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Respondents.

On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition for the probate of his will [5] was filed with Branch 51 of the
Regional Trial Court (RTC) of Manila(probate court).[6] The probate court then appointed retired Supreme Court Justice Arsenio P. Dizon
(Justice Dizon) and petitioner, Atty. Rafael Arsenio P. Dizon (petitioner) as Special and Assistant Special Administrator, respectively, of the
Estate of Jose (Estate). In a letter [7] dated October 13, 1988, Justice Dizon informed respondent Commissioner of the Bureau of Internal
Revenue (BIR) of the special proceedings for the Estate.
Petitioner alleged that several requests for extension of the period to file the required estate tax return were granted by the BIR since the
assets of the estate, as well as the claims against it, had yet to be collated, determined and identified. Thus, in a letter [8] dated March 14,
1990, Justice Dizon authorized Atty. Jesus M. Gonzales (Atty. Gonzales) to sign and file on behalf of the Estate the required estate tax
return and to represent the same in securing a Certificate of Tax Clearance. Eventually, on April 17, 1990, Atty. Gonzales wrote a
letter[9] addressed to the BIR Regional Director for San Pablo City and filed the estate tax return[10] with the same BIR Regional Office,
showing therein a NIL estate tax liability, computed as follows:

COMPUTATION OF TAX
Conjugal Real Property (Sch. 1) P10,855,020.00
Conjugal Personal Property (Sch.2) 3,460,591.34
Taxable Transfer (Sch. 3)
Gross Conjugal Estate 14,315,611.34
Less: Deductions (Sch. 4) 187,822,576.06
Net Conjugal Estate NIL
Less: Share of Surviving Spouse NIL .
Net Share in Conjugal Estate NIL
xxx
Net Taxable Estate NIL .
Estate Tax Due NIL .[11]

On April 27, 1990, BIR Regional Director for San Pablo City, Osmundo G. Umali issued Certification Nos. 2052[12] and
2053 stating that the taxes due on the transfer of real and personal properties [14] of Jose had been fully paid and said properties may be
transferred to his heirs. Sometime in August 1990, Justice Dizon passed away. Thus, onOctober 22, 1990, the probate court appointed
petitioner as the administrator of the Estate.[15]
[13]

Petitioner requested the probate court's authority to sell several properties forming part of the Estate, for the purpose of paying its
creditors, namely: Equitable Banking Corporation (P19,756,428.31), Banque de L'Indochine et. de Suez (US$4,828,905.90 as of January
31, 1988), Manila Banking Corporation (P84,199,160.46 as of February 28, 1989) and State Investment House, Inc. (P6,280,006.21).
Petitioner manifested that Manila Bank, a major creditor of the Estate was not included, as it did not file a claim with the probate court since
it had security over several real estate properties forming part of the Estate.[16]
However, on November 26, 1991, the Assistant Commissioner for Collection of the BIR, Themistocles Montalban, issued Estate
Tax Assessment Notice No. FAS-E-87-91-003269,[17] demanding the payment of P66,973,985.40 as deficiency estate tax, itemized as
follows:
Deficiency Estate Tax- 1987
Estate tax P31,868,414.48
25% surcharge- late filing 7,967,103.62
late payment 7,967,103.62
Interest 19,121,048.68
Compromise-non filing 25,000.00
non payment 25,000.00
no notice of death 15.00
no CPA Certificate 300.00
Total amount due & collectible P66,973,985.40[18]
In his letter[19] dated December 12, 1991, Atty. Gonzales moved for the reconsideration of the said estate tax assessment. However, in her
letter[20] dated April 12, 1994, the BIR Commissioner denied the request and reiterated that the estate is liable for the payment
of P66,973,985.40 as deficiency estate tax. On May 3, 1994, petitioner received the letter of denial. On June 2, 1994, petitioner filed a
petition for review[21] before respondent CTA. Trial on the merits ensued.

As found by the CTA, the respective parties presented the following pieces of evidence, to wit:
In the hearings conducted, petitioner did not present testimonial evidence but merely documentary evidence consisting of
the following:
Nature of Document (sic) Exhibits
1. Letter dated October 13, 1988
from Arsenio P. Dizon addressed
to the Commissioner of Internal
Revenue informing the latter of
the special proceedings for the
settlement of the estate (p. 126,
BIR records); "A"
2. Petition for the probate of the
will and issuance of letter of
administration filed with the
Regional Trial Court (RTC) of
Manila, docketed as Sp. Proc.
No. 87-42980 (pp. 107-108, BIR
records); "B" & "B-1
3. Pleading entitled "Compliance"
filed with the probate Court
submitting the final inventory
of all the properties of the
deceased (p. 106, BIR records); "C"
4. Attachment to Exh. "C" which
is the detailed and complete
listing of the properties of
the deceased (pp. 89-105, BIR rec.); "C-1" to "C-17"
5. Claims against the estate filed
by Equitable Banking Corp. with
the probate Court in the amount
of P19,756,428.31 as of March 31,
1988, together with the Annexes
to the claim (pp. 64-88, BIR records); "D" to "D-24"
6. Claim filed by Banque de L'
Indochine et de Suez with the
probate Court in the amount of
US $4,828,905.90 as of January 31,
1988 (pp. 262-265, BIR records); "E" to "E-3"
Respondent's [BIR] counsel presented on June 26, 1995 one witness in the person of Alberto Enriquez, who was
one of the revenue examiners who conducted the investigation on the estate tax case of the late Jose P.
Fernandez. In the course of the direct examination of the witness, he identified the following:
Documents/
Signatures BIR Record
1. Estate Tax Return prepared by
the BIR; p. 138
2. Signatures of Ma. Anabella
Abuloc and Alberto Enriquez,
Jr. appearing at the lower
Portion of Exh. "1"; -do3. Memorandum for the Commissioner,
dated July 19, 1991, prepared by
revenue examiners, Ma. Anabella A.
Abuloc, Alberto S. Enriquez and
Raymund S. Gallardo; Reviewed by
Maximino V. Tagle pp. 143-144

4. Signature of Alberto S.
Enriquez appearing at the
lower portion on p. 2 of Exh. "2"; -do5. Signature of Ma. Anabella A.
Abuloc appearing at the
lower portion on p. 2 of Exh. "2"; -do6. Signature of Raymund S.
Gallardo appearing at the
Lower portion on p. 2 of Exh. "2"; -do7. Signature of Maximino V.
Tagle also appearing on
p. 2 of Exh. "2"; -do8. Summary of revenue
Enforcement Officers Audit
Report, dated July 19, 1991; p. 139
9. Signature of Alberto
Enriquez at the lower
portion of Exh. "3"; -do10. Signature of Ma. Anabella A.
Abuloc at the lower
portion of Exh. "3"; -do11. Signature of Raymond S.
Gallardo at the lower
portion of Exh. "3"; -do12. Signature of Maximino
V. Tagle at the lower
portion of Exh. "3"; -do13. Demand letter (FAS-E-87-91-00),
signed by the Asst. Commissioner
for Collection for the Commissioner
of Internal Revenue, demanding
payment of the amount of
P66,973,985.40; and p. 169
14. Assessment Notice FAS-E-87-91-00 pp. 169-170[22]
The CTA's Ruling
On June 17, 1997, the CTA denied the said petition for review. Citing this Court's ruling in Vda. de Oate v. Court of Appeals,[23] the CTA
opined that the aforementioned pieces of evidence introduced by the BIR were admissible in evidence. The CTA ratiocinated:
Although the above-mentioned documents were not formally offered as evidence for respondent, considering that
respondent has been declared to have waived the presentation thereof during the hearing on March 20, 1996, still they
could be considered as evidence for respondent since they were properly identified during the presentation of
respondent's witness, whose testimony was duly recorded as part of the records of this case. Besides, the documents
marked as respondent's exhibits formed part of the BIR records of the case.[24]

Nevertheless, the CTA did not fully adopt the assessment made by the BIR and it came up with its own computation of the deficiency estate
tax, to wit:
Conjugal Real Property P 5,062,016.00
Conjugal Personal Prop. 33,021,999.93
Gross Conjugal Estate 38,084,015.93
Less: Deductions 26,250,000.00
Net Conjugal Estate P 11,834,015.93
Less: Share of Surviving Spouse 5,917,007.96
Net Share in Conjugal Estate P 5,917,007.96

