G.R. No.

L-43082             June 18, 1937

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

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

Pablo Lorenzo and Delfin Joven for plaintiff-appellant.

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

LAUREL, J.:

On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as trustee of the estate of Thomas Hanley,
deceased, brought this action in the Court of First Instance of Zamboanga against the defendant, Juan Posadas,
Jr., then the Collector of Internal Revenue, for the refund of the amount of P2,052.74, paid by the plaintiff as
inheritance tax on the estate of the deceased, and for the collection of interst thereon at the rate of 6 per cent
per annum, computed from September 15, 1932, the date when the aforesaid tax was [paid under protest.

The defendant set up a counterclaim for P1,191.27 alleged to be interest due on the tax in question and which
was not included in the original assessment. From the decision of the Court of First Instance of Zamboanga
dismissing both the plaintiff's complaint and the defendant's counterclaim, both parties appealed to this court.

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

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

5. I direct that all real estate owned by me at the time of my death be not sold or otherwise disposed of
for a period of ten (10) years after my death, and that the same be handled and managed by the
executors, and proceeds thereof to be given to my nephew, Matthew Hanley, at Castlemore,
Ballaghaderine, County of Rosecommon, Ireland, and that he be directed that the same be used only for
the education of my brother's children and their descendants.

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

xxx     xxx     xxx

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

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

During the incumbency of the plaintiff as trustee, the defendant Collector of Internal Revenue, alleging that the
estate left by the deceased at the time of his death consisted of realty valued at P27,920 and personalty valued
at P1,465, and allowing a deduction of P480.81, assessed against the estate an inheritance tax in the amount of
P1,434.24 which, together with the penalties for deliquency in payment consisting of a 1 per cent monthly
interest from July 1, 1931 to the date of payment and a surcharge of 25 per cent on the tax, amounted to
P2,052.74. On March 15, 1932, the defendant filed a motion in the testamentary proceedings pending before the
Court of First Instance of Zamboanga (Special proceedings No. 302) praying that the trustee, plaintiff herein, be
ordered to pay to the Government the said sum of P2,052.74. The motion was granted.

On September 15, 1932, the plaintiff paid said amount under protest, notifying the defendant at the same time
that unless the amount was promptly refunded suit would be brought for its recovery. The defendant overruled
the plaintiff's protest and refused to refund the said amount hausted, plaintiff went to court with the result herein
above indicated.

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

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

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

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

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

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

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

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

The following are the principal questions to be decided by this court in this appeal:

(a) When does the inheritance tax accrue and when must it be satisfied?

(b) Should the inheritance tax be computed on the basis of the value of the estate at the time of the testator's
death, or on its value ten years later?

(c) In determining the net value of the estate subject to tax, is it proper to deduct the compensation due to
trustees?

(d) What law governs the case at bar? Should the provisions of Act No. 3606 favorable to the tax-payer be given
retroactive effect?

(e) Has there been deliquency in the payment of the inheritance tax? If so, should the additional interest claimed
by the defendant in his appeal be paid by the estate? Other points of incidental importance, raised by the parties
in their briefs, will be touched upon in the course of this opinion.

(a) The accrual of the inheritance tax is distinct from the obligation to pay the same. Section 1536 as amended,
of the Administrative Code, imposes the tax upon "every transmission by virtue of inheritance, devise, bequest,
gift mortis causa, or advance in anticipation of inheritance,devise, or bequest."

The tax therefore is upon transmission or the transfer or devolution of property of a decedent, made effective by
his death. (61 C. J., p. 1592.) It is in reality an excise or privilege tax imposed on the right to succeed to, receive,
or take property by or under a will or the intestacy law, or deed, grant, or gift to become operative at or after
death. Acording to article 657 of the Civil Code, "the rights to the succession of a person are transmitted from the
moment of his death." "In other words", said Arellano, C. J., ". . . the heirs succeed immediately to all of the
property of the deceased ancestor. The property belongs to the heirs at the moment of the death of the ancestor
as completely as if the ancestor had executed and delivered to them a deed for the same before his death."
(Bondad vs. Bondad, 34 Phil., 232. See also, Mijares vs. Nery, 3 Phil., 195; Suilong & Co., vs. Chio-Taysan, 12
Phil., 13; Lubrico vs. Arbado, 12 Phil., 391; Innocencio vs. Gat-Pandan, 14 Phil., 491; Aliasas vs.Alcantara, 16
Phil., 489; Ilustre vs. Alaras Frondosa, 17 Phil., 321; Malahacan vs. Ignacio, 19 Phil., 434; Bowa vs. Briones, 38
Phil., 27; Osario vs. Osario & Yuchausti Steamship Co., 41 Phil., 531; Fule vs. Fule, 46 Phil., 317; Dais vs. Court
of First Instance of Capiz, 51 Phil., 396; Baun vs. Heirs of Baun, 53 Phil., 654.)

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Plaintiff, however, asserts that while article 657 of the Civil Code is applicable to testate as well as intestate
succession, it operates only in so far as forced heirs are concerned. But the language of article 657 of the Civil
Code is broad and makes no distinction between different classes of heirs. That article does not speak of forced
heirs; it does not even use the word "heir". It speaks of the rights of succession and the transmission thereof
from the moment of death. The provision of section 625 of the Code of Civil Procedure regarding the
authentication and probate of a will as a necessary condition to effect transmission of property does not affect
the general rule laid down in article 657 of the Civil Code. The authentication of a will implies its due execution
but once probated and allowed the transmission is effective as of the death of the testator in accordance with
article 657 of the Civil Code. Whatever may be the time when actual transmission of the inheritance takes place,
succession takes place in any event at the moment of the decedent's death. The time when the heirs legally
succeed to the inheritance may differ from the time when the heirs actually receive such inheritance. "Poco
importa", says Manresa commenting on article 657 of the Civil Code, "que desde el falleimiento del causante,
hasta que el heredero o legatario entre en posesion de los bienes de la herencia o del legado, transcurra mucho
o poco tiempo, pues la adquisicion ha de retrotraerse al momento de la muerte, y asi lo ordena el articulo 989,
que debe considerarse como complemento del presente." (5 Manresa, 305; see also, art. 440, par. 1, Civil
Code.) Thomas Hanley having died on May 27, 1922, the inheritance tax accrued as of the date.

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

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

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

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

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

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

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

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

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

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

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

It should be observed in passing that the word "trustee", appearing in subsection (b) of section 1543, should
read "fideicommissary" or "cestui que trust". There was an obvious mistake in translation from the Spanish to the
English version.

The instant case does fall under subsection (a), but under subsection (b), of section 1544 above-quoted, as
there is here no fiduciary heirs, first heirs, legatee or donee. Under the subsection, the tax should have been
paid before the delivery of the properties in question to P. J. M. Moore as trustee on March 10, 1924.

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

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

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

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

(c) Certain items are required by law to be deducted from the appraised gross in arriving at the net value of the
estate on which the inheritance tax is to be computed (sec. 1539, Revised Administrative Code).

In the case at bar, the defendant and the trial court allowed a deduction of only P480.81. This sum represents
the expenses and disbursements of the executors until March 10, 1924, among which were their fees and the
proven debts of the deceased.

The plaintiff contends that the compensation and fees of the trustees, which aggregate P1,187.28 (Exhibits C,
AA, EE, PP, HH, JJ, LL, NN, OO), should also be deducted under section 1539 of the Revised Administrative
Code which provides, in part, as follows: "In order to determine the net sum which must bear the tax, when an
inheritance is concerned, there shall be deducted, in case of a resident, . . . the judicial expenses of the
testamentary or intestate proceedings, . . . ."

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

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the estate for the purpose of a distribution thereof to those entitled to it, and are not required or essential to the
perfection of the rights of the heirs or legatees. . . . Trusts . . . of the character of that here before the court, are
created for the the benefit of those to whom the property ultimately passes, are of voluntary creation, and
intended for the preservation of the estate. No sound reason is given to support the contention that such
expenses should be taken into consideration in fixing the value of the estate for the purpose of this tax."

