Lorenzo v. Posadas, G.R. No.

L-43083, 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 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. According 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 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 administration 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.

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
depreciation 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 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 the 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.

(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 delinquent until and
unless the entire period has elapsed within which the taxpayer is authorized by law to make such payment without
being subjected to the payment of penalties for failure 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 beneficiary 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 possession 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 acceptanc of the essential to the very existence 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 upon tax laws so loose a
construction as to permit evasions on merely fanciful and insubstantial distinctions. (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.

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.

CIR v. de Lara, G.R. No. L-9456, January 6, 1958

G.R. Nos. L-9456 and L-9481 January 6, 1958

THE COLLECTOR OF INTERNAL REVENUE, petitioner,

vs.

DOMINGO DE LARA, as ancilliary administrator of the estate of HUGO H. MILLER (Deceased), and the COURT OF TAX
APPEALS, respondents.

Allison J. Gibbs, Zafra, De Leon and Veneracion for Domingo E. de Lara.

Assistant Solicitor General Ramon L. Avancena and Cezar L. Kierulf for the Collector of Internal Revenue.

MONTEMAYOR, J.:

These are two separate appeals, one by the Collector of Internal Revenue, later on referred to as the Collector, and the
other by Domingo de Lara as Ancilliary Administrator of the estate of Hugo H. Miller, from the decision of the Court of
Tax Appeals of June 25, 1955, with the following dispositive part:

WHEREFORE, respondent's assessment for estate and inheritance taxes upon the estate of the decedent Hugo H. Miller
is hereby modified in accordance with the computation attached as Annex "A" of this decision. Petitioner is hereby
ordered to pay the amount of P2,047.22 representing estate taxes due, together with the interests and other
increments. In case of failure to pay the amount of P2,047.22 within thirty (30) days from the time this decision has
become final, the 5 per cent surcharge and the corresponding interest due thereon shall be paid as a part of the tax.

The facts in the case gathered from the record and as found by the Court of Tax Appeals may be briefly stated as follows:
Hugo H. Miller, an American citizen, was born in Santa Cruz, California, U.S.A., in 1883. In 1905, he came to the
Philippines. From 1906 to 1917, he was connected with the public school system, first as a teacher and later as a division
superintendent of schools, later retiring under the Osmeiia Retirement Act. After his retirement, Miller accepted an
executive position in the local branch of Ginn & Co., book publishers with principal offices in New York and Boston,
U.S.A., up to the outbreak of the Pacific War. From 1922 up to December 7, 1941, he was stationed in the Philippines as
Oriental representative of Ginn & Co., covering not only the Philippines, but also China and Japan. His principal work was
selling books specially written for Philippine schools. In or about the year 1922, Miller lived at the Manila Hotel. His wife
remained at their home in Ben-Lomond, Santa Cruz, California, but she used to come to the Philippines for brief visits
with Miller, staying three or four months. Miller also used to visit his wife in California. He never lived in any residential
house in the Philippines. After the death of his wife in 1931, he transferred from the Manila Hotel to the Army and Navy
Club, where he was staying at the outbreak of the Pacific War. On January 17, 1941, Miller executed his last will and
testament in Santa Cruz, California, in which he declared that he was "of Santa Cruz, California". On December 7, 1941,
because of the Pacific War, the office of Ginn & Co. was closed, and Miller joined the Board of Censors of the United
States Navy. During the war, he was taken prisoner by the Japanese forces in Leyte, and in January, 1944, he was
transferred to Catbalogan, Samar, where he was reported to have been executed by said forces on March 11, 1944, and
since then, nothing has been heard from him. At the time of his death in 1944, Miller owned the following properties:

Real Property situated in Ben-Lomond, Santa Cruz, California valued at .......................................................P 5,000.00

Real property situated in Burlingame, San Mateo, California valued at

...................................................................................

16,200.00

Tangible Personal property, worth.............................................

2,140.00

Cash in the banks in the United States....................................

21,178.20

Accounts Receivable from various persons in the United States including notes ...............................................................

36,062.74

Stocks in U.S. Corporations and U.S. Savings Bonds, valued at ........................................................................................

123,637.16

Shares of stock in Philippine Corporations, valued at ..........

51,906.45
Testate proceedings were instituted before the Court of California in Santa Cruz County, in the course of which Miller's
will of January 17, 1941 was admitted to probate on May 10, 1946. Said court subsequently issued an order and decree
of settlement of final account and final distribution, wherein it found that Miller was a "resident of the County of Santa
Cruz, State of California" at the time of his death in 1944. Thereafter ancilliary proceedings were filed by the executors
of the will before the Court of First Instance of Manila, which court by order of November 21, 1946, admitted to probate
the will of Miller was probated in the California court, also found that Miller was a resident of Santa Cruz, California, at
the time of his death. On July 29, 1949, the Bank of America, National Trust and Savings Association of San Francisco
California, co-executor named in Miller's will, filed an estate and inheritance tax return with the Collector, covering only
the shares of stock issued by Philippines corporations, reporting a liability of P269.43 for taxes and P230.27 for
inheritance taxes. After due investigation, the Collector assessed estate and inheritance taxes, which was received by
the said executor on April 3, 1950. The estate of Miller protested the assessment of the liability for estate and
inheritance taxes, including penalties and other increments at P77,300.92, as of January 16, 1954. This assessment was
appealed by De Lara as Ancilliary Administrator before the Board of Tax Appeals, which appeal was later heard and
decided by the Court of Tax Appeals.

