ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL, petitioner, vs. COMMISSIONER OF INTERNAL 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 "pril #, $%&%. Two days after her death, Philtrust, through its Trust 'fficer, "tty. "ntonio (. )uyles, filed her *ncome Ta+ ,eturn for $%&-. The return did not indicate that the decedent had died. *n the meantime, the .ureau of *nternal ,evenue conducted an administrative investigation on the decedents ta+ liability and found a deficiency income ta+ for the year $%&& in the amount of P#$-,/##.%#. Thus, on )ovember $-, $%-/, the .*, sent by registered mail a demand letter and "ssessment )otice )o. )",D0&-0-/01121$ addressed to the decedent 3c4o Philippine Trust Company, 5ta. Cru6, (anila3 which was the address stated in her $%&- *ncome Ta+ ,eturn. )o response was made by Philtrust. The .*, was not informed that the decedent had actually passed away. 'n June $-, $%-7, respondent Commissioner of *nternal ,evenue issued warrants of distraint and levy to enforce collection of the decedent s deficiency income ta+ liability. Issues: $. 8hether or not the Court of "ppeals erred in holding that the service of deficiency ta+ assessment against Juliana Die6 Vda. de Gabriel through the Philippine Trust Company was a valid service in order to bind the 9state: /. 8hether or not the Court of "ppeals erred in holding that the deficiency ta+ assessment and final demand was already final, e+ecutory and incontestable. Hel : The 5upreme Court ruled in favor of the petitioner. 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. ;nder "rticle $%$% #! of the Civil Code, death of the agent or principal automatically terminates the agency. *n this instance, the death of the decedent on "pril #, $%&% 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 "pril 2, $%&%, it filed her *ncome Ta+ ,eturn for the year $%&-. 5ince the relationship between Philtrust and the decedent was automatically severed at the moment of the Ta+payers death, none of Philtrusts acts or omissions could bind the estate of the Ta+payer. 5ervice on Philtrust of the demand letter and "ssessment )otice )o. )",D0 &-0-/01121$ was improperly done. *t must be noted that Philtrust was never appointed as the administrator of the 9state of the decedent, and, indeed, that the court a <uo twice re=ected Philtrust s motion to be thus appointed. "s of )ovember $-, $%-/, the date of the demand letter and "ssessment )otice, the

legal relationship between the decedent and Philtrust had already been non0e+istent for three years. 5ince there was never any valid notice of this assessment, it could not have become final, e+ecutory and incontestable, and, for failure to ma>e the assessment within the five0year period provided in 5ection #$- of the )ational *nternal ,evenue Code of $%&&, respondent s claim against the petitioner 9state is barred. *n this case, the assessment was served not even on an heir of the 9state, but on a completely disinterested third party. This improper service was clearly not binding on the petitioner. The most crucial point to be remembered is that Philtrust had absolutely no legal relationship to the deceased, or to her 9state. There was therefore no assessment served on the 9state as to the alleged underpayment of ta+. "bsent this assessment, no proceedings could be initiated in court for the collection of said ta+, /$ and respondents claim for collection, filed with the probate court only on )ovember //, $%-7, was barred for having been made beyond the five0year prescriptive period set by law.