional amount of P86.52 for funeral expenses which was disapproved by the court a quo for lack of evidence.

In connection with the deduction of P652.50 representing the amount of realty taxes paid in 1951 on the decedent's
two parcels of land in Baguio City, which respondents claim was disallowed by the Tax Court, we find that this claim
has in fact been allowed. What happened here, which a careful review of the record will reveal, was that the Tax
Court, in itemizing the liabilities of the estate, viz:

1) Administrator's fee P1,204.34

2) Attorney's fee 6,000.00
3) Judicial and Administration expenses as of August
9, 1952 2,052.55
Total P9,256.89

added the P652.50 for realty taxes as a liability of the estate, to the P1,400.05 for judicial and administration
expenses approved by the court, making a total of P2,052.55, exactly the same figure which was arrived at by the
Tax Court for judicial and administration expenses. Hence, the difference between the total of P9,256.98 allowed by
the Tax Court as deductions, and the P8,604.39 as found by the probate court, which is P652.50, the same amount
allowed for realty taxes. An evident oversight has involuntarily been made in omitting the P2,000.00 for funeral
expenses in the final computation. This amount has been expressly allowed by the lower court and there is no
reason why it should not be. .

We come now to the other claim of respondents that pursuant to section 89(b) (1) in relation to section 89(a) (1) (E)
and section 89(d), National Internal Revenue Code, the amount of P10,022.47 should have been allowed the estate
as a deduction, because it represented an indebtedness of the decedent incurred during his lifetime. In support
thereof, they offered in evidence a duly certified claim, presented to the probate court in California by the Bank of
California National Association, which it would appear, that while still living, Walter G. Stevenson obtained a loan of
$5,000.00 secured by pledge on 140,000 of his shares of stock in the Mindanao Mother Lode Mines, Inc. (Exhs. "Q-
Q4", pp. 53-59, record). The Tax Court disallowed this item on the ground that the local probate court had not
approved the same as a valid claim against the estate and because it constituted an indebtedness in respect to
intangible personal property which the Tax Court held to be exempt from inheritance tax.

For two reasons, we uphold the action of the lower court in disallowing the deduction.

Firstly, we believe that the approval of the Philippine probate court of this particular indebtedness of the decedent is
necessary. This is so although the same, it is averred has been already admitted and approved by the
corresponding probate court in California, situs of the principal or domiciliary administration. It is true that we have
here in the Philippines only an ancillary administration in this case, but, it has been held, the distinction between
domiciliary or principal administration and ancillary administration serves only to distinguish one administration from
the other, for the two proceedings are separate and independent.8 The reason for the ancillary administration is that,
a grant of administration does not ex proprio vigore, have any effect beyond the limits of the country in which it was
granted. Hence, we have the requirement that before a will duly probated outside of the Philippines can have effect
here, it must first be proved and allowed before our courts, in much the same manner as wills originally presented
for allowance therein.9 And the estate shall be administered under letters testamentary, or letters of administration
granted by the court, and disposed of according to the will as probated, after payment of just debts and expenses of
administration.10 In other words, there is a regular administration under the control of the court, where claims must
be presented and approved, and expenses of administration allowed before deductions from the estate can be
authorized. Otherwise, we would have the actuations of our own probate court, in the settlement and distribution of
the estate situated here, subject to the proceedings before the foreign court over which our courts have no control.
We do not believe such a procedure is countenanced or contemplated in the Rules of Court.

Another reason for the disallowance of this indebtedness as a deduction, springs from the provisions of Section 89,
letter (d), number (1), of the National Internal Revenue Code which reads:

(d) Miscellaneous provisions — (1) No deductions shall be allowed in the case of a non-resident not a citizen
of the Philippines unless the executor, administrator or anyone of the heirs, as the case may be, includes in
the return required to be filed under section ninety-three the value at the time of his death of that part of the
gross estate of the non-resident not situated in the Philippines."

In the case at bar, no such statement of the gross estate of the non-resident Stevenson not situated in the
Philippines appears in the three returns submitted to the court or to the office of the petitioner Collector of Internal
Revenue. The purpose of this requirement is to enable the revenue officer to determine how much of the
indebtedness may be allowed to be deducted, pursuant to (b), number (1) of the same section 89 of the Internal
Revenue Code which provides:

(b) Deductions allowed to non-resident estates. — In the case of a non-resident not a citizen of the
Philippines, by deducting from the value of that part of his gross estate which at the time of his death is
situated in the Philippines —

(1) Expenses, losses, indebtedness, and taxes. — That proportion of the deductions specified in paragraph
(1) of subjection (a) of this section11 which the value of such part bears the value of his entire gross estate
wherever situated;"

In other words, the allowable deduction is only to the extent of the portion of the indebtedness which is equivalent to
the proportion that the estate in the Philippines bears to the total estate wherever situated. Stated differently, if the
properties in the Philippines constitute but 1/5 of the entire assets wherever situated, then only 1/5 of the
indebtedness may be deducted. But since, as heretofore adverted to, there is no statement of the value of the estate
situated outside the Philippines, no part of the indebtedness can be allowed to be deducted, pursuant to Section 89,
letter (d), number (1) of the Internal Revenue Code.

For the reasons thus stated, we affirm the ruling of the lower court disallowing the deduction of the alleged
indebtedness in the sum of P10,022.47.

In recapitulation, we hold and declare that:

(a) only the one-half (1/2) share of the decedent Stevenson in the conjugal partnership property constitutes
his hereditary estate subject to the estate and inheritance taxes;

(b) the intangible personal property is not exempt from inheritance tax, there existing no complete total
reciprocity as required in section 122 of the National Internal Revenue Code, nor is the decedent's estate
entitled to an exemption of P4,000.00 in the computation of the estate tax;

(c) for the purpose of the estate and inheritance taxes, the 210,000 shares of stock in the Mindanao Mother
Lode Mines, Inc. are to be appraised at P0.325 per share; and

(d) the P2,000.00 for funeral expenses should be deducted in the determination of the net asset of the
deceased Stevenson.

In all other respects, the decision of the Court of Tax Appeals is affirmed.
Respondent's claim for interest on the amount allegedly overpaid, if any actually results after a recomputation on the
basis of this decision is hereby denied in line with our recent decision in Collector of Internal Revenue v. St. Paul's
Hospital (G.R. No. L-12127, May 29, 1959) wherein we held that, "in the absence of a statutory provision clearly or
expressly directing or authorizing such payment, and none has been cited by respondents, the National Government
cannot be required to pay interest."

WHEREFORE, as modified in the manner heretofore indicated, the judgment of the lower court is hereby affirmed in
all other respects not inconsistent herewith. No costs. So ordered.

Paras, C.J., Bengzon, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Gutierrez David, Paredes and Dizon,
JJ., concur.