In determining the "gross estate" of a decedent, under Section 122 in relation to section 88 of our Tax Code, it is first
necessary to decide whether the decedent was a resident or a non-resident of the Philippines at the time of his death.
The Collector maintains that under the tax laws, residence and domicile have different meanings; that tax laws on estate
and inheritance taxes only mention resident and non-resident, and no reference whatsoever is made to domicile except
in Section 93 (d) of the Tax Code; that Miller during his long stay in the Philippines had required a "residence" in this
country, and was a resident thereof at the time of his death, and consequently, his intangible personal properties
situated here as well as in the United States were subject to said taxes. The Ancilliary Administrator, however, equally
maintains that for estate and inheritance tax purposes, the term "residence" is synonymous with the term domicile.

We agree with the Court of Tax Appeals that at the time that The National Internal Revenue Code was promulgated in
1939, the prevailing construction given by the courts to the "residence" was synonymous with domicile. and that the
two were used interchangeably. Cases were cited in support of this view, particularly that of Velilla vs. Posadas, 62 Phil.
624, wherein this Tribunal used the terms "residence" and "domicile" interchangeably and without distinction, the case
involving the application of the term residence employed in the inheritance tax law at the time (section 1536- 1548 of
the Revised Administrative Code), and that consequently, it will be presumed that in using the term residence or
resident in the meaning as construed and interpreted by the Court. Moreover, there is reason to believe that the
Legislature adopted the American (Federal and State) estate and inheritance tax system (see e.g. Report to the Tax
Commission of the Philippines, Vol. II, pages 122-124, cited in I Dalupan, National Internal Revenue Code Annotated, p.
469-470). In the United States, for estate tax purposes, a resident is considered one who at the time of his death had his
domicile in the United States, and in American jurisprudence, for purposes of estate and taxation, "residence" is
interpreted as synonymous with domicile, and that—

The incidence of estate and succession has historically been determined by domicile and situs and not by the fact of
actual residence. (Bowring vs. Bowers, (1928) 24 F 2d 918, at 921, 6 AFTR 7498, cert. den (1928) 272 U.S.608).

We also agree with the Court of Tax Appeals that at the time of his death, Miller had his residence or domicile in Santa
Cruz, California. During his country, Miller never acquired a house for residential purposes for he stayed at the Manila
Hotel and later on at the Army and Navy Club. Except this wife never stayed in the Philippines. The bulk of his savings
and properties were in the United States. To his home in California, he had been sending souvenirs, such as carvings,
curios and other similar collections from the Philippines and the Far East. In November, 1940, Miller took out a property
insurance policy and indicated therein his address as Santa Cruz, California, this aside from the fact that Miller, as
already stated, executed his will in Santa Cruz, California, wherein he stated that he was "of Santa Cruz, California". From
the foregoing, it is clear that as a non-resident of the Philippines, the only properties of his estate subject to estate and
inheritance taxes are those shares of stock issued by Philippines corporations, valued at P51,906.45. It is true, as stated
by the Tax Court, that while it may be the general rule that personal property, like shares of stock in the Philippines, is
taxable at the domicile of the owner (Miller) under the doctrine of mobilia secuuntur persona, nevertheless, when he
during his life time,

. . . extended his activities with respect to his intangibles, so as to avail himself of the protection and benefits of the laws
of the Philippines, in such a way as to bring his person or property within the reach of the Philippines, the reason for a
single place of taxation no longer obtains- protection, benefit, and power over the subject matter are no longer confined
to California, but also to the Philippines (Wells Fargo Bank & Union Trust Co. vs. Collector (1940), 70 Phil. 325). In the
instant case, the actual situs of the shares of stock is in the Philippines, the corporation being domiciled herein: and
besides, the right to vote the certificates at stockholders' meetings, the right to collect dividends, and the right to
dispose of the shares including the transmission and acquisition thereof by succession, all enjoy the protection of the
Philippines, so that the right to collect the estate and inheritance taxes cannot be questioned (Wells Fargo Bank & Union
Trust Co. vs. Collector supra). It is recognized that the state may, consistently with due process, impose a tax upon
transfer by death of shares of stock in a domestic corporation owned by a decedent whose domicile was outside of the
state (Burnett vs. Brooks, 288 U.S. 378; State Commission vs. Aldrich, (1942) 316 U.S. 174, 86 L. Ed. 1358, 62 ALR 1008)."
(Brief for the Petitioner, p. 79-80).
The Ancilliary Administrator for purposes of exemption invokes the proviso in Section 122 of the Tax Code, which
provides as follows:

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

The Ancilliary Administrator bases his claim of exemption on (a) the exemption of non-residents from the California
inheritance taxes with respect to intangibles, and (b) the exemption by way of reduction of P4,000 from the estates of
non-residents, under the United States Federal Estate Tax Law. Section 6 of the California Inheritance Tax Act of 1935,
now reenacted as Section 13851, California Revenue and Taxation Code, reads as follows:

SEC. 6. The following exemption from the tax are hereby allowed:

xxx xxx xxx.

