RAFAEL ARSENIO S. DIZON, in his capacity G.R. No.

140944
as the Judicial Administrator of the Estate of
the deceased JOSE P. FERNANDEZ, Present:
Petitioner,
YNARES-SANTIAGO, J.,
Chairperson,
- versus - AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
COURT OF TAX APPEALS REYES, JJ.
and COMMISSIONER OF INTERNAL
REVENUE, Promulgated:
Respondents.
April 30, 2008

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

DECISION

NACHURA, J.:

Before this Court is a Petition for Review on Certiorari[1] under Rule 45 of the Rules of
Civil Procedure seeking the reversal of the Court of Appeals (CA) Decision[2] dated April
30, 1999which affirmed the Decision[3] of the Court of Tax Appeals (CTA) dated June
17, 1997.[4]

The Facts

On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition for the
probate of his will[5] was filed with Branch 51 of the Regional Trial Court (RTC)
of Manila (probate court).[6]The probate court then appointed retired Supreme Court
Justice Arsenio P. Dizon (Justice Dizon) and petitioner, Atty. Rafael Arsenio P. Dizon
(petitioner) as Special and Assistant Special Administrator, respectively, of the Estate of
Jose (Estate). In a letter[7] dated October 13, 1988, Justice Dizon informed respondent
Commissioner of the Bureau of Internal Revenue (BIR) of the special proceedings for
the Estate.
Petitioner alleged that several requests for extension of the period to file the required
estate tax return were granted by the BIR since the assets of the estate, as well as the
claims against it, had yet to be collated, determined and identified. Thus, in a
letter[8]dated March 14, 1990, Justice Dizon authorized Atty. Jesus M. Gonzales (Atty.
Gonzales) to sign and file on behalf of the Estate the required estate tax return and to
represent the same in securing a Certificate of Tax Clearance. Eventually, on April 17,
1990, Atty. Gonzales wrote a letter[9] addressed to the BIR Regional Director for San
Pablo City and filed the estate tax return[10] with the same BIR Regional Office, showing
therein a NIL estate tax liability, computed as follows:

COMPUTATION OF TAX

Conjugal Real Property (Sch. 1) P10,855,020.00

Conjugal Personal Property (Sch.2) 3,460,591.34
Taxable Transfer (Sch. 3)
Gross Conjugal Estate 14,315,611.34
Less: Deductions (Sch. 4) 187,822,576.06
Net Conjugal Estate NIL
Less: Share of Surviving Spouse NIL .
Net Share in Conjugal Estate NIL
xxx
Net Taxable Estate NIL .
Estate Tax Due NIL .[11]

On April 27, 1990, BIR Regional Director for San PabloCity, Osmundo G. Umali
issued Certification Nos. 2052[12] and 2053[13] stating that the taxes due on the transfer
of real and personal properties[14] of Jose had been fully paid and said properties may
be transferred to his heirs. Sometime in August 1990, Justice Dizon passed away.
Thus, on October 22, 1990, the probate court appointed petitioner as the administrator
of the Estate.[15]

Petitioner requested the probate court's authority to sell several properties

forming part of the Estate, for the purpose of paying its creditors, namely: Equitable
Banking Corporation (P19,756,428.31), Banque de L'Indochine et. de Suez
(US$4,828,905.90 as of January 31, 1988), Manila Banking Corporation
(P84,199,160.46 as of February 28, 1989) and State Investment House, Inc.
(P6,280,006.21). Petitioner manifested that Manila Bank, a major creditor of the Estate
was not included, as it did not file a claim with the probate court since it had security
over several real estate properties forming part of the Estate.[16]

However, on November 26, 1991, the Assistant Commissioner for Collection of

the BIR, Themistocles Montalban, issued Estate Tax Assessment Notice No. FAS-E-87-
91-003269,[17] demanding the payment of P66,973,985.40 as deficiency estate tax,
itemized as follows:

Deficiency Estate Tax- 1987

Estate tax P31,868,414.48

25% surcharge- late filing 7,967,103.62
late payment 7,967,103.62
Interest 19,121,048.68
Compromise-non filing 25,000.00
non payment 25,000.00
no notice of death 15.00
no CPA Certificate 300.00

Total amount due & collectible P66,973,985.40[18]

In his letter[19] dated December 12, 1991, Atty. Gonzales moved for the reconsideration
of the said estate tax assessment. However, in her letter[20] dated April 12, 1994, the
BIR Commissioner denied the request and reiterated that the estate is liable for the
payment of P66,973,985.40 as deficiency estate tax. On May 3, 1994, petitioner
received the letter of denial. On June 2, 1994, petitioner filed a petition for
review[21] before respondent CTA. Trial on the merits ensued.

As found by the CTA, the respective parties presented the following pieces of evidence,
to wit:

In the hearings conducted, petitioner did not present testimonial evidence

but merely documentary evidence consisting of the following:

Nature of Document (sic) Exhibits

1. Letter dated October 13, 1988
from Arsenio P. Dizon addressed
to the Commissioner of Internal
Revenue informing the latter of
the special proceedings for the
settlement of the estate (p. 126,
BIR records); "A"

2. Petition for the probate of the

will and issuance of letter of
administration filed with the
Regional Trial Court (RTC) of
Manila, docketed as Sp. Proc.
No. 87-42980 (pp. 107-108, BIR
records); "B" & "B-1

3. Pleading entitled "Compliance"

filed with the probate Court
submitting the final inventory
of all the properties of the
deceased (p. 106, BIR records); "C"

4. Attachment to Exh. "C" which

is the detailed and complete
listing of the properties of
the deceased (pp. 89-105, BIR rec.); "C-1" to "C-17"

5. Claims against the estate filed

by Equitable Banking Corp. with
the probate Court in the amount
of P19,756,428.31 as of March 31,
1988, together with the Annexes
to the claim (pp. 64-88, BIR records); "D" to "D-24"

6. Claim filed by Banque de L'

Indochine et de Suez with the
probate Court in the amount of
US $4,828,905.90 as of January 31,
1988 (pp. 262-265, BIR records); "E" to "E-3"

7. Claim of the Manila Banking

Corporation (MBC) which as of
November 7, 1987 amounts to
P65,158,023.54, but recomputed
as of February 28, 1989 at a
total amount of P84,199,160.46;
together with the demand letter
from MBC's lawyer (pp. 194-197,
BIR records); "F" to "F-3"

8. Demand letter of Manila Banking

Corporation prepared by Asedillo,
Ramos and Associates Law Offices
addressed to Fernandez Hermanos,
Inc., represented by Jose P.
Fernandez, as mortgagors, in the
total amount of P240,479,693.17
as of February 28, 1989
(pp. 186-187, BIR records); "G" & "G-1"

9. Claim of State Investment

House, Inc. filed with the
RTC, Branch VII of Manila,
docketed as Civil Case No.
86-38599 entitled "State
Investment House, Inc.,
Plaintiff, versus Maritime
Company Overseas, Inc. and/or
Jose P. Fernandez, Defendants,"
(pp. 200-215, BIR records); "H" to "H-16"

10. Letter dated March 14, 1990

of Arsenio P. Dizon addressed
to Atty. Jesus M. Gonzales,
(p. 184, BIR records); "I"

11. Letter dated April 17, 1990

from J.M. Gonzales addressed
to the Regional Director of
BIR in San Pablo City
(p. 183, BIR records); "J"

12. Estate Tax Return filed by

the estate of the late Jose P.
Fernandez through its authorized
representative, Atty. Jesus M.
Gonzales, for Arsenio P. Dizon,
with attachments (pp. 177-182,
BIR records); "K" to "K-5"

13. Certified true copy of the

Letter of Administration
issued by RTC Manila, Branch
51, in Sp. Proc. No. 87-42980
appointing Atty. Rafael S.
Dizon as Judicial Administrator
of the estate of Jose P.
Fernandez; (p. 102, CTA records)
and "L"

14. Certification of Payment of

estate taxes Nos. 2052 and
2053, both dated April 27, 1990,
issued by the Office of the
Regional Director, Revenue
Region No. 4-C, San Pablo
City, with attachments
(pp. 103-104, CTA records.). "M" to "M-5"

Respondent's [BIR] counsel presented on June 26, 1995 one witness

in the person of Alberto Enriquez, who was one of the revenue
examiners who conducted the investigation on the estate tax case of
the late Jose P. Fernandez. In the course of the direct examination of
the witness, he identified the following:

Documents/
Signatures BIR Record

1. Estate Tax Return prepared by

the BIR; p. 138

2. Signatures of Ma. Anabella

Abuloc and Alberto Enriquez,
Jr. appearing at the lower
Portion of Exh. "1"; -do-

3. Memorandum for the Commissioner,

dated July 19, 1991, prepared by
revenue examiners, Ma. Anabella A.
Abuloc, Alberto S. Enriquez and
Raymund S. Gallardo; Reviewed by
Maximino V. Tagle pp. 143-144

4. Signature of Alberto S.
Enriquez appearing at the
lower portion on p. 2 of Exh. "2"; -do-
5. Signature of Ma. Anabella A.
Abuloc appearing at the
lower portion on p. 2 of Exh. "2"; -do-

6. Signature of Raymund S.
Gallardo appearing at the
Lower portion on p. 2 of Exh. "2"; -do-

7. Signature of Maximino V.
Tagle also appearing on
p. 2 of Exh. "2"; -do-

8. Summary of revenue
Enforcement Officers Audit
Report, dated July 19, 1991; p. 139

9. Signature of Alberto
Enriquez at the lower
portion of Exh. "3"; -do-

10. Signature of Ma. Anabella A.

Abuloc at the lower
portion of Exh. "3"; -do-

11. Signature of Raymond S.

Gallardo at the lower
portion of Exh. "3"; -do-

12. Signature of Maximino

V. Tagle at the lower
portion of Exh. "3"; -do-

13. Demand letter (FAS-E-87-91-00),

signed by the Asst. Commissioner
for Collection for the Commissioner
of Internal Revenue, demanding
payment of the amount of
P66,973,985.40; and p. 169

14. Assessment Notice FAS-E-87-91-00 pp. 169-170[22]

The CTA's Ruling

On June 17, 1997, the CTA denied the said petition for review. Citing this Court's ruling
in Vda. de Oate v. Court of Appeals,[23] the CTA opined that the aforementioned pieces
of evidence introduced by the BIR were admissible in evidence. The CTA ratiocinated:
Although the above-mentioned documents were not formally offered as
evidence for respondent, considering that respondent has been declared
to have waived the presentation thereof during the hearing on March 20,
1996, still they could be considered as evidence for respondent since they
were properly identified during the presentation of respondent's witness,
whose testimony was duly recorded as part of the records of this case.
Besides, the documents marked as respondent's exhibits formed part of
the BIR records of the case.[24]

Nevertheless, the CTA did not fully adopt the assessment made by the BIR and it came
up with its own computation of the deficiency estate tax, to wit:

Conjugal Real Property P 5,062,016.00

Conjugal Personal Prop. 33,021,999.93
Gross Conjugal Estate 38,084,015.93
Less: Deductions 26,250,000.00
Net Conjugal Estate P 11,834,015.93
Less: Share of Surviving Spouse 5,917,007.96
Net Share in Conjugal Estate P 5,917,007.96
Add: Capital/Paraphernal
Properties P44,652,813.66
Less: Capital/Paraphernal
Deductions 44,652,813.66
Net Taxable Estate P 50,569,821.62
============

Estate Tax Due P 29,935,342.97

Add: 25% Surcharge for Late Filing 7,483,835.74
Add: Penalties for-No notice of death 15.00
No CPA certificate 300.00
Total deficiency estate tax P 37,419,493.71
=============

exclusive of 20% interest from due date of its payment until full payment
thereof
[Sec. 283 (b), Tax Code of 1987].[25]

Thus, the CTA disposed of the case in this wise:

 WHEREFORE, viewed from all the foregoing, the Court finds the petition
unmeritorious and denies the same. Petitioner and/or the heirs of Jose P.
Fernandez are hereby ordered to pay to respondent the amount
of P37,419,493.71 plus 20% interest from the due date of its payment until
full payment thereof as estate tax liability of the estate of Jose P.
Fernandez who died on November 7, 1987.

SO ORDERED.[26]

Aggrieved, petitioner, on March 2, 1998, went to the CA via a petition for review. [27]

The CA's Ruling

On April 30, 1999, the CA affirmed the CTA's ruling. Adopting in full the CTA's findings,
the CA ruled that the petitioner's act of filing an estate tax return with the BIR and the
issuance of BIR Certification Nos. 2052 and 2053 did not deprive the BIR Commissioner
of her authority to re-examine or re-assess the said return filed on behalf of the
Estate.[28]

On May 31, 1999, petitioner filed a Motion for Reconsideration[29] which the CA denied
in its Resolution[30]dated November 3, 1999.

Hence, the instant Petition raising the following issues:

1. Whether or not the admission of evidence which were not formally

offered by the respondent BIR by the Court of Tax Appeals which was
subsequently upheld by the Court of Appeals is contrary to the Rules
of Court and rulings of this Honorable Court;

2. Whether or not the Court of Tax Appeals and the Court of Appeals
erred in recognizing/considering the estate tax return prepared and filed
by respondent BIR knowing that the probate court appointed
administrator of the estate of Jose P. Fernandez had previously filed
one as in fact, BIR Certification Clearance Nos. 2052 and 2053 had
been issued in the estate's favor;

3. Whether or not the Court of Tax Appeals and the Court of Appeals
erred in disallowing the valid and enforceable claims of creditors against
 the estate, as lawful deductions despite clear and convincing evidence
thereof; and

4. Whether or not the Court of Tax Appeals and the Court of Appeals
erred in validating erroneous double imputation of values on the very
same estate properties in the estate tax return it prepared and filed
which effectively bloated the estate's assets.[31]

The petitioner claims that in as much as the valid claims of creditors against the Estate
are in excess of the gross estate, no estate tax was due; that the lack of a formal offer
of evidence is fatal to BIR's cause; that the doctrine laid down in Vda. de Oatehas
already been abandoned in a long line of cases in which the Court held that evidence
not formally offered is without any weight or value; that Section 34 of Rule 132 of the
Rules on Evidence requiring a formal offer of evidence is mandatory in character; that,
while BIR's witness Alberto Enriquez (Alberto) in his testimony before the CTA identified
the pieces of evidence aforementioned such that the same were marked, BIR's failure to
formally offer said pieces of evidence and depriving petitioner the opportunity to cross-
examine Alberto, render the same inadmissible in evidence; that
assuming arguendo that the ruling in Vda. de Oate is still applicable, BIR failed to
comply with the doctrine's requisites because the documents herein remained simply
part of the BIR records and were not duly incorporated in the court records; that the BIR
failed to consider that although the actual payments made to the Estate creditors were
lower than their respective claims, such were compromise agreements reached long
after the Estate's liability had been settled by the filing of its estate tax return and the
issuance of BIR Certification Nos. 2052 and 2053; and that the reckoning date of the
claims against the Estate and the settlement of the estate tax due should be at the time
the estate tax return was filed by the judicial administrator and the issuance of said BIR
Certifications and not at the time the aforementioned Compromise Agreements were
entered into with the Estate's creditors.[32]

On the other hand, respondent counters that the documents, being part of the records
of the case and duly identified in a duly recorded testimony are considered evidence
even if the same were not formally offered; that the filing of the estate tax return by the
Estate and the issuance of BIR Certification Nos. 2052 and 2053 did not deprive the
BIR of its authority to examine the return and assess the estate tax; and that the factual
findings of the CTA as affirmed by the CA may no longer be reviewed by this Court via a
petition for review.[33]

The Issues

There are two ultimate issues which require resolution in this case:

First. Whether or not the CTA and the CA gravely erred in allowing the admission of the
pieces of evidence which were not formally offered by the BIR; and

Second. Whether or not the CA erred in affirming the CTA in the latter's determination of
the deficiency estate tax imposed against the Estate.

The Courts Ruling

The Petition is impressed with merit.

Under Section 8 of RA 1125, the CTA is categorically described as a court of record. As

cases filed before it are litigated de novo, party-litigants shall prove every minute aspect
of their cases. Indubitably, no evidentiary value can be given the pieces of evidence
submitted by the BIR, as the rules on documentary evidence require that these
documents must be formally offered before the CTA.[34] Pertinent is Section 34, Rule
132 of the Revised Rules on Evidence which reads:

SEC. 34. Offer of evidence. The court shall consider no evidence which
has not been formally offered. The purpose for which the evidence is
offered must be specified.

The CTA and the CA rely solely on the case of Vda. de Oate, which reiterated
this Court's previous rulings in People v. Napat-a[35] and People v. Mate[36] on the
admission and consideration of exhibits which were not formally offered during the
trial. Although in a long line of cases many of which were decided after Vda. de Oate,
we held that courts cannot consider evidence which has not been formally
offered,[37] nevertheless, petitioner cannot validly assume that the doctrine laid down
in Vda. de Oate has already been abandoned. Recently, in Ramos v. Dizon,[38] this
Court, applying the said doctrine, ruled that the trial court judge therein committed no
error when he admitted and considered the respondents' exhibits in the resolution of the
case, notwithstanding the fact that the same
were not formally offered. Likewise, in Far East Bank & Trust Company v.
Commissioner of Internal Revenue,[39] the Court made reference to said doctrine in
resolving the issues therein. Indubitably, the doctrine laid down in Vda. De Oate still
subsists in this jurisdiction. In Vda. de Oate, we held that:

From the foregoing provision, it is clear that for evidence to be considered,

the same must be formally offered. Corollarily, the mere fact that a
particular document is identified and marked as an exhibit does not mean
that it has already been offered as part of the evidence of a party.
In Interpacific Transit, Inc. v. Aviles [186 SCRA 385], we had the occasion
to make a distinction between identification of documentary evidence and
its formal offer as an exhibit. We said that the first is done in the course of
the trial and is accompanied by the marking of the evidence as an exhibit
while the second is done only when the party rests its case and not
before. A party, therefore, may opt to formally offer his evidence if he
believes that it will advance his cause or not to do so at all. In the event he
chooses to do the latter, the trial court is not authorized by the Rules to
consider the same.

However, in People v. Napat-a [179 SCRA 403] citing People v. Mate [103
SCRA 484], we relaxed the foregoing rule and allowed evidence not
formally offered to be admitted and considered by the trial court
provided the following requirements are present, viz.: first, the same
must have been duly identified by testimony duly recorded and,
second, the same must have been incorporated in the records of the
case.[40]

From the foregoing declaration, however, it is clear that Vda. de Oate is merely
an exception to the general rule. Being an exception, it may be applied only when there
is strict compliance with the requisites mentioned therein; otherwise, the general rule in
Section 34 of Rule 132 of the Rules of Court should prevail.

In this case, we find that these requirements have not been satisfied. The assailed
pieces of evidence were presented and marked during the trial particularly when Alberto
took the witness stand. Alberto identified these pieces of evidence in his direct
testimony.[41] He was also subjected to cross-examination and re-cross examination by
petitioner.[42] But Albertos account and the exchanges between Alberto and petitioner
did not sufficiently describe the contents of the said pieces of evidence presented by the
BIR. In fact, petitioner sought that the lead examiner, one Ma. Anabella A. Abuloc, be
summoned to testify, inasmuch as Alberto was incompetent to answer questions
relative to the working papers.[43] The lead examiner never testified. Moreover, while
Alberto's testimony identifying the BIR's evidence was duly recorded, the BIR
documents themselves were not incorporated in the records of the case.

A common fact threads through Vda. de Oate and Ramos thatdoes not exist at all in the
instant case. In the aforementioned cases, the exhibits were marked at the pre-trial
proceedings to warrant the pronouncement that the same were duly incorporated in the
records of the case. Thus, we held in Ramos:

In this case, we find and so rule that these requirements have been
satisfied. The exhibits in question were presented and marked during
the pre-trial of the case thus, they have been incorporated into the
records. Further, Elpidio himself explained the contents of these exhibits
when he was interrogated by respondents' counsel...

xxxx

But what further defeats petitioner's cause on this issue is that

respondents' exhibits were marked and admitted during the pre-trial stage
as shown by the Pre-Trial Order quoted earlier.[44]

While the CTA is not governed strictly by technical rules of evidence,[45] as rules of
procedure are not ends in themselves and are primarily intended as tools in the
administration of justice, the presentation of the BIR's evidence is not a mere procedural
technicality which may be disregarded considering that it is the only means by which the
CTA may ascertain and verify the truth of BIR's claims against the Estate.[46] The BIR's
failure to formally offer these pieces of evidence, despite CTA's directives, is fatal to its
cause.[47] Such failure is aggravated by the fact that not even a single reason was
advanced by the BIR to justify such fatal omission. This, we take against the BIR.

Per the records of this case, the BIR was directed to present its evidence [48] in the
hearing of February 21, 1996, but BIR's counsel failed to appear. [49] The CTA denied
petitioner's motion to consider BIR's presentation of evidence as waived, with a warning
to BIR that such presentation would be considered waived if BIR's evidence would not
be presented at the next hearing. Again, in the hearing of March 20, 1996, BIR's
counsel failed to appear.[50] Thus, in its Resolution[51] dated March 21, 1996, the CTA
considered the BIR to have waived presentation of its evidence. In the same Resolution,
the parties were directed to file their respective memorandum. Petitioner complied but
BIR failed to do so.[52] In all of these proceedings, BIR was duly notified. Hence, in this
case, we are constrained to apply our ruling in Heirs of Pedro Pasag v. Parocha:[53]
A formal offer is necessary because judges are mandated to rest
their findings of facts and their judgment only and strictly upon the
evidence offered by the parties at the trial. Its function is to enable the trial
judge to know the purpose or purposes for which the proponent is
presenting the evidence. On the other hand, this allows opposing parties
to examine the evidence and object to its admissibility. Moreover, it
facilitates review as the appellate court will not be required to review
documents not previously scrutinized by the trial court.

Strict adherence to the said rule is not a trivial matter. The Court
in Constantino v. Court of Appeals ruled that the formal offer of one's
evidence is deemed waived after failing to submit it within a
considerable period of time. It explained that the court cannot admit
an offer of evidence made after a lapse of three (3) months because
to do so would "condone an inexcusable laxity if not non-compliance
with a court order which, in effect, would encourage needless delays
and derail the speedy administration of justice."
Applying the aforementioned principle in this case, we find that the trial
court had reasonable ground to consider that petitioners had waived their
right to make a formal offer of documentary or object evidence. Despite
several extensions of time to make their formal offer, petitioners failed to
comply with their commitment and allowed almost five months to lapse
before finally submitting it. Petitioners' failure to comply with the rule
on admissibility of evidence is anathema to the efficient, effective,
and expeditious dispensation of justice.

Having disposed of the foregoing procedural issue, we proceed to discuss the merits of
the case.

Ordinarily, the CTA's findings, as affirmed by the CA, are entitled to the highest
respect and will not be disturbed on appeal unless it is shown that the lower courts
committed gross error in the appreciation of facts.[54] In this case, however, we find the
decision of the CA affirming that of the CTA tainted with palpable error.

