TITLE III

ESTATE AND DONOR'S TAXES

CHAPTER I

ESTATE TAX

SEC. 84. Rates of Estate Tax. - There shall be levied, assessed, collected and paid upon the
transfer of the net estate as determined in accordance with Sections 85 and 86 of every decedent,
whether resident or nonresident of the Philippines, a tax based on the value of such net estate, as
computed in accordance with the following schedule:

If the net estate is:

Over But Not Over The Tax Shall Plus Of the Excess
Be Over
P 200,000 Exempt
P 200,000 500,000 0 5% P 200,000
500,000 2,000,000 P15,000 8% 500,000
2,000,000 5,000,000 135,000 11% 2,000,000
5,000,000 10,000,000 456,000 15% 5,000,000
10,000,000 And Over 1,215,000 20% 10,000,000

SEC. 85. Gross Estate. - the value of the gross estate of the decedent shall be determined by
including the value at the time of his death of all property, real or personal, tangible or intangible,
wherever situated: Provided, however, that in the case of a nonresident decedent who at the time
of his death was not a citizen of the Philippines, only that part of the entire gross estate which is
situated in the Philippines shall be included in his taxable estate.

(A) Decedent's Interest. - To the extent of the interest therein of the decedent at the time of his
death;

(B) Transfer in Contemplation of Death. - To the extent of any interest therein of which the
decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended to
take effect in possession or enjoyment at or after death, or of which he has at any time made a
transfer, by trust or otherwise, under which he has retained for his life or for any period which does
not in fact end before his death (1) the possession or enjoyment of, or the right to the income from
the property, or (2) the right, either alone or in conjunction with any person, to designate the person
who shall possess or enjoy the property or the income therefrom; except in case of a bona fide
sale for an adequate and full consideration in money or money's worth.

(C) Revocable Transfer. -

(1) To the extent of any interest therein, of which the decedent has at any time made a transfer
(except in case of a bona fide sale for an adequate and full consideration in money or money's
worth) by trust or otherwise, where the enjoyment thereof was subject at the date of his death to
any change through the exercise of a power (in whatever capacity exercisable) by the decedent
alone or by the decedent in conjunction with any other person (without regard to when or from
what source the decedent acquired such power), to alter, amend, revoke, or terminate, or where
any such power is relinquished in contemplation of the decedent's death.

(2) For the purpose of this Subsection, the power to alter, amend or revoke shall be considered to
exist on the date of the decedent's death even though the exercise of the power is subject to a
precedent giving of notice or even though the alteration, amendment or revocation takes effect only
on the expiration of a stated period after the exercise of the power, whether or not on or before the
date of the decedent's death notice has been given or the power has been exercised. In such
cases, proper adjustment shall be made representing the interests which would have been
excluded from the power if the decedent had lived, and for such purpose if the notice has not been
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given or the power has not been exercised on or before the date of his death, such notice shall be
considered to have been given, or the power exercised, on the date of death.

(D) Property Passing Under General Power of Appointment. - To the extent of any property
passing under a general power of appointment exercised by the decedent: (1) by will, or (2) by
deed executed in contemplation of, or intended to take effect in possession or enjoyment at, or
after his death, or (3) by deed under which he has retained for his life or any period not
ascertainable without reference to his death or for any period which does not in fact end before his
death (a) the possession or enjoyment of, or the right to the income from, the property, or (b) the
right, either alone or in conjunction with any person, to designate the persons who shall possess or
enjoy the property or the income therefrom; except in case of a bona fide sale for an adequate and
full consideration in money or money's worth.

(E) Proceeds of Life Insurance. - To the extent of the amount receivable by the estate of the
deceased, his executor, or administrator, as insurance under policies taken out by the decedent
upon his own life, irrespective of whether or not the insured retained the power of revocation, or to
the extent of the amount receivable by any beneficiary designated in the policy of insurance,
except when it is expressly stipulated that the designation of the beneficiary is irrevocable.

(F) Prior Interests. - Except as otherwise specifically provided therein, Subsections (B), (C) and
(E) of this Section shall apply to the transfers, trusts, estates, interests, rights, powers and
relinquishment of powers, as severally enumerated and described therein, whether made, created,
arising, existing, exercised or relinquished before or after the effectivity of this Code.

(G) Transfers for Insufficient Consideration. - If any one of the transfers, trusts, interests, rights
or powers enumerated and described in Subsections (B), (C) and (D) of this Section is made,
created, exercised or relinquished for a consideration in money or money's worth, but is not a bona
fide sale for an adequate and full consideration in money or money's worth, there shall be included
in the gross estate only the excess of the fair market value, at the time of death, of the property
otherwise to be included on account of such transaction, over the value of the consideration
received therefor by the decedent.

(H) Capital of the Surviving Spouse. - The capital of the surviving spouse of a decedent shall
not, for the purpose of this Chapter, be deemed a part of his or her gross estate.

SEC. 86. Computation of Net Estate. - For the purpose of the tax imposed in this Chapter, the
value of the net estate shall be determined:

(A) Deductions Allowed to the Estate of Citizen or a Resident. - In the case of a citizen or
resident of the Philippines, by deducting from the value of the gross estate -

(1) Expenses, Losses, Indebtedness, and Taxes. - Such amounts -

(a) For actual funeral expenses or in an amount equal to five percent (5%) of the gross estate,
whichever is lower, but in no case to exceed Two hundred thousand pesos (P200,000);

(b) For judicial expenses of the testamentary or intestate proceedings;

(c) For claims against the estate: Provided, That at the time the indebtedness was incurred the
debt instrument was duly notarized and, if the loan was contracted within three (3) years before the
death of the decedent, the administrator or executor shall submit a statement showing the
disposition of the proceeds of the loan;

(d) For claims of the deceased against insolvent persons where the value of decedent's interest
therein is included in the value of the gross estate; and

(e) For unpaid mortgages upon, or any indebtedness in respect to, property where the value of
decedent's interest therein, undiminished by such mortgage or indebtedness, is included in the
value of the gross estate, but not including any income tax upon income received after the death of
the decedent, or property taxes not accrued before his death, or any estate tax. The deduction

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herein allowed in the case of claims against the estate, unpaid mortgages or any indebtedness
shall, when founded upon a promise or agreement, be limited to the extent that they were
contracted bona fide and for an adequate and full consideration in money or money's worth. There
shall also be deducted losses incurred during the settlement of the estate arising from fires,
storms, shipwreck, or other casualties, or from robbery, theft or embezzlement, when such losses
are not compensated for by insurance or otherwise, and if at the time of the filing of the return such
losses have not been claimed as a deduction for the income tax purposes in an income tax return,
and provided that such losses were incurred not later than the last day for the payment of the
estate tax as prescribed in Subsection (A) of Section 91.

(2) Property Previously Taxed. - An amount equal to the value specified below of any property
forming a part of the gross estate situated in the Philippines of any person who died within five (5)
years prior to the death of the decedent, or transferred to the decedent by gift within five (5) years
prior to his death, where such property can be identified as having been received by the decedent
from the donor by gift, or from such prior decedent by gift, bequest, devise or inheritance, or which
can be identified as having been acquired in exchange for property so received:

One hundred percent (100%) of the value, if the prior decedent died within one (1) year prior to the
death of the decedent, or if the property was transferred to him by gift within the same period prior
to his death;

Eighty percent (80%) of the value, if the prior decedent died more than one (1) year but not more
than two (2) years prior to the death of the decedent, or if the property was transferred to him by
gift within the same period prior to his death;

Sixty percent (60%) of the value, if the prior decedent died more than two (2) years but not more
than three (3) years prior to the death of the decedent, or if the property was transferred to him by
gift within the same period prior to his death;

Forty percent (40%) of the value, if the prior decedent died more than three (3) years but not more
than four (4) years prior to the death of the decedent, or if the property was transferred to him by
gift within the same period prior to his death;

Twenty percent (20%) of the value, if the prior decedent died more than four (4) years but not more
than five (5) years prior to the death of the decedent, or if the property was transferred to him by
gift within the same period prior to his death;

These deductions shall be allowed only where a donor's tax or estate tax imposed under this Title
was finally determined and paid by or on behalf of such donor, or the estate of such prior decedent,
as the case may be, and only in the amount finally determined as the value of such property in
determining the value of the gift, or the gross estate of such prior decedent, and only to the extent
that the value of such property is included in the decedent's gross estate, and only if in determining
the value of the estate of the prior decedent, no deduction was allowable under paragraph (2) in
respect of the property or properties given in exchange therefor. Where a deduction was allowed of
any mortgage or other lien in determining the donor's tax, or the estate tax of the prior decedent,
which was paid in whole or in part prior to the decedent's death, then the deduction allowable
under said Subsection shall be reduced by the amount so paid. Such deduction allowable shall be
reduced by an amount which bears the same ratio to the amounts allowed as deductions under
paragraphs (1) and (3) of this Subsection as the amount otherwise deductible under said
paragraph (2) bears to the value of the decedent's estate. Where the property referred to consists
of two or more items, the aggregate value of such items shall be used for the purpose of
computing the deduction.

(3) Transfers for Public Use. - The amount of all the bequests, legacies, devises or transfers to or
for the use of the Government of the Republic of the Philippines, or any political subdivision
thereof, for exclusively public purposes.

(4) The Family Home. - An amount equivalent to the current fair market value of the decedent's
family home: Provided, however, That if the said current fair market value exceeds One million
pesos (P1, 000,000), the excess shall be subject to estate tax. As a sine qua non condition for the

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exemption or deduction, said family home must have been the decedent's family home as certified
by the barangay captain of the locality.

(5) Standard Deduction. - An amount equivalent to One million pesos (P1, 000,000).

(6) Medical Expenses. - Medical Expenses incurred by the decedent within one (1) year prior to
his death which shall be duly substantiated with receipts: Provided, That in no case shall the
deductible medical expenses exceed Five Hundred Thousand Pesos (P500, 000).

(7) Amount Received by Heirs Under Republic Act No. 4917. - Any amount received by the
heirs from the decedent - employee as a consequence of the death of the decedent-employee in
accordance with Republic Act No. 4917: Provided, That such amount is included in the gross
estate of the decedent.

(B) Deductions Allowed to Nonresident Estates. - In the case of a nonresident not a citizen of
the Philippines, by deducting from the value of that part of his gross estate which at the time of his
death is situated in the Philippines:

(1) Expenses, Losses, Indebtedness and Taxes. - That proportion of the deductions specified in
paragraph (1) of Subsection (A) of this Section which the value of such part bears to the value of
his entire gross estate wherever situated;

(2) Property Previously Taxed. - An amount equal to the value specified below of any property
forming part of the gross estate situated in the Philippines of any person who died within five (5)
years prior to the death of the decedent, or transferred to the decedent by gift within five (5) years
prior to his death, where such property can be identified as having been received by the decedent
from the donor by gift, or from such prior decedent by gift, bequest, devise or inheritance, or which
can be identified as having been acquired in exchange for property so received:

One hundred percent (100%) of the value if the prior decedent died within one (1) year prior to the
death of the decedent, or if the property was transferred to him by gift, within the same period prior
to his death;

Eighty percent (80%) of the value, if the prior decedent died more than one (1) year but not more
than two (2) years prior to the death of the decedent, or if the property was transferred to him by
gift within the same period prior to his death;

Sixty percent (60%) of the value, if the prior decedent died more than two (2) years but not more
than three (3) years prior to the death of the decedent, or if the property was transferred to him by
gift within the same period prior to his death;

Forty percent (40%) of the value, if the prior decedent died more than three (3) years but not more
than four (4) years prior to the death of the decedent, or if the property was transferred to him by
gift within the same period prior to his death; and

Twenty percent (20%) of the value, if the prior decedent died more than four (4) years but not more
than five (5) years prior to the death of the decedent, or if the property was transferred to him by
gift within the same period prior to his death.

These deductions shall be allowed only where a donor's tax, or estate tax imposed under this Title
is finally determined and paid by or on behalf of such donor, or the estate of such prior decedent,
as the case may be, and only in the amount finally determined as the value of such property in
determining the value of the gift, or the gross estate of such prior decedent, and only to the extent
that the value of such property is included in that part of the decedent's gross estate which at the
time of his death is situated in the Philippines; and only if, in determining the value of the net estate
of the prior decedent, no deduction is allowable under paragraph (2) of Subsection (B) of this
Section, in respect of the property or properties given in exchange therefore. Where a deduction
was allowed of any mortgage or other lien in determining the donor's tax, or the estate tax of the
prior decedent, which was paid in whole or in part prior to the decedent's death, then the deduction
allowable under said paragraph shall be reduced by the amount so paid. Such deduction allowable
shall be reduced by an amount which bears the same ratio to the amounts allowed as deductions
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under paragraphs (1) and (3) of this Subsection as the amount otherwise deductible under
paragraph (2) bears to the value of that part of the decedent's gross estate which at the time of his
death is situated in the Philippines. Where the property referred to consists of two (2) or more
items, the aggregate value of such items shall be used for the purpose of computing the deduction.

(3) Transfers for Public Use. - The amount of all bequests, legacies, devises or transfers to or for
the use of the Government of the Republic of the Philippines or any political subdivision thereof, for
exclusively public purposes.

(C) Share in the Conjugal Property. - the net share of the surviving spouse in the conjugal
partnership property as diminished by the obligations properly chargeable to such property shall,
for the purpose of this Section, be deducted from the net estate of the decedent.

(D) Miscellaneous Provisions. - No deduction shall be allowed in the case of a nonresident not a
citizen of the Philippines, unless the executor, administrator, or anyone of the heirs, as the case
may be, includes in the return required to be filed under Section 90 the value at the time of his
death of that part of the gross estate of the nonresident not situated in the Philippines.

(E) Tax Credit for Estate Taxes paid to a Foreign Country. -

(1) In General. - The tax imposed by this Title shall be credited with the amounts of any estate tax
imposed by the authority of a foreign country.

(2) Limitations on Credit. - The amount of the credit taken under this Section shall be subject to
each of the following limitations:

(a) The amount of the credit in respect to the tax paid to any country shall not exceed the same
proportion of the tax against which such credit is taken, which the decedent's net estate situated
within such country taxable under this Title bears to his entire net estate; and

(b) The total amount of the credit shall not exceed the same proportion of the tax against which
such credit is taken, which the decedent's net estate situated outside the Philippines taxable under
this Title bears to his entire net estate.

SEC. 87 Exemption of Certain Acquisitions and Transmissions. - The following shall not be
taxed:

(A) The merger of usufruct in the owner of the naked title;

(B) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the
fideicommissary;

(C) The transmission from the first heir, legatee or donee in favor of another beneficiary, in
accordance with the desire of the predecessor; and

(D) All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions,
no part of the net income of which inures to the benefit of any individual: Provided, however, That
not more than thirty percent (30%) of the said bequests, devises, legacies or transfers shall be
used by such institutions for administration purposes.

SEC. 88. Determination of the Value of the Estate. -

(A) Usufruct. - To determine the value of the right of usufruct, use or habitation, as well as that of
annuity, there shall be taken into account the probable life of the beneficiary in accordance with the
latest Basic Standard Mortality Table, to be approved by the Secretary of Finance, upon
recommendation of the Insurance Commissioner.

(B) Properties. - The estate shall be appraised at its fair market value as of the time of death.
However, the appraised value of real property as of the time of death shall be, whichever is higher
of -

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(1) The fair market value as determined by the Commissioner; or

(2) The fair market value as shown in the schedule of values fixed by the Provincial and City
Assessors.

SEC. 89. Notice of Death to be Filed. - In all cases of transfers subject to tax, or where, though
exempt from tax, the gross value of the estate exceeds Twenty thousand pesos (P20,000),the
executor, administrator or any of the legal heirs, as the case may be, within two (2) months after
the decedent's death, or within a like period after qualifying as such executor or administrator, shall
give a written notice thereof to the Commissioner.

SEC. 90. Estate Tax Returns. -

(A) Requirements. - In all cases of transfers subject to the tax imposed herein, or where, though
exempt from tax, the gross value of the estate exceeds Two hundred thousand pesos (P200,000),
or regardless of the gross value of the estate, where the said estate consists of registered or
registrable property such as real property, motor vehicle, shares of stock or other similar property
for which a clearance from the Bureau of Internal Revenue is required as a condition precedent for
the transfer of ownership thereof in the name of the transferee, the executor, or the administrator,
or any of the legal heirs, as the case may be, shall file a return under oath in duplicate, setting
forth:

(1) The value of the gross estate of the decedent at the time of his death, or in case of a
nonresident, not a citizen of the Philippines, of that part of his gross estate situated in the
Philippines;

(2) The deductions allowed from gross estate in determining the estate as defined in Section 86;
and

(3) Such part of such information as may at the time be ascertainable and such supplemental data
as may be necessary to establish the correct taxes.

