Commissioner of Internal Revenue vs.

Court of Appeals
G.R. No. 123206, March 22, 2000
FACTS:
Petitioner assailed the decision of the Court of Appeals which affirmed the Resolution of the
Court of Tax Appeals granting Josefina Pajonar, administratrix of the estate of Pedro Pajonar, a
tax refund representing erroneously paid estate taxes for the year 1988; and deduction of the
notarial fee for the Extrajudicial Settlement and the attorneys fees in the guardianship
proceedings.
Josefina Pajonar became the guardian over the person of Pedro Pajonar, when the latter
suffered shock and became insane while his property was placed under the guardianship of the
Philippine National Bank (PNB).
Pedro Pajonar, when he died, was survived by his two brothers Isidro P. Pajonar and Gregorio
Pajonar, his sister Josefina Pajonar, nephews Concordio Jandog and Mario Jandog and niece
Conchita Jandog.
The PNB filed an accounting of the decedent's property under guardianship however, the PNB
did not file an estate tax return, instead it advised Pedro Pajonar's heirs to execute an
extrajudicial settlement and to pay the taxes on his estate, as such, pursuant to the assessment
by the Bureau of Internal Revenue (BIR), the estate of Pedro Pajonar paid taxes.
Josefina Pajonar filed a petition for the issuance in her favor of letters of administration of the
estate of her brother and was appointed as the regular administratrix of Pedro Pajonar's estate.
Pursuant to a second assessment by the BIR for deficiency estate tax, the estate of Pedro
Pajonar paid estate tax. Josefina Pajonar, in her capacity as administratrix and heir of Pedro
Pajonar's estate, filed a protest with the BIR praying that the estate tax payment or at least
some portion of it, be returned to the heirs.
However, without waiting for her protest to be resolved by the BIR, Josefina Pajonar filed a
petition for review with the Court of Tax Appeals (CTA), praying for the refund, or in the
alternative, some portion of the paid taxes, as erroneously paid estate tax.
The CTA ordered the Commissioner of Internal Revenue to refund Josefina Pajonar the amount
representing erroneously paid estate tax for the year 1988. Among the deductions from the
gross estate allowed by the CTA were the notarial fee for the Extrajudicial Settlement and the
attorney's fees.
The Commissioner of Internal Revenue filed a motion for reconsideration of the CTA's decision
asserting, among others, that the notarial fee for the Extrajudicial Settlement and the
attorney's fees in the guardianship proceedings are not deductible expenses. However, the CTA

upheld its decision but lowered the tax refund, and sustained the validity of the deduction of
the notarial fee for the Extrajudicial Settlement and the attorney's fees in the guardianship
proceedings.
The Commissioner of Internal Revenue filed with the Court of Appeals a petition for review of
the CTAs decision but to their dismay it was denied.
ISSUE:
Whether or not the notarial fee paid for the extrajudicial settlement and the attorney's fees in
the guardianship proceedings may be allowed as deductions from the gross estate of decedent
in order to arrive at the value of the net estate.
HELD:
YES. Administration expenses, as an allowable deduction from the gross estate of the decedent
for purposes of arriving at the value of the net estate, have been construed to include all
expenses essential to the proper settlement of the estate. In other words, the expenses must
be essential to the proper settlement of the estate. Expenditures incurred for the individual
benefit of the heirs, devisees or legatees are not deductible.
Coming to the case at bar, the notarial fee paid for the extrajudicial settlement is clearly a
deductible expense since such settlement effected a distribution of Pedro Pajonar's estate to
his lawful heirs. Similarly, the attorney's fees paid to PNB for acting as the guardian of Pedro
Pajonar's property during his lifetime should also be considered as a deductible administration
expense. PNB provided a detailed accounting of decedent's property and gave advice as to the
proper settlement of the latter's estate, acts which contributed towards the collection of
decedent's assets and the subsequent settlement of the estate.
Whereby, the Supreme Court affirmed the decision of the CTA and the Court of Appeals and
that the notarial fee for the extrajudicial settlement and the attorney's fees in the guardianship
proceedings are allowable deductions from the gross estate of Pedro Pajonar.