Add: Capital/Paraphernal
Properties P44,652,813.66
Less: Capital/Paraphernal
Deductions 44,652,813.66
Net Taxable Estate P 50,569,821.62
============
Estate Tax Due P 29,935,342.97
Add: 25% Surcharge for Late Filing 7,483,835.74
Add: Penalties for-No notice of death 15.00
No CPA certificate 300.00
Total deficiency estate tax P 37,419,493.71
=============
exclusive of 20% interest from due date of its payment until full payment thereof
[Sec. 283 (b), Tax Code of 1987].[25]
Thus, the CTA disposed of the case in this wise:
WHEREFORE, viewed from all the foregoing, the Court finds the petition unmeritorious and denies the same. Petitioner
and/or the heirs of Jose P. Fernandez are hereby ordered to pay to respondent the amount of P37,419,493.71 plus 20%
interest from the due date of its payment until full payment thereof as estate tax liability of the estate of Jose P.
Fernandez who died on November 7, 1987.
SO ORDERED.[26]
Aggrieved, petitioner, on March 2, 1998, went to the CA via a petition for review.[27]
The CA's Ruling

On April 30, 1999, the CA affirmed the CTA's ruling. Adopting in full the CTA's findings, the CA ruled that the petitioner's act of filing an
estate tax return with the BIR and the issuance of BIR Certification Nos. 2052 and 2053 did not deprive the BIR Commissioner of her
authority to re-examine or re-assess the said return filed on behalf of the Estate.[28]
On May 31, 1999, petitioner filed a Motion for Reconsideration[29] which the CA denied in its Resolution[30] dated November 3, 1999.
Hence, the instant Petition raising the following issues:
1.

Whether or not the admission of evidence which were not formally offered by the respondent BIR by the Court of
Tax Appeals which was subsequently upheld by the Court of Appeals is contrary to the Rules of Court and rulings of
this Honorable Court;

2. Whether or not the Court of Tax Appeals and the Court of Appeals erred in recognizing/considering the estate tax
return prepared and filed by respondent BIR knowing that the probate court appointed administrator of the estate of
Jose P. Fernandez had previously filed one as in fact, BIR Certification Clearance Nos. 2052 and 2053 had been
issued in the estate's favor;
3. Whether or not the Court of Tax Appeals and the Court of Appeals erred in disallowing the valid and enforceable claims
of creditors against the estate, as lawful deductions despite clear and convincing evidence thereof; and
4. Whether or not the Court of Tax Appeals and the Court of Appeals erred in validating erroneous double imputation of
values on the very same estate properties in the estate tax return it prepared and filed which effectively bloated the
estate's assets.[31]
The petitioner claims that in as much as the valid claims of creditors against the Estate are in excess of the gross estate, no estate tax was
due; that the lack of a formal offer of evidence is fatal to BIR's cause; that the doctrine laid down in Vda. de Oate has already been
abandoned in a long line of cases in which the Court held that evidence not formally offered is without any weight or value; that Section 34
of Rule 132 of the Rules on Evidence requiring a formal offer of evidence is mandatory in character; that, while BIR's witness Alberto
Enriquez (Alberto) in his testimony before the CTA identified the pieces of evidence aforementioned such that the same were marked,
BIR's failure to formally offer said pieces of evidence and depriving petitioner the opportunity to cross-examine Alberto, render the same
inadmissible in evidence; that assuming arguendo that the ruling in Vda. de Oate is still applicable, BIR failed to comply with the doctrine's
requisites because the documents herein remained simply part of the BIR records and were not duly incorporated in the court records; that
the BIR failed to consider that although the actual payments made to the Estate creditors were lower than their respective claims, such
were compromise agreements reached long after the Estate's liability had been settled by the filing of its estate tax return and the issuance

of BIR Certification Nos. 2052 and 2053; and that the reckoning date of the claims against the Estate and the settlement of the estate tax
due should be at the time the estate tax return was filed by the judicial administrator and the issuance of said BIR Certifications and not at
the time the aforementioned Compromise Agreements were entered into with the Estate's creditors.[32]
On the other hand, respondent counters that the documents, being part of the records of the case and duly identified in a duly recorded
testimony are considered evidence even if the same were not formally offered; that the filing of the estate tax return by the Estate and the
issuance of BIR Certification Nos. 2052 and 2053 did not deprive the BIR of its authority to examine the return and assess the estate tax;
and that the factual findings of the CTA as affirmed by the CA may no longer be reviewed by this Court via a petition for review.[33]
The Issues
There are two ultimate issues which require resolution in this case:
First. Whether or not the CTA and the CA gravely erred in allowing the admission of the pieces of evidence which were not formally offered
by the BIR; and
Second. Whether or not the CA erred in affirming the CTA in the latter's determination of the deficiency estate tax imposed against the
Estate.
The Courts Ruling
The Petition is impressed with merit.
Under Section 8 of RA 1125, the CTA is categorically described as a court of record. As cases filed before it are litigated de novo, partylitigants shall prove every minute aspect of their cases. Indubitably, no evidentiary value can be given the pieces of evidence submitted by
the BIR, as the rules on documentary evidence require that these documents must be formally offered before the CTA. [34] Pertinent is
Section 34, Rule 132 of the Revised Rules on Evidence which reads:
SEC. 34. Offer of evidence. The court shall consider no evidence which has not been formally offered. The purpose for
which the evidence is offered must be specified.

The CTA and the CA rely solely on the case of Vda. de Oate, which reiterated this Court's previous rulings in People v. Napata[35] and People v. Mate[36] on the admission and consideration of exhibits which were not formally offered during the trial. Although in a long
line of cases many of which were decided after Vda. de Oate, we held that courts cannot consider evidence which has not been formally
offered,[37] nevertheless, petitioner cannot validly assume that the doctrine laid down in Vda. de Oate has already been abandoned.
Recently, in Ramos v. Dizon,[38] this Court, applying the said doctrine, ruled that the trial court judge therein committed no error when he
admitted and considered the respondents' exhibits in the resolution of the case, notwithstanding the fact that the same
were not formally offered. Likewise, in Far East Bank & Trust Company v. Commissioner of Internal Revenue,[39] the Court made reference
to said doctrine in resolving the issues therein. Indubitably, the doctrine laid down in Vda. De Oate still subsists in this jurisdiction. In Vda.
de Oate, we held that:
From the foregoing provision, it is clear that for evidence to be considered, the same must be formally offered. Corollarily,
the mere fact that a particular document is identified and marked as an exhibit does not mean that it has already been
offered as part of the evidence of a party. In Interpacific Transit, Inc. v. Aviles [186 SCRA 385], we had the occasion to
make a distinction between identification of documentary evidence and its formal offer as an exhibit. We said that the first
is done in the course of the trial and is accompanied by the marking of the evidence as an exhibit while the second is
done only when the party rests its case and not before. A party, therefore, may opt to formally offer his evidence if he
believes that it will advance his cause or not to do so at all. In the event he chooses to do the latter, the trial court is not
authorized by the Rules to consider the same.
However, in People v. Napat-a [179 SCRA 403] citing People v. Mate [103 SCRA 484], we relaxed the foregoing rule
and allowed evidence not formally offered to be admitted and considered by the trial court provided the
following requirements are present, viz.: first, the same must have been duly identified by testimony duly
recorded and, second, the same must have been incorporated in the records of the case.[40]
From the foregoing declaration, however, it is clear that Vda. de Oate is merely an exception to the general rule. Being an
exception, it may be applied only when there is strict compliance with the requisites mentioned therein; otherwise, the general rule in
Section 34 of Rule 132 of the Rules of Court should prevail.
In this case, we find that these requirements have not been satisfied. The assailed pieces of evidence were presented and marked during
the trial particularly when Alberto took the witness stand. Alberto identified these pieces of evidence in his direct testimony. [41] He was also
subjected to cross-examination and re-cross examination by petitioner.[42]But Albertos account and the exchanges between Alberto and
petitioner did not sufficiently describe the contents of the said pieces of evidence presented by the BIR. In fact, petitioner sought that the
lead examiner, one Ma. Anabella A. Abuloc, be summoned to testify, inasmuch as Alberto was incompetent to answer questions relative to
the working papers.[43] The lead examiner never testified. Moreover, while Alberto's testimony identifying the BIR's evidence was duly
recorded, the BIR documents themselves were not incorporated in the records of the case.