Provided, however, That estate tax returns showing a gross value exceeding Two million pesos
(P2, 000,000) shall be supported with a statement duly certified to by a Certified Public Accountant
containing the following:

(a) Itemized assets of the decedent with their corresponding gross value at the time of his death, or
in the case of a nonresident, not a citizen of the Philippines, of that part of his gross estate situated
in the Philippines;

(b) Itemized deductions from gross estate allowed in Section 86; and

(c) The amount of tax due whether paid or still due and outstanding.

(B) Time for Filing. - For the purpose of determining the estate tax provided for in Section 84 of
this Code, the estate tax return required under the preceding Subsection (A) shall be filed within
six (6) months from the decedent's death.

A certified copy of the schedule of partition and the order of the court approving the same shall be
furnished the Commissioner within thirty (30) days after the promulgation of such order.

(C) Extension of Time. - The Commissioner shall have authority to grant, in meritorious cases, a
reasonable extension not exceeding thirty (30) days for filing the return.

(D) Place of Filing. - Except in cases where the Commissioner otherwise permits, the return
required under Subsection (A) shall be filed with an authorized agent bank, or Revenue District
Officer, Collection Officer, or duly authorized Treasurer of the city or municipality in which the
decedent was domiciled at the time of his death or if there be no legal residence in the Philippines,
with the Office of the Commissioner.

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SEC. 91. Payment of Tax. -

(A) Time of Payment. - The estate tax imposed by Section 84 shall be paid at the time the return
is filed by the executor, administrator or the heirs.

(B) Extension of Time. - When the Commissioner finds that the payment on the due date of the
estate tax or of any part thereof would impose undue hardship upon the estate or any of the heirs,
he may extend the time for payment of such tax or any part thereof not to exceed five (5) years, in
case the estate is settled through the courts, or two (2) years in case the estate is settled
extrajudicially.

In such case, the amount in respect of which the extension is granted shall be paid on or before
the date of the expiration of the period of the extension, and the running of the Statute of
Limitations for assessment as provided in Section 203 of this Code shall be suspended for the
period of any such extension.

Where the taxes are assessed by reason of negligence, intentional disregard of rules and
regulations, or fraud on the part of the taxpayer, no extension will be granted by the Commissioner.

If an extension is granted, the Commissioner may require the executor, or administrator, or

beneficiary, as the case may be, to furnish a bond in such amount, not exceeding double the
amount of the tax and with such sureties as the Commissioner deems necessary, conditioned upon
the payment of the said tax in accordance with the terms of the extension.

(C) Liability for Payment. - The estate tax imposed by Section 84 shall be paid by the executor or
administrator before delivery to any beneficiary of his distributive share of the estate. Such
beneficiary shall to the extent of his distributive share of the estate, be subsidiarily liable for the
payment of such portion of the estate tax as his distributive share bears to the value of the total net
estate.

For the purpose of this Chapter, the term 'executor' or 'administrator' means the executor or
administrator of the decedent, or if there is no executor or administrator appointed, qualified, and
acting within the Philippines, then any person in actual or constructive possession of any property
of the decedent.

SEC. 92. Discharge of Executor or Administrator from Personal Liability. - If the executor or
administrator makes a written application to the Commissioner for determination of the amount of
the estate tax and discharge from personal liability therefore, the Commissioner (as soon as
possible, and in any event within one (1) year after the making of such application, or if the
application is made before the return is filed, then within one (1) year after the return is filed, but
not after the expiration of the period prescribed for the assessment of the tax in Section 203 shall
not notify the executor or administrator of the amount of the tax. The executor or administrator,
upon payment of the amount of which he is notified, shall be discharged from personal liability for
any deficiency in the tax thereafter found to be due and shall be entitled to a receipt or writing
showing such discharge.

SEC. 93. Definition of Deficiency. - As used in this Chapter, the term 'deficiency' means:

(a) The amount by which the tax imposed by this Chapter exceeds the amount shown as the tax by
the executor, administrator or any of the heirs upon his return; but the amounts so shown on the
return shall first be increased by the amounts previously assessed (or collected without
assessment) as a deficiency and decreased by the amount previously abated, refunded or
otherwise repaid in respect of such tax; or

(b) If no amount is shown as the tax by the executor, administrator or any of the heirs upon his
return, or if no return is made by the executor, administrator, or any heir, then the amount by which
the tax exceeds the amounts previously assessed (or collected without assessment) as a
deficiency; but such amounts previously assessed or collected without assessment shall first be
decreased by the amounts previously abated, refunded or otherwise repaid in respect of such tax.

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SEC. 94. Payment before Delivery by Executor or Administrator. - No judge shall authorize the
executor or judicial administrator to deliver a distributive share to any party interested in the estate
unless a certification from the Commissioner that the estate tax has been paid is shown.

SEC. 95. Duties of Certain Officers and Debtors. - Registers of Deeds shall not register in the
Registry of Property any document transferring real property or real rights therein or any chattel
mortgage, by way of gifts inter vivos or mortis causa, legacy or inheritance, unless a certification
from the Commissioner that the tax fixed in this Title and actually due thereon had been paid is
show, and they shall immediately notify the Commissioner, Regional Director, Revenue District
Officer, or Revenue Collection Officer or Treasurer of the city or municipality where their offices are
located, of the nonpayment of the tax discovered by them. Any lawyer, notary public, or any
government officer who, by reason of his official duties, intervenes in the preparation or
acknowledgment of documents regarding partition or disposal of donation inter vivos or mortis
causa, legacy or inheritance, shall have the duty of furnishing the Commissioner, Regional
Director, Revenue District Officer or Revenue Collection Officer of the place where he may have
his principal office, with copies of such documents and any information whatsoever which may
facilitate the collection of the aforementioned tax. Neither shall a debtor of the deceased pay his
debts to the heirs, legatee, executor or administrator of his creditor, unless the certification of the
Commissioner that the tax fixed in this Chapter had been paid is shown; but he may pay the
executor or judicial administrator without said certification if the credit is included in the inventory of
the estate of the deceased.

SEC. 96. Restitution of Tax Upon Satisfaction of Outstanding Obligations. - If after the
payment of the estate tax, new obligations of the decedent shall appear, and the persons
interested shall have satisfied them by order of the court, they shall have a right to the restitution of
the proportional part of the tax paid.

SEC. 97. Payment of Tax Antecedent to the Transfer of Shares, Bonds or Rights. - There shall
not be transferred to any new owner in the books of any corporation, sociedad anonima,
partnership, business, or industry organized or established in the Philippines any share, obligation,
bond or right by way of gift inter vivos or mortis causa, legacy or inheritance, unless a certification
from the Commissioner that the taxes fixed in this Title and due thereon have been paid is shown.

If a bank has knowledge of the death of a person, who maintained a bank deposit account alone,
or jointly with another, it shall not allow any withdrawal from the said deposit account, unless the
Commissioner has certified that the taxes imposed thereon by this Title have been paid: Provided,
however, That the administrator of the estate or any one (1) of the heirs of the decedent may, upon
authorization by the Commissioner, withdraw an amount not exceeding Twenty thousand pesos
(P20,000) without the said certification. For this purpose, all withdrawal slips shall contain a
statement to the effect that all of the joint depositors are still living at the time of withdrawal by any
one of the joint depositors and such statement shall be under oath by the said depositors.

CHAPTER II

DONOR'S TAX

SEC. 98. Imposition of Tax. -

(A) There shall be levied, assessed, collected and paid upon the transfer by any person, resident
or nonresident, of the property by gift, a tax, computed as provided in Section 99.

(B) The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or
indirect, and whether the property is real or personal, tangible or intangible.

SEC. 99. Rates of Tax Payable by Donor. -

(A) In General. - The tax for each calendar year shall be computed on the basis of the total net
gifts made during the calendar year in accordance with the following schedule:

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If the net gift is:

Over But Not Over The Tax Shall be Plus Of the Excess Over
P 100,000 Exempt
P 100,000 200,000 0 2% P100,000
200,000 500,000 2,000 4% 200,000
500,000 1,000,000 14,000 6% 500,000
1,000,000 3,000,000 44,000 8% 1,000,000
3,000,000 5,000,000 204,000 10% 3,000,000
5,000,000 10,000,000 404,000 12% 5,000,000
10,000,000 1,004,000 15% 10,000,000

(B) Tax Payable by Donor if Donee is a Stranger. - When the donee or beneficiary is stranger,
the tax payable by the donor shall be thirty percent (30%) of the net gifts. For the purpose of this
tax, a 'stranger', is a person who is not a:

(1) Brother, sister (whether by whole or half-blood), spouse, ancestor and lineal descendant; or

(2) Relative by consanguinity in the collateral line within the fourth degree of relationship.

(C) Any contribution in cash or in kind to any candidate, political party or coalition of parties for
campaign purposes shall be governed by the Election Code, as amended.

SEC. 100. Transfer for Less Than Adequate and Full Consideration. - Where property, other
than real property referred to in Section 24(D), is transferred for less than an adequate and full
consideration in money or money's worth, then the amount by which the fair market value of the
property exceeded the value of the consideration shall, for the purpose of the tax imposed by this
Chapter, be deemed a gift, and shall be included in computing the amount of gifts made during the
calendar year.

SEC. 101. Exemption of Certain Gifts. - The following gifts or donations shall be exempt from the
tax provided for in this Chapter:

(A) In the Case of Gifts Made by a Resident. -

(1) Dowries or gifts made on account of marriage and before its celebration or within one year
thereafter by parents to each of their legitimate, recognized natural, or adopted children to the
extent of the first Ten thousand pesos (P10,000):

(2) Gifts made to or for the use of the National Government or any entity created by any of its
agencies which is not conducted for profit, or to any political subdivision of the said Government;
and

(3) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare
corporation, institution, accredited nongovernment organization, trust or philanthropic organization
or research institution or organization: Provided, however, That not more than thirty percent (30%)
of said gifts shall be used by such donee for administration purposes. For the purpose of this
exemption, a 'non-profit educational and/or charitable corporation, institution, accredited
nongovernment organization, trust or philanthropic organization and/or research institution
or organization' is a school, college or university and/or charitable corporation, accredited
nongovernment organization, trust or philanthropic organization and/or research institution or
organization, incorporated as a non-stock entity, paying no dividends, governed by trustees who
receive no compensation, and devoting all its income, whether students' fees or gifts, donation,
subsidies or other forms of philanthropy, to the accomplishment and promotion of the purposes
enumerated in its Articles of Incorporation.

9
(B) In the Case of Gifts Made by a Nonresident not a Citizen of the Philippines. -

(1) Gifts made to or for the use of the National Government or any entity created by any of its
agencies which is not conducted for profit, or to any political subdivision of the said Government.

(2) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare
corporation, institution, foundation, trust or philanthropic organization or research institution or
organization:Provided, however, That not more than thirty percent (30%) of said gifts shall be used
by such donee for administration purposes.

(C)Tax Credit for Donor's Taxes Paid to a Foreign Country. -

(1) In General. - The tax imposed by this Title upon a donor who was a citizen or a resident at the
time of donation shall be credited with the amount of any donor's tax of any character and
description imposed by the authority of a foreign country.

(2) Limitations on Credit. - The amount of the credit taken under this Section shall be subject to
each of the following limitations:

(a) The amount of the credit in respect to the tax paid to any country shall not exceed the same
proportion of the tax against which such credit is taken, which the net gifts situated within such
country taxable under this Title bears to his entire net gifts; and

(b) The total amount of the credit shall not exceed the same proportion of the tax against which
such credit is taken, which the donor's net gifts situated outside the Philippines taxable under this
title bears to his entire net gifts.

SEC. 102. Valuation of Gifts Made in Property. - If the gift is made in property, the fair market
value thereof at the time of the gift shall be considered the amount of the gift. In case of real
property, the provisions of Section 88(B) shall apply to the valuation thereof.

SEC. 103. Filing of Return and Payment of Tax. -

(A) Requirements. - any individual who makes any transfer by gift (except those which, under
Section 101, are exempt from the tax provided for in this Chapter) shall, for the purpose of the said
tax, make a return under oath in duplicate. The return shall set forth:

(1) Each gift made during the calendar year which is to be included in computing net gifts;

(2) The deductions claimed and allowable;

(3) Any previous net gifts made during the same calendar year;

(4) The name of the donee; and

(5) Such further information as may be required by rules and regulations made pursuant to law.

(B) Time and Place of Filing and Payment - The return of the donor required in this Section shall
be filed within thirty (30) days after the date the gift is made and the tax due thereon shall be paid
at the time of filing. Except in cases where the Commissioner otherwise permits, the return shall be
filed and the tax paid to an authorized agent bank, the Revenue District Officer, Revenue
Collection Officer or duly authorized Treasurer of the city or municipality where the donor was
domiciled at the time of the transfer, or if there be no legal residence in the Philippines, with the
Office of the Commissioner. In the case of gifts made by a nonresident, the return may be filed with
the Philippine Embassy or Consulate in the country where he is domiciled at the time of the
transfer, or directly with the Office of the Commissioner.

SEC. 104. Definitions. - For purposes of this Title, the terms 'gross estate' and 'gifts' include real
and personal property, whether tangible or intangible, or mixed, wherever situated: Provided,
however, That where the decedent or donor was a nonresident alien at the time of his death or

10
donation, as the case may be, his real and personal property so transferred but which are situated
outside the Philippines shall not be included as part of his 'gross estate' or 'gross gift': Provided,
further, That franchise which must be exercised in the Philippines; shares, obligations or bonds
issued by any corporation or sociedad anonima organized or constituted in the Philippines in
accordance with its laws; shares, obligations or bonds by any foreign corporation eighty-five
percent (85%) of the business of which is located in the Philippines; shares, obligations or bonds
issued by any foreign corporation if such shares, obligations or bonds have acquired a business
situs in the Philippines; shares or rights in any partnership, business or industry established in the
Philippines, shall be considered as situated in the Philippines: Provided, still 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 or the donor at the time of the donation was a citizen
and resident of a foreign country which at the time of his death or donation did not impose a
transfer tax of any character, in respect of intangible personal property of citizens of the Philippines
not residing in that foreign country, or

(b) if the laws of the foreign country of which the decedent or donor was a citizen and resident at
the time of his death or donation allows a similar exemption from transfer or death taxes of every
character or description in respect of intangible personal property owned by citizens of the
Philippines not residing in that foreign country.

The term 'deficiency' means:

(a) the amount by which tax imposed by this Chapter exceeds the amount shown as the tax by the
donor upon his return; but the amount so shown on the return shall first be increased by the
amount previously assessed (or Collected without assessment) as a deficiency, and decreased by
the amounts previously abated, refunded or otherwise repaid in respect of such tax, or

(b) if no amount is shown as the tax by the donor, then the amount by which the tax exceeds the
amounts previously assessed, (or collected without assessment) as a deficiency, but such amounts
previously assessed, or collected without assessment, shall first be decreased by the amount
previously abated, refunded or otherwise repaid in respect of such tax.

11
CASES:

1. G.R. No. L-43082 June 18, 1937

PABLO LORENZO, as trustee of the estate of Thomas Hanley, deceased, plaintiff-appellant,

vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.

Pablo Lorenzo and Delfin Joven for plaintiff-appellant.

Office of the Solicitor-General Hilado for defendant-appellant.

LAUREL, J.:

On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as trustee of the estate of Thomas
Hanley, deceased, brought this action in the Court of First Instance of Zamboanga against the
defendant, Juan Posadas, Jr., then the Collector of Internal Revenue, for the refund of the amount
of P2,052.74, paid by the plaintiff as inheritance tax on the estate of the deceased, and for the
collection of interst thereon at the rate of 6 per cent per annum, computed from September 15,
1932, the date when the aforesaid tax was [paid under protest. The defendant set up a
counterclaim for P1,191.27 alleged to be interest due on the tax in question and which was not
included in the original assessment. From the decision of the Court of First Instance of Zamboanga
dismissing both the plaintiff's complaint and the defendant's counterclaim, both parties appealed to
this court.

