G.R. No.

156407               January 15, 2014

THELMA M. ARANAS, Petitioner,
vs.
TERESITA V. MERCADO, FELIMON V. MERCADO, CARMENCITA M.
SUTHERLAND, RICHARD V. MERCADO, MA. TERESITA M.
ANDERSON, and FRANKLIN L. MERCADO, Respondents.
Facts: Emigdio S. Mercado (Emigdio) died intestate on January 12,
1991, survived by his second wife, Teresita, and their five children, namely:
Alla, Felimon, Carmencita, Richard, and Maria Teresita; and his two
children by his first marriage, Franklin and Thelma.
Emigdio inherited and acquired real properties during his lifetime. He
assigned his real properties in exchange for corporate stocks of Mervir
Realty, and sold his real property in Badian, Cebu to Mervir Realty.
On June 3, 1991, Thelma filed in the Regional Trial Court (RTC) in Cebu
City a petition for the appointment of Teresita as the administrator of
Emigdio’s estate which was granted. The letters of administration in favor
of Teresita were issued on September 7, 1992. Teresita then submitted an
inventory of the estate of Emigdio on December 14, 1992 for the
consideration and approval by the RTC. She indicated in the inventory that
at the time of his death, Emigdio had "left no real properties but only
personal properties" worth ₱6,675,435.25 in all, consisting of cash;
furniture and fixtures; jewelry valued; 44,806 shares of stock of Mervir
Realty worth ₱6,585,585.80; and 30 shares of stock of Cebu Emerson
worth ₱22,708.25.
Claiming that Emigdio had owned other properties that were excluded from
the inventory, Thelma moved that the RTC direct Teresita to amend the
inventory, and to be examined regarding it. The RTC granted Thelma’s
motion through the order of January 8, 1993.
On January 21, 1993, Teresita filed a compliance with the order of January
8, 1993, supporting her inventory with copies of three certificates of stocks
covering the 44,806 Mervir Realty shares of stock; the deed of assignment
executed by Emigdio on January 10, 1991 involving real properties with the
market value of ₱4,440,651.10 in exchange for 44,407 Mervir Realty
shares of stock with total par value of ₱4,440,700.00; and the certificate of
stock issued on January 30, 1979 for 300 shares of stock of Cebu Emerson
worth ₱30,000.00.
On January 26, 1993, Thelma again moved to require Teresita to be
examined under oath on the inventory, and that she (Thelma) be allowed
30 days within which to file a formal opposition to or comment on the
inventory and the supporting documents Teresita had submitted.
On February 4, 1993, the RTC issued an order expressing the need for the
parties to present evidence and for Teresita to be examined to enable the
court to resolve the motion for approval of the inventory.
On April 19, 1993, Thelma opposed the approval of the inventory, and
asked leave of court to examine Teresita on the inventory.
With the parties agreeing to submit themselves to the jurisdiction of the
court on the issue of what properties should be included in or excluded
from the inventory, the RTC set dates for the hearing on that issue.
RTC ruling: Teresita submitted an inadequate list of properties and omitted
some that should have been included. Teresita was ordered to re-do the list
and to submit with 60 days an account of her administration of the estate of
the late Emigdio S. Mercado which had come to her possession. An appeal
was filed but was denied.
CA: Revered the RTC decision insofar as the inclusion of parcels of land
known as Lot No. 3353 located at Badian, Cebu with an area of 53,301
square meters subject matter of the Deed of Absolute Sale dated
November 9, 1989 and the various parcels of land subject matter of the
Deeds of Assignment dated February 17, 1989 and January 10, 1991 in the
revised inventory to be submitted by the administratrix is concerned.

Issue before the SC: Whether or not the properties that had been either
transferred by sale or exchanged for corporate shares in Mervir Realty by
the decedent during his lifetime should be included in the estate?