It is admitted that the claims of the Estate's aforementioned creditors have been
condoned. As a mode of extinguishing an obligation, [55] condonation or remission of
debt[56] is defined as:

an act of liberality, by virtue of which, without receiving any equivalent, the

creditor renounces the enforcement of the obligation, which is
extinguished in its entirety or in that part or aspect of the same to which
the remission refers. It is an essential characteristic of remission that it be
gratuitous, that there is no equivalent received for the benefit given; once
such equivalent exists, the nature of the act changes. It may become
dation in payment when the creditor receives a thing different from that
stipulated; or novation, when the object or principal conditions of the
obligation should be changed; or compromise, when the matter renounced
is in litigation or dispute and in exchange of some concession which the
creditor receives.[57]

Verily, the second issue in this case involves the construction of Section 79[58] of the
National Internal Revenue Code[59] (Tax Code) which provides for the allowable
deductions from the gross estate of the decedent. The specific question is whether the
actual claims of the aforementioned creditors may be fully allowed as deductions from
the gross estate of Jose despite the fact that the said claims were reduced or condoned
through compromise agreements entered into by the Estate with its creditors.

Claims against the estate, as allowable deductions from the gross estate under Section
79 of the Tax Code, are basically a reproduction of the deductions allowed under
Section 89 (a) (1) (C) and (E) of 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. Philippine tax laws were, in turn, based on the federal
tax laws of the United States. Thus, pursuant to established rules of statutory
construction, the decisions of American courts construing the federal tax code are
entitled to great weight in the interpretation of our own tax laws.[60]

It is noteworthy that even in the United States, there is some dispute as to whether the
deductible amount for a claim against the estate is fixed as of the decedent's death
which is the general rule, or the same should be adjusted to reflect post-death
developments, such as where a settlement between the parties results in the reduction
of the amount actually paid.[61] On one hand, the U.S. court ruled that the appropriate
deduction is the value that the claim had at the date of the decedent's death. [62]Also, as
held in Propstra v. U.S., [63] where a lien claimed against the estate was certain and
enforceable on the date of the decedent's death, the fact that the claimant subsequently
settled for lesser amount did not preclude the estate from deducting the entire amount
of the claim for estate tax purposes. These pronouncements essentially confirm the
general principle that post-death developments are not material in determining the
amount of the deduction.

On the other hand, the Internal Revenue Service (Service) opines that post-death
settlement should be taken into consideration and the claim should be allowed as a
deduction only to the extent of the amount actually paid. [64] Recognizing the dispute, the
Service released Proposed Regulations in 2007 mandating that the deduction would be
limited to the actual amount paid.[65]

In announcing its agreement with Propstra,[66] the U.S. 5th Circuit Court of
Appeals held:

We are persuaded that the Ninth Circuit's decision...in Propstra correctly

apply the Ithaca Trust date-of-death valuation principle to enforceable
claims against the estate. As we interpret Ithaca Trust, when the Supreme
Court announced the date-of-death valuation principle, it was making a
judgment about the nature of the federal estate tax specifically, that it is a
tax imposed on the act of transferring property by will or intestacy and,
because the act on which the tax is levied occurs at a discrete time, i.e.,
the instance of death, the net value of the property transferred should be
ascertained, as nearly as possible, as of that time. This analysis supports
broad application of the date-of-death valuation rule.[67]

We express our agreement with the date-of-death valuation rule, made pursuant to the
ruling of the U.S. Supreme Court in Ithaca Trust Co. v. United States.[68] First. There is
no law, nor do we discern any legislative intent in our tax laws, which disregards the
date-of-death valuation principle and particularly provides that post-death developments
must be considered in determining the net value of the estate. It bears emphasis that
tax burdens are not to be imposed, nor presumed to be imposed, beyond what the
statute expressly and clearly imports, tax statutes being construed strictissimi
juris against the government.[69] Any doubt on whether a person, article or activity is
taxable is generally resolved against taxation.[70] Second. Such construction finds
relevance and consistency in our Rules on Special Proceedings wherein the term
"claims" required to be presented against a decedent's estate is generally construed to
mean debts or demands of a pecuniary nature which could have been enforced against
the deceased in his lifetime, or liability contracted by the deceased before his
death.[71] Therefore, the claims existing at the time of death are significant to, and
should be made the basis of, the determination of allowable deductions.

WHEREFORE, the instant Petition is GRANTED. Accordingly, the assailed Decision

dated April 30, 1999 and the Resolution dated November 3, 1999 of the Court of
Appeals in CA-G.R. S.P. No. 46947 are REVERSED and SET ASIDE. The Bureau of
Internal Revenue's deficiency estate tax assessment against the Estate of Jose P.
Fernandez is hereby NULLIFIED.No costs.

SO ORDERED.

G.R. No. 209651 November 26, 2014

MARCELO INVESTMENT AND MANAGEMENT CORPORATION, and THE HEIRS

OF EDWARD T. MARCELO, NAMELY, KATHERINE J. MARCELO, ANNA MELINDA
J. MARCELO REVILLA, and JOHN STEVEN J. MARCELO, Petitioners,
vs.
JOSE T. MARCELO, JR., Respondent.

DECISION

PEREZ, J.:

The vesting of succession rights on the heirs upon the death of the decedent gives
occasion for the baring of sibling disaccords right at the onset of the estate proceedings
which is the determination of the administrator of the decedent's estate. In such
instances, the liquidation, partition and distribution of the decedent's estate is prolonged
and the issue of administration becomes, contrary to its very objective, itself the
hindrance to the ultimate goal of settlement of the decedent's estate. We catch a
glimpse of that in this case.

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court
assailing the 24 May 2013 Decision of the Court of Appeals in CA-G.R. CV No.
952191 which affirmed the Order2 of the Regional Trial Court (RTC), Branch 76, Quezon
City appointing respondent Jose T. Marcelo, Jr. (Jose, Jr.) as the new regular
administrator of the intestate estate of decedent Jose T. Marcelo, Sr.

The facts herein occurred in two stages: (1) the first litigation between two of Jose
Marcelo, Sr.’s (Jose, Sr.) compulsory heirs, his sons, Edward, (ascendant of herein
petitioners, heirs of Edward T. Marcelo, Katherine J. Marcelo, Anna Melinda J. Marcelo
Revilla, and John Steven J. Marcelo) and respondent Jose, Jr., for the appointment of
regular administrator of Jose, Sr.’s estate; and (2) after Edward was appointed regular
administrator of Jose, Sr.’s estate and Edward’s death in 2009, respondent Jose, Jr.’s
revival of his pursuit to administer his father’s, Jose, Sr.’s, estate. These details of these
stages follow:

On 24 August 1987, decedent Jose, Sr. died intestate. He was survived by his four
compulsory heirs: (1) Edward, (2) George, (3) Helen and (4) respondent Jose, Jr.

Initially, petitioner Marcelo Investment and Management Corporation (MIMCO) filed a

Petition for the issuance of Letters of Administration of the estate of Jose, Sr. before the
RTC, Branch 76, Quezon City docketed as S.P. Proc. No. Q-88-1448. At first, Helen,
along with her brother, Jose, Jr. separately opposed MIMCO’s petition; the two prayed
for their respective appointment as administrator. Edward opposed Helen’s and Jose,
Jr.’s respective petitions for issuance of Letters of Administration in their favor and
Edward himself prayed for his appointment as regular administrator. Ultimately, MIMCO,
George and Edward banded together: (1) opposed Helen’s and Jose, Jr.’s petitions, and
(2) prayed for Edward’s appointment as regular administrator of Jose, Sr.’s estate.

On 21 September 1989, pending issuance of letters of administration, the RTC

appointed Helen and Jose, Jr. as special administrators.

In an Order dated 13 December 1991, the RTC appointed Edward as regular

administrator of Jose, Sr.’s estate:

WHEREFORE, PREMISES CONSIDERED, this Court resolves as it hereby resolves to

appoint Edward T. Marcelo as the Regular Administrator of the estate of the late Jose P.
Marcelo, Sr. upon the posting of a bond amounting to THREE HUNDRED THOUSAND
PESOS (P300,000.00). The aforementioned appointment shall take effect upon his oath
as such and conditioned by a bond of P300,000.00 which shall insure the fidelity of the
said regular administrator in the performance of his duties and obligations as such. 3

Taking issue with the RTC’s Order and questioning Edward’s appointment, Jose, Jr.
filed successive oppugnant motions: (1) motion for reconsideration of the 13 December
1991 Order; and (2) omnibus motion alleging the RTC Acting Presiding Judge Efren N.
Ambrosio’s (Judge Ambrocio) unusual interest and unduehaste in issuing letters of
administration in favor of Edward.

In an Order dated 12 March 1992, the RTC, through Judge Ambrosio, denied Jose, Jr.’s
motion for reconsideration:
WHEREFORE, prescinding from the foregoing, and fortified by the balm of clear judicial
conscience, the herein motion is hereby denied. The letters of administration under date
of March 4, 1992 issued in favor of Edward T. Marcelo is maintained with full force and
effect. The letters testamentary issued in favor of Special Administrator, Jose T.
Marcelo, Jr. under date of October 2, 1989 as well as the bond posted by him are
hereby ordered cancelled. Likewise, the Special Administrator, Jose T. Marcelo, Jr. is
hereby ordered to forthwith deliver to the regular administrator the goods, chattels,
money and estate of the deceased in his hands.4

In the same vein of denial, the RTC ruled on the Omnibus Motion, thus:

After a re-examination of the evidence adduced by the parties and a consideration of

the arguments raised in the aforecited pleadings, this court arrived at a conclusion that
no substantial error was committed by then Acting Presiding Judge Edren N. Ambrosio
which would warrant a reversal of the questioned orders, namely, the order dated
December 13, 1991 and March 12, 1992.5

Adamant on his competence to better administer his father’s estate, Jose, Jr. appealed
Edward’s appointment as regular administrator to the Court of Appeals in CA-G.R. CV
No. 43674. However, the appellate court affirmed in toto6 the Orders dated 1 October
1993, 13 December 1991 and 12 March 1992 of the intestate court.

The question of who between Edwardand Jose, Jr. should administer their father’s
estate reached us in G.R. No. 123883 (Jose Marcelo, Jr. v. Court of Appeals and
Edward Marcelo): we did not find reversible error in the appellate court’s decision in CA-
G.R. CV No. 43674. We disposed of the case via a Minute Resolution dated 22 May
1996,7 ultimately affirming the RTC’s and the appellate court’s separate rulings of
Edward’s competence and better suited ability to actas regular administrator of Jose,
Sr.’s estate.

Thereafter, Jose, Jr. persistently opposed Edward’s actions as administrator and his
inventory of Jose, Sr.’s estate. He filed anew serial motions which culminated in the
following 23 June 2000 Order of the RTC:

After a careful study of the arguments raised by the parties in support of their respective
claims, the Court finds that the motion filed by oppositor [Jose, Jr.] is not well-taken.

Anent the submission of complete list of stockholders of all the Marcelo group of
companies together with the number and current par value of their respective
shareholding, suffice it to say that as correctly pointed out by regular administrator
[Edward], the shares of stock of the decedent will be equally distributed to the heirs that
there is no necessity therefor.

Considering oppositor’s insistence on the submission by regular administrator of a true

and updated list as well as current market values of all real estate and personal
properties of the decedent, the [c]ourt hereby directs herein oppositor [Jose, Jr.] to
inform the regular administrator of such data to aid the regular administrator in the
preparation of a complete and accurate inventory of the real and personal properties
comprising the estate of Jose, Sr.

As regards oppositor [Jose, Jr.’s] prayer for the submission by regular administrator of a
true and complete accounting of the subject corporations reckoned from the death
of[Jose, Sr.] up to the present, the [c]ourt likewise sees no need therefor as said
corporations are not parties to the case and have separate and distinct personalities
from the stockholders.

With respect to the project ofpartition, it appears that regular administrator had already
furnished oppositor [Jose, Jr.] with a copy thereof. Considering however oppositor
[Jose, Jr.’s] oral motion for regular administrator to identify the heirs of the decedent and
to secure their conformity to the project of partition, oppositor [Jose, Jr.] is given ten (10)
days from receipt of the project of partition bearing the conformity of the heirs within to
(sic) to comment thereon. Thereafter, the parties are directed to submit their project of
partition for approval and consideration of the [c]ourt.8 (Emphasis supplied)

On 15 January 2001, Edward filed a Manifestation and Motion stating that:

1. Oppositor [Jose, Jr.] now conforms to, and has accordingly signed, the
attached "Liquidation of the Inventory of the Estate of Jose P. Marcelo, Sr. as of
July 26, 2000" x x x.

2. Regular Administrator [Edward]respectfully prays that the Liquidation, duly

signed by all four (4) compulsory heirs, be approved as the project of partition of
the Estate of Jose P. Marcelo Sr.9 and moved for the approval of the Liquidation
of the Inventory of the Estate of Jose, Sr. as the project of partition of the Estate
of Jose, Sr.

The project of partition reads:

LIQUIDATION OF THE INVENTORY OF THE

ESTATE OF JOSE P. MARCELO, SR.
AS OF JULY 26, 2000

I. SETTLEMENT OF THE CLAIMS AGAINST THE ESTATE (SCH IV)

Payables

1. Marcelo Chemical & Pigment Corp. P 1,556,002.06

2. Maria Cristina Fertilizer Corp. 797,487.00
3. Marcelo Rubber & Latex Products, Inc. 542,932.74
4. Marcelo Investment & Mgnt. Corp. 532,066.35
 5. Marcelo Steel Corporation 1,108,252.19
6. H. Marcelo & Co., Inc. 2,356,684.99
TOTAL P 6,893,425.33

Considering that the Estateas of June 3, 1999 has no sufficient cash to pay-off the
above claims of P6,893,425.33, I can work out an offsetting arrangement since the
Estate has also receivables from these companies as shown below:

SCH. III-A SCH. III-B

Shares of Stock Receivables Total

1. MCPC P337,018.00 P 0.00 P 337,018.00
2. MCFC 300,000.00 0.00 300,000.00
4. MIMCO 0.00 0.00 0.00
5. MSC 11,370.00 532,419.04 543,789.04
6. H. Marcelo 881,040.00 802,521.15 1,683,561.15
TOTAL P2,818,008.00 P 4,930,440.19 P7,748,448.19

If the above receivables and equity with total value of P7,748,448.19 will be offset
against the claims of P6,893,425.33 the net will show the following:

SCH. III-A & B SCH. IV

Equity & Net Claims

Companies Claims
Receivables (Receivables)
1. MCPC P337,018.00 P1,556,002.06 P1,218,984.06
2. MCFC 300,000.00 797,487.00 497,487.00
4. MIMCO 532,066.35 532,066.35
5. MSC 543,789.04 1,108,252.19 564,463.15
6. H. MARCELO & CO., Inc. 1,683,561.15 2,356,684.99 673,123.84
TOTAL P7,748,448.19 P6,893,425.33 P (855,022.86)

Based on the offsetting except for MRLP, which the Estate has net receivables
of P4,341,147.26 there will benet claims or payables of P3,486,124.40 as follows:

1. MCPC P1,218,984.06
 2. MCFC 497,487.00
3. MIMCO 532,066.35
4. MSC 564,463.15
5. H. Marcelo & Co. 673,123.84
TOTAL P3,486,124.40

It is recommended that the net from MRLP of P4,341,147.26 be deducted to the above
claims as shown below:

Net Receivables from MRLP P4,341,147.26

Net Claim 3,486,124.40
Net Receivables from MRLP P 855,022.86

II. After the claims are settled based on the above recommendation, the Estate will have
the following assets for distribution to the four (4) of us:

1. PCIB (to be updated) 3,099.81

2. Shares of Stocks No. Of Shares Amount
a. MTRC 12,874 P1,287,400.00
b. MRLP 85,502 855,022.86
c. Farmer Fertilizer Corp. 5,000 5,000.00
d. Republic Broadcasting System 18,054 18,054.00
e.Seafront Resources 6,000,000 60,000.00
f. Industrial Finance 137 1,370.00
g. Astro Mineral 500,000 5,000.00
h. Sta. Mesa Market 42,105 42,105.00
i. Atlas Consolidated Mining 122 2,562.00
j. Phil. Long Distance Telephone 180 130,050.00
k. Jinico (Jabpract Minind) 2,500,000 25,000.00
l. Baguio Country Club 1 12,500.00
4. Receivables – Marcelo Fiberglass 212,729.17

* Based at Par Value

Above assets will be distributed equally by the four (4) of us depending if these will be
sold or not. It is very important to note that equal distribution will be based on actual
selling price minus taxes and other deduction if any, on the above inventories of estate
properties.

Sgd.
EDWARD T. MARCELO
Regular Administrator

Conforme:

Sgd.
GEORGE T. MARCELO

Sgd.
JOSE T. MARCELO, JR.

Sgd.
HELEN T. MARCELO10

On 16 February 2001, the RTC issued an Order approving the partition of Jose, Sr.’s
estate as proposed by Edward:

Regular administrator [Edward] manifests that oppositor Jose T. Marcelo, Jr. had
already expressed his conformity to the Liquidation of the Inventory of the Estate of
Jose P. Marcelo, Sr., as of July 26, 2000, as evidenced by his signature therein. He
therefore prays that the said document which bears the conformity ofall four (4)
compulsory heirs of Jose P. Marcelo, Sr. be approved as the project of partition of the
estate of Jose P. Marcelo, Sr.

Finding said liquidation of the Inventory of the Estate of Jose P. Marcelo, Sr. to bear the
conformity of all the heirs of the decedent and considering further that the period for
filing of money claims against the subject estate had already lapsed, the Court resolves
to approve said liquidation of Inventory as the project ofpartition of the estate of Jose P.
Marcelo, Sr. Nonetheless, let the distribution of the estate of Jose P. Marcelo, Sr.
among his compulsory heirs in accordance with the approved Liquidation of the
Inventory of the Estate of Jose P. Marcelo, Sr. be deferred until herein regular
administrator Edward T. Marcelo has submitted to the Court proof of payment of estate
taxes of the subject estate.11

On 14 September 2001, the RTC archived the intestate proceedings, S.P. Proc. No. Q-
88-1448, pending Edward’s submission of proof of payment of estate taxes as directed
in the 16 February 2001 Order.12

On 3 July 2009, Edward died,13 ushering in the antecedents to the present controversy.
Wasting no time, Jose, Jr. moved to revive the intestate proceedings involving his
father’s estate, S.P. Proc. No. Q-88-1448, and moved for his appointment as new
regular administrator thereof.

Petitioners MIMCO and heirs of Edward, joined by George, opposed Jose, Jr.’s motion
and nominated Atty. Henry Reyes as regular administrator in Edward’s stead.

On 6 January 2010, the RTC issued the assailed Order, now appointing Jose, Jr. as
regular administrator of Jose, Sr.’s estate:

Contrary to the assertion of petitioners, there is no showing that the [c]ourt has
previously declared oppositor-movant [Jose, Jr.] unfit to be appointed as an
administrator.

The estate is left with no one who will administer the estate, i.e., to liquidate the estate
and distribute the residue among the heirs. As wellsettled, to liquidate means to
determine the assets of the estate and to pay all debts and expenses. Records clearly
show that the estate taxes due to the government have not been paid. It is, in fact, held
that approval of the project of partition does not necessarily terminate administration x x
x. There is a necessity to appoint a new regular administrator. Equally noteworthy is that
the judicially approved inventory was prepared way back on August 30, 2000. It is but
imperative that the same be updated.

In the sound judgment of the [c]ourt, oppositor-movant [Jose, Jr.], a legitimate child of
the decedent, appears to occupy higher interest than Atty. Henry A. Reyes in
administering the subject estate.

WHEREFORE, premises considered, oppositor Jose T. Marcelo, Jr. is appointed as the

new regular administrator of the estate of Jose T. Marcelo, Sr.

Before he enters upon the execution of his trust, and letters of administration issue, he
shall give a bond in the amount of P200,000.00, conditioned as follows:

a. To make and return to the [c]ourt, within three (3) months, an updated
inventory of all goods, chattels, rights, credits, and estate of the deceased which
shall come to his possession or knowledge or to the possession of any other
person for him;

b. To administer according to the Rules of Court rules, all goods, chattels, rights,
credits, and estate which shall at any time come to his possession or to the
possession of any other person for him, and from the proceeds to pay and
discharge all debts, legacies, and charges on the same, or such dividends
thereon as shall be decreed by the court, not to mention the taxes due to the
government;

c. To render a true and just account of his administration to the [c]ourt within one
(1) year; and at any other time when required by the Court; and
 d. To perform all orders of the [c]ourt.14

Petitioners filed an Omnibus Motion for Reconsideration of the 6 January 2010 Order
and now moved for the appointment instead of George as administrator of Jose, Sr.’s
estate. After Comment on the Omnibus Motion, the RTC issued another Order dated 23
March 2010, denying the Omnibus Motion and affirming the appointment of Jose, Jr. as
new regular administrator. Petitioners appealed the RTC’s twin Orders dated 6 January
2010 and 23 March 2010 before the appellate court. This time around, the Court of
Appeals affirmed Jose, Jr.’s appointment as new regular administrator. Ruling that the
selection of administrator lies in the sound discretion of the trial court, the Court of
Appeals held that:

1. The prior Order dated 13 December 1991 of the RTC appointing Edward as
regular administrator instead of Jose, Jr., which appointment was affirmed by this
Court in G.R. No. 123883, did not make a finding on Jose, Jr.’s fitness and
suitableness to serve as regular administrator; and

2. On the whole, Jose, Jr. iscompetent and "not wanting in understanding and
integrity," to act as regular administrator of Jose, Sr.’s estate.

Hence, this appeal by certiorariascribing grave error in the Court of Appeals’ Decision,
to wit:

A.

THERE WAS NO NEED TO APPOINT AN ADMINISTRATOR FOR THE

ESTATE OF JOSE P. MARCELO, SR. AS THERE WAS THEN NO PENDING
INCIDENTS IN THE ESTATE PROCEEDINGS TO WARRANT THE
APPOINTMENT OF AN ADMINISTRATOR.

B.

THE COURT OF APPEALS ERRED IN APPOINTING JOSE, JR. AS THE

ADMINISTRATOR OF JOSE, SR.’S ESTATE CONSIDERING THAT JOSE, JR.
WAS FOUND, BY A FINAL, IMMUTABLE, AND UNALTERABLE JUDGMENT,
TO BE UNFIT TO ACT AS SUCH. THUS, THE COURT OF APPEALS WAS
CLEARLY MISTAKEN WHEN IT DISREGARDED THE EARLIER
PRONOUNCEMENT ON THE UNFITNESS OF JOSE, JR. TO ACT AS AN
ADMINISTRATOR AS IT GOES AGAINST THE PRINCIPLE OF
CONCLUSIVENESS OF JUDGMENT.

C.