It appears that on May 27, 1922, one Thomas Hanley died in Zamboanga, Zamboanga, leaving a
will (Exhibit 5) and considerable amount of real and personal properties. On june 14, 1922,
proceedings for the probate of his will and the settlement and distribution of his estate were begun
in the Court of First Instance of Zamboanga. The will was admitted to probate. Said will provides,
among other things, as follows:

4. I direct that any money left by me be given to my nephew Matthew Hanley.

5. I direct that all real estate owned by me at the time of my death be not sold or otherwise
disposed of for a period of ten (10) years after my death, and that the same be handled and
managed by the executors, and proceeds thereof to be given to my nephew, Matthew
Hanley, at Castlemore, Ballaghaderine, County of Rosecommon, Ireland, and that he be
directed that the same be used only for the education of my brother's children and their
descendants.

6. I direct that ten (10) years after my death my property be given to the above mentioned
Matthew Hanley to be disposed of in the way he thinks most advantageous.

xxx xxx xxx

8. I state at this time I have one brother living, named Malachi Hanley, and that my nephew,
Matthew Hanley, is a son of my said brother, Malachi Hanley.

The Court of First Instance of Zamboanga considered it proper for the best interests of ther estate
to appoint a trustee to administer the real properties which, under the will, were to pass to Matthew
Hanley ten years after the two executors named in the will, was, on March 8, 1924, appointed
trustee. Moore took his oath of office and gave bond on March 10, 1924. He acted as trustee until
February 29, 1932, when he resigned and the plaintiff herein was appointed in his stead.

During the incumbency of the plaintiff as trustee, the defendant Collector of Internal Revenue,
alleging that the estate left by the deceased at the time of his death consisted of realty valued at
P27,920 and personalty valued at P1,465, and allowing a deduction of P480.81, assessed against
the estate an inheritance tax in the amount of P1,434.24 which, together with the penalties for
deliquency in payment consisting of a 1 per cent monthly interest from July 1, 1931 to the date of
payment and a surcharge of 25 per cent on the tax, amounted to P2,052.74. On March 15, 1932,
the defendant filed a motion in the testamentary proceedings pending before the Court of First
Instance of Zamboanga (Special proceedings No. 302) praying that the trustee, plaintiff herein, be
12
ordered to pay to the Government the said sum of P2,052.74. The motion was granted. On
September 15, 1932, the plaintiff paid said amount under protest, notifying the defendant at the
same time that unless the amount was promptly refunded suit would be brought for its recovery.
The defendant overruled the plaintiff's protest and refused to refund the said amount hausted,
plaintiff went to court with the result herein above indicated.

In his appeal, plaintiff contends that the lower court erred:

I. In holding that the real property of Thomas Hanley, deceased, passed to his instituted heir,
Matthew Hanley, from the moment of the death of the former, and that from the time, the
latter became the owner thereof.

II. In holding, in effect, that there was deliquency in the payment of inheritance tax due on
the estate of said deceased.

III. 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.

IV. In not allowing as lawful deductions, in the determination of the net amount of the estate
subject to said tax, the amounts allowed by the court as compensation to the "trustees" and
paid to them from the decedent's estate.

V. In not rendering judgment in favor of the plaintiff and in denying his motion for new trial.

The defendant-appellant contradicts the theories of the plaintiff and assigns the following error
besides:

The lower court erred in not ordering the plaintiff to pay to the defendant the sum of
P1,191.27, representing part of the interest at the rate of 1 per cent per month from April 10,
1924, to June 30, 1931, which the plaintiff had failed to pay on the inheritance tax assessed
by the defendant against the estate of Thomas Hanley.

The following are the principal questions to be decided by this court in this appeal: (a) When does
the inheritance tax accrue and when must it be satisfied? (b) Should the inheritance tax be
computed on the basis of the value of the estate at the time of the testator's death, or on its value
ten years later? (c) In determining the net value of the estate subject to tax, is it proper to deduct
the compensation due to trustees? (d) What law governs the case at bar? Should the provisions of
Act No. 3606 favorable to the tax-payer be given retroactive effect? (e) Has there been deliquency
in the payment of the inheritance tax? If so, should the additional interest claimed by the defendant
in his appeal be paid by the estate? Other points of incidental importance, raised by the parties in
their briefs, will be touched upon in the course of this opinion.

(a) The accrual of the inheritance tax is distinct from the obligation to pay the same. Section 1536
as amended, of the Administrative Code, imposes the tax upon "every transmission by virtue of
inheritance, devise, bequest, gift mortis causa, or advance in anticipation of inheritance,devise, or
bequest." The tax therefore is upon transmission or the transfer or devolution of property of a
decedent, made effective by his death. (61 C. J., p. 1592.) It is in reality an excise or privilege tax
imposed on the right to succeed to, receive, or take property by or under a will or the intestacy law,
or deed, grant, or gift to become operative at or after death. Acording to article 657 of the Civil
Code, "the rights to the succession of a person are transmitted from the moment of his death." "In
other words", said Arellano, C. J., ". . . the heirs succeed immediately to all of the property of the
deceased ancestor. The property belongs to the heirs at the moment of the death of the ancestor
as completely as if the ancestor had executed and delivered to them a deed for the same before
his death." (Bondad vs. Bondad, 34 Phil., 232. See also, Mijares vs. Nery, 3 Phil., 195; Suilong &
Co., vs. Chio-Taysan, 12 Phil., 13; Lubrico vs. Arbado, 12 Phil., 391; Innocencio vs. Gat-Pandan,
14 Phil., 491; Aliasas vs.Alcantara, 16 Phil., 489; Ilustre vs. Alaras Frondosa, 17 Phil., 321;
Malahacan vs. Ignacio, 19 Phil., 434; Bowa vs. Briones, 38 Phil., 27; Osario vs. Osario & Yuchausti
Steamship Co., 41 Phil., 531; Fule vs. Fule, 46 Phil., 317; Dais vs. Court of First Instance of Capiz,
51 Phil., 396; Baun vs. Heirs of Baun, 53 Phil., 654.) Plaintiff, however, asserts that while article
13
657 of the Civil Code is applicable to testate as well as intestate succession, it operates only in so
far as forced heirs are concerned. But the language of article 657 of the Civil Code is broad and
makes no distinction between different classes of heirs. That article does not speak of forced heirs;
it does not even use the word "heir". It speaks of the rights of succession and the transmission
thereof from the moment of death. The provision of section 625 of the Code of Civil Procedure
regarding the authentication and probate of a will as a necessary condition to effect transmission of
property does not affect the general rule laid down in article 657 of the Civil Code. The
authentication of a will implies its due execution but once probated and allowed the transmission is
effective as of the death of the testator in accordance with article 657 of the Civil Code. Whatever
may be the time when actual transmission of the inheritance takes place, succession takes place
in any event at the moment of the decedent's death. The time when the heirs legally succeed to
the inheritance may differ from the time when the heirs actually receive such inheritance. " Poco
importa", says Manresa commenting on article 657 of the Civil Code, "que desde el falleimiento del
causante, hasta que el heredero o legatario entre en posesion de los bienes de la herencia o del
legado, transcurra mucho o poco tiempo, pues la adquisicion ha de retrotraerse al momento de la
muerte, y asi lo ordena el articulo 989, que debe considerarse como complemento del presente ."
(5 Manresa, 305; see also, art. 440, par. 1, Civil Code.) Thomas Hanley having died on May 27,
1922, the inheritance tax accrued as of the date.

From the fact, however, that Thomas Hanley died on May 27, 1922, it does not follow that the
obligation to pay the tax arose as of the date. The time for the payment on inheritance tax is clearly
fixed by section 1544 of the Revised Administrative Code as amended by Act No. 3031, in relation
to section 1543 of the same Code. The two sections follow:

SEC. 1543. Exemption of certain acquisitions and transmissions. — The following shall not
be taxed:

(a) The merger of the usufruct in the owner of the naked title.

(b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or
legatee to the trustees.

(c) The transmission from the first heir, legatee, or donee in favor of another
beneficiary, in accordance with the desire of the predecessor.

In the last two cases, if the scale of taxation appropriate to the new beneficiary is greater
than that paid by the first, the former must pay the difference.

SEC. 1544. When tax to be paid. — The tax fixed in this article shall be paid:

(a) In the second and third cases of the next preceding section, before entrance into
possession of the property.

(b) In other cases, within the six months subsequent to the death of the predecessor;
but if judicial testamentary or intestate proceedings shall be instituted prior to the
expiration of said period, the payment shall be made by the executor or administrator
before delivering to each beneficiary his share.

If the tax is not paid within the time hereinbefore prescribed, interest at the rate of twelve per
centum per annum shall be added as part of the tax; and to the tax and interest due and
unpaid within ten days after the date of notice and demand thereof by the collector, there
shall be further added a surcharge of twenty-five per centum.

A certified of all letters testamentary or of admisitration shall be furnished the Collector of

Internal Revenue by the Clerk of Court within thirty days after their issuance.

It should be observed in passing that the word "trustee", appearing in subsection ( b) of section
1543, should read "fideicommissary" or "cestui que trust". There was an obvious mistake in
translation from the Spanish to the English version.

14
The instant case does fall under subsection (a), but under subsection (b), of section 1544 above-
quoted, as there is here no fiduciary heirs, first heirs, legatee or donee. Under the subsection, the
tax should have been paid before the delivery of the properties in question to P. J. M. Moore as
trustee on March 10, 1924.

(b) The plaintiff contends that the estate of Thomas Hanley, in so far as the real properties are
concerned, did not and could not legally pass to the instituted heir, Matthew Hanley, until after the
expiration of ten years from the death of the testator on May 27, 1922 and, that the inheritance tax
should be based on the value of the estate in 1932, or ten years after the testator's death. The
plaintiff introduced evidence tending to show that in 1932 the real properties in question had a
reasonable value of only P5,787. This amount added to the value of the personal property left by
the deceased, which the plaintiff admits is P1,465, would generate an inheritance tax which,
excluding deductions, interest and surcharge, would amount only to about P169.52.

If death is the generating source from which the power of the estate to impose inheritance taxes
takes its being and if, upon the death of the decedent, succession takes place and the right of the
estate to tax vests instantly, the tax should be measured by the vlaue of the estate as it stood at
the time of the decedent's death, regardless of any subsequent contingency value of any
subsequent increase or decrease in value. (61 C. J., pp. 1692, 1693; 26 R. C. L., p. 232;
Blakemore and Bancroft, Inheritance Taxes, p. 137. See also Knowlton vs. Moore, 178 U.S., 41; 20
Sup. Ct. Rep., 747; 44 Law. ed., 969.) "The right of the state to an inheritance tax accrues at the
moment of death, and hence is ordinarily measured as to any beneficiary by the value at that time
of such property as passes to him. Subsequent appreciation or depriciation is immaterial." (Ross,
Inheritance Taxation, p. 72.)

Our attention is directed to the statement of the rule in Cyclopedia of Law of and Procedure (vol.
37, pp. 1574, 1575) that, in the case of contingent remainders, taxation is postponed until the
estate vests in possession or the contingency is settled. This rule was formerly followed in New
York and has been adopted in Illinois, Minnesota, Massachusetts, Ohio, Pennsylvania and
Wisconsin. This rule, horever, is by no means entirely satisfactory either to the estate or to those
interested in the property (26 R. C. L., p. 231.). Realizing, perhaps, the defects of its anterior
system, we find upon examination of cases and authorities that New York has varied and now
requires the immediate appraisal of the postponed estate at its clear market value and the
payment forthwith of the tax on its out of the corpus of the estate transferred. (In re Vanderbilt, 172
N. Y., 69; 69 N. E., 782; In re Huber, 86 N. Y. App. Div., 458; 83 N. Y. Supp., 769; Estate of Tracy,
179 N. Y., 501; 72 N. Y., 519; Estate of Brez, 172 N. Y., 609; 64 N. E., 958; Estate of Post, 85 App.
Div., 611; 82 N. Y. Supp., 1079. Vide also, Saltoun vs. Lord Advocate, 1 Peter. Sc. App., 970; 3
Macq. H. L., 659; 23 Eng. Rul. Cas., 888.) California adheres to this new rule (Stats. 1905, sec. 5,
p. 343).

But whatever may be the rule in other jurisdictions, we hold that a transmission by inheritance is
taxable at the time of the predecessor's death, notwithstanding the postponement of the actual
possession or enjoyment of the estate by the beneficiary, and the tax measured by the value of the
property transmitted at that time regardless of its appreciation or depreciation.

(c) Certain items are required by law to be deducted from the appraised gross in arriving at the net
value of the estate on which the inheritance tax is to be computed (sec. 1539, Revised
Administrative Code). In the case at bar, the defendant and the trial court allowed a deduction of
only P480.81. This sum represents the expenses and disbursements of the executors until March
10, 1924, among which were their fees and the proven debts of the deceased. The plaintiff
contends that the compensation and fees of the trustees, which aggregate P1,187.28 (Exhibits C,
AA, EE, PP, HH, JJ, LL, NN, OO), should also be deducted under section 1539 of the Revised
Administrative Code which provides, in part, as follows: "In order to determine the net sum which
must bear the tax, when an inheritance is concerned, there shall be deducted, in case of a
resident, . . . the judicial expenses of the testamentary or intestate proceedings, . . . ."

A trustee, no doubt, is entitled to receive a fair compensation for his services (Barney vs.
Saunders, 16 How., 535; 14 Law. ed., 1047). But from this it does not follow that the compensation
due him may lawfully be deducted in arriving at the net value of the estate subject to tax. There is
no statute in the Philippines which requires trustees' commissions to be deducted in determining
the net value of the estate subject to inheritance tax (61 C. J., p. 1705). Furthermore, though a
15
testamentary trust has been created, it does not appear that the testator intended that the duties of
his executors and trustees should be separated. (Ibid.; In re Vanneck's Estate, 161 N. Y. Supp.,
893; 175 App. Div., 363; In re Collard's Estate, 161 N. Y. Supp., 455.) On the contrary, in paragraph
5 of his will, the testator expressed the desire that his real estate be handled and managed by his
executors until the expiration of the period of ten years therein provided. Judicial expenses are
expenses of administration (61 C. J., p. 1705) but, in State vs. Hennepin County Probate Court
(112 N. W., 878; 101 Minn., 485), it was said: ". . . The compensation of a trustee, earned, not in
the administration of the estate, but in the management thereof for the benefit of the legatees or
devises, does not come properly within the class or reason for exempting administration expenses.
. . . Service rendered in that behalf have no reference to closing the estate for the purpose of a
distribution thereof to those entitled to it, and are not required or essential to the perfection of the
rights of the heirs or legatees. . . . Trusts . . . of the character of that here before the court, are
created for the the benefit of those to whom the property ultimately passes, are of voluntary
creation, and intended for the preservation of the estate. No sound reason is given to support the
contention that such expenses should be taken into consideration in fixing the value of the estate
for the purpose of this tax."

(d) The defendant levied and assessed the inheritance tax due from the estate of Thomas Hanley
under the provisions of section 1544 of the Revised Administrative Code, as amended by section 3
of Act No. 3606. But Act No. 3606 went into effect on January 1, 1930. It, therefore, was not the
law in force when the testator died on May 27, 1922. The law at the time was section 1544 above-
mentioned, as amended by Act No. 3031, which took effect on March 9, 1922.

It is well-settled that inheritance taxation is governed by the statute in force at the time of the death
of the decedent (26 R. C. L., p. 206; 4 Cooley on Taxation, 4th ed., p. 3461). The taxpayer can not
foresee and ought not to be required to guess the outcome of pending measures. Of course, a tax
statute may be made retroactive in its operation. Liability for taxes under retroactive legislation has
been "one of the incidents of social life." (Seattle vs. Kelleher, 195 U. S., 360; 49 Law. ed., 232
Sup. Ct. Rep., 44.) But legislative intent that a tax statute should operate retroactively should be
perfectly clear. (Scwab vs. Doyle, 42 Sup. Ct. Rep., 491; Smietanka vs. First Trust & Savings Bank,
257 U. S., 602; Stockdale vs. Insurance Co., 20 Wall., 323; Lunch vs. Turrish, 247 U. S., 221.) "A
statute should be considered as prospective in its operation, whether it enacts, amends, or repeals
an inheritance tax, unless the language of the statute clearly demands or expresses that it shall
have a retroactive effect, . . . ." (61 C. J., P. 1602.) Though the last paragraph of section 5 of
Regulations No. 65 of the Department of Finance makes section 3 of Act No. 3606, amending
section 1544 of the Revised Administrative Code, applicable to all estates the inheritance taxes
due from which have not been paid, Act No. 3606 itself contains no provisions indicating legislative
intent to give it retroactive effect. No such effect can begiven the statute by this court.