(d) The defendant levied and assessed the inheritance tax due from the estate of Thomas Hanley under the
provisions of section 1544 of the Revised Administrative Code, as amended by section 3 of Act No. 3606. But
Act No. 3606 went into effect on January 1, 1930. It, therefore, was not the law in force when the testator died on
May 27, 1922. The law at the time was section 1544 above-mentioned, as amended by Act No. 3031, which took
effect on March 9, 1922.

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

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

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

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

The defendant maintains that it was the duty of the executor to pay the inheritance tax before the delivery of the
decedent's property to the trustee. Stated otherwise, the defendant contends that delivery to the trustee was
delivery to the cestui que trust, the beneficiery in this case, within the meaning of the first paragraph of
subsection (b) of section 1544 of the Revised Administrative Code. This contention is well taken and is
sustained. The appointment of P. J. M. Moore as trustee was made by the trial court in conformity with the
wishes of the testator as expressed in his will. It is true that the word "trust" is not mentioned or used in the will
but the intention to create one is clear. No particular or technical words are required to create a testamentary
trust (69 C. J., p. 711). The words "trust" and "trustee", though apt for the purpose, are not necessary. In fact,
the use of these two words is not conclusive on the question that a trust is created (69 C. J., p. 714). "To create
a trust by will the testator must indicate in the will his intention so to do by using language sufficient to separate

5
the legal from the equitable estate, and with sufficient certainty designate the beneficiaries, their interest in the
ttrust, the purpose or object of the trust, and the property or subject matter thereof. Stated otherwise, to
constitute a valid testamentary trust there must be a concurrence of three circumstances: (1) Sufficient words to
raise a trust; (2) a definite subject; (3) a certain or ascertain object; statutes in some jurisdictions expressly or in
effect so providing." (69 C. J., pp. 705,706.) There is no doubt that the testator intended to create a trust. He
ordered in his will that certain of his properties be kept together undisposed during a fixed period, for a stated
purpose. The probate court certainly exercised sound judgment in appointment a trustee to carry into effect the
provisions of the will (see sec. 582, Code of Civil Procedure).

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

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

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

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

6
It results that the estate which plaintiff represents has been delinquent in the payment of inheritance tax and,
therefore, liable for the payment of interest and surcharge provided by law in such cases.

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

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

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

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

At the time of his death, the deceased left real properties valued at P27,920 and personal properties worth
P1,465, or a total of P29,385. Deducting from this amount the sum of P480.81, representing allowable
deductions under secftion 1539 of the Revised Administrative Code, we have P28,904.19 as the net value of the
estate subject to inheritance tax.

The primary tax, according to section 1536, subsection (c), of the Revised Administrative Code, should be
imposed at the rate of one per centum upon the first ten thousand pesos and two per centum upon the amount
by which the share exceed thirty thousand pesos, plus an additional two hundred per centum. One per centum
of ten thousand pesos is P100. Two per centum of P18,904.19 is P378.08. Adding to these two sums an
additional two hundred per centum, or P965.16, we have as primary tax, correctly computed by the defendant,
the sum of P1,434.24.

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

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

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

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

7
G.R. Nos. L-9456 and L-9481             January 6, 1958

THE COLLECTOR OF INTERNAL REVENUE, petitioner,

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

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

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

MONTEMAYOR, J.:

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

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

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

Real Property situated in Ben-Lomond, Santa

Cruz, California valued P
at ...................................................................... 5,000.00
Real property situated in Burlingame, San Mateo,
California valued
at ..............................................................................
.......... 16,200.00
Tangible Personal property,
worth............................................. 2,140.00
Cash in the banks in the United
States.................................... 21,178.20
Accounts Receivable from various persons in the
United States including
notes ............................................................... 36,062.74
Stocks in U.S. Corporations and U.S. Savings 123,637.1

8
 Bonds, valued
at ..............................................................................
.......... 6
Shares of stock in Philippine Corporations, valued
at .......... 51,906.45

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

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

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

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

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

9
be the general rule that personal property, like shares of stock in the Philippines, is taxable at the domicile of the
owner (Miller) under the doctrine of mobilia secuuntur persona, nevertheless, when he during his life time,

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

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

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

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

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

xxx             xxx             xxx.

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

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

. . . this exemption is allowed on all gross estate of non-residents of the United States, who are not
citizens thereof, irrespective of whether there is a corresponding or similar exemption from transfer or
death taxes of non-residents of the Philippines, who are citizens of the United States; and thirdly,

10
 because this exemption is allowed on all gross estates of non-residents irrespective of whether it
involves tangible or intangible, real or personal property; so that for these reasons petitioner cannot
claim a reciprocity. . .

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

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

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

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

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

Bengzon, Paras, C.J., Padilla, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Endencia, and
Felix, JJ., concur.

11
G.R. No. L-11622             January 28, 1961

THE COLLECTOR OF INTERNAL REVENUE, petitioner,

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

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

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

DOUGLAS FISHER AND BETTINA FISHER, petitioner,

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

BARRERA, J.:

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

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

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

12
On September 27, 1952, the ancillary administrator filed in amended estate and inheritance tax return in
pursuance f his reservation made at the time of filing of the preliminary return and for the purpose of availing of
the right granted by section 91 of the National Internal Revenue Code.

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

Funeral expenses ($1,04326) P2,086.52

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

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

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

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

13
From this decision, both parties appealed.

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

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

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

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

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

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

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

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

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

It must be noted, however, that what has just been said refers to mixed marriages between a Filipino citizen and
a foreigner. In the instant case, both spouses are foreigners who married in the Philippines. Manresa,3 in his
Commentaries, has this to say on this point:

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

14
If we adopt the view of Manresa, the law determinative of the property relation of the Stevensons, married in
1909, would be the English law even if the marriage was celebrated in the Philippines, both of them being
foreigners. But, as correctly observed by the Tax Court, the pertinent English law that allegedly vests in the
decedent husband full ownership of the properties acquired during the marriage has not been proven by
petitioner. Except for a mere allegation in his answer, which is not sufficient, the record is bereft of any evidence
as to what English law says on the matter. In the absence of proof, the Court is justified, therefore, in indulging in
what Wharton calls "processual presumption," in presuming that the law of England on this matter is the same
as our law.4

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

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

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

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

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

We now take up the question of reciprocity in exemption from transfer or death taxes, between the State of
California and the Philippines.F

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

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

15
On the other hand, Section 13851 of the California Inheritance Tax Law, insofar as pertinent, reads:.

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

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

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

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

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

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

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

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

16
 "The two parcels of land containing 36,264 square meters were valued by the administrator of the estate
in the Estate and Inheritance tax returns filed by him at P43,500.00 which is the assessed value of said
properties. On the other hand, defendant appraised the same at P52,200.00. It is of common knowledge,
and this Court can take judicial notice of it, that assessments for real estate taxation purposes are very
much lower than the true and fair market value of the properties at a given time and place. In fact one
year after decedent's death or in 1952 the said properties were sold for a price of P72,000.00 and there
is no showing that special or extraordinary circumstances caused the sudden increase from the price of
P43,500.00, if we were to accept this value as a fair and reasonable one as of 1951. Even more, the
counsel for plaintiffs himself admitted in open court that he was willing to purchase the said properties at
P2.00 per square meter. In the light of these facts we believe and therefore hold that the valuation of
P52,200.00 of the real estate in Baguio made by defendant is fair, reasonable and justified in the
premises." (Decision, p. 19).

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

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

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

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

Petitioner, in this regard, contends that no evidence of record exists to support the allowance of the sum of
P8,604.39 for the following expenses:.