Footnotes

1 ART. 124. If the marriage is between a citizen of the Philippines and a foreigner, whether celebrated in the
Philippines or abroad, the following rules shall prevail: (1) If the husband is a citizen of the Philippines while
the wife is a foreigner, the provisions of this Code shall govern their property relations; (2) If the husband is a
foreigner and the wife is a citizen of the Philippines, the laws of the husband's country shall be followed,
without prejudice to the provisions of this Code with regard to immovable property."

2 ART. 1325. Should the marriage be contracted in a foreign country, between a Spaniard and a foreign
woman or between a foreigner and a Spanish woman, and the contracting parties should not make any
statement or stipulation with respect to their property, it shall be understood, when the husband is a
Spaniard, that he marries under the system of the legal conjugal partnership, and when the wife is a
Spaniard, that she marries under the system of law in force in the husband's country, all without prejudice to
the provisions of this code with respect to real property. .

3 IX Manresa, Comentarios al Codigo Civil Espanol, p. 209. .

4 Yam Ka Lim vs. Collector of Customs, 30 Phil. 46; Lim & Lim vs. Collector of Customs, 36 Phil. 472;
International Harvester Co. vs. Hamburg-American Line, 42 Phil. 845; Beam vs. Yatco, 46 O.G. No. 2, p.
530.).

5Lim vs. Collector of Customs, supra; International Harvester Co. vs. Hamburg-American Line, supra; Phil.
Manufacturing Co. vs. Union Ins. Society of Canton, 42 Phil. 378; Adong vs. Cheong Seng Gee, Phil. 53.

6 Sy Joc Leing vs. Sy Quia, 16 Phil. 138; Ching Huat vs. Co Heong, 77 Phil. 985; Adong vs. Cheong supra.

7 See Sec. 860, Internal Revenue Code of 1939, 26 USCA 408.

8 In the matter of the testate estate of Basil Gordon Butler, G.R. No. L-3677, Nov. 29, 1951. .

9 Rule 78, Sees. 1, 2 and 3, Rules of Court. See also Hix vs. Fluemer, 54 Phil. 610. .

10 Rule 78, See. 4, lbid.

11Expense, losses, indebtedness, and taxes which may be deducted to determine the net estate of a citizen
or resident of the Philippines.
 SECOND DIVISION

[G.R. No. 120880. June 5, 1997]

FERDINAND R. MARCOS II, petitioner, vs. COURT OF APPEALS, THE

COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE and HERMINIA
D. DE GUZMAN, respondents.

DECISION
TORRES, JR., J.:

In this Petition for Review on Certiorari, Government action is once again assailed as
precipitate and unfair, suffering the basic and oftly implored requisites of due process of
law. Specifically, the petition assails the Decision of the Court of Appeals dated November
[1]

29, 1994 in CA-G.R. SP No. 31363, where the said court held:

"In view of all the foregoing, we rule that the deficiency income tax assessments and estate tax
assessment, are already final and (u)nappealable -and- the subsequent levy of real properties is a tax
remedy resorted to by the government, sanctioned by Section 213 and 218 of the National Internal
Revenue Code. This summary tax remedy is distinct and separate from the other tax remedies (such
as Judicial Civil actions and Criminal actions), and is not affected or precluded by the pendency of
any other tax remedies instituted by the government.

WHEREFORE, premises considered, judgment is hereby rendered DISMISSING the petition for
certiorari with prayer for Restraining Order and Injunction.

No pronouncements as to costs.

SO ORDERED."

More than seven years since the demise of the late Ferdinand E. Marcos, the former
President of the Republic of the Philippines, the matter of the settlement of his estate, and
its dues to the government in estate taxes, are still unresolved, the latter issue being now
before this Court for resolution. Specifically, petitioner Ferdinand R. Marcos II, the eldest
son of the decedent, questions the actuations of the respondent Commissioner of Internal
Revenue in assessing, and collecting through the summary remedy of Levy on Real
Properties, estate and income tax delinquencies upon the estate and properties of his
father, despite the pendency of the proceedings on probate of the will of the late president,
which is docketed as Sp. Proc. No. 10279 in the Regional Trial Court of Pasig, Branch 156.
Petitioner had filed with the respondent Court of Appeals a Petition for Certiorari and
Prohibition with an application for writ of preliminary injunction and/or temporary restraining
order on June 28, 1993, seeking to -
I. Annul and set aside the Notices of Levy on real property dated February 22, 1993 and May 20,
1993, issued by respondent Commissioner of Internal Revenue;

II. Annul and set aside the Notices of Sale dated May 26, 1993;

III. Enjoin the Head Revenue Executive Assistant Director II (Collection Service), from proceeding
with the Auction of the real properties covered by Notices of Sale.

After the parties had pleaded their case, the Court of Appeals rendered its Decision on [2]

November 29, 1994, ruling that the deficiency assessments for estate and income tax made
upon the petitioner and the estate of the deceased President Marcos have already become
final and unappealable, and may thus be enforced by the summary remedy of levying upon
the properties of the late President, as was done by the respondent Commissioner of
Internal Revenue.

"WHEREFORE, premises considered judgment is hereby rendered DISMISSING the petition for
Certiorari with prayer for Restraining Order and Injunction.

No pronouncements as to cost.

SO ORDERED."

Unperturbed, petitioner is now before us assailing the validity of the appellate court's
decision, assigning the following as errors:
A. RESPONDENT COURT MANIFESTLY ERRED IN RULING THAT THE SUMMARY TAX REMEDIES
RESORTED TO BY THE GOVERNMENT ARE NOT AFFECTED AND PRECLUDED BY THE PENDENCY OF
THE SPECIAL PROCEEDING FOR THE ALLOWANCE OF THE LATE PRESIDENT'S ALLEGED WILL. TO
THE CONTRARY, THIS PROBATE PROCEEDING PRECISELY PLACED ALL PROPERTIES WHICH FORM
PART OF THE LATE PRESIDENT'S ESTATE IN CUSTODIA LEGIS OF THE PROBATE COURT TO THE
EXCLUSION OF ALL OTHER COURTS AND ADMINISTRATIVE AGENCIES.
B. RESPONDENT COURT ARBITRARILY ERRED IN SWEEPINGLY DECIDING THAT SINCE THE TAX
ASSESSMENTS OF PETITIONER AND HIS PARENTS HAD ALREADY BECOME FINAL AND
UNAPPEALABLE, THERE WAS NO NEED TO GO INTO THE MERITS OF THE GROUNDS CITED IN THE
PETITION. INDEPENDENT OF WHETHER THE TAX ASSESSMENTS HAD ALREADY BECOME FINAL,
HOWEVER, PETITIONER HAS THE RIGHT TO QUESTION THE UNLAWFUL MANNER AND METHOD IN
WHICH TAX COLLECTION IS SOUGHT TO BE ENFORCED BY RESPONDENTS COMMISSIONER AND DE
GUZMAN. THUS, RESPONDENT COURT SHOULD HAVE FAVORABLY CONSIDERED THE MERITS OF
THE FOLLOWING GROUNDS IN THE PETITION:

(1) The Notices of Levy on Real Property were issued beyond the period provided in the
Revenue Memorandum Circular No. 38-68.

