G.R. No. 155541. January 27, 2004.

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ESTATE OF THE LATE JULIANA DIEZ VDA. DEGABRIEL, petitioner, vs. COMMISSIONER OFINTERNAL REVENUE, respondent.

Facts: During the lifetime of the decedent, Juliana Vda. De Gabriel, her business affairs were managed by the Philippine Trust
Company (Philtrust). The decedent died on April 3, 1979. Two days after her death, Philtrust, through its Trust Officer, Atty.
Antonio M. Nuyles, filed her Income Tax Return for 1978. The return did not indicate that the decedent had died.

The Bureau of Internal Revenue conducted an administrative investigation on the decedent's tax liability and found a deficiency
income tax for the year 1977 in the amount of P318,233.93. Thus, on November 18, 1982, the BIR sent by registered mail a
demand letter and Assessment Notice No. NARD-78-82-00501 addressed to the decedent “c/o Philippine Trust Company, Sta.
Cruz, Manila” which was the address stated in her 1978 Income Tax Return. No response was made by Philtrust. The BIR was
not informed that the decedent had actually passed away.

On June 18, 1984, respondent Commissioner of Internal Revenue issued warrants of distraint and levy to enforce collection of
the decedent’s deficiency income tax liability,
which were served upon her heir, Francisco Gabriel.

On November 22, 1984, respondent filed a “Motion for Allowance of Claim and for an Order of Payment of Taxes” with the
court a quo. The court Order denying respondent’s claim against the Estate, after finding that there was no notice of its tax
assessment on the proper party. Respondent filed an appeal with the Court of Appeals,

The Court of Appeals rendered a decision in favor of the respondent. Although acknowledging that the bond of agency between
Philtrust and the decedent was severed upon the latter’s death, it was ruled that the administrator of the Estate had failed inits
legal duty to inform respondent of the decedent’s death, pursuant to Section 104 of the National Internal Revenue Code of
1977.

Issue: Whether or not the Court of Appeals erred inholding that the service of deficiency tax assessment against Juliana Diez
Vda. de Gabriel through the Philippine Trust Company was a valid service in order to bind the Estate.

Ruling: Yes. The death of a taxpayer automatically severed the legal relationship between her and her agent, and such could
not be revived by the mere fact that the agent continued to act as such when, two days after the principal’s death, the agent
filed the principal’s Income Tax Return.

The first point to be considered is that the relationship between the decedent and Philtrust was one of agency, which is a
personal relationship between agent and principal. Under Article 1919 (3) of the Civil Code, death of the agent or principal
automatically terminates the agency. In this instance, the death of the decedent on April 3,1979 automatically severed the legal
relationship between her and Philtrust, and such could not be revived by the mere fact that Philtrust continued to act as her
agent when, on April 5, 1979, it filed her Income Tax Return for the year 1978. Since the relationship between Philtrust and the
decedent was automatically severed at the moment of the Taxpayer’s death,none of Philtrust’s acts or omissions could bind the
estate of the Taxpayer. Service on Philtrust of the demand letter and Assessment Notice No. NARD-78-82-00501 was improperly
done. It must be noted that Philtrust was never appointed as the administrator of the Estate of the decedent, and, indeed, that
the court a quo twice rejected Philtrust’s motion to be thus appointed. As of November 18, 1982, the date of the demand letter
and Assessment Notice, the legal relationship between the decedent and Philtrust had already been nonexistent for three
years.

The notice was not sent to the taxpayer for the purpose of givingeffect to the assessment, and said notice could not produce
anyeffect. In the case of Bautista and Corrales Tan v. Collector ofInternal Revenue . . . this Court had occasion to state that
“theassessment is deemed made when the notice to this effect isreleased, mailed or sent to the taxpayer for the purpose of
givingeffect to said assessment.” It appearing that the person liable forthe payment of the tax did not receive the assessment,
theassessment could not become final and executory.

In this case, the assessment was served not even on an heirof the Estate, but on a completely disinterested third party.This
improper service was clearly not binding on thepetitioner.

By arguing that (1) the demand letter and assessmentnotice were served on Philtrust, (2) Philtrust was remiss inits obligation to
respond to the demand letter andassessment notice, (3) Philtrust was remiss in its obligation