Held: Yes, the SC found that the RTC took their time and had factual basis
for their decision.
1st: the administratrix of the estate admitted that Emigdio Mercado was one
of the heirs of Severina Mercado who, upon her death, left several
properties as listed in the inventory of properties submitted in Court in
Special Proceedings No. 306-R which are supposed to be divided among
her heirs. The administratrix admitted, while being examined in Court by
the counsel for the petitioner, that she did not include in the inventory
submitted by her in this case the shares of Emigdio Mercado in the said
estate of Severina Mercado.
2nd: the administratrix of the estate of Emigdio Mercado also admitted in
Court that she did not include in the inventory shares of stock of Mervir
Realty Corporation which are in her name and which were paid by her from
money derived from the taxicab business which she and her husband had
since 1955 as a conjugal undertaking.
3rd: the administratrix of the estate of Emigdio Mercado admitted, too, in
Court that she had a bank account in her name at Union Bank which she
opened when her husband was still alive.
4th: Lot No. 3353 of Pls-657-D located in Badian, Cebu containing an area
of 53,301 square meters as described in and covered by Transfer
Certificate of Title No. 3252 of the Registry of Deeds for the Province of
Cebu is still registered in the name of Emigdio S. Mercado until now. Mervir
Realty Corporation never intervened in the said case in order to be the
owner thereof.
5th: it appears that the assignment of several parcels of land by the late
Emigdio S. Mercado to Mervir Realty Corporation on January 10, 1991 by
virtue of the Deed of Assignment signed by him on the said day (Exhibit N
for the petitioner and Exhibit 5 for the administratrix) was a transfer in
contemplation of death. It was made two days before he died on January
12, 1991. A transfer made in contemplation of death is one prompted by
the thought that the transferor has not long to live and made in place of a
testamentary disposition. Under the NIRC, the gross estate of the decedent
shall be determined by including the value at the time of his death of all
property to the extent of any interest therein of which the decedent has at
any time made a transfer in contemplation of death. So, the inventory to be
approved in this case should still include the said properties of Emigdio
Mercado which were transferred by him in contemplation of death. Besides,
the said properties actually appeared to be still registered in the name of
Emigdio S. Mercado at least ten (10) months after his death, as shown by
the certification issued by the Cebu City Assessor’s Office on October 31,
1991.

THE BANK OF THE PHILIPPINE ISLANDS, administrator of the estate

of the late Adolphe Oscar Schuetze, plaintiff-appellant,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-
appellee.

Facts:
• In 1928, Adolphe Oscar Schuetze died and left several properties and his
wife Rosario Schuetze was named as his universal heir. Through a general
power of attorney, she designated BPI as her attorney in fact as well as the
administrator of the estate of the decedent.
• Among the estate of the deceased is a life insurance policy issued by Sun
life Assurance in the sum of $10,000.00 wherein the decedent is named the
beneficiary without any qualification. BPI received the proceeds amounting
to P20,150.00 and immediately delivered the same to the widow.
• Then in 1929, respondent collector found out about this transaction and
imposed an inheritance tax, amounting to P1,209.00. As a result, it was
paid by BPI under protest and proceeded to file a claim for refund. It was
consistently denied which led BPI to file a complaint for recovery of the
inheritance tax with the CFI Manila.
• CFI ruled in favor of the respondent collector and dismissed the case.
Hence, this appeal.

Issue: Whether or not the proceeds of the life insurance policy are subject
to inheritance tax.
In the affirmative,

Whether or not the collector can collect the inheritance tax

Ruling:

1. Partly Affirmative. In this case, the collector argues that a life-insurance

policy wherein the insured and beneficiary are the same and one person,
exclusively owns the proceed of the same and shall form part of his estate
which makes it subject to inheritance tax. On the other hand, BPI argues
that the proceeds is owned both by the husband and wife equally since the
decedent used conjugal money as payment to the premiums. The Supreme
Court cited several cases which pointed out that the proceeds of a life-
insurance policy payable to the insured person's estate which was paid
using conjugal money shall be part of the community property. Additionally,
Article 1401 of the then civil code provides that property acquired for a
valuable consideration during marriage as the expense of the common fund
shall pertain to the conjugal partnership. As a result of this, one half of the
proceeds belongs to the husband exclusively which will form part of the
estate and the other half to the wife which then means that only half of the
proceeds is taxable by inheritance tax since the half is already owned by
the widow in her own right.

2. Affirmative Under Section 1536 of the Administrative Code, it is provided

that every transmission by virtue of inheritance shall be subject to tax. The
Supreme court ruled that if the proceeds of the life insurance policy payable
to the estate as beneficiary which was delivered to the administrator are
subject to inheritance tax regardless of whether the insured was domiciled
in the Philippines or not.
G.R. No. L-16626            October 29, 1966
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
CARLOS PALANCA, JR., respondent.
REGALA, J.:

Facts: Sometime in July, 1950, the late Don Carlos Palanca, Sr.
donated in favor of Carlos Palanca Jr., shares of stock in La Tondeña, Inc.
amounting to 12,500 shares. For failure to file a return on the donation
within the statutory period, the petitioner was assessed the following sums:
P97,691.23 as gift tax,
P24,442.81 as 25% gift tax
P47,868.70 as interest,
(P 170,002.74) which he paid on June 22, 1955.
On March 1, 1956, the petitioner filed with the Bureau of Internal
Revenue his income tax return for 1955, claiming a deduction for interest
amounting to P9,706.45 and reporting a taxable income of P65,982.12. On
the basis of this return, he was assessed the sum of P21,052.91, as
income tax, which he paid, as follows:

Taxes withheld by La Tondeña

Inc. from Mr. Palanca's wages P13,172.41

Payment under Income Tax

Receipt No. 677395 dated May
11, 1956 3,939.80

Payment under Income Tax

Receipt dated August 14, 1956 3,939.80

P21,052.01

Later on, the petitioner filed an amended return for the calendar year
1955, claiming an additional deduction in the amount of P47,868.70
representing interest paid on the donee's gift tax, thereby reporting a
taxable net income of P18,113.42 and a tax due thereon in the sum of
P3,167.00.
The claim for deduction was based on the provisions of Section 30(b)
(1) of the Tax Code, which authorizes the deduction from gross income of
interest paid within the taxable year on indebtedness. A claim for the refund
of alleged overpaid income taxes for the year 1955 amounting to
P17,885.01, which is the difference between the amount of P21,052.01 he
paid as income taxes under his original return and of P3,167.00, was filed
together with this amended return. In a communication dated June 20,
1957, the respondent (BIR) denied the claim for refund.
On August 12, 1958, the petitioner once more filed an amended
income tax return for the calendar year 1955, claiming, in addition to the
interest deduction of P9,076.45 appearing in his original return, a deduction
in the amount of P60,581.80, representing interest on the estate and
inheritance taxes on the 12,500 shares of stock, thereby reporting a net
taxable income for 1955 in the amount of P5,400.32 and an income tax due
thereon in the sum of P428.00. Attached to this amended return was a
letter of the petitioner, dated August 11, 1958, wherein he requested the
refund of P20,624.01 which is the difference between the amounts of
P21,052.01 he paid as income tax under his original return and of P428.00.
Without waiting for the respondent's decision on this claim for refund,
the petitioner filed his petition for review before this Court on August 13,
1958. On July 24, 1959, the respondent denied the petitioner's request for
the refund of the sum of P20,624.01.
The Commissioner of Internal Revenue now seeks the reversal of the
Court of Tax Appeal's ruling on the petition for review. Specifically, he takes
issue with the said court's determination that the amount paid by
respondent Palanca for interest on his delinquent estate and inheritance
tax is deductible from the gross income for that year under Section 30 (b)
(1) of the Revenue Code, and, that said respondent's claim for refund
therefor has not prescribed.
Issues:
1. Whether the interest on the delinquent estate and inheritance tax is
deductible from the gross income
2. Whether the respondent’s claim for refund has prescribed
Held:

1. Yes, the interest is deductible. The rule is settled that although

taxes already due do have not the same
concept as debts, they remain as obligations that may be
considered as such. In CIR v Prieto, the Court explicitly
announced that while the distinction between “taxes” and “debts”
was recognized in this jurisdiction, the variance in their legal
conception does not extend to the interests paid on them.

2. No, respondent’s claim has not yet prescribed. There were actually
two claims for refund filed by the herein respondent, Carlos
Palanca, Jr. The first one was on November 10, 1956, when he
filed a claim for refund on the interest paid by him on the donee's
gift tax of P17,885.10, as originally demanded by the Bureau of
Internal Revenue. In the first place, the 30-day period under
Section 11 of Republic Act 1125 did not even commence to run in
this incident. It should be recalled that while the herein petitioner
originally assessed the respondent-claimant for alleged gift tax
liabilities, the said assessment was subsequently abandoned and
in its lieu, a new one was prepared and served on the respondent-
taxpayer. In this new assessment, the petitioner charged the said
respondent with an entirely new liability and for a substantially
different amount from the first. While initially the petitioner
assessed the respondent for donee's gift tax in the amount of
P170,002.74, in the subsequent assessment the latter was asked
to pay P191,591.62 for delinquent estate and inheritance tax.
Considering that it is the interest paid on this latter-assessed
estate and inheritance tax that respondent Palanca is claiming
refund for, then the thirty-day period under the abovementioned
section of Republic Act 1125 should be computed from the receipt
of the final denial by the Bureau of Internal Revenue of the said
claim. As has earlier been recited, respondent Palanca's claim in
this incident was filed with the Court of Tax Appeals even before it
had been denied by the herein petitioner or the Bureau of Internal
Revenue. The case was filed with the said court on August 13,
1958 while the petitioner denied the claim subject of the said case
only on July 24, 1959.

The second one was the one filed by him on August 12, 1958,
which was a claim for refund on the interest paid by him on the
estate and inheritance tax assessed by the same Bureau in the
amount of P20,624.01. Considering that it is the interest paid on
this latter-assessed estate and inheritance tax that respondent is
claiming for refund, then the 30-day period for prescription under
RA 1125 should be computed from the receipt of the final denial by
the BIR of the said claim. Inasmuch as the said account was paid
by him by installment, then the computation of the two-year
prescriptive period, under Section 306 of the National Internal
Revenue Code, should be from the date of the last installment.
Respondent Palanca paid the last installment on his 1955 income
tax account on August 14, 1956. His claim for refund was filed on
August 13, 1958. It was, therefore, still timely instituted.