1) Administrator's fee P1,204.34

2) Attorney's fee 6,000.00
3) Judicial and Administrative expenses   2,052.55
            Total Deductions P8,604.39

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

In connection with the deduction of P652.50 representing the amount of realty taxes paid in 1951 on the
decedent's two parcels of land in Baguio City, which respondents claim was disallowed by the Tax Court, we find

17
that this claim has in fact been allowed. What happened here, which a careful review of the record will reveal,
was that the Tax Court, in itemizing the liabilities of the estate, viz:

1) Administrator's fee P1,204.34

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

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

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

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

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

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

(d) Miscellaneous provisions — (1) No deductions shall be allowed in the case of a non-resident not a

citizen of the Philippines unless the executor, administrator or anyone of the heirs, as the case may be,
includes in the return required to be filed under section ninety-three the value at the time of his death of
that part of the gross estate of the non-resident not situated in the Philippines."

In the case at bar, no such statement of the gross estate of the non-resident Stevenson not situated in the
Philippines appears in the three returns submitted to the court or to the office of the petitioner Collector of
Internal Revenue. The purpose of this requirement is to enable the revenue officer to determine how much of the

18
indebtedness may be allowed to be deducted, pursuant to (b), number (1) of the same section 89 of the Internal
Revenue Code which provides:

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

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

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

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

In recapitulation, we hold and declare that:

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

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

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

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

In all other respects, the decision of the Court of Tax Appeals is affirmed.

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

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

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

Footnotes

1
 ART. 124. If the marriage is between a citizen of the Philippines and a foreigner, whether celebrated in
the Philippines or abroad, the following rules shall prevail: (1) If the husband is a citizen of the
Philippines while the wife is a foreigner, the provisions of this Code shall govern their property relations;
(2) If the husband is a foreigner and the wife is a citizen of the Philippines, the laws of the husband's
country shall be followed, without prejudice to the provisions of this Code with regard to immovable
property."
19
2
 ART. 1325. Should the marriage be contracted in a foreign country, between a Spaniard and a foreign
woman or between a foreigner and a Spanish woman, and the contracting parties should not make any
statement or stipulation with respect to their property, it shall be understood, when the husband is a
Spaniard, that he marries under the system of the legal conjugal partnership, and when the wife is a
Spaniard, that she marries under the system of law in force in the husband's country, all without
prejudice to the provisions of this code with respect to real property. .

20
G.R. No. L-13250 October 29, 1971

THE COLLECTOR OF INTERNAL REVENUE, petitioner,

vs.
ANTONIO CAMPOS RUEDA, respondent..

Assistant Solicitor General Jose P. Alejandro and Special Attorney Jose G. Azurin, (O.S.G.) for petitioner.

Ramirez and Ortigas for respondent.

FERNANDO, J.:

The basic issue posed by petitioner Collector of Internal Revenue in this appeal from a decision of the Court of
Tax Appeals as to whether or not the requisites of statehood, or at least so much thereof as may be necessary
for the acquisition of an international personality, must be satisfied for a "foreign country" to fall within the
exemption of Section 122 of the National Internal Revenue Code  is now ripe for adjudication. The Court of Tax
1

Appeals answered the question in the negative, and thus reversed the action taken by petitioner Collector, who
would hold respondent Antonio Campos Rueda, as administrator of the estate of the late Estrella Soriano Vda.
de Cerdeira, liable for the sum of P161,874.95 as deficiency estate and inheritance taxes for the transfer of
intangible personal properties in the Philippines, the deceased, a Spanish national having been a resident of
Tangier, Morocco from 1931 up to the time of her death in 1955. In an earlier resolution promulgated May 30,
1962, this Court on the assumption that the need for resolving the principal question would be obviated, referred
the matter back to the Court of Tax Appeals to determine whether the alleged law of Tangier did grant the
reciprocal tax exemption required by the aforesaid Section 122. Then came an order from the Court of Tax
Appeals submitting copies of legislation of Tangier that would manifest that the element of reciprocity was not
lacking. It was not until July 29, 1969 that the case was deemed submitted for decision. When the petition for
review was filed on January 2, 1958, the basic issue raised was impressed with an element of novelty. Four
days thereafter, however, on January 6, 1958, it was held by this Court that the aforesaid provision does not
require that the "foreign country" possess an international personality to come within its terms.  Accordingly, we
2

have to affirm.

The decision of the Court of Tax Appeals, now under review, sets forth the background facts as follows: "This is
an appeal interposed by petitioner Antonio Campos Rueda as administrator of the estate of the deceased Doña
Maria de la Estrella Soriano Vda. de Cerdeira, from the decision of the respondent Collector of Internal
Revenue, assessing against and demanding from the former the sum P161,874.95 as deficiency estate and
inheritance taxes, including interest and penalties, on the transfer of intangible personal properties situated in
the Philippines and belonging to said Maria de la Estrella Soriano Vda. de Cerdeira. Maria de la Estrella Soriano
Vda. de Cerdeira (Maria Cerdeira for short) is a Spanish national, by reason of her marriage to a Spanish citizen
and was a resident of Tangier, Morocco from 1931 up to her death on January 2, 1955. At the time of her
demise she left, among others, intangible personal properties in the Philippines."  Then came this portion: "On
3

September 29, 1955, petitioner filed a provisional estate and inheritance tax return on all the properties of the
late Maria Cerdeira. On the same date, respondent, pending investigation, issued an assessment for state and
inheritance taxes in the respective amounts of P111,592.48 and P157,791.48, or a total of P369,383.96 which
tax liabilities were paid by petitioner ... . On November 17, 1955, an amended return was filed ... wherein
intangible personal properties with the value of P396,308.90 were claimed as exempted from taxes. On
November 23, 1955, respondent, pending investigation, issued another assessment for estate and inheritance
taxes in the amounts of P202,262.40 and P267,402.84, respectively, or a total of P469,665.24 ... . In a letter
dated January 11, 1956, respondent denied the request for exemption on the ground that the law of Tangier is
not reciprocal to Section 122 of the National Internal Revenue Code. Hence, respondent demanded the payment
of the sums of P239,439.49 representing deficiency estate and inheritance taxes including ad valorem penalties,
surcharges, interests and compromise penalties ... . In a letter dated February 8, 1956, and received by
respondent on the following day, petitioner requested for the reconsideration of the decision denying the claim
for tax exemption of the intangible personal properties and the imposition of the 25% and 5% ad
valorem penalties ... . However, respondent denied request, in his letter dated May 5, 1956 ... and received by
petitioner on May 21, 1956. Respondent premised the denial on the grounds that there was no reciprocity [with
Tangier, which was moreover] a mere principality, not a foreign country. Consequently, respondent demanded
the payment of the sums of P73,851.21 and P88,023.74 respectively, or a total of P161,874.95 as deficiency
estate and inheritance taxes including surcharges, interests and compromise penalties." 4

21
The matter was then elevated to the Court of Tax Appeals. As there was no dispute between the parties
regarding the values of the properties and the mathematical correctness of the deficiency assessments, the
principal question as noted dealt with the reciprocity aspect as well as the insisting by the Collector of Internal
Revenue that Tangier was not a foreign country within the meaning of Section 122. In ruling against the
contention of the Collector of Internal Revenue, the appealed decision states: "In fine, we believe, and so hold,
that the expression "foreign country", used in the last proviso of Section 122 of the National Internal Revenue
Code, refers to a government of that foreign power which, although not an international person in the sense of
international law, does not impose transfer or death upon intangible person properties of our citizens not residing
therein, or whose law allows a similar exemption from such taxes. It is, therefore, not necessary that Tangier
should have been recognized by our Government order to entitle the petitioner to the exemption benefits of the
proviso of Section 122 of our Tax. Code." 5