(7) The tax imposed by this act in respect of intangible personal property shall not be payable if decedent is a resident of
a State or Territory of the United States or a foreign state or country which at the time of his death imposed a legacy,
succession of death tax in respect of intangible personal property within the State or Territory or foreign state or
country of residents of the States or Territory or foreign state or country of residence of the decedent at the time of his
death contained a reciprocal provision under which non-residents were exempted from legacy or succession taxes or
death taxes of every character in respect of intangible personal property providing the State or Territory or foreign state
or country of residence of such non-residents allowed a similar exemption to residents of the State, Territory or foreign
state or country of residence of such decedent.

Considering the State of California as a foreign country in relation to section 122 of Our Tax Code we beleive and hold, as
did the Tax Court, that the Ancilliary Administrator is entitled to exemption from the tax on the intangible personal
property found in the Philippines. Incidentally, this exemption granted to non-residents under the provision of Section
122 of our Tax Code, was to reduce the burden of multiple taxation, which otherwise would subject a decedent's
intangible personal property to the inheritance tax, both in his place of residence and domicile and the place where
those properties are found. As regards the exemption or reduction of P4,000 based on the reduction under the Federal
Tax Law in the amount of $2,000, we agree with the Tax Court that the amount of $2,000 allowed under the Federal
Estate Tax Law is in the nature of deduction and not of an exemption. Besides, as the Tax Court observes--.

. . . this exemption is allowed on all gross estate of non-residents of the United States, who are not citizens thereof,
irrespective of whether there is a corresponding or similar exemption from transfer or death taxes of non-residents of
the Philippines, who are citizens of the United States; and thirdly, because this exemption is allowed on all gross estates
of non-residents irrespective of whether it involves tangible or intangible, real or personal property; so that for these
reasons petitioner cannot claim a reciprocity. . .

Furthermore, in the Philippines, there is already a reduction on gross estate tax in the amount of P3,000 under section
85 of the Tax Code, before it was amended, which in part provides as follows:

SEC. 85. Rates of estate tax.—There shall be levied, assessed, collected, and paid upon the transfer of the net estate of
every decedent, whether a resident or non-resident of the Philippines, a tax equal to the sum of the following
percentages of the value of the net estate determined as provided in sections 88 and 89:

One per centrum of the amount by which the net estate exceeds three thousand pesos and does not exceed ten
thousand pesos;. . .

It will be noticed from the dispositive part of the appealed decision of the Tax Court that the Ancilliary Administrator
was ordered to pay the amount of P2,047.22, representing estate taxes due, together with interest and other
increments. Said Ancilliary Administrator invokes the provisions of Republic Act No. 1253, which was passed for the
benefit of veterans, guerrillas or victims of Japanese atrocities who died during the Japanese occupation. The provisions
of this Act could not be invoked during the hearing before the Tax Court for the reason that said Republic Act was
approved only on June 10, 1955. We are satisfied that inasmuch as Miller, not only suffered deprivation of the war, but
was killed by the Japanese military forces, his estate is entitled to the benefits of this Act. Consequently, the interests
and other increments provided in the appealed judgment should not be paid by his estate.

With the above modification, the appealed decision of the Court of Tax Appeals is hereby affirmed. We deem it
unnecessary to pass upon the other points raised in the appeal. No costs.
CIR v. Fisher, G.R. No. L-11622, January 28, 1961

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.

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.

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 13252 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.)

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
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 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

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 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 section11 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."

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.
CIR v. Campos Rueda, G.R. No. L-13250, October 29, 1971

G.R. No. L-13250 October 29, 1971

THE COLLECTOR OF INTERNAL REVENUE, petitioner,

vs.

ANTONIO CAMPOS RUEDA, respondent..

Assistant Solicitor General Jose P. Alejandro and Special Attorney Jose G. Azurin, (O.S.G.) for petitioner.

Ramirez and Ortigas for respondent.

FERNANDO, J.:

The basic issue posed by petitioner Collector of Internal Revenue in this appeal from a decision of the Court of Tax
Appeals as to whether or not the requisites of statehood, or at least so much thereof as may be necessary for the
acquisition of an international personality, must be satisfied for a "foreign country" to fall within the exemption of
Section 122 of the National Internal Revenue Code1 is now ripe for adjudication. The Court of Tax Appeals answered the
question in the negative, and thus reversed the action taken by petitioner Collector, who would hold respondent
Antonio Campos Rueda, as administrator of the estate of the late Estrella Soriano Vda. de Cerdeira, liable for the sum of
P161,874.95 as deficiency estate and inheritance taxes for the transfer of intangible personal properties in the
Philippines, the deceased, a Spanish national having been a resident of Tangier, Morocco from 1931 up to the time of
her death in 1955. In an earlier resolution promulgated May 30, 1962, this Court on the assumption that the need for
resolving the principal question would be obviated, referred the matter back to the Court of Tax Appeals to determine
whether the alleged law of Tangier did grant the reciprocal tax exemption required by the aforesaid Section 122. Then
came an order from the Court of Tax Appeals submitting copies of legislation of Tangier that would manifest that the
element of reciprocity was not lacking. It was not until July 29, 1969 that the case was deemed submitted for decision.
When the petition for review was filed on January 2, 1958, the basic issue raised was impressed with an element of
novelty. Four days thereafter, however, on January 6, 1958, it was held by this Court that the aforesaid provision does
not require that the "foreign country" possess an international personality to come within its terms.2 Accordingly, we
have to affirm.

