ESTATE TAX

JARABINI G. DEL ROSARIO, Petitioner, vs.

ASUNCION G. FERRER, substituted by her heirs, VICENTE, PILAR, ANGELITO,
FELIXBERTO, JR., all surnamed G. FERRER, and MIGUELA FERRER ALTEZA,
Respondents.
G.R. No. 187056, September 20, 2010, Decision (ABAD, J.)

A donation mortis causa has the following characteristics: 1) It conveys no title or ownership
to the transferee before the death of the transferor; 2) That before his death, the transfer should be
revocable by the transferor at will, ad nutum; and 3) That the transfer should be void if the transferor
should survive the transferee.

FACTS:
On August 27, 1968, the spouses Leopoldo and Guadalupe Gonzales executed a document
entitled "Donation Mortis Causa" covering a 126-square meter house and lot in Pandacan, Manila in
favor of Asuncion, Emiliano and Jarabini. One of the clauses in said deed provided for the
irrevocability of the same.
Although denominated as a donation mortis causa, which in law is the equivalent of a will,
the deed had no attestation clause and was witnessed by only two persons. The named donees,
however, signified their acceptance of the donation on the face of the document.
In 1998, petitioner Jarabini filed a "petition for the probate of the August 27, 1968 deed of
donation mortis causa" before the RTC of Manila. This was, however, opposed to by respondent
Asuncion invoking his father Leopoldo’s assignment of his rights and interests in the property to her.
After trial, the RTC rendered a decision finding that the donation was in fact one made inter
vivos. The donors’ intention being to transfer title over the property to the donees during the donors’
lifetime, given its irrevocability. Consequently, Leopoldo’s subsequent assignment of his rights and
interest in the property was void since he had nothing to assign. The RTC thus directed the
registration of the property in the name of the donees in equal shares.
On appeal, the CA reversed the RTC decision. It held that the said donation is mortis causa
and is void for non-compliance with the formalities required by law.

ISSUE:
Whether or not the document executed by the spouses Leopoldo and Guadalupe Gonzales
entitled "Deed of Donation Mortis Causa" is in fact a donation mortis causa.

RULING:
No. The donation is classified as inter vivos.
In Austria-Magat v. Court of Appeals, the Court held that "irrevocability" is a quality
absolutely incompatible with the idea of conveyances mortis causa, where "revocability" is precisely
the essence of the act. Accordingly, a donation mortis causa has the following characteristics:
1. It conveys no title or ownership to the transferee before the death of the transferor; or, what
amounts to the same thing, that the transferor should retain the ownership (full or naked) and
control of the property while alive;

1
 2. That before his death, the transfer should be revocable by the transferor at will, ad nutum; but
revocability may be provided for indirectly by means of a reserved power in the donor to
dispose of the properties conveyed; and
3. That the transfer should be void if the transferor should survive the transferee.
The Court thus said in Austria-Magat that the express "irrevocability" of the donation is the
"distinctive standard that identifies the document as a donation inter vivos." In this case, the donors
plainly said that it is "our will that this Donation Mortis Causa shall be irrevocable and shall be
respected by the surviving spouse." The intent to make the donation irrevocable becomes even clearer
by the proviso that a surviving donor shall respect the irrevocability of the donation.
Consequently, the donation was in reality a donation inter vivos.

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 PABLO LORENZO, as trustee of the estate of Thomas Hanley, deceased, plaintiff-appellant,
vs. JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.
G.R. No. L-43082, June 18, 1937(Laurel, J)

Estate tax laws rest in their essence upon the principle that death of an individual is the
generating source from which the taxing power takes its being, and that it is the power to transmit or
the transmission from the dead to the living on which the tax is more immediately based.

FACTS:
On May 27, 1922, one Thomas Hanley died in Zamboanga leaving a will and a considerable
amount of real and personal properties. The will was subjected to probate and was subsequently
admitted. Among the provisions of the will, item number 5 provides for a restriction in the disposition
of Thomas his real estate for a period of 10 years after his death. Pursuant to said restriction in the
disposition of Thomas his real properties, the CFI of Zamboanga appointed Pablo Lorenzo, as trustee,
during the interim period.
During the incumbency of plaintiff Lorenzo as trustee, defendant Posadas, then Collector of
Internal Revenue, filed a motion in the testamentary proceedings pending before the CFI of
Zamboanga for the payment of inheritance tax in the sum of P2,052.74. Said motion was granted.
Plaintiff Lorenzo paid under protest and claimed for a refund of the same. The court however,
denied the same.
Plaintiff Lorenzo appealed and contends that the lower court erred in holding that the
inheritance tax in question be based upon the value of the estate upon the death of the testator, and
not, as it should have been held, upon the value thereof at the expiration of the period of ten years
after which, according to the testator's will, the property could be and was to be delivered to the
instituted heir.

ISSUE:
Whether or not the inheritance tax should be computed on the basis of the value of the estate
at the time of the testator's death.

RULING:
Yes. The inheritance tax should be computed on the basis of the value of the estate at the time
of the testator's death.
If death is the generating source from which the power of the state to impose inheritance
taxes takes its being and if upon the death of the decedent, succession takes place and the right of the
state to tax vests instantly, the tax should be measured by the value of the estate as it stood at the time
of the decedent's death. The tax is computed regardless of any subsequent contingency value or any
subsequent increase or decrease in value.
Hence, the right of the state to an inheritance tax accrues at the moment of death. Subsequent
appreciation or depreciation is immaterial.

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 IDONAH SLADE PERKINS, petitioner, vs.
ARSENIO P. DIZON, Judge of First Instance of Manila, EUGENE ARTHUR PERKINS, and
BENGUET CONSOLIDATED MINING COMPANY, respondents.
G.R. No. 46631, November 16, 1939, MORAN, J

A "proceeding in rem" is one taken directly against property, and has for its object the
disposition of the property, without reference to the title of individual claimants; in a larger sense, the
term is applied to actions between parties, where the direct object is to reach and dispose of property
owned by them, or of some interest therein. Jurisdiction over non-resident parties to in rem
proceedings may be acquired thru publication.

FACTS:
On July 6, 1938, respondent Eugene Arthur Perkins, instituted an action in the CFI of Manila
against the Benguet Consolidated Mining Company(BCMC) for dividends amounting to P71,379.90
on 52,874 shares of stock registered in his name, payment of which was being withheld by the
company. Further, he prayed for the recognition of his right to control and dispose of said shares, to
the exclusion of all others.
BCMC filed its answer alleging, by way of defense, that the withholding of such dividends
and the non-recognition of Eugene Arthur Perkins right to the disposal and control of the shares were
due to certain demands made with respect to said shares by adverse claimants petitioner Idonah Slade
Perkins and by one George H. Engelhard. The answer prays that the adverse claimants be made
parties to the action and served with notice thereof by publication, and that thereafter all such parties
be required to interplead and settle the rights among themselves.
The trial court acted on the motion to include the non-resident defendants, petitioner Idonah
Slade Perkins and George H. Engelhard. Consequently, summons by publication were served upon
the said non-resident defendants pursuant to the order of the trial court.
On December 10, 1938, petitioner Idonah Slade Perkins, through counsel, filed her pleading
entitled "objection to venue, motion to quash, and demurrer to jurisdiction" wherein she challenged
the jurisdiction of the lower court over her person.
The CFI denied the motions and demurrer of petitioner. Hence, this appeal.

ISSUE:
Whether or not the CFI of Manila has acquired jurisdiction over the person of non-resident
defendant petitioner Idonah Slade Perkins thru publication.

RULING:
Yes. The CFI of Manila has acquired jurisdiction over the person of non-resident defendant
petitioner Idonah Slade Perkins thru publication.
Section 398 of our Code of Civil Procedure provides that when a non-resident defendant is
sued in the Philippine courts and it appears, by the complaint or by affidavits, that the action relates to
real or personal property within the Philippines in which said defendant has or claims a lien or
interest, actual or contingent, or in which the relief demanded consists, wholly or in part, in excluding
such person from any interest therein, service of summons may be made by publication.
In the instant case, there can be no question that the action brought by respondent Eugene
Arthur Perkins in his amended complaint against petitioner Idonah Slade Perkins, seeks to exclude the
latter from any interest in the property located in the Philippines. That property consists in certain
shares of stocks of the BCMC, a sociedad anonima, organized in the Philippines under the provisions

4
of the Spanish Code of Commerce, with its principal office in the City of Manila and which conducts
its mining activities therein. The situs of the shares is in the jurisdiction where the corporation is
created, whether the certificate evidencing the ownership of those shares are within or without that
jurisdiction.
Under these circumstances, we hold that the action thus brought is quasi in rem, for while the
judgement that may be rendered therein is not strictly a judgment in rem, "it fixes and settles the title
to the property in controversy and to that extent partakes of the nature of the judgment in rem." As
held by the Supreme Court of the United States in Pennoyer v. Neff:

It is true that, in a strict sense, a proceeding in rem is one taken directly against property, and
has for its object the disposition of the property, without reference to the title of individual
claimants; but, in a large and more general sense, the terms are applied to actions between
parties, where the direct object is to reach and dispose of property owned by them, or of some
interest therein.
Hence, the action being quasi in rem, the CFI of Manila has jurisdiction over the person of
the non-resident by satisfying the constitutional requirement of due process thru the service of
summons upon her person by publication.

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 CALALANG v REGISTER OF DEEDS
G.R No. 76265, April 22, 1992, EN BANC, (Labrador, J)

It is well established that in rem proceedings constitute constructive notice to the whole
world.

FACTS:
In 1984, the Supreme Court decided a land ownership case where a parcel of land in Diliman
was held to be owned by Lucia dela Cruz, who then sold it to Iglesia ni Kristo. Later, Calalang also
claimed to be the registered owner of the same lot. (It appears that Calalang’s title stemmed from a
reconstituted title which overlapped with the dela Cruz property). When INC started development of
the property, Calalang filed for an injunction, which was denied by the lower court, citing as reason
the decided dela Cruz case. Calalang argues that the dela Cruz case cannot be applied as they were
not parties to the case, nor were they notified of any such proceedings.

ISSUE: Whether or not the decided dela Cruz case may be applied to the Calalang case. YES

RULING:
YES. The Court's ruling has long been final and the issue on ownership of Lot 671 finally
disposed of several years ago. This declaration must be respected and followed in the instant case
applying the principle of res judicata or, otherwise, the rule on conclusiveness of judgment. The less
familiar concept or less terminological usage of res judicata as a rule on conclusiveness of judgment
refers to the situation where the judgment in the prior action operates as an estoppel only as to the
matters actually determined therein or which were necessarily included therein.The factual inquiry
with regards to the history of Lot 671 has already been laid to rest and may no longer be disturbed.
Likewise, the INK was also issued a Torrens Title over Lot 671 as a result of the sale made to
it by the rightful owner, Lucia dela Cruz in 1975. Under the Torrens System of registration, the
Torrens Title became indefeasible and incontrovertible one year from its final decree. To reopen or to
question the legality of INK's title would defeat the purpose of our Torrens system which seeks to
insure stability by quieting titled lands and putting to a stop forever any question of the legality of the
registration in the certificate or questions which may arise therefrom.

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 MARCOS II v COURT OF APPEALS
G.R No. 120880, JUNE 5, 1997, SECOND DIVISION (Torres, Jr, J.)

The approval of the probate court is not a mandatory requirement in the collection of estate
taxes. Such taxes are exempt from the application of the statute of non-claims, with such exemption
justified by the necessity of government funding, immortalized in the maxim that taxes are the
lifeblood of the government.

FACTS:
In 1989, former President Ferdinand Marcos died in the USA. In 1991, the CIR issued
deficiency estate (23B pesos) and income taxes against the former President and his estate. These
assessments later became final, as the CIR in 1993 issued notices of levy on real property owned by
the Marcoses to satisfy the alleged deficiencies.
Marcos’ eldest son, Bongbong, questioned the said orders of the BIR, arguing that the
government cannot collect estate taxes during the pendency of the special proceeding for the
allowance of Marcos’ will. Bongbong claims that the pending probate proceeding placed all of the
late President’s estate in custodia legis of the probate court to the exclusion of all other courts and
administrative agencies.

ISSUE: May the BIR collect estate taxes by the summary remedy of levy without the cognition and
authority of the probate court?

RULING:
YES. Strictly speaking, the assessment of an inheritance tax does not directly involve the
administration of a decedent's estate, although it may be viewed as an incident to the complete
settlement of an estate, and, under some statutes, it is made the duty of the probate court to make the
amount of the inheritance tax a part of the final decree of distribution of the estate. It is not against the
property of decedent, nor is it a claim against the estate as such, but it is against the interest or
property right which the heir, legatee, devisee, etc., has in the property formerly held by decedent.
Further, under some statutes, it has been held that it is not a suit or controversy between the parties,
nor is it an adversary proceeding between the state and the person who owes the tax on the
inheritance. However, under other statutes it has been held that the hearing and determination of the
cash value of the assets and the determination of the tax are adversary proceedings. The proceeding
has been held to be necessarily a proceeding in rem.
Thus, the court has recognized the liberal treatment of claims for taxes charged against the
estate of the decedent. Such taxes, are exempted from the application of the statute of non-claims, and
this is justified by the necessity of government funding, immortalized in the maxim that taxes are the
lifeblood of the government. Such liberal treatment of internal revenue taxes in the probate
proceedings extends so far, even to allowing the enforcement of tax obligations against the heirs of
the decedent, even after distribution of the estate's properties.
From the foregoing, it is discernible that the approval of the court, sitting in probate, or as a
settlement tribunal over the deceased is not a mandatory requirement in the collection of estate taxes.

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 BEAM v YATCO
G.R No. 48122, OCTOBER29, 1948, EN BANC (Perfecto, J.)

Shares issued by any corporation or sociedad anonima organized in the Philippines among
properties subject to [estate] tax.

FACTS:
The Beam family (spouses X and Y and their children A and B) are American citizens. They
own shares of stock in several domestic corporations in the Philippines. In 1934, the family relocated
to California. Later that year, Y died. According to California law, upon the death of a wife one-half
of the community property shall go to the surviving spouse, the other half being subject to the
testamentary disposition of the decedent, and that in the absence thereof, that half shall go to the
surviving spouse by inheritance. X, A, and B paid estate taxes for one-half of Y’s properties.
They later asked for a refund of the estate taxes paid by them, alleging that they were not
citizens of California, but of Utah. According to Utah law, properties acquired by the spouses during
marriage belong to them separately.

ISSUE: Whether or not the Beam family is liable to pay estate taxes?
Are inherited shares of stock subject to estate taxes? YES

RULING:
YES. California law may be invoked as the personal law of the deceased applicable to her
personal property in the Philippines in accordance with article 10 of the Civil Code. In this case, the
Court held that there was no evidence at all of the Beam family’s alleged Utah citizenship.
Accordingly, the properties in question which have been acquired by X and Y during their
marriage, should be considered as community property and upon the death of the wife, the one that
belonged to her passed by succession to her heirs, in accordance with law, and therefore is subject to
the estate tax.
Even granting the contention that the deceased became a resident of California only in 1934,
she was a citizen of that state at the time of her death and her national law applicable to the case, in
accordance with article 10 of the Civil Code, is the law of California which, in the absence of
contrary evidence, is to be presumed to be the same as the Philippine law.
As to the situs of the property in question (shares of stock), according to the Revised
Administrative Code, shares issued by any corporation or sociedad anonima organized in the
Philippines among properties subject to inheritance tax. In this case, the corresponding certificates of
stock were in the Philippines before and after the death of Y, the owners were represented by proxy at
the stockholders' meetings and their shares voted by their attorney in fact who had the power to
collect dividends corresponding to the share.

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 BLAS v SANTOS
G.R No. L-14070, MARCH 21, 1961, EN BANC (Labrador, J.)

It will be noted that what is prohibited to be the subject matter of a contract under Article
1271 of the Civil Code is "future inheritance." To us future inheritance is any property or right not in
existence or capable of determination at the time of the contract, that a person may in the future
acquire by succession.
FACTS:
Simeon Blas contracted two marriages in his lifetime: first, to Marta Cruz, and then to
Maxima Santos. When Simeon was married to Maxima, there was no liquidation of the conjugal
properties from his first marriage. In 1936, Simeon executed a will to the effect that one-half of all his
properties “constitutes the share of Maxima.” Subsequently, Maxima executed a document to the
effect that she recognized Simeon’s testament and that she would give half of her portion to the heirs,
legatees and beneficiaries named in Simeon’s will.
The heirs of Marta Cruz now claim under the document left executed by Maxima during the
settlement of her estate. The administrator of Maxima’s estate argues that the heirs of Marta cannot
claim since the heirs did not object to the project of partition, and that the document executed by
Maxima is a worthless piece of paper as it was not a will, nor a donation, nor a contract.

ISSUE: Whether or not the heirs of the first marriage may claim in the share of the second wife who
inherited the unliquidated conjugal properties from the first marriage.
What is the nature of Maxima’s executed document? TRUST

RULING:
YES. The agreement or promise that Maxima Santos made is to hold one-half of her said
share in the conjugal assets in trust for the heirs and legatees of her husband in his will, with the
obligation of conveying the same to such of his heirs or legatees as she may choose in her last will
and testament. It is a compromise and at the same time a contract with a sufficient cause or
consideration. It is not a contract on future inheritance as the conjugal properties were in existence at
the time of the execution of the document.
As this private document contains the express promise made by Maxima Santos to convey in
her testament, upon her death, one-half of the conjugal properties she would receive as her share in
the conjugal properties, the action to enforce the said promise did not arise until and after her death
when it was found that she did not comply with her above-mentioned promise.

9
 A. L. VELILLA, administrator of the estate of Arthur Graydon Moody, Plaintiff-Appellant, v.
JUAN POSADAS, JR., Collector of Internal Revenue, Defendant-Appellee,
G.R. No. 43314. December 19, 1935, SECOND DIVISION (BUTTE, J.)

To effect the abandonment of one’s domicile, there must be a deliberate and provable choice
of a new domicile, coupled with actual residence in the place chosen, with a declared or provable
intent that it should be one’s fixed and permanent place of abode, one’s home. There is a complete
dearth of evidence in the record that M ever established a new domicile in a foreign country.

FACTS:

Arthur Graydon Moody died in Calcutta, India in 1931. He left properties in the Philippines
consisting of bonds, shares of stock and other intangibles. He bequeathed all his properties in favor of
his only sister, Ida Palmer.

ISSUE: Whether or not Moody was legally domiciled in the Philippines at the time of his death?

RULING: YES.

Moody was never married and there is no doubt that he had his legal domicile in the Philippine
Islands from 1902 or 1903 forward during which time he accumulated a fortune from; his business in
the Philippine Islands. He lived in the Elks' Club in Manila for many years and was living there up to
the date he left Manila the latter part of February, 1928.

There was no statement from Moody, oral or written, that he had the intention of changing his
domicile. His presence in Clacutta, the appellant does not claim that Moody had a domicile there.

It was also not shown that he established a legal domicile in Paris in February 1929 where he sought
to have hi leprosy treated. There is no evidence that he acquired any property in Paris or engaged in
any settled business on his own account there. His short stay of three months in Paris is entirely
consistent with the view that he was a transient in Paris for the purpose of receiving treatments at the
Pasteur Institute.

Consequence of being a resident deedent: his intangible properties are subject to the estate tax here in
the Philippines.

10
 THE COLLECTOR OF INTERNAL REVENUE, petitioner,
vs.
DOMINGO DE LARA, as ancilliary administrator of the estate of HUGO H. MILLER
(Deceased), and the COURT OF TAX APPEALS, respondents.
G.R. Nos. L-9456 and L-9481, January 6, 1958, EN BANC (MONTEMAYOR, J.)

In determining the "gross estate" of a decedent, under Section 122 in relation to section 88 of
our Tax Code, it is first necessary to decide whether the decedent was a resident or a non-resident of
the Philippines at the time of his death.

The prevailing construction given by the courts to the "residence" was synonymous with
domicile. and that the two were used intercnangeabiy.

FACTS:

Hugo Miller, an American citizen, was born in Santa Cruz, California, U.S.A. From 1922 up to
December 7, 1941, he was stationed in the Philippines as a representative of a company selling books
specially written for Philippine schools.

Miller stayed in Hotel and never lived in any residential house in the Philippines.

He executed his last will and testament in Santa Cruz, California, in which he declared that he was a
resident ‘of Santa Cruz, California’.

The Collector of Internal Revenue assessed the estate of Miller for estate and inheritance taxes. This
was protested by the estate of Miller contending that Miller was not a resident of the Philippines and
some of the items in the gross estate should not have been included for purposes of determining his
estate tax liability.

ISSUE: Whether or not Miller was a resident of the Philippines?

RULING: No! He is not a resident of the Philippines!

During his stay in the country, Miller never acquired a house for residential purposes for he stayed at
the Manila Hotel and later on at the Army and Navy Club.

In November, 1940, Miller took out a property insurance policy and indicated therein his address as
Santa Cruz, California, this aside from the fact that Miller, as already stated, executed his will in
Santa Cruz, California, wherein he stated that he was "of Santa Cruz, California".

From the foregoing, it is clear that as a non-resident of the Philippines, the only properties of his
estate subject to estate and inheritance taxes are those shares of stock issued by Philippines
corporations.

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As to the taxability of intangible property

Considering the State of California as a foreign country in relation to section 122 of Our Tax
Code we believe and hold, as did the Tax Court, that the Ancilliary Administrator is entitled to
exemption from the tax on the intangible personal property found in the Philippines. Incidentally, this
exemption granted to non-residents under the provision of Section 122 of our Tax Code, was to
reduce the burden of multiple taxation, which otherwise would subject a decedent's intangible
personal property to the inheritance tax, both in his place of residence and domicile and the place
where those properties are found.

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 MAMERTO C. CORRE, Plaintiff-Appellant, vs. GUADALUPE TAN CORRE, Defendant-
Appellee.
G.R. No. L-10128. November 13, 1956, EN BANC (BAUTISTA ANGELO,J.)

Rresidence as used in said rule is synonymous with domicile. This is define as “the
permanent home, the place to which, whenever absent for business or pleasure, one intends to return,
and depends on facts and circumstances, in the sense that they disclose intent

FACTS:

Plaintiff is an American citizen and resident of Las Vegas, Nevada, USA.

Defendant is a Filipino and resident of Municipality of Catbalogan, Samar, Philippines.

It was alleged that the Plaintiff “for the purpose of filing and maintaining this suit, temporarily resides
at 576 Paltoc, Santa Mesa, Manila”

ISSUE: Whether or not the plaintiff may file the suit in Santa Mesa, Manila?

RULING: NO.

Section 1, Rule 5, of the Rules of Court provides that Civil actions in Courts of First Instance may be
commenced and tried where the Defendant or any of the Defendants resides or may be found, or
where the Plaintiff or any of the Plaintiffs resides, at the election of the Plaintiff.” From this rule it
may be inferred that Plaintiff can elect to file the action in the court he may choose if both the
Plaintiff and the Defendant have their residence in the Philippines. Otherwise, the action can only be
brought in the place where either one resides.

It the present case, it clearly appears in the complaint that the Plaintiff is a resident of Las Vegas,
Nevada, U. S. A. while the Defendant is a resident of the municipality of Catbalogan, province of
Samar. Such being the case, Plaintiff has no choice other than to file the action in the court of first
instance of the latter province. The allegation that the Plaintiff “for the purpose of filing and
maintaining this suit, temporarily resides at 576 Paltoc, Santa Mesa, Manila” cannot serve as basis for
the purpose of determining the venue for that is not the residence contemplated by the rule. If that
were allowed, we would create a situation where a person may have his residence in one province
and, to suit his convenience, or to harass the Defendant, may bring the action in the court of any other
province. That cannot be the intendment of the rule.

13
 RAFAEL ARSENIO S. DIZON, in his capacity as the Judicial Administrator of the Estate of
the deceased JOSE P. FERNANDEZ, Petitioner vs. COURT OF TAX APPEALS
and COMMISSIONER OF INTERNAL REVENUE, Respondents.
G.R. No. 140944, April 30, 2008, THIRD DIVISION (Nachura, J.)

Any doubt on whether a person, article or activity is taxable is generally resolved against
taxation.

FACTS:

On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition for the probate of his will
was filed with Branch 51 of the Regional Trial Court (RTC) of Manila (probate court). 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). 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.

ISSUES:
1. 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

2. 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 Or Whether or not the CA erred
in affirming the CTA in the latter's determination of the deficiency estate tax imposed against the
Estate.

RULING:
1. Yes. While the CTA is not governed strictly by technical rules of evidence, 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. The BIR's failure to formally offer these pieces of evidence, despite CTA's
directives, is fatal to its cause

2. Yes. The claims existing at the time of death are significant to, and should be made the basis of, the
determination of allowable deductions. Also, as held in Propstra v. U.S., 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. This is called the date-of-death valuation rule.