Hence appeal to this court by petitioner. The respective briefs of the parties duly submitted, but as above
indicated, instead of ruling definitely on the question, this Court, on May 30, 1962, resolve to inquire further into
the question of reciprocity and sent back the case to the Court of Tax Appeals for the motion of evidence
thereon. The dispositive portion of such resolution reads as follows: "While section 122 of the Philippine Tax
Code aforequoted speaks of 'intangible personal property' in both subdivisions (a) and (b); the alleged laws of
Tangier refer to 'bienes muebles situados en Tanger', 'bienes muebles radicantes en Tanger', 'movables' and
'movable property'. In order that this Court may be able to determine whether the alleged laws of Tangier grant
the reciprocal tax exemptions required by Section 122 of the Tax Code, and without, for the time being, going
into the merits of the issues raised by the petitioner-appellant, the case is [remanded] to the Court of Tax
Appeals for the reception of evidence or proof on whether or not the words `bienes muebles', 'movables' and
'movable properties as used in the Tangier laws, include or embrace 'intangible person property', as used in the
Tax Code."  In line with the above resolution, the Court of Tax Appeals admitted evidence submitted by the
6

administrator petitioner Antonio Campos Rueda, consisting of exhibits of laws of Tangier to the effect that "the
transfers by reason of death of movable properties, corporeal or incorporeal, including furniture and personal
effects as well as of securities, bonds, shares, ..., were not subject, on that date and in said zone, to the
payment of any death tax, whatever might have been the nationality of the deceased or his heirs and legatees."
It was further noted in an order of such Court referring the matter back to us that such were duly admitted in
evidence during the hearing of the case on September 9, 1963. Respondent presented no evidence." 7

The controlling legal provision as noted is a proviso in Section 122 of the National Internal Revenue Code. It
reads thus: "That no tax shall be collected under this Title in respect of intangible personal property (a) if the
decedent at the time of his death was a resident of a foreign country which at the time of his death did not
impose a transfer tax or death tax of any character in respect of intangible person property of the Philippines not
residing in that foreign country, or (b) if the laws of the foreign country of which the decedent was a resident at
the time of his death allow a similar exemption from transfer taxes or death taxes of every character in respect of
intangible personal property owned by citizens of the Philippines not residing in that foreign country."  The only
8

obstacle therefore to a definitive ruling is whether or not as vigorously insisted upon by petitioner the acquisition
of internal personality is a condition sine qua non to Tangier being considered a "foreign country". Deference to
the De Lara ruling, as was made clear in the opening paragraph of this opinion, calls for an affirmance of the
decision of the Court of Tax Appeals.

It does not admit of doubt that if a foreign country is to be identified with a state, it is required in line with Pound's
formulation that it be a politically organized sovereign community independent of outside control bound by
penalties of nationhood, legally supreme within its territory, acting through a government functioning under a
regime of
law.  It is thus a sovereign person with the people composing it viewed as an organized corporate society under
9

a government with the legal competence to exact obedience to its commands.   It has been referred to as a
10

body-politic organized by common consent for mutual defense and mutual safety and to promote the general
welfare.  Correctly has it been described by Esmein as "the juridical personification of the nation."   This is to
11 12

view it in the light of its historical development. The stress is on its being a nation, its people occupying a definite
territory, politically organized, exercising by means of its government its sovereign will over the individuals within
it and maintaining its separate international personality. Laski could speak of it then as a territorial society
divided into government and subjects, claiming within its allotted area a supremacy over all other
institutions.  McIver similarly would point to the power entrusted to its government to maintain within its territory
13

the conditions of a legal order and to enter into international relations.   With the latter requisite satisfied,
14

international law do not exact independence as a condition of statehood. So Hyde did opine.  15

Even on the assumption then that Tangier is bereft of international personality, petitioner has not successfully
made out a case. It bears repeating that four days after the filing of this petition on January 6, 1958 in Collector
of Internal Revenue v. De Lara,   it was specifically held by us: "Considering the State of California as a foreign
16

country in relation to section 122 of our Tax Code we believe and hold, as did the Tax Court, that the Ancilliary
22
Administrator is entitled the exemption from the inheritance tax on the intangible personal property found in the
Philippines."   There can be no doubt that California as a state in the American Union was in the alleged
17

requisite of international personality. Nonetheless, it was held to be a foreign country within the meaning of
Section 122 of the National Internal Revenue Code.  18

What is undeniable is that even prior to the De Lara ruling, this Court did commit itself to the doctrine that even a
tiny principality, that of Liechtenstein, hardly an international personality in the sense, did fall under this exempt
category. So it appears in an opinion of the Court by the then Acting Chief Justicem Bengson who thereafter
assumed that position in a permanent capacity, in Kiene v. Collector of Internal Revenue.   As was therein
19

noted: 'The Board found from the documents submitted to it — proof of the laws of Liechtenstein — that said
country does not impose estate, inheritance and gift taxes on intangible property of Filipino citizens not residing
in that country. Wherefore, the Board declared that pursuant to the exemption above established, no estate or
inheritance taxes were collectible, Ludwig Kiene being a resident of Liechtestein when he passed away."   Then 20

came this definitive ruling: "The Collector — hereafter named the respondent — cites decisions of the United
States Supreme Court and of this Court, holding that intangible personal property in the Philippines belonging to
a non-resident foreigner, who died outside of this country is subject to the estate tax, in disregard of the principle
'mobilia sequuntur personam'. Such property is admittedly taxable here. Without the proviso above quoted, the
shares of stock owned here by the Ludwig Kiene would be concededly subject to estate and inheritance taxes.
Nevertheless our Congress chose to make an exemption where conditions are such that demand reciprocity —
as in this case. And the exemption must be honored."  21

WHEREFORE, the decision of the respondent Court of Tax Appeals of October 30, 1957 is affirmed. Without
pronouncement as to costs.

Concepcion, C.J., Makalintal, Zaldivar, Castro, Villamor and Makasiar, JJ., concur.

Reyes, J.B.L., J., concurs in the result.

Teehankee and Barredo, JJ., took no part.

Footnotes

1 Commonwealth Act No. 466 as amended (1939).

2 Collector of Internal Revenue v. De Lara, 102 Phil. 813 (1958).

3 Annex C, Petition, Decision of Court of Tax Appeals, p. 1.

4 Ibid, pp. 2-3.

5 Ibid, p. 9.

6 Resolution, pp. 4-5.

7 Order of November 19, 1963 p. 2.

8 Section 122 of the National Internal Revenue Code (1939) reads insofar as relevant: "For the
purposes of this Title the terms 'gross estate' and 'gift' include real estate and tangible personal
property, or mixed, physically located in the Philippines; franchise which must be exercised in the
Philippines; shares, obligations, or bonds issued by any corporation or sociedad
anonima organized or constituted in the Philippines in accordance with its laws; shares,
obligations, or bonds issued by any foreign corporation eighty-five per centum of the business of
which is located in the Philippines; shares, obligations, or bonds issued by any foreign
corporation if such shares, obligations, or bonds have acquired a business situs in the
Philippines; shares or rights in any partnership, business or industry established in the
Philippines; or any personal property, whether tangible or intangible, located in the
Philippines; Provided, however, That in the case of a resident, the transmission or transfer of any
intangible personal property, regardless of its location, subject to the taxes prescribed in this
Title; And provided, further, that no tax shall be collected under this Title in respect of intangible

23
personal property (a) if the decedent at the time of his death was a resident of a foreign country
which at the time of his death did not impose a transfer tax or death tax of any character in
respect of intangible personal property of citizens of the Philippines not residing in that foreign
country, or (b) if the laws of the foreign country of which the decedent was a resident at the time
of his death allow a similar exemption from transfer taxes or death taxes of every character in
respect of intangible personal property owned by citizens of the Philippines not residing in that
foreign country."

9 Cf. Pound: "The political organization of a society legally supreme within and independent of
legal control from without." II Jurisprudence, p. 346 (1959).

24
G.R. No. L-29204          December 29, 1928

RUFINA ZAPANTA, ET AL., plaintiffs-appellees,

vs.
JUAN POSADAS, JR., ET AL., defendants-appellants.

---------------------------------

G.R. No. L-29205          December 29, 1928

ROSARIO PINEDA, plaintiff-appellee,
vs.
JUAN POSADAS, JR., ET AL., defendants-appellants.