The decision of the Court of Tax Appeals, now under review, sets forth the background facts as follows: "This is an
appeal interposed by petitioner Antonio Campos Rueda as administrator of the estate of the deceased Doña Maria de la
Estrella Soriano Vda. de Cerdeira, from the decision of the respondent Collector of Internal Revenue, assessing against
and demanding from the former the sum P161,874.95 as deficiency estate and inheritance taxes, including interest and
penalties, on the transfer of intangible personal properties situated in the Philippines and belonging to said Maria de la
Estrella Soriano Vda. de Cerdeira. Maria de la Estrella Soriano Vda. de Cerdeira (Maria Cerdeira for short) is a Spanish
national, by reason of her marriage to a Spanish citizen and was a resident of Tangier, Morocco from 1931 up to her
death on January 2, 1955. At the time of her demise she left, among others, intangible personal properties in the
Philippines."3 Then came this portion: "On September 29, 1955, petitioner filed a provisional estate and inheritance tax
return on all the properties of the late Maria Cerdeira. On the same date, respondent, pending investigation, issued an
assessment for state and inheritance taxes in the respective amounts of P111,592.48 and P157,791.48, or a total of
P369,383.96 which tax liabilities were paid by petitioner ... . On November 17, 1955, an amended return was filed ...
wherein intangible personal properties with the value of P396,308.90 were claimed as exempted from taxes. On
November 23, 1955, respondent, pending investigation, issued another assessment for estate and inheritance taxes in
the amounts of P202,262.40 and P267,402.84, respectively, or a total of P469,665.24 ... . In a letter dated January 11,
1956, respondent denied the request for exemption on the ground that the law of Tangier is not reciprocal to Section
122 of the National Internal Revenue Code. Hence, respondent demanded the payment of the sums of P239,439.49
representing deficiency estate and inheritance taxes including ad valorem penalties, surcharges, interests and
compromise penalties ... . In a letter dated February 8, 1956, and received by respondent on the following day,
petitioner requested for the reconsideration of the decision denying the claim for tax exemption of the intangible
personal properties and the imposition of the 25% and 5% ad valorem penalties ... . However, respondent denied
request, in his letter dated May 5, 1956 ... and received by petitioner on May 21, 1956. Respondent premised the denial
on the grounds that there was no reciprocity [with Tangier, which was moreover] a mere principality, not a foreign
country. Consequently, respondent demanded the payment of the sums of P73,851.21 and P88,023.74 respectively, or a
total of P161,874.95 as deficiency estate and inheritance taxes including surcharges, interests and compromise
penalties."4

The matter was then elevated to the Court of Tax Appeals. As there was no dispute between the parties regarding the
values of the properties and the mathematical correctness of the deficiency assessments, the principal question as
noted dealt with the reciprocity aspect as well as the insisting by the Collector of Internal Revenue that Tangier was not
a foreign country within the meaning of Section 122. In ruling against the contention of the Collector of Internal
Revenue, the appealed decision states: "In fine, we believe, and so hold, that the expression "foreign country", used in
the last proviso of Section 122 of the National Internal Revenue Code, refers to a government of that foreign power
which, although not an international person in the sense of international law, does not impose transfer or death upon
intangible person properties of our citizens not residing therein, or whose law allows a similar exemption from such
taxes. It is, therefore, not necessary that Tangier should have been recognized by our Government order to entitle the
petitioner to the exemption benefits of the proviso of Section 122 of our Tax. Code."5

Hence appeal to this court by petitioner. The respective briefs of the parties duly submitted, but as above indicated,
instead of ruling definitely on the question, this Court, on May 30, 1962, resolve to inquire further into the question of
reciprocity and sent back the case to the Court of Tax Appeals for the motion of evidence thereon. The dispositive
portion of such resolution reads as follows: "While section 122 of the Philippine Tax Code aforequoted speaks of
'intangible personal property' in both subdivisions (a) and (b); the alleged laws of Tangier refer to 'bienes muebles
situados en Tanger', 'bienes muebles radicantes en Tanger', 'movables' and 'movable property'. In order that this Court
may be able to determine whether the alleged laws of Tangier grant the reciprocal tax exemptions required by Section
122 of the Tax Code, and without, for the time being, going into the merits of the issues raised by the petitioner-
appellant, the case is [remanded] to the Court of Tax Appeals for the reception of evidence or proof on whether or not
the words `bienes muebles', 'movables' and 'movable properties as used in the Tangier laws, include or embrace
'intangible person property', as used in the Tax Code."6 In line with the above resolution, the Court of Tax Appeals
admitted evidence submitted by the administrator petitioner Antonio Campos Rueda, consisting of exhibits of laws of
Tangier to the effect that "the transfers by reason of death of movable properties, corporeal or incorporeal, including
furniture and personal effects as well as of securities, bonds, shares, ..., were not subject, on that date and in said zone,
to the payment of any death tax, whatever might have been the nationality of the deceased or his heirs and legatees." It
was further noted in an order of such Court referring the matter back to us that such were duly admitted in evidence
during the hearing of the case on September 9, 1963. Respondent presented no evidence."7