THE COURT OF APPEALS VIOLATED THE PETITIONERS’ RIGHT TO DUE

PROCESS, WHEN IT AFFIRMED THE RTC ORDERS, WITHOUT EVEN
 BOTHERING TO EXPLAIN WHY JOSE, JR. AND NOT GEORGE, SHOULD BE
APPOINTED AS ADMINISTRATOR OF JOSE, SR.’S ESTATE.15

The appeal is impressed with merit. While we agree with the lower courts that the
appointment of a regular administrator is still necessary, we disagree with the
appointment of Jose, Jr. as new regular administrator of Jose, Sr.’s estate.

We first dispose of the issue of whether the appointment of a regular administrator is

still necessary at this liquidation, partition and distribution stage of the intestate
proceedings involving Jose, Sr.’s estate.

Petitioners contend that the appointment of a regular administrator is unnecessary

where there remains no pending matter in the settlement of Jose, Sr.’s estate requiring
attention and administration. Specifically, petitioners point out that there is no existing or
unliquidated debt against the estate of Jose, Sr, the settlement thereof being already at
the liquidation, partition and distribution stage. Further on that, the liquidation and
proposed partition had long been approved by the probate court.

We are not convinced. The settlement of Jose, Sr.’s estate is not yet through and
complete albeit it is at the liquidation, partition and distribution stage.

Rule 90 of the Rules of Court provides for the Distribution and Partition of the Estate.
The rule provides in pertinent part:

SECTION 1. When order for distribution of residue made. – x x x

No distribution shall be allowed until 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 tobe fixed by the court, conditioned for the payment of said obligations within such
time as the court directs.

xxxx

SEC. 3. By whom expenses of partition paid. – If at the time of the distribution the
executor or administrator has retained sufficient effects in his hands which may lawfully
be applied for the expenses of partition of the properties distributed, such expenses of
partition may be paid by such executor or administrator when it appears equitable to the
court and not inconsistent with the intention of the testator; otherwise, they shall be paid
by the parties in proportion to their respective shares or interest in the premises, and the
apportionment shall be settled and allowed by the court, and, if any person interested in
the partition does not pay his proportion or share, the court may issue an execution in
the name of the executor or administrator against the party not paying for the sum
assessed.

In this case, we observe that the Liquidation of the Inventory of the Estate, approved by
the RTC in its Order dated 16 February 2001, is not yet in effect and complete. We
further note that there has been no manifestation forthcoming from any of the heirs, or
the parties in this case, regarding the completion of the proposed liquidation and
partition of the estate. In fact, as all parties are definitely aware, the RTC archived the
intestate proceedings pending the payment of estate taxes.

For clarity, we refer to the Liquidation of the Inventory of the Estate, which was divided
into two (2) parts: (1) Settlement of the Claims against the Estate, and (2) After
Settlement of the Claims, distribution of the remaining assets of the estate to the four (4)
compulsory heirs. The same document listed payables and receivables of the estate
dependent on a number of factors and contingencies:

1. Payables to various companies where the Marcelo family had equity amounting
to P6,893,425.33;

Considering that the Estate as of June 3, 1999 has no sufficient cash to pay-off the
above claims of P6,893,425.33, [Edward] can work out an offsetting arrangement since
the Estate has also receivables or equity from these companies as shown below: 16

xxxx

2. Receivables from the same companies amounting to P7,748,448.19;

If the above receivables and equity with total value of P7,748,448.19 will be offset
against the claims of P6,893,425.33 the net will show the following:17

xxxx

3. An offsetting of the payables and receivables to be arranged by the then regular

administrator, Edward; and

4. Offsetting of the receivables from Marcelo Rubber & Latex Products, Inc. amounting
to P4,341,147.26 against the net claims against the estate amounting to 3,486,124.40
resulting in net receivables of the estate in the amount of P855,022.86.

There has been no showing from either of the parties that the receivables of, and claims
against, Jose, Sr.’s estate has been actually liquidated, much less, if an offsetting
occurred with the companies listed in the inventory on one hand, and Jose, Sr.’s estate,
on the other. Although the Marcelo family, in particular the compulsory heirs of Jose,
Sr., hold equity in the corporations mentioned in the inventory, considering that the
corporations are family owned by the Marcelos’, these corporations are different juridical
persons with separate and distinct personalities from the Marcelo patriarch, the
decedent, Jose, Sr.18

More importantly, the liquidation scheme appears yet to be effected, the actual partition
of the estate, where each heir separately holds his share in the estate as that which
already belongs to him, remains intangible and the ultimate distribution to the heirs still
held in abeyance pending payment of estate taxes.19

Significantly, even the Liquidation of the Inventory of Jose, Sr.’s estate states that the
valuation amount of the shares of stock as listed therein is based on par value, which
may have varied given the passage of time. The same document delivers a very
important notation that the equal distribution of the listed assets of the estate will
depend on the actual selling price of these assets less taxes and other deductions:

Above assets will be distributed equally by the four (4) [compulsory heirs] depending if
these will be sold or not. It is very important to note that equal distribution will be based
on actual selling price minus taxes and other deduction if any, on the above inventories
of estate properties.20 To date, more than a decade has passed since the intestate
proceedings were archived, thus, affecting the value of the estate’s assets.

From all of the foregoing, it is apparent that the intestate proceedings involving Jose,
Sr.’s estate still requires a regular administrator to finally settle the estate and distribute
remaining assets to the heirs of the decedent.

We now come to the issue of whether Jose, Jr. may be appointed as regular
administrator despite the previous Order of the RTC on 13 December 1991, affirmed by
the appellate court and this Court in G.R. No. 123883, that as between Jose, Jr. and
Edward, the latter was better suited to act as regular administrator of their father’s
estate. Stated differently, whether Jose, Jr.’s previous non-appointment as regular
administrator of Jose, Sr.’s estate bars his present appointment as such even in lieu of
Edward who is now dead.

A close scrutiny of the records reveals that in all of Jose, Jr.’s pleadings opposing
Edward’s appointment as regular administrator, he simultaneously prayed for his
appointment as regular administrator of their father’s estate. In short, he proffered his
competence and qualification to be appointed as regular administrator as a legal issue
for resolution of the courts. Essentially, Jose, Jr. was weighed and found wanting by the
RTC, the appellate court, and this Court.

In its 13 December 1991 Order, the RTC categorically ruled on who between Edward
and Jose, Jr. was fit to administer the estate of Jose, Sr., framing the issue in this wise:

The [c]ourt’s choice as to who among the [compulsory heirs] will be appointed regular
administrator of the estate of Jose, Sr. is now limited to Edward and Jose, Jr. in view of
the withdrawal of Helen T. Marcelo.

It is this [c]ourt’s observation that the continuous internal wranglings between the heirs
would achieve nothing. In the meantime, the estate of the late Jose, Marcelo, Sr.
isdragged further into the quagmire of dissipation and loss. It would not be amiss to
state that the animosity among the interested [petitioners therein], Edward and Jose, Jr.
have considerably increased since the filing of their respective petitions, but the [c]ourt
on the basis of their qualifications will have to decide whom to appoint as regular
administrator. Willingness to act and/or serve as regular administrator is no longer in
issue here as both applicants are undoubtedly willing to serve as such. However, after
subjecting the evidence, both testimonial and documentary to careful judicial study, this
[c]ourt now resolves as it hereby resolves to appoint Edward T. Marcelo as regular
administrator of the estate of the late Jose, Sr.

As aptly cited by petitioner, Edward T. Marcelo, there can be no adverse conclusion that
may be inferred from the withdrawal of a petition or nomination. While it may be true
that initially the petition for the issuance of letters testamentary was filed by Marcelo
Investment and Management Corporation (MIMCO for brevity) and by Danilo O. Ibay as
nominee of Edward and George Marcelo, the same did not constitute a waiver on the
part of Edward T. Marcelo. This can be gleaned from the withdrawal of the nomination
of DaniloO. Ibay and the subsequent filing of Edward T. Marcelo of his petition for the
appointment as legal administrator on September 14, 1989. Further, nowhere in the
provisions of the Revised Rules of Court is sucha nomination of a party other than a
compulsory heir prohibited.

The documents presented by Jose, Jr. purporting to show that the deceased had other
assets other than those enumerated in the original petition filed by MIMCO and which
should have been included in the estate cannot be accorded any weight or credence by
this [c]ourt, as the individual who supposedly prepared the document was never
identified and the sources of information notdisclosed. Upon the other hand, the petition
filed by MIMCO was based on the Financial Statements prepared by an independent
auditor, A. F. Pablo and Associates. On the basis of the information provided by MIMCO
in the original petition, this [c]ourt can determine the probable value and nature of the
estate of the deceased Jose P. Marcelo, Sr.

There is no argument that both Edward and Jose, Jr. are willing to serve as regular
administrator but undoubtedly, Edward appears to be more responsible and competent
that his younger brother, Jose, Jr. This is bolstered by the fact that the family
corporations and his own personal corporation are presently of sound financial
condition. This success, the [c]ourt believes can be attributed to the management skills
and the sound management policies Edward has adopted throughout the years.
Likewise, it can be deduced that among the four(4) children of Jose, Sr., it was Edward
whom he trusted the most. The deceased valued the opinion of Edward on decisions
that had to bemade and he would have Edward around in his meetings to discuss
matter relating to the corporations which he managed. Further, as can be gleaned from
the evidence presented by Jose, Jr., it was Edward Marcelo who was appointed as
trustee to vote the deceased’s share in a Marcelo Corporation, Polaris Marketing
Corporation. It was also Edward who was made co-signatory when the deceased
deposited money in the bank to be given to the children of Jose, Jr. It is thus quite
evident that Edward was really the most trusted child of the deceased.

Upon the other hand, this court looks with deep concern the manner by which Jose, Jr.
treats the corporate properties of the Marcelo Group of Companies. Evidence shows
that sometime October 21, 1998, Jose, Jr. took evidencing liabilities of the deceased
and other pertinent records and up to the present has not returned them. Jose, Jr.
cannot justify the taking of the records/or borrowing of the same by asserting that he is
now keeping them in his capacity asSpecial Administrator as he was appointed Special
Administrator only on September 21, 1989 whereas the records were "borrowed" as
early as October 21, 1988. Be that as it may, what belies Jose, Jr.’s assertion is the fact
that the records of the corporation which were allegedly "borrowed/taken" do not form
part of the estate of Jose, Sr. but to the corporation from where they were taken.

Likewise, it should be noted that the appointment of Jose, Jr. as one of the Special
Administrators does not necessarily make him more qualified to be appointed as regular
administrator. The records of the case will bear out, that the appointmentof a Special
Administrator was premised on the need to have someone, oversee, manage and
preserve the estate of Jose, Sr., as there was the danger of the estate being dissipated.
Moreover, the [c]ourt never touched on the issue of the qualifications of the applicants,
as there was in fact, no evidence presented on the matter, other than the bare
allegations of the applicants that they were all qualified to act as such. 21 (Citations
omitted)

Notably, the decision of the trial court appointing Edward as the Administrator of the
Estate of Jose, Sr., which decision had the imprimatur of a final resolution by this Court,
was not merely a comparison of the qualifications of Edward and Jose, Jr., but a finding
of the competence of Edward compared to the unfitness of Jose, Jr.

As against this Order of the RTC, its subsequent opposite Order dated 6 January 2010
appointing Jose, Jr. as new regular administrator only had two (2) sentences to
essentially reverse the previous findings.

Contrary to the assertion of petitioners, there is no showing that the [c]ourt has
previously declared [Jose,Jr.] unfit to be appointed as an administrator.

xxxx

In the sound judgment of the [c]ourt,[Jose, Jr.], a legitimate child of the decedent,
appears to occupy a higher interest than Atty. Henry A. Reyes in administering the
subject estate.22

The first sentence contained in the Order of 6 January 2010 is disproven by the definite
finding of "deepconcern" in the original Order. The second sentence does not amount to
a finding of a qualification superior to that of the rest of the children of Jose, Sr.

In affirming the issuance of letters of administration to Jose, Jr., the appellate court
dwelt largely on the considerable latitude allowed a probate court in the determination of
a person’s suitability for the office of judicial administrator. The Court of Appeals only
briefly delved into Jose, Jr.’s numerous attempts to be appointed regular administrator
of Jose, Sr.’s estate which were all denied previously by the same probate court:
The RTC Order dated 13 December 1991, as affirmed by this [c]ourt in Decision dated
30 March 1995, and by the Supreme Court in the Resolution dated 22 May 1996, did
not declare [respondent] Jose, Jr. unfit to serve as administrator. What was ruled upon
by the RTC, and affirmed by this [c]ourt, and by the Supreme Court, was the
appointment of Edward as the administrator of Jose, Sr.’s estate, and the denial of
[respondent] Jose, Jr.’s opposition to Edward’s appointment. Nowhere was there any
categorical ruling, or a definite finding, that [respondent] Jose, Jr. was, unfit to execute
the duties of the trust by reason of drunkenness, improvidence, or want of
understanding or integrity, or by reason of conviction of an offense involving moral
turpitude. Thus, there is no merit in [petitioners’] contention that the finding on the
unfitness of [respondent] Jose, Jr. became binding, and precluded the RTC from
appointing [respondent] Jose, Jr., as the new regular administrator of Jose, Sr.’s estate.

Jurisprudence has long held that the selection of an administrator lies in the sound
discretion of the trial court.1âwphi1 The determination of a person’s suitability for the
office of judicial administrator rests, to a great extent, in the sound judgment of the court
exercising the power of appointment and said judgment is not to be interfered with on
appeal unless the said court is clearly in error. The RTC did not err in appointing Jose,
Jr. as the new administrator, even though his previous prayer for appointment was
denied. Notably, by virtue of Edward’s death, the office of the regular administrator of
Jose, Sr.’s estate was vacated, and it was within the jurisdiction of the RTC, as probate
court, to appoint a new administrator.23

Evidently, the Court of Appeals like the RTC in its second order, closed its eyes on the
facts detailed by the RTC in the first order.

Considering the two (2) sets of conflicting rulings of the RTC and the Court of Appeals
in the two stages ofthis litigation, we put into proper perspective the 13 December 1991
Order of the RTC appointing Edward over Jose, Jr. as regular administrator of their
father’s estate, which Order was upheld by us in G.R. No. 123883.

Section 1, Rule 78 of the Rules of Court provides for the general disqualification of
those who wish to serve as administrator:

SECTION 1. Who are incompetent to serve as executors or administrators.— No

person is competent to serve as executor or administrator who:

(a) Is a minor;

(b) Is not a resident of the Philippines; and

(c) Is in the opinion of the court unfit to execute the duties of the trust by reason
of drunkenness, improvidence, or want of understanding or integrity, or by reason
of conviction of an offense involving moral turpitude.
Section 6 of the same rule, on the other hand, lists an order of preference in instances
when there is a contest of who should be appointed administrator:

SEC. 6. When and to whom letters of administration granted.— If no executor is named

in the will, or the executor or executors are incompetent, refuse the trust, or fail to give
bond, or a person dies intestate, administration shall be granted:

(a) To the surviving spouse, or next of kin, or both, in the discretion of the court,
or to such person as such surviving spouse, or next of kin, requests to have
appointed, if competent and willing to serve;

(b) If such surviving spouse, or next of kin, or the person selected by them, be
incompetent or unwilling, or ifthe surviving spouse, or next of kin, neglects for
thirty (30) days after the death of the person to apply for the administration or to
request that administration be granted to some other person, it may be granted to
one ormore of the principal creditors, if competent and willing to serve;

(c) If there is no such creditor competent and willing to serve, it may be granted
to such other person as the court may select.

Because Edward and Jose, Jr. are both compulsory heirs of Jose, Sr., they were, at the
time the issue of administration first cropped, equally preferred to administer Jose, Sr.’s
estate. Necessarily, the courts also delved into the question of their suitableness and
fitness to serve as administrator, preferring one over the other, framing it as Edward
being more fit and suited to be administrator:

1. Edward has kept the Marcelo family corporations and his own in good financial
condition;

2. The trust reposed by the decedent on Edward who voted on Jose, Sr.’s behalf
in a Marcelo corporation; and

3. Edward being made a co-signatory for money deposited for Jose, Jr.’s own
children.

Plainly, the RTC in its Order dated 13 December 1991, found Edward competent to
serve as regular administrator, more competent than Jose, Jr., preferred despite equal
status in the Order of Preference, manifesting none of the disqualifications set by law.
Still and all, the same Order likewise judged Jose, Jr.’s suitableness and fitness,or lack
thereof, for the office of administrator, albeit in comparison withEdward and not with the
rest of Jose, Sr.’s children. Jose, Jr. was not what Edward was.1âwphi1 The fact
however, that Edward was made co-signatory for money deposited for Jose, Jr.’s own
children is a telling commentary against Jose, Jr.’s competence, if not integrity.

Then too, the RTC in the original order made a specific finding, "[viewing it] with deep
concern," Jose, Jr.’s handling of the records of the Marcelo Group of Companies. It
euphemistically called taking of the records evidencing liabilities of the decedent as
"borrowed/taken." However, the RTC noted that such cannot be justified as the records
and other pertinent documents taken "do not form part of the estate of Jose P. Marcelo,
Sr. but to the corporation from where they were taken."

Contrary to the recent rulings of the RTC and the Court of Appeals appointing Jose, Jr.
as administrator, there is a previous and categorical ruling on Jose, Jr.’s fitness to serve
as such:

It is Jose T. Marcelo’s position that he is more competent, qualified and suitable for the
position of regular administrator.1âwphi1 This, above all else is the main thrust of this
second motion for reconsideration. However, the court in the exercise of its sound
discretion after a consideration of the evidence adduced by both parties, ruled otherwise
and instead appointed Edward T. Marcelo as regular administrator.

x x x True, Jose T. Marcelo, Jr. was initially appointed as Special Administrator of the
estate of their deceased father but the same was without the benefit of a hearing on the
qualifications of the parties concerned. x x x This did not however confer on Jose
Marcelo, Jr. as Special Administrator a better right to the office of regular administrator.
x x x.

xxxx

The third assigned error raised by [Jose, Jr.] "that both trial judges erred in not
appointing Special Administrator Jose T. Marcelo, Jr. as Regular Administrator
considering his tested probity and competence as special administrator, his good name
and integrity in accordance with the evidence," is devoid of merit, as already discussed
earlier.

The findings of the lower court in this regard deserve full consideration x x x.24

Undoubtedly, there has been a declaration that Jose, Jr. is unfit and unsuitable to
administer his father’s estate.

To obviate further delay in the settlement of Jose, Sr.’s estate, we emphasize that such
is already at the liquidation and distribution stage which project of partition had long
been conformed to by the parties.

We note that this case has been unnecessarily prolonged and resulted in added
litigation by the non-payment of estate taxes which is the ultimate responsibility of the
heirs having inchoate right in the estate, should there be assets remaining, to be
partitioned and distributed. The inheritance tax is an obligation of the estate, indirectly
the heirs:
SECTION 1. When order for distribution of residue made. – When the debts, xxx, and
inheritance tax, if any, chargeable to the estate in accordance with law, have been paid,
xxx.

No distribution shall be allowed until 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.25

Given the factual considerations that led to the prior findings on the unfitness of Jose,
Jr. to act as regular administrator; the Affidavit of Helen26 preferring George as
administrator; and the conformity on record of the rest of Jose, Sr.’s heirs to George’s
administration as reflected in petitioners’ Appellants’ Briefbefore the Court of Appeals:

More importantly, consistent with Section 6, Rule 78 of the Rules of Court, not only is
George the eldestson of Jose, Sr. and, therefore, his most immediate kin, he has,
moreover, been chosen by the rest of the heirs of Jose, Sr. to perform the functions of
an administrator. In this regard, in addition to George and the heirs of Edward, Helen
executed an Affidavit to manifest her opposition to Jose, Jr. and to support the
appointment of George and herself as joint administrators, a copy of which was given to
the [Court of Appeals.]27 we thus issue Letters of Administration to George to facilitate
and close the settlement of Jose, Sr.’s estate.28

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in CA-
G.R. CV No. 95219 and the Order dated 6 January 2010 of the Regional Trial Court,
Branch76, Quezon City in S.P. Proc. No. Q-88-1448 are REVERSED and SET ASIDE.
Letters of Administration shall issue to George T. Marcelo upon payment of a bond to
be set by the Regional Trial Court, Branch 76, Quezon City. The Regional Trial Court,
Branch 76, Quezon City is likewise directed to complete the settlement of the
decedent's, Jose T. Marcelo, Sr. 's, estate with dispatch starting from an Order setting a
deadline for the parties to pay the estate taxes and to inform this Court when such has
been paid.

SO ORDERED.

[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[1] of the Court of Appeals dated
November 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[2] on 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[4] is specifically cited to
bolster the argument 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;[5]to determine who are the heirs of the decedent;[6] the
recognition of a natural child;[7] the status of a woman claiming to be the legal wife of the
decedent;[8] the legality of disinheritance of an heir by the testator; [9] and to pass upon
the validity of a waiver of 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[12] that the court recognized the liberal treatment
of 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 reipublicae - 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 anheir 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[16] whose determinations and assessments are presumed correct and made in
good faith.[17] The taxpayer has the duty of proving otherwise. In the absence of proof of
any 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.[18]In this 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. [19] This
judicial policy becomes more pronounced in 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 assessmentpersonally 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.[21]We 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.

G.R. No. L-26838 May 29, 1970

TOMAS BESA, petitioner,

vs.
PHILIPPINE NATIONAL BANK; HON. ROBERTO S. BENEDICTO, President of the
Philippine National Bank; THE BOARD OF DIRECTORS, Philippine National Bank;
HON. ANTONIO M. DIAZ, BIENVENIDO M. JUAT, SIMEON G. MIRANDA, JUAN
PONCE ENRILE, ISMAEL M. REINOSO, and JUAN TRIVINO, Members of the Board
of Directors of the Philippine National Bank; and HON. CONRADO E. MEDINA,
Actg. Asst. Vice-President, In-charge of the Loans Adjustment Dept., respondents.

Juan T. David for petitioner.

Jose L. Africa and Miguel V. Gonzales for respondents Philippine National Bank
President, et al.

Conrado E. Medina for respondents Philippine National Bank and The Board of
Directors.

FERNANDO, J.:

The constitutional safeguard against removal from office except for cause is invoked by
petitioner Tomas Besa in this proceeding for certiorari, prohibition and quo
warranto. 1 Appointed Chief Legal Counsel with the rank of Vice-President of
respondent Philippine National Bank in 1962, he was shifted by virtue of a resolution of
respondent Bank on October 19, 1966, to the office of its President, respondent Roberto
S. Benedicto, as Consultant on Legal Matters, 2 with respondent Conrado E. Medina
being assigned to his position. While petitioner would seek to nullify the above
resolution and enjoin its enforcement, his action is essentially one of quo warranto. Its
success is thus dependent on his being able to sustain the burden of demonstrating that
what was done by respondent Bank, through its Board of Directors, all of whom were
likewise named respondents, could in law be characterized as removal without cause
contrary to the explicit mandate of the Constitution. That he was not able to do. The
petition must fail.