The defendant Collector of Internal Revenue maintains, however, that certain provisions of Act No.
3606 are more favorable to the taxpayer than those of Act No. 3031, that said provisions are penal
in nature and, therefore, should operate retroactively in conformity with the provisions of article 22
of the Revised Penal Code. This is the reason why he applied Act No. 3606 instead of Act No.
3031. Indeed, under Act No. 3606, (1) the surcharge of 25 per cent is based on the tax only,
instead of on both the tax and the interest, as provided for in Act No. 3031, and (2) the taxpayer is
allowed twenty days from notice and demand by rthe Collector of Internal Revenue within which to
pay the tax, instead of ten days only as required by the old law.

Properly speaking, a statute is penal when it imposes punishment for an offense committed against
the state which, under the Constitution, the Executive has the power to pardon. In common use,
however, this sense has been enlarged to include within the term "penal statutes" all status which
command or prohibit certain acts, and establish penalties for their violation, and even those which,
without expressly prohibiting certain acts, impose a penalty upon their commission (59 C. J., p.
1110). Revenue laws, generally, which impose taxes collected by the means ordinarily resorted to
for the collection of taxes are not classed as penal laws, although there are authorities to the
contrary. (See Sutherland, Statutory Construction, 361; Twine Co. vs. Worthington, 141 U. S., 468;
12 Sup. Ct., 55; Rice vs. U. S., 4 C. C. A., 104; 53 Fed., 910; Com. vs. Standard Oil Co., 101 Pa.
St., 150; State vs. Wheeler, 44 P., 430; 25 Nev. 143.) Article 22 of the Revised Penal Code is not
applicable to the case at bar, and in the absence of clear legislative intent, we cannot give Act No.
3606 a retroactive effect.

16
(e) The plaintiff correctly states that the liability to pay a tax may arise at a certain time and the tax
may be paid within another given time. As stated by this court, "the mere failure to pay one's tax
does not render one delinqent until and unless the entire period has eplased within which the
taxpayer is authorized by law to make such payment without being subjected to the payment of
penalties for fasilure to pay his taxes within the prescribed period." (U. S. vs. Labadan, 26 Phil.,
239.)

The defendant maintains that it was the duty of the executor to pay the inheritance tax before the
delivery of the decedent's property to the trustee. Stated otherwise, the defendant contends that
delivery to the trustee was delivery to the cestui que trust, the beneficiery in this case, within the
meaning of the first paragraph of subsection (b) of section 1544 of the Revised Administrative
Code. This contention is well taken and is sustained. The appointment of P. J. M. Moore as trustee
was made by the trial court in conformity with the wishes of the testator as expressed in his will. It
is true that the word "trust" is not mentioned or used in the will but the intention to create one is
clear. No particular or technical words are required to create a testamentary trust (69 C. J., p. 711).
The words "trust" and "trustee", though apt for the purpose, are not necessary. In fact, the use of
these two words is not conclusive on the question that a trust is created (69 C. J., p. 714). "To
create a trust by will the testator must indicate in the will his intention so to do by using language
sufficient to separate the legal from the equitable estate, and with sufficient certainty designate the
beneficiaries, their interest in the ttrust, the purpose or object of the trust, and the property or
subject matter thereof. Stated otherwise, to constitute a valid testamentary trust there must be a
concurrence of three circumstances: (1) Sufficient words to raise a trust; (2) a definite subject; (3) a
certain or ascertain object; statutes in some jurisdictions expressly or in effect so providing." (69 C.
J., pp. 705,706.) There is no doubt that the testator intended to create a trust. He ordered in his will
that certain of his properties be kept together undisposed during a fixed period, for a stated
purpose. The probate court certainly exercised sound judgment in appointment a trustee to carry
into effect the provisions of the will (see sec. 582, Code of Civil Procedure).

P. J. M. Moore became trustee on March 10, 1924. On that date trust estate vested in him (sec.
582 in relation to sec. 590, Code of Civil Procedure). The mere fact that the estate of the deceased
was placed in trust did not remove it from the operation of our inheritance tax laws or exempt it
from the payment of the inheritance tax. The corresponding inheritance tax should have been paid
on or before March 10, 1924, to escape the penalties of the laws. This is so for the reason already
stated that the delivery of the estate to the trustee was in esse delivery of the same estate to
the cestui que trust, the beneficiary in this case. A trustee is but an instrument or agent for
the cestui que trust (Shelton vs. King, 299 U. S., 90; 33 Sup. Ct. Rep., 689; 57 Law. ed., 1086).
When Moore accepted the trust and took possesson of the trust estate he thereby admitted that
the estate belonged not to him but to his cestui que trust (Tolentino vs. Vitug, 39 Phil.,126, cited in
65 C. J., p. 692, n. 63). He did not acquire any beneficial interest in the estate. He took such legal
estate only as the proper execution of the trust required (65 C. J., p. 528) and, his estate ceased
upon the fulfillment of the testator's wishes. The estate then vested absolutely in the beneficiary
(65 C. J., p. 542).

The highest considerations of public policy also justify the conclusion we have reached. Were we
to hold that the payment of the tax could be postponed or delayed by the creation of a trust of the
type at hand, the result would be plainly disastrous. Testators may provide, as Thomas Hanley has
provided, that their estates be not delivered to their beneficiaries until after the lapse of a certain
period of time. In the case at bar, the period is ten years. In other cases, the trust may last for fifty
years, or for a longer period which does not offend the rule against petuities. The collection of the
tax would then be left to the will of a private individual. The mere suggestion of this result is a
sufficient warning against the accpetance of the essential to the very exeistence of government.
(Dobbins vs. Erie Country, 16 Pet., 435; 10 Law. ed., 1022; Kirkland vs. Hotchkiss, 100 U. S., 491;
25 Law. ed., 558; Lane County vs. Oregon, 7 Wall., 71; 19 Law. ed., 101; Union Refrigerator
Transit Co. vs. Kentucky, 199 U. S., 194; 26 Sup. Ct. Rep., 36; 50 Law. ed., 150; Charles River
Bridge vs. Warren Bridge, 11 Pet., 420; 9 Law. ed., 773.) The obligation to pay taxes rests not upon
the privileges enjoyed by, or the protection afforded to, a citizen by the government but upon the
necessity of money for the support of the state (Dobbins vs. Erie Country, supra). For this reason,
no one is allowed to object to or resist the payment of taxes solely because no personal benefit to
him can be pointed out. (Thomas vs. Gay, 169 U. S., 264; 18 Sup. Ct. Rep., 340; 43 Law. ed.,
740.) While courts will not enlarge, by construction, the government's power of taxation (Bromley
vs. McCaughn, 280 U. S., 124; 74 Law. ed., 226; 50 Sup. Ct. Rep., 46) they also will not place
17
upon tax laws so loose a construction as to permit evasions on merely fanciful and insubstantial
distictions. (U. S. vs. Watts, 1 Bond., 580; Fed. Cas. No. 16,653; U. S. vs. Wigglesirth, 2 Story,
369; Fed. Cas. No. 16,690, followed in Froelich & Kuttner vs. Collector of Customs, 18 Phil., 461,
481; Castle Bros., Wolf & Sons vs. McCoy, 21 Phil., 300; Muñoz & Co. vs. Hord, 12 Phil., 624;
Hongkong & Shanghai Banking Corporation vs. Rafferty, 39 Phil., 145; Luzon Stevedoring Co. vs.
Trinidad, 43 Phil., 803.) When proper, a tax statute should be construed to avoid the possibilities of
tax evasion. Construed this way, the statute, without resulting in injustice to the taxpayer, becomes
fair to the government.

That taxes must be collected promptly is a policy deeply intrenched in our tax system. Thus, no
court is allowed to grant injunction to restrain the collection of any internal revenue tax ( sec. 1578,
Revised Administrative Code; Sarasola vs. Trinidad, 40 Phil., 252). In the case of Lim Co Chui vs.
Posadas (47 Phil., 461), this court had occassion to demonstrate trenchment adherence to this
policy of the law. It held that "the fact that on account of riots directed against the Chinese on
October 18, 19, and 20, 1924, they were prevented from praying their internal revenue taxes on
time and by mutual agreement closed their homes and stores and remained therein, does not
authorize the Collector of Internal Revenue to extend the time prescribed for the payment of the
taxes or to accept them without the additional penalty of twenty five per cent." (Syllabus, No. 3.)

". . . It is of the utmost importance," said the Supreme Court of the United States, ". . . that the
modes adopted to enforce the taxes levied should be interfered with as little as possible. Any delay
in the proceedings of the officers, upon whom the duty is developed of collecting the taxes, may
derange the operations of government, and thereby, cause serious detriment to the public." (Dows
vs. Chicago, 11 Wall., 108; 20 Law. ed., 65, 66; Churchill and Tait vs. Rafferty, 32 Phil., 580.)

It results that the estate which plaintiff represents has been delinquent in the payment of
inheritance tax and, therefore, liable for the payment of interest and surcharge provided by law in
such cases.

The delinquency in payment occurred on March 10, 1924, the date when Moore became trustee.
The interest due should be computed from that date and it is error on the part of the defendant to
compute it one month later. The provisions cases is mandatory (see and cf. Lim Co Chui vs.
Posadas, supra), and neither the Collector of Internal Revenuen or this court may remit or
decrease such interest, no matter how heavily it may burden the taxpayer.

To the tax and interest due and unpaid within ten days after the date of notice and demand thereof
by the Collector of Internal Revenue, a surcharge of twenty-five per centum should be added (sec.
1544, subsec. (b), par. 2, Revised Administrative Code). Demand was made by the Deputy
Collector of Internal Revenue upon Moore in a communiction dated October 16, 1931 (Exhibit 29).
The date fixed for the payment of the tax and interest was November 30, 1931. November 30
being an official holiday, the tenth day fell on December 1, 1931. As the tax and interest due were
not paid on that date, the estate became liable for the payment of the surcharge.

In view of the foregoing, it becomes unnecessary for us to discuss the fifth error assigned by the
plaintiff in his brief.

We shall now compute the tax, together with the interest and surcharge due from the estate of
Thomas Hanley inaccordance with the conclusions we have reached.

At the time of his death, the deceased left real properties valued at P27,920 and personal
properties worth P1,465, or a total of P29,385. Deducting from this amount the sum of P480.81,
representing allowable deductions under secftion 1539 of the Revised Administrative Code, we
have P28,904.19 as the net value of the estate subject to inheritance tax.

The primary tax, according to section 1536, subsection (c), of the Revised Administrative Code,
should be imposed at the rate of one per centum upon the first ten thousand pesos and two per
centum upon the amount by which the share exceed thirty thousand pesos, plus an additional two
hundred per centum. One per centum of ten thousand pesos is P100. Two per centum of
P18,904.19 is P378.08. Adding to these two sums an additional two hundred per centum, or
P965.16, we have as primary tax, correctly computed by the defendant, the sum of P1,434.24.

18
To the primary tax thus computed should be added the sums collectible under section 1544 of the
Revised Administrative Code. First should be added P1,465.31 which stands for interest at the rate
of twelve per centum per annum from March 10, 1924, the date of delinquency, to September 15,
1932, the date of payment under protest, a period covering 8 years, 6 months and 5 days. To the
tax and interest thus computed should be added the sum of P724.88, representing a surhcarge of
25 per cent on both the tax and interest, and also P10, the compromise sum fixed by the defendant
(Exh. 29), giving a grand total of P3,634.43.

As the plaintiff has already paid the sum of P2,052.74, only the sums of P1,581.69 is legally due
from the estate. This last sum is P390.42 more than the amount demanded by the defendant in his
counterclaim. But, as we cannot give the defendant more than what he claims, we must hold that
the plaintiff is liable only in the sum of P1,191.27 the amount stated in the counterclaim.

The judgment of the lower court is accordingly modified, with costs against the plaintiff in both
instances. So ordered.

Avanceña, C.J., Abad Santos, Imperial, Diaz and Concepcion, JJ., concur.
Villa-Real, J., concurs.

DIGEST:

Facts:

Thomas Hanley died, leaving a will and considerable amount of real and personal properties. His
will provided that 10 years after his death, his nephew Matthew Hanley would become owner of his
properties. Plaintiff Lorenzo was appointed as trustee. During plaintiff’s incumbency as trustee, the
defendant Collector of Internal Revenue, alleging that the estate left by the deceased at the time of
his death consisted of realty and personalty, assessed against the estate an inheritance tax. The
defendant prayed that the trustee be ordered to pay the Government the inheritance tax together
with the penalties for delinquency in paying such tax. The trustee, plaintiff Loada, paid under
protest and however, he demanded that he be refunded for the amount paid. The defendant
overruled plaintiff’s protest and refused to refund the amount.

Issues:

1. When does the inheritance accrue?

2. Should the inheritance be computed on the basis of the value of the estate at the time of the
testator’s death or on its value 10 years later?

Held:

1. The tax is upon transmission or the transfer or devolution of property of a decedent, made
effective by his death. It is in reality an excise or privilege tax imposed on the right to succeed to,
receive, or take property by or under a will or the intestacy law, or deed, grant, or gift to become
operative at or after death. Thomas Hanley having died on May 27, 1922, the inheritance tax
accrued as of the date.

2. Based 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 estate to impose inheritance taxes takes its being and if, upon
the death of the decedent, succession takes place and the right of the estate 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, regardless of any subsequent contingency value of any subsequent increase or decrease in
value.

A transmission by inheritance is taxable at the time of the predecessor's death, notwithstanding the
postponement of the actual possession or enjoyment of the estate by the beneficiary, and the tax
measured by the value of the property transmitted at that time regardless of its appreciation or
depreciation.
19
2. G.R. No. L-11622 January 28, 1961

THE COLLECTOR OF INTERNAL REVENUE, petitioner,

vs.
DOUGLAS FISHER AND BETTINA FISHER, and the COURT OF TAX APPEALS, respondents.

x---------------------------------------------------------x

G.R. No. L-11668 January 28, 1961.

DOUGLAS FISHER AND BETTINA FISHER, petitioner,

vs.
THE COLLECTOR OF INTERNAL REVENUE, and the COURT OF TAX APPEALS, respondents.

BARRERA, J.:

This case relates to the determination and settlement of the hereditary estate left by the deceased
Walter G. Stevenson, and the laws applicable thereto. Walter G. Stevenson (born in the Philippines on
August 9, 1874 of British parents and married in the City of Manila on January 23, 1909 to Beatrice
Mauricia Stevenson another British subject) died on February 22, 1951 in San Francisco, California,
U.S.A. whereto he and his wife moved and established their permanent residence since May 10, 1945.
In his will executed in San Francisco on May 22, 1947, and which was duly probated in the Superior
Court of California on April 11, 1951, Stevenson instituted his wife Beatrice as his sole heiress to the
following real and personal properties acquired by the spouses while residing in the Philippines,
described and preliminary assessed as follows:

Gross Estate
Real Property — 2 parcels of land in
Baguio, covered by T.C.T. Nos. 378
and 379 P43,500.00
Personal Property
(1) 177 shares of stock of Canacao
Estate at P10.00 each 1,770.00
(2) 210,000 shares of stock of
Mindanao Mother Lode Mines, Inc. at
P0.38 per share 79,800.00
(3) Cash credit with Canacao Estate
Inc. 4,870.88
(4) Cash, with the Chartered Bank of
India, Australia & China 851.97
Total Gross Assets P130,792.85

On May 22, 1951, ancillary administration proceedings were instituted in the Court of First Instance of
Manila for the settlement of the estate in the Philippines. In due time Stevenson's will was duly admitted
to probate by our court and Ian Murray Statt was appointed ancillary administrator of the estate, who on
July 11, 1951, filed a preliminary estate and inheritance tax return with the reservation of having the
properties declared therein finally appraised at their values six months after the death of Stevenson.
Preliminary return was made by the ancillary administrator in order to secure the waiver of the Collector
of Internal Revenue on the inheritance tax due on the 210,000 shares of stock in the Mindanao Mother
Lode Mines Inc. which the estate then desired to dispose in the United States. Acting upon said return,
the Collector of Internal Revenue accepted the valuation of the personal properties declared therein,
but increased the appraisal of the two parcels of land located in Baguio City by fixing their fair market
value in the amount of P52.200.00, instead of P43,500.00. After allowing the deductions claimed by the
ancillary administrator for funeral expenses in the amount of P2,000.00 and for judicial and
administration expenses in the sum of P5,500.00, the Collector assessed the state the amount of
P5,147.98 for estate tax and P10,875,26 or inheritance tax, or a total of P16,023.23. Both of these
assessments were paid by the estate on June 6, 1952.