14
 CONCEPCION VIDAL DE ROCES and her husband,
MARCOS ROCES, and ELVIRA VIDAL DE RICHARDS, plaintiff-appellants,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellee.
G.R. No. L-34937, March 13, 1933, EN BANC (Imperial, J)

The expression "all gifts" refers to gifts inter vivos inasmuch as the law considers them as
advances on inheritance, in the sense that they are gifts inter vivos made in contemplation or in
consideration of death.

FACTS:

Sometime in 1925, plaintiffs Concepcion Vidal de Roces and her husband, as well as one
Elvira Richards, received as donation several parcels of land from Esperanza Tuazon. They took
possession of the lands thereafter and likewise obtained the respective transfer certificates.

The donor died a year after without leaving any forced heir. In her will, which was admitted
to probate, she bequeathed to each of the donees the sum of P5,000. After the distribution of the estate
but before the delivery of their shares, the CIR (appellee) ruled that plaintiffs as donees and legatees
should pay inheritance taxes. The plaintiffs paid the taxes under protest.

CIR filed a demurrer on ground that the facts alleged were not sufficient to constitute a cause
of action. The court sustained the demurrer and ordered the amendment of the complaint but the
appellants failed to do so. Hence, the trial court dismissed the action on ground that plaintiffs, herein
appellants, did not really have a right of action.

Plaintiffs (appellant) contend that  Sec. 1540 of the Administrative Code does not include
donation inter vivos and if it does, it is unconstitutional, null and void for violating SEC. 3 of the
Jones Law (providing that no law shall embrace more than one subject and that the subject should be
expressed in its titles ; that the Legislature has no authority to tax donation inter vivos; finally, that
said provision violates the rule on uniformity of taxation.

CIR however contends that the word 'all gifts' Â refer clearly to donation inter vivos and cited
the doctrine in Tuason v. Posadas.

ISSUE: Whether or not the donations should be subjected to inheritance tax

RULING:

YES. Sec. 1540 of the Administrative Code clearly refers to those donation inter vivos that take effect
immediately or during the lifetime of the donor, but made in consideration of the death of the
decedent. Those donations not made in contemplation of the decedent's death are not included as it
would be equivalent to imposing a direct tax on property and not on its transmission.

15
The  phrase 'all gifts' as held in Tuason v. Posadas refers to gifts inter vivos as they are considered
as advances in anticipation of inheritance since they are made in consideration of death.

16
 THE BANK OF THE PHILIPPINE ISLANDS, administrator of the estate of the late Adolphe
Oscar Schuetze,plaintiff-appellant,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellee.
G.R. No. L-34583, October 22, 1931, EN BANC (Villa-Real, J)

The proceeds of a life-insurance policy whereon the premiums were paid with conjugal
money, belong to the conjugal partnership.

FACTS:

BPI, as administrator of the estate of deceased Adolphe Schuetze, appealed to CFI Manila absolving
defendant, Collector of Internal Revenue, from the complaint filed against him in recovering the
inheritance tax amounting to P1209 paid by the plaintiff, Rosario Gelano Vda de Schuetze, under
protest, and sum of P20,150Â representing the proceeds of the insurance policy of the deceased.

Rosario and Adolphe were married in January 1914. The wife was actually residing and living in
Germany when Adolphe died in December 1927. The latter while in Germany, executed a will in
March 1926, pursuant with its law wherein plaintiff was named his universal heir.

The deceased possessed not only real property situated in the Philippines but also personal property
consisting of shares of stocks in 19 domestic corporations. Included in the personal property is a life
insurance policy issued at Manila on January 1913 for the sum of $10,000 by the Sun Life Assurance
Company of Canada, Manila Branch.

In the insurance policy, the estate of the deceased was named the beneficiary without any
qualification. Rosario is the sole and only heir of the deceased. BPI, as administrator of the
decedent’s estate and attorney in fact of the plaintiff, having been demanded by Posadas to pay
the inheritance tax, paid under protest. Notwithstanding various demands made by plaintiff,
Posadas refused to refund such amount.

ISSUE: WON the plaintiff is entitled to the proceeds of the insurance.

RULING:

SC ruled that(1)the proceeds of a life-insurance policy payable to the insured's estate, on which the
premiums were paid by the conjugal partnership, constitute community property, and belong one-half
to the husband and the other half to the wife, exclusively; (2)if the premiums were paid partly with
paraphernal and partly conjugal funds, the proceeds are likewise in like proportion paraphernal in part
and conjugal in part; and (3)the proceeds of a life-insurance policy payable to the insured's estate as
the beneficiary, if delivered to the testamentary administrator of the former as part of the assets of
said estate under probate administration, are subject to the inheritance tax according to the law on the
matter, if they belong to the assured exclusively, and it is immaterial that the insured was domiciled in
these Islands or outside.

17
Hence, the defendant was ordered to return to the plaintiff one-half of the tax collected upon the
amount of P20,150, being the proceeds of the insurance policy on the life of the late Adolphe Oscar
Schuetze, after deducting the proportional part corresponding to the first premium.

18
 Testate Estate of the Late Felix J. de Guzman. VICTORINO G. DE GUZMAN, administrator-
appellee,
vs.
CRISPINA DE GUZMAN-CARILLO, ARSENIO DE GUZMAN and HONORATA DE
GUZMAN-MENDIOLA, oppositors-appellants.
G.R. No. L-29276, May 18, 1978, SECOND DIVISION (Aquino, J)

Administration expenses should be those which are necessary for the management of the
estate, for protecting it against destruction or deterioration, and, possibly, for the production of
fruits. They are expenses entailed for the preservation and productivity of the estate and its
management for purposes of liquidation, payment of debts, and distribution of the residue among the
persons entitled thereto.

FACTS:

The late Felix J. de Guzman was survived by 8 children. Letters of administration were issued to
his son, Doctor Victorino G. de Guzman. One of the properties left by the decedent was a
residential house located in the poblacion of which 8 children were given a 1/8 proindiviso share in
the project of partition.Â

Three heirs Crispina de Guzmans-Carillo Honorata de Guzman-Mendiola and Arsenio de Guzman

interposed objections to the administrator's disbursements in the total sum of P13,610.48.

Expense for the improvement and renovation of the decedent's residential house
Living expenses of Librada de Guzman while occupying the family home without paying rent
Other expenses: Lawyer's subsistence, Gratuity pay in lieu of medical fee, stenographic notes,
decedent's first death anniversary, representation expenses
Irrigation fee

The Lower court allowed the expenses

ISSUE: WON they were allowable administration expenses

RULING: Some yes and some no. Affirmed with modification.

An executor or administrator is allowed the necessary expenses in the care, management, and
settlement of the estate. He is entitled to possess and manage the decedent's real and personal estate as
long as it is necessary for the payment of the debts and the expenses of administration. He is
accountable for the whole decedent's estate which has come into his possession, with all the interest,
profit, and income thereof, and with the proceeds of so much of such estate as is sold by him, at the
price at which it was sold (Sec. 3, Rule 84; Secs. 1 and 7, Rule 85, Rules of Court).
* One of the Conditions of the administrator's bond is that he should render a true and just account of
his administration to the court

19
* A hearing is usually held before an administrator's account is approved, especially if an interested
Party raises objections to certain items in the accounting report
* Expenses:
Expense for the improvement and renovation of the decedent's residential house – allowable

The 5 out of 8 co-owners consented to the use of the funds of the estate for repair and improvement of
the family home. It is obvious that the expenses in question were incurred to preserve the family
home and to maintain the family's social standing in the community.

The Living expenses of Librada de Guzman while occupying the family home without paying rent
– disallowed

Other expenses:
Lawyer's subsistence - allowable
Gratuity pay in lieu of medical fee - allowable
stenographic notes - disallowed
decedent's first death anniversary - disallowed
Representation expenses - unexplained - disallowed
Irrigation fee - allowable since unquestioned though duplicate

20
 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
G.R. No. 123206, March 22, 2000, THIRD DIVISION (Gonzaga-Reyes, J)

Attorney's fees are allowable deductions if incurred for the settlement of the estate.

FACTS:

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 RTC of Dumaguete City.

He died on January 10, 1988. He was survived by his two brothers Isidro P. Pajonar and Gregorio
Pajonar, his sister Josefina Pajonar, nephews ConcordioJandog and Mario Jandog and niece
ConchitaJandog.

On May 19, 1988, Josefina Pajonar filed a petition with the RTC of Dumaguete City for the issuance
in her favor of letters of administration of the estate of her brother which was granted.

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, 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. 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 CTA praying for the refund of P1,527,790.98, or in the alternative, P840,202.06, as
erroneously paid estate tax.

CTA ordered the CIR to refund Josefina Pajonar the amount of P252,585.59, representing
erroneously paid estate tax for the year 1988. 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.

On June 15, 1993, the CIR filed a motion for reconsideration 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.

CTA upheld the validity of the deductions. CIR appealed with the CA which was denied; hence,
present petition.

CIR 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.

21
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.

ISSUE: WON 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. YES.

RULING:

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.

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.

In this case, the guardianship proceeding was necessary for the distribution of the property of the late
Pedro Pajonar to his rightful heirs. 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.

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.

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.

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.

22
23
 In the matter of the testate estate of the late DA.MARGARITA DAVID. CARLOS MORAN
SISON, Judicial Administrator, petitioner-appellant, vs. NARCISA F. TEODORO, heiress,
oppositor-appellee.
G.R. No. L-9271, March 29, 1957, EN BANC (Bautista Angelo, J)

Expenses or premiums paid or incurred by an executor or administrator serving without

compensation to procure a bond is not a proper charge against the estate. Section 7 Rule 86 of the
Rules of Court does not authorize the executor or administrator to charge against the estate the
money paid for premium.

FACTS:

On December 20, 1948, the CFI of Manila, which has jurisdiction over the estate of the late Margarita
David, issued an order appointing Carlos Moran Sison as judicial administrator, without
compensation, after filing a bond in the amount of P5,000.

On January 19, 1955, the judicial administrator filed an accounting of his administration which
consists of the premiums paid on his bond.

Narcisa F. Teodoro, one of the heirs, objected to the approval of the above- quoted items on the
grounds that they are not necessary expenses of administration and should not be charged against the
estate.

On February 25, 1955, the court approved the report of the administrator but disallowed the items
objected to on the ground that they cannot be considered as expenses of administration.

Sison filed a motion for reconsideration which was denied. Hence, the present petition.

ISSUE: WON a judicial administrator, serving without compensation, is entitled to charge as an

expense of administration the premiums paid on his bond. NO.

RULING:

We rule that the expense incurred by an execution or administrator to procure a bond is not a proper
charge against the estate, and that section 680 of the Code of Civil Procedure does not authorize the
executor or administrator to charge against the estate the money spent for the presentation, filing, and
substitution of a bond.

24
it was there stated that the position of an executor or administrator is one of trust: that it is proper for
the law to safeguard the estates of deceased persons by requiring the administrator to give a suitable
bond, and that the ability to give this bond is in the nature of a qualification for the office. It is also
intimated therein that "If an individual does not desire to assume the position of executor or
administrator, he may refuse to do so," and it is far-fetched to conclude that the giving of a bond by
an administrator is an necessary expense in the care, management and settlement of the estate within
the meaning of the law, because these expenses are incurred "after the executor or administrator has
met the requirement of the law and has entered upon the performance of his duties.

Of course, a person may accept the position of executor or administrator with all the incident
appertaining thereto having in mind the compensation which the law allows for the purpose, but he
may waive this compensation in the same manner as he may refuse to serve without it. Appellant
having waived compensation, he cannot now be heard to complain of the expenses incident to his
qualification.

25
 B. E. JOHANNES, as principal administrator of the estate of Carmen Theodora Johannes,
relator, vs. CARLOS A. IMPERIAL, as judge of the Court of First Instance, City of Manila,
respondent.
G.R. No. L-19153, June 30, 1922, EN BANC (Johns, J.)

Claims against the estate should only be for just debts or expense for administration of the
estate itself.

FACTS:

Petitioner is the husband of Carmen Theodora Johannes, deceased, who, at the time of her death, was
a resident of Singapore, Straits Settlements, and a citizen of Great Britain; that he is also a foreigner
and a citizen of Great Britain and an actual resident to Singapore.

Alfred D'Almeida is a brother of the deceased Carmen Theodora Johannes, and a bona fide resident
of the City of Manila; that at the time of her death Carmen Theodora Johannes had P109,722.55 on
deposit in one of the banks in the City of Manila.

The petitioner, her surviving husband, was indebted to a bank in Manila for about P20,000. That the
deceased left no will in the absence of which the petitioner claims to be her sole heir and entitled to
all of her estate. That there were no debts against the estate of the deceased.

Upon the death of his wife, the petitioner was duly appointed as administrator of her estate by the
court at Singapore, and qualified and entered upon the discharge of his duties. After the decision was
rendered by this court in case No. 18600, supra, the petitioner came to Manila and claims to have
established a temporary residence at the Manila Hotel, based upon which, in legal effect, he asked for
an order of court that Alfred D'Almeida be removed as ancillary administrator, and that he be
appointed.

The lower court denied the petition. Hence, the present appeal.

ISSUE: WON Alfred D'Almeida should be removed and the petitioner substituted as ancillary
administrator. NO.

RULING:

The ancillary administration is proper, whenever a person dies, leaving in a country other than that of
his last domicile, property to be administered in the nature of assets of the decedent, liable for his
individual debts or to be distributed among his heirs. It is almost a universal rule to give the surviving
spouse a preference when and administrator is to be appointed, unless for strong reason it is deemed
advisable to name someone else.

26
Undoubtedly, if the husband should come into this jurisdiction, the court give consideration to his
petition that he be named the ancillary administrator for local purposes. Ancillary letters should
ordinarily be granted to the domiciliary representative, if he applies therefor, or to his nominee, or
attorney; but in the absence of express statutory requirement the court may in its discretion appoint
some other person.

The real contention of the petitioner is that, because he had the legal right to apply for and be
appointed in the first instance, such right is continuous, and that he could be appointed any time on
his own application. That is not the law. Although it is true that in the first instance everything else
being equal and upon the grounds of comity, in ordinary case, the court would appoint the petitioner
or his nominee as ancillary administrator, but even then, as stated in the above opinion the
appointment is one of more or less legal discretion. But that is not this case. Here, in legal effect, it is
sought to oust an administrator who was appointed without protest or objection where the court had
jurisdiction of the petitioner and of the subject matter.

At time of the appointment here, the court had primary and original jurisdiction, and no objections
were then made. The question as to who should have been appointed ancillary administrator, if
presented at the proper time and in the proper way, is not before this court. Here, the appointment was
made on the 1st day of October, 1921, and no formal objections were made until 21st day of January,
1922.

If, as claimed, the real dispute here is whether the brothers and sisters of the deceased are entitled to
share in her estate, or whether the petitioner only, as the surviving husband, is entitle to all of it, that
question is not one of administration, and any expense and attorneys' fees incurred by either party for
the settlement of that question is a personal matter to them, and should not be allowed as claims
against the estate. Claims against the estate should only be for just debts or expense for administration
of the estate itself.

27
 JESUS V. OCCEÑA and SAMUEL C. OCCEÑA, petitioners,
vs.
HON. PAULINO S. MARQUEZ, District Judge, Court of First Instance of Bohol, Branch I,
respondent. I.V. BINAMIRA, Co-Executor, Estate of W.C. Ogan, Sp. Proc. No. 423, CFI of
Bohol, Intervenor.
G.R. No. L-27396, September 30, 1974, SECOND DIVISION (Antonio, J)

The rule is that when a lawyer has rendered legal services to the executor or administrator to
assist him in the execution of his trust, his attorney's fees may be allowed as expenses of
administration. The estate is, however, not directly liable for his fees, the liability for payment resting
primarily on the executor or administrator.

FACTS:

OCCENA are the lawyers for estate executrix, Mrs. NECITAS OGAN OCCENA. Defended the
estate against claims and protecting the interests of the estate.

OCCENA seek to nullify order of Judge MARQUEZ: In the matter of testate estate of William
Ogan”, in relation to OCCENA’s claim for partial payment of attorney fees P30,000 (November 2,
1966), fixing at P20,000 GROSS VALUE OF OGAN ESTATE IS P2,000,000.

Estate and inheritance taxes were settled by executrix. Requisite tax clearance and discharge from
liability was issued by Commissioner of Internal Revenue.

OCCENA FILED MOTION FOR PARTIAL PAYMENT OF ATTORNEY FEES (1965) to approve
payment of P30,000 as counsel since 1963; authorize executrix to withdraw amount from deposits of
estate.

Judge MARQUEZ denied motion for reconsideration and also modified lawyer fees to P20,000.

OCCENA CONTEND THAT MARQUEZ ACTED WITH GRAVE ABUSE OF DISCRETION/

EXCESS OF JURISDICTION:

MARQUEZ said he based the P20,000 on records of the case but amount of attorney fees cannot be
determined on sole basis of records for there are other circumstances that should be taken into
consideration.

Contrary to MARQUEZ opinion, the fact that one of OCCENA is the husband of executrix does not
deny them the right to fees to which they are entitled.

ISSUE:
1. WON the Court made a grave abuse of discretion upon modifying attorney fees?
2. Is there a conflict of interest on the testate proceedings considering one of petitioners
is husband of executrix?

28
RULING:
1. PETITION FOR CERTIORARI GRANTED. COURT A QUO IS DIRECTED TO
HOLD A HEARING TO DETERMINE HOW MUCH TOTAL ATTORNEY FEES
PETITIONERS ARE ENTITLED TO.

GENERAL RULE: When lawyer rendered legal services to executor/administrator to assist in

execution of his trust, attorney fees may be allowed as expenses of administration.
a. Estate not directly liable for his fees.
b. Liability of payment rests on executor.
c. If executor/administrator pays, he may reimburse from the estate.
d. In case of failure to pay:
1. File an action against him in his personal capacity and not as administrator.
2. File a petition in testate or intestate proceedings asking court to direct payment of fees as
expenses of administration.

However, in the present case, in fixing attorney fees solely on basis of records of the case,
without allowing OCCENA to bring evidence to prove what is the proper amount of attorney fee’s
they are entitled to, MARQUEZ has committed a grave abuse of discretion correctable by
certiorari.

2. There is no conflict of interest. The following factors are the basis in assessing
lawyer fees:
a) Amount and character of service rendered
b) Labor, time and trouble involved
c) Nature and importance of litigation or business services were rendered
d) Responsibility imposed

SOCIEDAD DE LIZARRAGA HERMANOS, plaintiffs-appellants,

vs.
FELICISIMA ABADA, ET AL., defendants-appellants.

G.R. No. 13910, September 17, 1919, SECOND DIVISION, (Moir, J)

The court could not charge it with debts that were never owed by it. The administratrix could
only charge the estate with the reasonable and proper expenses of administration.

FACTS:

Francisco Caponong died owing the plaintiffs a sum of money which was then less than the amount
allowed by the commissioners. His widow, FelicisimaAbada, was appointed administratrix of the
estate. Commissioners to appraise the estate and to pass on the claims against the estate were duly

29
appointed, and plaintiffs presented their claim which was allowed by the commissioners in the sum
of P12,783.74.

Nearly seven years after the death of Caponong, the plaintiffs herein filed a suit in the Court of First
Instance of Occidental Negros against FelicisimaAbada personally and as administratrix of the estate
of Francisco Caponong, alleging that Francisco Caponong owed plaintiffs P12,783.74, and that
FelicisimaAbada in her own name and as administratrix, had been receiving from the plaintiffs money
and effects from 1908 to 1912 which money and effects were used by the defendant in "the expense
of cultivation and the exploitation of the Hacienda 'Coronacion,'

The defendant's answer admits she owed P8,555.78 as administratrix, and alleges that the balance was
due by her personally.

Subsequently, the parties, including the guardian of the minors, presented a motion in court stating
that they had made an amicable settlement of the litigation, and prayed the court to dismiss the action,
which was done.

The settlement agreed upon was, that the defendants, including the guardian of the minor children,
"recognized that the deceased Francisco Caponong's estate was indebted to the plaintiffs, , in the sum
of P68,611.01, which was to be paid with 10 per cent interest in seven equal annual installments;" and
to secure this debt, the defendants agreed to give plaintiffs a first mortgage on all the property of
Francisco Caponong, except the growing sugar cane, and on all the property belonging exclusively to
FelicisimaAbada, and the defendants agreed to secure judicial approval of the settlement. The
defendants also agreed to mortgage the carabaos then on the hacienda to plaintiffs.

The compromise was approved by the court as well as the mortgage.

Coming now to the present action, the plaintiffs allege in the complaint in this suit that defendants
had let two installments go by without paying anything and, that the amount due them with accrued
interest was P90,383.49. Hence, they are praying that the properties levied on under the attachment be
sold.

The court granted the attachment order the 24th of July, 1916, and the provincial sheriff attached one
parcel of land, the growing crops, certain products of the soil, and various animals.

ISSUE:

Whether or not the court erred in holding that the obligation should be understood as limited to the
sum of P8,555.78, instead of the sum of P68, 611.01 therein stated in the compromise agreement.

RULING:

Yes. It is to be noted that the claim of the plaintiffs against the estate of Francisco Caponong had been
fixed by the commissioners. The amount so determined was all the estate owed plaintiffs. It is argued
that "this is sheer and unequivocal repudiation of a solemn and formal act" of the court.

The law declares that commissioners shall pass upon all claims against the estate. They had done so
in this case. The law fixed the limit of the estate's liability. The court could not charge it with debts
that were never owed by it. The administratrix could only charge the estate with the reasonable and
proper expenses of administration.

30
The estate owed plaintiffs less than P13,000 when the commissioners passed on their claim. Part of
this has been paid, and there was a balance due plaintiffs of P8,555.78 at the time of the trial, plus
interest.

It is urged that the major part of this debt of P68,000 is administration expenses, and as such is
chargeable against the assets of the estate. No reason is given why the expense of administration
should be so great, and the evidence fails to sustain this position.

The court could not approve a settlement saddling upon the estate debts it never owed, and if it did, its
approval would be a nullity.

To give effect to the compromise as written would result in great wrong, and destroy every chance the
minor children had to participate in the inheritance of their father.

The contract was clearly a dead letter, and the approval of the court could not breathe the breath of
life into it.

31
 RAFAEL ARSENIO S. DIZON, in his capacity as the Judicial Administrator of the Estate of
the deceased JOSE P. FERNANDEZ, petitioner,
vs.
COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents.

G.R. No. 140944, April 30, 2008, THIRD DIVISION (Nachuram J)

FACTS:

On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition for the probate of his
will was filed with Branch 51 of the Regional Trial Court (RTC) of Manila (probate court). 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). 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.

ISSUES:

1. 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
2. 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 Or Whether or not the CA erred
in affirming the CTA in the latter's determination of the deficiency estate tax imposed against the
Estate.

RULING:

1. Yes. While the CTA is not governed strictly by technical rules of evidence, 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. The BIR's failure to formally offer these pieces of evidence, despite CTA's
directives, is fatal to its cause

2. Yes. The claims existing at the time of death are significant to, and should be made the basis of, the
determination of allowable deductions. Also, as held in Propstra v. U.S., 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. This is called the date-of-death valuation rule.

32
 RICARDO M. GUTIERREZ, plaintiff-appellant,
vs.
LUCIA MILAGROS BARRETTO-DATU, Executrix of the Testate Estate of the deceased
MARIA GERARDO VDA. DE BARRETTO, defendant-appellee.

G.R. No. L-17175 , July 31, 1962, THIRD DIVISION (Makalintal, J)

The only actions that may be instituted against the executor or administrator are those to
recover real or personal property from the estate, or to enforce a lien thereon, and actions to recover
damages for an injury to person or property, real or personal.

FACTS:

In 1940, Maria Gerardo Vda. de Barretto, owner of hectares of fishpond lands in Pampanga, leased
the same to appellant Gutierrez for a term to expire on May 1, 1947. On November 1, 1941, pursuant
to a decision of Department of Public Works rendered after due investigation the dikes of the
fishponds were opened at several points, resulting in their destruction and in the loss great quantities
of fish inside, to the damage and prejudice of the lessee.

In 1956, the lessor having died in 1948 and the corresponding testate proceeding to settle her estate
having been opened, Gutierrez filed a claim therein for two items: first, for the sum of P32,000.00
representing advance rentals he had to the decedent; and second, the sum of P60,000.00 as damages
in the concept of earned profits, that is, profits which the claimant failed to realize because of the
breach of the lease contract allegedly committed by the lessor.