---------------------------------

G.R. No. L-29206          December 29, 1928

OLIMPIO GUANZON, ET AL., plaintiffs-appellees,

vs.
JUAN POSADAS, JR., ET AL., defendants-appellants.

---------------------------------

G.R. No. L-29207          December 29, 1928

LEONCIA PINEDA, ET AL., plaintiffs-appellees,

vs.
JUAN POSADAS, JR., ET AL., defendants-appellants.

---------------------------------

G.R. No. L-29208          December 29, 1928

EMIGDIO DAVID, ET AL., plaintiffs-appellees,

vs.
JUAN POSADAS, JR., ET AL., defendants-appellants.

---------------------------------

G.R. No. L-29209          December 29, 1928

GERONIMA PINEDA, plaintiff-appellees,

vs.
JUAN POSADAS, JR., ET AL., defendants-appellants.

Office of the Solicitor-General Reyes for appellants.

Aurelio Pineda for appellees.

AVANCEÑA, C. J.:

Father Braulio Pineda died in January 1925 without any ascendants or descendants leaving a will in which he
instituted his sister Irene Pineda as his sole heiress. During his lifetime Father Braulio donated some of his
property by the instruments to the six plaintifffs, severally, with the condition that some of them would pay him a
certain amount of rice, and others of money every year, and with the express provision that failure to fulfill this
condition would revoke the donations ipso facto. These six plaintiff-donees are relatives, and some of them

25
brothers of Father Braulio Pineda. The donations contained another clause that they would take effect upon
acceptance. They were accepted during Father Braulio's lifetime by every one of the donees.

Every one of the six plaintiffs filed a separate action against the Collector of Internal Revenue and his deputy for
the sums of which each of them paid, under protest, as inheritance tax on the property donated to them, in
accordance with section 1536 of the Administrative Code, as amended by section 10 of Act No. 2835, and by
section 1 of Act No. 3031. Section 1536 of the Administrative Code reads:

Every transmission by virtue of inheritance, devise, bequest, gift mortis causa or advance in anticipation
of inheritance, devise, or bequest of real property located in the Philippine Islands and real rights in such
property; . . .

The trial court in deciding these six cases, held that the donations to the six plaintiffs made by the deceased
Father Braulio Pineda are donations inter vivos, and therefore, not subject to the inheritance tax, and ordered
the defendants to return to each of the plaintiffs the sums paid by the latter.

The defendants appealed from this judgment.

The whole quetion involved in this appeal resolves into whether the donations made by Father Braulio
Pineda to each of the plaintiffs are donations inter vivos, or mortis causa, for it is the latter upon which the
Administrative Code imposes inheritance tax.

In our opinion, said donations are inter vivos. It is so expressly stated in the instruments in which they appear.
They were made in consideration of the donor's affection for the donees, and of the services they had rendered
him, but he has charged them with the obligation to pay him a certain amount of rice and money, respectively,
each year during his lifetime, the donations to become effective upon acceptance. They are therefore not in the
nature of donations mortis causa but inter vivos.

The principal characteristics of a donation mortis causa, which distinguish it essentially from a donation inter
vivos, are that in the former it is the donor's death that determines the acquisition of, or the right to, the
property, and that it is revocable at the will of the donor.

In the donations in question, their effect, that is, the acquisition of, or the right to, the property, was produced
while the donor was still alive, for according to their expressed terms they were to have this effect upon
acceptance, and this took place during the donor's lifetime. The nature of these donations is not affected by
the fact that they were subject to a condition, since it was imposed as a resolutory condition, and in this sense, it
is necessarily implies that the right came into existence first as well as its effect, because otherwise there
would be nothing to resolve upon the nonfulfillment of the condition imposed. Neither does the fact that
these donations are revocable, give them the character of donations mortis causa, inasmuch as the revocation is
not the failure to fulfill the condition imposed. In relation to the donor's will alone, these donations are
irrevocable. On the other hand, this condition, in so far as it renders the donation onerous, takes it further away
from the disposition mortis causa and brings it nearer to contract. In this sense, by virtue of this condition
imposed, they are not donations throughout their full extent, but only so far as they exceed the incumbrance
imposed, for so far as concerns the portion equivalent to or less than said incumbrance, it has the nature of a
real contract and is governed by the rule on contracts (art. 622 of the Civil Code). And in the part in which it
is strictly a donation, it is a donation inter vivos, because its effect was produced by the donees'
acceptance during the donor's lifetime and was not determined by the donor's death. Upon being
accepted they had full effect.

If the donor's life is mentioned in connection with this condition, it is only fix the donor's death as the end of the
term within which the condition must be fulfilled, and not because such death of the donor is the cause which
determines the birth of the right to the donation. The property donated passed to the ownership of the
donees from the acceptance of the donations, and these could not be revoked except upon the
nonfulfillment of the condition imposed, or for other causes prescribed by the law, but not by mere will
of the donor.

Neither can these donations be considered as an advance on inheritance or legacy, according to the terms
of section 1536 of the Administrative Code, because they are neither an inheritance nor a legacy.

And it cannot be said that the plaintiffs received such advance on inheritance or legacy, since they were not
heirs or legatees of their predessor in interest upon his death (sec. 1540 of the Administrative Code).

26
Neither can it be said that they obtained this inheritance or legacy by virtue of a document which does not
contain the requisites of a will (sec. 618 of the Code of Civil Pocedure).1awphi1.net

Besides, if the donations made by the plaintiffs are, as the appellants contended, mortis causa, then they
must be governed by the law on testate succession (art. 620 of the Civil Code). In such a case, the
documents in which these donations appear, being instruments which do not contain the requisites of a will, are
not valid to transmit the property to the donees (sec. 618, Code of Civil Procedure.) Then the defendants are not
justified in collecting from the donees the inheritance tax, on property which has not been legally transferred to
them, and in which they acquired no right.

For these reasons the judgment appealed from is affirmed, without special pronouncement as to costs. So
ordered.

Johnson, Malcolm, Villamor, Romualdez and Villa-Real, JJ., concur.

Ostrand and Johns, JJ., dissent.

Separate Opinions

STREET, J., dissenting:

Of course I agree with so much of the discussion in the majority opinion as declarees that the various donations
made prior to his death by Rev. Braulio Pineda to various nephews and nieces were not donations mortis causa.
But this is by no means decisive of the case. Among the forms of succession which are by law made subject to
the inheritance tax are advances in anticipation of inheritance (Adm. Code, sec. 1536, as amended); and I
consider these donations to be taxable in that character. The device adopted in this case for the distribution of
the bulk of the donor's property before his death is, to my mind, a transparent attempt at an evasion of the tax.
The donations in question were made to all persons who would have been entitled to inherit if no will had been
made, except one; and this one was instituted as sole heir in the will. If no will had been left, all of the donees
and the heir instituted in the will would have shared jointly in the estate by regular succession. It is thus seen that
the making of the donations and the making of the will were part of a single purpose, which was, to effect the
distribution of the donor's property. What else is necessary to make an advance "in anticipation of inheritance?"

The suggestion in the opinion that the institution of another person as heir in the will had effect of destroying the
capacity of the donees to take as heirs, is not well founded, for the question whether these donations should be
considered advances in anticipation of inheritance ought to be determined with reference to the situation at the
time the donations were made. The very reason that the prospective heir to whom no donation had been made
was instituted as sole heir in the will is of course found in the fact that advances had already been made to the
others. The purpose of the statute was to impose a tax on successions; and in order to prevent the successful
use of devices of this kind, the lawmaker expressly made the tax applicable to advance in anticipation
inheritance. If the situation before us is not within both the letter and meaning of that provision, the undersigned
has entirely misinterpreted its purport.

27
ALFONSO TUASON Y ANGELES and MARIANO TUASON Y ANGELES, plaintiffs-appellees,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.

Attorney-General Jaranilla for appellant.

Salvador Franco for appellees.