(2) [a] The numerous pending court cases questioning the late President's ownership or interests
in several properties (both personal and real) make the total value of his estate, and the
consequent estate tax due, incapable of exact pecuniary determination at this time. Thus,
respondents assessment of the estate tax and their issuance of the Notices of Levy and Sale are
premature, confiscatory and oppressive.
 [b] Petitioner, as one of the late President's compulsory heirs, was never notified, much less
served with copies of the Notices of Levy, contrary to the mandate of Section 213 of the
NIRC. As such, petitioner was never given an opportunity to contest the Notices in violation of
his right to due process of law.

C. ON ACCOUNT OF THE CLEAR MERIT OF THE PETITION, RESPONDENT COURT MANIFESTLY

ERRED IN RULING THAT IT HAD NO POWER TO GRANT INJUNCTIVE RELIEF TO PETITIONER. SECTION
219 OF THE NIRC NOTWITHSTANDING, COURTS POSSESS THE POWER TO ISSUE A WRIT OF
PRELIMINARY INJUNCTION TO RESTRAIN RESPONDENTS COMMISSIONER'S AND DE GUZMAN'S
ARBITRARY METHOD OF COLLECTING THE ALLEGED DEFICIENCY ESTATE AND INCOME TAXES BY
MEANS OF LEVY.

The facts as found by the appellate court are undisputed, and are hereby adopted:

"On September 29, 1989, former President Ferdinand Marcos died in Honolulu, Hawaii, USA.

On June 27, 1990, a Special Tax Audit Team was created to conduct investigations and
examinations of the tax liabilities and obligations of the late president, as well as that of his family,
associates and "cronies". Said audit team concluded its investigation with a Memorandum dated
July 26, 1991. The investigation disclosed that the Marcoses failed to file a written notice of the
death of the decedent, an estate tax returns [sic], as well as several income tax returns covering the
years 1982 to 1986, -all in violation of the National Internal Revenue Code (NIRC).

Subsequently, criminal charges were filed against Mrs. Imelda R. Marcos before the Regional Trial
of Quezon City for violations of Sections 82, 83 and 84 (has penalized under Sections 253 and 254
in relation to Section 252- a & b) of the National Internal Revenue Code (NIRC).

The Commissioner of Internal Revenue thereby caused the preparation and filing of the Estate Tax
Return for the estate of the late president, the Income Tax Returns of the Spouses Marcos for the
years 1985 to 1986, and the Income Tax Returns of petitioner Ferdinand 'Bongbong' Marcos II for
the years 1982 to 1985.

On July 26, 1991, the BIR issued the following: (1) Deficiency estate tax assessment no. FAC-2-
89-91-002464 (against the estate of the late president Ferdinand Marcos in the amount of
P23,293,607,638.00 Pesos); (2) Deficiency income tax assessment no. FAC-1-85-91-002452 and
Deficiency income tax assessment no. FAC-1-86-91-002451 (against the Spouses Ferdinand and
Imelda Marcos in the amounts of P149,551.70 and P184,009,737.40 representing deficiency
income tax for the years 1985 and 1986); (3) Deficiency income tax assessment nos. FAC-1-82-91-
002460 to FAC-1-85-91-002463 (against petitioner Ferdinand 'Bongbong' Marcos II in the amounts
of P258.70 pesos; P9,386.40 Pesos; P4,388.30 Pesos; and P6,376.60 Pesos representing his
deficiency income taxes for the years 1982 to 1985).

The Commissioner of Internal Revenue avers that copies of the deficiency estate and income tax
assessments were all personally and constructively served on August 26, 1991 and September 12,
1991 upon Mrs. Imelda Marcos (through her caretaker Mr. Martinez) at her last known address at
No. 204 Ortega St., San Juan, M.M. (Annexes 'D' and 'E' of the Petition). Likewise, copies of the
deficiency tax assessments issued against petitioner Ferdinand 'Bongbong' Marcos II were also
personally and constructively served upon him (through his caretaker) on September 12, 1991, at
his last known address at Don Mariano Marcos St. corner P. Guevarra St., San Juan, M.M.
(Annexes 'J' and 'J-1' of the Petition). Thereafter, Formal Assessment notices were served on
October 20, 1992, upon Mrs. Marcos c/o petitioner, at his office, House of Representatives, Batasan
Pambansa, Quezon City. Moreover, a notice to Taxpayer inviting Mrs. Marcos (or her duly
authorized representative or counsel), to a conference, was furnished the counsel of Mrs. Marcos,
Dean Antonio Coronel - but to no avail.

The deficiency tax assessments were not protested administratively, by Mrs. Marcos and the other
heirs of the late president, within 30 days from service of said assessments.

On February 22, 1993, the BIR Commissioner issued twenty-two notices of levy on real property
against certain parcels of land owned by the Marcoses - to satisfy the alleged estate tax and
deficiency income taxes of Spouses Marcos.

On May 20, 1993, four more Notices of Levy on real property were issued for the purpose of
satisfying the deficiency income taxes.

On May 26, 1993, additional four (4) notices of Levy on real property were again issued. The
foregoing tax remedies were resorted to pursuant to Sections 205 and 213 of the National Internal
Revenue Code (NIRC).

In response to a letter dated March 12, 1993 sent by Atty. Loreto Ata (counsel of herein petitioner)
calling the attention of the BIR and requesting that they be duly notified of any action taken by the
BIR affecting the interest of their client Ferdinand 'Bongbong Marcos II, as well as the interest of
the late president - copies of the aforesaid notices were served on April 7, 1993 and on June 10,
1993, upon Mrs. Imelda Marcos, the petitioner, and their counsel of record, 'De Borja, Medialdea,
Ata, Bello, Guevarra and Serapio Law Office'.

Notices of sale at public auction were posted on May 26, 1993, at the lobby of the City Hall of
Tacloban City. The public auction for the sale of the eleven (11) parcels of land took place on July
5, 1993. There being no bidder, the lots were declared forfeited in favor of the government.

On June 25, 1993, petitioner Ferdinand 'Bongbong' Marcos II filed the instant petition for certiorari
and prohibition under Rule 65 of the Rules of Court, with prayer for temporary restraining order
and/or writ of preliminary injunction."