20
On September 27, 1952, the ancillary administrator filed in amended estate and inheritance tax return
in pursuance f his reservation made at the time of filing of the preliminary return and for the purpose of
availing of the right granted by section 91 of the National Internal Revenue Code.

In this amended return the valuation of the 210,000 shares of stock in the Mindanao Mother Lode
Mines, Inc. was reduced from 0.38 per share, as originally declared, to P0.20 per share, or from a total
valuation of P79,800.00 to P42,000.00. This change in price per share of stock was based by the
ancillary administrator on the market notation of the stock obtaining at the San Francisco California)
Stock Exchange six months from the death of Stevenson, that is, As of August 22, 1931. In addition,
the ancillary administrator made claim for the following deductions:

Funeral expenses ($1,04326) P2,086.52

Judicial Expenses:
(a) Administrator's Fee P1,204.34
(b) Attorney's Fee 6.000.00
(c) Judicial and Administration
expenses as of August 9, 1952 1,400.05
8,604.39
Real Estate Tax for 1951 on
Baguio real properties (O.R. No.
B-1 686836) 652.50
Claims against the estate:
($5,000.00) P10,000.00 P10,000.00
Plus: 4% int. p.a. from Feb. 2 to
22, 1951 22.47 10,022.47
Sub-Total P21,365.88

In the meantime, on December 1, 1952, Beatrice Mauricia Stevenson assigned all her rights and
interests in the estate to the spouses, Douglas and Bettina Fisher, respondents herein.

On September 7, 1953, the ancillary administrator filed a second amended estate and inheritance tax
return (Exh. "M-N"). This return declared the same assets of the estate stated in the amended return of
September 22, 1952, except that it contained new claims for additional exemption and deduction to wit:
(1) deduction in the amount of P4,000.00 from the gross estate of the decedent as provided for in
Section 861 (4) of the U.S. Federal Internal Revenue Code which the ancillary administrator averred
was allowable by way of the reciprocity granted by Section 122 of the National Internal Revenue Code,
as then held by the Board of Tax Appeals in case No. 71 entitled "Housman vs. Collector," August 14,
1952; and (2) exemption from the imposition of estate and inheritance taxes on the 210,000 shares of
stock in the Mindanao Mother Lode Mines, Inc. also pursuant to the reciprocity proviso of Section 122
of the National Internal Revenue Code. In this last return, the estate claimed that it was liable only for
the amount of P525.34 for estate tax and P238.06 for inheritance tax and that, as a consequence, it
had overpaid the government. The refund of the amount of P15,259.83, allegedly overpaid, was
accordingly requested by the estate. The Collector denied the claim. For this reason, action was
commenced in the Court of First Instance of Manila by respondents, as assignees of Beatrice Mauricia
Stevenson, for the recovery of said amount. Pursuant to Republic Act No. 1125, the case was
forwarded to the Court of Tax Appeals which court, after hearing, rendered decision the dispositive
portion of which reads as follows:

In fine, we are of the opinion and so hold that: (a) the one-half (½) share of the surviving spouse
in the conjugal partnership property as diminished by the obligations properly chargeable to
such property should be deducted from the net estate of the deceased Walter G. Stevenson,
pursuant to Section 89-C of the National Internal Revenue Code; (b) the intangible personal
property belonging to the estate of said Stevenson is exempt from inheritance tax, pursuant to
the provision of section 122 of the National Internal Revenue Code in relation to the California
Inheritance Tax Law but decedent's estate is not entitled to an exemption of P4,000.00 in the
computation of the estate tax; (c) for purposes of estate and inheritance taxation the Baguio real
estate of the spouses should be valued at P52,200.00, and 210,000 shares of stock in the
Mindanao Mother Lode Mines, Inc. should be appraised at P0.38 per share; and (d) the estate
shall be entitled to a deduction of P2,000.00 for funeral expenses and judicial expenses of
P8,604.39.
21
From this decision, both parties appealed.

The Collector of Internal Revenue, hereinafter called petitioner assigned four errors allegedly
committed by the trial court, while the assignees, Douglas and Bettina Fisher hereinafter called
respondents, made six assignments of error. Together, the assigned errors raise the following main
issues for resolution by this Court:

(1) Whether or not, in determining the taxable net estate of the decedent, one-half (½) of the net estate
should be deducted therefrom as the share of tile surviving spouse in accordance with our law on
conjugal partnership and in relation to section 89 (c) of the National Internal revenue Code;

(2) Whether or not the estate can avail itself of the reciprocity proviso embodied in Section 122 of the
National Internal Revenue Code granting exemption from the payment of estate and inheritance taxes
on the 210,000 shares of stock in the Mindanao Mother Lode Mines Inc.;

(3) Whether or not the estate is entitled to the deduction of P4,000.00 allowed by Section 861, U.S.
Internal Revenue Code in relation to section 122 of the National Internal Revenue Code;

(4) Whether or not the real estate properties of the decedent located in Baguio City and the 210,000
shares of stock in the Mindanao Mother Lode Mines, Inc., were correctly appraised by the lower court;

(5) Whether or not the estate is entitled to the following deductions: P8,604.39 for judicial and
administration expenses; P2,086.52 for funeral expenses; P652.50 for real estate taxes; and
P10,0,22.47 representing the amount of indebtedness allegedly incurred by the decedent during his
lifetime; and

(6) Whether or not the estate is entitled to the payment of interest on the amount it claims to have
overpaid the government and to be refundable to it.

In deciding the first issue, the lower court applied a well-known doctrine in our civil law that in the
absence of any ante-nuptial agreement, the contracting parties are presumed to have adopted the
system of conjugal partnership as to the properties acquired during their marriage. The application of
this doctrine to the instant case is being disputed, however, by petitioner Collector of Internal Revenue,
who contends that pursuant to Article 124 of the New Civil Code, the property relation of the spouses
Stevensons ought not to be determined by the Philippine law, but by the national law of the decedent
husband, in this case, the law of England. It is alleged by petitioner that English laws do not recognize
legal partnership between spouses, and that what obtains in that jurisdiction is another regime of
property relation, wherein all properties acquired during the marriage pertain and belong Exclusively to
the husband. In further support of his stand, petitioner cites Article 16 of the New Civil Code (Art. 10 of
the old) to the effect that in testate and intestate proceedings, the amount of successional rights,
among others, is to be determined by the national law of the decedent.

In this connection, let it be noted that since the mariage of the Stevensons in the Philippines took place
in 1909, the applicable law is Article 1325 of the old Civil Code and not Article 124 of the New Civil
Code which became effective only in 1950. It is true that both articles adhere to the so-called nationality
theory of determining the property relation of spouses where one of them is a foreigner and they have
made no prior agreement as to the administration disposition, and ownership of their conjugal
properties. In such a case, the national law of the husband becomes the dominant law in determining
the property relation of the spouses. There is, however, a difference between the two articles in that
Article 1241 of the new Civil Code expressly provides that it shall be applicable regardless of whether
the marriage was celebrated in the Philippines or abroad while Article 1325 2 of the old Civil Code is
limited to marriages contracted in a foreign land.

It must be noted, however, that what has just been said refers to mixed marriages between a Filipino
citizen and a foreigner. In the instant case, both spouses are foreigners who married in the Philippines.
Manresa,3 in his Commentaries, has this to say on this point:

La regla establecida en el art. 1.315, se refiere a las capitulaciones otorgadas en Espana y

entre espanoles. El 1.325, a las celebradas en el extranjero cuando alguno de los conyuges es
espanol. En cuanto a la regla procedente cuando dos extranjeros se casan en Espana, o dos
espanoles en el extranjero hay que atender en el primer caso a la legislacion de pais a que
aquellos pertenezean, y en el segundo, a las reglas generales consignadas en los articulos 9 y
10 de nuestro Codigo. (Emphasis supplied.)
22
If we adopt the view of Manresa, the law determinative of the property relation of the Stevensons,
married in 1909, would be the English law even if the marriage was celebrated in the Philippines, both
of them being foreigners. But, as correctly observed by the Tax Court, the pertinent English law that
allegedly vests in the decedent husband full ownership of the properties acquired during the marriage
has not been proven by petitioner. Except for a mere allegation in his answer, which is not sufficient,
the record is bereft of any evidence as to what English law says on the matter. In the absence of proof,
the Court is justified, therefore, in indulging in what Wharton calls "processual presumption," in
presuming that the law of England on this matter is the same as our law. 4

Nor do we believe petitioner can make use of Article 16 of the New Civil Code (art. 10, old Civil Code)
to bolster his stand. A reading of Article 10 of the old Civil Code, which incidentally is the one
applicable, shows that it does not encompass or contemplate to govern the question of property
relation between spouses. Said article distinctly speaks of amount of successional rights and this term,
in speaks in our opinion, properly refers to the extent or amount of property that each heir is legally
entitled to inherit from the estate available for distribution. It needs to be pointed out that the property
relation of spouses, as distinguished from their successional rights, is governed differently by the
specific and express provisions of Title VI, Chapter I of our new Civil Code (Title III, Chapter I of the old
Civil Code.) We, therefore, find that the lower court correctly deducted the half of the conjugal property
in determining the hereditary estate left by the deceased Stevenson.

On the second issue, petitioner disputes the action of the Tax Court in the exempting the respondents
from paying inheritance tax on the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc. in
virtue of the reciprocity proviso of Section 122 of the National Internal Revenue Code, in relation to
Section 13851 of the California Revenue and Taxation Code, on the ground that: (1) the said proviso of
the California Revenue and Taxation Code has not been duly proven by the respondents; (2) the
reciprocity exemptions granted by section 122 of the National Internal Revenue Code can only be
availed of by residents of foreign countries and not of residents of a state in the United States; and (3)
there is no "total" reciprocity between the Philippines and the state of California in that while the former
exempts payment of both estate and inheritance taxes on intangible personal properties, the latter only
exempts the payment of inheritance tax..

To prove the pertinent California law, Attorney Allison Gibbs, counsel for herein respondents, testified
that as an active member of the California Bar since 1931, he is familiar with the revenue and taxation
laws of the State of California. When asked by the lower court to state the pertinent California law as
regards exemption of intangible personal properties, the witness cited article 4, section 13851 (a) and
(b) of the California Internal and Revenue Code as published in Derring's California Code, a publication
of the Bancroft-Whitney Company inc. And as part of his testimony, a full quotation of the cited section
was offered in evidence as Exhibits "V-2" by the respondents.

It is well-settled that foreign laws do not prove themselves in our jurisdiction and our courts are not
authorized to take judicial notice of them. 5 Like any other fact, they must be alleged and proved. 6

Section 41, Rule 123 of our Rules of Court prescribes the manner of proving foreign laws before our
tribunals. However, although we believe it desirable that these laws be proved in accordance with said
rule, we held in the case of Willamette Iron and Steel Works v. Muzzal, 61 Phil. 471, that "a reading of
sections 300 and 301 of our Code of Civil Procedure (now section 41, Rule 123) will convince one that
these sections do not exclude the presentation of other competent evidence to prove the existence of a
foreign law." In that case, we considered the testimony of an attorney-at-law of San Francisco,
California who quoted verbatim a section of California Civil Code and who stated that the same was in
force at the time the obligations were contracted, as sufficient evidence to establish the existence of
said law. In line with this view, we find no error, therefore, on the part of the Tax Court in considering the
pertinent California law as proved by respondents' witness.

We now take up the question of reciprocity in exemption from transfer or death taxes, between the
State of California and the Philippines.F

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 of tax or death tax of any character in
respect of intangible personal property of citizens of the Philippines not residing in that foreign
country, or (b) if the laws of the foreign country of which the decedent was a resident at the time
23
 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 or 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 nonresident resided
allowed 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 taxes 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.

In the Philippines, upon the death of any citizen or resident, or non-resident with properties therein,
there are imposed upon his estate and its settlement, both an estate and an inheritance tax. Under the
laws of California, only inheritance tax is imposed. On the other hand, the Federal Internal Revenue
Code imposes an estate tax on non-residents not citizens of the United States, 7 but does not provide
for any exemption on the basis of reciprocity. Applying these laws in the manner the Court of Tax
Appeals did in the instant case, we will have a situation where a Californian, who is non-resident in the
Philippines but has intangible personal properties here, will the subject to the payment of an estate tax,
although exempt from the payment of the inheritance tax. This being the case, will a Filipino, non-
resident of California, but with intangible personal properties there, be entitled to the exemption clause
of the California law, since the Californian has not been exempted from every character of legacy,
succession, or death tax because he is, under our law, under obligation to pay an estate tax? Upon the
other hand, if we exempt the Californian from paying the estate tax, we do not thereby entitle a Filipino
to be exempt from a similar estate tax in California because under the Federal Law, which is equally
enforceable in California he is bound to pay the same, there being no reciprocity recognized in respect
thereto. In both instances, the Filipino citizen is always at a disadvantage. We do not believe that our
legislature has intended such an unfair situation to the detriment of our own government and people.
We, therefore, find and declare that the lower court erred in exempting the estate in question from
payment of the inheritance tax.

We are not unaware of our ruling in the case of Collector of Internal Revenue vs. Lara (G.R. Nos. L-
9456 & L-9481, prom. January 6, 1958, 54 O.G. 2881) exempting the estate of the deceased Hugo H.
Miller from payment of the inheritance tax imposed by the Collector of Internal Revenue. It will be
noted, however, that the issue of reciprocity between the pertinent provisions of our tax law and that of
the State of California was not there squarely raised, and the ruling therein cannot control the
determination of the case at bar. Be that as it may, we now declare that in view of the express
provisions of both the Philippine and California laws that the exemption would apply only if the law of
the other grants an exemption from legacy, succession, or death taxes of every character, there could
not be partial reciprocity. It would have to be total or none at all.

With respect to the question of deduction or reduction in the amount of P4,000.00 based on the U.S.
Federal Estate Tax Law which is also being claimed by respondents, we uphold and adhere to our
ruling in the Lara case (supra) that the amount of $2,000.00 allowed under the Federal Estate Tax Law
is in the nature of a deduction and not of an exemption regarding which reciprocity cannot be claimed

24
under the provision of Section 122 of our National Internal Revenue Code. Nor is reciprocity authorized
under the Federal Law. .

On the issue of the correctness of the appraisal of the two parcels of land situated in Baguio City, it is
contended that their assessed values, as appearing in the tax rolls 6 months after the death of
Stevenson, ought to have been considered by petitioner as their fair market value, pursuant to section
91 of the National Internal Revenue Code. It should be pointed out, however, that in accordance with
said proviso the properties are required to be appraised at their fair market value and the assessed
value thereof shall be considered as the fair market value only when evidence to the contrary has not
been shown. After all review of the record, we are satisfied that such evidence exists to justify the
valuation made by petitioner which was sustained by the tax court, for as the tax court aptly observed:

"The two parcels of land containing 36,264 square meters were valued by the administrator of
the estate in the Estate and Inheritance tax returns filed by him at P43,500.00 which is the
assessed value of said properties. On the other hand, defendant appraised the same at
P52,200.00. It is of common knowledge, and this Court can take judicial notice of it, that
assessments for real estate taxation purposes are very much lower than the true and fair market
value of the properties at a given time and place. In fact one year after decedent's death or in
1952 the said properties were sold for a price of P72,000.00 and there is no showing that
special or extraordinary circumstances caused the sudden increase from the price of
P43,500.00, if we were to accept this value as a fair and reasonable one as of 1951. Even more,
the counsel for plaintiffs himself admitted in open court that he was willing to purchase the said
properties at P2.00 per square meter. In the light of these facts we believe and therefore hold
that the valuation of P52,200.00 of the real estate in Baguio made by defendant is fair,
reasonable and justified in the premises." (Decision, p. 19).