There is no dispute as to the facts. Petitioner was appointed on July 12, 1962 as Chief
Legal Counsel of respondent Bank with the rank of Vice-President. On October 20,
1966, a letter-directive was issued by the then President of the Bank, respondent
Benedicto, that he was transferred to his office as Consultant on Legal Matters. The
justification for such a move was Resolution No. 1053 of respondent Board of Directors
of the Bank, wherein it was expressly stated "that Vice President Tomas Besa be shifted
to the Office of the President as Consultant on Legal Matters, without change in salary
and other privileges."

Thereafter, on October 24, 1966, petitioner, in a letter addressed to the respondent

Board of Directors and respondent President Benedicto, sought a reconsideration of the
action above taken. Under date of October 27, 1966, the Secretary of respondent Board
of Directors advised petitioner of the denial of his motion for reconsideration. In the
aforesaid letter-directive of October 20, 1966, respondent Conrado E. Medina was
designated Vice-President and Chief Legal Counsel effective as of that day.

In its answer, respondents admitted the above facts and stressed that respondent
Medina far from usurping the position of petitioner "is Vice President and Chief Legal
Counsel of the respondent Bank who has assumed office and discharged the duties
thereof starting October 20, 1966 by virtue of a valid appointment extended to him by
the respondent Board of Directors and a letter-directive issued pursuant thereto by
respondent PNB President Roberto S. Benedicto." 3 The action taken in the case of
petitioner was explained thus: "The transfer of petitioner from the Legal Department is
further justified by the following facts and circumstances: a) The position of Chief Legal
Counsel carries a special confidential relationship of lawyer and client. In this regard,
the Bank has the prerogative to designate or change its lawyer, that is, to choose the
lawyer, in whom it may have confidence, to head its Legal Department; b) As a matter
of fact, it was on this same principle of confidence that in 1962 the petitioner, who was
then an outsider (private practitioner), was appointed as Vice President and Chief Legal
Counsel by the transfer of Atty. Ramon B. de los Reyes, who was then head (for twenty-
one years) of the Legal Department, to a new position of Technical Assistant to the
Executive Vice President, with only the rank of Assistant Vice President; c) The transfer
of petitioner from the Legal Department was made by the respondent Board, in the
exercise of its powers, upon the recommendation of their respondent PNB President.
The respondent Board had authorized the PNB President to revitalize the Legal
Department, ...." 4

As was made clear at the outset, the law is not on the side of petitioner. His plea cannot
be granted.

1. Petitioner's reliance on the constitutional provision against removal without cause is

misplaced. It is appropriate to invoke it when an officer or employee in the civil service
enjoying a fixed term is made to lose his position without warrant or justification. It
certainly finds no application when the duration of one's term depends on the will of the
appointing power. That is so where the position held is highly confidential in character.
Such is the case of the Chief Legal Counsel of respondent Philippine National Bank.
That is our answer to the specific question before us. Our decision is limited to the
validity of the action taken by respondent Bank. We do not by any means intimate an
opinion as to the legal consequences attaching to an action similar in character taken by
any other office or agency of the government concerning a lawyer in its staff, especially
one who was not employed precisely because of the marked degree of confidence
reposed in him, but rather because of his technical competence.

As far as the petitioner is concerned, however, it is our conclusion that he could not
plausibly contend that there was a removal in the constitutional sense as what did take
place was a termination of official relation. Accepting as he did the position of chief legal
adviser, the essence of which is the utmost degree of confidence involving such "close
intimacy which insures freedom of intercourse without embarrassment or freedom from
misgivings of betrayals" whether of personal trust or official matters, 5 he could not have
been unaware that his term could be cut short any time without giving rise to any
alleged infringement of the above constitutional safeguard. There was no removal which
according to such a mandate is only allowable for cause. Hence the lack of persuasive
character of petitioner's plea.

The matter was set forth with precision and clarity by the present Chief Justice in a
recent decision. 6 Thus: "This should not be misunderstood as denying that the
incumbent of a primarily confidential position holds office at the pleasure only of the
appointing power. It should be noted, however, that when such pleasure turns into
displeasure, the incumbent is not 'removed' or 'dismissed' from office — his 'term'
merely 'expires,' in much the same way as an officer, whose right thereto ceases upon
expiration of the fixed term for which he had been appointed or elected, is not and
can not be deemed 'removed' or 'dismissed' therefrom, upon the expiration of said term.
The main difference between the former — the primarily confidential officer — and the
latter is that the latter's term is fixed or definite, whereas that of the former is not
prefixed, but indefinite, at the time of his appointment or election, and becomes fixed
and determined when the appointing power expresses its decision to put an end to the
services of the incumbent. When this event takes place, the latter is not 'removed' or
'dismissed' from office — his term has merely 'expired'."

2. Petitioner in his memorandum apparently was encouraged by the long, unbroken,

unquestioned course of impressive adjudication of this Court that has given a well-nigh
all-embracing scope to the mantle of protection covering civil service personnel against
removal without cause. So it has been from Lacson v. Romero 7 to the above-
cited Ingles v. Mutuc decision. 8 So, it is to be expected, it would continue to be.
Petitioner's cause did not thereby gain ground however. For as had just been made
clear, there was in his case no question of removal. The excerpts cited by him from a
few of the authoritative precedents thus do not commend themselves for their
pertinence or relevance. 9

There is a question raised by petitioner in his memorandum though, unfortunately not

given the fullness of attention devoted to the removal aspect, which deserves to be
further looked into. While the mode of inviting our attention to it could have benefited
from a more precise delineation of its implications, reference to our Corpus v.
Cuaderno 10 ruling would indicate that what petitioner had in mind was the permanency
of the terms of an official whose line of work is likewise of a technical character. As was
made clear by Justice J. B. L. Reyes, who penned the opinion: "The tenure of officials
holding primarily confidential positions (such as private secretaries of public
functionaries) ends upon loss of confidence, because their term of office lasts only as
long as confidence in them endures; and thus their cessation involves no removal. But
the situation is different for those holding highly technical posts, requiring special skills
and qualifications. The Constitution clearly distinguished the primarily confidential from
the highly technical, and to apply the loss of confidence rule to the latter incumbents is
to ignore and erase the differentiation expressly made by our fundamental charter."

Petitioner did satisfy himself with citing the title of the above decision and that of two
subsequent cases 11 that adhere to the above principle. It could be that he was more
than persuaded that such a succinct and abbreviated form of argumentation would
suffice to carry the day. It does not, however, as a more careful analysis of the above
doctrine would indicate.

It cannot be denied of course that the work of the Chief Legal Counsel of respondent
Bank, as of any lawyer for that matter, is impressed with a highly technical aspect. As
had been pointed out, however, it does not mean that thereby a client is precluded from
substituting in his stead another practitioner. That is his right; his decision to terminate
the relationship once made is impressed with the attribute of finality. The lawyer cannot
be heard to complain; it is enough that his right to compensation earned be duly
respected.

In that sense, it is equally clear that where the position partakes of the attributes of
being both technical and confidential, there can be no insistence of a fixed or a definite
term if the latter aspect predominates. To paraphrase the language of the Chief Justice
in the opinion previously cited, the incumbent of a primarily confidential position, as was
the case of petitioner, should realize that at any time the appointing power may decide
that his services are no longer needed. As thus correctly viewed, Corpus v.
Cuaderno cannot be read as lending support to petitioner's efforts to retain his position
as Chief Legal Counsel of respondent Bank, contrary to its wishes as so explicitly
declared in its Resolution No. 1053.

3. It is manifest from the foregoing that we have considered the crucial issue posed from
the standpoint of the right enjoyed by respondent Bank to choose who its legal counsel
should be and how long he would remain as such. We have not seen any need to pass
upon the conflicting claims raised as to the alleged failure of petitioner in the discharge
of his functions to extend the utmost protection to the interests of respondent Bank nor
of the vigorous defense of his actuations as such, which if given full credence, would
erase the slightest doubt as to his competence and proficiency. For as above noted, the
decisive issue is the confidential character of petitioner's position, which negates
reliance on the removal-for-cause guarantee of the Constitution. We thus leave open for
future determination, when and if such a litigation arises, case involving the other vice-
presidents of the respondent Bank, where it would appear the overriding factor in their
selection is not that degree of the utmost confidence reposed in a lawyer but their
technical skills in the performance of the duties entrusted to them.

WHEREFORE, this petition for certiorari, prohibition and quo warranto is dismissed.
Without pronouncement as to costs.

[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, Edmond turned 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 Ridgeapartments, 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.16It 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 thenecessary 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.

G.R. No. 82027 March 29, 1990

ROMARICO G. VITUG, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and ROWENA FAUSTINO-
CORONA, respondents.

Rufino B. Javier Law Office for petitioner.

Quisumbing, Torres & Evangelista for private respondent.

SARMIENTO, J.:

This case is a chapter in an earlier suit decided by this Court 1 involving the probate of
the two wills of the late Dolores Luchangco Vitug, who died in New York, U. S.A., on
November 10, 1980, naming private respondent Rowena Faustino-Corona executrix. In
our said decision, we upheld the appointment of Nenita Alonte as co-special
administrator of Mrs. Vitug's estate with her (Mrs. Vitug's) widower, petitioner Romarico
G. Vitug, pending probate.

On January 13, 1985, Romarico G. Vitug filed a motion asking for authority from the
probate court to sell certain shares of stock and real properties belonging to the estate
to cover allegedly his advances to the estate in the sum of P667,731.66, plus interests,
which he claimed were personal funds. As found by the Court of Appeals, 2the alleged
advances consisted of P58,147.40 spent for the payment of estate tax, P518,834.27 as
deficiency estate tax, and P90,749.99 as "increment thereto." 3 According to Mr. Vitug,
he withdrew the sums of P518,834.27 and P90,749.99 from savings account No.
35342-038 of the Bank of America, Makati, Metro Manila.

On April 12, 1985, Rowena Corona opposed the motion to sell on the ground that the
same funds withdrawn from savings account No. 35342-038 were conjugal partnership
properties and part of the estate, and hence, there was allegedly no ground for
reimbursement. She also sought his ouster for failure to include the sums in question for
inventory and for "concealment of funds belonging to the estate." 4

Vitug insists that the said funds are his exclusive property having acquired the same
through a survivorship agreement executed with his late wife and the bank on June 19,
1970. The agreement provides:

We hereby agree with each other and with the BANK OF AMERICAN
NATIONAL TRUST AND SAVINGS ASSOCIATION (hereinafter referred
to as the BANK), that all money now or hereafter deposited by us or any
or either of us with the BANK in our joint savings current account shall be
the property of all or both of us and shall be payable to and collectible or
withdrawable by either or any of us during our lifetime, and after the death
of either or any of us shall belong to and be the sole property of the
survivor or survivors, and shall be payable to and collectible or
withdrawable by such survivor or survivors.

We further agree with each other and the BANK that the receipt or check
of either, any or all of us during our lifetime, or the receipt or check of the
survivor or survivors, for any payment or withdrawal made for our above-
mentioned account shall be valid and sufficient release and discharge of
the BANK for such payment or withdrawal. 5

The trial courts 6 upheld the validity of this agreement and granted "the motion to sell
some of the estate of Dolores L. Vitug, the proceeds of which shall be used to pay the
personal funds of Romarico Vitug in the total sum of P667,731.66 ... ." 7

On the other hand, the Court of Appeals, in the petition for certiorari filed by the herein
private respondent, held that the above-quoted survivorship agreement constitutes a
conveyance mortis causa which "did not comply with the formalities of a valid will as
prescribed by Article 805 of the Civil Code," 8 and secondly, assuming that it is a mere
donation inter vivos, it is a prohibited donation under the provisions of Article 133 of the
Civil Code. 9

The dispositive portion of the decision of the Court of Appeals states:

WHEREFORE, the order of respondent Judge dated November 26, 1985

(Annex II, petition) is hereby set aside insofar as it granted private
respondent's motion to sell certain properties of the estate of Dolores L.
Vitug for reimbursement of his alleged advances to the estate, but the
same order is sustained in all other respects. In addition, respondent
Judge is directed to include provisionally the deposits in Savings Account
No. 35342-038 with the Bank of America, Makati, in the inventory of actual
properties possessed by the spouses at the time of the decedent's death.
With costs against private respondent. 10

In his petition, Vitug, the surviving spouse, assails the appellate court's ruling on the
strength of our decisions in Rivera v. People's Bank and Trust Co. 11 and Macam v.
Gatmaitan 12 in which we sustained the validity of "survivorship agreements" and
considering them as aleatory contracts. 13

The petition is meritorious.

The conveyance in question is not, first of all, one of mortis causa, which should be
embodied in a will. A will has been defined as "a personal, solemn, revocable and free
act by which a capacitated person disposes of his property and rights and declares or
complies with duties to take effect after his death." 14 In other words, the bequest or
device must pertain to the testator. 15 In this case, the monies subject of savings
account No. 35342-038 were in the nature of conjugal funds In the case relied
on, Rivera v. People's Bank and Trust Co., 16 we rejected claims that a survivorship
agreement purports to deliver one party's separate properties in favor of the other, but
simply, their joint holdings:

xxx xxx xxx

... Such conclusion is evidently predicated on the assumption that

Stephenson was the exclusive owner of the funds-deposited in the bank,
which assumption was in turn based on the facts (1) that the account was
originally opened in the name of Stephenson alone and (2) that Ana
Rivera "served only as housemaid of the deceased." But it not infrequently
happens that a person deposits money in the bank in the name of another;
and in the instant case it also appears that Ana Rivera served her master
for about nineteen years without actually receiving her salary from him.
The fact that subsequently Stephenson transferred the account to the
name of himself and/or Ana Rivera and executed with the latter the
 survivorship agreement in question although there was no relation of
kinship between them but only that of master and servant, nullifies the
assumption that Stephenson was the exclusive owner of the bank
account. In the absence, then, of clear proof to the contrary, we must give
full faith and credit to the certificate of deposit which recites in effect that
the funds in question belonged to Edgar Stephenson and Ana Rivera; that
they were joint (and several) owners thereof; and that either of them could
withdraw any part or the whole of said account during the lifetime of both,
and the balance, if any, upon the death of either, belonged to the
survivor. 17

xxx xxx xxx

In Macam v. Gatmaitan, 18 it was held:

xxx xxx xxx

This Court is of the opinion that Exhibit C is an aleatory contract whereby,

according to article 1790 of the Civil Code, one of the parties or both
reciprocally bind themselves to give or do something as an equivalent for
that which the other party is to give or do in case of the occurrence of an
event which is uncertain or will happen at an indeterminate time. As
already stated, Leonarda was the owner of the house and Juana of the
Buick automobile and most of the furniture. By virtue of Exhibit C, Juana
would become the owner of the house in case Leonarda died first, and
Leonarda would become the owner of the automobile and the furniture if
Juana were to die first. In this manner Leonarda and Juana reciprocally
assigned their respective property to one another conditioned upon who
might die first, the time of death determining the event upon which the
acquisition of such right by the one or the other depended. This contract,
as any other contract, is binding upon the parties thereto. Inasmuch as
Leonarda had died before Juana, the latter thereupon acquired the
ownership of the house, in the same manner as Leonarda would have
acquired the ownership of the automobile and of the furniture if Juana had
died first. 19

xxx xxx xxx

There is no showing that the funds exclusively belonged to one party, and hence it must
be presumed to be conjugal, having been acquired during the existence of the marita.
relations. 20

Neither is the survivorship agreement a donation inter vivos, for obvious reasons,
because it was to take effect after the death of one party. Secondly, it is not a donation
between the spouses because it involved no conveyance of a spouse's own properties
to the other.
It is also our opinion that the agreement involves no modification petition of the conjugal
partnership, as held by the Court of Appeals, 21 by "mere stipulation" 22 and that it is no
"cloak" 23 to circumvent the law on conjugal property relations. Certainly, the spouses
are not prohibited by law to invest conjugal property, say, by way of a joint and several
bank account, more commonly denominated in banking parlance as an "and/or"
account. In the case at bar, when the spouses Vitug opened savings account No.
35342-038, they merely put what rightfully belonged to them in a money-making
venture. They did not dispose of it in favor of the other, which would have arguably been
sanctionable as a prohibited donation. And since the funds were conjugal, it can not be
said that one spouse could have pressured the other in placing his or her deposits in the
money pool.

The validity of the contract seems debatable by reason of its "survivor-take-all" feature,
but in reality, that contract imposed a mere obligation with a term, the term being death.
Such agreements are permitted by the Civil Code. 24

Under Article 2010 of the Code:

ART. 2010. By an aleatory contract, one of the parties or both reciprocally

bind themselves to give or to do something in consideration of what the
other shall give or do upon the happening of an event which is uncertain,
or which is to occur at an indeterminate time.

Under the aforequoted provision, the fulfillment of an aleatory contract depends on

either the happening of an event which is (1) "uncertain," (2) "which is to occur at an
indeterminate time." A survivorship agreement, the sale of a sweepstake ticket, a
transaction stipulating on the value of currency, and insurance have been held to fall
under the first category, while a contract for life annuity or pension under Article 2021, et
sequentia, has been categorized under the second. 25 In either case, the element of risk
is present. In the case at bar, the risk was the death of one party and survivorship of the
other.

However, as we have warned:

xxx xxx xxx

But although the survivorship agreement is per se not contrary to law its
operation or effect may be violative of the law. For instance, if it be shown
in a given case that such agreement is a mere cloak to hide an inofficious
donation, to transfer property in fraud of creditors, or to defeat the legitime
of a forced heir, it may be assailed and annulled upon such grounds. No
such vice has been imputed and established against the agreement
involved in this case. 26

xxx xxx xxx

There is no demonstration here that the survivorship agreement had been executed for
such unlawful purposes, or, as held by the respondent court, in order to frustrate our
laws on wills, donations, and conjugal partnership.

The conclusion is accordingly unavoidable that Mrs. Vitug having predeceased her
husband, the latter has acquired upon her death a vested right over the amounts under
savings account No. 35342-038 of the Bank of America. Insofar as the respondent court
ordered their inclusion in the inventory of assets left by Mrs. Vitug, we hold that the
court was in error. Being the separate property of petitioner, it forms no more part of the
estate of the deceased.

WHEREFORE, the decision of the respondent appellate court, dated June 29, 1987,
and its resolution, dated February 9, 1988, are SET ASIDE.

No costs.

SO ORDERED.

G.R. No. L-69259 January 26, 1988

DELPHER TRADES CORPORATION, and DELPHIN PACHECO, petitioners,

vs.
INTERMEDIATE APPELLATE COURT and HYDRO PIPES PHILIPPINES,
INC., respondents.

GUTIERREZ, JR., J.:

The petitioners question the decision of the Intermediate Appellate Court which
sustained the private respondent's contention that the deed of exchange whereby Delfin
Pacheco and Pelagia Pacheco conveyed a parcel of land to Delpher Trades
Corporation in exchange for 2,500 shares of stock was actually a deed of sale which
violated a right of first refusal under a lease contract.

Briefly, the facts of the case are summarized as follows:

In 1974, Delfin Pacheco and his sister, Pelagia Pacheco, were the owners
of 27,169 square meters of real estate Identified as Lot. No. 1095, Malinta
Estate, in the Municipality of Polo (now Valenzuela), Province of Bulacan
(now Metro Manila) which is covered by Transfer Certificate of Title No. T-
4240 of the Bulacan land registry.
 On April 3, 1974, the said co-owners leased to Construction Components
International Inc. the same property and providing that during the
existence or after the term of this lease the lessor should he decide to sell
the property leased shall first offer the same to the lessee and the letter
has the priority to buy under similar conditions (Exhibits A to A-5)

On August 3, 1974, lessee Construction Components International, Inc.

assigned its rights and obligations under the contract of lease in favor of
Hydro Pipes Philippines, Inc. with the signed conformity and consent of
lessors Delfin Pacheco and Pelagia Pacheco (Exhs. B to B-6 inclusive)

The contract of lease, as well as the assignment of lease were annotated

at he back of the title, as per stipulation of the parties (Exhs. A to D-3
inclusive)

On January 3, 1976, a deed of exchange was executed between lessors

Delfin and Pelagia Pacheco and defendant Delpher Trades Corporation
whereby the former conveyed to the latter the leased property (TCT No.T-
4240) together with another parcel of land also located in Malinta Estate,
Valenzuela, Metro Manila (TCT No. 4273) for 2,500 shares of stock of
defendant corporation with a total value of P1,500,000.00 (Exhs. C to C-5,
inclusive) (pp. 44-45, Rollo)

On the ground that it was not given the first option to buy the leased property pursuant
to the proviso in the lease agreement, respondent Hydro Pipes Philippines, Inc., filed an
amended complaint for reconveyance of Lot. No. 1095 in its favor under conditions
similar to those whereby Delpher Trades Corporation acquired the property from
Pelagia Pacheco and Delphin Pacheco.

After trial, the Court of First Instance of Bulacan ruled in favor of the plaintiff. The
dispositive portion of the decision reads:

ACCORDINGLY, the judgment is hereby rendered declaring the valid

existence of the plaintiffs preferential right to acquire the subject property
(right of first refusal) and ordering the defendants and all persons deriving
rights therefrom to convey the said property to plaintiff who may offer to
acquire the same at the rate of P14.00 per square meter, more or less, for
Lot 1095 whose area is 27,169 square meters only. Without
pronouncement as to attorney's fees and costs. (Appendix I; Rec., pp.
246- 247). (Appellant's Brief, pp. 1-2; p. 134, Rollo)

The lower court's decision was affirmed on appeal by the Intermediate Appellate Court.

The defendants-appellants, now the petitioners, filed a petition for certiorari to review
the appellate court's decision.
We initially denied the petition but upon motion for reconsideration, we set aside the
resolution denying the petition and gave it due course.

The petitioners allege that:

The denial of the petition will work great injustice to the petitioners, in that:

1. Respondent Hydro Pipes Philippines, Inc, ("private respondent") will

acquire from petitioners a parcel of industrial land consisting of 27,169
square meters or 2.7 hectares (located right after the Valenzuela, Bulacan
exit of the toll expressway) for only P14/sq. meter, or a total of P380,366,
although the prevailing value thereof is approximately P300/sq. meter or
P8.1 Million;

2. Private respondent is allowed to exercise its right of first refusal even if

there is no "sale" or transfer of actual ownership interests by petitioners to
third parties; and

3. Assuming arguendo that there has been a transfer of actual ownership

interests, private respondent will acquire the land not under "similar
conditions" by which it was transferred to petitioner Delpher Trades
Corporation, as provided in the same contractual provision invoked by
private respondent. (pp. 251-252, Rollo)

The resolution of the case hinges on whether or not the "Deed of Exchange" of the
properties executed by the Pachecos on the one hand and the Delpher Trades
Corporation on the other was meant to be a contract of sale which, in effect, prejudiced
the private respondent's right of first refusal over the leased property included in the
"deed of exchange."