Subsequently, appellant commenced the instant ordinary civil action in the Court of First Instance of
Rizal against the executrix of the testate for the recovery of the same amount of P60,000 referred to as
the second item claimed in the administration proceeding. The complaint specifically charges
decedent Manila Gerardo Vda. de Barretto, is lessor, was having violated a warranty in the lease
contract again any damages the lessee might suffer by reason of the claim of the government that
several rivers and creeks of the public domain were included in the fishponds.

Thereafter, appellant amended his claim in the testate proceeding by withdrawing therefrom the item
of P60,000.00, leaving only the one for refund of advance rentals in the sum of P32,000.00.

ISSUE:

Whether or not his claim for damages based on unrealized profits is a money claim against the estate
of the deceased Maria Gerardo Vda. de Barretto within the purview of Rule 87, Section 5. This
section states:

RULING:

SEC. 5. Claims which must be filed under the notice. If not filed, barred; exception. — All
claims for money against the decedent, arising from contract, express or implied, whether the
same be due, not due, or contingent, all claims for funeral expenses and expenses of the last
sickness of the decedent, and judgment for money against the decedent, must be filed within

33
 the time limited in the notice; otherwise they are barred forever, except that they may be set
forth as counterclaims in any action that the executor or administrator may bring against the
claimants. Where an executor or administrator commences an action, or prosecutes an action
already commenced by the deceased in his lifetime, the debtor may set forth by answer the
claims he has against the decedent, instead of presenting them independently to the court as
herein provided, and mutual claims may be set off against each other in such action; and if
final judgment is rendered in favor of the defendant, the amount so determined shall be
considered the true balance against the estate, as though the claim had been presented directly
before the court in the administration proceedings. Claims not yet due, or contingent, may be
approved at their present value.

The word "claims" as used in statutes requiring the presentation of claims 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 and could have been reduced to simple money
judgments; and among these are those founded upon contract. 21 Am. Jur. 579. The claim in this case
is based on contract — specifically, on a breach thereof. It falls squarely under section 5 of Rule 87
"Upon all contracts by the decedent broken during his lifetime, even though they were personal to the
decedent in liability, the personal representative is answerable for the breach out of the assets." 3
Schouler on Wills, Executors and Administrators, 6th Ed., 2395. A claim for breach of a covenant in
a deed of the decedent must be presented under a statute requiring such presentment of all claims
grounded on contract. Id. 2461; Clayton v. Dinwoody, 93 P. 723; James v. Corvin, 51 P. 2nd 689.1

The only actions that may be instituted against the executor or administrator are those to recover real
or personal property from the estate, or to enforce a lien thereon, and actions to recover damages for
an injury to person or property, real or personal. Rule 88, section 1. The instant suit is not one of
them.

MARIA G. AGUAS, FELIX GUARDINO and FRANCISCO SALINAS, plaintiffs-appellants,

vs.
HERMOGENES LLEMOS, deceased defendant substituted by his representatives,
PERPETUA YERRO-LLEMOS, HERMENEGILDO LLEMOS, FELINO LLEMOS and
AMADO LLEMOS,defendants-appellees.
G.R. No. L-18107 , August 30, 1962, EN BANC (Reyes, JBL)

Claims against the estate or indebtedness in respect of property may arise out of: (1)
Contract; (2) Tort; or (3) By operation of law.

FACTS:

Francisco Salinas and the spouses Felix Guardino and Maria Aguas(petitioner) jointly filed an action
in the Court of First Instance of Catbalogan, Samar, to recover damages from HermogenesLlemos,
averring that the latter had served them by registered mail with a copy of a petition for a writ of
possession, with notice that the same would be submitted to the said court of Samar on February 23,
1960 at 8: 00 a.m.; that in view of the copy and notice served, plaintiffs proceeded to the court from
their residence in Manila accompanied by their lawyers, only to discover that no such petition had
been filed; and that defendant Llemos maliciously failed to appear in court, so that plaintiffs'

34
expenditure and trouble turned out to be in vain, causing them mental anguish and undue
embarrassment.
On 1 April 1960, before he could answer the complaint, the defendant died. Upon leave of court,
plaintiffs amended their complaint to include the heirs of the deceased. On 21 July 1960, the heirs
filed a motion to dismiss, and by order of 12 August 1960, the court below dismissed it, on the
ground that the legal representative, and not the heirs, should have been made the party defendant;
and that anyway the action being for recovery of money, testate or intestate proceedings should be
initiated and the claim filed therein.
Motion for reconsideration having been denied, the case was appealed to us on points of law.

ISSUE: Whether or not Rule 87, sec. 5 (those concerning claims that are barred if not filed in the
estate settlement proceedings) or Rule 88, sec. 1 those defining actions that survive and may be
prosecuted against the executor or administrator.

RULING:

It is apparent that actions for damages caused by tortious conduct of a defendantsurvive the death of
the latter. Rule 88, section 1, enumerates actions that survive against a decedent's executors or
administrators, and they are: (1) actions to recover real and personal property from the estate; (2)
actions to enforce a lien thereon; and (3) actions to recover damages for an injury to person or
property. The present suit is one for damages under the last class, it having been held that "injury to
property" is not limited to injuries to specific property, but extends to other wrongs by which personal
estate is injured or diminished. To maliciously cause a party to incur unnecessary expenses, as
charged in this case, is certainly injurious to that party's property.
The word “claims” is generally construed to mean debts or demands of a pecuniary nature which
could have been enforced against the deceased in his lifetime and could have been reduced to simple
money judgments. Claims against the estate or indebtedness in respect of property may arise out of:
(1) Contract; (2) Tort; or (3) By operation of law.

35
 COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
THE COURT OF APPEALS, CENTRAL VEGETABLE MANUFACTURING CO., INC., and
THE COURT OF TAX APPEALS, respondents
G.R. No. 107135, February 23, 1999, THIRD DIVISION (Purisima, J)

FACTS:

Petitioner: (private respondent CENVOCO herein) is a manufacturer of edible and

coconut/coprameal cake and such other coconut related oil subject to the miller's tax of 3%. Petitioner
also manufactures lard, detergent and laundry soap subject to the sales tax of 10%.
In 1986, petitioner purchased a specified number of containers and packaging materials for its edible
oil from its suppliers and paid the sales tax due thereon.
After an investigation conducted by respondent's Revenue Examiner, Assessment Notice was issued
against petitioner for deficiency miller's tax in the total amount of P1,575,514.70 . .
On June 29, 1988, petitioner filed with respondent a letter dated June 27, 1988 requesting for
reconsideration of the above deficiency miller's tax assessments, contending that the final provision of
Section 168 of the Tax Code does not a apply to sales tax paid on containers and packaging materials,
hence, the amount paid therefor should have been credited against the miller's tax assessed against it.
Again, thru letter dated September 28, 1988, petitioner reiterated its request for reconsideration.
Dissatisfied with the adverse action taken by the BIR, CENVOCO filed a petition for review with the
Court of Tax Appeals, which the latter ruled in favor with CENVOCO, that it is not liable for
deficiency miller’s tax.
The CA affirmed the decision in toto. The CA agreed with respondent Court that containers and
packages cannot be considered "raw materials" utilized in the milling process.
Tested in the light of the foregoing statutory definition, it is evident that containers and packages used
by Cenvoco are not "raw materials" and do not fall within the purview of the final proviso of Section
168 of the NIRC. . . . As a coup de grace, it is pertinent to note the case of Caltex (Phils.)
Inc. vs. Manila Port Service (17 SCRA 1075) where the Supreme Court aptly defined containers
and/or packages.
. . . a package or a bundle made up for transportation; a packet; a bale; a parcel; or that in which
anything is packed: box, case, barrel, crate , etc. in which goods are packed; a container. (Emphasis
Ours)
The definition is an emphatic rejection of petitioner's construction that Cenvoco's containers and
packages are raw materials used in the milling process. . . .
. . . Moreover, Section 168 of the Revenue Code expressly limits the articles subject to percentage tax
(miller's tax) to: "rope, sugar, coconut oil, palm oil, cassava flour or starch, desiccated coconuts,
manufactured, processed or milled by them, including the by-product of the raw materials, from
which said articles are produced, processed or manufactured

ISSUE:

WHETHER OR NOT THE SALES TAX PAID BY CENVOCO WHEN IT PURCHASED

CONTAINERS AND PACKAGING MATERIALS FOR ITS MILLED PRODUCTS CAN BE
CREDITED AGAINST THE DEFICIENCY MILLER'S TAX DUE THEREON.

36
RULING:

Notably, the law relied upon by the BIR Commissioner as the basis for not allowing Cenvoco's tax
credit is just a proviso of Section 168 of the old Tax Code. The restriction in the said proviso,
however, is limited only to sales, miller's or excise taxes paid "on raw materials used in the milling
process".
Under the rules of statutory construction, exceptions, as a general rule, should be strictly but
reasonably construed. They extend only so far as their language fairly warrants, and all doubts should
be resolved in favor of the general provisions rather than the exception. Where a general rule is
established by statute with exceptions, the court will not curtail the former nor add to the latter by
implication. . . .
The exception provided for in Section 168 of the old Tax Code should thus be strictly construed.
Conformably, the sales, miller's and excise taxes paid on all Other materials (except on raw
materials used in the milling process), such as the sales taxes paid on containers and packaging
materials of the milled products under consideration, may be credited against the miller's tax due
therefor.

37
THE PROVINCE OF BULACAN, ROBERTO M. PAGDANGANAN, FLORENCE CHAVES,
and MANUEL DJ SIAYNGCO in their capacity as PROVINCIAL GOVERNOR,
PROVINCIAL TREASURER, PROVINCIAL LEGAL ADVISER, respectively, petitioners,
vs.
THE HONORABLE COURT OF APPEALS (FORMER SPECIAL 12TH DIVISION),
REPUBLIC CEMENT CORPORATION, respondents.
G.R. No. 126232, November 27, 1998, THIRD DIVISION (Romero, J)

A province may not, therefore, levy excise taxes on articles already taxed by the National
Internal Revenue Code.

FACTS: On June 26, 1992, theSangguniangPanlalawiganof Bulacan passed

Provincial Ordinance No. 3, known as "An Ordinance Enacting the Revenue Code of the Bulacan
Province." Section 21 of the ordinance provides as follows:

Sec. 21 Imposition of Tax. There is hereby levied and collected a tax of 10% of the
fair market value in the locality per cubic meter of ordinary stones, sand, gravel, earth
and other quarry resources, such, but not limited to marble, granite, volcanic cinders,
basalt, tuff and rock phosphate, extracted from public lands or from beds of seas,
lakes, rivers, streams, creeks and other public waters within its territorial jurisdiction.

Pursuant thereto, the Provincial Treasurer of Bulacan, in a letter dated November 11, 1993, assessed
private respondent Republic Cement Corporation P2,524,692.13 for extracting limestone, shale and
silica from several parcels of private land in the province during the third quarter of 1992 until the
second quarter of 1993. Believing that the province, on the basis of above-said ordinance, had no
authority to impose taxes on quarry resources extracted from private lands, Republic Cement formally
contested the same on December 23, 1993 but was denied by the Provincial Treasurer on January 17,
1994. Republic Cement consequently filed a petition for declaratory relief with the RTC of Bulacan
on February 14, 1994. The province filed a motion to dismiss Republic Cement's petition, which was
granted by the trial court on May 13, 1993, which ruled that declaratory relief was improper,
allegedly because a breach of the ordinance had been committed by Republic Cement.

On July 11, 1994, Republic Cement filed a petition for certiorari with the Supreme Court seeking to
reverse the trial court's dismissal of their petition. The Court, in a resolution dated July 27, 1994,
referred the same to the Court of Appeals. In the interim, the Province of Bulacan issued a warrant of
levy against Republic Cement, allegedly because of its unpaid tax liabilities. Negotiations between
Republic Cement and petitioners resulted in an agreement and modus vivendi (temporary agreement)
on December 12, 1994, whereby Republic Cement agreed to pay under protest P1,262,346.00, 50% of
the tax assessed by petitioner, in exchange for the lifting of the warrant of levy. CA ruled that
Province of Bulacan had no legal authority.

ISSUE:

W/N the provincial government could impose and/or assess taxes on quarry resources extracted by
Republic Cement from private lands pursuant to Section 21 of Provincial Ordinance No. 3? No, a
province may not levy excise taxes on articles already taxed by the National Internal Revenue
Code.

38
RULING:

First, with regard to the remedial issue. Petitioners assert that the Court of Appeals could only rule on
the propriety of the trial court's dismissal of Republic Cement's petition for declaratory relief,
allegedly because that was the sole relief sought by the latter in its petition for certiorari. Petitioners
claim that the appellate court overstepped its jurisdiction when it declared null and void the
assessment made by the Province of Bulacan against Republic Cement. However, the SC declared
that under the principle of estoppel, the petitioners can no longer attack the modus Vivendi approved
by the CA.
Second and more importantly, is the issue on the validity of the ordinance. The pertinent provisions of
the Local Government Code are as follows:

Sec. 134.Scope of Taxing Powers. — Except as otherwiseprovided in this Code, the

province may levy only the taxes, fees, and charges as provided in this Article.

Sec. 158.Tax on Sand, Gravel and Other Quarry Resources. — The province may
levy and collect not more than ten percent (10%) of fair market value in the locality
per cubic meter of ordinary stones, sand, gravel, earth, and other quarry resources, as
defined under the National Internal Revenue Code, as amended, extracted from
public lands or from the beds of seas, lakes, rivers, streams, creeks, and other public
waters within its territorial jurisdiction.
xxxxxxxxx

The CA on the basis of Section 134, ruled that a province was empowered to impose taxes only on
sand, gravel, and other quarry resources extracted from public lands, its authority to tax being limited
by said provision only to those taxes, fees and charges provided in Article I, Chapter 2, Title 1 of
Book II of the Local Government Code. On the other hand, petitioners claim that Sections 129 and
186 of the Local Government Code authorizes the province to impose taxes other than those
specifically enumerated under the Local Government Code. The CA erred in ruling that a province
can impose only the taxes specifically mentioned under the Local Government Code. As correctly
pointed out by petitioners, Section 186 allows a province to levy taxes other than those specifically
enumerated under the Code, subject to the conditions specified therein.
However, in spite of this, province of Bulacan is still prohibited from imposing taxes on stones, sand,
gravel, earth and other quarry resources extracted from private lands. The tax imposed by the
Province of Bulacan is an excise tax, being a tax upon the performance, carrying on, or exercise of an
activity. The Local Government Code provides:

Sec. 133. — Common Limitations on the Taxing Powers of Local Government Units.
— Unless otherwise provided herein, the exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend to the levy of the following:
xxxxxxxxx
(h) Excise taxes on articles enumerated under the National Internal Revenue Code, as
amended, and taxes, fees or charges on petroleum products;
xxxxxxxxx

39
A province may not, therefore, levy excise taxes on articles already taxed by the National Internal
Revenue Code. The National Internal Revenue Code levies a tax on all quarry resources, regardless of
origin, whether extracted from public or private land. Thus, a province may not ordinarily impose
taxes on stones, sand, gravel, earth and other quarry resources, as the same are already taxed under
the National Internal Revenue Code. The province can, however, impose a tax on stones, sand, gravel,
earth and other quarry resources extracted from public land because it is expressly empowered to do
so under the Local Government Code. As to stones, sand, gravel, earth and other quarry resources
extracted from private land, however, it may not do so, because of the limitation provided by Section
133 of the Code in relation to Section 151 of the National Internal Revenue Code.

40
 REPUBLIC OF THE PHILIPPINES v.INTERMEDIATE APPELLATE COURT and
SPOUSES ANTONIO and CLARA PASTOR
G.R. No. L-69344, April 26, 1991, GRIÑO-AQUINO, J.

The rule is that in case of doubt, tax statutes are to be construed strictly against the
Government and liberally in favor of the taxpayer, for taxes, being burdens, are not to be presumed
beyond what the applicable statute (in this case P.D. 213) expressly and clearly declares
(Commission of Internal Revenue vs. La Tondena, Inc. and CTA, 5 SCRA 665, citing Manila Railroad
Company vs. Collector of Customs, 52 Phil, 950).

FACTS:

On April 15, 1980, the Republic of the Philippines, through the Bureau of Internal Revenue,
commenced an action in the Court of First Instance (now Regional Trial Court) of Manila, Branch
XVI, to collect from the spouses Antonio Pastor and Clara Reyes-Pastor deficiency income taxes for
the years 1955 to 1959 in the amount of P17,117.08 with a 5% surcharge and 1% monthly interest,
and costs.

Spouses contended that they had availed of the tax amnesty under P.D.'s Nos. 23, 213 and
370 and had paid the corresponding amnesty taxes amounting to P10,400 or 10% of their reported
untaxed income under P.D. 23, P2,951.20 or 20% of the reported untaxed income under P.D. 213, and
a final payment on October 26, 1973 under P.D. 370 evidenced by the Government's Official Receipt
No. 1052388.

Petitioner alleged that the private respondents were not qualified to avail of the tax amnesty
under P.D. 213 for the benefits of that decree are available only to persons who had no pending
assessment for unpaid taxes, as provided in Revenue Regulations Nos. 8-72 and 7-73. Since the
Pastors did in fact have a pending assessment against them, they were precluded from availing of the
amnesty granted in P.D.'s Nos. 23 and 213.

ISSUE:

Whether the payment of deficiency income taxes by the Pastors under PD. No. 213, and the
acceptance thereof by the Government, operated to divest the government of its right to further
recover deficiency income taxes from the private respondents pursuant to the existing deficiency tax
assessment against them.

RULING:

YES.A tax amnesty, being a general pardon or intentional overlooking by the State of its
authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax
law, partakes of an absolute forgiveness or waiver by the Government of its right to collect what
otherwise would be due it, and in this sense, prejudicial thereto, particularly to give tax evaders, who
wish to relent and are willing to reform a chance to do so and thereby become a part of the new
society with a clean slate (Commission of Internal Revenue vs. Botelho Corp. and Shipping Co., Inc.,
20 SCRA 487).

41
 The finding of the appellate court that the deficiency income taxes were paid by the Pastors,
and accepted by the Government, under P.D. 213, granting amnesty to persons who are required by
law to file income tax returns but who failed to do so, is entitled to the highest respect and may not be
disturbed except under exceptional circumstances enumerated under Rule 45, Sec. 4, Rules of Court.

The rule is that in case of doubt, tax statutes are to be construed strictly against the
Government and liberally in favor of the taxpayer, for taxes, being burdens, are not to be presumed
beyond what the applicable statute (in this case P.D. 213) expressly and clearly declares (Commission
of Internal Revenue vs. La Tondena, Inc. and CTA, 5 SCRA 665, citing Manila Railroad Company
vs. Collector of Customs, 52 Phil, 950).

42
 COMMISSIONER OF INTERNAL REVENUE v. FIREMAN'S FUND INSURANCE
COMPANY and the COURT OF TAX APPEALS
G.R. No. L-30644, March 9, 1987, PARAS, J.

It is a general rule in the interpretation of statutes levying taxes or duties, that in case of
doubt, such statutes are to be construed most strongly against the government and in favor of the
subjects or citizens, because burdens are not to be imposed, nor presumed to be imposed beyond what
statutes expressly and clearly import (Manila Railroad Co. v. Collector of Customs, 52 Phil. 950
[1929]).

FACTS:

Private respondent is a resident foreign insurance corporation organized under the laws of the
United States, authorized and duly licensed to do business in the Philippines. It is a member of the
American Foreign Insurance Association, through which its business is cleared

From January, 1952 to December, 1958, herein private respondent Fireman's Fund Insurance
Company entered into various insurance contracts involving casualty, fire and marine risks, for which
the corresponding insurance policies were issued.

From January, 1952 to 1956, documentary stamps were bought and affixed to the monthly
statements of policies issues; and from 1957 to 1958 documentary stamps were bought and affixed to
the corresponding pages of the policy register, instead of on the insurance policies issued.

On July 3, 1959, respondent company discovered that its monthly statements of business and
policy register were lost.

Herein respondent company informed petitioner of such loss through its auditors, Sycip,
Gorres and Velayo, in a letter dated July 14, 1959.

After conducting an investigation of said loss, petitioner's examiner ascertained that

respondent company failed to affix the required documentary stamps to the insurance policies issued
by it and failed to preserve its accounting records within the time prescribed by Section 337 of the
Revenue Code by using loose leaf forms as registers of documentary stamps without written authority
from the Commissioner of Internal Revenue as required by Section 4 of Revenue Regulations No. V-
1.

As a consequence of these findings, petitioner assessed and demanded from respondent

company the payment of documentary stamp taxes for the years 1952 to 1958 in the total amount of P
79,806.87 and plus compromise penalties, a total of P 81,406.87.

ISSUE:

Whether respondent company may be required to pay again the documentary stamps it has
actually purchased, affixed and cancelled.

43
RULING:

NO. There is no argument to petitioner's contention that the insurance policies with the
corresponding documentary stamps affixed are the best evidence to prove payment of said
documentary stamp tax. This rule however does not preclude the admissibility of other proofs
which are uncontradicted and of considerable weight, such as: copies of the applications for
manager's checks, copies of the manager's check vouchers of the bank showing the purchases of
documentary stamps corresponding to the various insurance policies issued during the years
1952-1958 duly and properly Identified by the witnesses for respondent company during the
hearing and admitted by the respondent Court of Tax Appeals.

It is a general rule in the interpretation of statutes levying taxes or duties, that in case of
doubt, such statutes are to be construed most strongly against the government and in favor of the
subjects or citizens, because burdens are not to be imposed, nor presumed to be imposed beyond what
statutes expressly and clearly import (Manila Railroad Co. v. Collector of Customs, 52 Phil. 950
[1929]).

44
COMMISSIONER OF INTERNAL REVENUE v. THE COURT OF APPEALS and EFREN P.
CASTANEDA
G.R. No. 96016, October 17, 1991, PADILLA, J.

The Court has already ruled that the terminal leave pay received by a government official or
employee is not subject to withholding (income) tax.

FACTS:

Private respondent Efren P. Castaneda retired from the government service as Revenue
Attache in the Philippine Embassy in London, England, on 10 December 1982 under the provisions
of Section 12 (c) of Commonwealth Act 186, as amended.

Upon retirement, he received, among other benefits, terminal leave pay from which petitioner
Commissioner of Internal Revenue withheld P12,557.13 allegedly representing income tax thereon.

Castaneda filed a formal written claim with petitioner for a refund of the P12,557.13,
contending that the cash equivalent of his terminal leave is exempt from income tax.

ISSUE:

Whether terminal leave pay received by a government official or employee is subject to

withholding income tax.

RULING:

NO. The Court has already ruled that the terminal leave pay received by a government
official or employee is not subject to withholding (income) tax.

. . . commutation of leave credits, more commonly known as terminal leave, is applied for by
an officer or employee who retires, resigns or is separated from the service through no fault of his
own. (Manual on Leave Administration Course for Effectiveness published by the Civil Service
Commission, pages 16-17). In the exercise of sound personnel policy, the Government encourages
unused leaves to be accumulated. The Government recognizes that for most public servants,
retirement pay is always less than generous if not meager and scrimpy. A modest nest egg which the
senior citizen may look forward to is thus avoided. Terminal leave payments are given not only at the
same time but also for the same policy considerations governing retirement benefits (Jesus N.
Borromeo vs. The Hon. Civil Service Commission).

Not being part of the gross salary or income of a government official or employee but a
retirement benefit, terminal leave pay is not subject to income tax.

45
46
 MANILA INTERNATIONALAIRPORT AUTHORITY v. COURT OF APPEALS, CITY OF
TINGA, PARAAQUE, CITY MAYOR OFPARAAQUE, SANGGUNIANGPANGLUNGSOD
NG PARAAQUE, CITY ASSESSOR OF PARAAQUE, and CITY TREASURER
OFPARAAQUE
G.R. No. 155650, July 20, 2006, CARPIO, J.

When local governments invoke the power to tax on national government instrumentalities,
such power is construed strictly against local governments. The rule is that a tax is never presumed
and there must be clear language in the law imposing the tax. Any doubt whether a person, article or
activity is taxable is resolved against taxation. This rule applies with greater force when local
governments seek to tax national government instrumentalities.

Another rule is that a tax exemption is strictly construed against the taxpayer claiming the
exemption. However, when Congress grants an exemption to a national government instrumentality
from local taxation, such exemption is construed liberally in favor of the national government
instrumentality.

FACTS:

Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino
International Airport (NAIA) Complex in Paraaque City under Executive Order No. 903, otherwise
known as the Revised Charter of the Manila International Airport Authority (MIAA Charter).