It has been repeatedly observed, and not without merit, that the enforcement of tax laws
and the collection of taxes, is of paramount importance for the sustenance of
government. Taxes are the lifeblood of the government and should be collected without
unnecessary hindrance. However, such collection should be made in accordance with law
as any arbitrariness will negate the very reason for government itself. It is therefore
necessary to reconcile the apparently conflicting interests of the authorities and the
taxpayers so that the real purpose of taxation, which is the promotion of the common good,
may be achieved." [3]

Whether or not the proper avenues of assessment and collection of the said tax
obligations were taken by the respondent Bureau is now the subject of the Court's inquiry.
 Petitioner posits that notices of levy, notices of sale, and subsequent sale of properties
of the late President Marcos effected by the BIR are null and void for disregarding the
established procedure for the enforcement of taxes due upon the estate of the
deceased.The case of Domingo vs. Garlitos is specifically cited to bolster the argument
[4]

that "the ordinary procedure by which to settle claims of indebtedness against the estate of
a deceased, person, as in an inheritance (estate) 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
therefor." This remedy is allegedly, exclusive, and cannot be effected through any other
means.
Petitioner goes further, submitting that the probate court is not precluded from denying
a request by the government for the immediate payment of taxes, and should order the
payment of the same only within the period fixed by the probate court for the payment of all
the debts of the decedent. In this regard, petitioner cites the case of Collector of Internal
Revenue vs. The Administratrix of the Estate of Echarri (67 Phil 502), where it was held
that:

"The case of Pineda vs. Court of First Instance of Tayabas and Collector of Internal Revenue (52
Phil 803), relied upon by the petitioner-appellant is good authority on the proposition that the court
having control over the administration proceedings has jurisdiction to entertain the claim presented
by the government for taxes due and to order the administrator to pay the tax should it find that the
assessment was proper, and that the tax was legal, due and collectible. And the rule laid down in
that case must be understood in relation to the case of Collector of Customs vs. Haygood, supra., as
to the procedure to be followed in a given case by the government to effectuate the collection of the
tax. Categorically stated, where during the pendency of judicial administration over the estate of a
deceased person a claim for taxes is presented by the government, the court has the authority to
order payment by the administrator; but, in the same way that it has authority to order payment or
satisfaction, it also has the negative authority to deny the same. While there are cases where courts
are required to perform certain duties mandatory and ministerial in character, the function of the
court in a case of the present character is not one of them; and here, the court cannot be an
organism endowed with latitude of judgment in one direction, and converted into a mere
mechanical contrivance in another direction."

On the other hand, it is argued by the BIR, that the state's authority to collect internal
revenue taxes is paramount. Thus, the pendency of probate proceedings over the estate of
the deceased does not preclude the assessment and collection, through summary
remedies, of estate taxes over the same. According to the respondent, claims for payment
of estate and income taxes due and assessed after the death of the decedent need not be
presented in the form of a claim against the estate. These can and should be paid
immediately. The probate court is not the government agency to decide whether an estate
is liable for payment of estate of income taxes. Well-settled is the rule that the probate court
is a court with special and limited jurisdiction.
Concededly, the authority of the Regional Trial Court, sitting, albeit with limited
jurisdiction, as a probate court over estate of deceased individual, is not a trifling thing. The
court's jurisdiction, once invoked, and made effective, cannot be treated with indifference
nor should it be ignored with impunity by the very parties invoking its authority.
 In testament to this, it has been held that it is within the jurisdiction of the probate court
to approve the sale of properties of a deceased person by his prospective heirs before final
adjudication; to determine who are the heirs of the decedent; the recognition of a natural
[5] [6]

child; the status of a woman claiming to be the legal wife of the decedent; the legality of
[7] [8]

disinheritance of an heir by the testator; and to pass upon the validity of a waiver of
[9]

hereditary rights. [10]

The pivotal question the court is tasked to resolve refers to the authority of the Bureau
of Internal Revenue to collect by the summary remedy of levying upon, and sale of real
properties of the decedent, estate tax deficiencies, without the cognition and authority of the
court sitting in probate over the supposed will of the deceased.
The nature of the process of estate tax collection has been described as follows:

"Strictly speaking, the assessment of an inheritance tax does not directly involve the administration
of a decedent's estate, although it may be viewed as an incident to the complete settlement of an
estate, and, under some statutes, it is made the duty of the probate court to make the amount of the
inheritance tax a part of the final decree of distribution of the estate. It is not against the property of
decedent, nor is it a claim against the estate as such, but it is against the interest or property right
which the heir, legatee, devisee, etc., has in the property formerly held by decedent. Further, under
some statutes, it has been held that it is not a suit or controversy between the parties, nor is it an
adversary proceeding between the state and the person who owes the tax on the
inheritance. However, under other statutes it has been held that the hearing and determination of the
cash value of the assets and the determination of the tax are adversary proceedings. The proceeding
has been held to be necessarily a proceeding in rem. [11]

In the Philippine experience, the enforcement and collection of estate tax, is executive
in character, as the legislature has seen it fit to ascribe this task to the Bureau of Internal
Revenue. Section 3 of the National Internal Revenue Code attests to this:

"Sec. 3. Powers and duties of the Bureau.-The powers and duties of the Bureau of Internal Revenue
shall comprehend the assessment and collection of all national internal revenue taxes, fees, and
charges, and the enforcement of all forfeitures, penalties, and fines connected therewith, including
the execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the
ordinary courts. Said Bureau shall also give effect to and administer the supervisory and police
power conferred to it by this Code or other laws."

Thus, it was in Vera vs. Fernandez that the court recognized the liberal treatment of
[12]

claims for taxes charged against the estate of the decedent. Such taxes, we said, were
exempted from the application of the statute of non-claims, and this is justified by the
necessity of government funding, immortalized in the maxim that taxes are the lifeblood of
the government. Vectigalia nervi sunt rei publicae - taxes are the sinews of the state.

"Taxes assessed against the estate of a deceased person, after administration is opened, need not be
submitted to the committee on claims in the ordinary course of administration. In the exercise of its
control over the administrator, the court may direct the payment of such taxes upon motion
showing that the taxes have been assessed against the estate."
 Such liberal treatment of internal revenue taxes in the probate proceedings extends so
far, even to allowing the enforcement of tax obligations against the heirs of the decedent,
even after distribution of the estate's properties.

"Claims for taxes, whether assessed before or after the death of the deceased, can be collected from
the heirs even after the distribution of the properties of the decedent. They are exempted from the
application of the statute of non-claims. The heirs shall be liable therefor, in proportion to their
share in the inheritance."
[13]

"Thus, the Government has two ways of collecting the taxes in question. One, by going after all the
heirs and collecting from each one of them the amount of the tax proportionate to the inheritance
received. Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all
property and rights to property belong to the taxpayer for unpaid income tax, is by subjecting said
property of the estate which is in the hands of an heir or transferee to the payment of the tax due the
estate. (Commissioner of Internal Revenue vs. Pineda, 21 SCRA 105, September 15, 1967.)