Eduardo Neria, a certified public accountant and son-in-law of the late Pelagia Pacheco
testified that Delpher Trades Corporation is a family corporation; that the corporation
was organized by the children of the two spouses (spouses Pelagia Pacheco and
Benjamin Hernandez and spouses Delfin Pacheco and Pilar Angeles) who owned in
common the parcel of land leased to Hydro Pipes Philippines in order to perpetuate
their control over the property through the corporation and to avoid taxes; that in order
to accomplish this end, two pieces of real estate, including Lot No. 1095 which had
been leased to Hydro Pipes Philippines, were transferred to the corporation; that the
leased property was transferred to the corporation by virtue of a deed of exchange of
property; that in exchange for these properties, Pelagia and Delfin acquired 2,500
unissued no par value shares of stock which are equivalent to a 55% majority in the
corporation because the other owners only owned 2,000 shares; and that at the time of
incorporation, he knew all about the contract of lease of Lot. No. 1095 to Hydro Pipes
Philippines. In the petitioners' motion for reconsideration, they refer to this scheme as
"estate planning." (p. 252, Rollo)
Under this factual backdrop, the petitioners contend that there was actually no transfer
of ownership of the subject parcel of land since the Pachecos remained in control of the
property. Thus, the petitioners allege: "Considering that the beneficial ownership and
control of petitioner corporation remained in the hands of the original co-owners, there
was no transfer of actual ownership interests over the land when the same was
transferred to petitioner corporation in exchange for the latter's shares of stock. The
transfer of ownership, if anything, was merely in form but not in substance. In reality,
petitioner corporation is a mere alter ego or conduit of the Pacheco co-owners; hence
the corporation and the co-owners should be deemed to be the same, there being in
substance and in effect an Identity of interest." (p. 254, Rollo)

The petitioners maintain that the Pachecos did not sell the property. They argue that
there was no sale and that they exchanged the land for shares of stocks in their own
corporation. "Hence, such transfer is not within the letter, or even spirit of the contract.
There is a sale when ownership is transferred for a price certain in money or its
equivalent (Art. 1468, Civil Code) while there is a barter or exchange when one thing is
given in consideration of another thing (Art. 1638, Civil Code)." (pp. 254-255, Rollo)

On the other hand, the private respondent argues that Delpher Trades Corporation is a
corporate entity separate and distinct from the Pachecos. Thus, it contends that it
cannot be said that Delpher Trades Corporation is the Pacheco's same alter ego or
conduit; that petitioner Delfin Pacheco, having treated Delpher Trades Corporation as
such a separate and distinct corporate entity, is not a party who may allege that this
separate corporate existence should be disregarded. It maintains that there was actual
transfer of ownership interests over the leased property when the same was transferred
to Delpher Trades Corporation in exchange for the latter's shares of stock.

We rule for the petitioners.

After incorporation, one becomes a stockholder of a corporation by subscription or by

purchasing stock directly from the corporation or from individual owners thereof
(Salmon, Dexter & Co. v. Unson, 47 Phil, 649, citing Bole v. Fulton [1912], 233 Pa.,
609). In the case at bar, in exchange for their properties, the Pachecos acquired 2,500
original unissued no par value shares of stocks of the Delpher Trades Corporation.
Consequently, the Pachecos became stockholders of the corporation by subscription
"The essence of the stock subscription is an agreement to take and pay for original
unissued shares of a corporation, formed or to be formed." (Rohrlich 243, cited in
Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the
Philippines, Vol. III, 1980 Edition, p. 430) It is significant that the Pachecos took no par
value shares in exchange for their properties.

A no-par value share does not purport to represent any stated

proportionate interest in the capital stock measured by value, but only an
aliquot part of the whole number of such shares of the issuing corporation.
The holder of no-par shares may see from the certificate itself that he is
only an aliquot sharer in the assets of the corporation. But this character of
 proportionate interest is not hidden beneath a false appearance of a given
sum in money, as in the case of par value shares. The capital stock of a
corporation issuing only no-par value shares is not set forth by a stated
amount of money, but instead is expressed to be divided into a stated
number of shares, such as, 1,000 shares. This indicates that a
shareholder of 100 such shares is an aliquot sharer in the assets of the
corporation, no matter what value they may have, to the extent of
100/1,000 or 1/10. Thus, by removing the par value of shares, the
attention of persons interested in the financial condition of a corporation is
focused upon the value of assets and the amount of its debts. (Agbayani,
Commentaries and Jurisprudence on the Commercial Laws of the
Philippines, Vol. III, 1980 Edition, p. 107).

Moreover, there was no attempt to state the true or current market value of the real
estate. Land valued at P300.00 a square meter was turned over to the family's
corporation for only P14.00 a square meter.

It is to be stressed that by their ownership of the 2,500 no par shares of stock, the
Pachecos have control of the corporation. Their equity capital is 55% as against 45% of
the other stockholders, who also belong to the same family group.

In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. What
they really did was to invest their properties and change the nature of their ownership
from unincorporated to incorporated form by organizing Delpher Trades Corporation to
take control of their properties and at the same time save on inheritance taxes.

As explained by Eduardo Neria:

xxx xxx xxx

ATTY. LINSANGAN:

Q Mr. Neria, from the point of view of taxation, is there any

benefit to the spouses Hernandez and Pacheco in
connection with their execution of a deed of exchange on the
properties for no par value shares of the defendant
corporation?

A Yes, sir.

COURT:

Q What do you mean by "point of view"?

A To take advantage for both spouses and corporation in

entering in the deed of exchange.
ATTY. LINSANGAN:

Q (What do you mean by "point of view"?) What are these

benefits to the spouses of this deed of exchange?

A Continuous control of the property, tax exemption benefits,

and other inherent benefits in a corporation.

Q What are these advantages to the said spouses from the

point of view of taxation in entering in the deed of exchange?

A Having fulfilled the conditions in the income tax law,

providing for tax free exchange of property, they were able to
execute the deed of exchange free from income tax and
acquire a corporation.

Q What provision in the income tax law are you referring to?

A I refer to Section 35 of the National Internal Revenue Code

under par. C-sub-par. (2) Exceptions regarding the provision
which I quote: "No gain or loss shall also be recognized if a
person exchanges his property for stock in a corporation of
which as a result of such exchange said person alone or
together with others not exceeding four persons gains
control of said corporation."

Q Did you explain to the spouses this benefit at the time you
executed the deed of exchange?

A Yes, sir

Q You also, testified during the last hearing that the decision
to have no par value share in the defendant corporation was
for the purpose of flexibility. Can you explain flexibility in
connection with the ownership of the property in question?

A There is flexibility in using no par value shares as the

value is determined by the board of directors in increasing
capitalization. The board can fix the value of the shares
equivalent to the capital requirements of the corporation.

Q Now also from the point of taxation, is there any flexibility

in the holding by the corporation of the property in question?

A Yes, since a corporation does not die it can continue to

hold on to the property indefinitely for a period of at least 50
 years. On the other hand, if the property is held by the
spouse the property will be tied up in succession
proceedings and the consequential payments of estate and
inheritance taxes when an owner dies.

Q Now what advantage is this continuity in relation to

ownership by a particular person of certain properties in
respect to taxation?

A The property is not subjected to taxes on succession as

the corporation does not die.

Q So the benefit you are talking about are inheritance taxes?

A Yes, sir. (pp. 3-5, tsn., December 15, 1981)

The records do not point to anything wrong or objectionable about this "estate planning"
scheme resorted to by the Pachecos. "The legal right of a taxpayer to decrease the
amount of what otherwise could be his taxes or altogether avoid them, by means which
the law permits, cannot be doubted." (Liddell & Co., Inc. v. The collector of Internal
Revenue, 2 SCRA 632 citing Gregory v. Helvering, 293 U.S. 465, 7 L. ed. 596).

The "Deed of Exchange" of property between the Pachecos and Delpher Trades
Corporation cannot be considered a contract of sale. There was no transfer of actual
ownership interests by the Pachecos to a third party. The Pacheco family merely
changed their ownership from one form to another. The ownership remained in the
same hands. Hence, the private respondent has no basis for its claim of a light of first
refusal under the lease contract.

WHEREFORE, the instant petition is hereby GRANTED, The questioned decision and
resolution of the then Intermediate Appellate Court are REVERSED and SET ASIDE.
The amended complaint in Civil Case No. 885-V-79 of the then Court of First Instance
of Bulacan is DISMISSED. No costs.

SO ORDERED.

G.R. No. L-19201 June 16, 1965

REV. FR. CASIMIRO LLADOC, petitioner,

vs.
The COMMISSIONER OF INTERNAL REVENUE and The COURT of TAX
APPEALS, respondents.
Hilado and Hilado for petitioner.
Office of the Solicitor General for respondents.

PAREDES, J.:

Sometime in 1957, the M.B. Estate, Inc., of Bacolod City, donated P10,000.00 in cash
to Rev. Fr. Crispin Ruiz, then parish priest of Victorias, Negros Occidental, and
predecessor of herein petitioner, for the construction of a new Catholic Church in the
locality. The total amount was actually spent for the purpose intended.

On March 3, 1958, the donor M.B. Estate, Inc., filed the donor's gift tax return. Under
date of April 29, 1960, the respondent Commissioner of Internal Revenue issued an
assessment for donee's gift tax against the Catholic Parish of Victorias, Negros
Occidental, of which petitioner was the priest. The tax amounted to P1,370.00 including
surcharges, interests of 1% monthly from May 15, 1958 to June 15, 1960, and the
compromise for the late filing of the return.

Petitioner lodged a protest to the assessment and requested the withdrawal thereof.
The protest and the motion for reconsideration presented to the Commissioner of
Internal Revenue were denied. The petitioner appealed to the Court of Tax Appeals on
November 2, 1960. In the petition for review, the Rev. Fr. Casimiro Lladoc claimed,
among others, that at the time of the donation, he was not the parish priest in Victorias;
that there is no legal entity or juridical person known as the "Catholic Parish Priest of
Victorias," and, therefore, he should not be liable for the donee's gift tax. It was also
asserted that the assessment of the gift tax, even against the Roman Catholic Church,
would not be valid, for such would be a clear violation of the provisions of the
Constitution.

After hearing, the CTA rendered judgment, the pertinent portions of which are quoted
below:

... . Parish priests of the Roman Catholic Church under canon laws are similarly
situated as its Archbishops and Bishops with respect to the properties of the
church within their parish. They are the guardians, superintendents or
administrators of these properties, with the right of succession and may sue and
be sued.

xxx xxx xxx

The petitioner impugns the, fairness of the assessment with the argument that he
should not be held liable for gift taxes on donation which he did not receive
personally since he was not yet the parish priest of Victorias in the year 1957
when said donation was given. It is intimated that if someone has to pay at all, it
should be petitioner's predecessor, the Rev. Fr. Crispin Ruiz, who received the
donation in behalf of the Catholic parish of Victorias or the Roman Catholic
Church. Following petitioner's line of thinking, we should be equally unfair to hold
 that the assessment now in question should have been addressed to, and
collected from, the Rev. Fr. Crispin Ruiz to be paid from income derived from his
present parish where ever it may be. It does not seem right to indirectly burden
the present parishioners of Rev. Fr. Ruiz for donee's gift tax on a donation to
which they were not benefited.

xxx xxx xxx

We saw no legal basis then as we see none now, to include within the
Constitutional exemption, taxes which partake of the nature of an excise upon
the use made of the properties or upon the exercise of the privilege of receiving
the properties. (Phipps vs. Commissioner of Internal Revenue, 91 F [2d] 627;
1938, 302 U.S. 742.)

It is a cardinal rule in taxation that exemptions from payment thereof are highly
disfavored by law, and the party claiming exemption must justify his claim by
a clear, positive, or express grant of such privilege by law. (Collector vs. Manila
Jockey Club, G.R. No. L-8755, March 23, 1956; 53 O.G. 3762.)

The phrase "exempt from taxation" as employed in Section 22(3), Article VI of the
Constitution of the Philippines, should not be interpreted to mean exemption from
all kinds of taxes. Statutes exempting charitable and religious property from
taxation should be construed fairly though strictly and in such manner as to give
effect to the main intent of the lawmakers. (Roman Catholic Church vs. Hastrings
5 Phil. 701.)

xxx xxx xxx

WHEREFORE, in view of the foregoing considerations, the decision of the

respondent Commissioner of Internal Revenue appealed from, is hereby affirmed
except with regard to the imposition of the compromise penalty in the amount of
P20.00 (Collector of Internal Revenue v. U.S.T., G.R. No. L-11274, Nov. 28,
1958); ..., and the petitioner, the Rev. Fr. Casimiro Lladoc is hereby ordered to
pay to the respondent the amount of P900.00 as donee's gift tax, plus the
surcharge of five per centum (5%) as ad valorem penalty under Section 119 (c)
of the Tax Code, and one per centum (1%) monthly interest from May 15, 1958
to the date of actual payment. The surcharge of 25% provided in Section 120 for
failure to file a return may not be imposed as the failure to file a return was not
due to willful neglect.( ... ) No costs.

The above judgment is now before us on appeal, petitioner assigning two (2) errors
allegedly committed by the Tax Court, all of which converge on the singular issue of
whether or not petitioner should be liable for the assessed donee's gift tax on the
P10,000.00 donated for the construction of the Victorias Parish Church.
Section 22 (3), Art. VI of the Constitution of the Philippines, exempts from taxation
cemeteries, churches and parsonages or convents, appurtenant thereto, and
all lands, buildings, and improvements used exclusively for religious purposes. The
exemption is only from the payment of taxes assessed on such properties enumerated,
as property taxes, as contra distinguished from excise taxes. In the present case, what
the Collector assessed was a donee's gift tax; the assessment was not on the
properties themselves. It did not rest upon general ownership; it was an excise upon the
use made of the properties, upon the exercise of the privilege of receiving the properties
(Phipps vs. Com. of Int. Rec. 91 F 2d 627). Manifestly, gift tax is not within the
exempting provisions of the section just mentioned. A gift tax is not a property tax, but
an excise tax imposed on the transfer of property by way of gift inter vivos, the
imposition of which on property used exclusively for religious purposes, does not
constitute an impairment of the Constitution. As well observed by the learned
respondent Court, the phrase "exempt from taxation," as employed in the Constitution
(supra) should not be interpreted to mean exemption from all kinds of taxes. And there
being no clear, positive or express grant of such privilege by law, in favor of petitioner,
the exemption herein must be denied.

The next issue which readily presents itself, in view of petitioner's thesis, and Our
finding that a tax liability exists, is, who should be called upon to pay the gift tax?
Petitioner postulates that he should not be liable, because at the time of the donation he
was not the priest of Victorias. We note the merit of the above claim, and in order to put
things in their proper light, this Court, in its Resolution of March 15, 1965, ordered the
parties to show cause why the Head of the Diocese to which the parish of Victorias
pertains, should not be substituted in lieu of petitioner Rev. Fr. Casimiro Lladoc it
appearing that the Head of such Diocese is the real party in interest. The Solicitor
General, in representation of the Commissioner of Internal Revenue, interposed no
objection to such a substitution. Counsel for the petitioner did not also offer objection
thereto.

On April 30, 1965, in a resolution, We ordered the Head of the Diocese to present
whatever legal issues and/or defenses he might wish to raise, to which resolution
counsel for petitioner, who also appeared as counsel for the Head of the Diocese, the
Roman Catholic Bishop of Bacolod, manifested that it was submitting itself to the
jurisdiction and orders of this Court and that it was presenting, by reference, the brief of
petitioner Rev. Fr. Casimiro Lladoc as its own and for all purposes.

In view here of and considering that as heretofore stated, the assessment at bar had
been properly made and the imposition of the tax is not a violation of the constitutional
provision exempting churches, parsonages or convents, etc. (Art VI, sec. 22 [3],
Constitution), the Head of the Diocese, to which the parish Victorias Pertains, is liable
for the payment thereof.

The decision appealed from should be, as it is hereby affirmed insofar as tax liability is
concerned; it is modified, in the sense that petitioner herein is not personally liable for
the said gift tax, and that the Head of the Diocese, herein substitute petitioner, should
pay, as he is presently ordered to pay, the said gift tax, without special, pronouncement
as to costs.

G.R. No. L-19865 July 31, 1965

MARIA CARLA PIROVANO, etc., et al., petitioners-appellants,

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

Angel S. Gamboa for petitioners-appellants.

Office of the Solicitor General for respondent-appellee.

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

This case is a sequel to the case of Pirovano vs. De la Rama Steamship Co., 96 Phil.
335.

Briefly, the facts of the aforestated case may be stated as follows:

Enrico Pirovano was the father of the herein petitioners-appellants. Sometime in the
early part of 1941, De la Rama Steamship Co. insured the life of said Enrico Pirovano,
who was then its President and General Manager until the time of his death, with
various Philippine and American insurance companies for a total sum of one million
pesos, designating itself as the beneficiary of the policies, obtained by it. Due to the
Japanese occupation of the Philippines during the second World War, the Company
was unable to pay the premiums on the policies issued by its Philippine insurers and
these policies lapsed, while the policies issued by its American insurers were kept
effective and subsisting, the New York office of the Company having continued paying
its premiums from year to year.

During the Japanese occupation , or more particularly in the latter part of 1944, said
Enrico Pirovano died.

After the liberation of the Philippines from the Japanese forces, the Board of Directors of
De la Rama Steamship Co. adopted a resolution dated July 10, 1946 granting and
setting aside, out of the proceeds expected to be collected on the insurance policies
taken on the life of said Enrico Pirovano, the sum of P400,000.00 for equal division
among the four (4) minor children of the deceased, said sum of money to be convertible
into 4,000 shares of stock of the Company, at par, or 1,000 shares for each child.
Shortly thereafter, the Company received the total sum of P643,000.00 as proceeds of
the said life insurance policies obtained from American insurers.

Upon receipt of the last stated sum of money, the Board of Directors of the Company
modified, on January 6, 1947, the above-mentioned resolution by renouncing all its
rights title, and interest to the said amount of P643,000.00 in favor of the minor children
of the deceased, subject to the express condition that said amount should be retained
by the Company in the nature of a loan to it, drawing interest at the rate of five per
centum (5%) per annum, and payable to the Pirovano children after the Company shall
have first settled in full the balance of its present remaining bonded indebtedness in the
sum of approximately P5,000,000.00. This latter resolution was carried out in a
Memorandum Agreement on January 10, 1947 and June 17, 1947., respectively,
executed by the Company and Mrs. Estefania R. Pirovano, the latter acting in her
capacity as guardian of her children (petitioners-appellants herein) find pursuant to an
express authority granted her by the court.

On June 24, 1947, the Board of Directors of the Company further modified the last
mentioned resolution providing therein that the Company shall pay the proceeds of said
life insurance policies to the heirs of the said Enrico Pirovano after the Company shall
have settled in full the balance of its present remaining bonded indebtedness, but the
annual interests accruing on the principal shall be paid to the heirs of the said Enrico
Pirovano, or their duly appointed representative, whenever the Company is in a position
to meet said obligation.

On February 26, 1948, Mrs. Estefania R. Pirovano, in behalf of her children, executed a
public document formally accepting the donation; and, on the same date, the Company
through its Board of Directors, took official notice of this formal acceptance.

On September 13, 1949, the stockholders of the Company formally ratified the various
resolutions hereinabove mentioned with certain clarifying modifications that the payment
of the donation shall not be effected until such time as the Company shall have first duly
liquidated its present bonded indebtedness in the amount of P3,260,855.77 with the
National Development Company, or fully redeemed the preferred shares of stock in the
amount which shall be issued to the National Development Company in lieu thereof;
and that any and all taxes, legal fees, and expenses in any way connected with the
above transaction shall be chargeable and deducted from the proceeds of the life
insurance policies mentioned in the resolutions of the Board of Directors.

On March 8, 1951, however, the majority stockholders of the Company voted to revoke
the resolution approving the donation in favor of the Pirovano children.

As a consequence of this revocation and refusal of the Company to pay the balance of
the donation amounting to P564,980.90 despite demands therefor, the herein
petitioners-appellants represented by their natural guardian, Mrs. Estefania R. Pirovano,
brought an action for the recovery of said amount, plus interest and damages against
De la Rama Steamship Co., in the Court of First Instance of Rizal, which case ultimately
culminated to an appeal to this Court. On December 29, 1954, this court rendered its
decision in the appealed case (96 Phil. 335) holding that the donation was valid and
remunerative in nature, the dispositive part of which reads:
 Wherefore, the decision appealed from should be modified as follows: (a) that the
donation in favor of the children of the late Enrico Pirovano of the proceeds of the
insurance policies taken on his life is valid and binding on the defendant
corporation; (b) that said donation, which amounts to a total of P583,813.59,
including interest, as it appears in the books of the corporation as of August 31,
1951, plus interest thereon at the rate of 5 per cent per annum from the filing of
the complaint, should be paid to the plaintiffs after the defendant corporation
shall have fully redeemed the preferred shares issued to the National
Development Company under the terms and conditions stared in the resolutions
of the Board of Directors of January 6, 1947 and June 24, 1947, as amended by
the resolution of the stockholders adopted on September 13, 1949; and (c)
defendant shall pay to plaintiffs an additional amount equivalent to 10 per cent of
said amount of P583,813.59 as damages by way of attorney's fees, and to pay
the costs of action. (Pirovano et al. vs. De la Rama Steamship Co., 96 Phil. 367-
368)

The above decision became final and executory. In compliance therewith, De la Rama
Steamship Co. made, on April 6, 1955, a partial payment on the amount of the judgment
and paid the balance thereof on May 12, 1955.

On March 6, 1955, respondent Commissioner of Internal Revenue assessed the

amount of P60,869.67 as donees' gift tax, inclusive of surcharges, interests and other
penalties, against each of the petitioners-appellants, or for the total sum of
P243,478.68; and, on April 23, 1955, a donor's gift tax in the total amount of P34,371.76
was also assessed against De la Rama Steamship Co., which the latter paid.

Petitioners-appellants herein contested respondent Commissioner's assessment and

imposition of the donees' gift taxes and donor's gift tax and also made a claim for refund
of the donor's gift tax so collected. Respondent Commissioner overruled petitioners'
claims; hence, the latter presented two (2) petitions for review against respondent's
rulings before the Court of Tax Appeals, said petitions having been docketed as CTA
Cases Nos. 347 and 375. CTA Case No. 347 relates to the petition disputing the legality
of the assessment of donees' gift taxes and donor's gift tax while CTA Case No. 375
refers to the claim for refund of the donor's gift tax already paid.

After the filing of respondent's usual answers to the petitions, the two cases, being
interrelated to each other, were tried jointly and terminated.

On January 31, 1962, the Court of Tax Appeals rendered its decision in the two cases,
the dispositive part of which reads:

In resume, we are of the opinion, that (1) the donor's gift tax in the sum of
P34,371.76 was erroneously assessed and collected, hence, petitioners are
entitled to the refund thereof; (2) the donees' gift taxes were correctly assessed;
(3) the imposition of the surcharge of 25% is not proper; (4) the surcharge of 5%
 is legally due; and (5) the interest of 1% per month on the deficiency donees' gift
taxes is due from petitioners from March 8, 1955 until the taxes are paid.