The MIAA Charter transferred to MIAA approximately 600 hectares of land, including the
runways and buildings (Airport Lands and Buildings) then under the Bureau of Air Transportation.
The MIAA Charter further provides that no portion of the land transferred to MIAA shall be disposed
of through sale or any other mode unless specifically approved by the President of the Philippines.

On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued
Opinion No. 061. The OGCC opined that the Local Government Code of 1991 withdrew the
exemption from real estate tax granted to MIAA under Section 21 of the MIAA Charter. Thus, MIAA
negotiated with respondent City of Paraaque to pay the real estate tax imposed by the City. MIAA
then paid some of the real estate tax already due.

On 17 July 2001, the City of Paraaque, through its City Treasurer, issued notices of levy and
warrants of levy on the Airport Lands and Buildings. The Mayor of the City of Paraaque threatened to
sell at public auction the Airport Lands and Buildings should MIAA fail to pay the real estate tax
delinquency.

ISSUE:

Whether the Airport Lands and Buildings of MIAA are exempt from real estate tax under
existing laws.
RULING:

47
 YES. First, MIAA is not a government-owned or controlled corporation but an
instrumentality of the National Government and thus exempt from local taxation. Second, the real
properties of MIAA are owned by the Republic of the Philippines and thus exempt from real estate
tax.

When local governments invoke the power to tax on national government instrumentalities,
such power is construed strictly against local governments. The rule is that a tax is never presumed
and there must be clear language in the law imposing the tax. Any doubt whether a person, article or
activity is taxable is resolved against taxation. This rule applies with greater force when local
governments seek to tax national government instrumentalities.

Another rule is that a tax exemption is strictly construed against the taxpayer claiming the
exemption. However, when Congress grants an exemption to a national government instrumentality
from local taxation, such exemption is construed liberally in favor of the national government
instrumentality.

48
 ANTONIO QUIRINO, as Special Administrator, Testate Estate of Natividad C. Raquiza, and
Intestate Estate of Carmen M. Castellvi, petitioner,
vs.
HON. NATHANAEL M. GROSPE, in his capacity as Presiding Judge, Branch VI, Court of
First Instance of Pampanga, Fifth Judicial District, and WILFREDO M. GOINGCO,
Administrator, Testate Estate of Don Alfonso

G.R. No. L-58797 January 3l,1989

To allow intervenors instead of the estate of the instituted heir to receive the residue of the
estate would be not only prejudicial to the creditors of the instituted heir but also to the government
in the form of non-payment of taxes required by law.

FACTS:

Separate motions for reconsideration, motion for intervention, motion for clarificatory order
and omnibus motion for early resolution and immediate release of funds were filed.

Motion for Reconsideration of Juan F. Gomez.

Gomez’ claims are for attorney's fees equivalent to 12% of one-third (1/3) of the estate of
Don Alfonso Castellvi and P30,000.00 representing transportation and representation expenses, for
services admittedly rendered to the heirs of Don Juan Castellvi. These claims may not be properly
charged against the estate of Don Alfonso Castellvi.

As held in Gabin v. Malleja (84 Phil. 794), 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. It is important to note that movant’s claims for attorney's fees and
transportation as well as representation expenses are for services rendered to the alleged substituted
heirs of Don Juan Castellvi and such services did not inure to the benefit of Don Alfonso Castellvi or
his estate. The court charged with the settlement of the estate of Don Alfonso Castellvi is bound to
protect the estate from any disbursements based on claims not chargeable to the estate.

Motion for Reconsideration of Jesus T. David.

The claim for attorney's fees of intervenor Jesus T. David is for services rendered for the
benefit of Doña Carmen Castellvi, and not for the benefit of Don Alfonso Castellvi or his estate. As
discussed earlier, only claims which could have been enforced against the deceased in his lifetime are
allowed to be presented against his estate, with the exception of funeral expenses, expenses for the
last sickness and administration expenses in the ordinary course thereof.

As to the alleged attachment and levy of Doña Carmen's alleged administratrix' fees and share
in the estate of Don Alfonso Castellvi, the same cannot be given force and effect in the special
proceedings for the settlement of Don Alfonso's estate. It must be stressed that the subject of
settlement in this case is not the estate of Doña Carmen Castellvi. For intervenor to insist on
enforcing in this proceeding his claim against Doña Carmen's alleged fees as administratrix and share
in the estate of Don Alfonso Castellvi, would be irregular and untenable. It should be borne in mind
that the respondent court is one of limited jurisdiction, and it has no authority to determine as to who
are the heirs of Don Juan Castellvi and/or decide the claims or demands which may be properly paid

49
out of the funds of the estate of Doña Carmen Castellvi. Such issues have to be determined in separate
proceedings.

Motion for Reconsideration of the Raquiza children

Movants would like to impress upon this Court that the award of attorney's fees to Atty.
Mendoza equivalent to 12% of the gross value of the estate of Don Alfonso Castellvi is not valid on
the ground that they never gave their consent thereto, nor did Doña Carmen Castellvi, then
administratix of the estate of Don Alfonso Castellvi. However, the record of this case shows that
Natividad Castellvi-Raquiza, the instituted heir to two- third (2/3) of the estate of Don Alfonso
Castellvi, gave her conformity to such award of attorney's fees in favor of Atty. Mendoza. Moreover,
movants, through their father and general guardian Atty. Antonio V. Raquiza, had agreed to grant said
attorney's fees. In fact, separate manifestations were filed by Atty. Raquiza and Carmen Castellvi
with the court aquo stating that they were withdrawing their oppositions to said claim.

With regard to Floro's claim for payment for services rendered to the estate of Don Alfonso Castellvi,
the rule is that where the monetary claim against the administrator has a relation to his acts of
administration in the ordinary course thereof, such claims can be presented for payment with the court
where a special proceeding for the settlement of the estate is pending, although said claims were not
incurred by the deceased during his lifetime and collectible after his death. This is so, because the
administration is under the direct supervision of the court and the administrator is subject to its
authority.

Motion for Reconsideration of Antonio Quirino

As discussed earlier, Natividad Castellvi-Raquiza and Doña Carmen Castellvi (as

administratrix of the estate of Don Alfonso Castellvi) had given their conformity to the award of
attorney's fees to Atty. Mendoza. Petitioner who now is acting as special administrator of the estates
of Natividad Castellvi-Raquiza and Carmen Castellvi is estopped from questioning said award.

Insofar as payment of service fees to Exequiel Floro, the same was allowed for services
rendered by claimant for the benefit of the estate of Don Alfonso Castellvi and the same falls under
the category of "administration expense" which may be paid out of the finds of the estate. Moreover,
the heirs of Don Alfonso Castellvi had dropped their opposition to said claim, thus, they are barred
from questioning the same at this stage.

Motion for Intervention of Carmen Castellvi, et al.

Intervenors (as alleged substituted heirs of Don Juan Castellvi) seek clarification of the term
"instituted heirs' and a modification of the decision dated 25 April 1988, so that the term "instituted
heirs' would include the substituted heirs of Don Juan Castellvi. They likewise move for the setting
aside of the portion of the decision which provides for the final settlement and distribution of the
estate of Don Alfonso to the instituted heirs or their respective estates, if it would mean that delivery
of the one third (1/3) share of the estate of Don Alfonso is to be made only to Don Juan Castellvi or
his estate.

They further claim that for this Court to order the delivery of the residue of the estate of Don
Alfonso to the 'estate of Don Juan Castellvi (to the extent of (1/3 as decreed in Don Alfonso's last
will) instead of his substituted heirs, will result in the latter re-litigating among themselves and/or
with other parties for their respective shares over the estate of Don Juan Castellvi, when they had
already ventilated the issue of heirship over the same before the court a quo, and they were declared
heirs of Don Juan Castellvi and substituted heirs to his one-third (1/3) share in the estate of Don
Alfonso Castellvi.

50
ISSUE:

Whether or not the intervenors, instead of the instituted heirs, should be allowed to receive
the residue of the estate.

RULING:

No, the intervenors should not be allowed to receive the residue of the estate. To allow
intervenors instead of the estate of the instituted heir, Don Juan Castellvi to receive the residue of the
estate of Don Alfonso would be not only prejudicial to the creditors of Don Juan but also to the
government in the form of non-payment of taxes required by law. The transfer of the estate of Don
Alfonso Castellvi to his instituted heirs (Natividad Castellvi-Raquiza and Don Juan Castellvi) is
subject to payment of estate taxes. Before the estates of Don Juan Castellvi (and Natividad Castellvi-
Raquiza) can be transferred to their heirs, again, estate taxes must first be paid to the government. To
allow intervenors, as substituted heirs of Don Juan Castellvi, to receive directly from the estate of
Don Alfonso, the share pertaining to Don Juan, could result in a single transfer of property and a
single payment of estate taxes, in fraud of the government.

Moreover, the court a quo has no jurisdiction to determine who are the heirs of Don Juan Castellvi;
said issue has to be ventilated in a separate proceeding.

Motion for Clarificatory Order of Juan F. Gomez

Movant seeks clarification of the decision of this Court, dated 25 April 1988, denying his claim for
attorney's fees, as to whether or not it is meant to annul not only the order fixing his fees but also the
contract for services approved in the order issued by the court a quo, dated 5 October 1981.

Movant's claim is chargeable to the heirs of Don Juan Castellvi, his clients, and the court a quo has no
jurisdiction to fix such fees for services rendered not to the estate of Don Alfonso, but to the heirs of
Don Juan. It follows that the court a quo has no jurisdiction to approve a contract of legal services
between claimant and the heirs of Don Juan. The court a quo is of limited jurisdiction, empowered to
settle only the estate of Don Alfonso Castellvi: any act done in excess of such limits may not be given
force and effect.

51
 Testate estate of the deceased Raymundo Melliza y Angulo.
LAUREANA GABIN, claimant-appellant,
vs.
MARIA MELLIZA, ET AL., oppositors-appellees.
G.R. No. L-1849 October 25, 1949

By money claims, is meant any claim for "money, debt, or interest thereon," according to
section 21 of Rule 3 and section 1 of Rule 88. Not all money claims may, however, be presented, but
only those which are proper against the decedent, that is, claim upon a liability contracted by the
decedent before his death. Accordingly, claims arising after his death cannot thus presented, except
funeral expenses." (Moran on the Rules of Court, Volume 2, second edition, p. 347.)

FACTS:

On January 19, 1944, Raymundo Melliza and Laureana Gabin entered into a written agreement
whereby the former contracted the personal services of the latter to administer certain haciendas
owned by Raymundo Melliza for a period of thirty years from said date, at the option of Laureana
Gabin. As compensation for said personal services Melliza agreed to pay Gabin 350 cavans of palay
every agricultural year. It was further stipulated that Laureana Gabin cannot be dismissed from the
service without just and legal cause during the time she cared to serve within the said period of thirty
years, and in case of dismissal she shall have the right to be indemnified for the rest of the period at
the rate of 150 cavans of palay for each agricultural year.

Raymundo Melliza died on December 11, 1945, and testamentary proceedings were thereafter
instituted in t he Court of First Instance of Iloilo for the administration and distribution of his estate.
Having been deprived by the executrix Remedios S. de Villanueva of the administration of the
haciendas in question, Laureana Gabin presented to the probate court a claim against the estate of the
deceased Raymundo Melliza for the payment to her by the executrix of 150 cavans of palay
beginning the agricultural year 1945-1946 until the termination of the testamentary proceedings, and
that thereafter the heir or heirs to whom the haciendas may be adjudicated be ordered to pay the
claimant the same amount of palay every year until the expiration of thirty years from the agricultural
year 1945-1946.

ISSUE:

Whether or not appellant’s claim is a proper claim which may be allowed in the testamentary
proceedings.

RULING:

No, the claim may not be allowed since Rule 87, provides that immediately after the granting of
letters testamentary or of administration the court shall issue a notice requiring all person
having money claims against the decedent to file them in the office of the clerk of said court; and
section 5 provides that all claims for money against the decedent arising from contract, express or
implied, whether the same be due, not due, or contingent, all claims for funeral expenses and
expenses of the last sickness of the decedent, and judgment for money against the decedent, must be
filed within the time limited in the notice. "'By money claims, is meant any claim for "money, debt, or

52
interest thereon," according to section 21 of Rule 3 and section 1 of Rule 88. Not all money claims
may, however, be presented, but only those which are proper against the decedent, that is, claim upon
a liability contracted by the decedent before his death. Accordingly, claims arising after his death
cannot thus presented, except funeral expenses." (Moran on the Rules of Court, Volume 2, second
edition, p. 347.)

Upon the facts and the law involved in this case, we find no valid reason to reverse the order appealed
from.

In the first place, the claim in question arose after the death of the decedent. Assuming without
deciding that the contract on which the claim is based is valid, the decedent appears to have complied
with it up to the time of his death. It was the executrix who dismissed the claimant from the service as
administratrix or manager of the haciendas of the deceased.

In the second place, the claim is not for money, debt, or interest thereon but for 150 cavans of palay a
year for twenty-nine agricultural years (one agricultural year having elapsed before the death of
Raymundo Melliza). Even if it wanted to, the probate court could not determine in advance the value
of the palay in money because the price of palay varies from year to year.

It appears from the record that before presenting the claim in question the claimant filed a motion in
the probate court praying that she be appointed coadministratrix of the estate of the deceased on the
strength of the contract of service hereinabove mentioned. But Judge Blanco denied said motion
without prejudice to the right of the claimant to present a claim in due form against the estate.
Appellant now contends in her third assignment of error that said order of Judge Blanco not having
been appealed from, "the lower court erred in not holding that the question of the presentation and
admission of the claimant's claim has become res judicata." This assignment of error is without merit
because the mere reservation by Judge Blanco to the claimant of her right to present the claim in
question in lieu of her appointment as coadministratrix of the estate of the deceased did not preclude
the court from denying said claim if, after hearing, it found the same to be improper or not allowable
in these proceedings.

53
 In re estate of the deceased DIEGO DE LA VIÑA.
JOSE MA. DE LA VIÑA Y DE LA ROSA, ex-administrator-appellant,
vs.
THE COLLECTOR OF INTERNAL REVENUE, creditor-appellee.
G.R. No. 46242 October 20, 1939

The necessary expenses of administration whose payment is given preference in the said
section 735 of the Code of Civil Procedure are those which the administrator may have incurred in
the care, administration and liquidation of the properties of the estate and the commissions due to
him for collections and disbursements which he may have made, and not those which he could or
might have wished to make out of his own pocket or but of the funds of the estate.

"Administration expenses," says Corpus Juris, volume 24, page 424, "include expenditures in
discovering and preserving assets, attorneys fees incurred in connection with the administration of
the estate, incurred in connection with the administration of the estate, cost recovered against the
representative in an action to recover assets, to established a claim against the estate, to try title to
land, and insurance premiums expended for the protection of the property and it has even been
considered that expenditures in carrying on decedent's business may be regarded as expenses of
administration."

FACTS:

On April 8, 1920, after the death of Diego de la Viña, his brother, Dr. Jose Ma. de la Viña, was
appointed by the Court of First Instance of Negros Oriental as special administrator of the estate of
the deceased; and on the 20th of the same month and year he was appointed executor.
On January 23, 1926, this Court issued an order approving the accounts of the said Dr. Jose de la
Viña, as outgoing administrator of the estate of Diego de la Viña. It appears from the decision of this
Court rendered in said Civil Case G.R. No. 23747 that the following items were approved:

Special per diems of Jose de la Viña

as former adminstrator
.............................. P12,552.00

Legal Commission
............................... 4,141.33

Total
............................................................ 16,693.33

In the bill of exceptions in said case it also appears that the following expenses of Jose de la Viña
were approved:

Balance in his favor as executor

.................... P1,165.86

Balance on his aparceria

................................ 7,528.64

Total
...................................................................... 8,694.50

54
On July 16, 1927, the said Court of First Instance of Negros Oriental ordered in the present case the
payment to Dr. Jose de la Viña of the amount of 146.025 piculs of sugar belonging to him, which
product was applied to the payment of the administration expenses of the estate of Diego de la Viña.
The price of said sugar was fixed at P20 per picul by a subsequent order. Adding the sum of P2,925,
the value of said 146.025 piculs of sugar, to the sum of P25,387.83, the result is a total of P28,312.83.
As the amount of P9,228.65 has been paid on account, there remains a balance of P19,048.18 in favor
of the appellant.
It also appears that on February 23, 1932, this Court rendered judgment in G.R. No. 33870, entitled
"The Collector of Internal Revenue vs. Espiridion Villegas, as administrator of the estate of Diego de
la Viña", ordering the said administrator to pay the Insular Government, by way of income tax for the
year 1925, the sum of P18,420.93, with interest from August 20, 1939 until fully paid, and the costs.
The estate of Diego de la Viña does not have sufficient funds or property to pay fully both judgments.
When the Insular Government attempted to collect the amount of the said judgment in its favor, Dr.
Jose de la Viña objected on the ground that the judgments obtained by him are preferred under section
735 of Act No. 190, and should first be paid. After the corresponding trial, the trial court overruled
the opposition and entered the above-quoted order.

ISSUE:

Whether or not the income tax which an estate owes the Insular Government partakes of the nature of
administration expenses for purposes of the order of payment established by section 735 of Act No.
190

RULING:

No, the income tax which an estate owes the insular Government did not partake of the nature
of administration expenses for purposes of the order of payment established by section 735. Section
735 of the Code of Civil Procedure, as amended by Act No. 3960, provides as follows:
SEC. 735. Order of payment if estate insolvent. — If the assets which can be appropriated for the
payment of debts are not sufficient for that purpose, the executor or administrator shall, after pay the
debts against the estate in the following order:
1. The necessary funeral expenses;
2. The expenses of the last sickness;
3. What is owing to the laborer for salaries and wages earned and for indemnities due to him, for the
last year;
4. Debts due to the United States;
5. Taxes and assessments due to the Government, or any branch or subdivision thereof;
6. Debts due to the province;
7. Debts due to other creditors.
Section 680 of the same code of Civil Procedure provides as follows:
SEC. 680. — How allowed for services. — The executor or administrator shall be allowed necessary
expenses in the care, management, and settlement of the estate, and for his services, two dollars per
day for the time actually and necessarily employed, and a commission of three per cent upon all sums
disbursed in the payment of debts, expenses, and distributive shares, if the amount of such
disbursements does not exceed one thousand dollars. If the amount exceeds one thousand dollars and
does not exceed five thousand dollars and one-half per cent upon the excess, if the whole amount

55
does not exceed five thousand dollars, then the percentage as above provided, and one per cent on the
excess above five thousand dollars. But in any special case, where the estate is large, and the
settlement has been attended with great difficulty, and has required a high degree of capacity on the
part of the executor or administrator, a greater sum may be allowed. But if objection to the fees
allowed be taken, the allowance may be re-examined by the Supreme Court on appeal.

When the administrator or executor is a lawyer, he shall not be allowed to charge against the estate
any professional fees, as such, for services rendered by himself. When the deceased by will makes
some other provision for compensation to his executor, the provision shall be full satisfaction for his
services, unless by a written instrument filed in the court he renounces all claim to the compensation
provided by the will.

The legal provision just quoted enumerates the services for which the administrator should be paid
and the commission to which he is entitled for collections and disbursement made by him. Among
these payments, which constitutes the expenses of administration, are not included pending debts of
the estate, whatever may be their nature. According to the said legal provision, only payments which
the executor or administration may have made in the discharge of his office and the commissions to
which he may be entitled, partakes of the nature of administration expenses. The expenses of
administration are due only to the executor or administrator, and he alone, and no other, may collect
them.

As we have said, the necessary expenses of administration whose payment is given preference in the
said section 735 of the Code of Civil Procedure are those which the administrator may have incurred
in the care, administration and liquidation of the properties of the estate and the commissions due to
him for collections and disbursements which he may have made, and not those which he could or
might have wished to make out of his own pocket or but of the funds of the estate.

"Administration expenses," says Corpus Juris, volume 24, page 424, "include expenditures in
discovering and preserving assets, attorneys fees incurred in connection with the administration of the
estate, incurred in connection with the administration of the estate, cost recovered against the
representative in an action to recover assets, to established a claim against the estate, to try title to
land, and insurance premiums expended for the protection of the property and it has even been
considered that expenditures in carrying on decedent's business may be regarded as expenses of
administration." And Woerner, volume 2, page 1197, paragraph 362, third edition, of his work
entitled "The American Law of Administration of the Estate," says the following:

It has already been stated, that for the expenses attending the accomplishment of the purpose of
administration growing out of the contract or obligation entered into by the personal representative he
is to be reimbursed out of the estate, and that his claim to reimbursed must be superior to the rights of
the beneficiaries. They are subject only to the lien of a mortgage executed on specific property by the
deceased in his lifetime. The expenses under this category include those paid for probate of the will,
as well in the Probate court as on appeal, or other proceeding in a contest, if carried on in good faith;
and the executor nominated in such will is entitled to a settlement of his account, and reimbursement
for his expenses in preserving the estate and for the funeral, although the will be finally pronounced
invalid; and, generally, all expenses necessary in the protection and preservation of the estate, which
have been held to include the costs of establishing a claim against the estate. But the general rule
seems rather to be that costs incurred by the administrator in defense of claims against the estate, or in
prosecuting claims in favor of it, pertain to the administration, and are to be allowed in full; but costs
incurred by claimants in establishing their claims stand on the same footing with the claims
themselves. The allowance of counsel fees and costs is discussed in connection with the subject of

56
accounting. Repairs necessary upon real estate of which the executor or administrator has lawful
possession also constitute expenses of administration; if the expenses incurred is general, affecting all
the property of the estate, it should be charged generally, but if attaching to a specific portion or piece
of property, it should be charged against such portion or piece.

The liability of the administrator as such cannot be treated as a continuation of a running account with
the deceased in his lifetime; nor can the defendant in an action by an administrator upon a contract
made by him as such, or to recover assets of the estate, set off or counterclaim a debt due him from
the deceased. And it is held that one who renders services for a trust has no recourse against the trust,
except to subject an equitable demand of the trustee to the payment of the debt.

The mere fact, therefore, that the income tax claimed by the Collector of Internal Revenue had been
imposed upon the profits obtained by the administrator of the estate in the sale of certain properties of
the deceased Diego de la Viña, after the latter's death, does not make the said tax a necessary expense
of administration, unless the administrator had paid it either from his own pocket or out of the funds
of the estate: in the first case the tax paid is converted into an expense of administration which the
administrator may fully recover, plus his commission; in the second case, he may only collect his
commission, which partakes of the nature of an expense of administration.

In view of the foregoing consideration, we are of the opinion and so hold: (1) that the income tax
which an estate owes to the insular government for profits obtained in the sale of properties belonging
to it, after the death of the testator, does not partake of the nature of necessary expenses of
administration; (2) that the lien created by section 1588 of the Revised Administrative Code for
internal revenue tax on properties subject to it, being general in character, yields to the preference
established by section 735 of the Code of Civil Procedure, as amended by Act No. 3960, in favor of
the necessary expenses of administration of the estate of a deceased person; and, (3) that the claim of
an administrator for the necessary expenses of administration enjoys preference over the claim for
payment of income tax.

Wherefore, the remedy prayed for is granted, the appealed decision is reversed, and it is held that the
claim of the appellant, Dr. Jose Ma. de la Viña y de la Rosa, as ex-administrator of the estate of the
deceased Diego de la Viña has preference over that of the Collector of Internal Revenue for income
tax.

57
 JOSE MODEQUILLO, petitioner,
vs.
HON. AUGUSTO V. BREVA FRANCISCO SALINAS, FLORIPER ABELLAN-SALINAS,
JUANITO CULAN-CULAN and DEPUTY SHERIFF FERNANDO PLATA respondents.
G.R. No. 86355, May 31, 1990, THIRD DIVISION (Gancayco, J)

Under the Family Code, a family home is deemed constituted on a house and lot from the
time it is occupied as a family residence. There is no need to constitute the same judicially or
extrajudicially as required in the Civil Code. If the family actually resides in the premises, it is,
therefore, a family home as contemplated by law. Thus, the creditors should take the necessary
precautions to protect their interest before extending credit to the spouses or head of the family who
owns the home.

FACTS:
Petitioners Jose Modequillo and Benito Malubay were ordered to pay jointly and severally to
plaintiff-appellants pertaining to damages arising from a vehicular accident killing Audie Salinas and
injuring Renato Culan.

On July 7, 1988, the sheriff levied on a parcel of residential land located

at Poblacion Malalag, Davao del Sur registered in the name of Jose Modequillo.

A motion to quash and/or to set aside levy of execution was filed by defendant
Jose Modequillo alleging therein that the residential land located at Poblacion Malalag is where the
family home is built since 1969 prior to the commencement of this case and as such is exempt from
execution, forced sale or attachment under Articles 152 and 153 of the Family Code except for
liabilities mentioned in Article 155 thereof; and that the judgment debt sought to be enforced against
the family home of defendant is not one of those enumerated under Article 155 of the Family Code.