The controlling legal provision as noted is a proviso in Section 122 of the National Internal Revenue Code. It reads thus:
"That no tax shall be collected under this Title in respect of intangible personal property (a) if the decedent at the time
of his death was a resident of a foreign country which at the time of his death did not impose a transfer tax or death tax
of any character in respect of intangible person property 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."8 The only obstacle therefore to a definitive ruling is whether or not as
vigorously insisted upon by petitioner the acquisition of internal personality is a condition sine qua non to Tangier being
considered a "foreign country". Deference to the De Lara ruling, as was made clear in the opening paragraph of this
opinion, calls for an affirmance of the decision of the Court of Tax Appeals.

It does not admit of doubt that if a foreign country is to be identified with a state, it is required in line with Pound's
formulation that it be a politically organized sovereign community independent of outside control bound by penalties of
nationhood, legally supreme within its territory, acting through a government functioning under a regime of

law.9 It is thus a sovereign person with the people composing it viewed as an organized corporate society under a
government with the legal competence to exact obedience to its commands. 10 It has been referred to as a body-politic
organized by common consent for mutual defense and mutual safety and to promote the general welfare.11 Correctly
has it been described by Esmein as "the juridical personification of the nation." 12 This is to view it in the light of its
historical development. The stress is on its being a nation, its people occupying a definite territory, politically organized,
exercising by means of its government its sovereign will over the individuals within it and maintaining its separate
international personality. Laski could speak of it then as a territorial society divided into government and subjects,
claiming within its allotted area a supremacy over all other institutions.13 McIver similarly would point to the power
entrusted to its government to maintain within its territory the conditions of a legal order and to enter into international
relations. 14 With the latter requisite satisfied, international law do not exact independence as a condition of statehood.
So Hyde did opine. 15

Even on the assumption then that Tangier is bereft of international personality, petitioner has not successfully made out
a case. It bears repeating that four days after the filing of this petition on January 6, 1958 in Collector of Internal
Revenue v. De Lara, 16 it was specifically held by us: "Considering the State of California as a foreign country in relation
to section 122 of our Tax Code we believe and hold, as did the Tax Court, that the Ancilliary Administrator is entitled the
exemption from the inheritance tax on the intangible personal property found in the Philippines." 17 There can be no
doubt that California as a state in the American Union was in the alleged requisite of international personality.
Nonetheless, it was held to be a foreign country within the meaning of Section 122 of the National Internal Revenue
Code. 18

What is undeniable is that even prior to the De Lara ruling, this Court did commit itself to the doctrine that even a tiny
principality, that of Liechtenstein, hardly an international personality in the sense, did fall under this exempt category.
So it appears in an opinion of the Court by the then Acting Chief Justicem Bengson who thereafter assumed that position
in a permanent capacity, in Kiene v. Collector of Internal Revenue. 19 As was therein noted: 'The Board found from the
documents submitted to it — proof of the laws of Liechtenstein — that said country does not impose estate, inheritance
and gift taxes on intangible property of Filipino citizens not residing in that country. Wherefore, the Board declared that
pursuant to the exemption above established, no estate or inheritance taxes were collectible, Ludwig Kiene being a
resident of Liechtestein when he passed away." 20 Then came this definitive ruling: "The Collector — hereafter named
the respondent — cites decisions of the United States Supreme Court and of this Court, holding that intangible personal
property in the Philippines belonging to a non-resident foreigner, who died outside of this country is subject to the
estate tax, in disregard of the principle 'mobilia sequuntur personam'. Such property is admittedly taxable here. Without
the proviso above quoted, the shares of stock owned here by the Ludwig Kiene would be concededly subject to estate
and inheritance taxes. Nevertheless, our Congress chose to make an exemption where conditions are such that demand
reciprocity — as in this case. And the exemption must be honored." 21

WHEREFORE, the decision of the respondent Court of Tax Appeals of October 30, 1957 is affirmed. Without
pronouncement as to costs.

Zapanta v. Posadas, G.R. No. L-29204, December 29, 1928

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 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. 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.

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 question 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 implying 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 predecessor 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).

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.

Tuason v. Posadas, G.R. No. L-30885, January 23, 1930

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 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.

Dizon v. Posadas, G.R. No. L-36770, November 4, 1932

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.

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.

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 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.
Vidal de Roces v. Posadas, G.R. No. L-34937, March 13, 1993
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 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 instances. 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.)

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.
Dizon v. CTA, G.R. No. 140944

G.R. No. 140944 April 30, 2008

RAFAEL ARSENIO S. DIZON, in his capacity as the Judicial Administrator of the Estate of the deceased JOSE P.
FERNANDEZ, petitioner,

vs.

COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents.