A common fact threads through Vda. de Oate and Ramos that does not exist at all in the instant case. In the aforementioned cases, the
exhibits were marked at the pre-trial proceedings to warrant the pronouncement that the same were duly incorporated in the records of the
case. Thus, we held in Ramos:
In this case, we find and so rule that these requirements have been satisfied. The exhibits in question were presented
and marked during the pre-trial of the case thus, they have been incorporated into the records. Further, Elpidio
himself explained the contents of these exhibits when he was interrogated by respondents' counsel...
xxxx
But what further defeats petitioner's cause on this issue is that respondents' exhibits were marked and admitted during
the pre-trial stage as shown by the Pre-Trial Order quoted earlier.[44]

While the CTA is not governed strictly by technical rules of evidence, [45] as rules of procedure are not ends in themselves and are primarily
intended as tools in the administration of justice, the presentation of the BIR's evidence is not a mere procedural technicality which may be
disregarded considering that it is the only means by which the CTA may ascertain and verify the truth of BIR's claims against the Estate.
[46]
The BIR's failure to formally offer these pieces of evidence, despite CTA's directives, is fatal to its cause. [47] Such failure is aggravated by
the fact that not even a single reason was advanced by the BIR to justify such fatal omission. This, we take against the BIR.
Per the records of this case, the BIR was directed to present its evidence[48] in the hearing of February 21, 1996, but BIR's counsel failed to
appear.[49] The CTA denied petitioner's motion to consider BIR's presentation of evidence as waived, with a warning to BIR that such
presentation would be considered waived if BIR's evidence would not be presented at the next hearing. Again, in the hearing of March 20,
1996, BIR's counsel failed to appear.[50] Thus, in its Resolution[51] dated March 21, 1996, the CTA considered the BIR to have waived
presentation of its evidence. In the same Resolution, the parties were directed to file their respective memorandum. Petitioner complied but
BIR failed to do so.[52] In all of these proceedings, BIR was duly notified. Hence, in this case, we are constrained to apply our ruling in Heirs
of Pedro Pasag v. Parocha:[53]
A formal offer is necessary because judges are mandated to rest their findings of facts and their judgment only
and strictly upon the evidence offered by the parties at the trial. Its function is to enable the trial judge to know the
purpose or purposes for which the proponent is presenting the evidence. On the other hand, this allows opposing parties
to examine the evidence and object to its admissibility. Moreover, it facilitates review as the appellate court will not be
required to review documents not previously scrutinized by the trial court.
Strict adherence to the said rule is not a trivial matter. The Court in Constantino v. Court of Appeals ruled that the formal
offer of one's evidence is deemed waived after failing to submit it within a considerable period of time. It
explained that the court cannot admit an offer of evidence made after a lapse of three (3) months because to do
so would "condone an inexcusable laxity if not non-compliance with a court order which, in effect, would
encourage needless delays and derail the speedy administration of justice."
Applying the aforementioned principle in this case, we find that the trial court had reasonable ground to consider that
petitioners had waived their right to make a formal offer of documentary or object evidence. Despite several extensions of
time to make their formal offer, petitioners failed to comply with their commitment and allowed almost five months to
lapse before finally submitting it. Petitioners' failure to comply with the rule on admissibility of evidence is
anathema to the efficient, effective, and expeditious dispensation of justice.

Having disposed of the foregoing procedural issue, we proceed to discuss the merits of the case.
Ordinarily, the CTA's findings, as affirmed by the CA, are entitled to the highest respect and will not be disturbed on appeal unless
it is shown that the lower courts committed gross error in the appreciation of facts. [54] In this case, however, we find the decision of the CA
affirming that of the CTA tainted with palpable error.
It is admitted that the claims of the Estate's aforementioned creditors have been condoned. As a mode of extinguishing an obligation,
[55]
condonation or remission of debt[56] is defined as:
an act of liberality, by virtue of which, without receiving any equivalent, the creditor renounces the enforcement of the
obligation, which is extinguished in its entirety or in that part or aspect of the same to which the remission refers. It is an
essential characteristic of remission that it be gratuitous, that there is no equivalent received for the benefit given; once
such equivalent exists, the nature of the act changes. It may become dation in payment when the creditor receives a
thing different from that stipulated; or novation, when the object or principal conditions of the obligation should be
changed; or compromise, when the matter renounced is in litigation or dispute and in exchange of some concession
which the creditor receives.[57]
Verily, the second issue in this case involves the construction of Section 79 [58] of the National Internal Revenue Code[59] (Tax Code) which
provides for the allowable deductions from the gross estate of the decedent. The specific question is whether the actual claims of the

aforementioned creditors may be fully allowed as deductions from the gross estate of Jose despite the fact that the said claims were
reduced or condoned through compromise agreements entered into by the Estate with its creditors.
Claims against the estate, as allowable deductions from the gross estate under Section 79 of the Tax Code, are basically a reproduction of
the deductions allowed under Section 89 (a) (1) (C) and (E) of Commonwealth Act No. 466 (CA 466), otherwise known as the National
Internal Revenue Code of 1939, and which was the first codification of Philippine tax laws. Philippine tax laws were, in turn, based on the
federal tax laws of the United States. Thus, pursuant to established rules of statutory construction, the decisions of American courts
construing the federal tax code are entitled to great weight in the interpretation of our own tax laws.[60]
It is noteworthy that even in the United States, there is some dispute as to whether the deductible amount for a claim against the estate is
fixed as of the decedent's death which is the general rule, or the same should be adjusted to reflect post-death developments, such as
where a settlement between the parties results in the reduction of the amount actually paid. [61] On one hand, the U.S. court ruled that the
appropriate deduction is the value that the claim had at the date of the decedent's death. [62] Also, as held in Propstra v. U.S.,[63] where a lien
claimed against the estate was certain and enforceable on the date of the decedent's death, the fact that the claimant subsequently settled
for lesser amount did not preclude the estate from deducting the entire amount of the claim for estate tax purposes. These
pronouncements essentially confirm the general principle that post-death developments are not material in determining the amount of the
deduction.
On the other hand, the Internal Revenue Service (Service) opines that post-death settlement should be taken into consideration
and the claim should be allowed as a deduction only to the extent of the amount actually paid. [64] Recognizing the dispute, the Service
released Proposed Regulations in 2007 mandating that the deduction would be limited to the actual amount paid.[65]
In announcing its agreement with Propstra,[66] the U.S. 5th Circuit Court of Appeals held:
We are persuaded that the Ninth Circuit's decision...in Propstra correctly apply the Ithaca Trust date-of-death valuation
principle to enforceable claims against the estate. As we interpret Ithaca Trust, when the Supreme Court announced the
date-of-death valuation principle, it was making a judgment about the nature of the federal estate tax specifically, that it is
a tax imposed on the act of transferring property by will or intestacy and, because the act on which the tax is levied
occurs at a discrete time, i.e., the instance of death, the net value of the property transferred should be ascertained, as
nearly as possible, as of that time. This analysis supports broad application of the date-of-death valuation rule.[67]
We express our agreement with the date-of-death valuation rule, made pursuant to the ruling of the U.S. Supreme Court in Ithaca Trust Co.
v. United States.[68] First. There is no law, nor do we discern any legislative intent in our tax laws, which disregards the date-of-death
valuation principle and particularly provides that post-death developments must be considered in determining the net value of the estate. It
bears emphasis that tax burdens are not to be imposed, nor presumed to be imposed, beyond what the statute expressly and clearly
imports, tax statutes being construed strictissimi juris against the government.[69] Any doubt on whether a person, article or activity is
taxable is generally resolved against taxation.[70] Second. Such construction finds relevance and consistency in our Rules on Special
Proceedings wherein the term "claims" required to be presented against a decedent's estate is generally construed to mean debts or
demands of a pecuniary nature which could have been enforced against the deceased in his lifetime, or liability contracted by the deceased
before his death.[71] Therefore, the claims existing at the time of death are significant to, and should be made the basis of, the determination
of allowable deductions.
WHEREFORE, the instant Petition is GRANTED. Accordingly, the assailed Decision dated April 30, 1999 and the Resolution dated
November 3, 1999 of the Court of Appeals in CA-G.R. S.P. No. 46947 are REVERSED and SET ASIDE. The Bureau of Internal Revenue's
deficiency estate tax assessment against the Estate of Jose P. Fernandez is hereby NULLIFIED. No costs.
SO ORDERED.