Respondents on the other hand say that the said house and lot only became a family home in 1988
when the Family Code took effect. They say that under the Civil Code, he house and lot did not
qualify as a family home since the Family Code provision on family homes has no retroactive effect.

ISSUE

Whether or not the FC provision on family homes have retroactive application.

RULING

NO. Under Article 162 of the Family Code, it is provided that "the provisions of this Chapter shall
also govern existing family residences insofar as said provisions are applicable." It does not mean that
Articles 152 and 153 of said Code have a retroactive effect such that all existing family residences are
deemed to have been constituted as family homes at the time of their occupation prior to the
effectivity of the Family Code and are exempt from execution for the payment of obligations incurred
before the effectivity of the Family Code. Article 162 simply means that all existing family

58
residences at the time of the effectivity of the Family Code, are considered family homes and are
prospectively entitled to the benefits accorded to a family home under the Family Code. Article 162
does not state that the provisions of Chapter 2, Title V have a retroactive effect.

ISSUE:

Is the family home of petitioner exempt from execution of the money judgment aforecited?

RULING:

No. The debt or liability which was the basis of the judgment arose or was incurred at the time of the
vehicular accident on March 16, 1976 and the money judgment arising therefrom was rendered by the
appellate court on January 29, 1988. Both preceded the effectivity of the Family Code on August 3,
1988. This case does not fall under the exemptions from execution provided in the Family Code.

59
 CONSOLACION FLORENTINO DE CRISOLOGO, ET AL., plaintiffs-appellees,
vs.
DR. MANUEL SINGSON, defendant-appellant.
G.R. No. L-13876, February 28, 1962, EN ANC (Dizon, J)

Testator may not only designate heirs who’ll succeed him, but also substitutes in the event
that said heirs don’t accept or are in no position to accept inheritance or legacies, or die ahead of
him.

FACTS:
This involves a lot and improvements thereon. Complaint alleged that Singson owned half pro
indiviso of said property and that Florentino owned the other half by virtue of the duly probated last
will of Singson (original owner). Defendant's defense was that ConsolacionFlorentino was a mere
usufructuary of and not owner of one-half pro-indiviso of the property in question, and that therefore,
she was not entitled to demand partition thereof.
Lower court rendered judgment in favor of plaintiff. Singson appealed. At the time of the execution
of the will, the nearest living relatives of the original owner were her brothers Evaristo, Manuel and
DionisioSingson, her nieces Rosario, Emilia and Trinidad, and her grandniece Consolation, all
surnamed Florentino.

ISSUE:

Whether the testamentary disposition provided for sustitucion vulgar or for sustitucion
fideicomisaria?

RULING:

The old Civil Code governs this case. Testator may not only designate heirs who’ll succeed him, but
also substitutes in the event that said heirs don’t accept or are in no position to accept inheritance or
legacies, or die ahead of him.

Testator may also bequeath his properties to particular person with obligation, on part of latter, to
deliver the same to another, totally or partially, upon occurrence of particular event. The particular
testamentary clause provides for substitution of heir in this manner: upon death of
ConsolacionFlorentino, whether before or after that of testatrix, property bequeathed to her shall be
delivered or shall belong in equal parts to testatrix's three brothers, Evaristo, Manuel, Dionisio, or
their forced heirs, should anyone of them die ahead of ConsolacionFlorentino. If this created
sustitucion vulgar, necessary result would be that ConsolacionFlorentino, upon death of testatrix,
became owner of one undivided half of the property,but if it provided for sustitutionfideicomisaria,
she would have acquired nothing more than usufructuary rights over same half. In the former, she
would be entitled to partition, but not in the latter.

As Manresa says, a careful perusal of the testamentary clause under consideration shows that
the substitution of heirs provided for therein is not expressly made of the fideicommissary kind, nor
does it contain a clear statement to the effect that appellee, during her lifetime, shall only enjoy
usufructuary rights over the property bequeathed to her, naked ownership thereof being vested in the

60
brothers of the testatrix. As already stated, it merely provides that upon appellee's death whether this
happens before or after that of the testatrix. Her share shall belong to the brothers of the testatrix. In
the light of the foregoing, we believe, and so hold, that the last will of the deceased Dña. Leona
Singson, established a mere sustitucion vulgar, the substitution ConsolacionFlorentino by the brothers
of the testatrix to be effective or to take place upon the death of the former, whether it happens before
or after that of the testatrix.

61
 DALISAY E. OCAMPO, VINCE E. OCAMPO, MELINDA CARLA E. OCAMPO, and
LEONARDO E. OCAMPO, JR., Petitioners,
vs.
RENATO M. OCAMPO and ERLINDA M. OCAMPO, Respondents.
G.R. No. 187879 , July 5, 2010, SECOND DIVISION (Nachura, J)

A special administrator is an officer of the court who is subject to its supervision and control,
expected to work for the best interest of the entire estate, with a view to its smooth administration and
speedy settlement.

FACTS:

Spouses Vicente and Maxima died intestate leaving behind properties which were then
controlled, managed and administered by their children Leonardo, Renato and Erlinda. In 2004,
Leonardo died. Subsequently, Leonardo’s heirs (the petitioners) initiated a petition for intestate
proceedings of Vicente, Maxima and Leonardo’s estates, alleging that after Leonardo’s death, the
surviving siblings Renato and Erlinda took possession and control of the estate to the exclusion of the
petitioners. The petition likewise prayed for the appointment of an administrator to apportion, divide
and award the two estates among the lawful heirs of the decedents.

The probate court appointed Leonardo’s widow as special administrator. Renato and Erlinda
protested, asserting their priority in right to be appointed as administrators. Subsequently, the
widow’s appointment was revoked by the court and was substituted by Erlinda. Erlinda filed a
Motion to be exempted from the payment of the required Administrator’s Bond.

Later, the petitioners filed a motion to revoke Erlinda’s appointment and prayed for the
partition of the estate or the appointment of a regular administrator, alleging that special
administration was unnecessary as the estate was neither vast nor complex, and the properties of the
estate having been identified. The RTC revoked Erlinda’s appointment as special administrator for
having failed to comply with its order to post the required Administrator’s Bond and to enter their
duties and responsibilities as special administrators, i.e., the submission of an inventory of the
properties and of an income statement of the estate. The RTC then appointed the widow as regular
administratrix.

The CA ruled that the RTC erred in revoking Erlinda’s appointment as special administrator
without ruling on their motion for exemption from the bond, and for appointing the widow Melinda
as regular administratrix without conducting a formal hearing to determine her competence as such.

ISSUES:

Whether or not the appointment of special administrator was proper. YES

Whether or not Erlinda and Renato had priority in right to be appointed special administrator. NO
Whether or not the Court erred in revoking Erlinda’s appointment despite

RULING

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:
A special administrator is an officer of the court who is subject to its supervision and control,
expected to work for the best interest of the entire estate, with a view to its smooth administration and
speedy settlement.When appointed, he or she is not regarded as an agent or representative of the
parties suggesting the appointment.The principal object of the appointment of a temporary
administrator is to preserve the estate until it can pass to the hands of a person fully authorized to
administer it for the benefit of creditors and heirs, pursuant to Section 2 of Rule 80 of the Rules of
Court.

The probate court may appoint or remove special administrators based on grounds other than
those enumerated in the Rules at its discretion, such that the need to first pass upon and resolve the
issues of fitness or unfitnessand the application of the order of preference under Section 6 of Rule
78,as would be proper in the case of a regular administrator, do not obtain. As long as the discretion is
exercised without grave abuse, and is based on reason, equity, justice, and legal principles,
interference by higher courts is unwarranted. Being the nearest of kin to the decedents may be
considered by the Court but it is not a mandatory requirement for appointment.

The appointment or removal of special administrators, being discretionary, is thus

interlocutory and may be assailed through a petition for certiorari under Rule 65 of the Rules of
Court. Even if special administrators had already been appointed, once the probate court finds the
appointees no longer entitled to its confidence, it is justified in withdrawing the appointment and
giving no valid effect thereto.

ADMINISTRATOR’S BOND: The RTC did not err in revoking Erlinda’s appointment considering
that among others they failed to post the required bond. As to the issue involving the administrator’s
bond, the Court said that pursuant to Section 1 of Rule 81, the bond secures the performance of the
duties and obligations of an administrator namely:
(1) to administer the estate and pay the debts;
(2) to perform all judicial orders;
(3) to account within one (1) year and at any other time when required by the probate court; and
(4) to make an inventory within three (3) months.
More specifically, per Section 4 of the same Rule, the bond is conditioned on the faithful
execution of the administration of the decedent’s estate requiring the special administrator to (1)
make and return a true inventory of the goods, chattels, rights, credits, and estate of the deceased
which come to his possession or knowledge; (2) truly account for such as received by him when
required by the court; and (3) deliver the same to the person appointed as executor or regular
administrator, or to such other person as may be authorized to receive them.

63
 COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
LILIA YUSAY GONZALES and THE COURT OF TAX APPEALS, respondents
G.R. No. L-19495, November 24, 1966, EN BANC (Bengzon, JP)

The liability of the executor or administrator is personal. Even if the properties of the estate
have been distributed to the heirs, the executor or administrator can still be held liable for the unpaid
tax.

FACTS:

Matias Yusay, a resident of Pototan, Iloilo, died intestate on May 13, 1948, leaving two heirs,
namely, Jose S. Yusay, a legitimate child, and Lilia Yusay Gonzales, an acknowledged natural child.
Intestate proceedings for the settlement of his estate were instituted in the Court of First Instance of
Iloilo (Special Proceedings No. 459). Jose S. Yusay was therein appointed administrator.

On May 11, 1949, Jose Yusay filed with the BIR an estate and inheritance tax return. The return
mentioned no heirs. Upon investigation, the BIR found additional personal (like the Packard car and
aparador) and real properties ( like 92 parcels of land ) which were not included in the return.

The estate and inheritance tax assessment were increased.

In view of the demise of Jose Yusay, the assessment was sent to his widow, Florencia, you succeeded
him in the administration of the estate of Matias Yusay. Florencia was made administrator of 2/3 of
the estate, while Lilia Yusay adnministered 1/3 of the estate.

No payment has been made despite repeated demands made by the CIR. June 1, 1959, Lilia Yusay,
through counsel alleged the non-receipt of the assessment of Feb. 13, 1958. She was willing to pay
the taxes corresponding to 1/3, which is her share of the property under her administration.

On Nov. 17, 1959, Lilia disputed the legality of the assessment dated Feb. 13, 1958. She claimed that
the right to make the assessment had prescribed since more than five years had elapsed since the
filing of the estate and inheritance tax return on May 11, 1949. She wanted to have the assessment
declared invalid and without force and effect. The Commissioner rejected her demand for the
following reasons:
(a) that the right to assess the taxes in question has not been lost by prescription since the
return which did not name the heirs cannot be considered a true and complete return sufficient
to start the running of the period of limitations of five years under Section 331 of the Tax Code
and pursuant to Section 332 of the same Code he has ten years within which to make the
assessment counted from the discovery on September 24, 1953 of the identity of the heirs; and
(b) that the estate's administrator waived the defense of prescription when he filed a surety
bond on March 3, 1955 to guarantee payment of the taxes in question and when he requested
postponement of the payment of the taxes pending determination of who the heirs are by the
settlement court.
Lilia filed a petition for review in the Court of Tax Appeals (CTA).

64
The CTA declared that the right of the CIR to assess the estate and inheritance taxes in question has
prescribed.

ISSUE:
Was the petition for review in the CTA made within the 30 day period provided for in Sec. 11 of RA
1125?

RULING: Yes.

Nov. 17, 1959- Lilia Yusay disputed the legality of the assessment of Feb. 13, 1958.
March 14, 1960- she received the decision of the CIR on the disputed assessment
April 13, 1960- she filed her petition for review in the CTA.

The CTA has correctly held that the appeal was seasonably interposed pursuant to Sec. 11 of RA
1125. As ruled in the case of ST. Stephen’s Association vs. CIR, the counting of the 30 days within
which to institute an appeal in the CTA should commence from the date of receipt of the decision of
the CIR on the disputed assessment and not from the date the assessment was issued.
The 30 day period should begin running from March 14, 1960, the date Lilia received the appealable
decision. From said date to April 13, 1960, when she filed her appeal in the CTA is exactly 30 days.
Hence, her appeal was timely

ISSUE: Lilia Yusay questions the legality of the assessment. Where should she file her appeal?

RULING:

In the Court of Tax Appeals

An action involving a disputed assessment for internal revenue taxes falls within the exclusive
jurisdiction of the CTA. It is in that forum, to the exclusions of the Court of First Instance (CFI, now
RTC), where she could ventilate her defenses against the assessment.
Under the Rules of Court, the jurisdiction of the CFI relates only with the settlement of estates and
probate of wills of deceased persons. It has no jurisdiction to adjudicate the tax assessment.

ISSU:
Lila Yusay claims that the latest assessment was issued only on Feb 13, 1958 or 8 years, 9 months
and 2 days from the filing of the estate and inheritance tax. Because of prescription, the CIR’s right
has expired.

RULING:

Not prescribed, due to substantial defect in the returns.

Based on Sec. 331 of the Tax Code, the CIR is limited to make an assessment within five years from
the filing of the return. However, the CIR claims that fraud attended the filing of the return. The

65
CIR, however, raised the point of fraud for the first time in the proceedings, only in his memorandum
filed with the Tax Court subsequent to resting his case.

The Tax Court rejected the plea of fraud for lack of allegation and proof and ruled that the return,
although not accurate, was sufficient to start the period of prescription.

The Supreme Court, however ruled that the state and inheritance tax return filed by Jose Yusay was
substantially defective, based on the following:
a. It was incomplete. It declared only ninety-three parcels of land representing about 400 hectares
and left out ninety-two parcels covering 503 hectares. Said huge under declaration could not have
been the result of an over-sight or mistake. Jose S. Yusay very well knew of the existence of the
omitted properties. Perhaps his motive in under declaring the inventory of properties attached to the
return was to deprive Lilia Yusay from inheriting her legal share in the hereditary estate, but certainly
not because he honestly believed that they did not form part of the gross estate.
b. Second, the return mentioned no heir. Thus, no inheritance tax could be assessed. As a matter of
law, on the basis of the return, there would be no occasion for the imposition of estate and inheritance
taxes. When there is no heir - the return showed none - the intestate estate is escheated to the
State.The State taxes not itself.

The filing of the wrong form does not make much difference if the necessary information for the
assessment of the tax would be missing.
The return filed was so deficient that it prevented the CIR from computing the proper taxes. The CIR
had to use other sources of information, other than the return
Accordingly, for purposes of determining whether or not the Commissioner's assessment of February
13, 1958 is barred by prescription, Section 332(a) which is an exception to Section 331 of the Tax
Code finds application.We quote Section 332(a):
SEC. 332. Exceptions as to period of limitation of assessment and collection of taxes.— (a) In the
case of a false or fraudulent return with intent to evade tax or of a failure to file a return, the tax may
be assessed, or a proceeding in court for the collection of such tax may be begun without assessment,
at any time within ten years after the discovery of the falsity, fraud or omission.
As stated, the Commissioner came to know of the identity of the heirs on September 24, 1953
and the huge underdeclaration in the gross estate on July 12, 1957. From the latter date, Section
94 of the Tax Code obligated him to make a return or amend one already filed based on his own
knowledge and information obtained through testimony or otherwise, and subsequently to assess
thereon the taxes due. The running of the period of limitations under Section 332(a) of the Tax Code
should therefore be reckoned from said date for, as aforesaid, it is from that time that the
Commissioner was expected by law to make his return and assess the tax due thereon. From July 12,
1957 to February 13, 1958, the date of the assessment now in dispute, less than ten years have
elapsed. Hence, prescription did not abate the Commissioner's right to issue said assessment.

ISSUE: Can Lilia Yusay Gonzales pay her 1/3 share of the estate and inheritance taxes only?

RULING: NO.

Estate and inheritance taxes are satisfied from the estate of the decedent and are to be paid by the
executor or administrator thereof. Where there are two or more executors, all of them are severally

66
liable for the payment of the estate tax. The inheritance tax, although charged against the account of
each beneficiary, should be paid by the executor or administrator.

WHEREFORE, the judgment appealed from is set aside and another entered affirming the assessment
of the Commissioner of Internal Revenue dated February 13, 1958. Lilia Yusay Gonzales, as
administratrix of the intestate estate of Matias Yusay, is hereby ordered to pay the sums of
P16,246.04 and P39,178.12 as estate and inheritance taxes, respectively, plus interest and surcharge
for delinquency in accordance with Section 101 of the National Internal Revenue Code, without
prejudice to reimbursement from her co-administratrix, Florencia Piccio Vda. de Yusay for the latter's
corresponding tax liability. No costs. So ordered.

67
 THE COLLECTOR OF INTERNAL REVENUE, petitioner,
vs.
ELLEN WOOD McGRATH, respondent.
G.R. No. L-12710 February 28, 1961
x---------------------------------------------------------x
ELLEN WOOD McGRATH, petitioner,
vs.
COLLECTOR OF INTERNAL REVENUE, and COURT OF TAX APPEALS, respondents.
G.R. No. L-12721 February 28, 1961.
EN BANC (Labrador, J)

Taxes are fixed by law and are not subject to contract between the taxpayer and the tax
officer, except when there is an actual compromise, which in the case at bar does not exist. The
acceptance of any amount by employees or officials, which does not constitute a full payment of the
amount fixed by law, is no ground or reason for the claim for exemption by the taxpayer from liability
for the remaining amount due under the law. Taxes are not subject to agreements between the
taxpayer and the tax officer, and if any such agreements are made, they cannot serve to defeat or
discharge the liability that the law fixes as the full amount of the tax. Furthermore, any error made by
a tax official in the assessment or computation of taxes does not have the effect of relieving the
taxpayer from the full amount of liability as fixed by law. Errors of tax officers or officials of the
Government do not bind the Government or prejudice its right to the taxes or dues collectible by it
from its citizens. (Canlubang Sugar Estate v. Standard Alcohol Co. [Phil.], Inc., G.R. No. L-10887,
April 16, 1958; Philippine American Drug Co. v. Collector of Internal Revenue, et al., G.R. No. L-
13032, August 31, 1959; Teodore Lewin v. Emilio Galang, G.R. No. L-15253, Oct. 31, 1960.).

FACTS:

Appeal by the Collector of Internal Revenue in G.R. No. L-12710 from a decision of the Court of Tax
Appeals, declaring the estate of Dora Anna Wood exempt from the payment of the inheritance tax,
and by Ellen Wood McGrath administratrix of the estate of Dora Anna Wood, in G.R. No. 12721
against the same decision of the Court of Tax Appeals, dismissing her claim of having been
discharged from paying the taxes assessed by the Collector of Internal Revenue on the estate of the
deceased.

On March 9, 1956, upon petition of counsel for McGrath, the Collector of Internal Revenue, in
answer to the objections of counsel for McGrath against the original assessment made by the
Collector of Internal Revenue, rendered a final decision on the said subject, which reads as follows:.

In view thereof, you are requested to urge your client to pay the sum of P36,144.91 as
inheritance tax and penalties, plus the corresponding interest from December 23, 1955 up to
the date of payment in order that this case may be closed, without prejudice, however, to your
filing of a request for refund in accordance with section 309 of the Tax Code in the event that
the decision of the Court of Tax Appeals in the aforesaid Miller case is affirmed by the
Supreme Court. (p. 15, ROA).

The Collector of Internal Revenue insists in his appeal before Us that the Court of Tax Appeals erred
in two principal respects, namely, (1) in holding that there exists reciprocity between the California

68
and Philippine laws on the matter of the death tax on intangible personal property, (2) in holding that
the estate of Dora Anna Wood is not liable for the payment of the inheritance tax, and (3) in ordering
him to refund the amount of P7,411.04, with interest from the date of payment.

ISSUE 1:

Whether or not there exists reciprocity between the California and Philippine laws on the
matter of the death tax on intangible personal property.

ISSUE 2:

Whether or not estate of Dora Anna Wood is not liable for the payment of the inheritance tax.

RULING 1:

No, there is no reciprocity between the California and Philippine laws in matter of death tax on
intangible personal property. In the cases of the Collector of Internal Revenue vs. Fisher, et al., G.R.
No. L-11622 and Fisher, et al. vs. The Collector of Internal Revenue, et al., G.R. No. L-11668,
promulgated on January 30, 1961, penned by Mr. Justice Barrera, and we have come to the
conclusion that no reciprocity can be extended in the case of the estate of Dora Anna Wood because
the law of California does not grant full exemption from the estate and inheritance taxes to Filipino
residents in that state. Here is what this Court declared in said case:

Section 122 of our National Internal Revenue Code, in pertinent part, provides:

. . . And, provided, further, That no tax shall be collected under this Title in respect of
intangible personal property (a) if the decedent at the time of his death was a resident of a
foreign country which at the time of his death did not impose a transfer tax or death tax of
any character in respect of intangible personal property of citizens of the Philippines not
residing in the foreign country, or (b) if the laws of the foreign country of which the decedent
was a resident at the time of his death allow a similar exemption from transfer taxes or death
taxes of every character in respect of intangible personal property owned by citizens of the
Philippines not residing in that foreign country.' (Emphasis supplied.).

"On the other hand, Section 13851 of the California Inheritance Tax Law, insofar as
pertinent, reads:.

'SEC. 13851. Intangibles of nonresident: Conditions. Intangible personal property is exempt

from the tax imposed by this part if the decedent at the time of his death was a resident of a
Territory or another State of the United States of a foreign state or country which then
imposed a legacy, succession, or death tax in respect to intangible personal property of its
own residents, but either:

'(a) Did not impose a legacy, succession, or death tax of any character in respect to intangible
personal property of residents of this State, or .

'(b) Had in its laws a reciprocal provision under which intangible personal property of a non-
resident was exempt from legacy, succession, or death taxes of every character if the
Territory or other State of the United States or foreign state or country in which the

69
 nonresident resided allows a similar exemption in respect to intangible personal property of
residents of the Territory or State of the United States or foreign state or country of residence
of the decedent.' (Id.).

"It is clear from both these quoted provisions that the reciprocity must be total, that is, with
respect to transfer or death taxes of any and every character, in the case of the Philippine law,
and to legacy, succession, or death tax of any and every character, in the case of the
California law. Therefore, if any of the two states collects or imposes and does not exempt
any transfer, death, legacy, or succession tax of any character, the reciprocity does not work.
This is the underlying principle of the reciprocity clauses in both laws."

RULING 2:

Following the above-quoted decision, the judgment of the Court of Tax Appeals should be reversed
insofar as it exempts the state of Dora Anna Wood from the inheritance tax assessed by the Collector
of Internal Revenue against said estate. The inheritance tax as found by the Court of Tax Appeals is
P24,041.96, and together with the 5% surcharge and interest thereon, and the P20 compromise for late
payment, amounts to a total of P29,612.15. There having been a payment of P6,249.26, the amount
due on September 23, 1956 is hereby fixed at P23,362.79.

In her appeal petitioner McGrath claims that since the Collector of Internal Revenue accepted a check
tendered by her in the amount of P6,901.46, "in full settlement of all death taxes due and payable,"
the Collector of Internal Revenue, after accepting said payment, can no longer collect the alleged
deficiency taxes because the acceptance by the Collector of petitioner's tender of the above amount on
February 2, 1955, constitutes a compromise on the obligation of the estate of the deceased Dora Anna
Wood, which compromise extinguished petitioner's obligation to pay additional death taxes.

We find no merit in this contention. It is true that the check for P6,901.46 forwarded to the Collector
of Internal Revenue on January 22, 1954, and which was received by him on February 2, 1954, was
offered by counsel for the petitioner McGrath "in full settlement of estate tax due the above estate."
The letter of acceptance of the amount made by the Collector of Internal Revenue on February 2,
1954 is to the effect that the amount should be accounted for as part payment of the estate tax due.
There was, therefore, no agreement between the taxpayer and the Collector of Internal Revenue that
the amount offered was to be accepted to compromise a tax liability. Taxes are fixed by law and are
not subject to contract between the taxpayer and the tax officer, except when there is an actual
compromise, which in the case at bar does not exist. The acceptance of any amount by employees or
officials, which does not constitute a full payment of the amount fixed by law, is no ground or reason
for the claim for exemption by the taxpayer from liability for the remaining amount due under the
law. Taxes are not subject to agreements between the taxpayer and the tax officer, and if any such
agreements are made, they cannot serve to defeat or discharge the liability that the law fixes as the
full amount of the tax. Furthermore, any error made by a tax official in the assessment or computation
of taxes does not have the effect of relieving the taxpayer from the full amount of liability as fixed by
law. Errors of tax officers or officials of the Government do not bind the Government or prejudice its
right to the taxes or dues collectible by it from its citizens. (Canlubang Sugar Estate v. Standard
Alcohol Co. [Phil.], Inc., G.R. No. L-10887, April 16, 1958; Philippine American Drug Co. v.
Collector of Internal Revenue, et al., G.R. No. L-13032, August 31, 1959; Teodore Lewin v. Emilio
Galang, G.R. No. L-15253, Oct. 31, 1960.).