DECISION

NACHURA, J.:

Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Civil Procedure seeking the reversal
of the Court of Appeals (CA) Decision2 dated April 30, 1999 which affirmed the Decision3 of the Court of Tax Appeals
(CTA) dated June 17, 1997.4

The Facts

On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition for the probate of his will5 was filed with
Branch 51 of the Regional Trial Court (RTC) of Manila (probate court).[6] The probate court then appointed retired
Supreme Court Justice Arsenio P. Dizon (Justice Dizon) and petitioner, Atty. Rafael Arsenio P. Dizon (petitioner) as
Special and Assistant Special Administrator, respectively, of the Estate of Jose (Estate). In a letter7 dated October 13,
1988, Justice Dizon informed respondent Commissioner of the Bureau of Internal Revenue (BIR) of the special
proceedings for the Estate.

Petitioner alleged that several requests for extension of the period to file the required estate tax return were granted by
the BIR since the assets of the estate, as well as the claims against it, had yet to be collated, determined and identified.
Thus, in a letter8 dated March 14, 1990, Justice Dizon authorized Atty. Jesus M. Gonzales (Atty. Gonzales) to sign and file
on behalf of the Estate the required estate tax return and to represent the same in securing a Certificate of Tax
Clearance. Eventually, on April 17, 1990, Atty. Gonzales wrote a letter9 addressed to the BIR Regional Director for San
Pablo City and filed the estate tax return10 with the same BIR Regional Office, showing therein a NIL estate tax liability,
computed as follows:

COMPUTATION OF TAX

Conjugal Real Property (Sch. 1)

P10,855,020.00

Conjugal Personal Property (Sch.2)

3,460,591.34

Taxable Transfer (Sch. 3)

Gross Conjugal Estate

14,315,611.34

Less: Deductions (Sch. 4)

187,822,576.06

Net Conjugal Estate

NIL

Less: Share of Surviving Spouse

NIL.

Net Share in Conjugal Estate

NIL

xxx

Net Taxable Estate

NIL.

Estate Tax Due

NIL.11

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

Petitioner requested the probate court's authority to sell several properties forming part of the Estate, for the purpose
of paying its creditors, namely: Equitable Banking Corporation (P19,756,428.31), Banque de L'Indochine et. de Suez
(US$4,828,905.90 as of January 31, 1988), Manila Banking Corporation (P84,199,160.46 as of February 28, 1989) and
State Investment House, Inc. (P6,280,006.21). Petitioner manifested that Manila Bank, a major creditor of the Estate was
not included, as it did not file a claim with the probate court since it had security over several real estate properties
forming part of the Estate.16

However, on November 26, 1991, the Assistant Commissioner for Collection of the BIR, Themistocles Montalban, issued
Estate Tax Assessment Notice No. FAS-E-87-91-003269,17 demanding the payment of P66,973,985.40 as deficiency
estate tax, itemized as follows:

Deficiency Estate Tax- 1987

Estate tax

P31,868,414.48

25% surcharge- late filing

7,967,103.62

late payment

7,967,103.62

Interest

19,121,048.68

Compromise-non filing

25,000.00

non payment

25,000.00

no notice of death

15.00

no CPA Certificate

300.00

Total amount due & collectible

P66,973,985.4018

In his letter dated December 12, 1991, Atty. Gonzales moved for the reconsideration of the said estate tax assessment.
However, in her letter20 dated April 12, 1994, the BIR Commissioner denied the request and reiterated that the estate is
liable for the payment of P66,973,985.40 as deficiency estate tax. On May 3, 1994, petitioner received the letter of
denial. On June 2, 1994, petitioner filed a petition for review21 before respondent CTA. Trial on the merits ensued.

As found by the CTA, the respective parties presented the following pieces of evidence, to wit:

In the hearings conducted, petitioner did not present testimonial evidence but merely documentary evidence consisting
of the following:

Nature of Document (sic)

Exhibits

1. Letter dated October 13, 1988 from Arsenio P. Dizon addressed to the Commissioner of Internal Revenue
informing the latter of the special proceedings for the settlement of the estate (p. 126, BIR records);

"A"
 2. Petition for the probate of the will and issuance of letter of administration filed with the Regional Trial Court
(RTC) of Manila, docketed as Sp. Proc. No. 87-42980 (pp. 107-108, BIR records);

"B" & "B-1"

3. Pleading entitled "Compliance" filed with the probate Court submitting the final inventory of all the properties
of the deceased (p. 106, BIR records);

"C"

4. Attachment to Exh. "C" which is the detailed and complete listing of the properties of the deceased (pp. 89-105,
BIR rec.);

"C-1" to "C-17"

5. Claims against the estate filed by Equitable Banking Corp. with the probate Court in the amount of
P19,756,428.31 as of March 31, 1988, together with the Annexes to the claim (pp. 64-88, BIR records);

"D" to "D-24"

6. Claim filed by Banque de L' Indochine et de Suez with the probate Court in the amount of US $4,828,905.90 as of
January 31, 1988 (pp. 262-265, BIR records);

"E" to "E-3"

7. Claim of the Manila Banking Corporation (MBC) which as of November 7, 1987 amounts to P65,158,023.54, but
recomputed as of February 28, 1989 at a total amount of P84,199,160.46; together with the demand letter from
MBC's lawyer (pp. 194-197, BIR records);