From the foregoing, it is discernible that the approval of the court, sitting in probate, or
as a settlement tribunal over the deceased is not a mandatory requirement in the collection
of estate taxes. It cannot therefore be argued that the Tax Bureau erred in proceeding with
the levying and sale of the properties allegedly owned by the late President, on the ground
that it was required to seek first the probate court's sanction. There is nothing in the Tax
Code, and in the pertinent remedial laws that implies the necessity of the probate or estate
settlement court's approval of the state's claim for estate taxes, before the same can be
enforced and collected.
On the contrary, under Section 87 of the NIRC, it is the probate or settlement court which
is bidden not to authorize the executor or judicial administrator of the decedent's estate to
deliver any distributive share to any party interested in the estate, unless it is shown a
Certification by the Commissioner of Internal Revenue that the estate taxes have been
paid. This provision disproves the petitioner's contention that it is the probate court which
approves the assessment and collection of the estate tax.
If there is any issue as to the validity of the BIR's decision to assess the estate taxes,
this should have been pursued through the proper administrative and judicial avenues
provided for by law.
Section 229 of the NIRC tells us how:

"Sec. 229. Protesting of assessment.-When the Commissioner of Internal Revenue or his duly
authorized representative finds that proper taxes should be assessed, he shall first notify the
taxpayer of his findings. Within a period to be prescribed by implementing regulations, the
taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the
Commissioner shall issue an assessment based on his findings.

Such assessment may be protested administratively by filing a request for reconsideration or

reinvestigation in such form and manner as may be prescribed by implementing regulations within
(30) days from receipt of the assessment; otherwise, the assessment shall become final and
unappealable.
If the protest is denied in whole or in part, the individual, association or corporation adversely
affected by the decision on the protest may appeal to the Court of Tax Appeals within thirty (30)
days from receipt of said decision; otherwise, the decision shall become final, executory and
demandable. (As inserted by P.D. 1773)"

Apart from failing to file the required estate tax return within the time required for the
filing of the same, petitioner, and the other heirs never questioned the assessments served
upon them, allowing the same to lapse into finality, and prompting the BIR to collect the said
taxes by levying upon the properties left by President Marcos.
Petitioner submits, however, that "while the assessment of taxes may have been validly
undertaken by the Government, collection thereof may have been done in violation of the
law. Thus, the manner and method in which the latter is enforced may be questioned
separately, and irrespective of the finality of the former, because the Government does not
have the unbridled discretion to enforce collection without regard to the clear provision of
law."[14]

Petitioner specifically points out that applying Memorandum Circular No. 38-68,
implementing Sections 318 and 324 of the old tax code (Republic Act 5203), the BIR's
Notices of Levy on the Marcos properties, were issued beyond the allowed period, and are
therefore null and void:

"...the Notices of Levy on Real Property (Annexes 0 to NN of Annex C of this Petition) in

satisfaction of said assessments were still issued by respondents well beyond the period mandated
in Revenue Memorandum Circular No. 38-68. These Notices of Levy were issued only on 22
February 1993 and 20 May 1993 when at least seventeen (17) months had already lapsed from the
last service of tax assessment on 12 September 1991. As no notices of distraint of personal property
were first issued by respondents, the latter should have complied with Revenue Memorandum
Circular No. 38-68 and issued these Notices of Levy not earlier than three (3) months nor later than
six (6) months from 12 September 1991. In accordance with the Circular, respondents only had
until 12 March 1992 (the last day of the sixth month) within which to issue these Notices of
Levy. The Notices of Levy, having been issued beyond the period allowed by law, are thus void
and of no effect."[15]

We hold otherwise. The Notices of Levy upon real property were issued within the
prescriptive period and in accordance with the provisions of the present Tax Code. The
deficiency tax assessment, having already become final, executory, and demandable, the
same can now be collected through the summary remedy of distraint or levy pursuant to
Section 205 of the NIRC.
The applicable provision in regard to the prescriptive period for the assessment and
collection of tax deficiency in this instance is Article 223 of the NIRC, which pertinently
provides:

"Sec. 223. Exceptions as to a 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 a failure to file a return, the tax
may be assessed, or a proceeding in court for the collection of such tax may be begun without
assessment, at any time within ten (10) 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 the collection
thereof.

xxx

(c) Any internal revenue tax which has been assessed within the period of limitation above
prescribed, may be collected by distraint or levy or by a proceeding in court within three years
following the assessment of the tax.

xxx
The omission to file an estate tax return, and the subsequent failure to contest or appeal
the assessment made by the BIR is fatal to the petitioner's cause, as under the above-cited
provision, in case of failure to file a return, the tax may be assessed at any time within ten
years after the omission, and any tax so assessed may be collected by levy upon real
property within three years following the assessment of the tax. Since the estate tax
assessment had become final and unappealable by the petitioner's default as regards
protesting the validity of the said assessment, there is now no reason why the BIR cannot
continue with the collection of the said tax. Any objection against the assessment should
have been pursued following the avenue paved in Section 229 of the NIRC on protests on
assessments of internal revenue taxes.
Petitioner further argues that "the numerous pending court cases questioning the late
president's ownership or interests in several properties (both real and personal) make the
total value of his estate, and the consequent estate tax due, incapable of exact pecuniary
determination at this time. Thus, respondents' assessment of the estate tax and their
issuance of the Notices of Levy and sale are premature and oppressive." He points out the
pendency of Sandiganbayan Civil Case Nos. 0001-0034 and 0141, which were filed by the
government to question the ownership and interests of the late President in real and
personal properties located within and outside the Philippines. Petitioner, however, omits to
allege whether the properties levied upon by the BIR in the collection of estate taxes upon
the decedent's estate were among those involved in the said cases pending in the
Sandiganbayan. Indeed, the court is at a loss as to how these cases are relevant to the
matter at issue. The mere fact that the decedent has pending cases involving ill-gotten
wealth does not affect the enforcement of tax assessments over the properties indubitably
included in his estate.
Petitioner also expresses his reservation as to the propriety of the BIR's total
assessment of P23,292,607,638.00, stating that this amount deviates from the findings of
the Department of Justice's Panel of Prosecutors as per its resolution of 20 September
1991.Allegedly, this is clear evidence of the uncertainty on the part of the Government as
to the total value of the estate of the late President.
This is, to our mind, the petitioner's last ditch effort to assail the assessment of estate
tax which had already become final and unappealable.
It is not the Department of Justice which is the government agency tasked to determine
the amount of taxes due upon the subject estate, but the Bureau of Internal
Revenue whose determinations and assessments are presumed correct and made in
[16]

good faith. The taxpayer has the duty of proving otherwise. In the absence of proof of any
[17]

irregularities in the performance of official duties, an assessment will not be disturbed. Even
an assessment based on estimates is prima facie valid and lawful where it does not appear
to have been arrived at arbitrarily or capriciously. The burden of proof is upon the
complaining party to show clearly that the assessment is erroneous. Failure to present proof
of error in the assessment will justify the judicial affirmance of said assessment. In this[18]