In respect to the valuation of the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc., (a
domestic corporation), respondents contend that their value should be fixed on the basis of the market
quotation obtaining at the San Francisco (California) Stock Exchange, on the theory that the certificates
of stocks were then held in that place and registered with the said stock exchange. We cannot agree
with respondents' argument. The situs of the shares of stock, for purposes of taxation, being located
here in the Philippines, as respondents themselves concede and considering that they are sought to be
taxed in this jurisdiction, consistent with the exercise of our government's taxing authority, their fair
market value should be taxed on the basis of the price prevailing in our country.

Upon the other hand, we find merit in respondents' other contention that the said shares of stock
commanded a lesser value at the Manila Stock Exchange six months after the death of Stevenson.
Through Atty. Allison Gibbs, respondents have shown that at that time a share of said stock was bid for
at only P.325 (p. 103, t.s.n.). Significantly, the testimony of Atty. Gibbs in this respect has never been
questioned nor refuted by petitioner either before this court or in the court below. In the absence of
evidence to the contrary, we are, therefore, constrained to reverse the Tax Court on this point and to
hold that the value of a share in the said mining company on August 22, 1951 in the Philippine market
was P.325 as claimed by respondents..

It should be noted that the petitioner and the Tax Court valued each share of stock of P.38 on the basis
of the declaration made by the estate in its preliminary return. Patently, this should not have been the
case, in view of the fact that the ancillary administrator had reserved and availed of his legal right to
have the properties of the estate declared at their fair market value as of six months from the time the
decedent died..

On the fifth issue, we shall consider the various deductions, from the allowance or disallowance of
which by the Tax Court, both petitioner and respondents have appealed..

Petitioner, in this regard, contends that no evidence of record exists to support the allowance of the
sum of P8,604.39 for the following expenses:.

1) Administrator's fee P1,204.34

2) Attorney's fee 6,000.00
3) Judicial and Administrative expenses 2,052.55
Total Deductions P8,604.39

25
An examination of the record discloses, however, that the foregoing items were considered deductible
by the Tax Court on the basis of their approval by the probate court to which said expenses, we may
presume, had also been presented for consideration. It is to be supposed that the probate court would
not have approved said items were they not supported by evidence presented by the estate. In allowing
the items in question, the Tax Court had before it the pertinent order of the probate court which was
submitted in evidence by respondents. (Exh. "AA-2", p. 100, record). As the Tax Court said, it found no
basis for departing from the findings of the probate court, as it must have been satisfied that those
expenses were actually incurred. Under the circumstances, we see no ground to reverse this finding of
fact which, under Republic Act of California National Association, which it would appear, that while still
living, Walter G. Stevenson obtained we are not inclined to pass upon the claim of respondents in
respect to the additional amount of P86.52 for funeral expenses which was disapproved by the court a
quo for lack of evidence.

In connection with the deduction of P652.50 representing the amount of realty taxes paid in 1951 on
the decedent's two parcels of land in Baguio City, which respondents claim was disallowed by the Tax
Court, we find that this claim has in fact been allowed. What happened here, which a careful review of
the record will reveal, was that the Tax Court, in itemizing the liabilities of the estate, viz:

1) Administrator's fee P1,204.34

2) Attorney's fee 6,000.00
3) Judicial and Administration expenses as of
August 9, 1952 2,052.55
Total P9,256.89

added the P652.50 for realty taxes as a liability of the estate, to the P1,400.05 for judicial and
administration expenses approved by the court, making a total of P2,052.55, exactly the same figure
which was arrived at by the Tax Court for judicial and administration expenses. Hence, the difference
between the total of P9,256.98 allowed by the Tax Court as deductions, and the P8,604.39 as found by
the probate court, which is P652.50, the same amount allowed for realty taxes. An evident oversight
has involuntarily been made in omitting the P2,000.00 for funeral expenses in the final computation.
This amount has been expressly allowed by the lower court and there is no reason why it should not
be. .

We come now to the other claim of respondents that pursuant to section 89(b) (1) in relation to section
89(a) (1) (E) and section 89(d), National Internal Revenue Code, the amount of P10,022.47 should
have been allowed the estate as a deduction, because it represented an indebtedness of the decedent
incurred during his lifetime. In support thereof, they offered in evidence a duly certified claim, presented
to the probate court in California by the Bank of California National Association, which it would appear,
that while still living, Walter G. Stevenson obtained a loan of $5,000.00 secured by pledge on 140,000
of his shares of stock in the Mindanao Mother Lode Mines, Inc. (Exhs. "Q-Q4", pp. 53-59, record). The
Tax Court disallowed this item on the ground that the local probate court had not approved the same as
a valid claim against the estate and because it constituted an indebtedness in respect to intangible
personal property which the Tax Court held to be exempt from inheritance tax.

For two reasons, we uphold the action of the lower court in disallowing the deduction.

Firstly, we believe that the approval of the Philippine probate court of this particular indebtedness of the
decedent is necessary. This is so although the same, it is averred has been already admitted and
approved by the corresponding probate court in California, situs of the principal or domiciliary
administration. It is true that we have here in the Philippines only an ancillary administration in this
case, but, it has been held, the distinction between domiciliary or principal administration and ancillary
administration serves only to distinguish one administration from the other, for the two proceedings are
separate and independent.8 The reason for the ancillary administration is that, a grant of administration
does not ex proprio vigore, have any effect beyond the limits of the country in which it was granted.
Hence, we have the requirement that before a will duly probated outside of the Philippines can have
effect here, it must first be proved and allowed before our courts, in much the same manner as wills
originally presented for allowance therein.9 And the estate shall be administered under letters
testamentary, or letters of administration granted by the court, and disposed of according to the will as
probated, after payment of just debts and expenses of administration. 10 In other words, there is a
regular administration under the control of the court, where claims must be presented and approved,
and expenses of administration allowed before deductions from the estate can be authorized.
Otherwise, we would have the actuations of our own probate court, in the settlement and distribution of
26
the estate situated here, subject to the proceedings before the foreign court over which our courts have
no control. We do not believe such a procedure is countenanced or contemplated in the Rules of Court.

Another reason for the disallowance of this indebtedness as a deduction, springs from the provisions of
Section 89, letter (d), number (1), of the National Internal Revenue Code which reads:

(d) Miscellaneous provisions — (1) No deductions shall be allowed in the case of a non-resident
not a citizen of the Philippines unless the executor, administrator or anyone of the heirs, as the
case may be, includes in the return required to be filed under section ninety-three the value at
the time of his death of that part of the gross estate of the non-resident not situated in the
Philippines."

In the case at bar, no such statement of the gross estate of the non-resident Stevenson not situated in
the Philippines appears in the three returns submitted to the court or to the office of the petitioner
Collector of Internal Revenue. The purpose of this requirement is to enable the revenue officer to
determine how much of the indebtedness may be allowed to be deducted, pursuant to (b), number (1)
of the same section 89 of the Internal Revenue Code which provides:

(b) Deductions allowed to non-resident estates. — In the case of a non-resident not a citizen of
the Philippines, by deducting from the value of that part of his gross estate which at the time of
his death is situated in the Philippines —

(1) Expenses, losses, indebtedness, and taxes. — That proportion of the deductions specified in
paragraph (1) of subjection (a) of this section 11 which the value of such part bears the value of
his entire gross estate wherever situated;"

In other words, the allowable deduction is only to the extent of the portion of the indebtedness which is
equivalent to the proportion that the estate in the Philippines bears to the total estate wherever
situated. Stated differently, if the properties in the Philippines constitute but 1/5 of the entire assets
wherever situated, then only 1/5 of the indebtedness may be deducted. But since, as heretofore
adverted to, there is no statement of the value of the estate situated outside the Philippines, no part of
the indebtedness can be allowed to be deducted, pursuant to Section 89, letter (d), number (1) of the
Internal Revenue Code.

For the reasons thus stated, we affirm the ruling of the lower court disallowing the deduction of the
alleged indebtedness in the sum of P10,022.47.

In recapitulation, we hold and declare that:

(a) only the one-half (1/2) share of the decedent Stevenson in the conjugal partnership property
constitutes his hereditary estate subject to the estate and inheritance taxes;

(b) the intangible personal property is not exempt from inheritance tax, there existing no
complete total reciprocity as required in section 122 of the National Internal Revenue Code, nor
is the decedent's estate entitled to an exemption of P4,000.00 in the computation of the estate
tax;

(c) for the purpose of the estate and inheritance taxes, the 210,000 shares of stock in the
Mindanao Mother Lode Mines, Inc. are to be appraised at P0.325 per share; and

(d) the P2,000.00 for funeral expenses should be deducted in the determination of the net asset
of the deceased Stevenson.

In all other respects, the decision of the Court of Tax Appeals is affirmed.

Respondent's claim for interest on the amount allegedly overpaid, if any actually results after a
recomputation on the basis of this decision is hereby denied in line with our recent decision in Collector
of Internal Revenue v. St. Paul's Hospital (G.R. No. L-12127, May 29, 1959) wherein we held that, "in
the absence of a statutory provision clearly or expressly directing or authorizing such payment, and
none has been cited by respondents, the National Government cannot be required to pay interest."

27
WHEREFORE, as modified in the manner heretofore indicated, the judgment of the lower court is
hereby affirmed in all other respects not inconsistent herewith. No costs. So ordered.

Paras, C.J., Bengzon, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Gutierrez David, Paredes
and Dizon, JJ., concur.

Footnotes

1
ART. 124. If the marriage is between a citizen of the Philippines and a foreigner, whether
celebrated in the Philippines or abroad, the following rules shall prevail: (1) If the husband is a
citizen of the Philippines while the wife is a foreigner, the provisions of this Code shall govern
their property relations; (2) If the husband is a foreigner and the wife is a citizen of the
Philippines, the laws of the husband's country shall be followed, without prejudice to the
provisions of this Code with regard to immovable property."

2
ART. 1325. Should the marriage be contracted in a foreign country, between a Spaniard and a
foreign woman or between a foreigner and a Spanish woman, and the contracting parties should
not make any statement or stipulation with respect to their property, it shall be understood, when
the husband is a Spaniard, that he marries under the system of the legal conjugal partnership,
and when the wife is a Spaniard, that she marries under the system of law in force in the
husband's country, all without prejudice to the provisions of this code with respect to real
property. .

3
IX Manresa, Comentarios al Codigo Civil Espanol, p. 209. .

4
Yam Ka Lim vs. Collector of Customs, 30 Phil. 46; Lim & Lim vs. Collector of Customs, 36 Phil.
472; International Harvester Co. vs. Hamburg-American Line, 42 Phil. 845; Beam vs. Yatco, 46
O.G. No. 2, p. 530.).

5
Lim vs. Collector of Customs, supra; International Harvester Co. vs. Hamburg-American
Line, supra; Phil. Manufacturing Co. vs. Union Ins. Society of Canton, 42 Phil. 378; Adong vs.
Cheong Seng Gee, Phil. 53.

6
Sy Joc Leing vs. Sy Quia, 16 Phil. 138; Ching Huat vs. Co Heong, 77 Phil. 985; Adong vs.
Cheong supra.

7
See Sec. 860, Internal Revenue Code of 1939, 26 USCA 408.

8
In the matter of the testate estate of Basil Gordon Butler, G.R. No. L-3677, Nov. 29, 1951. .

9
Rule 78, Sees. 1, 2 and 3, Rules of Court. See also Hix vs. Fluemer, 54 Phil. 610. .

10
Rule 78, See. 4, lbid.

11
Expense, losses, indebtedness, and taxes which may be deducted to determine the net estate
of a citizen or resident of the Philippines.

28
DIGEST:

DOCTRINE:
“Reciprocity must be total. If any of the two states collects or imposes or does not exempt any
transfer, death, legacy or succession tax of any character, the reciprocity does not work.”

FACTS:
Walter G. Stevenson was born in the Philippines of British parents, married in Manila to another
British subject, Beatrice. He died in 1951 in California where he and his wife moved to.
In his will, he instituted Beatrice as his sole heiress to certain real and personal properties, among
which are 210,000 shares of stocks in Mindanao Mother Lode Mines (Mines).
Ian Murray Statt (Statt), the appointed ancillary administrator of his estate filed an estate and
inheritance tax return. He made a preliminary return to secure the waiver of the CIR on the
inheritance of the Mines shares of stock.
In 1952, Beatrice assigned all her rights and interests in the estate to the spouses Fisher.
Statt filed an amended estate and inheritance tax return claiming ADDITIOANL EXEMPTIONS,
one of which is the estate and inheritance tax on the Mines’ shares of stock pursuant to a
reciprocity proviso in the NIRC, hence, warranting a refund from what he initially paid. The collector
denied the claim. He then filed in the CFI of Manila for the said amount.
CFI ruled that (a) the ½ share of Beatrice should be deducted from the net estate of Walter, (b) the
intangible personal property belonging to the estate of Walter is exempt from inheritance tax
pursuant to the reciprocity proviso in NIRC.
ISSUE/S:
Whether or not the estate can avail itself of the reciprocity proviso in the NIRC granting exemption
from the payment of taxes for the Mines shares of stock.
RULING:
NO.
Reciprocity must be total. If any of the two states collects or imposes or does not exempt any
transfer, death, legacy or succession tax of any character, the reciprocity does not work.
In the Philippines, upon the death of any citizen or resident, or non-resident with properties,
there are imposed upon his estate, both an estate and an inheritance tax.
But, under the laws of California, only inheritance tax is imposed. Also, although the Federal
Internal Revenue Code imposes an estate tax, it does not grant exemption on the basis of
reciprocity. Thus, a Filipino citizen shall always be at a disadvantage. This is not what the
legislators intended.
SPECIFICALLY:
Section122 of the NIRC provides 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 of tax or death tax of any character in respect of
intangible personal property of citizens of the Philippines not residing in that 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."

29
On the other hand, Section 13851 of the California Inheritance Tax Law provides that intangible
personal property is exempt from tax if the decedent at the time of his death was a resident of a
territory or another State of the United States or 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:.
Did not impose a legacy, succession, or death tax of any character in respect to intangible personal
property of residents of this State, or
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 nonresident resided allowed 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."

3. G.R. No. L-29204 December 29, 1928

RUFINA ZAPANTA, ET AL., plaintiffs-appellees,
vs.
JUAN POSADAS, JR., ET AL., defendants-appellants.
---------------------------------
G.R. No. L-29205 December 29, 1928
ROSARIO PINEDA, plaintiff-appellee,
vs.
JUAN POSADAS, JR., ET AL., defendants-appellants.
---------------------------------
G.R. No. L-29206 December 29, 1928
OLIMPIO GUANZON, ET AL., plaintiffs-appellees,
vs.
JUAN POSADAS, JR., ET AL., defendants-appellants.
---------------------------------
G.R. No. L-29207 December 29, 1928
LEONCIA PINEDA, ET AL., plaintiffs-appellees,
vs.
JUAN POSADAS, JR., ET AL., defendants-appellants.
---------------------------------
G.R. No. L-29208 December 29, 1928
EMIGDIO DAVID, ET AL., plaintiffs-appellees,
vs.
JUAN POSADAS, JR., ET AL., defendants-appellants.
---------------------------------
G.R. No. L-29209 December 29, 1928
GERONIMA PINEDA, plaintiff-appellees,
vs.
JUAN POSADAS, JR., ET AL., defendants-appellants.
Office of the Solicitor-General Reyes for appellants.
Aurelio Pineda for appellees.

AVANCEÑA, C. J.:

Father Braulio Pineda died in January 1925 without any ascendants or descendants leaving a will
in which he instituted his sister Irene Pineda as his sole heiress. During his lifetime Father Braulio
donated some of his property by the instruments to the six plaintifffs, severally, with the condition
that some of them would pay him a certain amount of rice, and others of money every year, and
with the express provision that failure to fulfill this condition would revoke the donations ipso facto.
These six plaintiff-donees are relatives, and some of them brothers of Father Braulio Pineda. The
donations contained another clause that they would take effect upon acceptance. They were
accepted during Father Braulio's lifetime by every one of the donees.

30
Every one of the six plaintiffs filed a separate action against the Collector of Internal Revenue and
his deputy for the sums of which each of them paid, under protest, as inheritance tax on the
property donated to them, in accordance with section 1536 of the Administrative Code, as
amended by section 10 of Act No. 2835, and by section 1 of Act No. 3031. Section 1536 of the
Administrative Code reads:

Every transmission by virtue of inheritance, devise, bequest, gift mortis causa or advance in
anticipation of inheritance, devise, or bequest of real property located in the Philippine
Islands and real rights in such property; . . .