[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.
RESOLUTION
GONZAGA-REYES, J.: Supr-ema
Assailed in this petition for review on certiorari is the December 21, 1995 Decision[1] of the Court of Appeals[2] in CA-G.R. Sp. No. 34399
affirming the June 7, 1994 Resolution of the Court of Tax Appeals in CTA Case No. 4381 granting private respondent Josefina P. Pajonar,
as administratrix of the estate of Pedro P. Pajonar, a tax refund in the amount of P76,502.42, representing erroneously paid estate taxes for
the year 1988.
Pedro Pajonar, a member of the Philippine Scout, Bataan Contingent, during the second World War, was a part of the infamous Death
March by reason of which he suffered shock and became insane. His sister Josefina Pajonar became the guardian over his person, while
his property was placed under the guardianship of the Philippine National Bank (PNB) by the Regional Trial Court of Dumaguete City,
Branch 31, in Special Proceedings No. 1254. He died on January 10, 1988. He 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.
On May 11, 1988, the PNB filed an accounting of the decedent's property under guardianship valued at P3,037,672.09 in Special
Proceedings No. 1254. 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. On April 5, 1988, pursuant to the assessment by the Bureau of Internal Revenue
(BIR), the estate of Pedro Pajonar paid taxes in the amount of P2,557.
On May 19, 1988, Josefina Pajonar filed a petition with the Regional Trial Court of Dumaguete City for the issuance in her favor of letters of
administration of the estate of her brother. The case was docketed as Special Proceedings No. 2399. On July 18, 1988, the trial court
appointed Josefina Pajonar as the regular administratrix of Pedro Pajonar's estate.
On December 19, 1988, pursuant to a second assessment by the BIR for deficiency estate tax, the estate of Pedro Pajonar paid estate tax
in the amount of P1,527,790.98. Josefina Pajonar, in her capacity as administratrix and heir of Pedro Pajonar's estate, filed a protest on
January 11, 1989 with the BIR praying that the estate tax payment in the amount of P1,527,790.98, or at least some portion of it, be
returned to the heirs.[3] Jur-is
However, on August 15, 1989, 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 of P1,527,790.98, or in the alternative, P840,202.06, as erroneously paid estate tax.
[4]
The case was docketed as CTA Case No. 4381.
On May 6, 1993, the CTA ordered the Commissioner of Internal Revenue to refund Josefina Pajonar the amount of P252,585.59,
representing erroneously paid estate tax for the year 1988.[5]
Among the deductions from the gross estate allowed by the CTA were the amounts of P60,753 representing the notarial fee for the
Extrajudicial Settlement and the amount of P50,000 as the attorney's fees in Special Proceedings No. 1254 for guardianship.[6]Juri-ssc
On June 15, 1993, the Commissioner of Internal Revenue filed a motion for reconsideration[7] of the CTA's May 6, 1993 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.
On June 7, 1994, the CTA issued the assailed Resolution[8] ordering the Commissioner of Internal Revenue to refund Josefina Pajonar, as
administratrix of the estate of Pedro Pajonar, the amount of P76,502.42 representing erroneously paid estate tax for the year 1988. Also,
the CTA upheld the validity of the deduction of the notarial fee for the Extrajudicial Settlement and the attorney's fees in the guardianship
proceedings.
On July 5, 1994, the Commissioner of Internal Revenue filed with the Court of Appeals a petition for review of the CTA's May 6, 1993
Decision and its June 7, 1994 Resolution, questioning the validity of the abovementioned deductions. On December 21, 1995, the Court of
Appeals denied the Commissioner's petition.[9]
Hence, the present appeal by the Commissioner of Internal Revenue.
The sole issue in this case involves the construction of section 79[10] of the National Internal Revenue Code[11] (Tax Code) which provides
for the allowable deductions from the gross estate of the decedent. More particularly, the question is whether the notarial fee paid for the
extrajudicial settlement in the amount of P60,753 and the attorney's fees in the guardianship proceedings in the amount of P50,000 may be
allowed as deductions from the gross estate of decedent in order to arrive at the value of the net estate.
We answer this question in the affirmative, thereby upholding the decisions of the appellate courts. J-jlex
In its May 6, 1993 Decision, the Court of Tax Appeals ruled thus:
Respondent maintains that only judicial expenses of the testamentary or intestate proceedings are allowed as a
deduction to the gross estate. The amount of P60,753.00 is quite extraordinary for a mere notarial fee.
This Court adopts the view under American jurisprudence that expenses incurred in the extrajudicial settlement of the
estate should be allowed as a deduction from the gross estate. "There is no requirement of formal administration. It is
sufficient that the expense be a necessary contribution toward the settlement of the case." [ 34 Am. Jur. 2d,
p.765; Nolledo, Bar Reviewer in Taxation, 10th Ed. (1990), p. 481 ]
xxx.....xxx.....xxx
The attorney's fees of P50,000.00, which were already incurred but not yet paid, refers to the guardianship proceeding
filed by PNB, as guardian over the ward of Pedro Pajonar, docketed as Special Proceeding No. 1254 in the RTC (Branch
XXXI) of Dumaguete City. x x x
xxx.....xxx.....xxx
The guardianship proceeding had been terminated upon delivery of the residuary estate to the heirs entitled thereto.
Thereafter, PNB was discharged of any further responsibility.
Attorney's fees in order to be deductible from the gross estate must be essential to the collection of assets, payment of
debts or the distribution of the property to the persons entitled to it. The services for which the fees are charged must
relate to the proper settlement of the estate. [ 34 Am. Jur. 2d 767. ] In this case, the guardianship proceeding was
necessary for the distribution of the property of the late Pedro Pajonar to his rightful heirs. Sc-juris
xxx.....xxx.....xxx
PNB was appointed as guardian over the assets of the late Pedro Pajonar, who, even at the time of his death, was
incompetent by reason of insanity. The expenses incurred in the guardianship proceeding was but a necessary expense
in the settlement of the decedent's estate. Therefore, the attorney's fee incurred in the guardianship proceedings
amounting to P50,000.00 is a reasonable and necessary business expense deductible from the gross estate of the
decedent.[12]
Upon a motion for reconsideration filed by the Commissioner of Internal Revenue, the Court of Tax Appeals modified its previous ruling by
reducing the refundable amount to P76,502.43 since it found that a deficiency interest should be imposed and the compromise penalty
excluded.[13] However, the tax court upheld its previous ruling regarding the legality of the deductions It is significant to note that the inclusion of the estate tax law in the codification of all our national internal revenue laws
with the enactment of the National Internal Revenue Code in 1939 were copied from the Federal Law of the United
States. [UMALI, Reviewer in Taxation (1985), p. 285 ] The 1977 Tax Code, promulgated by Presidential Decree No. 1158,
effective June 3, 1977, reenacted substantially all the provisions of the old law on estate and gift taxes, except the
sections relating to the meaning of gross estate and gift. [ Ibid, p. 286. ] Nc-mmis