IN LINE WITH THE FOREGOING OPINION, petitioners are hereby ordered to

pay the donees' gift taxes as assessed by respondent, plus 5% surcharge and
interest at the rate of 1% per month from March 8, 1955 to the date of payment of
said donees' gift taxes. Respondent is ordered to apply the sum of P34,371.76
which is refundable to petitioners, against the amount due from petitioners. With
costs against petitioners in Case No. 347.

Petitioners-appellants herein filed a motion to reconsider the above decision, which the
lower court denied. Hence, this appeal before us.

In the instant appeal, petitioners-appellants herein question only that portion of the
decision of the lower court ordering the payment of donees' gift taxes as assessed by
respondent as well as the imposition of surcharge and interest on the amount of donees'
gift taxes.

In their brief and memorandum, they dispute the factual finding of the lower court that
De la Rama Steamship Company's renunciation of its rights, title, and interest over the
proceeds of said life insurance policies in favor of the Pirovano children "was motivated
solely and exclusively by its sense of gratitude, an act of pure liberality, and not to pay
additional compensation for services inadequately paid for." Petitioners now contend
that the lower court's finding was erroneous in seemingly considering the disputed grant
as a simple donation, since our previous decision (96 Phil. 335) had already declared
that the transfer to the Pirovano children was a remuneratory donation. Petitioners
further contend that the same was made not for an insufficient or inadequate
consideration but rather it a was made for a full and adequate compensation for the
valuable services rendered by the late Enrico Pirovano to the De la Rama Steamship
Co.; hence, the donation does not constitute a taxable gift under the provisions of
Section 108 of the National Internal Revenue Code.

The argument for petitioners-appellants fails to take into account the fact that neither in
Spanish nor in Anglo-American law was it considered that past services, rendered
without relying on a coetaneous promise, express or implied, that such services would
be paid for in the future, constituted cause or consideration that would make a
conveyance of property anything else but a gift or donation. This conclusion flows from
the text of Article 619 of the Code of 1889 (identical with Article 726 of the present Civil
Code of the Philippines):

When a person gives to another a thing ... on account of the latter's merits or
of the services rendered by him to the donor, provided they do not constitute a
demandable debt, ..., there is also a donation. ... .

There is nothing on record to show that when the late Enrico Pirovano rendered
services as President and General Manager of the De la Rama Steamship Co. he was
not fully compensated for such services, or that, because they were "largely responsible
for the rapid and very successful development of the activities of the company" (Res. of
July 10, 1946). Pirovano expected or was promised further compensation over and in
addition to his regular emoluments as President and General Manager. The fact that his
services contributed in a large measure to the success of the company did not give rise
to a recoverable debt, and the conveyances made by the company to his heirs remain a
gift or donation. This is emphasized by the directors' Resolution of January 6, 1947, that
"out of gratitude" the company decided to renounce in favor of Pirovano's heirs the
proceeds of the life insurance policies in question. The true consideration for the
donation was, therefore, the company's gratitude for his services, and not the services
themselves.

That the tax court regarded the conveyance as a simple donation, instead of a
remuneratory one as it was declared to be in our previous decision, is but an innocuous
error; whether remuneratory or simple, the conveyance remained a gift, taxable under
Chapter 2, Title III of the Internal Revenue Code.

But then appellants contend, the entire property or right donated should not be
considered as a gift for taxation purposes; only that portion of the value of the property
or right transferred, if any, which is in excess of the value of the services rendered
should be considered as a taxable gift. They cite in support Section 111 of the Tax
Code which provides that —

Where property is transferred for less, than an adequate and full consideration in
money or money's worth, then the amount by which the value of the property
exceeded the value of the consideration shall, for the purpose of the tax imposed
by this Chapter, be deemed a gift, ... .

The flaw in this argument lies in the fact that, as copied from American law, the term
consideration used in this section refers to the technical "consideration" defined by the
American Law Institute (Restatement of Contracts) as "anything that is bargained for by
the promisor and given by the promisee in exchange for the promise" (Also, Corbin on
Contracts, Vol. I, p. 359). But, as we have seen, Pirovano's successful activities as
officer of the De la Rama Steamship Co. cannot be deemed such consideration for the
gift to his heirs, since the services were rendered long before the Company ceded the
value of the life policies to said heirs; cession and services were not the result of one
bargain or of a mutual exchange of promises.

And the Anglo-American law treats a subsequent promise to pay for past services (like
one to pay for improvements already made without prior request from the promisor) to
be a nudum pactum (Roscorla vs. Thomas, 3 Q.B. 234; Peters vs. Poro, 25 ALR 615;
Carson vs. Clark, 25 Am. Dec. 79; Boston vs. Dodge, 12 Am. Dec. 206), i.e., one that is
unenforceable in view of the common law rule that consideration must consist in a legal
benefit to the promisee or some legal detriment to the promisor.
What is more, the actual consideration for the cession of the policies, as previously
shown, was the Company's gratitude to Pirovano; so that under section 111 of the Code
there is no consideration the value of which can be deducted from that of the property
transferred as a gift. Like "love and affection," gratitude has no economic value and is
not "consideration" in the sense that the word is used in this section of the Tax Code.

As stated by Chief Justice Griffith of the Supreme Court of Mississippi in his well-known
book, "Outlines of the Law" (p. 204) —

Love and affection are not considerations of value — they are not estimable in terms of
value. Nor are sentiments of gratitude for gratuitous part favors or kindnesses; nor are
obligations which are merely moral. It has been well said that if a moral obligation were
alone sufficient it would remove the necessity for any consideration at all, since the fact
of making a promise impose, the moral obligation to perform it."

It is of course perfectly possible that a donation or gift should at the same time impose a
burden or condition on the donee involving some economic liability for him. A, for
example, may donate a parcel of land to B on condition that the latter assume a
mortgage existing on the donated land. In this case the donee may rightfully insist that
the gift tax be computed only on the value of the land less the value of the mortgage.
This, in fact, is contemplated by Article 619 of the Civil Code of 1889 (Art. 726 of the
Tax Code) when it provides that there is also a donation "when the gift imposes upon
the donee a burden which is less than the value of the thing given." Section 111 of the
Tax Code has in view situations of this kind, since it also prescribes that "the amount by
which the value of the property exceeded the value of the consideration" shall be
deemed a gift for the purpose of the tax. .

Petitioners finally contend that, even assuming that the donation in question is subject
to donees' gift taxes, the imposition of the surcharge of 5% and interest of 1% per
month from March 8, 1955 was not justified because the proceeds of the life insurance
policies were actually received on April 6, 1955 and May 12, 1955 only and in
accordance with Section 115(c) of the Tax Code; the filing of the returns of such tax
became due on March 1, 1956 and the tax became payable on May 15, 1956, as
provided for in Section 116(a) of the same Code. In other words, petitioners maintain
that the assessment and demand for donees' gift taxes was prematurely made and of
no legal effect; hence, they should not be held liable for such surcharge and interest.

It is well to note, and it is not disputed, that petitioners-donees have failed to file any gift
tax return and that they also failed to pay the amount of the assessment made against
them by respondent in 1955. This situation is covered by Section 119(b) (1) and (c) and
Section 120 of the Tax Code:

(b) Deficiency.

(1) Payment not extended. — Where a deficiency, or any interest assessed in

connection therewith, or any addition to the taxes provided for in section one
 hundred twenty is not paid in full within thirty days from the date of the notice and
demand from the Commissioner, there shall be collected as a part of the taxes,
interest upon the unpaid amount at the rate of one per centum a month from the
date of such notice and demand until it is paid. (section 119)

(c) Surcharge. — If any amount of the taxes included in the notice and demand
from the Commissioner of Internal Revenue is not paid in full within thirty days
after such notice and demand, there shall be collected in addition to the interest
prescribed above as a part of the taxes a surcharge of five per centum of the
unpaid amount. (sec. 119)

The failure to file a return was found by the lower court to be due to reasonable cause
and not to willful neglect. On this score, the elimination by the lower court of the 25%
surcharge is ad valorem penalty which respondent Commissioner had imposed
pursuant to Section 120 of the Tax Code was proper, since said Section 120 vests in
the Commissioner of Internal Revenue or in the tax court power and authority to impose
or not to impose such penalty depending upon whether or not reasonable cause has
been shown in the non-filing of such return.

On the other hand, unlike said Section 120, Section 119, paragraphs (b) (1) and (c) of
the Tax Code, does not confer on the Commissioner of Internal Revenue or on the
courts any power and discretion not to impose such interest and surcharge. It is likewise
provided for by law that an appeal to the Court of Tax Appeals from a decision of the
Commissioner of Internal Revenue shall not suspend the payment or collection of the
tax liability of the taxpayer unless a motion to that effect shall have been presented to
the court and granted by it on the ground that such collection will jeopardize the interest
of the taxpayer (Sec. 11, Republic Act No. 1125; Rule 12, Rules of the Court of Tax
Appeals). It should further be noted that —

It has been the uniform holding of this Court that no suit for enjoining the
collection of a tax, disputed or undisputed, can be brought, the remedy being to
pay the tax first, formerly under protest and now without need of protect, file the
claim with the Collector, and if he denies it, bring an action for recovery against
him. (David v. Ramos, et al., 90 Phil. 351)

Section 306 of the National Internal Revenue Code ... lays down the procedure to
be followed in those cases wherein a taxpayer entertains some doubt about the
correctness of a tax sought to be collected. Said section provides that the tax,
should first be paid and the taxpayer should sue for its recovery afterwards. The
purpose of the law obviously is to prevent delay in the collection of taxes, upon
which the Government depends for its existence. To allow a taxpayer to first
secure a ruling as regards the validity of the tax before paying it would be to
defeat this purpose. (National Dental Supply Co. vs. Meer, 90 Phil. 265)

Petitioners did not file in the lower court any motion for the suspension of payment or
collection of the amount of assessment made against them.
On the basis of the above-stated provisions of law and applicable authorities, it is
evident that the imposition of 1% interest monthly and 5% surcharge is justified and
legal. As succinctly stated by the court below, said imposition is "mandatory and may
not be waived by the Commissioner of Internal Revenue or by the courts" (Resolution
on petitioners' motion for reconsideration, Annex XIV, petition). Hence, said imposition
of interest and surcharge by the lower court should be upheld.

WHEREFORE, the decision of the Court of Tax Appeals is affirmed. Costs against
petitioners Pirovano.

[G.R. No. 111904. October 5, 2000]

SPS. AGRIPINO GESTOPA and ISABEL SILARIO GESTOPA, petitioners,

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

DECISION
QUISUMBING, J.:

This petition for review,[1] under Rule 45 of the Rules of Court, assails the
decision[2]of the Court of Appeals dated August 31, 1993, in CA-G.R. CV No. 38266,
which reversed the judgment[3] of the Regional Trial Court of Cebu City, Branch 5.
The facts, as culled from the records, are as follows:
Spouses Diego and Catalina Danlag were the owners of six parcels of unregistered
lands. They executed three deeds of donation mortis causa, two of which are dated
March 4, 1965 and another dated October 13, 1966, in favor of private respondent
Mercedes Danlag-Pilapil.[4] The first deed pertained to parcels 1 & 2 with Tax
Declaration Nos. 11345 and 11347, respectively. The second deed pertained to parcel
3, with TD No. 018613. The last deed pertained to parcel 4 with TD No. 016821. All
deeds contained the reservation of the rights of the donors (1) to amend, cancel or
revoke the donation during their lifetime, and (2) to sell, mortgage, or encumber the
properties donated during the donors' lifetime, if deemed necessary.
On January 16, 1973, Diego Danlag, with the consent of his wife, Catalina Danlag,
executed a deed of donation inter vivos[5] covering the aforementioned parcels of land
plus two other parcels with TD Nos. 11351 and 11343, respectively, again in favor of
private respondent Mercedes. This contained two conditions, that (1) the Danlag
spouses shall continue to enjoy the fruits of the land during their lifetime, and that (2)
the donee can not sell or dispose of the land during the lifetime of the said spouses,
without their prior consent and approval. Mercedes caused the transfer of the parcels'
tax declaration to her name and paid the taxes on them.
On June 28, 1979 and August 21, 1979, Diego and Catalina Danlag sold parcels 3
and 4 to herein petitioners, Mr. and Mrs. Agripino Gestopa. On September 29, 1979, the
Danlags executed a deed of revocation[6]recovering the six parcels of land subject of the
aforecited deed of donation inter vivos.
On March 1, 1983, Mercedes Pilapil (herein private respondent) filed with the RTC a
petition against the Gestopas and the Danlags, for quieting of title [7] over the above
parcels of land. She alleged that she was an illegitimate daughter of Diego Danlag; that
she lived and rendered incalculable beneficial services to Diego and his mother, Maura
Danlag, when the latter was still alive. In recognition of the services she rendered,
Diego executed a Deed of Donation on March 20, 1973, conveying to her the six (6)
parcels of land. She accepted the donation in the same instrument, openly and publicly
exercised rights of ownership over the donated properties, and caused the transfer of
the tax declarations to her name. Through machination, intimidation and undue
influence, Diego persuaded the husband of Mercedes, Eulalio Pilapil, to buy two of the
six parcels covered by the deed of donation. Said donation inter vivos was coupled with
conditions and, according to Mercedes, since its perfection, she had complied with all of
them; that she had not been guilty of any act of ingratitude; and that respondent Diego
had no legal basis in revoking the subject donation and then in selling the two parcels of
land to the Gestopas.
In their opposition, the Gestopas and the Danlags averred that the deed of donation
dated January 16, 1973 was null and void because it was obtained by Mercedes
through machinations and undue influence. Even assuming it was validly executed, the
intention was for the donation to take effect upon the death of the donor. Further, the
donation was void for it left the donor, Diego Danlag, without any property at all.
On December 27, 1991, the trial court rendered its decision, thus:

"WHEREFORE, the foregoing considered, the Court hereby renders judgment in favor
of the defendants and against the plaintiff:

1. Declaring the Donations Mortis Causa and Inter Vivos as revoked, and,
therefore, has (sic) no legal effect and force of law.
2. Declaring Diego Danlag the absolute and exclusive owner of the six (6)
parcels of land mentioned in the Deed of revocation (Exh. P-plaintiff, Exh. 6-
defendant Diego Danlag).
3. Declaring the Deeds of Sale executed by Diego Danlag in favor of spouses
Agripino Gestopa and Isabel Gestopa dated June 28, 1979 (Exh. S-plaintiff;
Exh. 18-defendant); Deed of Sale dated December 18, 1979 (Exh. T plaintiff;
Exh. 9-defendant); Deed of Sale dated September 14, 1979 (Exh. 8); Deed
of Sale dated June 30, 1975 (Exh. U); Deed of Sale dated March 13, 1978
(Exh. X) as valid and enforceable duly executed in accordance with the
formalities required by law.
 4. Ordering all tax declaration issued in the name of Mercedes Danlag Y Pilapil
covering the parcel of land donated cancelled and further restoring all the tax
declarations previously cancelled, except parcels nos. 1 and 5 described, in
the Deed of Donation Inter Vivos (Exh. "1") and Deed of Sale (Exh. "2")
executed by defendant in favor of plaintiff and her husband.
[5.] With respect to the contract of sale of abovestated parcels of land, vendor
Diego Danlag and spouse or their estate have the alternative remedies of
demanding the balance of the agreed price with legal interest, or rescission
of the contract of sale.

SO ORDERED."[8]

In rendering the above decision, the trial court found that the reservation clause in
all the deeds of donation indicated that Diego Danlag did not make any donation; that
the purchase by Mercedes of the two parcels of land covered by the Deed of
Donation Inter Vivosbolstered this conclusion; that Mercedes failed to rebut the
allegations of ingratitude she committed against Diego Danlag; and that Mercedes
committed fraud and machination in preparing all the deeds of donation without
explaining to Diego Danlag their contents.
Mercedes appealed to the Court of Appeals and argued that the trial court erred in
(1) declaring the donation dated January 16, 1973 as mortis causa and that the same
was already revoked on the ground of ingratitude; (2) finding that Mercedes purchased
from Diego Danlag the two parcels of land already covered by the above donation and
that she was only able to pay three thousand pesos, out of the total amount of twenty
thousand pesos; (3) failing to declare that Mercedes was an acknowledged natural child
of Diego Danlag.
On August 31, 1993, the appellate court reversed the trial court.It ruled:

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

judgment is hereby rendered as follows:

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

2. Declaring the Revocation of Donation dated June 4, 1979 to be null and void and
therefore of no force and effect;

3. Declaring Mercedes Danlag Pilapil as the absolute and exclusive owner of the six (6)
parcels of land specified in the above-cited deed of donation inter vivos;

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

5. Declaring the above-mentioned deeds of sale to be null and void and therefore of no
force and effect;

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

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

SO ORDERED."[9]

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

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

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

Before us, petitioners allege that the appellate court overlooked the fact that the
donor did not only reserve the right to enjoy the fruits of the properties, but also
prohibited the donee from selling or disposing the land without the consent and approval
of the Danlag spouses. This implied that the donor still had control and ownership over
the donated properties. Hence, the donation was post mortem.
Crucial in resolving whether the donation was inter vivos or mortis causa is the
determination of whether the donor intended to transfer the ownership over the
properties upon the execution of the deed.[11]
In ascertaining the intention of the donor, all of the deed's provisions must be read
together.[12] The deed of donation dated January 16, 1973, in favor of Mercedes
contained the following:

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

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

xxx

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

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

Note first that the granting clause shows that Diego donated the properties out of love
and affection for the donee. This is a mark of a donation inter vivos.[14] Second, the
reservation of lifetime usufruct indicates that the donor intended to transfer the naked
ownership over the properties. As correctly posed by the Court of Appeals, what was
the need for such reservation if the donor and his spouse remained the owners of the
properties? Third, the donor reserved sufficient properties for his maintenance in
accordance with his standing in society, indicating that the donor intended to part with
the six parcels of land.[15] Lastly, the donee accepted the donation. In the case
of Alejandro vs. Geraldez, 78 SCRA 245 (1977), we said that an acceptance clause is a
mark that the donation is inter vivos.Acceptance is a requirement for donations inter
vivos. Donations mortis causa, being in the form of a will, are not required to be
accepted by the donees during the donors' lifetime.
Consequently, the Court of Appeals did not err in concluding that the right to
dispose of the properties belonged to the donee. The donor's right to give consent was
merely intended to protect his usufructuary interests. In Alejandro, we ruled that a
limitation on the right to sell during the donors' lifetime implied that ownership had
passed to the donees and donation was already effective during the donors' lifetime.
The attending circumstances in the execution of the subject donation also
demonstrated the real intent of the donor to transfer the ownership over the subject
properties upon its execution.[16]Prior to the execution of donation inter vivos, the
Danlag spouses already executed three donations mortis causa. As correctly observed
by the Court of Appeals, the Danlag spouses were aware of the difference between the
two donations. If they did not intend to donate inter vivos, they would not again donate
the four lots already donated mortis causa. Petitioners' counter argument that this
proposition was erroneous because six years after, the spouses changed their intention
with the deed of revocation, is not only disingenious but also fallacious. Petitioners
cannot use the deed of revocation to show the spouses' intent because its validity is one
of the issues in this case.
 Petitioners aver that Mercedes' tax declarations in her name can not be a basis in
determining the donor's intent. They claim that it is easy to get tax declarations from the
government offices such that tax declarations are not considered proofs of
ownership. However, unless proven otherwise, there is a presumption of regularity in
the performance of official duties.[17] We find that petitioners did not overcome this
presumption of regularity in the issuance of the tax declarations. We also note that the
Court of Appeals did not refer to the tax declarations as proofs of ownership but only as
evidence of the intent by the donor to transfer ownership.
Petitioners assert that since private respondent purchased two of the six parcels of
land from the donor, she herself did not believe the donation was inter vivos. As aptly
noted by the Court of Appeals, however, it was private respondent's husband who
purchased the two parcels of land.
As a rule, a finding of fact by the appellate court, especially when it is supported by
evidence on record, is binding on us.[18] On the alleged purchase by her husband of two
parcels, it is reasonable to infer that the purchase was without private respondent's
consent.Purchase by her husband would make the properties conjugal to her own
disadvantage. That the purchase is against her self-interest, weighs strongly in her favor
and gives credence to her claim that her husband was manipulated and unduly
influenced to make the purchase, in the first place.
Was the revocation valid? A valid donation, once accepted, becomes irrevocable,
except on account of officiousness, failure by the donee to comply with the charges
imposed in the donation, or ingratitude.[19] The donor-spouses did not invoke any of
these reasons in the deed of revocation. The deed merely stated:

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

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

trees and her filing of instant petition for quieting of title. There is nothing on record,
however, showing that private respondent prohibited the donors from gathering
coconuts. Even assuming that Mercedes prevented the donor from gathering coconuts,
this could hardly be considered an act covered by Article 765 of the Civil Code. [21] Nor
does this Article cover respondent's filing of the petition for quieting of title, where she
merely asserted what she believed was her right under the law.
Finally, the records do not show that the donor-spouses instituted any action to
revoke the donation in accordance with Article 769 of the Civil Code. [22] Consequently,
the supposed revocation on September 29, 1979, had no legal effect.
WHEREFORE, the instant petition for review is DENIED. The assailed decision of
the Court of Appeals dated August 31, 1993, is AFFIRMED.
 [G.R. No. 104171. February 24, 1999]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. B.F. GOODRICH PHILS.,

INC. (now SIME DARBY INTERNATIONAL TIRE CO., INC.) and THE COURT
OF APPEALS, respondents.

DECISION
PANGANIBAN, J.:

Notwithstanding the expiration of the five-year prescriptive period, may the Bureau
of Internal Revenue (BIR) still assess a taxpayer even after the latter has already paid
the tax due, on the ground that the previous assessment was insufficient or based on a
false return?

The Case

This is the main question raised before us in this Petition for Review
on Certiorari assailing the Decision[1] dated February 14, 1992, promulgated by the
Court of Appeals[2] in CA-GR SP No. 25100. The assailed Decision reversed the Court
of Tax Appeals (CTA)[3] which upheld the BIR commissioners assessments made
beyond the five-year statute of limitations.