In short, we find that the claim of release of the taxpayer because of the acceptance of an amount
offered by the taxpayer, even if the taxpayer made the offer in full payment of the tax liability, which
payment was not in pursuance of compromise under Section 309 of the National Internal Revenue
Code, is without any merit and the same is hereby overruled.

70
It is next claimed that the failure of the Collector of Internal Revenue to make a revised assessment
pursuant to Section 96 and 97 of the National Internal Revenue Code relieves the administratrix from
paying any deficiency in the inheritance taxes. We also find no merit in this contention. Section 97 of
the National Internal Revenue Code, upon which the claim is founded, refers to the personal liability
of an administratrix from any deficiency tax, not the liability of the estate under administration.
Granting that the administratrix may not be personally liable, it does not follow therefrom that the
estate under administration would also be free from liability.

In the last assignment of error, counsel for petitioner McGrath claims that the estate is exempt from
the payment of any deficiency tax because of the failure of the Collector to make the assessment of
the deficiency death taxes and to demand their payment, in accordance with Section 94 of the
National Internal Revenue Code. Section 94 of the National Internal Revenue Code applies to a case
where there is no return filed or where one is filed but is false or fraudulent. In the case at bar there
was a return and the same was not false or fraudulent. Hence the assessment indicated in Section 94
of the National Internal Revenue Code is not required. In any case, the assessment made in the letters
of the respondent Collector, dated January 10, 1956 and March 9, 1956, are sufficiently clear and
specific, and are a valid assessment of the taxes on the estate upon the facts and figures given by the
counsel for petitioner McGrath. This assignment of error must also be dismissed for lack of merit.

71
 INTESTATE ESTATE OF THE DECEASED CLODUALDO VITUG,
DONATA MONTEMAYOR, administratrix-appellant,
vs.
HEIRS OF EDUARDO D. GUTIERREZ, heirs-appellees.

G.R. No. L-16959 January 30, 1962

EN BANC (Labrador, J)

A surety on the official bond of an administrator or executor, where there is no statute or

stipulation in the bond to the contrary, obligates himself only to account for losses occasioned by the
failure of the fiduciary to use due diligence in pursuing and collecting claims owing to the estate, and
to make proper application of the assets that come into his hands. State ex rel. Farmer v. Citizens'
Trust & G. Co. & ALR 79, W Va. 729, 100 SE 685." .

It has been held that surety on an administration bond is bound only for faithful
administration of the estate, and not for the return of money which the administrator in good faith
spent and which he is unable to repay." (34 CJS 1186).

FACTS:

Herein administratrix-appellant, Donata Montemayor was appointed administratrix of the estate of

her late husband, Clodualdo Vitug, and before she assumed office as administratrix she filed a bond
the terms of which were as follows: .

(a) To make and return to the Court within three months, a true and complete inventory of all goods,
chattels, rights, credits and estate of the deceased which shall come to his possession or knowledge or
to the possession of any other person for him; .

(b) To administer according to these rules, and, if an executor, according to the will of the testator, all
goods, chattels, rights, credits, and estate which shall at any time come to his possession or to the
possession of any other firm for him, and from the proceeds to pay and discharge all debts, legacies,
and charges on the same, or such dividends thereon as shall be decreed by the court; .

(c) To render a true and just account of his administration to the court within one year, and at any
other time when required by the court; .

(d) To perform all orders of the court by him to be performed." (pp. 42-43, R.A.; pp. 4-5, brief for
administratrix-appellant).

Atty. Eduardo D. Gutierrez served as counsel of the administratrix of the estate for the period from
June, 1936 to December, 1953. Before the employment of said Atty. Gutierrez, a project of partition
had already been approved by the court as early as August 23, 1933, wherein the administratrix
renounced her rights to the conjugal properties in favor of her children and the children of the
deceased by a previous marriage, and, in return for which, the heirs or the children, renounced in
favor of the widow the private properties of her husband. A house valued at P16,500.00 and another
at P235.00, with accessories valued at P2,000.00 in addition to a Fordson tractor, were not partitioned
and were left in the hands of the administratrix for future partition. It so happened, however, that the
personal properties were lost, destroyed or looted during World War II. Three cases filed against the

72
administratrix and the heirs for the recovery of alleged share or participation in the real properties
already partitioned, and these gave occasion to the employment of the services of Atty. Gutierrez by
the administratrix.

When the claim for attorney's fees was brought, the bondsmen for the administratrix had died. The
Court of First Instance declared that no claim for attorney's fees could be allowed, but on appeal to
the Court of Appeals (C.A.-G.R. No. 19246-R), this court declared that the administratrix is liable to
pay P9,600.00 attorney's fees. It is in execution of this judgment that this sum was ordered by the
court below to be paid by the administratrix, personally, with right to reimbursement from the heirs of
the deceased bondsmen.

That services were rendered by the deceased Atty. Eduardo D. Gutierrez is not questioned. Neither is
it denied that services were rendered on behalf of the estate under administration. Nor is there any
finding or claim that the administratrix was guilty of any malfeasance, mismanagement or violation of
her duties as administratrix; so it is claimed on this appeal that as there exist no more funds in her
possession belonging to the estate, the said attorney's fees should be apportioned among the heirs who
have already received their shares of the estate of the deceased Clodualdo Vitug..

ISSUE:

Whether or not the administratrix can be held personally responsible.

RULING:

No, the administratix cannot be held personally liable. The expenses of administration incurred by an
administratrix have to be borne out of the properties under administration, or out of the income
derived therefrom. The administratrix can be held personally responsible only for any malfeasance,
maladministration or violation of any of her duties as administratrix.

The undertaking of administrators and their bondsmen is faithfully to administer the estate and cause
to be made just and true accounts, and to make due and proper settlements thereof, from time to time,
according to law or the lawful order, sentence, or decree of any court having jurisdiction of the parties
and subject matter. Harper v. Betts, 60 ALR 484, 177 Ark 977, 8 SW 2d 464; (Permanent A. L. R.
Digest, Vol. 6, p. 51.)

Under the usual tenor of an administration bond, the principal and his sureties are only bound to pay
creditors, legatees, or heirs, according to assets which come to hand and the resources which arise in
the course of an honest, prudent, and well advised administration. (34 CJS 1165).

Such being the case, it is unfair that she should bear personally the fees of counsel for services
rendered to her as administratrix in the course of the administration. The Rules provide that an estate
left by a deceased may be partitioned even before the termination of the administration proceedings,
like in this case, and the heirs receiving shares should be responsible for the expenses proportionately.

Sec. 5. — If such contingent claim becomes absolute and is presented to the court, or to the executor
or administrator, within two years from the time limited for other creditors to present their claims, it
may be allowed by the court if not disputed by the executor or administrator, and, if disputed, it may
be proved and allowed or disallowed by the court as the facts may warrant. If the contingent claim is
allowed, the creditor shall receive payment to the same extent as the other creditors if the estate

73
retained by the executor or administrator is sufficient. But if the claim is not so presented, after
having become absolute, within said two years, and allowed, the assets retained in the hands of the
executor or administrator, not exhausted in the payment of claims, shall be distributed by the order of
the court to the persons entitled to the same; but the assets so distributed may still be applied to the
payment of the claim when established, and the creditor may maintain an action against the
distributees to recover his debt, and such distributees and their estates shall be liable for the debt in
proportion to the estate they have respectively received from the property of the deceased." .

Sec. 6. — Where devisees, legatees, or heirs have entered into possession of portions of the estate
before the debts and expenses have been settled and paid, and have become liable to contribute for the
payment of such debts and expenses, the court having jurisdiction of the estate may, by order for the
purpose, after hearing, settle the amount of their several liabilities, and order how much and in what
manner each person shall contribute, and may issue execution if circumstances require." (Rule 89,
Secs. 5 and 6).

In accordance with these provisions, the administratrix in the case at bar should not be required to pay
personally the counsel's attorney's fees. Neither should her bondsmen on her bond be responsible as
there is nothing in her acts as would constitute a violation of the guaranty assumed by them in their
bond.

A surety on the official bond of an administrator or executor, where there is no statute or stipulation
in the bond to the contrary, obligates himself only to account for losses occasioned by the failure of
the fiduciary to use due diligence in pursuing and collecting claims owing to the estate, and to make
proper application of the assets that come into his hands. State ex rel. Farmer v. Citizens' Trust & G.
Co. & ALR 79, W Va. 729, 100 SE 685." .

It has been held that surety on an administration bond is bound only for faithful administration of the
estate, and not for the return of money which the administrator in good faith spent and which he is
unable to repay." (34 CJS 1186).

74
MISAEL P. VERA, as Commissioner of Internal Revenue, and JAIME ARANETA, as Regional
Director, Revenue Region No. 14, Bureau of Internal Revenue, petitioners,
vs.
HON. JOSE F. FERNANDEZ, Judge of the Court of First Instance of Negros Occidental,
Branch V, and FRANCIS A. TONGOY, Administrator of the Estate of the late LUIS D.
TONGOY respondents.

G.R. No. L-31364 March 30, 1979

FIRST DIVISION (De Castro, J)

The reason for the more liberal treatment of claims for taxes against a decedent's estate in
the form of exception from the application of the statute of non-claims, is not hard to find. Taxes are
the lifeblood of the Government and their prompt and certain availability are imperious need.
(Commissioner of Internal Revenue vs. Pineda, G. R. No. L-22734, September 15, 1967, 21 SCRA
105). Upon taxation depends the Government ability to serve the people for whose benefit taxes are
collected. To safeguard such interest, neglect or omission of government officials entrusted with the
collection of taxes should not be allowed to bring harm or detriment to the people, in the same
manner as private persons may be made to suffer individually on account of his own negligence, the
presumption being that they take good care of their personal affairs. This should not hold true to
government officials with respect to matters not of their own personal concern. This is the philosophy
behind the government's exception, as a general rule, from the operation of the principle of estoppel.
As already shown, taxes may be collected even after the distribution of the estate of the decedent
among his heirs.

FACTS:

The Motion for allowance of claim and for payment of taxes dated May 28, 1969 was filed on June 3,
1969 in the abovementioned special proceedings entitled: Intestate Estate of Luis D. Tongoy. The
claim represents the indebtedness to the Government of the late Luis D. Tongoy for deficiency
income taxes in the total sum of P3,254.80 covered by Assessment Notices Nos. 11-50-29-1-11061-
21-63 and 11-50-291-1 10875-64, to which motion was attached Proof of Claim (Annex B, Petition,
pp. 21-22, Rollo). The Administrator opposed the motion solely on the ground that the claim was
barred under Section 5, Rule 86 of the Rules of Court. Finding the opposition well-founded, the
respondent Judge Fernandez, dismissed the motion for allowance of claim filed by herein petitioner,
Regional Director of the Bureau of Internal Revenue, in an order dated July 29, 1969. On September
18, 1969, a motion for reconsideration was filed, of the order of July 29, 1969, but was denied in an
Order dated October 7, 1969.

ISSUE:

Whether or not the statute of non-claims Section 5, Rule 86 of the New Rule of Court, bars claim of
the government for unpaid taxes, still within the period of limitation prescribed in Section 331 and
332 of the National Internal Revenue Code.

RULING:

75
 No, the statute of non-claims does not bar the claim of the government for unpaid taxes.
Section 5, Rule 86, as invoked by the respondent Administrator in hid Oppositions to the Motion for
Allowance of Claim, etc. of the petitioners reads as follows:

All claims for money against the decedent, arising from contracts, express or implied, whether the
same be due, not due, or contingent, all claims for funeral expenses and expenses for the last sickness
of the decedent, and judgment for money against the decedent, must be filed within the time limited
in they notice; otherwise they are barred forever, except that they may be set forth as counter claims
in any action that the executor or administrator may bring against the claimants. Where the executor
or administrator commence an action, or prosecutes an action already commenced by the deceased in
his lifetime, the debtor may set forth may answer the claims he has against the decedents, instead of
presenting them independently to the court has herein provided, and mutual claims may be set off
against each other in such action; and in final judgment is rendered in favored of the decedent, the
amount to determined shall be considered the true balance against the estate, as though the claim has
been presented directly before the court in the administration proceedings. Claims not yet due, or
contingent may be approved at their present value.

A perusal of the aforequoted provisions shows that it makes no mention of claims for monetary
obligation of the decedent created by law, such as taxes which is entirely of different character from
the claims expressly enumerated therein, such as: "all claims for money against the decedent arising
from contract, express or implied, whether the same be due, not due or contingent, all claim for
funeral expenses and expenses for the last sickness of the decedent and judgment for money against
the decedent." Under the familiar rule of statutory construction of expressio unius est exclusio
alterius, the mention of one thing implies the exclusion of another thing not mentioned. Thus, if a
statute enumerates the things upon which it is to operate, everything else must necessarily, and by
implication be excluded from its operation and effect (Crawford, Statutory Construction, pp. 334-
335).

The reason for the more liberal treatment of claims for taxes against a decedent's estate in the form of
exception from the application of the statute of non-claims, is not hard to find. Taxes are the lifeblood
of the Government and their prompt and certain availability are imperious need. (Commissioner of
Internal Revenue vs. Pineda, G. R. No. L-22734, September 15, 1967, 21 SCRA 105). Upon taxation
depends the Government ability to serve the people for whose benefit taxes are collected. To
safeguard such interest, neglect or omission of government officials entrusted with the collection of
taxes should not be allowed to bring harm or detriment to the people, in the same manner as private
persons may be made to suffer individually on account of his own negligence, the presumption being
that they take good care of their personal affairs. This should not hold true to government officials
with respect to matters not of their own personal concern. This is the philosophy behind the
government's exception, as a general rule, from the operation of the principle of estoppel. As already
shown, taxes may be collected even after the distribution of the estate of the decedent among his
heirs.

Furthermore, as held in Commissioner of Internal Revenue vs. Pineda, supra, citing the last paragraph
of Section 315 of the Tax Code payment of income tax shall be a lien in favor of the Government of
the Philippines from the time the assessment was made by the Commissioner of Internal Revenue
until paid with interests, penalties, etc. By virtue of such lien, this court held that the property of the
estate already in the hands of an heir or transferee may be subject to the payment of the tax due the
estate. A fortiori before the inheritance has passed to the heirs, the unpaid taxes due the decedent may
be collected, even without its having been presented under Section 2 of Rule 86 of the Rules of Court.
It may truly be said that until the property of the estate of the decedent has vested in the heirs, the
decedent, represented by his estate, continues as if he were still alive, subject to the payment of such
taxes as would be collectible from the estate even after his death. Thus in the case above cited, the

76
income taxes sought to be collected were due from the estate, for the three years 1946, 1947 and 1948
following his death in May, 1945.

Even assuming arguendo that claims for taxes have to be filed within the time prescribed in Section
2, Rule 86 of the Rules of Court, the claim in question may be filed even after the expiration of the
time originally fixed therein, as may be gleaned from the italicized portion of the Rule herein cited
which reads:

Section 2. Time within which claims shall be filed. - In the notice provided in the preceding section,
the court shall state the time for the filing of claims against the estate, which shall not be more than
twelve (12) nor less than six (6) months after the date of the first publication of the notice. However,
at any time before an order of distribution is entered, on application of a creditor who has failed to
file his claim within the time previously limited the court may, for cause shown and on such terms as
are equitable, allow such claim to be flied within a time not exceeding one (1) month. (Emphasis
supplied)

In the instant case, petitioners filed an application (Motion for Allowance of Claim and for an Order
of Payment of Taxes) which, though filed after the expiration of the time previously limited but
before an order of the distribution is entered, should have been granted by the respondent court, in the
absence of any valid ground, as none was shown, justifying denial of the motion, specially
considering that it was for allowance Of claim for taxes due from the estate, which in effect
represents a claim of the people at large, the only reason given for the denial that the claim was filed
out of the previously limited period, sustaining thereby private respondents' contention, erroneously
as has been demonstrated.

77
 PINEDA, ET AL. vs. COURT OF FIRST INSTANCE OF TAYABAS and COLLECTOR OF
INTERNAL REVENUE
G.R. No. L-30921, February 16, 1929
EN BANC

The law imposes on the administrator of a deceased person the duty to pay taxes assessed
against the property of the deceased; and as is well known, in case of insolvency, such taxes
constitute a preferential claim in the distribution of assets over ordinary debts, under section 735 of
the Code of Civil Procedure.

FACTS:

Before his death, the decedent, Felix Villadiego, had submitted to the Collector of Internal Revenue
the returns corresponding to his income tax for the years 1925 and 1926;

He had also, before his death, paid the taxes which the Collector of Internal Revenue had estimated to
be due upon said returns in 1925 and 1926 .

After the death of the said Felix Villadiego on May 7, 1927, intestate proceedings were duly opened
in the matter of his estate, and the petitioners herein were appointed as his administratrixes.

While said proceedings were pending, the Collector of Internal Revenue made a revision of the
assessment of the income tax due from the deceased for the years 1925 and 1926, with the result that
he found that the tax for said years was underassessed to the extent of P111.30 for the year 1925 and
P128.96 for the year 19326, making a total for the two years of P240.26.

In view of this fact the provincial fiscal of Tayabas, on behalf of the Government, filed a motion
before the respondent judge in the intestate proceedings aforesaid, showing that the deceased Felix
Villadiego was indebted to the Government of the Philippine Islands, upon the account above
indicated, to the extent of P240.26, and asking that, in the adjudication to be made concerning the
property of the deceased in the aforesaid proceedings, this additional tax should be declared to
constitute a preferential charge in favor of the Government.

Accompanying this motion was Exhibit A, showing to alleged true status of the tax of the deceased
for the years stated, as reliquidated by the Collector.

On December 8th, thereafter, the respondent judge made the order which is the subject of complaint
in this petition,ordering the administratrixes to pay the tax as stated in the first, and declaring that, in
case of their failure so to do, the claim should constitute a preferred charge in favor of the
Government.

ISSUES:

78
1. Whether of not it was proper for the Collector of Internal Revenue to correct and revise the
tax assessment even after the death of the taxpayer

RULING:

Yes. It was proper. if the original assessment was incorrect, the Government was not concluded
thereby, and it was clearly within the power of the Collector to reassess and collect any additional tax
due upon the returns for said years, even after the death of the taxpayer. The Government is never
estopped by mistake or error on the part of its agents. It follows that, in so far as this record shows,
the petitioners have not made it appear that the additional tax claimed by the Collector is not in fact
due and collectible. The assessment of the tax by the Collector creates, it must be rendered, a charge
that is at least prima facie valid.

2. Whether or not the court had jurisdiction to order the payment of the claim in question
without the presentation of the same for allowance in usual course to the committee on claims

RULING:

Yes. The court had jurisdiction. The act of the court in directing the petitioners to pay this tax does
not have the effect of depriving the petitioners of the remedy, open to every taxpayer, of paying the
tax under the protest and bringing an action to recover the money; and assuming that leave of the
court might properly be required for the institution of such action, it is to be assumed that such leave
would be granted if the petitioners should be able to show to the court any plausible ground for
concluding that the tax had been improperly collected.

79
 THE GOVERNMENT OF THE PHILIPPINE ISLANDS vs. JOSE MA. PAMINTUAN, ET
AL.
G.R. No. L-33139, October 11, 1930
EN BANC

Claims for income taxes need not be filed with the committee on claims and appraisals
appointed in the course of testate proceedings and may be collected even after the distribution of the
decedent's estate among his heirs, who shall be liable therefor in proportion to their share in the
inheritance.

FACTS:

On February 27, 1920, Florentino Pamintuan, represented by J. V. Ramirez or his attorney-in-fact

charged with the administration of his property, filed income-tax return for the year 1919, paying the
amount of P 672.99 on the basis of said return, and the additional sum of P151.01 as a result of a
subsequent assessment received from the Collector of Internal Revenue.

On April 24, 1925, Florentino Pamintuan died in Washington, D. C., U. S. A., leaving the defendants
herein as his heirs.

On April 24, 1925, intestate proceedings were instituted in the Court of First Instance of Manila in
civil case No. 27948, intestate of the late Florentino Pamintuan.

On June 12, 1926, Jose V. Ramirez, the duly appointed judicial administrator of the estate of the
deceased Florentino Pamintuan presented a proposed partition of the decedent's estate which
proposed partition was approved by the court on July 6,1926, the court ordering the delivery to the
heirs, the defendants herein, of their respective shares of the inheritance after paying the
corresponding inheritance taxes which were duly paid on September 2, 1926, in the amount of
P25,047.19 as appears on the official receipt No. 4421361.

During the pendency of the intestate proceedings, the administrator filed income-tax returns for the
estate of the deceased corresponding to the years 1925 and 1926.

The intestate proceedings in civil case No. 27948 were definitely closed on October 27, 1926, by
order of the court of the same date.

Subsequent to the distribution of the decedent's estate to the defendants herein, that is, on
February 16, 1927, the plaintiff discovered the fact that the deceased Florentino Pamintuan has not
paid the amount of four hundred and sixty-two pesos (P462) as additional income tax and surcharge
for the calendar year 1919, on account of the sale made by him on November 14, 1919, of his house
and lot located at 922 M. H. del Pilar, Manila, from which sale he realized a net profit or income of
P11,000, which was not included in his income-tax return filed for said year 1919.

80
The defendants cannot disprove that the deceased Florentino Pamintuan made a profit of P11,000 in
the sale of the house because they have destroyed the voluminous records and evidences regarding the
sale in question and other similar transactions which might show repairs on the house, commissions,
and other expenses tending to reduce the profit obtained as mentioned above.

The demand for the payment of the income tax referred to herein was made on February 24, 1927, on
the defendants but they refused and still refuse to pay the same either in full or in part.

ISSUE:

Whether or not even after the partition of an estate, heirs and distributees are liable individually for
the payment of all lawful outstanding claims against the estate such as an unpaid income tax on
account of a sale of property by the deceased

RULING:

Heirs are not required to respond with their own property for the debts of their deceased ancestors.
But even after the partition of an estate, heirs and distributees are liable individually for the payment
of all lawful outstanding claims against the estate in proportion to the amount or value of the property
they have respectively received from the estate. The hereditary property consists only of that part
which remains after the settlement of all lawful claims against the estate, for the settlement of which
the entire estate is first liable. The heirs cannot, by any act of their own or by agreement among
themselves, reduce the creditors' security for the payment of their claims.

Claims for income taxes need not be filed with the committee on claims and appraisals appointed in
the course of testate proceedings and may be collected even after the distribution of the decedent's
estate among his heirs, who shall be liable therefor in proportion to their share in the inheritance.

81
 COMMISSIONER OF INTERNAL REVENUE vs. MANUEL B. PINEDA, as one of the heirs
of deceased ATANASIO PINEDA
G.R. No. L-22734, September 15, 1967
EN BANC

Pineda is liable for the assessment as an heir and as a holder-transferee of property

belonging to the estate/taxpayer. As an heir he is individually answerable for the part of the tax
proportionate to the share he received from the inheritance.3 His liability, however, cannot exceed the
amount of his share

FACTS:

Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15 children, the eldest of whom is
Atty. Manuel Pineda. Estate proceedings were had in Court so that the estate was divided among and
awarded to the heirs. Atty Pineda's share amounted to about P2,500.00. After the estate proceedings
were closed, the BIR investigated the income tax liability of the estate for the years 1945, 1946, 1947
and 1948 and it found that the corresponding income tax returns were not filed. Thereupon, the
representative of the Collector of Internal Revenue filed said returns for the estate issued an
assessment and charged the full amount to the inheritance due to Atty. Pineda who argued that he is
liable only to extent of his proportional share in the inheritance.

ISSUE:

Whether or not the State the can require Manuel B. Pineda to pay the full amount of the taxes
assessed instead of only individually answerable for the part of the tax proportionate to the share he
received from the inheritance

RULING:

Yes. As a holder of property belonging to the estate, Pineda is liable for he tax up to the amount of the
property in his possession. The reason is that the Government has a lien on the P2,500.00 received by
him from the estate as his share in the inheritance, for unpaid income taxes4a for which said estate is
liable, pursuant to the last paragraph of Section 315 of the Tax Code, which we quote hereunder:

If any person, corporation, partnership, joint-account (cuenta en participacion), association, or

insurance company liable to pay the income tax, neglects or refuses to pay the same after
demand, the amount shall be a lien in favor of the Government of the Philippines from the
time when the assessment was made by the Commissioner of Internal Revenue until paid
with interest, penalties, and costs that may accrue in addition thereto upon all property and
rights to property belonging to the taxpayer: . . .