In the United States, [a]dministrative expenses, executor's commissions and attorney's fees are considered allowable
deductions from the Gross Estate. Administrative expenses are limited to such expenses as are actually and necessarily
incurred in the administration of a decedent's estate. [PRENTICE-HALL, Federal Taxes Estate and Gift Taxes (1936), p.
120, 533. ] Necessary expenses of administration are such expenses as are entailed for the preservation and
productivity of the estate and for its management for purposes of liquidation, payment of debts and distribution of the
residue among the persons entitled thereto. [Lizarraga Hermanos vs. Abada, 40 Phil. 124. ] They must be incurred for the
settlement of the estate as a whole. [34 Am. Jur. 2d, p. 765. ] Thus, where there were no substantial community debts
and it was unnecessary to convert community property to cash, the only practical purpose of administration being the
payment of estate taxes, full deduction was allowed for attorney's fees and miscellaneous expenses charged wholly to
decedent's estate. [ Ibid., citing Estate of Helis, 26 T .C. 143 (A). ]
Petitioner stated in her protest filed with the BIR that "upon the death of the ward, the PNB, which was still the guardian
of the estate, (Annex 'Z' ), did not file an estate tax return; however, it advised the heirs to execute an extrajudicial
settlement, to pay taxes and to post a bond equal to the value of the estate, for which the estate paid P59,341.40 for the
premiums. (See Annex 'K')." [p. 17, CTA record. ] Therefore, it would appear from the records of the case that the only
practical purpose of settling the estate by means of an extrajudicial settlement pursuant to Section 1 of Rule 74 of the
Rules of Court was for the payment of taxes and the distribution of the estate to the heirs. A fortiori, since our estate tax
laws are of American origin, the interpretation adopted by American Courts has some persuasive effect on the
interpretation of our own estate tax laws on the subject.
Anent the contention of respondent that the attorney's fees of P50,000.00 incurred in the guardianship proceeding should
not be deducted from the Gross Estate, We consider the same unmeritorious. Attorneys' and guardians' fees incurred in
a trustee's accounting of a taxable inter vivos trust attributable to the usual issues involved in such an accounting was
held to be proper deductions because these are expenses incurred in terminating an inter vivos trust that was includible
in the decedent's estate. (Prentice Hall, Federal Taxes on Estate and Gift, p.120, 861] Attorney's fees are allowable
deductions if incurred for the settlement of the estate. It is noteworthy to point that PNB was appointed the guardian over
the assets of the deceased. Necessarily the assets of the deceased formed part of his gross estate. Accordingly, all
expenses incurred in relation to the estate of the deceased will be deductible for estate tax purposes provided these are
necessary and ordinary expenses for administration of the settlement of the estate.[14]
In upholding the June 7, 1994 Resolution of the Court of Tax Appeals, the Court of Appeals held that: Newmiso
2. Although the Tax Code specifies "judicial expenses of the testamentary or intestate proceedings," there is no reason
why expenses incurred in the administration and settlement of an estate in extrajudicial proceedings should not be
allowed. However, deduction is limited to such administration expenses as are actually and necessarily incurred in the
collection of the assets of the estate, payment of the debts, and distribution of the remainder among those entitled
thereto. Such expenses may include executor's or administrator's fees, attorney's fees, court fees and charges,
appraiser's fees, clerk hire, costs of preserving and distributing the estate and storing or maintaining it, brokerage fees or
commissions for selling or disposing of the estate, and the like. Deductible attorney's fees are those incurred by the
executor or administrator in the settlement of the estate or in defending or prosecuting claims against or due the estate.
(Estate and Gift Taxation in the Philippines, T. P. Matic, Jr., 1981 Edition, p. 176 ).
xxx.....xxx.....xxx
It is clear then that the extrajudicial settlement was for the purpose of payment of taxes and the distribution of the estate
to the heirs. The execution of the extrajudicial settlement necessitated the notarization of the same. Hence the Contract
of Legal Services of March 28, 1988 entered into between respondent Josefina Pajonar and counsel was presented in
evidence for the purpose of showing that the amount of P60,753.00 was for the notarization of the Extrajudicial
Settlement. It follows then that the notarial fee of P60,753.00 was incurred primarily to settle the estate of the deceased
Pedro Pajonar. Said amount should then be considered an administration expenses actually and necessarily incurred in
the collection of the assets of the estate, payment of debts and distribution of the remainder among those entitled
thereto. Thus, the notarial fee of P60,753 incurred for the Extrajudicial Settlement should be allowed as a deduction from
the gross estate.
3. Attorney's fees, on the other hand, in order to be deductible from the gross estate must be essential to the settlement
of the estate. Acctmis
The amount of P50,000.00 was incurred as attorney's fees in the guardianship proceedings in Spec. Proc. No. 1254.
Petitioner contends that said amount are not expenses of the testamentary or intestate proceedings as the guardianship
proceeding was instituted during the lifetime of the decedent when there was yet no estate to be settled.
Again , this contention must fail.
The guardianship proceeding in this case was necessary for the distribution of the property of the deceased Pedro
Pajonar. As correctly pointed out by respondent CTA, the PNB was appointed guardian over the assets of the deceased,
and that necessarily the assets of the deceased formed part of his gross estate. x x x
xxx.....xxx.....xxx
It is clear therefore that the attorney's fees incurred in the guardianship proceeding in Spec. Proc. No. 1254 were
essential to the distribution of the property to the persons entitled thereto. Hence, the attorney's fees incurred in the
guardianship proceedings in the amount of P50,000.00 should be allowed as a deduction from the gross estate of the
decedent.[15]
The deductions from the gross estate permitted under section 79 of the Tax Code basically reproduced the deductions allowed under
Commonwealth Act No. 466 (CA 466), otherwise known as the National Internal Revenue Code of 1939,[16] and which was the first

codification of Philippine tax laws. Section 89 (a) (1) (B) of CA 466 also provided for the deduction of the "judicial expenses of the
testamentary or intestate proceedings" for purposes of determining the value of the net estate. Philippine tax laws were, in turn, based on
the federal tax laws of the United States.[17] In accord with established rules of statutory construction, the decisions of American courts
construing the federal tax code are entitled to great weight in the interpretation of our own tax laws.[18] Scc-alr
Judicial expenses are expenses of administration.[19] 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 by the federal and state courts of the United States to
include all expenses "essential to the collection of the assets, payment of debts or the distribution of the property to the persons entitled to
it."[20] 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.[21] This distinction has been carried over to our jurisdiction. Thus, in Lorenzo v.
Posadas[22] the Court construed the phrase "judicial expenses of the testamentary or intestate proceedings" as not including the
compensation paid to a trustee of the decedent's estate when it appeared that such trustee was appointed for the purpose of managing the
decedent's real estate for the benefit of the testamentary heir. In another case, the Court disallowed the premiums paid on the bond filed by
the administrator as an expense of administration since the giving of a bond is in the nature of a qualification for the office, and not
necessary in the settlement of the estate.[23] Neither may attorney's fees incident to litigation incurred by the heirs in asserting their
respective rights be claimed as a deduction from the gross estate.[24]
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.
We find that the Court of Appeals did not commit reversible error in affirming the questioned resolution of the Court of Tax Appeals.
WHEREFORE, the December 21, 1995 Decision of the Court of Appeals is AFFIRMED. 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.
SO ORDERED.

G.R. No. 210987


November 24, 2014
THE PHILIPPINE AMERICAN LIFE AND GENERAL INSURANCE COMPANY, Petitioner,
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, Respondents.
DECISION
VELASCO, JR., J.:
Nature of the Case
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing and seeking the reversal of the
Resolutions of the Court of Appeals (CA) in CA-G.R. SP No. 127984, dated May 23, 20131 and January 21, 2014, which dismissed outright
the petitioner's appeal from the Secretary of Finance's review of BIR Ruling No. 015-122 for lack of jurisdiction.
The Facts
Petitioner The Philippine American Life and General Insurance Company (Philamlife) used to own 498,590 Class A shares in Philam Care
Health Systems, Inc. (PhilamCare), representing 49.89% of the latter's outstanding capital stock. In 2009, petitioner, in a bid to divest itself
of its interests in the health maintenance organization industry, offered to sell its shareholdings in PhilamCare through competitive bidding.
Thus, on September 24, 2009, petitioner's Class A shares were sold for USD 2,190,000, or PhP 104,259,330 based on the prevailing
exchange rate at the time of the sale, to STI Investments, Inc., who emerged as the highest bidder.3
After the sale was completed and the necessary documentary stamp and capital gains taxes were paid, Philamlife filed an application for a
certificate authorizing registration/tax clearance with the Bureau of Internal Revenue (BIR) Large Taxpayers Service Division to facilitate the
transfer of the shares. Months later, petitioner was informed that it needed to secure a BIR ruling in connection with its application due to
potential donors tax liability. In compliance, petitioner, on January 4, 2012, requested a ruling4 to confirm that the sale was not subject to
donors tax, pointing out, in its request, the following: that the transaction cannot attract donors tax liability since there was no donative
intent and,ergo, no taxable donation, citing BIR Ruling [DA-(DT-065) 715-09] dated November 27, 2009;5 that the shares were sold at their
actual fair market value and at arms length; that as long as the transaction conducted is at arms lengthsuch that a bona fide business
arrangement of the dealings is done inthe ordinary course of businessa sale for less than an adequate consideration is not subject to
donors tax; and that donors tax does not apply to saleof shares sold in an open bidding process.
On January 4, 2012, however, respondent Commissioner on Internal Revenue (Commissioner) denied Philamlifes request through BIR
Ruling No. 015-12. As determined by the Commissioner, the selling price of the shares thus sold was lower than their book value based on
the financial statements of PhilamCare as of the end of 2008.6 As such, the Commisioner held, donors tax became imposable on the price
difference pursuant to Sec. 100 of the National Internal Revenue Code (NIRC), viz:
SEC. 100. Transfer for Less Than Adequate and full Consideration.- Where property, other than real property referred to in Section 24(D),
is transferred for less than an adequate and full consideration in money or moneys worth, then the amount by which the fair market value
of the property exceeded the value of the consideration shall, for the purpose of the tax imposed by this Chapter, be deemed a gift, and
shall be included in computing the amount of gifts made during the calendar year.
The afore-quoted provision, the Commissioner added, is implemented by Revenue Regulation 6-2008 (RR 6-2008), which provides:

SEC. 7. SALE, BARTER OR EXCHANGE OF SHARES OF STOCK NOT TRADED THROUGH A LOCAL STOCK EXCHANGE
PURSUANT TO SECS. 24(C), 25(A)(3), 25(B), 27(D)(2), 28(A)(7)(c), 28(B)(5)(c) OF THE TAX CODE, AS AMENDED.
xxxx
(c) Determination of Amount and Recognition of Gain or Loss
(c.1) In the case of cash sale, the selling price shall be the consideration per deed of sale.
xxxx
(c.1.4) In case the fair market value of the shares of stock sold, bartered, or exchanged is greater than the amount of money and/or fair
market value of the property received, the excess of the fair market value of the shares of stock sold, bartered or exchanged overthe
amount of money and the fair market value of the property, if any, received as consideration shall be deemed a gift subject to the
donorstax under Section 100 of the Tax Code, as amended.
xxxx
(c.2) Definition of fair market valueof Shares of Stock. For purposes of this Section, fair market value of the share of stock sold shall be:
xxxx
(c.2.2) In the case of shares of stock not listed and traded in the local stock exchanges, the book value of the shares of stock as shown in
the financial statements duly certified by an independent certified public accountant nearest to the date of sale shall be the fair market
value.
In view of the foregoing, the Commissioner ruled that the difference between the book value and the selling price in the sales transaction is
taxable donation subject to a 30% donors tax under Section 99(B) of the NIRC.7Respondent Commissioner likewise held that BIR Ruling
[DA-(DT-065) 715-09], on which petitioner anchored its claim, has already been revoked by Revenue Memorandum Circular (RMC) No. 252011.8
Aggrieved, petitioner requested respondent Secretary of Finance (Secretary) to review BIR Ruling No. 015-12, but to no avail. For on
November 26, 2012, respondent Secretary affirmed the Commissioners assailed ruling in its entirety.9
Ruling of the Court of Appeals
Not contented with the adverse results, petitioner elevated the case to the CA via a petition for review under Rule 43, assigning the
following errors:10
A.
The Honorable Secretary of Finance gravely erred in not finding that the application of Section 7(c.2.2) of RR 06-08 in the Assailed Ruling
and RMC 25-11 is void insofar as it altersthe meaning and scope of Section 100 of the Tax Code.
B.
The Honorable Secretary of Finance gravely erred in finding that Section 100 of the Tax Code is applicable tothe sale of the Sale of Shares.
1.
The Sale of Shares were sold at their fair market value and for fair and full consideration in money or moneys worth.
2.
The sale of the Sale Shares is a bona fide business transaction without any donative intent and is therefore beyond the ambit of
Section 100 of the Tax Code.
3.
It is superfluous for the BIR to require an express provision for the exemption of the sale of the Sale Shares from donors tax since
Section 100 of the Tax Code does not explicitly subject the transaction to donors tax.
C.
The Honorable Secretary of Finance gravely erred in failing to find that in the absence of any of the grounds mentioned in Section 246 of
the Tax Code, rules and regulations, rulings or circulars such as RMC 25-11 cannot be given retroactive application to the prejudice of
Philamlife.
On May 23, 2013, the CA issued the assailed Resolution dismissing the CA Petition, thusly:
WHEREFORE, the Petition for Review dated January 9, 2013 is DISMISSED for lack of jurisdiction.
SO ORDERED.
In disposing of the CA petition, the appellate court ratiocinated that it is the Court of Tax Appeals (CTA), pursuant to Sec. 7(a)(1) of
Republic Act No. 1125 (RA 1125),11 as amended, which has jurisdiction over the issues raised. The outright dismissal, so the CA held, is
predicated on the postulate that BIR Ruling No. 015-12 was issued in the exercise of the Commissioners power to interpret the NIRC and
other tax laws. Consequently, requesting for its review can be categorized as "other matters arising under the NIRC or other laws
administered by the BIR," which is under the jurisdiction of the CTA, not the CA.
Philamlife eventually sought reconsideration but the CA, in its equally assailed January 21, 2014 Resolution, maintained its earlier position.
Hence, the instant recourse.
Issues
Stripped to the essentials, the petition raises the following issues in both procedure and substance:
1. Whether or not the CA erred in dismissing the CA Petition for lack of jurisdiction; and
2. Whether or not the price difference in petitioners adverted sale of shares in PhilamCare attracts donors tax.
Procedural Arguments
a. Petitioners contentions
Insisting on the propriety of the interposed CA petition, Philamlife, while conceding that respondent Commissioner issued BIR Ruling No.
015-12 in accordance with her authority to interpret tax laws, argued nonetheless that such ruling is subject to review by the Secretary of
Finance under Sec. 4 of the NIRC, to wit:
SECTION 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. The power to interpret the provisions of this
Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of
Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto,
or other matters arising under this Code orother laws or portions thereof administered by the Bureau of Internal Revenue is vested in the

Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals. Petitioner postulates that there is a need to
differentiate the rulings promulgated by the respondent Commissioner relating to those rendered under the first paragraph of Sec. 4 of the
NIRC, which are appealable to the Secretary of Finance, from those rendered under the second paragraph of Sec. 4 of the NIRC, which
are subject to review on appeal with the CTA.
This distinction, petitioner argues, is readily made apparent by Department Order No. 7-02,12 as circularized by RMC No. 40-A-02.
Philamlife further averred that Sec.7 of RA 1125, as amended, does not find application in the case at bar since it only governs appeals
from the Commissioners rulings under the second paragraph and does not encompass rulings from the Secretary of Finance in the
exercise of his power of review under the first, as what was elevated to the CA. It added that under RA 1125, as amended, the only
decisions of the Secretary appealable to the CTA are those rendered in customs cases elevated to him automatically under Section 2315 of
the Tariff and Customs Code.13
There is, thus, a gap in the law when the NIRC, as couched, and RA 1125, as amended, failed to supply where the rulings of the Secretary
in its exercise of its power of review under Sec. 4 of the NIRC are appealable to. This gap, petitioner submits, was remedied by British
American Tobacco v. Camacho14 wherein the Court ruled that where what is assailed is the validity or constitutionality of a law, or a rule or
regulation issued by the administrative agency, the regular courts have jurisdiction to pass upon the same.
In sum, appeals questioning the decisions of the Secretary of Finance in the exercise of its power of review under Sec. 4 of the NIRC are
not within the CTAs limited special jurisdiction and, according to petitioner, are appealable to the CA via a Rule 43 petition for review.
b. Respondents contentions
Before the CA, respondents countered petitioners procedural arguments by claiming that even assuming arguendo that the CTA does not
have jurisdiction over the case, Philamlife, nevertheless,committed a fatal error when it failed to appeal the Secretary of Finances ruling to
the Office of the President (OP). As made apparent by the rules, the Department of Finance is not among the agencies and quasi-judicial
bodies enumerated under Sec. 1, Rule 43 of the Rules of Court whose decisions and rulings are appealable through a petition for
review.15 This is in stark contrast to the OPs specific mention under the same provision, so respondents pointed out.
To further reinforce their argument, respondents cite the Presidents power of review emanating from his power of control as enshrined
under Sec. 17 of Article VII of the Constitution, which reads:
Section 17.The President shall have control of all the executive departments, bureaus, and offices. He shall ensure that the laws be
faithfully executed.
The nature and extent of the Presidents constitutionally granted power of control have beendefined in a plethora of cases, most recently in
Elma v. Jacobi,16 wherein it was held that:
x x x This power of control, which even Congress cannot limit, let alone withdraw, means the power of the Chief Executive to review, alter,
modify, nullify, or set aside what a subordinate, e.g., members of the Cabinet and heads of line agencies, had done in the performance of
their duties and to substitute the judgment of the former for that of the latter.
In their Comment on the instant petition, however, respondents asseverate that the CA did not err in its holding respecting the CTAs
jurisdiction over the controversy.
The Courts Ruling
The petition is unmeritorious.
Reviews by the Secretary of Finance pursuant to Sec. 4 of the NIRC are appealable to the CTA
To recapitulate, three different, if not conflicting, positions as indicated below have been advanced by the parties and by the CA as the
proper remedy open for assailing respondents rulings:
1. Petitioners: The ruling of the Commissioner is subject to review by the Secretary under Sec. 4 of the NIRC, and that of the
Secretary to the CA via Rule 43;
2. Respondents: The ruling of the Commissioner is subject to review by the Secretary under Sec. 4 of the NIRC, and that of the
Secretary to the Office of the President before appealing to the CA via a Rule 43 petition; and
3. CA: The ruling of the Commissioner is subject to review by the CTA.
We now resolve.
Preliminarily, it bears stressing that there is no dispute that what is involved herein is the respondent Commissioners exercise of power
under the first paragraph of Sec. 4 of the NIRCthe power to interpret tax laws. This, in fact, was recognized by the appellate court itself,
but erroneously held that her action in the exercise of such power is appealable directly to the CTA. As correctly pointed out by petitioner,
Sec. 4 of the NIRC readily provides that the Commissioners power to interpret the provisions of this Code and other tax laws is subject to
review by the Secretary of Finance. The issue that now arises is thiswhere does one seek immediate recourse from the adverse ruling of
the Secretary of Finance in its exercise of its power of review under Sec. 4?
Admittedly, there is no provision in law that expressly provides where exactly the ruling of the Secretary of Finance under the adverted
NIRC provision is appealable to. However, We find that Sec. 7(a)(1) of RA 1125, as amended, addresses the seeming gap in the law asit
vests the CTA, albeit impliedly, with jurisdiction over the CA petition as "other matters" arising under the NIRC or other laws administered
by the BIR. As stated:
Sec. 7. Jurisdiction.- The CTA shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or
other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue or other laws administered by the
Bureau of Internal Revenue. (emphasis supplied)
Even though the provision suggests that it only covers rulings of the Commissioner, We hold that it is, nonetheless, sufficient enough to
include appeals from the Secretarys review under Sec. 4 of the NIRC.
It is axiomatic that laws should be given a reasonable interpretation which does not defeat the very purpose for which they were
passed.17 Courts should not follow the letter of a statute when to do so would depart from the true intent of the legislature or would
otherwise yield conclusions inconsistent with the purpose of the act.18 This Court has, in many cases involving the construction of statutes,

cautioned against narrowly interpreting a statute as to defeat the purpose of the legislator, and rejected the literal interpretation of statutes if
todo so would lead to unjust or absurd results.19
Indeed, to leave undetermined the mode of appeal from the Secretary of Finance would be an injustice to taxpayers prejudiced by his
adverse rulings. To remedy this situation, Weimply from the purpose of RA 1125 and its amendatory laws that the CTA is the proper forum
with which to institute the appeal. This is not, and should not, in any way, be taken as a derogation of the power of the Office of President
but merely as recognition that matters calling for technical knowledge should be handled by the agency or quasi-judicial body with
specialization over the controversy. As the specialized quasi-judicial agency mandated to adjudicate tax, customs, and assessment cases,
there can be no other court of appellate jurisdiction that can decide the issues raised inthe CA petition, which involves the tax treatment of
the shares of stocks sold. Petitioner, though, nextinvites attention to the ruling in Ursal v. Court of Tax Appeals20 to argue against granting
the CTA jurisdiction by implication, viz:
Republic Act No. 1125 creating the Court of Tax Appeals did not grant it blanket authority to decide any and all tax disputes. Defining such
special courts jurisdiction, the Act necessarily limited its authority to those matters enumerated therein. Inline with this idea we recently
approved said courts order rejecting an appeal to it by Lopez & Sons from the decision of the Collector ofCustoms, because in our opinion
its jurisdiction extended only to a review of the decisions of the Commissioner of Customs, as provided bythe statute and not to
decisions of the Collector of Customs. (Lopez & Sons vs. The Court of Tax Appeals, 100 Phil., 850, 53 Off. Gaz., [10] 3065).
xxxx
x x x Republic Act No. 1125 is a complete law by itself and expressly enumerates the matters which the Court of Tax Appeals may consider;
such enumeration excludes all others by implication. Expressio unius est exclusio alterius.
Petitioners contention is untenable. Lest the ruling in Ursalbe taken out of context, but worse as a precedent, it must be noted that the
primary reason for the dismissal of the said case was that the petitioner therein lacked the personality to file the suit with the CTA because
he was not adversely affected by a decision or ruling of the Collector of Internal Revenue, as was required under Sec. 11 of RA 1125.21 As
held:
We share the view that the assessor had no personality to resort to the Court of Tax Appeals. The rulings of the Board of Assessment
Appeals did not "adversely affect" him. At most it was the City of Cebu that had been adversely affected in the sense that it could not
thereafter collect higher realty taxes from the abovementioned property owners. His opinion, it is true had been overruled; but the
overruling inflicted no material damage upon him or his office. And the Court of Tax Appeals was not created to decide mere conflicts of
opinion between administrative officers or agencies. Imagine an income tax examiner resorting to the Court of Tax Appeals whenever the
Collector of Internal Revenue modifies, or lower his assessment on the return of a tax payer! 22
The appellate power of the CTA includes certiorari
Petitioner is quick to point out, however, that the grounds raised in its CA petition included the nullity of Section 7(c.2.2) of RR 06-08 and
RMC 25-11. In an attempt to divest the CTA jurisdiction over the controversy, petitioner then cites British American Tobacco, wherein this
Court has expounded on the limited jurisdiction of the CTA in the following wise:
While the above statute confers on the CTA jurisdiction to resolve tax disputes in general, this does not include cases where the
constitutionality of a law or rule is challenged. Where what is assailed is the validity or constitutionality of a law, or a rule or regulation
issued by the administrative agency in the performance of its quasi legislative function, the regular courts have jurisdiction to pass upon the
same. The determination of whether a specific rule or set of rules issued by an administrative agency contravenes the law or the
constitution is within the jurisdiction of the regular courts. Indeed, the Constitution vests the power of judicial review or the power to declare
a law, treaty, international or executive agreement, presidential decree, order, instruction, ordinance, or regulation inthe courts, including
the regional trial courts. This is within the scope of judicial power, which includes the authority of the courts to determine inan appropriate
action the validity of the acts of the political departments. Judicial power includes the duty of the courts of justice to settle actual
controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave
abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government.23
Vis-a-vis British American Tobacco, it bears to stress what appears to be a contrasting ruling in Asia International Auctioneers, Inc. v.
Parayno, Jr., to wit:
Similarly, in CIR v. Leal, pursuant to Section 116 of Presidential Decree No. 1158 (The National Internal Revenue Code, as amended)
which states that "[d]ealers in securities shall pay a tax equivalent to six (6%) per centum of their gross income. Lending investors shall pay
a tax equivalent to five (5%) per cent, of their gross income," the CIR issued Revenue Memorandum Order (RMO) No. 15-91 imposing 5%
lending investors tax on pawnshops based on their gross income and requiring all investigating units of the BIR to investigate and assess
the lending investors tax due from them. The issuance of RMO No. 15-91 was an offshoot of the CIRs finding that the pawnshop business
is akin to that of "lending investors" as defined in Section 157(u) of the Tax Code. Subsequently, the CIR issued RMC No. 43-91 subjecting
pawn tickets to documentary stamp tax. Respondent therein, Josefina Leal, owner and operator of Josefinas Pawnshop, asked for a
reconsideration of both RMO No. 15-91 and RMC No. 43-91, but the same was denied by petitioner CIR. Leal then filed a petition for
prohibition with the RTC of San Mateo, Rizal, seeking to prohibit petitioner CIR from implementing the revenue orders. The CIR, through
the OSG, filed a motion to dismiss on the ground of lack of jurisdiction. The RTC denied the motion. Petitioner filed a petition for certiorari
and prohibition with the CA which dismissed the petition "for lack of basis." In reversing the CA, dissolving the Writ of Preliminary Injunction
issued by the trial court and ordering the dismissal of the case before the trial court, the Supreme Court held that "[t]he questioned RMO
No. 15-91 and RMC No. 43-91 are actually rulings or opinions of the Commissioner implementing the Tax Code on the taxability of
pawnshops." They were issued pursuant to the CIRs power under Section 245 of the Tax Code "to make rulings or opinions in connection
with the implementation of the provisions of internal revenue laws, including ruling on the classification of articles of sales and similar
purposes."The Court held that under R.A. No. 1125 (An Act Creating the Court of Tax Appeals), as amended, such rulings of the CIR are
appealable to the CTA.
In the case at bar, the assailed revenue regulations and revenue memorandum circulars are actually rulings or opinions of the CIR on the
tax treatment of motor vehicles sold at public auction within the SSEZ to implement Section 12 of R.A. No. 7227 which provides that