The Facts

The facts are undisputed.[4] Private Respondent BF Goodrich Phils., Inc. (now Sime
Darby International Tire Co. Inc.), was an American-owned and controlled corporation
previous to July 3, 1974. As a condition for approving the manufacture by private
respondent of tires and other rubber products, the Central Bank of the Philippines
required that it should develop a rubber plantation. In compliance with this requirement,
private respondent purchased from the Philippine government in 1961, under the Public
Land Act and the Parity Amendment to the 1935 Constitution, certain parcels of land
located in Tumajubong, Basilan, and there developed a rubber plantation.
More than a decade later, on August 2, 1973, the justice secretary rendered an
opinion stating that, upon the expiration of the Parity Amendment on July 3, 1974, the
ownership rights of Americans over public agricultural lands, including the right to
dispose or sell their real estate, would be lost. On the basis of this Opinion, private
respondent sold to Siltown Realty Philippines, Inc. on January 21, 1974, its Basilan
landholding for P500,000 payable in installments. In accord with the terms of the sale,
Siltown Realty Philippines, Inc. leased the said parcels of land to private respondent for
a period of 25 years, with an extension of another 25 years at the latters option.
Based on the BIRs Letter of Authority No. 10115 dated April 14, 1975, the books
and accounts of private respondent were examined for the purpose of determining its
tax liability for taxable year 1974. The examination resulted in the April 23, 1975
assessment of private respondent for deficiency income tax in the amount of P6,005.35,
which it duly paid.
Subsequently the BIR also issued Letters of Authority Nos. 074420 RR and 074421
RR and Memorandum Authority Reference No. 749157 for the purpose of examining
Siltowns business, income and tax liabilities. On the basis of this examination, the BIR
commissioner issued against private respondent on October 10, 1980, an assessment
for deficiency in donors tax in the amount of P1,020,850, in relation to the previously
mentioned sale of its Basilan landholdings to Siltown. Apparently, the BIR deemed the
consideration for the sale insufficient, and the difference between the fair market value
and the actual purchase price a taxable donation.
In a letter dated November 24, 1980, private respondent contested this
assessment. On April 9, 1981, it received another assessment dated March 16, 1981,
which increased to P1,092,949 the amount demanded for the alleged deficiency donors
tax, surcharge, interest and compromise penalty.
Private respondent appealed the correctness and the legality of these last two
assessments to the CTA. After trial in due course, the CTA rendered its Decision dated
March 29, 1991, the dispositive portion of which reads as follows:

WHEREFORE, the decision of the Commissioner of Internal Revenue assessing

petitioner deficiency gift tax is MODIFIED and petitioner is ordered to pay the amount
of P1,311,179.01 plus 10% surcharge and 20% annual interest from March 16, 1981
until fully paid provided that the maximum amount that may be collected as interest on
delinquency shall in no case exceed an amount corresponding to a period of three
years pursuant to Section 130(b) (1) and (c) of the 1977 Tax Code, as amended by P.D.
No. 1705, which took effect on August 1, 1980.

SO ORDERED.[5]

Undaunted, private respondent elevated the matter to the Court of Appeals, which
reversed the CTA, as follows:

What is involved here is not a first assessment; nor is it one within the 5-year period
stated in Section 331 above. Since what is involved in this case is a multiple
assessment beyond the five-year period, the assessment must be based on the
grounds provided in Section 337, and not on Section 15 of the 1974 Tax Code. Section
337 utilizes the very specific terms fraud, irregularity, and mistake. Falsity does not
appear to be included in this enumeration. Falsity suffices for an assessment, which is
a first assessment made within the five-year period. When it is a subsequent
assessment made beyond the five-year period, then, it may be validly justified only by
fraud, irregularity and mistake on the part of the taxpayer.[6]

Hence, this Petition for Review under Rule 45 of the Rules of Court.[7]

The Issues

Before us, petitioner raises the following issues:

Whether or not petitioners right to assess herein deficiency donors tax has indeed
prescribed as ruled by public respondent Court of Appeals

II

Whether or not the herein deficiency donors tax assessment for 1974 is valid and in
accordance with law

Prescription is the crucial issue in the resolution of this case.

The Courts Ruling

The petition has no merit.

Main Issue: Prescription

The petitioner contends that the Court of Appeals erred in reversing the CTA on the
issue of prescription, because its ruling was based on factual findings that should have
been left undisturbed on appeal, in the absence of any showing that it had been tainted
with gross error or grave abuse of discretion.[8] The Court is not persuaded.
True, the factual findings of the CTA are generally not disturbed on appeal when
supported by substantial evidence and in the absence of gross error or grave abuse of
discretion. However, the CTAs application of the law to the facts of this controversy is
an altogether different matter, for it involves a legal question. There is a question of law
when the issue is the application of the law to a given set of facts. On the other hand, a
question of fact involves the truth or falsehood of alleged facts. [9] In the present case,
the Court of Appeals ruled not on the truth or falsity of the facts found by the CTA, but
on the latters application of the law on prescription.
Section 331 of the National Internal Revenue Code provides:
SEC. 331. Period of limitation upon assessment and collection. Except as provided in
the succeeding section, internal-revenue taxes shall be assessed within five years after
the return was filed, and no proceeding in court without assessment for the collection of
such taxes shall be begun after expiration of such period. For the purposes of this
section, a return filed before the last day prescribed by law for the filing thereof shall be
considered as filed on such last day: Provided, That this limitation shall not apply to
cases already investigated prior to the approval of this Code.

Applying this provision of law to the facts at hand, it is clear that the October 16,
1980 and the March 1981 assessments were issued by the BIR beyond the five-year
statute of limitations. The Court has thoroughly studied the records of this case and
found no basis to disregard the five-year period of prescription. As succinctly
pronounced by the Court of Appeals:

The subsequent assessment made by the respondent Commissioner on October 10,

1980, modified by that of March 16, 1981, violates the law.Involved in this petition is the
income of the petitioner for the year 1974, the returns for which were required to be filed
on or before April 15 of the succeeding year. The returns for the year 1974 were duly
filed by the petitioner, and assessment of taxes due for such year -- including that on
the transfer of properties on June 21, 1974 -- was made on April 13, 1975 and
acknowledged by Letter of Confirmation No. 101155 terminating the examination on this
subject. The subsequent assessment of October 10, 1980 modified, by that of March
16, 1981, was made beyond the period expressly set in Section 331 of the National
Intenal Revenue Code xxx.[10]

Petitioner relies on the CTA ruling, the salient portion of which reads:

Falsity is what we have here, and for that matter, we hasten to add that the second
assessment (March 16, 1981) of the Commissioner was well-advised having been
made in contemplation of his power under Section 15 of the 1974 Code (now Section
16, of NIRC) to assess the proper tax on the best evidence obtainable when there is
reason to believe that a report of a taxpayer is false, incomplete or erroneous. More,
when there is falsity with intent to evade tax as in this case, the ordinary period of
limitation upon assessment and collection does not apply so that contrary to the
averment of petitioner, the right to assess respondent has not prescribed.

What is the considered falsity? The transfer through sales of the parcels of land in
Tumajubong, Lamitan, Basilan in favor of Siltown Realty for the sum of P500,000.00
only whereas said lands had been sworn to under Presidential Decree No. 76 (Dec. 6,
1972) as having a value of P2,683,467 (P2,475, 467 + P207,700) (see Declaration of
Real Property form, p. 28, and p. 15, no. 5, BIR Record).[11]

For the purpose of safeguarding taxpayers from any unreasonable examination,

investigation or assessment, our tax law provides a statute of limitations in the collection
of taxes. Thus, the law on prescription, being a remedial measure, should be liberally
construed in order to afford such protection.[12] As a corollary, the exceptions to the law
on prescription should perforce be strictly construed.
Section 15 of the NIRC, on the other hand, provides that [w]hen a report required by
law as a basis for the assessment of any national internal revenue tax shall not be
forthcoming within the time fixed by law or regulation, or when there is reason to believe
that any such report is false, incomplete, or erroneous, the Commissioner of Internal
Revenue shall assess the proper tax on the best evidence obtainable. Clearly, Section
15 does not provide an exception to the statute of limitations on the issuance of an
assessment, by allowing the initial assessment to be made on the basis of the best
evidence available. Having made its initial assessment in the manner prescribed, the
commissioner could not have been authorized to issue, beyond the five-year
prescriptive period, the second and the third assessments under consideration before
us.
Nor is petitioners claim of falsity sufficient to take the questioned assessments out
of the ambit of the statute of limitations. The relevant part of then Section 332 of the
NIRC, which enumerates the exceptions to the period of prescription, provides:

SEC. 332. Exceptions as to period of limitation of assessment and collection of taxes. --

(a) In the case of a false or fraudulent return with intent to evade a 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 years after the discovery
of the falsity, fraud, or omission: xxx.

Petitioner insists that private respondent committed falsity when it sold the property
for a price lesser than its declared fair market value. This fact alone did not constitute a
false return which contains wrong information due to mistake, carelessness or
ignorance.[13] It is possible that real property may be sold for less than adequate
consideration for a bona fide business purpose; in such event, the sale remains an arms
length transaction. In the present case, the private respondent was compelled to sell the
property even at a price less than its market value, because it would have lost all
ownership rights over it upon the expiration of the parity amendment. In other words,
private respondent was attempting to minimize its losses. At the same time, it was able
to lease the property for 25 years, renewable for another 25. This can be regarded as
another consideration on the price.
Furthermore, the fact that private respondent sold its real property for a price less
than its declared fair market value did not by itself justify a finding of false
return. Indeed, private respondent declared the sale in its 1974 return submitted to the
BIR.[14] Within the five-year prescriptive period, the BIR could have issued the
questioned assessment, because the declared fair market value of said property was of
public record. This it did not do, however, during all those five years. Moreover, the BIR
failed to prove that respondent's 1974 return had been filed fraudulently. Equally.
significant was its failure to prove respondent's intent to evade the payment of the
correct amount of tax.
 Ineludibly, the BIR failed to show that private respondent's 1974 return was filed
fraudulently with intent to evade the payment of the correct amount of tax.[15] Moreover,
even though a donor's tax, which is defined as "a tax on the privilege of transmitting
one's property or property rights to another or others without adequate and full valuable
consideration,"[16] is different from capital gains tax, a tax on the gain from the sale of
the taxpayer's property forming part of capital assets,[17] the tax return filed by private
respondent to report its income for the year 1974 was sufficient compliance with the
legal requirement to file a return. In other words, the fact that the sale transaction may
have partly resulted in a donation does not change the fact that private respondent
already reported its income for 1974 by filing an income tax return.
Since the BIR failed to demonstrate clearly that private respondent had filed a
fraudulent return with the intent to evade tax, or that it had failed to file a return at all,
the period for assessments has obviously prescribed. Such instances of negligence or
oversight on the part of the BIR cannot prejudice taxpayers, considering that the
prescriptive period was precisely intended to give them peace of mind.
Based on the foregoing, a discussion of the validity and legality of the assailed
assessments has become moot and unnecessary.
WHEREFORE, the Petition for Review is DENIED and the assailed Decision of the
Court of Appeals is AFFIRMED. No costs.
SO ORDERED.

[G.R. No. 128315. June 29, 1999]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. PASCOR REALTY AND

DEVELOPMENT CORPORATION, ROGELIO A. DIO and VIRGINIA S.
DIO, respondents.

DECISION
PANGANIBAN, J.:

An assessment contains not only a computation of tax liabilities, but also a demand
for payment within a prescribed period. It also signals the time when penalties and
interests begin to accrue against the taxpayer. To enable the taxpayer to determine his
remedies thereon, due process requires that it must be served on and received by the
taxpayer. Accordingly, an affidavit, which was executed by revenue officers stating the
tax liabilities of a taxpayer and attached to a criminal complaint for tax evasion, cannot
be deemed an assessment that can be questioned before the Court of Tax Appeals.
 Statement of the Case

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court praying for the nullification of the October 30, 1996 Decision [1] of the Court of
Appeals[2] in CA-GR SP No. 40853, which effectively affirmed the January 25, 1996
Resolution[3] of the Court of Tax Appeals[4] in CTA Case No. 5271. The CTA disposed
as follows:

WHEREFORE, finding [the herein petitioners] Motion to Dismiss as UNMERITORIOUS,

the same is hereby DENIED. [The CIR] is hereby given a period of thirty (30) days from
receipt hereof to file her answer.

Petitioner also seeks to nullify the February 13, 1997 Resolution [5] of the Court of
Appeals denying reconsideration.

The Facts

As found by the Court of Appeals, the undisputed facts of the case are as follows:

It appears that by virtue of Letter of Authority No. 001198, then BIR Commissioner Jose
U. Ong authorized Revenue Officers Thomas T. Que, Sonia T. Estorco and Emmanuel
M. Savellano to examine the books of accounts and other accounting records of Pascor
Realty and Development Corporation. (PRDC) for the years ending 1986, 1987 and
1988. The said examination resulted in a recommendation for the issuance of an
assessment in the amounts of P7,498,434.65 and P3,015,236.35 for the years 1986
and 1987, respectively.

On March 1, 1995, the Commissioner of Internal Revenue filed a criminal complaint

before the Department of Justice against the PRDC, its President Rogelio A. Dio, and
its Treasurer Virginia S. Dio, alleging evasion of taxes in the total amount of
P10,513,671.00. Private respondents PRDC, et. al. filed an Urgent Request for
Reconsideration/Reinvestigation disputing the tax assessment and tax liability.

On March 23, 1995, private respondents received a subpoena from the DOJ in
connection with the criminal complaint filed by the Commissioner of Internal Revenue
(BIR) against them.

In a letter dated May 17, 1995, the CIR denied the urgent request for
reconsideration/reinvestigation of the private respondents on the ground that no formal
assessment has as yet been issued by the Commissioner.

Private respondents then elevated the Decision of the CIR dated May 17, 1995 to the
Court of Tax Appeals on a petition for review docketed as CTA Case No. 5271 on July
21, 1995. On September 6, 1995, the CIR filed a Motion to Dismiss the petition on the
ground that the CTA has no jurisdiction over the subject matter of the petition, as there
was no formal assessment issued against the petitioners. The CTA denied the said
motion to dismiss in a Resolution dated January 25, 1996 and ordered the CIR to file an
answer within thirty (30) days from receipt of said resolution. The CIR received the
resolution on January 31, 1996 but did not file an answer nor did she move to
reconsider the resolution.

Instead, the CIR filed this petition on June 7, 1996, alleging as grounds that:

Respondent Court of Tax Appeals acted with grave abuse of discretion and without
jurisdiction in considering the affidavit/report of the revenue officer and the indorsement
of said report to the secretary of justice as assessment which may be appealed to the
Court of Tax Appeals;

Respondent Court of Tax Appeals acted with grave abuse of discretion in considering
the denial by petitioner of private respondents Motion for Reconsideration as [a] final
decision which may be appealed to the Court of Tax Appeals.

In denying the motion to dismiss filed by the CIR, the Court of Tax Appeals stated:

We agree with petitioners contentions, that the criminal complaint for tax evasion is the
assessment issued, and that the letter denial of May 17, 1995 is the decision properly
appealable to [u]s. Respondents ground of denial, therefore, that there was no formal
assessment issued, is untenable.

It is the Courts honest belief, that the criminal case for tax evasion is already an
assessment. The complaint, more particularly, the Joint Affidavit of Revenue Examiners
Lagmay and Savellano attached thereto, contains the details of the assessment like the
kind and amount of tax due, and the period covered.

Petitioners are right, in claiming that the provisions of Republic Act No. 1125, relating to
exclusive appellate jurisdiction of this Court, do not, make any mention of formal
assessment. The law merely states, that this Court has exclusive appellate jurisdiction
over decisions of the Commissioner of Internal Revenue on disputed assessments,
and other matters arising under the National Internal Revenue Code, other law or part
administered by the Bureau of Internal Revenue Code.

As far as this Court is concerned, the amount and kind of tax due, and the period
covered, are sufficient details needed for an assessment. These details are more than
complete, compared to the following definitions of the term as quoted hereunder. Thus:

Assessment is laying a tax. Johnson City v. Clinchfield R. Co., 43 S.W. (2d) 386, 387,
163 Tenn. 332. (Words and Phrases, Permanent Edition, Vol. 4, p. 446)

The word assessment when used in connection with taxation, may have more than one
meaning. The ultimate purpose of an assessment to such a connection is to ascertain
the amount that each taxpayer is to pay. More commonly, the word assessment means
the official valuation of a taxpayers property for purpose of taxation. State v. New York,
N.H. and H.R. Co. 22 A. 765, 768, 60 Conn. 326, 325. (Ibid. p. 445)

From the above, it can be gleaned that an assessment simply states how much tax is
due from a taxpayer. Thus, based on these definitions, the details of the tax as given in
the Joint Affidavit of respondents examiners, which was attached to the tax evasion
complaint, more than suffice to qualify as an assessment. Therefore, this assessment
having been disputed by petitioners, and there being a denial of their letter disputing
such assessment, this Court unquestionably acquired jurisdiction over the instant
petition for review.[6]

As earlier observed, the Court of Appeals sustained the CTA and dismissed the
petition.
Hence, this recourse to this Court.[7]

Ruling of the Court of Appeals

The Court of Appeals held that the tax court committed no grave abuse of discretion
in ruling that the Criminal Complaint for tax evasion filed by the Commissioner of
Internal Revenue with the Department of Justice constituted an assessment of the tax
due, and that the said assessment could be the subject of a protest. By definition, an
assessment is simply the statement of the details and the amount of tax due from a
taxpayer. Based on this definition, the details of the tax contained in the BIR examiners
Joint Affidavit,[8] which was attached to the criminal Complaint, constituted an
assessment. Since the assailed Order of the CTA was merely interlocutory and devoid
of grave abuse of discretion, a petition for certiorari did not lie.

Issues

Petitioners submit for the consideration of this Court the following issues:

(1) Whether or not the criminal complaint for tax evasion can be construed as an
assessment.

(2) Whether or not an assessment is necessary before criminal charges for tax evasion
may be instituted.

(3) Whether or not the CTA can take cognizance of the case in the absence of an
assessment.[9]
 In the main, the Court will resolve whether the revenue officers Affidavit-Report,
which was attached to the criminal Complaint filed with the Department of Justice,
constituted an assessment that could be questioned before the Court of Tax Appeals.

The Courts Ruling

The petition is meritorious.

Main Issue: Assessment

Petitioner argues that the filing of the criminal complaint with the Department of
Justice cannot in any way be construed as a formal assessment of private respondents
tax liabilities. This position is based on Section 205 of the National Internal Revenue
Code[10] (NIRC), which provides that remedies for the collection of deficient taxes may
be by either civil or criminal action. Likewise, petitioner cites Section 223(a) of the same
Code, which states that in case of failure to file a return, the tax may be assessed or a
proceeding in court may be begun without assessment.
Respondents, on the other hand, maintain that an assessment is not an action or
proceeding for the collection of taxes, but merely a notice that the amount stated therein
is due as tax and that the taxpayer is required to pay the same. Thus, qualifying as an
assessment was the BIR examiners Joint Affidavit, which contained the details of the
supposed taxes due from respondent for taxable years ending 1987 and 1988, and
which was attached to the tax evasion Complaint filed with the DOJ. Consequently, the
denial by the BIR of private respondents request for reinvestigation of the disputed
assessment is properly appealable to the CTA.
We agree with petitioner. Neither the NIRC nor the revenue regulations governing
the protest of assessments[11] provide a specific definition or form of an
assessment. However, the NIRC defines the specific functions and effects of an
assessment. To consider the affidavit attached to the Complaint as a proper
assessment is to subvert the nature of an assessment and to set a bad precedent that
will prejudice innocent taxpayers.
True, as pointed out by the private respondents, an assessment informs the
taxpayer that he or she has tax liabilities. But not all documents coming from the BIR
containing a computation of the tax liability can be deemed assessments.
To start with, an assessment must be sent to and received by a taxpayer, and must
demand payment of the taxes described therein within a specific period. Thus, the NIRC
imposes a 25 percent penalty, in addition to the tax due, in case the taxpayer fails to
pay the deficiency tax within the time prescribed for its payment in the notice of
assessment. Likewise, an interest of 20 percent per annum, or such higher rate as may
be prescribed by rules and regulations, is to be collected from the date prescribed for its
payment until the full payment.[12]
 The issuance of an assessment is vital in determining the period of limitation
regarding its proper issuance and the period within which to protest it. Section 203[13]of
the NIRC provides that internal revenue taxes must be assessed within three years from
the last day within which to file the return. Section 222,[14] on the other hand, specifies a
period of ten years in case a fraudulent return with intent to evade was submitted or in
case of failure to file a return. Also, Section 228[15] of the same law states that said
assessment may be protested only within thirty days from receipt thereof.Necessarily,
the taxpayer must be certain that a specific document constitutes an
assessment. Otherwise, confusion would arise regarding the period within which to
make an assessment or to protest the same, or whether interest and penalty may
accrue thereon.
It should also be stressed that the said document is a notice duly sent to the
taxpayer. Indeed, an assessment is deemed made only when the collector of internal
revenue releases, mails or sends such notice to the taxpayer.[16]
In the present case, the revenue officers Affidavit merely contained a computation
of respondents tax liability. It did not state a demand or a period for payment. Worse, it
was addressed to the justice secretary, not to the taxpayers.
Respondents maintain that an assessment, in relation to taxation, is simply
understood to mean:

A notice to the effect that the amount therein stated is due as tax and a demand for
payment thereof.[17]

Fixes the liability of the taxpayer and ascertains the facts and furnishes the data for the
proper presentation of tax rolls.[18]

Even these definitions fail to advance private respondents case. That the BIR
examiners Joint Affidavit attached to the Criminal Complaint contained some details of
the tax liabilities of private respondents does not ipso facto make it an assessment. The
purpose of the Joint Affidavit was merely to support and substantiate the Criminal
Complaint for tax evasion.Clearly, it was not meant to be a notice of the tax due and a
demand to the private respondents for payment thereof.
The fact that the Complaint itself was specifically directed and sent to the
Department of Justice and not to private respondents shows that the intent of the
commissioner was to file a criminal complaint for tax evasion, not to issue an
assessment. Although the revenue officers recommended the issuance of an
assessment, the commissioner opted instead to file a criminal case for tax
evasion. What private respondents received was a notice from the DOJ that a criminal
case for tax evasion had been filed against them, not a notice that the Bureau of
Internal Revenue had made an assessment.
In addition, what private respondents sent to the commissioner was a motion for a
reconsideration of the tax evasion charges filed, not of an assessment, as shown thus:
This is to request for reconsideration of the tax evasion charges against my client,
PASCOR Realty and Development Corporation and for the same to be referred to the
Appellate Division in order to give my client the opportunity of a fair and objective
hearing[19]

Additional Issues: Assessment Not Necessary Before Filing of Criminal

Complaint

Private respondents maintain that the filing of a criminal complaint must be

preceded by an assessment. This is incorrect, because Section 222 of the NIRC
specifically states that in cases where a false or fraudulent return is submitted or in
cases of failure to file a return such as this case, proceedings in court may be
commenced without an assessment.Furthermore, Section 205 of the same Code clearly
mandates that the civil and criminal aspects of the case may be pursued
simultaneously. In Ungab v. Cusi,[20] petitioner therein sought the dismissal of the
criminal Complaints for being premature, since his protest to the CTA had not yet been
resolved. The Court held that such protests could not stop or suspend the criminal
action which was independent of the resolution of the protest in the CTA. This was
because the commissioner of internal revenue had, in such tax evasion cases,
discretion on whether to issue an assessment or to file a criminal case against the
taxpayer or to do both.
Private respondents insist that Section 222 should be read in relation to Section 255
of the NIRC,[21] which penalizes failure to file a return. They add that a tax assessment
should precede a criminal indictment. We disagree. To reiterate, said Section 222 states
that an assessment is not necessary before a criminal charge can be filed. This is the
general rule.Private respondents failed to show that they are entitled to an
exception.Moreover, the criminal charge need only be supported by a prima
facieshowing of failure to file a required return. This fact need not be proven by an
assessment.
The issuance of an assessment must be distinguished from the filing of a
complaint. Before an assessment is issued, there is, by practice, a pre-assessment
notice sent to the taxpayer. The taxpayer is then given a chance to submit position
papers and documents to prove that the assessment is unwarranted. If the
commissioner is unsatisfied, an assessment signed by him or her is then sent to the
taxpayer informing the latter specifically and clearly that an assessment has been made
against him or her. In contrast, the criminal charge need not go through all these. The
criminal charge is filed directly with the DOJ. Thereafter, the taxpayer is notified that a
criminal case had been filed against him, not that the commissioner has issued an
assessment. It must be stressed that a criminal complaint is instituted not to demand
payment, but to penalize the taxpayer for violation of the Tax Code.
WHEREFORE, the petition is hereby GRANTED. The assailed Decision
is REVERSED and SET ASIDE. CTA Case No. 5271 is likewise DISMISSED. No costs.
SO ORDERED.
G.R. No. L-41919-24 May 30, 1980

QUIRICO P. UNGAB, petitioner,

vs.
HON. VICENTE N. CUSI, JR., in his capacity as Judge of the Court of First
Instance, Branch 1, 16TH Judicial District, Davao City, THE COMMISSIONER OF
INTERNAL REVENUE, and JESUS N. ACEBES, in his capacity as State
Prosecutor, respondents.