AVANCEÑA, C.J.:

On September 15, 1922, Esperanza Tuason y Chuajap made a donation inter vivos of certain property to plaintiff
Mariano Tuason y Angeles. On April 30, 1923, she made another donation inter vivos to Alfonso Tuason y
Angeles, the other plaintiff. On January 5, 1926, she died of senile weakness at the age of 73, leaving a will
bequeathing of P5,025 to Mariano Tuason y Angeles. Her judicial administratrix paid the prescribed inheritance
tax on these two bequests.

Furthermore, the defendant collected the sums of P3,809.76 and P6,653.64 from plaintiffs Mariano Tuason y
Angeles and Alfonso Tuason y Angeles against their opposition and over their protest as inheritance tax upon
the gifts inter vivos made to them.

The plaintiffs brought this action against the Collector of Internal Revenue for the recovery of the amounts of
P3,809.76 and P6,653.64 collected from them as inheritance tax.

The judgment appealed from ordered the defendant to return the amounts claimed to the plaintiffs.

The appellant contends that the collection of these amounts as inheritance tax is authorized by the law.

Section 1536 of the Administrative Code provides:

SEC. 1536. Conditions and rate of taxation. — Every transmission by virtue of inheritance, devise,
bequest, gift mortis causa, or advance in anticipation of inheritance, devise, or bequest shall be subject
to the following tax;

xxx     xxx     xxx

Section 1539 enumerates the deductions to be made in determining the net sum which must bear the tax.

Section 1540 then provides:

SEC. 1540. Additions of gifts and advances. — After the aforementioned deductions have been made,
there shall be added to the resulting amount the value of all gifts or advances made by the predecessor
to any of those who, after his death, shall prove to be his heirs, devisees, legatees, or donees mortis
causa.

When the law say all gifts, it doubtless refers to gifts inter vivos, and not mortis causa. Both the letter and the
spirit of the law leave no room for any other interpretation. Such, clearly, is the tenor of the language which
refers to donation that took effect before the donor's death, and not to mortis causa donations, which can only be
made with the formalities of a will, and can only take effect after the donor's death. Any other construction would
virtually change this provision into:

. . . there shall be added to the resulting amount the value of all gifts mortis causa . . . made by the
predecessor to those who, after his death, shall prove to be his . . . donees mortis causa." We cannot
give to the law an interpretation that would so vitiate its language. The truth of the matter is that in this
section (1540) the law presumes that such gifts have been made in anticipation of inheritance, devise,
bequest, or gift mortis causa, when the donee, after the death of the donor proves to be his heir, devisee
or donee mortis causa, for the purpose of evading the tax, and it is to prevent this that it provides that
they shall be added to the resulting amount.

28
This being so, and it appearing that the appellees after the death of Esperanza Tuason y Chuajap, were found to
be legatees under her will, the donation inter vivos she had made to them in 1922 and 1923, must be added to
the net amount that is to be taxed.

In the course of the deliberations of this court on this case, the question arose as to whether or not that
interpretation of the law would be constitutional. But as the parties did not raise this question in the court below,
nor in this court, we cannot consider it. At any rate the argument adduced against its constitutionality, which is
the lack of uniformity, does not seem to be well-founded. It was said that under such an interpretation, while a
donee inter vivos who, after the predecessor's death prove to be an heir, a legatee, or a donee mortis causa,
would have to pay the tax, another donee inter vivos who did not prove to be an heir, a legatee, or a
donee mortis causa of the predecessor, would be exempt from such a tax. But as these are two different cases,
the principle of uniformity is inapplicable to them. Aside from this, in regard to other aspects, we see nothing
against the constitutionality of the law (Bromley vs. McCaughn [1929], U. S. Supreme Court Advance Opinions,
p. 69).

The judgment appealed from is reversed, and the defendant is absolved from the complaint, without special
pronouncement of costs. So ordered.

Malcolm, Villamor, Ostrand, Johns and Romualdez, JJ., concur.

Separate Opinions

STREET, J., dissenting:

The two plaintiffs in this case are suing to recover two several sums of money, the payment of which has been
exacted from them in the character of taxes upon inheritance, and it is very manifest to me that the taxes in
question were imposed, and have been collected, in violation of that portion of section 3 of the Autonomy Act
(Jones Law) which declares that the rule of taxation in these Islands shall be uniform. To demonstrate this
conclusion it is desirable to fix in the mind the exact state of fact upon which the decision should turn. In this
connection we note that the plaintiffs are not persons who would have inherited any part of the estate of
Esperanza Tuason y Chuajap, if she had died intestate. It is clear therefore that the donations made to the two
plaintiffs in 1922 and 1923, respectively, were not made "in anticipation of inheritance," and they are therefore
not taxable in that character. The gifts in question were donations inter vivos, and as such they should be free
from the inheritance tax.

But it happened that the donor, in a will executed late in 1925, gave two legacies of about P5,000 each to the
two plaintiffs. These two legacies were of course subject to the legacy tax imposed by law, and those taxes have
been paid without question. Nevertheless, under the decision now before us, the giving of those legacies has the
effect of making the gifts of 1922 and 1923 to the plaintiffs taxable in the character of inheritances. This
substitutes mere caprice for uniformity.

Further to illustrate this, let it be supposed that a person, desirous of conferring a benefit upon two persons held
in about equal esteem, makes a gift of P10,000 to one and P9,900 to the other. In a subsequent will, in order to
equalize the gifts, the same benefactor gives a legacy of P100 to the second donee. Under the statute, as
interpreted by the court, the first donee is not liable to any inheritance tax, but the second is liable upon the
entire amount first given to him. This shows the lack of logical relation between the incidence of the tax and the
fact taken as a basis for its imposition.

It will be noted that we do not here question the proposition that section 1540 of the Administrative Code might
lawfully operate upon a donee who at the time of receiving the gift inter vivos belongs to the class who could
take by intestate succession, in the absence of a will, for in this case the donation may be made in anticipation of
inheritance (sec. 1536, Adm. Code). It was for this very reason that the undersigned sustained the position in
Zapanta vs. Posadas (52 Phil., 557), that the gifts there made were taxable. But section 1540 of the
Administrative Code cannot, in my opinion, properly be interpreted to extend to gifts inter vivos made to a person
not in a position to take as heir of the donor dying intestate.

29
In closing I wish to point out that the vital difference between this case and that under consideration in Zapanta
vs. Posadas, supra, is that in the latter case the donees were persons who would have been heirs of the donor if
the latter had died intestate, while in this case the donees are not in such position.

The judgment, in my opinion, should have been affirmed.

G.R. No. L-36770             November 4, 1932

LUIS W. DISON, plaintiff-appellant,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.

Marcelino Aguas for plaintiff-appellant.

Attorney-General Jaranilla for defendant-appellant.

BUTTE, J.:

This is an appeal from the decision of the Court of First Instance of Pampanga in favor of the defendant Juan
Posadas, Jr., Collector of Internal Revenue, in a suit filed by the plaintiffs, Luis W. Dison, for the recovery of an
inheritance tax in the sum of P2,808.73 paid under protest.

The petitioner alleged in his complaint that the tax is illegal because he received the property, which is the basis
of the tax, from his father before his death by a deed of gift inter vivos which was duly accepted and registered
before the death of his father.

The defendant answered with a general denial and with a counterdemand for the sum of P1,245.56 which it was
alleged is a balance still due and unpaid on account of said tax. The plaintiff replied to the counterdemand with a
general denial. The court a quo held that the cause of action set up in the counterdemand was not proven and
dismissed the same. Both sides appealed to this court, but the cross-complaint and appeal of the Collector of
Internal Revenue were dismissed by this court on March 17, 1932, on motion of the Attorney-General. 1awphil.net

The only evidence introduced at the trial of this cause was the proof of payment of the tax under protest, as
stated, and the deed of gift executed by Felix Dison on April 9, 1928, in favor of his sons Luis W. Dison, the
plaintiff-appellant. This deed of gift transferred twenty-two tracts of land to the donee, reserving to the donor for
his life the usufruct of three tracts. This deed was acknowledged by the donor before a notary public on April 16,
1928. Luis W. Dison, on April 17, 1928, formally accepted said gift by an instrument in writing which he
acknowledged before a notary public on April 20, 1928.