By virtue of such lien, the Government has the right to subject the property in Pineda's
possession, i.e., the P2,500.00, to satisfy the income tax assessment in the sum of P760.28. After

82
such payment, Pineda will have a right of contribution from his co-heirs, to achieve an
adjustment of the proper share of each heir in the distributable estate.

All told, the Government has two ways of collecting the tax in question.

One, by going after all the heirs and collecting from each one of them the amount of the tax
proportionate to the inheritance received. This remedy was adopted in Government of the
Philippine Islands v. Pamintuan, supra.

In said case, the Government filed an action against all the heirs for the collection of the tax. This
action rests on the concept that hereditary property consists only of that part which remains after the
settlement of all lawful claims against the estate, for the settlement of which the entire estate is first
liable.
The reason why in case suit is filed against all the heirs the tax due from the estate is levied
proportionately against them is to achieve thereby two results: first, payment of the tax; and second,
adjustment of the shares of each heir in the distributed estate as lessened by the tax.

Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all property and
rights to property belonging to the taxpayer for unpaid income tax, is by subjecting said property of
the estate which is in the hands of an heir or transferee to the payment of the tax due, the estate.
This second remedy is the very avenue the Government took in this case to collect the tax. The
Bureau of Internal Revenue should be given, in instances like the case at bar, the necessary discretion
to avail itself of the most expeditious way to collect the tax as may be envisioned in the particular
provision of the Tax Code above quoted, because taxes are the lifeblood of government and their
prompt and certain availability is an imperious need.

And as afore-stated in this case the suit seeks to achieve only one objective: payment of the tax. The
adjustment of the respective shares due to the heirs from the inheritance, as lessened by the tax, is left
to await the suit for contribution by the heir from whom the Government recovered said tax.

83
 INTERPROVINCIAL AUTOBUS CO., INC. vs. COLLECTOR OF INTERNAL REVENUE
G.R. No. L-6741, January 31, 1956

As comprehending all methods of transportation, a bill of lading may be defined as a written

acknowledgment of the receipt of goods and an agreement to transport and to deliver them at a
specified place to a person named or on his order. Such instruments are sometimes called ‘shipping
receipts,’ ‘forwarders’ receipts’ and ‘receipts for transportation.’ The designation, however, is not
material, and neither is the form of the instrument. If it contains an acknowledgment by the carrier of
the receipt of goods for transportation, it is, in legal effect, a bill of lading.”

FACTS:

Plaintiff is a common carrier engaged in transporting passengers and freight by means of TPU buses
in Misamis Occidental and Northern Zamboanga.

Sometime in the year 1941 the provincial revenue agent for Misamis Occidental examined the stubs
of the freight receipts that had been issued by the Plaintiff.

He found that the stubs of the receipts issued during the years 1936 to 1938 were not preserved; those
for the years 1939 to 1940 were available. By referring, however, to the conductors’ daily reports for
1936 to 1938, he was able to ascertain the number of receipts for those years and these, together with
those for 1939 to 1940, gave a total during the 5-year period from 1936 to 1940, of 194,406 freight
receipts issued.

Both the said daily reports of Plaintiff’s conductors and the available stubs did not state the value of
the goods transported thereunder. Pursuant, however, to sections 121 and 127 of the Revised
Documentary Stamp Tax Regulations of the Department of Finance promulgated on September 16,
1924, he assumed that the value of the goods covered by each of the above- mentioned freight
receipts amounted to more than P5, and assessed a documentary stamp tax of P0.04 on each of the
194,406 receipts.

The tax thus assessed amounted to P7,776.24, which was collected from the deposit of the Plaintiff in
the Misamis Occidental branch of the Philippine National Bank.

Plaintiff demanded the refund of the amount, and upon refusal of the Defendant, Plaintiff filed the
action. The Court of First Instance of Misamis Occidental having rendered judgment in favor of the
Plaintiff, the Defendant appealed to the Court of Appeals. This court reversed the decision appealed
from and absolved the Defendant from the complaint. Hence, an appeal was filed.

ISSUE:

Whether or not the provision of section 121 of the Revised Documentary Stamp Tax Regulations, to
the effect that if the bill of lading fails to state the value of the goods shipped, it must be held that the
tax is due, is illegal.

84
RULING:

(Did the Secretary of Finance infringe or violate any right of the taxpayer when he directed that the
tax is to be collected in all cases where the bill of lading or receipt does not state that the shipment is
worth P5 or less, or, in the language of the Petitioner-Appellant, when he (Secretary) created a
presumption of liability to the tax if the receipt fails to state such value?)

It cannot be denied that the regulation is merely a directive to the tax officers; it does not purport to
change or modify the law; it does not create a liability to the stamp tax when the value of the goods
does not appear on the face of the receipt.

The practical usefulness of the directive becomes evident when account is taken of the fact that tax
officers are in no position to witness the issuance of receipts and check the value of the goods for
which they are issued. If tax officers were to assess or collect the tax only when they find that the
value of the goods covered by the receipts is more than five pesos, the assessment and collection of
the tax would be well-nigh impossible, as it is impossible for tax collectors to determine from the
receipts alone, if they do not contain the value of the goods, whether the goods receipted for exceed
P5, or not.

The regulation impliedly required the statement of the value of the goods in the receipts; so that the
collection of the tax can be enforced.

This is what the Petitioner Appellant failed to do and he now claims the unreasonableness of the
provision as a basis for his exemption. We find that the regulation is not only useful, practical and
necessary for the enforcement of the law on the tax on bills of lading and receipts, but also reasonable
in its provisions.

The regulation above quoted falls within the scope of the administrative power of the Secretary of
Finance, as authorized in Section 79 (B) of the Revised Administrative Code, because it is essential to
the strict enforcement and proper execution of the law which it seeks to implement. Said regulations
have the force and effect of law. Another reason for sustaining the validity of the regulation may be
found in the principle of legislative approval by re-enactment. The regulations were approved on
September 16, 1924. When the National Internal Revenue Code was approved on February 18, 1939,
the same provisions on stamp tax, bills of lading and receipts were reenacted. There is a presumption
that the Legislature reenacted the law on the tax with full knowledge of the contents of the regulations
then in force regarding bills of lading and receipts, and that it approved or confirmed them because
they carry out the legislative purpose.

85
 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. CONSTRUCTION
RESOURCES OF ASIA, INC., and THE COURT OF TAX APPEAL, respondents
G.R. No. L-68230, November 25, 1986, SECOND DIVISION, (GUTIERREZ, JR., J.)

On every original issue, whether on organization, reorganization, or for any lawful purpose,
of certificates of stock by any association, company, or corporation, there shall be collected a
documentary stamp tax of one peso and ten centavos on each two hundred pesos, or fractional part
thereof, of the par value of such certificates: Provided, that in the case of the original issue of stock
without par value the amount of the documentary stamp tax herein prescribed shall be based upon the
actual consideration received by the association, company, or corporation for the issuance of such
stock, and in the case of stock dividends, on the actual value represented by each share. (As amended
by PD No. 1457).

FACTS:
Construction Resources of Asia, Inc. (CRA), is a domestic corporation, duly registered with
the Overseas Construction Board as an overseas contractor. In July, 1977, it entered into a contract
with the Malaysian government for the construction of a road at Sabah. In connection therewith, CRA
incurred foreign loans in the amount of $3,900,000.00 at 9-1/16% interest per annum. For the period
from December 7, 1977 to June 5, 1978, CRA paid the sum of $179,156.25 to the foreign creditors as
interest on its loan.

In an investigation conducted by CIR’s examiners, it was ascertained that CRA failed to file
withholding tax return and to withhold 15% tax on interest on foreign loans remitted abroad and to
purchase and affix the corresponding documentary and science stamps on the stock certificates issued
by it. Thus, CIR sent a demand letter to CRA for payment of withholding tax-at-source and
documentary and science stamps tax liability. CRA stating that as a Sea contractor, it is exempt from
the withholding tax-at-source and that it is not liable for documentary and science stamps tax liability
as that up to the date of the filing of its petition with this Honorable Court, no actual transfer of
ownership of shares has been effected. CIR denied CRA's protest.

On appeal, the Court of Tax Appeals affirmed the liability of CRA of withholding tax-at-
source. However, it denied CRA’s liability from documentary and science stamps taxes on the ground
that "there is absolutely nothing in the records which will show or indicate that the stock certificates
on the paid-in-capital of P17,880,000.00 were issued or delivered, actually or constructively, to the
stockholders, granting that such paid-in-capital was originally issued." The petitioner filed a motion
for reconsideration but the same was denied. Hence, this present petition.

ISSUE: Whether or not the liability to pay documentary and science stamps taxes attaches upon the
issuance of certificates of stocks or upon delivery thereof, actual or constructive.

RULING:

Liability to pay documentary and science stamps taxes will already attach upon the issuance of
certificates of stocks, irrespective of delivery thereof.

Section 224 of the National Internal Revenue Code provides:

86
 Stamp tax on original issue of certificates of stock. — On every original issue, whether on
organization, reorganization, or for any lawful purpose, of certificates of stock by any
association, company, or corporation, there shall be collected a documentary stamp tax of one
peso and ten centavos on each two hundred pesos, or fractional part thereof, of the par value
of such certificates: Provided, that in the case of the original issue of stock without par value
the amount of the documentary stamp tax herein prescribed shall be based upon the actual
consideration received by the association, company, or corporation for the issuance of such
stock, and in the case of stock dividends, on the actual value represented by each share. (As
amended by PD No. 1457).

It is clear from the abovequoted provision that for the aforestated tax to attach, the certificates
of stocks only need to be issued but not delivered. As to the meaning of the word “issue”, the
certificate as issued by the corporation, irrespective of whether or not it is in the actual or constructive
possession of the stockholder, is considered issued because it is with value and hence the
documentary stamp tax must be paid as imposed by Section 212 of the National Internal Revenue
Code, as amended.

In the present case, even in the appeal of CRA, it merely stated that "due to the difficulty in
the formal transfer of the contributed capital of the stockholders to the CRA, the bulk of them being
in capital equipment and capital assets, it is unable up to the present, to issue the corresponding
certificates of stocks. Furthermore, CRA only asked for further time to be allowed to settle the
documentary and science stamps taxes as it is now undertaking the speedy transfer of the ownership
of the assets to its capital base. Thus, the private respondent never disputed the amount of the
documentary and science stamps taxes assessment but only asked that it be given more time to be able
to pay them after it had formally transferred in its favor the contributed capital of its stockholders. It
has also not denied, until now, that it received a paid-in-capital in the amount of P17,880,000.00.
WHEREFORE, the petition is hereby GRANTED and the decision of the respondent Court of Tax
Appeals is ANNULLED and SET ASIDE. The private respondent is ordered to pay the petitioner the
amount of EIGHTY NINE THOUSAND FOUR HUNDRED PESOS (P89,400.00).

87
 BONIFACIA SY PO, petitioner, vs. HONORABLE COURT OF TAX APPEALS AND
HONORABLE COMMISSIONER OF INTERNAL REVENUE, respondents.
G.R. No. 81446, August 18, 1988, SECOND DIVISION, (SARMIENTO, J.)

When a report required by law as a basis for the assessment of an national internal revenue
tax shall not be forthcoming within the time fixed by law or regulation or when there is reason to
believe that any such report is false, incomplete, or erroneous, the Commissioner of Internal Revenue
shall assess the proper tax on the best evidence obtainable.

FACTS:

Petitioner is the widow of the late Mr. Po Bien Sing who died on September 7, 1980. In the
taxable years 1964 to 1972, the deceased Po Bien Sing was the sole proprietor of Silver Cup Wine
Factory (Silver Cup for brevity), Talisay, Cebu. He was engaged in the business of manufacture and
sale of compounded liquors, using alcohol and other ingredients as raw materials.

On the basis of a denunciation against Silver Cup allegedly "for tax evasion amounting to
millions of pesos" the then Secretary of Finance Cesar Virata directed the Finance-BIR--NBI team to
conduct the corresponding investigation. In this vein, a letter and a subpoena duces tecum were issued
against Silver Cup requesting production of the accounting records and other related documents for
the examination of the team. Mr. Po Bien Sing did not produce his books of accounts as requested.
This prompted the team with the assistance of the PC Company, Cebu City, to enter the factory
bodega of Silver Cup and seized different brands, consisting of 1,555 cases of alcohol products as
well as the Inventory lists. On the basis of the team's report of investigation, the respondent
Commissioner of Internal Revenue assessed Mr. Po Bien Sing deficiency income tax for 1966 to
1970 in the amount of P7,154,685.16 and for deficiency specific tax for January 2,1964 to January 19,
1972 in the amount of P5,595,003.68.

Petitioner protested the deficiency assessments thus a reinvestigation was conducted.

Thereafter CIR recommended the reiteration of the assessments in view of the taxpayer's persistent
failure to present the books of accounts for examination. In addition, CIR issued warrants of distraint
and levy. The warrants were admittedly received by petitioner which she deemed respondent's
decision denying her protest on the subject assessments. Hence, this present appeal.

ISSUE Whether or not the assessments of the Investigating Team have valid and legal basis.

RULING:

YES, the assessment done by the Investigating Team has valid and legal basis

The applicable legal provision is Section 16(b) of the National Internal Revenue Code of
1977 as amended. It reads:

Sec. 16. Power of the Commissioner of Internal Revenue to make assessments.—

xxx xxx xxx

88
 (b) Failure to submit required returns, statements, reports and other documents. - When a
report required by law as a basis for the assessment of an national internal revenue tax shall
not be forthcoming within the time fixed by law or regulation or when there is reason to
believe that any such report is false, incomplete, or erroneous, the Commissioner of Internal
Revenue shall assess the proper tax on the best evidence obtainable.

In case a person fails to file a required return or other document at the time prescribed by law,
or willfully or otherwise, files a false or fraudulent return or other documents, the Commissioner shall
make or amend the return from his own knowledge and from such information as he can obtain
through testimony or otherwise, which shall be prima facie correct and sufficient for all legal
purposes. The law is specific and clear. The rule on the "best evidence obtainable" applies when a tax
report required by law for the purpose of assessment is not available or when the tax report is
incomplete or fraudulent.

Where the taxpayer is appealing to the tax court on the ground that the Collector's assessment
is erroneous, it is incumbent upon him to prove the correct and just liability, by a full and fair
disclosure of all pertinent data in his possession. Otherwise, if the taxpayer confines himself to
proving that the tax assessment is wrong, the tax court proceedings would settle nothing, and the way
would be left open for subsequent assessments and appeals in interminable succession.

In the instant case, the persistent failure of the late Po Bien Sing and the herein petitioner to
present their books of accounts for examination for the taxable years involved left the Commissioner
of Internal Revenue no other legal option except to resort to the power conferred upon him under
Section 16 of the Tax Code. WHEREFORE, the Petition is DENIED. The Decision of the respondent
Court of Tax Appeals is hereby AFFIRMED.

89
 ADELA SANTOS GUTIERREZ, plaintiff-appellant, vs.
JOSE D. VILLEGAS and RIZALINA SANTOS RIVERA, defendants-appellants.
G.R. No. L-17117 July 31, 1963, EN BANC, (REYES, J.B.L., J.)

Real properties appraised by the Bureau of Internal Revenue for purposes of fixing the
amount of estate and inheritance taxes to be paid, and their fair market value, determined by the
examiner, after an ocular inspection of the properties and investigation of the deeds of title and tax
declarations covering the same and thereafter submitted and approved by his superior officers and by
the Superintendent and Senior Revenue Examiners and later confirmed by the Commissioner of
Internal Revenue, attaches to such appraisal the presumption of good faith and regularity in human
affairs.

FACTS:
The plaintiff and the defendants are the only legal heirs of the late Irene Santos, who died
intestate. Irene Santos owned real properties situated in the City of Manila, and in the provinces of
Laguna, Rizal, Bulacan, and Pampanga. These real properties were appraised by the Bureau of
Internal Revenue as determined by the examiner, Bernardo Tamese. Herein defendant, Jose D.
Villegas, is the surviving spouse, while the plaintiff, Adela Santos Gutierrez, and the other defendant,
Rizalina Santos Rivera, are the nieces of the said decedent.

A few days after the death of Irene Santos, a petition for the administration of her estate was
filed with the Court of First Instance of Rizal, Pasay City Branch, which was granted and qualified
Jose D. Villegas as the administrator of the estate. On 12 January 1955, Adela Santos Gutierrez
signed a four-page "Kasulatan Ng Bilihan At Salinan", purporting to be a sale of her share and
participation in the estate in favor of Rizalina Santos Rivera, in consideration of P50,000.00, payable
in installments. On this day also, the plaintiff signed a "Manifestation" purporting to inform the
probate court the plaintiff, is no longer entitled to the service of any pleading, motion, order, or
decision filed or promulgated in the probate court.

On 27 July 1955, the plaintiff filed the present case to annul the aforesaid deed of sale on
grounds of fraud and mistake, as there was a gross inadequate consideration for the sale because the
inventory of the estate of Irene Santos did not include certain properties in Rizal (a one-sixth
undivided interest in an estate in Montalban, Rizal, of 1010.9999 has.), and there was a gross under
valuation of the estate properties. The defendants answered denying the charges, and counterclaimed
for P200,000.00 moral and exemplary damages and P50,000.00 attorneys' fees, because of the
allegedly malicious charges and filing of the suit. The trial court rejected the pretensions of both
parties, dismissing the complaint as well on the counterclaim. Hence, plaintiffs and defendants
appealed to this Court directly.

ISSUE:

Whether or not the lower court erred in relying upon the appraisal made by the Bureau of Internal
Revenue Examiner Bernardo Tamese for the purpose of determining the true and fair market value of
the estate of Irene Santos and the share of the plaintiff-appellant in such estate.

RULING:

90
Lower court is correct in relying upon the appraisal made by BIR.

As to the averred undervaluation, the court note that the trial court preferred to adopt the
appraisal of the examiner of the Bureau of Internal Revenue, Bernardo Tamese, made in assessing the
inheritance taxes due on the estate of Irene Santos, and approved by the superior officers of the
Bureau, over that of witness Santiago presented by the appellant. In this respect, the trial court made
the following cogent observations in its decision:

It is a fact that Irene Santos owned real properties situated in the City of Manila, and in the
provinces of Laguna, Rizal, Bulacan, and Pampanga, some of which are paraphernal and the
rest are conjugal. These real properties were appraised by the Bureau of Internal Revenue for
purposes of fixing the amount of estate and inheritance taxes to be paid, and their fair market
value was determined by the examiner, Bernardo Tamese, after an ocular inspection of the
properties and investigation of the deeds of title and tax declarations covering the same. His
findings were submitted and approved by his superior officers and by the Superintendent and
Senior Revenue Examiners and was confirmed by the Commissioner of Internal Revenue, the
latter acting through Deputy Commissioner Misael P. Vera. It is to be observed that in his
report Mr. Tamese valued the property in Famy, Laguna, at P2,502.00 although in the
inventory of defendant Villegas each parcel was valued only at P1.00. It is also to be noted
that in said Report the paraphernal properties of Irene Santos were included, appraised and
considered in determining the total value of the estate of the old woman. These facts belie the
claim of plaintiff that there was undervaluation of the properties of the deceased. xxx xxx

We find no reversible error in these conclusions of the court a quo, which had ample
opportunity to estimate the credibility of the contrasting witnesses and evidence. Our review of the
evidence discloses that the evidence for appellant does not suffice to overcome the presumption of
good faith and regularity in human affairs. Hence, the claim of gross inadequacy of the price must be
rejected as unproved and, therefore, the conclusion of the court a quo is hereby affirmed.

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DONOR’S TAX

REV. FR. CASIMIRO LLADOC, petitioner, vs. The COMMISSIONER OF INTERNAL

REVENUE and The COURT of TAX APPEALS, respondents.
G.R. No. L-19201 June 16, 1965, EN BANC, (PAREDES, J.)

A gift tax is not a property tax, but an excise tax imposed on the transfer of property by way
of gift inter vivos, the imposition of which on property used exclusively for religious purposes, does
not constitute an impairment of the Constitution.

FACTS:
Sometime in 1957, the M.B. Estate, Inc., of Bacolod City, donated P10,000.00 in cash to Rev.
Fr. Crispin Ruiz, then parish priest of Victorias, Negros Occidental, and predecessor of herein
petitioner, for the construction of a new Catholic Church in the locality. On March 3, 1958, the donor
M.B. Estate, Inc., filed the donor's gift tax return. The respondent Commissioner of Internal Revenue
issued an assessment for donee's gift tax against the Catholic Parish of Victorias, Negros Occidental,
of which petitioner was the priest. The tax amounted to P1,370.00 including surcharges, interests of
1% monthly from May 15, 1958 to June 15, 1960, and the compromise for the late filing of the return.

Petitioner lodged a protest to the assessment and requested the withdrawal thereof. Such
protest and the motion for reconsideration were denied. Thus, petitioner appealed to the Court of Tax
Appeals claiming, among others, that at the time of the donation, he was not the parish priest in
Victorias; that there is no legal entity or juridical person known as the "Catholic Parish Priest of
Victorias," and, therefore, he should not be liable for the donee's gift tax. It was also asserted that the
assessment of the gift tax, even against the Roman Catholic Church, would not be valid, for such
would be a clear violation of the provisions of the Constitution. After hearing, the CTA rendered
judgment against the petitioner. Hence such judgment is now before us on appeal.

ISSUE: Whether or not petitioner should be liable for the assessed donee's gift tax on the P10,000.00
donated for the construction of the Victoria’s Parish Church.

RULING: YES, petitioner should be liable for the gift tax.

Section 22 (3), Art. VI of the Constitution of the Philippines, exempts from taxation
cemeteries, churches and parsonages or convents, appurtenant thereto, and all lands, buildings, and
improvements used exclusively for religious purposes. The exemption is only from the payment of
taxes assessed on such properties enumerated, as property taxes, as contra distinguished from excise
taxes. In the present case, what the Collector assessed was a donee's gift tax; the assessment was not
on the properties themselves. It did not rest upon general ownership; it was an excise upon the use
made of the properties, upon the exercise of the privilege of receiving the properties (Phipps vs. Com.
of Int. Rec. 91 F 2d 627).

Manifestly, gift tax is not within the exempting provisions of the section just mentioned. A
gift tax is not a property tax, but an excise tax imposed on the transfer of property by way of gift inter
vivos, the imposition of which on property used exclusively for religious purposes, does not
constitute an impairment of the Constitution. As well observed by the learned respondent Court, the
phrase "exempt from taxation," as employed in the Constitution (supra) should not be interpreted to

92
mean exemption from all kinds of taxes. And there being no clear, positive or express grant of such
privilege by law, in favor of petitioner, the exemption herein must be denied.

As to who shall pay the gift tax, On April 30, 1965, in a resolution, the court ordered the
Head of the Diocese to present whatever legal issues and/or defenses he might wish to raise. In view
hereof and considering that as heretofore stated, the assessment at bar had been properly made and the
imposition of the tax is not a violation of the constitutional provision exempting churches, parsonages
or convents, etc. (Art VI, sec. 22 [3], Constitution), the Head of the Diocese, to which the parish
Victoria’s pertains herein substitute petitioner, should pay, as he is presently ordered to pay, the said
gift tax, without special, pronouncement as to costs is liable for the payment thereof.

93
 ELVIRA T. ARANGOTE VS.SPS. MARTIN MAGLUNOB and LOURDES S. MAGLUNOB,
and ROMEO SALIDO, G.R. No. 178906, February 18, 2009, CHICO-NAZARIO, J.

“Title to immovable property does not pass from the donor to the donee by virtue of a Deed of
Donation until and unless it has been accepted in a public instrument and the donor duly notified
thereof.”

FACTS:

Elvira T. Arangote, herein petitioner married to Ray Mars E. Arangote, is the registered
owner of the subject property. Respondents Martin (Martin II) and Romeo are first cousins and the
grandnephews of Esperanza Maglunob-Dailisan (Esperanza), from whom petitioner acquired the
subject property.

Esperanza inherited the subject property from her uncle VictorinoSorrosa by virtue of a notarized
Partition Agreement executed by the latter’s heirs. Thereafter, Esperanza declared the subject
property in her name for real property tax purposes. On the basis thereof, tax declaration in her favor
was cancelled and a new one was issued in the name of the petitioner and her husband. The latter,
then, constructed a house on the subject property.