"exportation or removal of goods from the territory of the [SSEZ] to the other parts of the Philippine territory shall be subject to customs
duties and taxes under the Customs and Tariff Codeand other relevant tax laws of the Philippines." They were issued pursuant to the power
of the CIR under Section 4 of the National Internal Revenue Code x x x.24 (emphasis added)
The respective teachings in British American Tobacco and Asia International Auctioneers, at first blush, appear to bear no conflictthat
when the validity or constitutionality of an administrative rule or regulation is assailed, the regular courts have jurisdiction; and if what is
assailed are rulings or opinions of the Commissioner on tax treatments, jurisdiction over the controversy is lodged with the CTA. The
problem with the above postulates, however, is that they failed to take into consideration one crucial pointa taxpayer can raise both
issues simultaneously.
Petitioner avers that there is now a trend wherein both the CTA and the CA disclaim jurisdiction over tax cases: on the one hand, mere
prayer for the declaration of a tax measures unconstitutionality or invalidity before the CTA can result in a petitions outright dismissal, and
on the other hand, the CA will likewise dismiss the same petition should it find that the primary issue is not the tax measures validity but the
assessment or taxability of the transaction or subject involved. To illustrate this point, petitioner cites the assailed Resolution, thusly:
Admittedly, in British American Tobacco vs. Camacho, the Supreme Court has ruled that the determination of whether a specific rule or set
of rules issued by an administrative agency contravenes the law or the constitution is within the jurisdiction of the regular courts, not the
CTA.
xxxx
Petitioner essentially questions the CIRs ruling that Petitioners sale of shares is a taxable donation under Sec. 100 of the NIRC. The
validity of Sec. 100 of the NIRC, Sec. 7 (C.2.2) and RMC 25-11 is merely questioned incidentally since it was used by the CIR as bases for
its unfavourable opinion. Clearly, the Petition involves an issue on the taxability of the transaction rather than a direct attack on the
constitutionality of Sec. 100, Sec.7 (c.2.2.) of RR 06-08 and RMC 25-11. Thus, the instant Petition properly pertains to the CTA under Sec.
7 of RA 9282.
As a result of the seemingly conflicting pronouncements, petitioner submits that taxpayers are now at a quandary on what mode of appeal
should be taken, to which court or agency it should be filed, and which case law should be followed.
Petitioners above submission is specious.
In the recent case of City of Manila v. Grecia-Cuerdo,25 the Court en banc has ruled that the CTA now has the power of certiorari in cases
within its appellate jurisdiction. To elucidate:
The prevailing doctrine is that the authority to issue writs of certiorari involves the exercise of original jurisdiction which must be expressly
conferred by the Constitution or by law and cannot be implied from the mere existence of appellate jurisdiction. Thus, x x x this Court has
ruled against the jurisdiction of courts or tribunals over petitions for certiorari on the ground that there is no law which expressly gives these
tribunals such power. Itmust be observed, however, that x x x these rulings pertain not to regular courts but to tribunals exercising
quasijudicial powers. With respect tothe Sandiganbayan, Republic Act No. 8249 now provides that the special criminal court has exclusive
original jurisdiction over petitions for the issuance of the writs of mandamus, prohibition, certiorari, habeas corpus, injunctions, and other
ancillary writs and processes in aid of its appellate jurisdiction.
In the same manner, Section 5 (1), Article VIII of the 1987 Constitution grants power to the Supreme Court, in the exercise of its original
jurisdiction, to issue writs of certiorari, prohibition and mandamus. With respect to the Court of Appeals, Section 9 (1) of Batas Pambansa
Blg. 129 (BP 129) gives the appellate court, also in the exercise of its original jurisdiction, the power to issue, among others, a writ of
certiorari, whether or not in aid of its appellate jurisdiction. As to Regional Trial Courts, the power to issue a writ of certiorari, in the exercise
of their original jurisdiction, is provided under Section 21 of BP 129.
The foregoing notwithstanding, while there is no express grant of such power, with respect to the CTA, Section 1, Article VIII of the 1987
Constitution provides, nonetheless, that judicial power shall be vested in one Supreme Court and in such lower courts as may be
established by law and that judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are
legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of any branch or instrumentality of the Government.
On the strength of the above constitutional provisions, it can be fairly interpreted that the power of the CTA includes that of determining
whether or not there has been grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the RTC in issuing an
interlocutory order in cases falling within the exclusive appellate jurisdiction of the tax court. It, thus, follows that the CTA, by constitutional
mandate, is vested with jurisdiction to issue writs of certiorari in these cases.
Indeed, in order for any appellate court to effectively exercise its appellate jurisdiction, it must have the authority to issue, among others, a
writ of certiorari. In transferring exclusive jurisdiction over appealed tax cases to the CTA, it can reasonably be assumed that the law
intended to transfer also such power as is deemed necessary, if not indispensable, in aid of such appellate jurisdiction. There is no
perceivable reason why the transfer should only be considered as partial, not total. (emphasis added)
Evidently, City of Manilacan be considered as a departure from Ursal in that in spite of there being no express grant in law, the CTA is
deemed granted with powers of certiorari by implication. Moreover, City of Manila diametrically opposes British American Tobacco to the
effect that it is now within the power of the CTA, through its power of certiorari, to rule on the validity of a particular administrative ruleor
regulation so long as it is within its appellate jurisdiction. Hence, it can now rule not only on the propriety of an assessment or tax treatment
of a certain transaction, but also on the validity of the revenue regulation or revenue memorandum circular on which the said assessment is
based.
Guided by the doctrinal teaching in resolving the case at bar, the fact that the CA petition not only contested the applicability of Sec. 100 of
the NIRC over the sales transaction but likewise questioned the validity of Sec. 7 (c.2.2) of RR 06-08 and RMC 25-11 does not divest the
CTA of its jurisdiction over the controversy, contrary to petitioner's arguments.
The price difference is subject to donor's tax
Petitioner's substantive arguments are unavailing. The absence of donative intent, if that be the case, does not exempt the sales of stock
transaction from donor's tax since Sec. 100 of the NIRC categorically states that the amount by which the fair market value of the property

exceeded the value of the consideration shall be deemed a gift.1wphi1 Thus, even if there is no actual donation, the difference in price is
considered a donation by fiction of law.
Moreover, Sec. 7(c.2.2) of RR 06-08 does not alter Sec. 100 of the NIRC but merely sets the parameters for determining the "fair market
value" of a sale of stocks. Such issuance was made pursuant to the Commissioner's power to interpret tax laws and to promulgate rules
and regulations for their implementation.
Lastly, petitioner is mistaken in stating that RMC 25-11, having been issued after the sale, was being applied retroactively in contravention
to Sec. 246 of the NIRC.26 Instead, it merely called for the strict application of Sec. 100, which was already in force the moment the NIRC
was enacted.
WHEREFORE, the petition is hereby DISMISSED. The Resolutions of the Court of Appeals in CA-G.R. SP No. 127984 dated May 23, 2013
and January 21, 2014 are hereby AFFIRMED.
SO ORDERED.