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The agreement was modified to reflect a revision that the interest will be paid
to the minor heirs whenever the company is in the position to meet the obligation.
MARIA CARLA PIROVANO, etc., et al., petitioner, Mrs. Pirovano executed a public document formally accepting the donation and the
vs. BOD took official notice of the formal acceptance.
CIR, respondent.
The Stockholders of the company formally ratified the resolutions but with
G.R. No. L-19865 clarifying modifications that the payment of the donation shall not be effected until
July 31, 1965 such time the company shall have fully liquidated its bonded indebtedness with the
National Development Company or fully redeemed the preferred shares if stock in
Case Brief: the amount which shall be issued to the National Development Company in lieu
Motion for reconsideration on the CTA decision directing the petitioner to pay the thereof; and all taxes, legal fees and expenses connected with the above
CIR the assessed donee’s gift taxes, surcharge and interest rate. transaction shall be chargeable and deducted from the proceeds of the life
insurance policies. However, the majority stockholders voted to revoke the
Facts: resolution approving the donation to the Pirovano children. Thus, as consequence,
De La Rama Steamship Co. insured the life of deceased Enrico Pirovano, who was the company refused to pay the balance of the donation amounting to P564,980
then President and General Manager until the time of his death with various despite demands. An action to recover the said amount plus interest and damages
Philippine and American insurance companies for a total sum of P1M. The company against De La Rama was commenced by Mrs Pirovano in the CFI of Rizal. The CFI
designated itself as the beneficiary in such contracts of life insurance. The American held that the donation was valid and remunerative in nature. The decision became
insurances were paid premiums from year to year but the Philippine insurers were final and executory and in compliance, the company paid the amount of the amount
not paid premiums due to the Japanese occupation hence these Philippine in the judgment. Thus, CIR assessed a donee’s tax, surcharges, interests and
insurance contracts lapsed. Pirovano died during the Japanese occupation. penalties in the amount of P243,478.68 and donor’s tax of P34,371.76. De La Rama
paid the donor’s tax. Thus, the petitioner filed two petitions before the CTA for the
After the liberation, the Board of Directors of the company adopted a resolution legality of the assessment of the donee’s gift tax, surcharge of 25% and 5% and
dated 1946 granting and setting aside the amount of P400,000 to be equally divided interests and for the claim for refund of the donor’s tax already paid.
among the minor heirs of Pirovano to be converted into 4,000 shares of stocks of
the company at par or 1,000 shares for each child. The company received a total of Actions of the Court:
P643,000 as proceeds of the life insurance from the American insurers. CTA: Held that the donee’s gift tax was correctly assessed and the donor’s gift tax
was erroneously assessed and collected. The tax court regarded that there was a
Upon receipt of the actual amount of the proceeds, the BOD modified the resolution simple donation which is taxable under the Tax Code.
renouncing all its rights, title and interest to the said amount in favor of the minor
children of Pirovano on the express condition that the amount should be retained Issue/s:
with the company in the nature of a loan to it, drawing interest of 5% per annum and 1. WON the CTA erred in ordering the petitioner to pay the donee’s gift taxes
payable to the Pirovano children after the company has settled in full balance its 2. WON the imposition of surcharge of 5% and interest rate on the donee’s gift
present remaining bonded indebtedness in the sum of P5M. This was carried out in tax is justified
a Memorandum of Agreement executed by the company and Mrs Pirovano, acting
as guardian to her children pursuant to an express authority granted her by the
1. The court ruled against the petitioners. The court in affirming the decision
of CTA explained that the contention of the petitioner that the donation
was a remuneratory donation and hence does not constitute a taxable gift
under the NIRC was misplaced. The court explained that a conveyance,
whether remuneratory or simple is a gift, taxable under Chapter 2, Title III
of the NIRC. The court in its explanation cited Article 619 of the Code 1889
that states that when a person gives a thing to another on the account of
the latter’s merits or services rendered by him to the donor, provided they
do not constitute a demandable debt, there is a donation. In this case, there
was no demandable debt since there was nothing in the records that would
show that the late Pirovano was not fully compensated for his services. The
fact that his services contributed to the success of the business did not give
rise to a recoverable debt and thus conveyances of the company to his heirs
remain as a gift or donation.

2. The court ruled that the imposition of 5% and interest of 1% is justified and
legal as said imposition is mandatory and may not be waived by the CIR or
by courts as stated in Section 119 (b) (1) and (c). Hence, the RTC ruling on
the surcharge and the interest rates should be upheld.