instance, petitioner has not pointed out one single provision in the Memorandum of the
Special Audit Team which gave rise to the questioned assessment, which bears a trace of
falsity. Indeed, the petitioner's attack on the assessment bears mainly on the alleged
improbable and unconscionable amount of the taxes charged. But mere rhetoric cannot
supply the basis for the charge of impropriety of the assessments made.
Moreover, these objections to the assessments should have been raised, considering
the ample remedies afforded the taxpayer by the Tax Code, with the Bureau of Internal
Revenue and the Court of Tax Appeals, as described earlier, and cannot be raised now via
Petition for Certiorari, under the pretext of grave abuse of discretion. The course of action
taken by the petitioner reflects his disregard or even repugnance of the established
institutions for governance in the scheme of a well-ordered society. The subject tax
assessments having become final, executory and enforceable, the same can no longer be
contested by means of a disguised protest. In the main, Certiorari may not be used as a
substitute for a lost appeal or remedy. This judicial policy becomes more pronounced in
[19]

view of the absence of sufficient attack against the actuations of government.

On the matter of sufficiency of service of Notices of Assessment to the petitioner, we
find the respondent appellate court's pronouncements sound and resilient to petitioner's
attacks.

"Anent grounds 3(b) and (B) - both alleging/claiming lack of notice - We find, after considering the
facts and circumstances, as well as evidences, that there was sufficient, constructive and/or actual
notice of assessments, levy and sale, sent to herein petitioner Ferdinand "Bongbong" Marcos as
well as to his mother Mrs. Imelda Marcos.

Even if we are to rule out the notices of assessments personally given to the caretaker of Mrs.
Marcos at the latter's last known address, on August 26, 1991 and September 12, 1991, as well as
the notices of assessment personally given to the caretaker of petitioner also at his last known
address on September 12, 1991 - the subsequent notices given thereafter could no longer be ignored
as they were sent at a time when petitioner was already here in the Philippines, and at a place where
said notices would surely be called to petitioner's attention, and received by responsible persons of
sufficient age and discretion.

Thus, on October 20, 1992, formal assessment notices were served upon Mrs. Marcos c/o the
petitioner, at his office, House of Representatives, Batasan Pambansa, Q.C. (Annexes "A", "A-1",
"A-2", "A-3"; pp. 207-210, Comment/Memorandum of OSG). Moreover, a notice to taxpayer dated
October 8, 1992 inviting Mrs. Marcos to a conference relative to her tax liabilities, was furnished
the counsel of Mrs. Marcos - Dean Antonio Coronel (Annex "B", p. 211, ibid). Thereafter, copies
of Notices were also served upon Mrs. Imelda Marcos, the petitioner and their counsel "De Borja,
Medialdea, Ata, Bello, Guevarra and Serapio Law Office", on April 7, 1993 and June 10,
1993. Despite all of these Notices, petitioner never lifted a finger to protest the assessments, (upon
which the Levy and sale of properties were based), nor appealed the same to the Court of Tax
Appeals.

There being sufficient service of Notices to herein petitioner (and his mother) and it appearing that
petitioner continuously ignored said Notices despite several opportunities given him to file a protest
and to thereafter appeal to the Court of Tax Appeals, - the tax assessments subject of this case,
upon which the levy and sale of properties were based, could no longer be contested (directly or
indirectly) via this instant petition for certiorari."
[20]

Petitioner argues that all the questioned Notices of Levy, however, must be nullified for
having been issued without validly serving copies thereof to the petitioner. As a mandatory
heir of the decedent, petitioner avers that he has an interest in the subject estate, and
notices of levy upon its properties should have been served upon him.
We do not agree. In the case of notices of levy issued to satisfy the delinquent estate
tax, the delinquent taxpayer is the Estate of the decedent, and not necessarily, and
exclusively, the petitioner as heir of the deceased. In the same vein, in the matter of income
tax delinquency of the late president and his spouse, petitioner is not the taxpayer
liable. Thus, it follows that service of notices of levy in satisfaction of these tax delinquencies
upon the petitioner is not required by law, as under Section 213 of the NIRC, which
pertinently states:
"xxx

...Levy shall be effected by writing upon said certificate a description of the property upon which
levy is made. At the same time, written notice of the levy shall be mailed to or served upon the
Register of Deeds of the province or city where the property is located and upon the delinquent
taxpayer, or if he be absent from the Philippines, to his agent or the manager of the business in
respect to which the liability arose, or if there be none, to the occupant of the property in question.

xxx"
The foregoing notwithstanding, the record shows that notices of warrants of distraint and
levy of sale were furnished the counsel of petitioner on April 7, 1993, and June 10, 1993,
and the petitioner himself on April 12, 1993 at his office at the Batasang Pambansa. We [21]

cannot therefore, countenance petitioner's insistence that he was denied due

process. Where there was an opportunity to raise objections to government action, and such
opportunity was disregarded, for no justifiable reason, the party claiming oppression then
becomes the oppressor of the orderly functions of government. He who comes to court must
come with clean hands. Otherwise, he not only taints his name, but ridicules the very
structure of established authority.
IN VIEW WHEREOF, the Court RESOLVED to DENY the present petition. The Decision
of the Court of Appeals dated November 29, 1994 is hereby AFFIRMED in all respects.
SO ORDERED.
Regalado, (Chairman), Romero, Puno, and Mendoza, JJ., concur.
 SECOND DIVISION

[G.R. No. 118671. January 29, 1996]

THE ESTATE OF HILARIO M. RUIZ, EDMOND RUIZ, Executor, petitioner, vs. THE COURT OF APPEALS
(Former Special Sixth Division), MARIA PILAR RUIZ-MONTES, MARIA CATHRYN RUIZ, CANDICE
ALBERTINE RUIZ, MARIA ANGELINE RUIZ and THE PRESIDING JUDGE OF THE REGIONAL
TRIAL COURT OF PASIG, BRANCH 156, respondents.