CONCEPCION JR., J:

Petition for certiorari and prohibition with preliminary injunction and restraining order to
annul and set aside the informations filed in Criminal Case Nos. 1960, 1961, 1962,
1963, 1964, and 1965 of the Court of First Instance of Davao, all entitled: "People of the
Philippines, plaintiff, versus Quirico Ungab, accused;" and to restrain the respondent
Judge from further proceeding with the hearing and trial of the said cases.

It is not disputed that sometime in July, 1974, BIR Examiner Ben Garcia examined the
income tax returns filed by the herein petitioner, Quirico P. Ungab, for the calendar year
ending December 31, 1973. In the course of his examination, he discovered that the
petitioner failed to report his income derived from sales of banana saplings. As a result,
the BIR District Revenue Officer at Davao City sent a "Notice of Taxpayer" to the
petitioner informing him that there is due from him (petitioner) the amount of
P104,980.81, representing income, business tax and forest charges for the year 1973
and inviting petitioner to an informal conference where the petitioner, duly assisted by
counsel, may present his objections to the findings of the BIR Examiner. 1 Upon receipt
of the notice, the petitioner wrote the BIR District Revenue Officer protesting the
assessment, claiming that he was only a dealer or agent on commission basis in the
banana sapling business and that his income, as reported in his income tax returns for
the said year, was accurately stated. BIR Examiner Ben Garcia, however, was fully
convinced that the petitioner had filed a fraudulent income tax return so that he
submitted a "Fraud Referral Report," to the Tax Fraud Unit of the Bureau of Internal
Revenue. After examining the records of the case, the Special Investigation Division of
the Bureau of Internal Revenue found sufficient proof that the herein petitioner is guilty
of tax evasion for the taxable year 1973 and recommended his
prosecution: têñ.£îhqwâ£

(1) For having filed a false or fraudulent income tax return for 1973 with
intent to evade his just taxes due the government under Section 45 in
relation to Section 72 of the National Internal Revenue Code;
 (2) For failure to pay a fixed annual tax of P50.00 a year in 1973 and
1974, or a total of unpaid fixed taxes of P100.00 plus penalties of 175.00
or a total of P175.00, in accordance with Section 183 of the National
Internal Revenue Code;

(3) For failure to pay the 7% percentage tax, as a producer of banana

poles or saplings, on the total sales of P129,580.35 to the Davao Fruit
Corporation, depriving thereby the government of its due revenue in the
amount of P15,872.59, inclusive of surcharge. 2

In a second indorsement to the Chief of the Prosecution Division, dated December 12,
1974, the Commissioner of Internal Revenue approved the prosecution of the
petitioner. 3

Thereafter, State Prosecutor Jesus Acebes who had been designated to assist all
Provincial and City Fiscals throughout the Philippines in the investigation and
prosecution, if the evidence warrants, of all violations of the National Internal Revenue
Code, as amended, and other related laws, in Administrative Order No. 116 dated
December 5, 1974, and to whom the case was assigned, conducted a preliminary
investigation of the case, and finding probable cause, filed six (6) informations against
the petitioner with the Court of First Instance of Davao City, to wit: têñ.£îhqwâ£

(1) Criminal Case No. 1960 — Violation of Sec. 45, in relation to Sec. 72
of the National Internal-Revenue Code, for filing a fraudulent income tax
return for the calendar year ending December 31, 1973; 4

(2) Criminal Case No. 1961 — Violation of Sec. 182 (a), in relation to
Secs. 178, 186, and 208 of the National Internal Revenue Code, for
engaging in business as producer of saplings, from January, 1973 to
December, 1973, without first paying the annual fixed or privilege tax
thereof; 5

(3) Criminal Case No. 1962 — Violation of Sec. 183 (a), in relation to
Secs. 186 and 209 of the National Internal Revenue Code, for failure to
render a true and complete return on the gross quarterly sales, receipts
and earnings in his business as producer of banana saplings and to pay
the percentage tax due thereon, for the quarter ending December 31,
1973; 6

(4) Criminal Case No. 1963 — Violation of Sec. 183 (a), in relation to
Secs. 186 and 209 of the National Internal Revenue Code, for failure to
render a true and complete return on the gross quarterly sales receipts
and earnings in his business as producer of saplings, and to pay the
percentage tax due thereon, for the quarter ending on March 31, 1973; 7
 (5) Criminal Case No. 1964 — Violation of Sec. 183 (a), in relation to
Secs. 186 and 209 of the National Internal Revenue Code, for failure to
render a true and complete return on the gross quarterly sales, receipts
and earnings in his business as producer of banana saplings for the
quarter ending on June 30, 1973, and to pay the percentage tax due
thereon; 8

(6) Criminal Case No. 1965 — Violation of Sec. 183 (a), in relation to
Secs. 186 and 209 of the National Internal Revenue Code, for failure to
render a true and complete return on the gross quarterly sales, receipts
and earnings as producer of banana saplings, for the quarter ending on
September 30, 1973, and to pay the percentage tax due thereon. 9

On September 16, 1975, the petitioner filed a motion to quash the informations upon the
grounds that: (1) the informations are null and void for want of authority on the part of
the State Prosecutor to initiate and prosecute the said cases; and (2) the trial court has
no jurisdiction to take cognizance of the above-entitled cases in view of his pending
protest against the assessment made by the BIR Examiner. 10 However, the trial court
denied the motion on October 22, 1975. 11 Whereupon, the petitioner filed the instant
recourse. As prayed for, a temporary restraining order was issued by the Court,
ordering the respondent Judge from further proceeding with the trial and hearing of
Criminal Case Nos. 1960, 1961, 1962, 1963, 1964, and 1965 of the Court of First
Instance of Davao, all entitled: "People of the Philippines, plaintiff, versus Quirico
Ungab, accused."

The petitioner seeks the annulment of the informations filed against him on the ground
that the respondent State Prosecutor is allegedly without authority to do so. The
petitioner argues that while the respondent State Prosecutor may initiate the
investigation of and prosecute crimes and violations of penal laws when duly
authorized, certain requisites, enumerated by this Court in its decision in the case
of Estrella vs. Orendain, 12should be observed before such authority may be exercised;
otherwise, the provisions of the Charter of Davao City on the functions and powers of
the City Fiscal will be meaningless because according to said charter he has charge of
the prosecution of all crimes committed within his jurisdiction; and since "appropriate
circumstances are not extant to warrant the intervention of the State Prosecution to
initiate the investigation, sign the informations and prosecute these cases, said
informations are null and void." The ruling adverted to by the petitioner reads, as
follows: têñ.£îhqwâ£

In view of all the foregoing considerations, it is the ruling of this Court that
under Sections 1679 and 1686 of the Revised Administrative Code, in any
instance where a provincial or city fiscal fails, refuses or is unable, for any
reason, to investigate or prosecute a case and, in the opinion of the
Secretary of Justice it is advisable in the public interest to take a different
course of action, the Secretary of Justice may either appoint as acting
provincial or city fiscal to handle the investigation or prosecution
 exclusively and only of such case, any practicing attorney or some
competent officer of the Department of Justice or office of any city or
provincial fiscal, with complete authority to act therein in all respects as if
he were the provincial or city fiscal himself, or appoint any lawyer in the
government service, temporarily to assist such city of provincial fiscal in
the discharge of his duties, with the same complete authority to act
independently of and for such city or provincial fiscal provided that no such
appointment may be made without first hearing the fiscal concerned and
never after the corresponding information has already been filed with the
court by the corresponding city or provincial fiscal without the conformity of
the latter, except when it can be patently shown to the court having
cognizance of the case that said fiscal is intent on prejudicing the interests
of justice. The same sphere of authority is true with the prosecutor
directed and authorized under Section 3 of Republic Act 3783, as
amended and/or inserted by Republic Act 5184. The observation
in Salcedo vs. Liwag, supra, regarding the nature of the power of the
Secretary of Justice over fiscals as being purely over administrative
matters only was not really necessary, as indicated in the above relation of
the facts and discussion of the legal issues of said case, for the resolution
thereof. In any event, to any extent that the opinion therein may be
inconsistent herewith the same is hereby modified.

The contention is without merit. Contrary to the petitioner's claim, the rule therein
established had not been violated. The respondent State Prosecutor, although believing
that he can proceed independently of the City Fiscal in the investigation and prosecution
of these cases, first sought permission from the City Fiscal of Davao City before he
started the preliminary investigation of these cases, and the City Fiscal, after being
shown Administrative Order No. 116, dated December 5, 1974, designating the said
State Prosecutor to assist all Provincial and City fiscals throughout the Philippines in the
investigation and prosecution of all violations of the National Internal Revenue Code, as
amended, and other related laws, graciously allowed the respondent State Prosecutor
to conduct the investigation of said cases, and in fact, said investigation was conducted
in the office of the City Fiscal. 13

The petitioner also claims that the filing of the informations was precipitate and
premature since the Commissioner of Internal Revenue has not yet resolved his
protests against the assessment of the Revenue District Officer; and that he was denied
recourse to the Court of Tax Appeals.

The contention is without merit. What is involved here is not the collection of taxes
where the assessment of the Commissioner of Internal Revenue may be reviewed by
the Court of Tax Appeals, but a criminal prosecution for violations of the National
Internal Revenue Code which is within the cognizance of courts of first instance. While
there can be no civil action to enforce collection before the assessment procedures
provided in the Code have been followed, there is no requirement for the precise
computation and assessment of the tax before there can be a criminal prosecution
under the Code. têñ.£îhqwâ£

The contention is made, and is here rejected, that an assessment of the

deficiency tax due is necessary before the taxpayer can be prosecuted
criminally for the charges preferred. The crime is complete when the
violator has, as in this case, knowingly and willfully filed fraudulent returns
with intent to evade and defeat a part or all of the tax. 14

An assessment of a deficiency is not necessary to a criminal prosecution

for willful attempt to defeat and evade the income tax. A crime is complete
when the violator has knowingly and willfuly filed a fraudulent return with
intent to evade and defeat the tax. The perpetration of the crime is
grounded upon knowledge on the part of the taxpayer that he has made
an inaccurate return, and the government's failure to discover the error
and promptly to assess has no connections with the commission of the
crime. 15

Besides, it has been ruled that a petition for reconsideration of an assessment may
affect the suspension of the prescriptive period for the collection of taxes, but not the
prescriptive period of a criminal action for violation of law. 16 Obviously, the protest of
the petitioner against the assessment of the District Revenue Officer cannot stop his
prosecution for violation of the National Internal Revenue Code. Accordingly, the
respondent Judge did not abuse his discretion in denying the motion to quash filed by
the petitioner.

WHEREFORE, the petition should be, as it is hereby dismissed. The temporary

restraining order heretofore issued is hereby set aside. With costs against the petitioner.

SO ORDERED.

G.R. No. 212920, September 16, 2015

COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. NIPPON EXPRESS

(PHILS.) CORPORATION, Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 are the Decision2 dated December 18,
2013 and the Resolution3 dated June 10, 2014 of the Court of Tax Appeals (CTA) En
Banc in CTA EB No. 924, which affirmed the Resolution4 dated July 31, 2012 of the
CTA Third Division (CTA Division) in CTA Case No. 6967, granting respondent Nippon
Express (Phils.) Corporation's (Nippon) motion to withdraw petition for review5 (motion
to withdraw).

The Facts

Nippon is a domestic corporation duly organized and existing under Philippine laws
which is primarily engaged in the business of freight forwarding, namely, in the
international and domestic air and sea freight and cargo forwarding, hauling, carrying,
handling, distributing, loading, and unloading general cargoes and all classes of goods,
wares, and merchandise, and the operation of container depots, warehousing, storage,
hauling, and packing facilities.6 It is a Value-Added Tax (VAT) registered entity with Tax
Identification No. VAT Registration No. 004-669-434-000.7 As such, it filed its quarterly
VAT returns for the year 2002 on April 25, 2002, July 25, 2002, October 25, 2002, and
January 27, 2003, respectively.8 It maintained that during the said period it incurred
input VAT attributable to its zero-rated sales in the amount of P28,405,167.60, from
which only P3,760,660.74 was applied as tax credit, thus, reflecting refundable excess
input VAT in the amount of P24,644,506.86.9

On April 22, 2004, Nippon filed an administrative claim for refund 10 of its unutilized input
VAT in the amount of P24,644,506.86 for the year 2002 before the Bureau of Internal
Revenue (BIR).11 A day later, or on April 23, 2004, it filed a judicial claim for tax refund,
by way of petition for review,12before the CTA, docketed as CTA Case No. 6967.13

For its part, petitioner the Commissioner of Internal Revenue (CIR) asserted, inter alia,
that the amounts being claimed by Nippon as unutilized input VAT were not properly
documented, hence, should be denied.14

Proceedings Before the CTA Division

In a Decision15 dated August 10, 2011, the CTA Division partially granted Nippon's
claim for tax refund, and thereby ordered the CIR to issue a tax credit certificate in the
reduced amount of P2,614,296.84, representing its unutilized input VAT which was
attributable to its zero-rated sales.16It found that while Nippon timely filed its
administrative and judicial claims within the two (2)-year prescriptive period,17 it,
however, failed to show that the recipients of its services - which, in this case, were
mostly Philippine Economic Zone Authority registered enterprises - were non-residents
"doing business outside the Philippines." Accordingly, it concluded that Nippon's
purported sales therefrom could not qualify as zero-rated sales, hence, the reduction in
the amount of tax credit certificate claimed.18

Before its receipt of the August 10, 2011 Decision, or on August 12, 2011, Nippon filed
a motion to withdraw,19 considering that the BIR, acting on its administrative claim,
already issued a tax credit certificate in the amount of P21,675,128.91 on July 27, 2011
(July 27, 2011 Tax Credit Certificate).

Separately, the CIR moved for reconsideration20 of the August 10, 2011 Decision and
filed its comment/opposition21 to Nippon's motion to withdraw, claiming that: (a) the CTA
Division had already resolved the factual issue pertaining to Nippon's entitlement to a
tax credit certificate, which, after trial, was proven to be only in the amount of
P2,614,296.84; (b) the issuance of the July 27, 2011 Tax Credit Certificate was bereft of
factual and legal bases, and prejudicial to the interest of the government; and (c)
Nippon's motion to withdraw was "tantamount to [a] withdrawal and abandonment of its
[mjotion for [reconsideration also filed in this case."22

Thereafter, Nippon, which maintained that it only had notice of the August 10, 2011
Decision on August 16, 2011,23 likewise sought for reconsideration,24 praying that the
CTA Division set aside its August 10, 2011 Decision and render judgment ordering the
CIR to issue a tax credit certificate in the full amount of P24,644,506.86, or in the
alternative, grant its motion to withdraw.25cralawred

In a Resolution dated July 31, 2012,26 the CTA Division granted Nippon's motion to
withdraw and, thus, considered the case closed and terminated.27 It found that pursuant
to Revenue Memorandum Circular No. 49-03 (RMC No. 49-03) dated August 15,
2003, Nippon correctly availed of the proper remedy notwithstanding the promulgation
of the August 10, 2011 Decision. It added that in approving the withdrawal of Nippon's
petition for review, it exercised its discretionary authority under Section 3, Rule 50 of the
Rules of Court after due consideration of the reasons proffered by Nippon, namely: (a)
that the parties had already arrived at a reasonable settlement of the issues; (b) further
legal and related costs would be avoided; and (c) the court's time and resources would
be saved.28

Aggrieved, the CIR elevated29 its case to the CTA En Banc.

The CTA En Banc Ruling

In a Decision30 dated December 18, 2013, the CTA En Banc affirmed the July 31, 2012
Resolution of the CTA Division granting Nippon's motion to withdraw.31 It debunked the
CIR's assertions that Nippon failed to comply with the requirements set forth in RMC
No. 49-03 - i.e., that Nippon failed to notify the BIR that it agreed with its findings and to
file the necessary motion before the CTA Division prior to the promulgation of its
Decision -noting that RMC No. 49-03 did not expressly require a taxpayer to inform the
BIR of its assent nor prescribe a definite period for filing a motion to withdraw. It also
observed that the CIR did not deny the existence and issuance of the July 27, 2011 Tax
Credit Certificate. In this regard, the same may be taken judicial notice of, and the need
for its formal offer dispensed with.32

The CIR moved for partial reconsideration33 which was, however, denied by the CTA En
Banc in a Resolution34 dated June 10, 2014; hence, this petition.

The Issue Before the Court

The core issue in this case is whether the CTA properly granted Nippon's motion to
withdraw.
 The Court's Ruling

The petition is meritorious.

A perusal of the Revised Rules of the Court of Tax Appeals35 (RRCTA) reveals the lack
of provisions governing the procedure for the withdrawal of pending appeals before the
CTA. Hence, pursuant to Section 3, Rule 1 of the RRCTA, the Rules of Court shall
suppletorily apply:
Sec. 3. Applicability of the Rules of Court. - The Rules of Court in the Philippines shall
apply suppletorily to these Rules.
Rule 50 of the Rules of Court - an adjunct rule to the appellate procedure in the CA
under Rules 42, 43, 44, and 46 of the Rules of Court which are equally adopted in the
RRCTA36 - states that when the case is deemed submitted for resolution, withdrawal of
appeals made after the filing of the appellee's brief may still be allowed in the discretion
of the court:
RULE 50
DISMISSAL OF APPEAL

xxxx

Section 3. Withdrawal of appeal. — An appeal may be withdrawn as of right at any time

before the filing of the appellee's brief. Thereafter, the withdrawal may be allowed in
the discretion of the court. (Emphasis supplied)
Impelled by the BIR's supervening issuance of the July 27, 2011 Tax Credit Certificate,
Nippon filed a motion to withdraw the case, proffering that:
Having arrived at a reasonable settlement of the issues with the [CIR]/BIR, and to avoid
incurring further legal and related costs, not to mention the time and resources of [the
CTA], [Nippon] most respectfully moves for the withdrawal of its Petition for Review. 37
Finding the aforementioned grounds to be justified, the CTA Division allowed the
withdrawal of Nippon's appeal thereby ordering the case closed and terminated,
notwithstanding the fact that the said motion was filed after the promulgation of its
August 10, 2011 Decision.

While it is true that the CTA Division has the prerogative to grant a motion to withdraw
under the authority of the foregoing legal provisions, the attendant circumstances in this
case should have incited it to act otherwise.

First, it should be pointed out that the August 10, 2011 Decision was rendered by the
CTA Division after a full-blown hearing in which the parties had already ventilated their
claims. Thus, the findings contained therein were the results of an exhaustive study of
the pleadings and a judicious evaluation of the evidence submitted by the parties, as
well as the report of the commissioned certified public accountant. In Reyes v.
Commission on Elections,38 the Court only noted, and did not grant, a motion to
withdraw the petition filed after it had already acted on said petition, ratiocinating in the
following wise:
It may well be in order to remind petitioner that jurisdiction, once acquired, is not lost
upon the instance of the parties, but continues until the case is terminated. When
petitioner filed her Petition for Certiorari jurisdiction vested in the Court and, in fact, the
Court exercised such jurisdiction when it acted on the petition. Such jurisdiction cannot
be lost by the unilateral withdrawal of the petition by petitioner.39
The primary reason, however, that militates against the granting of the motion to
withdraw is the fact that the CTA Division, in its August 10, 2011 Decision, had already
determined that Nippon was only entitled to refund the reduced amount
of P2,614,296.84 since it failed to prove that the recipients of its services were non-
residents "doing business outside the Philippines"; hence, Nippon's purported sales
therefrom could not qualify as zero-rated sales, necessitating the reduction in the
amount of refund claimed. Markedly different from this is the BIR's determination that
Nippon should receive P21,675,128.91 as per the July 27, 2011 Tax Credit Certificate,
which is, in all, P19,060,832.07 larger than the amount found due by the CTA Division.
Therefore, as aptly pointed out by Associate Justice Teresita J. Leonardo-De Castro
during the deliberations on this case, the massive discrepancy alone between the
administrative and judicial determinations of the amount to be refunded to Nippon
should have already raised a red flag to the CTA Division. Clearly, the interest of the
government, and, more significantly, the public, will be greatly prejudiced by the
erroneous grant of refund - at a substantial amount at that - in favor of Nippon. Hence,
under these circumstances, the CTA Division should not have granted the motion to
withdraw.

In this relation, it deserves mentioning that the CIR is not estopped from assailing the
validity of the July 27, 2011 Tax Credit Certificate which was issued by her subordinates
in the BIR. In matters of taxation, the government cannot be estopped by the mistakes,
errors or omissions of its agents for upon it depends the ability of the government to
serve the people for whose benefit taxes are collected.40

Finally, the Court has observed that based on the records, Nippon's administrative claim
for the first taxable quarter of 2002 which closed on March 31, 2002 was already time-
barred41 for being filed on April 22, 2004, or beyond the two (2)-year prescriptive period
pursuant to Section 112(A)42 of the National Internal Revenue Code of 1997. Although
prescription was not raised as an issue, it is well-settled that if the pleadings or the
evidence on record show that the claim is barred by prescription, the Court may motu
proprio order its dismissal on said ground.43

All told, the CTA committed a reversible error in granting Nippon's motion to withdraw.
The August 10, 2011 Decision of the CTA Division should therefore be reinstated,
without prejudice, however, to the right of either party to appeal the same in accordance
with the RRCTA.

WHEREFORE, the petition is GRANTED. The Decision dated December 18, 2013 and
the Resolution dated June 10, 2014 of the Court of Tax Appeals En Banc in CTA EB
Case No. 924 are hereby SET ASIDE. The Decision dated August 10, 2011 of the Court
of Tax Appeals Third Division in CTA Case No. 6967 is REINSTATED, without
prejudice, however, to the right of either party to appeal the same in accordance with
the Revised Rules of the Court of Tax Appeals.

SO ORDERED.chanroblesvirtuallawlibrary