At the trial the parties agreed to and filed the following ingenious stipulation of fact:

1. That Don Felix Dison died on April 21, 1928;

2. That Don Felix Dison, before his death, made a gift inter vivos in favor of the plaintiff Luis W. Dison of
all his property according to a deed of gift (Exhibit D) which includes all the property of Don Felix Dizon;

3. That the plaintiff did not receive property of any kind of Don Felix Dison upon the death of the latter;

4. That Don Luis W. Dison was the legitimate and only child of Don Felix Dison.

It is inferred from Exhibit D that Felix Dison was a widower at the time of his death.

The theory of the plaintiff-appellant is that he received and holds the property mentioned by a consummated gift
and that Act No. 2601 (Chapter 40 of the Administrative Code) being the inheritance tax statute, does not tax
gifts. The provision directly here involved is section 1540 of the Administrative Code which reads as follows:

30
 Additions of Gifts and Advances. — After the aforementioned deductions have been made, there shall
be added to the resulting amount the value of all gifts or advances made by the predecessor to any of
those who, after his death, shall prove to be his heirs, devises, legatees, or donees mortis causa.

The question to be resolved may be stated thus: Does section 1540 of the Administrative Code subject the
plaintiff-appellant to the payment of an inheritance tax?

The appellant argues that there is no evidence in this case to support a finding that the gift was simulated and
that it was an artifice for evading the payment of the inheritance tax, as is intimated in the decision of the court
below and the brief of the Attorney-General. We see no reason why the court may not go behind the language in
which the transaction is masked in order to ascertain its true character and purpose.

In this case the scanty facts before us may not warrant the inference that the conveyance, acknowledged by the
donor five days before his death and accepted by the donee one day before the donor's death, was fraudulently
made for the purpose of evading the inheritance tax. But the facts, in our opinion, do warrant the inference that
the transfer was an advancement upon the inheritance which the donee, as the sole and forced heir of the
donor, would be entitled to receive upon the death of the donor.

The argument advanced by the appellant that he is not an heir of his deceased father within the meaning of
section 1540 of the Administrative Code because his father in his lifetime had given the appellant all his property
and left no property to be inherited, is so fallacious that the urging of it here casts a suspicion upon the
appellants reason for completing the legal formalities of the transfer on the eve of the latter's death.

We do not know whether or not the father in this case left a will; in any event, this appellant could not be
deprived of his share of the inheritance because the Civil Code confers upon him the status of a forced heir. We
construe the expression in section 1540 "any of those who, after his death, shall prove to be his heirs", to include
those who, by our law, are given the status and rights of heirs, regardless of the quantity of property they may
receive as such heirs. That the appellant in this case occupies the status of heir to his deceased father cannot
be questioned. Construing the conveyance here in question, under the facts presented, as an advance made by
Felix Dison to his only child, we hold section 1540 to be applicable and the tax to have been properly assessed
by the Collector of Internal Revenue.

This appeal was originally assigned to a Division of five but referred to the court in banc by reason of the
appellant's attack upon the constitutionality of section 1540. This attack is based on the sole ground that insofar
as section 1540 levies a tax upon gifts inter vivos, it violates that provision of section 3 of the organic Act of the
Philippine Islands (39 Stat. L., 545) which reads as follows: "That no bill which may be enacted into law shall
embraced more than one subject, and that subject shall be expressed in the title of the bill." Neither the title of
Act No. 2601 nor chapter 40 of the Administrative Code makes any reference to a tax on gifts. Perhaps it is
enough to say of this contention that section 1540 plainly does not tax gifts per se but only when those gifts
are made to those who shall prove to be the heirs, devisees, legatees or donees mortis causa of the
donor. This court said in the case of Tuason and Tuason vs. Posadas 954 Phil., 289): lawphil.net

When the law says all gifts, it doubtless refers to gifts inter vivos, and not mortis causa. Both the
letter and the spirit of the law leave no room for any other interpretation. Such, clearly, is the tenor of the
language which refers to donations that took effect before the donor's death, and not to mortis
causa donations, which can only be made with the formalities of a will, and can only take effect after the
donor's death. Any other construction would virtually change this provision into:

". . . there shall be added to the resulting amount the value of all gifts mortis causa . . . made by the predecessor
to those who, after his death, shall prove to be his . . . donees mortis causa." We cannot give to the law an
interpretation that would so vitiate its language.

The truth of the matter is that in this section (1540) the law presumes that such gifts have been made in
anticipation of inheritance, devise, bequest, or gift mortis causa, when the donee, after the death of the
donor proves to be his heir, devisee or donee mortis causa, for the purpose of evading the tax, and it is to
prevent this that it provides that they shall be added to the resulting amount." However much appellant's
argument on this point may fit his preconceived notion that the transaction between him and his father was a
consummated gift with no relation to the inheritance, we hold that there is not merit in this attack upon the
constitutionality of section 1540 under our view of the facts. No other constitutional questions were raised in this
case.

The judgment below is affirmed with costs in this instance against the appellant. So ordered.
31
32
G.R. No. L-34937             March 13, 1933

CONCEPCION VIDAL DE ROCES and her husband,

MARCOS ROCES, and ELVIRA VIDAL DE RICHARDS, plaintiff-appellants,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellee.

Feria and La O for appellants.

Attorney-General Jaranilla for appellee.

IMPERIAL, J.:

The plaintiffs herein brought this action to recover from the defendant, Collector of Internal Revenue, certain
sums of money paid by them under protest as inheritance tax. They appealed from the judgment rendered by
the Court of First Instance of Manila dismissing the action, without costs.

On March 10 and 12, 1925, Esperanza Tuazon, by means of public documents, donated certain parcels of land
situated in Manila to the plaintiffs herein, who, with their respective husbands, accepted them in the same public
documents, which were duly recorded in the registry of deeds. By virtue of said donations, the plaintiffs took
possession of the said lands, received the fruits thereof and obtained the corresponding transfer certificates
of title.

On January 5, 1926, the donor died in the City of Manila without leaving any forced heir and her will which was
admitted to probate, she bequeathed to each of the donees the sum of P5,000. After the estate had been
distributed among the instituted legatees and before delivery of their respective shares, the appellee herein, as
Collector of Internal Revenue, ruled that the appellants, as donees and legatees, should pay as inheritance tax
the sums of P16,673 and P13,951.45, respectively. Of these sums P15,191.48 was levied as tax on the
donation to Concepcion Vidal de Roces and P1,481.52 on her legacy, and, likewise, P12,388.95 was
imposed upon the donation made to Elvira Vidal de Richards and P1,462.50 on her legacy. At first the appellants
refused to pay the aforementioned taxes but, at the insistence of the appellee and in order not to delay the
adjudication of the legacies, they agreed at last, to pay them under protest.

The appellee filed a demurrer to the complaint on the ground that the facts alleged therein were not sufficient to
constitute a cause of action. After the legal questions raised therein had been discussed, the court sustained the
demurrer and ordered the amendment of the complaint which the appellants failed to do, whereupon the trial
court dismissed the action on the ground that the afore- mentioned appellants did not really have a right of
action.

In their brief, the appellants assign only one alleged error, to wit: that the demurrer interposed by the appellee
was sustained without sufficient ground.

The judgment appealed from was based on the provisions of section 1540 Administrative Code which reads as
follows:

SEC. 1540. Additions of gifts and advances. — After the aforementioned deductions have been made,
there shall be added to the resulting amount the value of all gifts or advances made by the predecessor
to any those who, after his death, shall prove to be his heirs, devisees, legatees, or donees mortis
causa.