DECISION
PUNO, J.:

This petition for review on certiorari seeks to annul and set aside the decision dated November 10, 1994 and
the resolution dated January 5, 1995 of the Court of Appeals in CA-G.R. SP No. 33045.
The facts show that on June 27, 1987, Hilario M. Ruiz1 executed a holographic will naming as his heirs his
only son, Edmond Ruiz, his adopted daughter, private respondent Maria Pilar Ruiz Montes, and his three
granddaughters, private respondents Maria Cathryn, Candice Albertine and Maria Angeline, all children of
Edmond Ruiz. The testator bequeathed to his heirs substantial cash, personal and real properties and named
Edmond Ruiz executor of his estate.2
On April 12, 1988, Hilario Ruiz died. Immediately thereafter, the cash component of his estate was
distributed among Edmond Ruiz and private respondents in accordance with the decedents will. For unbeknown
reasons, Edmond, the named executor, did not take any action for the probate of his fathers holographic will.
On June 29, 1992, four years after the testators death, it was private respondent Maria Pilar Ruiz Montes
who filed before the Regional Trial Court, Branch 156, Pasig, a petition for the probate and approval of Hilario
Ruizs will and for the issuance of letters testamentary to Edmond Ruiz. 3 Surprisingly, Edmond opposed the
petition on the ground that the will was executed under undue influence.
On November 2, 1992, one of the properties of the estate - the house and lot at No. 2 Oliva Street, Valle
Verde IV, Pasig which the testator bequeathed to Maria Cathryn, Candice Albertine and Maria Angeline4 - was
leased out by Edmond Ruiz to third persons.
On January 19, 1993, the probate court ordered Edmond to deposit with the Branch Clerk of Court the rental
deposit and payments totalling P540,000.00 representing the one-year lease of the Valle Verde property. In
compliance, on January 25, 1993, Edmondturned over the amount of P348,583.56, representing the balance of
the rent after deducting P191,416.14 for repair and maintenance expenses on the estate.5
In March 1993, Edmond moved for the release of P50,000.00 to pay the real estate taxes on the real
properties of the estate. The probate court approved the release of P7,722.006
On May 14, 1993, Edmond withdrew his opposition to the probate of the will. Consequently, the probate
court, on May 18, 1993, admitted the will to probate and ordered the issuance of letters testamentary
to Edmond conditioned upon the filing of a bond in the amount of P50,000.00. The letters testamentary were
issued on June 23, 1993.
On July 28, 1993, petitioner Testate Estate of Hilario Ruiz as executor, filed an Ex-Parte Motion for Release
of Funds. It prayed for the release of the rent payments deposited with the Branch Clerk of Court. Respondent
Montes opposed the motion and concurrently filed a Motion for Release of Funds to Certain Heirs and Motion
for Issuance of Certificate of Allowance of Probate Will. Montes prayed for the release of the said rent payments
to Maria Cathryn, Candice Albertine and Maria Angeline and for the distribution of the testators properties,
specifically the Valle Verde property and the Blue Ridge apartments, in accordance with the provisions of the
holographic will.
 On August 26, 1993, the probate court denied petitioners motion for release of funds but granted respondent
Montes motion in view of petitioners lack of opposition. It thus ordered the release of the rent payments to the
decedents three granddaughters. It further ordered the delivery of the titleds to and possession of the properties
bequeathed to the three granddaughters and respondent Montes upon the filing of a bond of P50,000.00.
Petitioner moved for reconsideration alleging that he actually filed his opposition to respondent Montes
motion for release of rent payments which opposition the court failed to consider. Petitioner likewise reiterated
his previous motion for release of funds.
On November 23, 1993, petitioner, through counsel, manifested that he was withdrawing his motion for
release of funds in view of the fact that the lease contract over Valle Verde property had been renewed for
another year.7
Despite petitioners manifestation, the probate court, on December 22, 1993, ordered the release of the
funds to Edmond but only such amount as may be necessary to cover the espenses of administration and
allowanceas for support of the testators three granddaughters subject to collation and deductible from their share
in the inheritance. The court, however, held in abeyance the release of the titles to respondent Montes and the
three granddaughters until the lapse of six months from the date of firast publication of the notice to
creditors.8 The Court stated thus:
xxx xxx xxx

After consideration of the arguments set forth thereon by the parties, the court resolves to allow Administrator Edmond
M. Ruiz to take possession of the rental payments deposited with the Clerk of Court, Pasig Regional Trial Court, but only
such amount as may be necessary to cover the expenses of administration and allowances for support of Maria Cathryn
Veronique, Candice Albertine and Maria Angeli, which are subject to collation and deductible from the share in the
inheritance of said heirs and insofar as they exceed the fruits or rents pertaining to them.

As to the release of the titles bequeathed to petitioner Maria Pilar Ruiz-Montes and the above-named heirs, the same is
hereby reconsidered and held in abeyance until the lapse of six (6) months from the date of first publication of Notice to
Creditors.

WHEREFORE, Administrator Edmond M. Ruiz is hereby ordered to submit an accounting of the expenses necessary for
administration including provisions for the support Of Maria Cathryn Veronique Ruiz, Candice Albertine Ruiz and Maria
Angeli Ruiz before the amount required can be withdrawn and cause the publication of the notice to creditors with
reasonable dispatch.9

Petitioner assailed this order before the Court of Appeals. Finding no grave abuse of discretion on the part of respondent
judge, the appellate court dismissed the petition and sustained the probate courts order in a decision dated November 10,
199410 and a resolution dated January 5, 1995.11

Hence, this petition.

Petitioner claims that:

THE PUBLIC RESPONDENT COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION

AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN AFFIRMING AND CONFIRMING THE ORDER OF
RESPONDENT REGIONAL TRIAL COURT OF PASIG, BRANCH 156, DATED DECEMBER 22, 1993, WHICH
WHEN GIVEN DUE COURSE AND IS EFFECTED WOULD: (1) DISALLOW THE EXECUTOR/ADMINISTRATOR
OF THE ESTATE OF THE LATE HILARIO M. RUIZ TO TAKE POSSESSION OF ALL THE REAL AND
PERSONAL PROPERTIES OF THE ESTATE; (2) GRANT SUPPORT, DURING THE PENDENCY OF THE
SETTLEMENT OF AN ESTATE, TO CERTAIN PERSONS NOT ENTITLED THERETO; AND (3) PREMATURELY
PARTITION AND DISTRIBUTE THE ESTATE PURSUANT TO THE PROVISIONS OF THE HOLOGRAPHIC
WILL EVEN BEFORE ITS INTRINSIC VALIDITY HAS BEEN DETERMINED, AND DESPITE THE EXISTENCE
OF UNPAID DEBTS AND OBLIGATIONS OF THE ESTATE.12

The issue for resolution is whether the probate court, after admitting the will to probate but before payment
of the estates debts and obligations, has the authority: (1) to grant an allowance from the funds of the estate for
the support of the testators grandchildren; (2) to order the release of the titles to certain heirs; and (3) to grant
possession of all properties of the estate to the executor of the will.
On the matter of allowance, Section 3 of Rule 83 of the Revised Rules of Court provides:

Sec. 3. Allowance to widow and family. - The widow and minor or incapacitated children of a deceased person, during the
settlement of the estate, shall receive therefrom under the direction of the court, such allowance as are provided by law.