"F" to "F-3"

8. Demand letter of Manila Banking Corporation prepared by Asedillo, Ramos and Associates Law Offices
addressed to Fernandez Hermanos, Inc., represented by Jose P. Fernandez, as mortgagors, in the total amount
of P240,479,693.17 as of February 28, 1989 (pp. 186-187, BIR records);

"G" & "G-1"

9. Claim of State Investment House, Inc. filed with the RTC, Branch VII of Manila, docketed as Civil Case No. 86-
38599 entitled "State Investment House, Inc., Plaintiff, versus Maritime Company Overseas, Inc. and/or Jose P.
Fernandez, Defendants," (pp. 200-215, BIR records);

"H" to "H-16"

10. Letter dated March 14, 1990 of Arsenio P. Dizon addressed to Atty. Jesus M. Gonzales, (p. 184, BIR records);

"I"

11. Letter dated April 17, 1990 from J.M. Gonzales addressed to the Regional Director of BIR in San Pablo City (p.
183, BIR records);

"J"

12. Estate Tax Return filed by the estate of the late Jose P. Fernandez through its authorized representative, Atty.
Jesus M. Gonzales, for Arsenio P. Dizon, with attachments (pp. 177-182, BIR records);

"K" to "K-5"

13. Certified true copy of the Letter of Administration issued by RTC Manila, Branch 51, in Sp. Proc. No. 87-42980
appointing Atty. Rafael S. Dizon as Judicial Administrator of the estate of Jose P. Fernandez; (p. 102, CTA records)
and

"L"

14. Certification of Payment of estate taxes Nos. 2052 and 2053, both dated April 27, 1990, issued by the Office of
the Regional Director, Revenue Region No. 4-C, San Pablo City, with attachments (pp. 103-104, CTA records.).

"M" to "M-5"

Respondent's [BIR] counsel presented on June 26, 1995 one witness in the person of Alberto Enriquez, who was one of
the revenue examiners who conducted the investigation on the estate tax case of the late Jose P. Fernandez. In the
course of the direct examination of the witness, he identified the following:

Documents/Signatures

BIR Record
 1. Estate Tax Return prepared by the BIR; p. 138
2. Signatures of Ma. Anabella Abuloc and Alberto Enriquez, Jr. appearing at the lower Portion of Exh. "1";
3. Memorandum for the Commissioner, dated July 19, 1991, prepared by revenue examiners, Ma. Anabella A.
Abuloc, Alberto S. Enriquez and Raymund S. Gallardo; Reviewed by Maximino V. Tagle pp. 143-144
4. Signature of Alberto S. Enriquez appearing at the lower portion on p. 2 of Exh. "2"; -do-
5. Signature of Ma. Anabella A. Abuloc appearing at the lower portion on p. 2 of Exh. "2"; -do-
6. Signature of Raymund S. Gallardo appearing at the Lower portion on p. 2 of Exh. "2";
7. Signature of Maximino V. Tagle also appearing on p. 2 of Exh. "2"; -do-
8. Summary of revenue Enforcement Officers Audit Report, dated July 19, 1991; p. 139
9. Signature of Alberto Enriquez at the lower portion of Exh. "3"; -do-
10. Signature of Ma. Anabella A. Abuloc at the lower portion of Exh. "3"; -do-
11. Signature of Raymond S. Gallardo at the lower portion of Exh. "3"; -do-
12. Signature of Maximino V. Tagle at the lower portion of Exh. "3"; -do-
13. Demand letter (FAS-E-87-91-00), signed by the Asst. Commissioner for Collection for the Commissioner of
Internal Revenue, demanding payment of the amount of P66,973,985.40; and p. 169
14. Assessment Notice FAS-E-87-91-00 pp. 169-17022

The CTA's Ruling

On June 17, 1997, the CTA denied the said petition for review. Citing this Court's ruling in Vda. de Oñate v. Court of
Appeals,23 the CTA opined that the aforementioned pieces of evidence introduced by the BIR were admissible in
evidence. The CTA ratiocinated:

Although the above-mentioned documents were not formally offered as evidence for respondent, considering that
respondent has been declared to have waived the presentation thereof during the hearing on March 20, 1996, still they
could be considered as evidence for respondent since they were properly identified during the presentation of
respondent's witness, whose testimony was duly recorded as part of the records of this case. Besides, the documents
marked as respondent's exhibits formed part of the BIR records of the case.24

Nevertheless, the CTA did not fully adopt the assessment made by the BIR and it came up with its own computation of
the deficiency estate tax, to wit:

Conjugal Real Property P 5,062,016.00

Conjugal Personal Prop. 33,021,999.93

Gross Conjugal Estate 38,084,015.93

Less: Deductions 26,250,000.00

Net Conjugal Estate P 11,834,015.93

Less: Share of Surviving Spouse 5,917,007.96

Net Share in Conjugal Estate P 5,917,007.96

Add: Capital/Paraphernal

Properties – P44,652,813.66

Less: Capital/Paraphernal Deductions 44,652,813.66

Net Taxable Estate P 50,569,821.62

============

Estate Tax Due P 29,935,342.97

Add: 25% Surcharge for Late Filing 7,483,835.74

Add: Penalties for-No notice of death 15.00

No CPA certificate 300.00

Total deficiency estate tax P 37,419,493.71

============

exclusive of 20% interest from due date of its payment until full payment thereof

[Sec. 283 (b), Tax Code of 1987].