The appellants contend that the above-mentioned legal provision does not include donations inter vivos and if it
does, it is unconstitutional, null and void for the following reasons: first, because it violates section 3 of the Jones
Law which provides that no law should embrace more than one subject, and that subject should be expressed in
the title thereof; second that the Legislature has no authority to impose inheritance tax on donations inter vivos;
and third, because a legal provision of this character contravenes the fundamental rule of uniformity of taxation.

The appellee, in turn, contends that the words "all gifts" refer clearly to donations inter vivos and, in support of
his theory, cites the doctrine laid in the case of Tuason and Tuason vs. Posadas (54 Phil., 289).

After a careful study of the law and the authorities applicable thereto, we are the opinion that neither theory
reflects the true spirit of the aforementioned provision.

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The gifts referred to in section 1540 of the Revised Administration Code are, obviously, those donations inter
vivos that take effect immediately or during the lifetime of the donor but are made in consideration or in
contemplation of death.

Gifts inter vivos, the transmission of which is not made in contemplation of the donor's death should not be
understood as included within the said legal provision for the reason that it would amount to imposing a direct
tax on property and not on the transmission thereof, which act does not come within the scope of the provisions
contained in Article XI of Chapter 40 of the Administrative Code which deals expressly with the tax on
inheritances, legacies and other acquisitions mortis causa.

Our interpretation of the law is not in conflict with the rule laid down in the case of Tuason and Tuason vs.
Posadas, supra. We said therein, as we say now, that the expression "all gifts" refers to gifts inter
vivos inasmuch as the law considers them as advances on inheritance, in the sense that they are gifts inter
vivos made in contemplation or in consideration of death. In that case, it was not held that that kind of gifts
consisted in those made completely independent of death or without regard to it.

Said legal provision is not null and void on the alleged ground that the subject matter thereof is not embraced in
the title of the section under which it is enumerated.

On the contrary, its provisions are perfectly summarized in the heading, "Tax on Inheritance, etc." which is the
title of Article XI. Furthermore, the constitutional provision cited should not be strictly construed as to make it
necessary that the title contain a full index to all the contents of the law. It is sufficient if the language used
therein is expressed in such a way that in case of doubt it would afford a means of determining the legislators
intention. (Lewis' Sutherland Statutory Construction, Vol. II, p. 651.) Lastly, the circumstance that the
Administrative Code was prepared and compiled strictly in accordance with the provisions of the Jones Law on
that matter should not be overlooked and that, in a compilation of laws such as the Administrative Code, it is but
natural and proper that provisions referring to diverse matters should be found. (Ayson and Ignacio vs. Provincial
Board of Rizal and Municipal Council of Navotas, 39 Phil., 931.)

The appellants question the power of the Legislature to impose taxes on the transmission of real estate that
takes effect immediately and during the lifetime of the donor, and allege as their reason that such tax partakes of
the nature of the land tax which the law has already created in another part of the Administrative Code. Without
making express pronouncement on this question, for it is unnecessary, we wish to state that such is not the case
in these instance. The tax collected by the appellee on the properties donated in 1925 really constitutes an
inheritance tax imposed on the transmission of said properties in contemplation or in consideration of the donor's
death and under the circumstance that the donees were later instituted as the former's legatees. For this reason,
the law considers such transmissions in the form of gifts inter vivos, as advances on inheritance and nothing
therein violates any constitutional provision, inasmuch as said legislation is within the power of the Legislature.

Property Subject to Inheritance Tax. — The inheritance tax ordinarily applies to all property within the
power of the state to reach passing by will or the laws regulating intestate succession or by gift inter
vivos in the manner designated by statute, whether such property be real or personal, tangible or
intangible, corporeal or incorporeal. (26 R.C.L., p. 208, par. 177.)

In the case of Tuason and Tuason vs. Posadas, supra, it was also held that section 1540 of the Administrative
Code did not violate the constitutional provision regarding uniformity of taxation. It cannot be null and void on this
ground because it equally subjects to the same tax all of those donees who later become heirs, legatees or
donees mortis causa by the will of the donor.

There would be a repugnant and arbitrary exception if the provisions of the law were not applicable to all donees
of the same kind. In the case cited above, it was said: "At any rate the argument adduced against its
constitutionality, which is the lack of Uniformity, does not seem to be well founded. It was said that under such
an interpretation, while a donee inter vivos who, after the predecessor's death proved to be an heir, a legatee,
or a donee mortis causa, would have to pay the tax, another donee inter vivos who did not prove to he an heir,
a legatee, or a donee mortis causa of the predecessor, would be exempt from such a tax. But as these are two
different cases, the principle of uniformity is inapplicable to them."

The last question of a procedural nature arising from the case at bar, which should be passed upon, is whether
the case, as it now stands, can be decided on the merits or should be remanded to the court a quo for further
proceedings. According to our view of the case, it follows that, if the gifts received by the appellants would have
the right to recover the sums of money claimed by them. Hence the necessity of ascertaining whether the
complaint contains an allegation to that effect. We have examined said complaint and found nothing of that

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nature. On the contrary, it be may be inferred from the allegations contained in paragraphs 2 and 7 thereof that
said donations inter vivos were made in consideration of the donor's death.

We refer to the allegations that such transmissions were effected in the month of March, 1925, that the donor
died in January, 1926, and that the donees were instituted legatees in the donor's will which was admitted to
probate. It is from these allegations, especially the last, that we infer a presumption juris tantum that said
donations were made mortis causa and, as such, are subject to the payment of inheritance tax.

Wherefore, the demurrer interposed by the appellee was well-founded because it appears that the complaint did
not allege fact sufficient to constitute a cause of action. When the appellants refused to amend the same, spite
of the court's order to that effect, they voluntarily waived the opportunity offered them and they are not now
entitled to have the case remanded for further proceedings, which would serve no purpose altogether in view of
the insufficiency of the complaint.

Wherefore, the judgment appealed from is hereby affirmed, with costs of this instance against the appellants. So
ordered.

Avanceña, C.J., Villamor, Ostrand, Abad Santos, Hull, Vickers and Buttes, JJ., concur.

Separate Opinions

VILLA-REAL, J., dissenting:

I sustain my concurrence in Justice Street's dissenting opinion in the case of Tuason and Tuason vs.
Posadas (54 Phil., 289).

The majority opinion to distinguish the present case from above-mentioned case of Tuason and Tuason vs.
Posadas, by interpreting section 1540 of the Administrative Code in the sense that it establishes the legal
presumption juris tantum that all gifts inter vivos made to persons who are not forced heirs but who are instituted
legatees in the donor's will, have been made in contemplation of the donor's death. Presumptions are of two
kinds: One determined by law which is also called presumption of law or of right; and another which is formed by
the judge from circumstances antecedent to, coincident with or subsequent to the principal fact under
investigation, which is also called presumption of man (presuncion de hombre). (Escriche, Vol. IV, p. 662.) The
Civil Code as well as the code of Civil Procedure establishes presumptions juris et de jure and juris
tantum which the courts should take into account in deciding questions of law submitted to them for decision.
The presumption which majority opinion wishes to draw from said section 1540 of the Administrative Code can
neither be found in this Code nor in any of the aforementioned Civil Code and Code of Civil Procedure.
Therefore, said presumption cannot be called legal or of law. Neither can it be called a presumption of
man (presuncion de hombre) inasmuch as the majority opinion did not infer it from circumstances antecedent to,
coincident with or subsequent to the principal fact with is the donation itself. In view of the nature, mode of
making and effects of donations inter vivos, the contrary presumption would be more reasonable and logical; in
other words, donations inter vivos made to persons who are not forced heirs, but who are instituted legatees in
the donor's will, should be presumed as not made mortis causa, unless the contrary is proven. In the case under
consideration, the burden of the proof rests with the person who contends that the donation inter vivos has been
made mortis causa.

It is therefore, the undersigned's humble opinion that the order appealed from should be reversed and the
demurrer overruled, and the defendant ordered to file his answer to the complaint.

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