The trial court in deciding these six cases, held that the donations to the six plaintiffs made by the
deceased Father Braulio Pineda are donations inter vivos, and therefore, not subject to the
inheritance tax, and ordered the defendants to return to each of the plaintiffs the sums paid by the
latter.

The defendants appealed from this judgment.

The whole quetion involved in this appeal resolves into whether the donations made by Father
Braulio Pineda to each of the plaintiffs are donations inter vivos, or mortis causa, for it is the latter
upon which the Administrative Code imposes inheritance tax. In our opinion, said donations are
inter vivos. It is so expressly stated in the instruments in which they appear. They were made in
consideration of the donor's affection for the donees, and of the services they had rendered him,
but he has charged them with the obligation to pay him a certain amount of rice and money,
respectively, each year during his lifetime, the donations to become effective upon acceptance.
They are therefore not in the nature of donations mortis causa but inter vivos.

The principal characteristics of a donation mortis causa, which distinguish it essentially from a
donation inter vivos, are that in the former it is the donor's death that determines the acquisition of,
or the right to, the property, and that it is revocable at the will of the donor. In the donations in
question, their effect, that is, the acquisition of, or the right to, the property, was produced while the
donor was still alive, for according to their expressed terms they were to have this effect upon
acceptance, and this took place during the donor's lifetime. The nature of these donations is not
affected by the fact that they were subject to a condition, since it was imposed as a resolutory
condition, and in this sense, it is necessarily implies that the right came into existence first as well
as its effect, because otherwise there would be nothing to resolve upon the nonfulfillment of the
condition imposed. Neither does the fact that these donations are revocable, give them the
character of donations mortis causa, inasmuch as the revocation is not the failure to fulfill the
condition imposed. In relation to the donor's will alone, these donations are irrevocable. On the
other hand, this condition, in so far as it renders the donation onerous, takes it further away from
the disposition mortis causa and brings it nearer to contract. In this sense, by virtue of this
condition imposed, they are not donations throughout their full extent, but only so far as they
exceed the incumbrance imposed, for so far as concerns the portion equivalent to or less than said
incumbrance, it has the nature of a real contract and is governed by the rule on contracts (art. 622
of the Civil Code). And in the part in which it is strictly a donation, it is a donation inter vivos,
because its effect was produced by the donees' acceptance during the donor's lifetime and was not
determined by the donor's death. Upon being accepted they had full effect. If the donor's life is
mentioned in connection with this condition, it is only fix the donor's death as the end of the term
within which the condition must be fulfilled, and not because such death of the donor is the cause
which determines the birth of the right to the donation. The property donated passed to the
ownership of the donees from the acceptance of the donations, and these could not be revoked
except upon the nonfulfillment of the condition imposed, or for other causes prescribed by the law,
but not by mere will of the donor.

Neither can these donations be considered as an advance on inheritance or legacy, according to

the terms of section 1536 of the Administrative Code, because they are neither an inheritance nor
a legacy. And it cannot be said that the plaintiffs received such advance on inheritance or legacy,
since they were not heirs or legatees of their predessor in interest upon his death (sec. 1540 of the
Administrative Code). Neither can it be said that they obtained this inheritance or legacy by virtue
of a document which does not contain the requisites of a will (sec. 618 of the Code of Civil
Pocedure).1awphi1.net

31
Besides, if the donations made by the plaintiffs are, as the appellants contended, mortis causa,
then they must be governed by the law on testate succession (art. 620 of the Civil Code). In such a
case, the documents in which these donations appear, being instruments which do not contain the
requisites of a will, are not valid to transmit the property to the donees (sec. 618, Code of Civil
Procedure.) Then the defendants are not justified in collecting from the donees the inheritance tax,
on property which has not been legally transferred to them, and in which they acquired no right.

For these reasons the judgment appealed from is affirmed, without special pronouncement as to
costs. So ordered.

Johnson, Malcolm, Villamor, Romualdez and Villa-Real, JJ., concur.

Ostrand and Johns, JJ., dissent.

Separate Opinions

STREET, J., dissenting:

Of course I agree with so much of the discussion in the majority opinion as declarees that the
various donations made prior to his death by Rev. Braulio Pineda to various nephews and nieces
were not donations mortis causa. But this is by no means decisive of the case. Among the forms of
succession which are by law made subject to the inheritance tax are advances in anticipation of
inheritance (Adm. Code, sec. 1536, as amended); and I consider these donations to be taxable in
that character. The device adopted in this case for the distribution of the bulk of the donor's
property before his death is, to my mind, a transparent attempt at an evasion of the tax. The
donations in question were made to all persons who would have been entitled to inherit if no will
had been made, except one; and this one was instituted as sole heir in the will. If no will had been
left, all of the donees and the heir instituted in the will would have shared jointly in the estate by
regular succession. It is thus seen that the making of the donations and the making of the will were
part of a single purpose, which was, to effect the distribution of the donor's property. What else is
necessary to make an advance "in anticipation of inheritance?"

The suggestion in the opinion that the institution of another person as heir in the will had effect of
destroying the capacity of the donees to take as heirs, is not well founded, for the question whether
these donations should be considered advances in anticipation of inheritance ought to be
determined with reference to the situation at the time the donations were made. The very reason
that the prospective heir to whom no donation had been made was instituted as sole heir in the will
is of course found in the fact that advances had already been made to the others. The purpose of
the statute was to impose a tax on successions; and in order to prevent the successful use of
devices of this kind, the lawmaker expressly made the tax applicable to advance in anticipation
inheritance. If the situation before us is not within both the letter and meaning of that provision, the
undersigned has entirely misinterpreted its purport.

DIGEST:

Laws:

 Section 1536 of the Administrative Code, as amended by Section 10 of Act No. 2835
o "Every transmission by virtue of inheritance, devise, bequest, gift mortis causa, or
advance in anticipation of inheritance, devise, or bequest of real property located in
the Philippine Islands and real rights in such property; * * *"
 Section 1 of Act No. 3031

FACTS:

 Father Braulio Pineda died in January 1925 without any ascendants or descendants,
leaving a will in which he instituted his sister Irene Pineda as his sole heiress.
 During his lifetime Father Braulio donated some of his property by public instruments
to the six plaintiffs, severally, with the condition that some of them would pay him a
certain amount of rice, and others of money every year, and with the express provision
that failure to fulfill this condition would revoke the donations ipso facto.

32
 o These six plaintiff- donees are relatives, and some of them brothers of Father Braulio
Pineda.
o The donations contained another clause that they would take effect upon
acceptance. They were accepted during Father Braulio's lifetime by every one of the
donees.
 The trial court in deciding these six cases, held that the donations to the six plaintiffs
made by the deceased Father Braulio Pineda are donations inter vivos, and therefore,
not subject to the inheritance tax, and ordered the defendants to return to each of the
plaintiffs the sums paid by the latter.
 Defendants appealed.

ISSUE: Whether the donations made by Father Braulio Pineda to each of the plaintiffs are
donations inter vivos, or mortis causa, for it is the latter upon which the Administrative Code
imposes inheritance tax.

HELD: Donations were made inter vivos; thus, they are not subject to inheritance tax.

Judgment appealed from is affirmed.

RATIO:

 [Said donations are inter vivos because] it is so expressly stated in the instruments in which
they appear.
o They were made in consideration of the donor's affection for the donees, and of the
services they had rendered him, but he has charged them with the obligation to pay
him a certain amount of rice and money, respectively, each year during his lifetime,
the donations to become effective upon acceptance.
 Essentially, the principal characteristic of a donation mortis causa, which distinguishes
it from a donation inter vivos, is that in the former, it is the donor's death that determines
the acquisition of, or the right to, the property, and that it is revocable at the will of
the donor.
 In the donations in question, their effect, that is, the acquisition of, or the right to, the
property, was produced while the donor was still alive, for, according to their expressed
terms they were to have this effect upon acceptance, and this took place during the donor's
lifetime. The nature of these donations is not affected by the fact that they were
subject to a condition, since it was imposed as a resolutory condition, and in this
sense, it necessarily implies that the right came into existence first as well as its effect,
because otherwise there would be nothing to resolve upon the non-fulfillment of the
condition imposed.
 Neither does the fact that these donations are revocable, give them the character of
donations mortis causa, inasmuch as the revocation is not made to depend on the
donor's exclusive will, but on the failure to fulfill the condition imposed.
 Neither can these donations be considered as an advance on inheritance or legacy,
according to the terms of section 1536 of the Administrative Code, because they are
neither an inheritance nor a legacy.
o And it cannot be said that the plaintiffs received such advance on inheritance or
legacy, since they were not heirs or legatees of their predecessor in interest
upon his death (sec. 1540 of the Administrative Code).
o Neither can it be said that they obtained this inheritance or legacy by virtue of a
document which does not contain the requisites of a will (sec. 618 of the Code of
Civil Procedure).
Besides, if the donations made by the plaintiffs are, as the appellants contend, mortis causa, then
they must be governed by the law on testate succession (art. 620 of the Civil Code). In such a
case, the documents in which these donations appear, being instruments which do not contain the
requisites of a will, are not valid to transmit the property to the donees (sec. 618, Code of Civil
Procedure.) Then the defendants are not justified in collecting from the donees the inheritance tax
on property which has not been legally transferred to them, and in which they acquired no right.

33
4. G.R. No. L-30885 January 23, 1930

ALFONSO TUASON Y ANGELES and MARIANO TUASON Y ANGELES, plaintiffs-appellees,

vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.

Attorney-General Jaranilla for appellant.

Salvador Franco for appellees.

AVANCEÑA, C.J.:

On September 15, 1922, Esperanza Tuason y Chuajap made a donation inter vivos of certain
property to plaintiff Mariano Tuason y Angeles. On April 30, 1923, she made another donation inter
vivos to Alfonso Tuason y Angeles, the other plaintiff. On January 5, 1926, she died of senile
weakness at the age of 73, leaving a will bequeathing of P5,025 to Mariano Tuason y Angeles. Her
judicial administratrix paid the prescribed inheritance tax on these two bequests.

Furthermore, the defendant collected the sums of P3,809.76 and P6,653.64 from plaintiffs Mariano
Tuason y Angeles and Alfonso Tuason y Angeles against their opposition and over their protest as
inheritance tax upon the gifts inter vivos made to them.

The plaintiffs brought this action against the Collector of Internal Revenue for the recovery of the
amounts of P3,809.76 and P6,653.64 collected from them as inheritance tax.

The judgment appealed from ordered the defendant to return the amounts claimed to the plaintiffs.

The appellant contends that the collection of these amounts as inheritance tax is authorized by the
law.

Section 1536 of the Administrative Code provides:

SEC. 1536. Conditions and rate of taxation. — Every transmission by virtue of inheritance,
devise, bequest, gift mortis causa, or advance in anticipation of inheritance, devise, or
bequest shall be subject to the following tax;

xxx xxx xxx

Section 1539 enumerates the deductions to be made in determining the net sum which must bear
the tax.

Section 1540 then provides:

SEC. 1540. Additions of gifts and advances. — After the aforementioned deductions have
been made, there shall be added to the resulting amount the value of all gifts or advances
made by the predecessor to any of those who, after his death, shall prove to be his heirs,
devisees, legatees, or donees mortis causa.

When the law say all gifts, it doubtless refers to gifts inter vivos, and not mortis causa. Both the
letter and the spirit of the law leave no room for any other interpretation. Such, clearly, is the tenor
of the language which refers to donation that took effect before the donor's death, and not
to mortis causa donations, which can only be made with the formalities of a will, and can only take
effect after the donor's death. Any other construction would virtually change this provision into:

. . . there shall be added to the resulting amount the value of all gifts mortis causa . . . made
by the predecessor to those who, after his death, shall prove to be his . . . donees mortis
causa." We cannot give to the law an interpretation that would so vitiate its language. The
truth of the matter is that in this section (1540) the law presumes that such gifts have been
made in anticipation of inheritance, devise, bequest, or gift mortis causa, when the donee,
after the death of the donor proves to be his heir, devisee or donee mortis causa, for the

34
 purpose of evading the tax, and it is to prevent this that it provides that they shall be added
to the resulting amount.

This being so, and it appearing that the appellees after the death of Esperanza Tuason y Chuajap,
were found to be legatees under her will, the donation inter vivos she had made to them in 1922
and 1923, must be added to the net amount that is to be taxed.

In the course of the deliberations of this court on this case, the question arose as to whether or not
that interpretation of the law would be constitutional. But as the parties did not raise this question in
the court below, nor in this court, we cannot consider it. At any rate the argument adduced against
its constitutionality, which is the lack of uniformity, does not seem to be well-founded. It was said
that under such an interpretation, while a donee inter vivos who, after the predecessor's death
prove to be an heir, a legatee, or a donee mortis causa, would have to pay the tax, another donee
inter vivos who did not prove to be an heir, a legatee, or a donee mortis causa of the predecessor,
would be exempt from such a tax. But as these are two different cases, the principle of uniformity is
inapplicable to them. Aside from this, in regard to other aspects, we see nothing against the
constitutionality of the law (Bromley vs. McCaughn [1929], U. S. Supreme Court Advance
Opinions, p. 69).

The judgment appealed from is reversed, and the defendant is absolved from the complaint,
without special pronouncement of costs. So ordered.

Malcolm, Villamor, Ostrand, Johns and Romualdez, JJ., concur.

Separate Opinions

STREET, J., dissenting:

The two plaintiffs in this case are suing to recover two several sums of money, the payment of
which has been exacted from them in the character of taxes upon inheritance, and it is very
manifest to me that the taxes in question were imposed, and have been collected, in violation of
that portion of section 3 of the Autonomy Act (Jones Law) which declares that the rule of taxation in
these Islands shall be uniform. To demonstrate this conclusion it is desirable to fix in the mind the
exact state of fact upon which the decision should turn. In this connection we note that the plaintiffs
are not persons who would have inherited any part of the estate of Esperanza Tuason y Chuajap, if
she had died intestate. It is clear therefore that the donations made to the two plaintiffs in 1922 and
1923, respectively, were not made "in anticipation of inheritance," and they are therefore not
taxable in that character. The gifts in question were donations inter vivos, and as such they should
be free from the inheritance tax.

But it happened that the donor, in a will executed late in 1925, gave two legacies of about P5,000
each to the two plaintiffs. These two legacies were of course subject to the legacy tax imposed by
law, and those taxes have been paid without question. Nevertheless, under the decision now
before us, the giving of those legacies has the effect of making the gifts of 1922 and 1923 to the
plaintiffs taxable in the character of inheritances. This substitutes mere caprice for uniformity.

Further to illustrate this, let it be supposed that a person, desirous of conferring a benefit upon two
persons held in about equal esteem, makes a gift of P10,000 to one and P9,900 to the other. In a
subsequent will, in order to equalize the gifts, the same benefactor gives a legacy of P100 to the
second donee. Under the statute, as interpreted by the court, the first donee is not liable to any
inheritance tax, but the second is liable upon the entire amount first given to him. This shows the
lack of logical relation between the incidence of the tax and the fact taken as a basis for its
imposition.

It will be noted that we do not here question the proposition that section 1540 of the Administrative
Code might lawfully operate upon a donee who at the time of receiving the gift inter vivos belongs
to the class who could take by intestate succession, in the absence of a will, for in this case the
donation may be made in anticipation of inheritance (sec. 1536, Adm. Code). It was for this very
reason that the undersigned sustained the position in Zapanta vs. Posadas (52 Phil., 557), that the
gifts there made were taxable. But section 1540 of the Administrative Code cannot, in my opinion,

35
properly be interpreted to extend to gifts inter vivos made to a person not in a position to take as
heir of the donor dying intestate.

In closing I wish to point out that the vital difference between this case and that under
consideration in Zapanta vs. Posadas, supra, is that in the latter case the donees were persons
who would have been heirs of the donor if the latter had died intestate, while in this case the
donees are not in such position.

The judgment, in my opinion, should have been affirmed.

Johnson and Villa-Real, JJ., concur.

5. G.R. No. L-36770 November 4, 1932

LUIS W. DISON, plaintiff-appellant,

vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.

Marcelino Aguas for plaintiff-appellant.

Attorney-General Jaranilla for defendant-appellant.