Respondents averred that they co-owned the subject property with Esperanza. Esperanza and her
siblings, Tomas and Inocencia, inherited the subject property, in equal shares, from their father
Martin Maglunob (Martin I). When Tomas and Inocencia passed away, their shares passed on by
inheritance to respondents Martin II and Romeo, respectively. Hence, the subject property was co-
owned by Esperanza, respondent Martin II (together with his wife Lourdes), and respondent Romeo,
each holding a one-third pro-indivisoshare therein. Thus, Esperanza could not validly waive her rights
and interest over the entire subject property in favor of the petitioner.

ISSUE: Whether or not there was a valid donation of property by Esperanza in favor of the
petitioner?

RULING:

No, there is no valid donation. Esperanza cannot validly waive her rights and interest over the entire
subject property in favor of the petitioner. The Court affirms the findings of both the RTC and the
Court of Appeals as regards the origin of the subject property and the fact that respondents, with their
grand aunt Esperanza, were co-heirs and co-owners of the subject property.While Esperanza’s
Affidavit is, in fact, a Donation wherein she expresses her real intent to donate her share in the subject
property to petitioner and her husband, the same was not valid.

As no onerous undertaking is required of petitioner and her husband under the said Affidavit, the
donation is regarded as a pure donation of an interest in a real property covered by Article 749 of the
Civil Code.
Art. 749. In order that the donation of an immovable may be valid, it must be made in a public
document, specifying therein the property donated and the value of the charges which the donee must
satisfy.

The acceptance may be made in the same deed of donation or in a separate public document, but it
shall not take effect unless it is done during the lifetime of the donor.If the acceptance is made in a
separate instrument, the donor shall be notified thereof in an authentic form, and this step shall be
noted in both instruments.

From the aforesaid provision, there are three requisites for the validity of a simple donation of a real
property, to wit: (1) it must be made in a public instrument; (2) it must be accepted, which acceptance

94
may be made either in the same Deed of Donation or in a separate public instrument; and (3) if the
acceptance is made in a separate instrument, the donor must be notified in an authentic form, and the
same must be noted in both instruments.

In the present case, the said Affidavit, which is tantamount to a Deed of Donation, met the first
requisite, as it was notarized; thus, it became a public instrument. Nevertheless, it failed to meet the
aforesaid second and third requisites. The acceptance of the said donation was not made by the
petitioner and her husband either in the same Affidavit or in a separate public instrument. As there
was no acceptance made of the said donation, there was also no notice of the said acceptance given to
the donor, Esperanza. Therefore, the Affidavit executed by Esperanza in favor of petitioner and her
husband is null and void.

It is true that the acceptance of a donation may be made at any time during the lifetime of the donor.
And granting arguendo that such acceptance may still be admitted in evidence on appeal, there is still
need for proof that a formal notice of such acceptance was received by the donor and noted in both
the Deed of Donation and the separate instrument embodying the acceptance. At the very least, this
last legal requisite of annotation in both instruments of donation and acceptance was not fulfilled by
the petitioner. For this reason, even Esperanzas one-third share in the subject property cannot be
adjudicated to the petitioner.

In this case, the subject property waived and quitclaimed by Esperanza to the petitioner and her
husband in the Affidavit was only covered by a tax declaration in the name of Esperanza. Settled is
the rule that a tax declaration does not prove ownership. It is merely an indicium of a claim of
ownership. Payment of taxes is not proof of ownership; it is, at best, an indicium of possession in the
concept of ownership. Neither tax receipts nor a declaration of ownership for taxation purposes is
evidence of ownership or of a right to possess realty when not supported by other effective proofs.

95
GAUDENCIO GUERRERO vs. REGIONAL TRIAL COURT OF ILOCOS NORTE, BR. XVI,
JUDGE LUIS B. BELLO, JR., PRESIDING, and PEDRO G. HERNANDO, G.R. No. 109068,
January 10, 1994, BELLOSILLO, J.

“The enumeration of "brothers and sisters" as members of the same family does not comprehend
"sisters-in-law".

FACTS:

This case involves parties who are brothers-in-law, petitioner GaudencioGuerrero and
respondent Hernando, they being married to half-sisters.Petitioner files a petition as an
accionpubliciana against private respondent. On the basis thereof, respondent Judge gave petitioner
five (5) days "to file his motion and amended complaint" to allege that the parties were very close
relatives, their respective wives being sisters, and that the complaint to be maintained should allege
that earnest efforts towards a compromise were exerted but failed.
Guerrero moved to reconsider the Order claiming that since brothers by affinity are not members of
the same family, he was not required to exert efforts towards a compromise. The same was denied by
respondent Judge denied the motion for reconsideration holding that "[f]ailure to allege that earnest
efforts towards a compromise is jurisdictional such that for failure to allege same the court would be
deprived of its jurisdiction to take cognizance of the case." The 5-day period having expired without
Guerrero amending his complaint, respondent Judge dismissed the case, declaring the dismissal
however to be without prejudice.

ISSUE: Whether or not brothers by affinity are considered members of the same family, thus, earnest
efforts towards a compromise is required before a suit between them may be instituted and
maintained?

RULING:

No, compromise is not required in the instant case. While the Family Code provides that “No suit
between members of the same family shall prosper unless it should appear from the verified
complaint or petition that earnest efforts toward a compromise have been made, but that the same had
failed. If it is shown that no such efforts were in fact made, the case must be dismissed”, the instant
case presents no occasion for the application this provision. As early as two decades ago, we already
ruled in Gayon v. Gayon6 that the enumeration of "brothers and sisters" as members of the same
family does not comprehend "sisters-in-law". In that case, then Chief Justice Concepcion emphasized
that "sisters-in-law" (hence, also "brothers-in-law") are not listed under Art. 217 of the New Civil
Code as members of the same family. Consequently, the court a quo erred in ruling that petitioner
Guerrero, being a brother-in-law of private respondent Hernando, was required to exert earnest efforts
towards a compromise before filing the present suit.

96
TANG HO, WILLIAM LEE, HENRI LEE, SOFIA LEE TEEHANKEE, THOMAS LEE,
ANTHONY LEE, JULIA LEE KAW, CHARLES LEE, VALERIANA LEE YU, VICTOR
LEE, SILVINO LEE, MARY LEE, JOHN LEE, and PETER LEE, for themselves and as heirs
of LI SENG GIAP, deceased, vs. THE BOARD OF TAX APPEALS and THE COLLECTOR
OF INTERNAL REVENUE, G.R. No. L-5949, November 19, 1955, REYES, J.B.L., J.

“For the parent to donate cash to enable the donee to buy from him shares of equivalent value is, for
all intents and purposes, a donation of such shares to the purchaser donee.”
“Any transfer or agreement upon conjugal property made by the husband in contravention of its
provisions, shall not prejudice his wife or her heirs. As the conjugal property belongs equally to
husband and wife, the donation of this property made by the husband prejudices the wife in so far as
it includes a part or the whole of the wife's half, and is to that extent invalid.”

FACTS:

Petitioners Li SengGiap (who died during the pendency of this appeal) and his wife Tang Ho and
their thirteen children appear to be the stockholder of two close family corporations named Li
SengGiap& Sons, Inc. and Li SengGiap& Co. Examiners of the Bureau of Internal Revenue, then
detailed to the Allas Committee of the Congress of the Philippines, made an examination of the books
of the two corporation aforementioned and found that each of Li SengGiap's 13 children had a total
investment therein of approximately P63,195.00, in shares issued to them by their father Li SengGiap
(who was the manager and controlling stockholder of the two corporations).
The Collector of Internal Revenue regarded these transfers as undeclared gifts made in the
respective years, and assessed against Li SengGiap and his children donor's and donee's taxes in the
total amount of P76,995.31, including penalties, surcharges, interests, and compromise fee due to the
delayed payment of the taxes. The petitioners requested the Collector of Internal Revenue for a
revision of their tax assessments, and submitted donor's and donee's gift tax returns showing that each
child received by way of gift inter vivos, every year from 1939 to 1950 (except in 1947 and 1948).
Appellants admit that these gifts were not reported; but contend that as the cash donated came from
the conjugal funds, they constituted individual donations by each of the spouses Li SengGiap and
Tang Ho of one half of the amount received by the donees in each instance. They further alleged that
the children's stockholding in the two family corporations were purchased by them with savings from
the aforesaid cash donations received from their parents.
Claiming the benefit of gift tax at the rate of P2000 a year for each donation, plus P10,000 for
each gift propter nuptias made by either parent, and appellants' aggregate tax liability, according to
their returns, would only be P4,599.94 for the year 1949, and P228,28 for the year 1950, or a total of
P4,838.22. The Collector refused to revise his original assessments; and the petitioners appealed to
the then Board of Tax Appeals insisting that the entries in the books of the corporation do not prove
donations; that the true amount and date of the donation were those appearing in their tax returns; and
that the donees merely bought stocks in the corporation out of savings made from the money received
from their parents.

ISSUE 1: Whether or not the stock transfers from Li SengGiap to his children were donations?

RULING:

Yes, the stock transfers are considered donations supported by the following circumstances

97
 (1) That the transferor Li SengGiap (now deceased) had in fact conveyed shares to stock to his 13
children on the dates and in the amounts shown in the table on page 2 of this decision; (2) That none
of the transferees appeared to possess adequate independent means to buy the shares, so much so that
they claim now to have purchased the shares with the cash donations made to them from time to time;
(3) That the total of the alleged cash donations to each child is practically identical to the value of the
shares supposedly purchased by each done; (4) That there is no evidence other than the belated sworn
gift tax returns of the spouses Li SengGiap and Ang Tang Ho, and their children, appellants herein, to
support their contention that the shares were acquired by purchase. No contracts of sale or other
documents were presented, nor any witnesses introduced; not even the claimants themselves have
testified; (5) The claim that the shares were acquired by the children by purchase was first advanced
only after the assessment of gift taxes and penalties due thereon (in the sum of P76,995.31) had been
made, and after the appellants had paid P53,434.50 on account, and had filed a bond to guarantee the
balance; and (6) That for the parent to donate cash to enable the donee to buy from him shares of
equivalent value is, for all intents and purposes, a donation of such shares to the purchaser donee.

ISSUE 2: Is a donation of community property by the father alone equivalent in law to a donation of
one-half of its value by the father and one-half by the mother?
RULE: No. Any transfer or agreement upon conjugal property made by the husband in contravention
of its provisions shall not prejudice his wife or her heirs. As the conjugal property belongs equally to
husband and wife, the donation of this property made by the husband prejudices the wife in so far as
it includes a part or the whole of the wife's half, and is to that extent invalid. It is not enough that the
property donated should belong to the conjugal partnership in order that the donation be considered
and taxed as a donation of both husband and wife, even if the husband should appear as the sole
donor. There is no blinking the fact that, under the old Civil Code, to be a donation by both spouses,
taxable to both, the wife must expressly join the husband in making the gift; her participation therein
cannot be implied.

The consequence of the husband's legal power to donate community property is that, where made by
the husband alone, the donation is taxable as his own exclusive act. Hence, only one exemption or
deduction can be claimed for every such gift, and not two, as claimed by appellants herein.

98
 MARIO SIOCHI vs. ALFREDO GOZON, WINIFRED GOZON, GIL TABIJE, INTER-
DIMENSIONAL REALTY, INC., and ELVIRA GOZON, G.R. No. 169900, March 18, 2010
x - - - - - - - - - - - - - - - - - - - - - - -x
INTER-DIMENSIONAL REALTY, INC. vs. MARIO SIOCHI, ELVIRA GOZON, ALFREDO
GOZON, and WINIFRED GOZON, G.R. No. 169977, SECOND DIVISION

“A conjugal property cannot be donated by one spouse without the consent of the other spouse.”

FACTS:
This case involves a 30,000 sq.m. parcel of land registered in the name of "Alfredo Gozon
(Alfredo), married to Elvira Gozon (Elvira). Elvira filed with the Cavite City Regional Trial Court
(Cavite RTC) a petition for legal separation against her husband Alfredo. She then filed a notice of
lispendens, which was then annotated on TCT No. 5357.

While the legal separation case was still pending, Alfredo and Mario Siochi (Mario) entered into an
Agreement to Buy and Sell (Agreement) involving the property. Among the stipulations in the
Agreement were that Alfredo would secure an Affidavit from Elvira that the property is Alfredo’s
exclusive property and to annotate the Agreement at the back of title. After paying the ₱5 million
earnest money as partial payment of the purchase price, Mario took possession of the property. The
Agreement was annotated on TCT No. 5357.

RTCCavite rendered decreeing the legal separation between petitioner and respondent. As regards the
property, RTC held that it is deemed conjugal property.Alfredo executed a Deed of Donation over the
property in favor of their daughter, Winifred Gozon (Winifred). The Register of Deeds of Malabon,
Gil Tabije, cancelled TCT No. 5357 and issued TCT No. M-105088 in the name of Winifred, without
annotating the Agreement and the notice of lispendens on TCT No.M-10508.

Alfredo, by virtue of a Special Power of Attorney executed in his favor by Winifred, sold the property
to Inter-Dimensional Realty, Inc. (IDRI) for ₱18 million. Mario then filed with the Malabon Regional
Trial Court (Malabon RTC) a complaint for Specific Performance and Damages and Annulment of
Donation and Sale of which the same was granted.

ISSUE: Whether or not donation made by Alfredo to his daughter of the subject property and the sale
of the same to Mario Siochi and Inter-Dimensional Realty, Inc. requires consent of her spouse Elvira?

RULING: Yes, consent of the spouse is necessary. This case involves the conjugal property of
Alfredo and Elvira. Since the disposition of the property occurred after the effectivity of the Family
Code, the applicable law is the Family Code. Article 124 of the Family Code provides:The
administration and enjoyment of the conjugal partnership property shall belong to both spouses
jointly. In case of disagreement, the husband’s decision shall prevail, subject to the recourse to the
court by the wife for a proper remedy, which must be availed of within five years from the date of the
contract implementing such decision.

In the event that one spouse is incapacitated or otherwise unable to participate in the administration of
the conjugal properties, the other spouse may assume sole powers of administration. These powers do
not include the powers of disposition or encumbrance which must have the authority of the court or

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the written consent of the other spouse. In the absence of such authority or consent, the disposition or
encumbrance shall be void. However, the transaction shall be construed as a continuing offer on the
part of the consenting spouse and the third person, and may be perfected as a binding contract upon
the acceptance by the other spouse or authorization by the court before the offer is withdrawn by
either or both offerors.

In this case, Alfredo was the sole administrator of the property because Elvira, with whom Alfredo
was separated in fact, was unable to participate in the administration of the conjugal property.
However, as sole administrator of the property, Alfredo still cannot sell the property without the
written consent of Elvira or the authority of the court. Without such consent or authority, the sale is
void. The absence of the consent of one of the spouse renders the entire sale void, including the
portion of the conjugal property pertaining to the spouse who contracted the sale. Even if the other
spouse actively participated in negotiating for the sale of the property, that other spouse’s written
consent to the sale is still required by law for its validity. The Agreement entered into by Alfredo and
Mario was without the written consent of Elvira. Thus, the Agreement is entirely void. As regards
Mario’s contention that the Agreement is a continuing offer which may be perfected by Elvira’s
acceptance before the offer is withdrawn, the fact that the property was subsequently donated by
Alfredo to Winifred and then sold to IDRI clearly indicates that the offer was already withdrawn.

Among the effects of the decree of legal separation is that the conjugal partnership is dissolved and
liquidated and the offending spouse would have no right to any share of the net profits earned by the
conjugal partnership. It is only Alfredo’s share in the net profits which is forfeited in favor of
Winifred.

Had IDRI been more prudent before buying the property, it would have discovered that Alfredo’s
donation of the property to Winifred was without the consent of Elvira. Under Article 12520 of the
Family Code, a conjugal property cannot be donated by one spouse without the consent of the other
spouse.

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 MANUEL G. ABELLO, JOSE C. CONCEPCION, TEODORO D. REGALA, AVELINO V.
CRUZ, petitioners, vs. COMMISSIONER OF INTERNAL REVENUE and COURT OF
APPEALS, respondents.
G.R. No. 120721, 23 February 2005, (AZCUNA, J.)

Political contributions made before the enactment of Republic Act No. 7166 on November 25, 1991
are subject to the payment of gift taxes, since the same were made prior to the exempting legislation,
and no retroactive effect is provided. After the enactment of the said law, political/electoral
contributions, which are duly reported to the Commission on Elections, are not anymore subject to
the payment of any gift tax.

FACTS:
During the 1987 national elections, petitioners, who are partners in the (ACCRA) law firm,
contributed P882,661.31 each to the campaign funds of Senator Edgardo Angara, then running for the
Senate. In letters dated April 21, 1988, the Bureau of Internal Revenue (BIR) assessed each of the
petitioners P263,032.66 for their contributions. On August 2, 1988, petitioners questioned the
assessment through a letter to the BIR. They claimed that political or electoral contributions are not
considered gifts under the National Internal Revenue Code (NIRC), and that, therefore, they are not
liable for donor's tax. The claim for exemption was denied by the Commissioner.

ISSUE:

Whether petitioners are liable for donor's tax

RULING:
Yes they are liable during this time but today, political/electoral contributions, duly reported to the
Commission on Elections, are not subject to the payment of any gift tax.

A gift is generally defined as a voluntary transfer of property by one to another without any
consideration or compensation therefor (28 C.J. 620; Santos vs. Robledo, 28 Phil. 250). In the instant
case, the contributions are voluntary transfers of property in the form of money from private
petitioners to Sen. Angara, without any material consideration.

The fact that the contributions were given to be used as campaign funds of Sen. Angara does not
affect the character of the fund transfers as donation or gift. There was thereby no retention of control
over the disposition of the contributions. There was simply an indication of the purpose for which
they were to be used. For as long as the contributions were used for the purpose for which they were
intended, Sen. Angara had complete and absolute power to dispose of the contributions. He was fully
entitled to the economic benefits of the contributions.
The Bureau of Internal Revenue issued Ruling No. 344 on July 20, 1988, which reads: Political
Contributions. – For internal revenue purposes, political contributions in the Philippines are
considered taxable gift rather than taxable income. This is so, because a political contribution is
indubitably not intended by the giver or contributor as a return of value or made because of any intent
to repay another what is his due, but bestowed only because of motives of philanthropy or charity.
Accordingly, in the absence of an express exempting provision of law, political contributions in the
Philippines are subject to the donor's gift tax. Petitioners attempt to place the barrier of mutual

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exclusivity between donative intent and the purpose of political contributions (influence the results of
the election). This Court reiterates that donative intent is not negated by the presence of other
intentions, motives or purposes which do not contradict donative intent.

BUT NOW – IT IS NO LONGER TAXABLE. Congress approved Republic Act No. 7166 on
November 25, 1991, providing in Section 13 thereof that political/electoral contributions, duly
reported to the Commission on Elections, are not subject to the payment of any gift tax. This all the
more shows that the political contributions herein made are subject to the payment of gift taxes, since
the same were made prior to the exempting legislation, and Republic Act No. 7166 provides no
retroactive effect on this point.

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 FINLEY J. GIBBS and DIANE P. GIBBS, petitioners, vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.
G.R. No. L-17406, 29 November 1965, (REGALA, J.)

The right of reimbursement is independent of, and foreign to, the right of the Government to collect
the tax in the manner and under the conditions prescribed by law.

FACTS:
On February 6, 1965, the respondent Commissioner of Internal Revenue issued against the petitioners
Deficiency Income Tax Assessment with the demand it should be paid on or before March 15, 1956.
On March 14, 1956, Allison Gibbs, signing as attorney-in-fact for Finley J. Gibbs, his brother,
questioned the disallowance of the items which gave rise to the deficiency assessment and requested
for a correction of it. It was denied.

Allison Gibbs sent to the Commissioner her check, representing their payment with the demand for its
refund. The demand for refund was denied by the CIR. Allison Gibbs sent another letter to the
Commissioner stating that its deficiency assessment was illegal, and the CIR’s letter was not a ruling
on her client’s claim for refund and her assertion for certain claims for tax credits arising allegedly
from some previous overpayment made by the petitioner to the respondent Commissioner. There was
no reply.

Petitioners filed with the CTA a “Petition for Review and Refund of Income Tax with Motion for
Suspension of Collection of Additional Taxes.” The CTA sustained the objection to its jurisdiction
and upheld the respondent Commissioner’s claim that the two causes of action asserted by the
petitioner were barred by prescription.

ISSUE:
Whether or not the petitioners’ action is barred by prescription.

RULING:
Yes, it is. Anent the insistence of the petitioners that they never received a copy of the letter of
October 26, 1956 denying their claim for refund, suffice it to say that while they themselves
personally might not have received a copy of it, Allison J. Gibbs, as their attorney-in-fact and actually
as their counsel, received a copy of the same. Based on the evidence, there is a lawyer-client-
relationship of the petitioners herein and Allison Gibbs. Besides, Allison Gibbs claimed he would
collect, if his demand for refund for the petitioners were not effected by the respondent
Commissioner, “attorney’s fees of 25% of the amount involved.”

There can be no question, therefore, that the receipt of the October 26, 1956 letter-decision of the
Commissioner by Allison Gibbs was receipt of the same by the petitioners, the former being then the
latter’s legal counsel. In the premises, the respondent court cannot be considered to have erred,
therefore, in computing the 30-day prescriptive period in question from the date the said letter was
received by Allison J. Gibbs.

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Petitioners also maintained that the respondent court erred in ruling that their claim for tax credit had
already expired since it pertained to tax payments made in 1951 and the protest and claim for demand
therefore was made only in 1958. It is bereft of merit. A taxpayer claiming for refund must comply
with the requirement of both sections, that is, he must file a claim for refund with the Collector of
Internal Revenue within 2 years from the date of his payment of the tax, as required by Section 306 of
the National Internal Revenue Code.

104
 THE COLLECTOR OF INTERNAL REVENUE, Petitioner, vs. ANTONIO CAMPOS
RUEDA, Respondent.
G.R. No. L-13250, 42 SCRA 23, 30 May 1962, (PAREDES, J.)

Even a tiny principality, hardly an international personality in the sense, if it falls under the exempt
category provided for in Sec 122 of the Tax Code, the Philippines must honor such exemption as
provided for by our tax law with respect to the doctrine of reciprocity.

FACTS:
Maria de la Estrella Soriano Vda. de Cerdeira, (Maria Cerdeira, for short), died in Tangier, (North
Africa), on January 2, 1955. At the time of her demise, she was married to a Spanish Citizen and a
permanent resident of Tangier from 1931 up to her death. She left properties in Tangier as well as in
the Philippines. Her properties in the Philippines are several parcels of land and many shares of stock,
accounts receivable and other intangible personal properties. The real estate situated in the
Philippines had a market value of P1,109,483.50 and her personal properties also in the Philippines
had a value of P396,308.90. On the real estate, the respondent Antonio Campos Rueda, as
administrator of her estate, paid the sum of P111,582.00 as estate tax and the sum of P151,791.48 as
inheritance tax, on the transfer of her real properties in the Philippines, but refused to pay the
corresponding deficiency estate and inheritance taxes due on the transfer of her intangible personal
properties, claiming that the estate is exempt from the payment of said taxes pursuant to section 122
of the Tax Code.

ISSUE:
Whether or not the testate estate of Maria Cerdeira is exempt for the payment of deficiency estate and
inheritance taxes in the sum of P161,874.95

Whether the international zone of Tangier, even if it is not recognized by the Philippine Government
as a state, could avail of the reciprocal provisions of our Tax Code

RULING:

Yes, the said estate is exempt for the payment of deficiency estate and inheritance taxes and Tangier
could avail of the reciprocal provisions of our Tax Code. The controlling legal provision as noted is a
proviso in section 122 of the NIRC. It reads thus:
that no tax shall be collected under this title in respect of intangible personal properties
1. if the decedent at the time of his death was a resident of a foreign country which at the time of
his death did not impose a transfer tax or death tax of any character in respect of intangible
personal properties of the Philippines not residing in that foreign country; or
2. if the laws of the foreign country of which the decedent was a resident at the time of his death
allow a similar exemption from transfer taxes or death taxes of every character in respect of
intangible personal properties owned by citizens of the Philippines not residing in that
foreign country.

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The Court committed itself to the doctrine that even a tiny principality, hardly an international
personality in the sense, did fall under the exempt category.
The expression “foreign country,” was used in the last proviso of section 122 of NIRC refers to a
government of that foreign power which although not an international person in the sense of
international law does not impose transfer or death upon intangible person properties of our citizens
not residing therein whose law allow a similar exemption from such taxes. It is therefore not
necessary that Tangier should have been recognized by our government in order to entitle the
respondent to the exemption benefits of the proviso of said section 122 of our tax code.

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