Petitioner alleges that this provision only gives the widow and the minor or incapacitated children of the
deceased the right to receive allowances for support during the settlement of estate proceedings. He contends
that the testators three granddaughters do not qualify for an allowance because they are not incapacitated and
are no longer minors but of legal age, married and gainfully employed. In addition, the provision expressly states
children of the deceased which excludes the latters grandchildren.
It is settled that allowances for support under Section 3 of Rule 83 should not be limited to the minor or
incapacitated children of the deceased. Article 18813 of the Civil Code of the Philippines, the substantive law in
force at the time of the testators death, provides that during the liquidation of the conjugal partnership, the
deceaseds legitimate spouse and children, regardless of their age, civil status or gainful employment, are entitled
to provisional support from the funds of the estate.14 The law is rooted on the fact that the right and duty to
support, especially the right to education, subsist even beyond the age of majority.15
Be that as it may, grandchildren are not entitled to provisional support from the funds of the decedents
estate. The law clearly limits the allowance to widow and children and does not extend it to the deceaseds
grandchildren, regardless of their minority or incapacity.16 It was error, therefore, for the appellate court to sustain
the probate courts order granting an allowance to the grandchildren of the testator pending settlement of his
estate.
Respondent courts also erred when they ordered the release of the titles of the bequeathed properties to
private respondents six months after the date of first publication of notice to creditors. An order releasing titles
to properties of the estate amounts to an advance distribution of the estate which is allowed only under the
following conditions:

Sec. 2. Advance distribution in special proceedings. - Nothwithstanding a pending controversy or appeal in proceedings to
settle the estate of a decedent, the court may, in its discretion and upon such terms as it may deem proper and just, permit
that such part of the estate as may not be affected by the controversy or appeal be distributed among the heirs or legatees,
upon compliance with the conditions set forth in Rule 90 of these Rules.17

And Rule 90 provides that:

Sec. 1. When order for distribution of residue made. - When the debts, funeral charges, and expenses of administration,
the allowance to the widow, and inheritance tax, if any, chargeable to the estate in accordance with law, have been paid,
the court, on the application of the executor or administrator, or of a person interested in the estate, and after hearing upon
notice, shall assign the residue of the estate to the persons entitled to the same, naming them and the proportions, or parts,
to which each is entitled, and such persons may demand and recover their respective shares from the executor or
administrator, or any other person having the same in his possession. If there is a controversy before the court as to who
are the lawful heirs of the deceased person or as to the distributive shares to which each person is entitled under the law,
the controversy shall be heard and decided as in ordinary cases.

No distribution shall be allowed until the payment of the obligations above-mentioned has been made or provided
for, unless the distributees, or any of them, give a bond, in a sum to be fixed by the court, conditioned for the
payment of said obligations within such time as the court directs.18

In settlement of estate proceedings, the distribution of the estate properties can only be made: (1) after all the
debts, funeral charges, expenses of administration, allowance to the widow, and estate tax have been paid; or
(2) before payment of said obligations only if the distributees or any of them gives a bond in a sum fixed by the
court conditioned upon the payment of said obligations within such time as the court directs, or when provision
is made to meet those obligations.19
 In the case at bar, the probate court ordered the release of the titles to the Valle Verde property and the Blue
Ridge apartments to the private respondents after the lapse of six months from the date of first publication of the
notice to creditors. The questioned order speaks of notice to creditors, not payment of debts and obligations.
Hilario Ruiz allegedly left no debts when he died but the taxes on his estate had not hitherto been paid, much
less ascertained. The estate tax is one of those obligations that must be paid before distribution of the estate. If
not yet paid, the rule requires that the distributees post a bond or make such provisions as to meet the said tax
obligation in proportion to their respective shares in the inheritance.20 Notably, at the time the order was issued
the properties of the estate had not yet been inventoried and appraised.
It was also too early in the day for the probate court to order the release of the titles six months after admitting
the will to probate. The probate of a will is conclusive as to its due execution and extrinsic validity21 and settles
only the question of whether the testator, being of sound mind, freely executed it in accordance with the
formalities prescribed by law.22 Questions as to the intrinsic validity and efficacy of the provisions of the will, the
legality of any devise or legacy may be raised even after the will has been authenticated.23
The intrinsic validity of Hilarios holographic will was controverted by petitioner before the probate court in
his Reply to Montes Opposition to his motion for release of funds24 and his motion for reconsideration of
the August 26, 1993 order of the said court.25Therein, petitioner assailed the distributive shares of the devisees
and legatees inasmuch as his fathers will included the estate of his mother and allegedly impaired his legitime
as an intestate heir of his mother. The Rules provide that if there is a controversy as to who are the lawful heirs
of the decedent and their distributive shares in his estate, the probate court shall proceed to hear and decide the
same as in ordinary cases.26
Still and all, petitioner cannot correctly claim that the assailed order deprived him of his right to take
possession of all the real and personal properties of the estate. The right of an executor or administrator to the
possession and management of the real and personal properties of the deceased is not absolute and can only
be exercised so long as it is necessary for the payment of the debts and expenses of administration,27 Section 3
of Rule 84 of the Revised Rules of Court explicitly provides:

Sec. 3. Executor or administrator to retain whole estate to pay debts, and to administer estate not willed. - An executor or
administrator shall have the right to the possession and management of the real as well as the personal estate of the
deceased so long as it is necessary for the payment of the debts and expenses for administration.28

When petitioner moved for further release of the funds deposited with the clerk of court, he had been previously
granted by the probate court certain amounts for repair and maintenance expenses on the properties of the
estate, and payment of the real estate taxes thereon. But petitioner moved again for the release of additional
funds for the same reasons he previously cited. It was correct for the probate court to require him to submit an
accounting of the necessary expenses for administration before releasing any further money in his favor.
It was relevantly noted by the probate court that petitioner had deposited with it only a portion of the one-
year rental income from the Valle Verde property. Petitioner did not deposit its succeeding rents after renewal of
the lease.29 Neither did he render an accounting of such funds.
Petitioner must be reminded that his right of ownership over the properties of his father is merely inchoate
as long as the estate has not been fully settled and partitioned.30 As executor, he is a mere trustee of his fathers
estate. The funds of the estate in his hands are trust funds and he is held to the duties and responsibilities of a
trustee of the highest order.31 He cannot unilaterally assign to himself and possess all his parents properties and
the fruits thereof without first submitting an inventory and appraisal of all real and personal properties of the
deceased, rendering a true account of his administration, the expenses of administration, the amount of the
obligations and estate tax, all of which are subject to a determination by the court as to their veracity, propriety
and justness.32
IN VIEW WHEREOF, the decision and resolution of the Court of Appeals in CA-G.R. SP No. 33045 affirming
the order dated December 22, 1993 of the Regional Trial Court, Branch 156, Pasig in SP Proc. No. 10259 are
affirmed with the modification that those portions of the order granting an allowance to the testators grandchildren
and ordering the release of the titles to the private respondents upon notice to creditors are annulled and set
aside.
Respondent judge is ordered to proceed with dispatch in the proceedings below.
SO ORDERED.
Regalado (Chairman), Romero, and Mendoza, JJ., concur.