G.R. No.

123206 March 22, 2000

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
COURT OF APPEALS, COURT OF TAX APPEALS and JOSEFINA P. PAJONAR, as
Administratrix of the Estate of Pedro P. Pajonar, respondents.

Facts:

 Pedro Pajonar, a member of the Philippine Scout, Bataan Contingent, became insane as a
result of the Death March during World War II.
 His sister, Josefina Pajonar, became his guardian, while his property was placed under the
guardianship of the Philippine National Bank (PNB).
 Pedro Pajonar died on January 10, 1988, and his estate was valued at P3,037,672.09.
 The PNB advised Pedro Pajonar's heirs to execute an extrajudicial settlement and pay the
taxes on his estate.
 The estate paid taxes in the amount of P2,557.
 Josefina Pajonar filed a petition for the issuance of letters of administration on May 19,
1988, and was appointed as the regular administratrix of Pedro Pajonar's estate on July
18, 1988.
 On December 19, 1988, the estate paid a deficiency estate tax in the amount of
P1,527,790.98.
 Josefina Pajonar filed a protest with the Bureau of Internal Revenue (BIR) seeking a
refund of the estate tax payment.
 Without waiting for the resolution of her protest, she filed a petition for review with the
Court of Tax Appeals (CTA) seeking a refund of the estate tax payment.
 The CTA granted the refund and allowed deductions for notarial and attorney's fees.
 The Commissioner of Internal Revenue filed a motion for reconsideration, but the CTA
upheld its previous ruling.
 The Commissioner of Internal Revenue then filed a petition for review with the Court of
Appeals, which affirmed the CTA's decision.
Issue:
Whether the notarial fee for the extrajudicial settlement and the attorney's fees in the
guardianship proceedings are deductible expenses under Section 79 of the National Internal
Revenue Code.
Ruling:
The deductions for notarial and attorney's fees in the guardianship case are allowed.
Ratio:
The Court held that administration expenses, including notarial fees for extrajudicial settlements
and attorney's fees in guardianship proceedings, are allowable deductions from the gross estate.
The Court cited American jurisprudence and the interpretation of estate tax laws in the United
States, which consider expenses essential to the collection of assets, payment of debts, and
distribution of the estate as deductible.
The notarial fee for the extrajudicial settlement was incurred primarily to settle the estate and
should be considered an administration expense.
The attorney's fees incurred in the guardianship proceedings were essential to the distribution of
the property to the rightful heirs and should be allowed as a deduction.
Conclusion:
The Court affirmed the decision of the Court of Appeals and allowed the deductions for notarial
and attorney's fees in the guardianship case.
These expenses were necessary and essential to the proper settlement of the estate and therefore
deductible from the gross estate of the decedent.