BUTTE, J.:

This is an appeal from the decision of the Court of First Instance of Pampanga in favor of the
defendant Juan Posadas, Jr., Collector of Internal Revenue, in a suit filed by the plaintiffs, Luis W.
Dison, for the recovery of an inheritance tax in the sum of P2,808.73 paid under protest. The
petitioner alleged in his complaint that the tax is illegal because he received the property, which is
the basis of the tax, from his father before his death by a deed of gift inter vivos which was duly
accepted and registered before the death of his father. The defendant answered with a general
denial and with a counterdemand for the sum of P1,245.56 which it was alleged is a balance still
due and unpaid on account of said tax. The plaintiff replied to the counterdemand with a general
denial. The court a quo held that the cause of action set up in the counterdemand was not proven
and dismissed the same. Both sides appealed to this court, but the cross-complaint and appeal of
the Collector of Internal Revenue were dismissed by this court on March 17, 1932, on motion of
the Attorney-General.1awphil.net

The only evidence introduced at the trial of this cause was the proof of payment of the tax under
protest, as stated, and the deed of gift executed by Felix Dison on April 9, 1928, in favor of his
sons Luis W. Dison, the plaintiff-appellant. This deed of gift transferred twenty-two tracts of land to
the donee, reserving to the donor for his life the usufruct of three tracts. This deed was
acknowledged by the donor before a notary public on April 16, 1928. Luis W. Dison, on April 17,
1928, formally accepted said gift by an instrument in writing which he acknowledged before a
notary public on April 20, 1928.

At the trial the parties agreed to and filed the following ingenious stipulation of fact:

1. That Don Felix Dison died on April 21, 1928;

2. That Don Felix Dison, before his death, made a gift inter vivos in favor of the plaintiff Luis
W. Dison of all his property according to a deed of gift (Exhibit D) which includes all the
property of Don Felix Dizon;

3. That the plaintiff did not receive property of any kind of Don Felix Dison upon the death of
the latter;

4. That Don Luis W. Dison was the legitimate and only child of Don Felix Dison.

It is inferred from Exhibit D that Felix Dison was a widower at the time of his death.

36
The theory of the plaintiff-appellant is that he received and holds the property mentioned by a
consummated gift and that Act No. 2601 (Chapter 40 of the Administrative Code) being the
inheritance tax statute, does not tax gifts. The provision directly here involved is section 1540 of
the Administrative Code which reads as follows:

Additions of Gifts and Advances. — After the aforementioned deductions have been made,
there shall be added to the resulting amount the value of all gifts or advances made by the
predecessor to any of those who, after his death, shall prove to be his heirs, devises,
legatees, or donees mortis causa.

The question to be resolved may be stated thus: Does section 1540 of the Administrative Code
subject the plaintiff-appellant to the payment of an inheritance tax?

The appellant argues that there is no evidence in this case to support a finding that the gift was
simulated and that it was an artifice for evading the payment of the inheritance tax, as is intimated
in the decision of the court below and the brief of the Attorney-General. We see no reason why the
court may not go behind the language in which the transaction is masked in order to ascertain its
true character and purpose. In this case the scanty facts before us may not warrant the inference
that the conveyance, acknowledged by the donor five days before his death and accepted by the
donee one day before the donor's death, was fraudulently made for the purpose of evading the
inheritance tax. But the facts, in our opinion, do warrant the inference that the transfer was an
advancement upon the inheritance which the donee, as the sole and forced heir of the donor,
would be entitled to receive upon the death of the donor.

The argument advanced by the appellant that he is not an heir of his deceased father within the
meaning of section 1540 of the Administrative Code because his father in his lifetime had given the
appellant all his property and left no property to be inherited, is so fallacious that the urging of it
here casts a suspicion upon the appellants reason for completing the legal formalities of the
transfer on the eve of the latter's death. We do not know whether or not the father in this case left a
will; in any event, this appellant could not be deprived of his share of the inheritance because the
Civil Code confers upon him the status of a forced heir. We construe the expression in section
1540 "any of those who, after his death, shall prove to be his heirs", to include those who, by our
law, are given the status and rights of heirs, regardless of the quantity of property they may receive
as such heirs. That the appellant in this case occupies the status of heir to his deceased father
cannot be questioned. Construing the conveyance here in question, under the facts presented, as
an advance made by Felix Dison to his only child, we hold section 1540 to be applicable and the
tax to have been properly assessed by the Collector of Internal Revenue.

This appeal was originally assigned to a Division of five but referred to the court in banc by reason
of the appellant's attack upon the constitutionality of section 1540. This attack is based on the sole
ground that insofar as section 1540 levies a tax upon gifts inter vivos, it violates that provision of
section 3 of the organic Act of the Philippine Islands (39 Stat. L., 545) which reads as follows: "That
no bill which may be enacted into law shall embraced more than one subject, and that subject shall
be expressed in the title of the bill." Neither the title of Act No. 2601 nor chapter 40 of the
Administrative Code makes any reference to a tax on gifts. Perhaps it is enough to say of this
contention that section 1540 plainly does not tax gifts per se but only when those gifts are made to
those who shall prove to be the heirs, devisees, legatees or donees mortis causa of the donor. This
court said in the case of Tuason and Tuason vs. Posadas 954 Phil., 289):lawphil.net

When the law says all gifts, it doubtless refers to gifts inter vivos, and not mortis causa. Both
the letter and the spirit of the law leave no room for any other interpretation. Such, clearly, is
the tenor of the language which refers to donations that took effect before the donor's death,
and not to mortis causa donations, which can only be made with the formalities of a will, and
can only take effect after the donor's death. Any other construction would virtually change
this provision into:

". . . there shall be added to the resulting amount the value of all gifts mortis causa . . . made by the
predecessor to those who, after his death, shall prove to be his . . . donees mortis causa." We
cannot give to the law an interpretation that would so vitiate its language. The truth of the matter is
that in this section (1540) the law presumes that such gifts have been made in anticipation of
inheritance, devise, bequest, or gift mortis causa, when the donee, after the death of the donor
37
proves to be his heir, devisee or donee mortis causa, for the purpose of evading the tax, and it is to
prevent this that it provides that they shall be added to the resulting amount." However much
appellant's argument on this point may fit his preconceived notion that the transaction between him
and his father was a consummated gift with no relation to the inheritance, we hold that there is not
merit in this attack upon the constitutionality of section 1540 under our view of the facts. No other
constitutional questions were raised in this case.

The judgment below is affirmed with costs in this instance against the appellant. So ordered.

Avanceña, C.J., Street, Malcolm, Ostrand, Abad Santos, Vickers and Imperial, JJ., concur.

6. G.R. No. L-34937 March 13, 1933

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.

Feria and La O for appellants.

Attorney-General Jaranilla for appellee.

IMPERIAL, J.:

The plaintiffs herein brought this action to recover from the defendant, Collector of Internal
Revenue, certain sums of money paid by them under protest as inheritance tax. They appealed
from the judgment rendered by the Court of First Instance of Manila dismissing the action, without
costs.

On March 10 and 12, 1925, Esperanza Tuazon, by means of public documents, donated certain
parcels of land situated in Manila to the plaintiffs herein, who, with their respective husbands,
accepted them in the same public documents, which were duly recorded in the registry of deeds.
By virtue of said donations, the plaintiffs took possession of the said lands, received the fruits
thereof and obtained the corresponding transfer certificates of title.

On January 5, 1926, the donor died in the City of Manila without leaving any forced heir and her
will which was admitted to probate, she bequeathed to each of the donees the sum of P5,000.
After the estate had been distributed among the instituted legatees and before delivery of their
respective shares, the appellee herein, as Collector of Internal Revenue, ruled that the appellants,
as donees and legatees, should pay as inheritance tax the sums of P16,673 and P13,951.45,
respectively. Of these sums P15,191.48 was levied as tax on the donation to Concepcion Vidal de
Roces and P1,481.52 on her legacy, and, likewise, P12,388.95 was imposed upon the donation
made to Elvira Vidal de Richards and P1,462.50 on her legacy. At first the appellants refused to
pay the aforementioned taxes but, at the insistence of the appellee and in order not to delay the
adjudication of the legacies, they agreed at last, to pay them under protest.

The appellee filed a demurrer to the complaint on the ground that the facts alleged therein were
not sufficient to constitute a cause of action. After the legal questions raised therein had been
discussed, the court sustained the demurrer and ordered the amendment of the complaint which
the appellants failed to do, whereupon the trial court dismissed the action on the ground that the
afore- mentioned appellants did not really have a right of action.

In their brief, the appellants assign only one alleged error, to wit: that the demurrer interposed by
the appellee was sustained without sufficient ground.

The judgment appealed from was based on the provisions of section 1540 Administrative Code
which reads as follows:

SEC. 1540. Additions of gifts and advances. — After the aforementioned deductions have
been made, there shall be added to the resulting amount the value of all gifts or advances
38
 made by the predecessor to any those who, after his death, shall prove to be his heirs,
devisees, legatees, or donees mortis causa.

The appellants contend that the above-mentioned legal provision does not include donations inter
vivos and if it does, it is unconstitutional, null and void for the following reasons: first, because it
violates section 3 of the Jones Law which provides that no law should embrace more than one
subject, and that subject should be expressed in the title thereof; second that the Legislature has
no authority to impose inheritance tax on donations inter vivos; and third, because a legal provision
of this character contravenes the fundamental rule of uniformity of taxation. The appellee, in turn,
contends that the words "all gifts" refer clearly to donations inter vivos and, in support of his theory,
cites the doctrine laid in the case of Tuason and Tuason vs. Posadas (54 Phil., 289). After a careful
study of the law and the authorities applicable thereto, we are the opinion that neither theory
reflects the true spirit of the aforementioned provision. The gifts referred to in section 1540 of the
Revised Administration Code are, obviously, those donations inter vivos that take effect
immediately or during the lifetime of the donor but are made in consideration or in contemplation of
death. Gifts inter vivos, the transmission of which is not made in contemplation of the donor's death
should not be understood as included within the said legal provision for the reason that it would
amount to imposing a direct tax on property and not on the transmission thereof, which act does
not come within the scope of the provisions contained in Article XI of Chapter 40 of the
Administrative Code which deals expressly with the tax on inheritances, legacies and other
acquisitions mortis causa.

Our interpretation of the law is not in conflict with the rule laid down in the case of Tuason and
Tuason vs. Posadas, supra. We said therein, as we say now, that 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. In that case, it was not
held that that kind of gifts consisted in those made completely independent of death or without
regard to it.

Said legal provision is not null and void on the alleged ground that the subject matter thereof is not
embraced in the title of the section under which it is enumerated. On the contrary, its provisions are
perfectly summarized in the heading, "Tax on Inheritance, etc." which is the title of Article XI.
Furthermore, the constitutional provision cited should not be strictly construed as to make it
necessary that the title contain a full index to all the contents of the law. It is sufficient if the
language used therein is expressed in such a way that in case of doubt it would afford a means of
determining the legislators intention. (Lewis' Sutherland Statutory Construction, Vol. II, p. 651.)
Lastly, the circumstance that the Administrative Code was prepared and compiled strictly in
accordance with the provisions of the Jones Law on that matter should not be overlooked and that,
in a compilation of laws such as the Administrative Code, it is but natural and proper that
provisions referring to diverse matters should be found. (Ayson and Ignacio vs. Provincial Board of
Rizal and Municipal Council of Navotas, 39 Phil., 931.)

The appellants question the power of the Legislature to impose taxes on the transmission of real
estate that takes effect immediately and during the lifetime of the donor, and allege as their reason
that such tax partakes of the nature of the land tax which the law has already created in another
part of the Administrative Code. Without making express pronouncement on this question, for it is
unnecessary, we wish to state that such is not the case in these instance. The tax collected by the
appellee on the properties donated in 1925 really constitutes an inheritance tax imposed on the
transmission of said properties in contemplation or in consideration of the donor's death and under
the circumstance that the donees were later instituted as the former's legatees. For this reason, the
law considers such transmissions in the form of gifts inter vivos, as advances on inheritance and
nothing therein violates any constitutional provision, inasmuch as said legislation is within the
power of the Legislature.

Property Subject to Inheritance Tax. — The inheritance tax ordinarily applies to all property
within the power of the state to reach passing by will or the laws regulating intestate
succession or by gift inter vivos in the manner designated by statute, whether such property
be real or personal, tangible or intangible, corporeal or incorporeal. (26 R.C.L., p. 208, par.
177.)

39
In the case of Tuason and Tuason vs. Posadas, supra, it was also held that section 1540 of the
Administrative Code did not violate the constitutional provision regarding uniformity of taxation. It
cannot be null and void on this ground because it equally subjects to the same tax all of those
donees who later become heirs, legatees or donees mortis causa by the will of the donor. There
would be a repugnant and arbitrary exception if the provisions of the law were not applicable to all
donees of the same kind. In the case cited above, it was said: "At any rate the argument adduced
against its constitutionality, which is the lack of Uniformity, does not seem to be well founded. It
was said that under such an interpretation, while a donee inter vivos who, after the predecessor's
death proved to be an heir, a legatee, or a donee mortis causa, would have to pay the tax, another
donee inter vivos who did not prove to he an heir, a legatee, or a donee mortis causa of the
predecessor, would be exempt from such a tax. But as these are two different cases, the principle
of uniformity is inapplicable to them."

The last question of a procedural nature arising from the case at bar, which should be passed
upon, is whether the case, as it now stands, can be decided on the merits or should be remanded
to the court a quo for further proceedings. According to our view of the case, it follows that, if the
gifts received by the appellants would have the right to recover the sums of money claimed by
them. Hence the necessity of ascertaining whether the complaint contains an allegation to that
effect. We have examined said complaint and found nothing of that nature. On the contrary, it be
may be inferred from the allegations contained in paragraphs 2 and 7 thereof that said
donations inter vivos were made in consideration of the donor's death. We refer to the allegations
that such transmissions were effected in the month of March, 1925, that the donor died in January,
1926, and that the donees were instituted legatees in the donor's will which was admitted to
probate. It is from these allegations, especially the last, that we infer a presumption juris
tantum that said donations were made mortis causa and, as such, are subject to the payment of
inheritance tax.

Wherefore, the demurrer interposed by the appellee was well-founded because it appears that the
complaint did not allege fact sufficient to constitute a cause of action. When the appellants refused
to amend the same, spite of the court's order to that effect, they voluntarily waived the opportunity
offered them and they are not now entitled to have the case remanded for further proceedings,
which would serve no purpose altogether in view of the insufficiency of the complaint.

Wherefore, the judgment appealed from is hereby affirmed, with costs of this instance against the
appellants. So ordered.

Avanceña, C.J., Villamor, Ostrand, Abad Santos, Hull, Vickers and Buttes, JJ., concur.

Separate Opinions

VILLA-REAL, J., dissenting:

I sustain my concurrence in Justice Street's dissenting opinion in the case of Tuason and Tuason
vs. Posadas (54 Phil., 289).

The majority opinion to distinguish the present case from above-mentioned case of Tuason and
Tuason vs. Posadas, by interpreting section 1540 of the Administrative Code in the sense that it
establishes the legal presumption juris tantum that all gifts inter vivos made to persons who are not
forced heirs but who are instituted legatees in the donor's will, have been made in contemplation of
the donor's death. Presumptions are of two kinds: One determined by law which is also called
presumption of law or of right; and another which is formed by the judge from circumstances
antecedent to, coincident with or subsequent to the principal fact under investigation, which is also
called presumption of man (presuncion de hombre). (Escriche, Vol. IV, p. 662.) The Civil Code as
well as the code of Civil Procedure establishes presumptions juris et de jure and juris tantum which
the courts should take into account in deciding questions of law submitted to them for decision.
The presumption which majority opinion wishes to draw from said section 1540 of the
Administrative Code can neither be found in this Code nor in any of the aforementioned Civil Code
and Code of Civil Procedure. Therefore, said presumption cannot be called legal or of law. Neither
can it be called a presumption of man (presuncion de hombre) inasmuch as the majority opinion
did not infer it from circumstances antecedent to, coincident with or subsequent to the principal fact
with is the donation itself. In view of the nature, mode of making and effects of donations inter
40
vivos, the contrary presumption would be more reasonable and logical; in other words,
donations inter vivos made to persons who are not forced heirs, but who are instituted legatees in
the donor's will, should be presumed as not made mortis causa, unless the contrary is proven. In
the case under consideration, the burden of the proof rests with the person who contends that the
donation inter vivos has been made mortis causa.

It is therefore, the undersigned's humble opinion that the order appealed from should be reversed
and the demurrer overruled, and the defendant ordered to file his answer to the complaint.

Street, J., concurs.

41