Thus, the CTA disposed of the case in this wise:

WHEREFORE, viewed from all the foregoing, the Court finds the petition unmeritorious and denies the same. Petitioner
and/or the heirs of Jose P. Fernandez are hereby ordered to pay to respondent the amount of P37,419,493.71 plus 20%
interest from the due date of its payment until full payment thereof as estate tax liability of the estate of Jose P.
Fernandez who died on November 7, 1987.

SO ORDERED.26

CIR v. Gonzales, G.R. No. L-19495, November 24, 1966

G.R. No. L-19495 November 24, 1966

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.

LILIA YUSAY GONZALES and THE COURT OF TAX APPEALS, respondents.

Office of the Solicitor General for the petitioner.

Ramon A. Gonzales for respondent Lilia Yusay Gonzales.

BENGZON, J.P., J.:

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

On May 11, 1949 Jose S. Yusay filed with the Bureau of Internal Revenue an estate and inheritance tax return declaring
therein the following properties:

Personal properties P6,444.00

Palay 1,000.00

Carabaos P7,444.00

Real properties:

Capital, 74 parcels )

Conjugal 19 parcels) assessed at P179,760.00

Total gross estate P187,204.00

The return mentioned no heir.

Upon investigation however the Bureau of Internal Revenue found the following properties:

Personal properties:

Palay

Carabaos

Packard Automobile

2 Aparadors

P6,444.00

1,500.00

2,000.00

500.00

P10,444.00

Real properties:

Capital, 25 parcels assessed at P87,715.32

1/2 of Conjugal, 130 parcels assessed at P121,425.00 P209,140.32

Total

P219,584.32

The fair market value of the real properties was computed by increasing the assessed value by forty percent.

Based on the above findings, the Bureau of Internal Revenue assessed on October 29, 1953 estate and inheritance taxes
in the sums of P6,849.78 and P16,970.63, respectively.

On January 25, 1955 the Bureau of Internal Revenue increased the assessment to P8,225.89 as estate tax and
P22,117.10 as inheritance tax plus delinquency interest and demanded payment thereof on or before February 28, 1955.
Meanwhile, on February 16, 1955, the Court of First Instance of Iloilo required Jose S. Yusay to show proof of payment of
said estate and inheritance taxes.

On March 3, 1955 Jose S. Yusay requested an extension of time within which to pay the tax. He posted a surety bond to
guarantee payment of the taxes in question within one year. The Commissioner of Internal Revenue however denied the
request. Then he issued a warrant of distraint and levy which he transmitted to the Municipal Treasurer of Pototan for
execution. This warrant was not enforced because all the personal properties subject to distraint were located in Iloilo
City.

On May 20, 1955 the Provincial Treasurer of Iloilo requested the BIR Provincial Revenue Officer to furnish him copies of
the assessment notices to support a motion for payment of taxes which the Provincial Fiscal would file in Special
Proceedings No. 459 before the Court of First Instance of Iloilo. The papers requested were sent by the Commissioner of
Internal Revenue to the Provincial Revenue Officer of Iloilo to be transmitted to the Provincial Treasurer. The records do
not however show whether the Provincial Fiscal filed a claim with the Court of First Instance for the taxes due.

On May 30, 1956 the commissioner appointed by the Court of First Instance for the purpose, submitted a reamended
project of partition which listed the following properties:

Personal properties:

Buick Sedan P8,100.00

Packard car 2,000.00

Aparadors 500.00

Cash in Bank (PNB) 8,858.46

Palay 6,444.00

Carabaos 1,500.00

P27,402.46

Real properties:

Land, 174 parcels assessed at P324,797.21

Buildings 4,500.00

P329,297.21

Total P356,699.67

More than a year later, particularly on July 12, 1957, an agent of the Bureau of Internal Revenue apprised the
Commissioner of Internal Revenue of the existence of said reamended project of partition. Whereupon, the Internal
Revenue Commissioner caused the estate of Matias Yusay to be reinvestigated for estate and inheritance tax liability.
Accordingly, on February 13, 1958 he issued the following assessment:

Estate tax P16,246.04

5% surcharge 411.29

Delinquency interest 11,868.90

Compromise P15.00

No notice of death 40.00

Late payment 55.00

Total P28,581.23
Inheritance Tax P38,178.12

5% surcharge 1,105.86

Delinquency interest 28,808.75

Compromise for late payment 50.00

Total P69,142.73

Total estate and inheritance taxes P97,723.96

Like in previous assessments, the fair market value of the real properties was arrived at by adding 40% to the assessed
value.

In view of the demise of Jose S. Yusay, said assessment was sent to his widow, Mrs. Florencia Piccio Vda. de Yusay, who
succeeded him in the administration of the estate of Matias Yusay.

No payment having been made despite repeated demands, the Commissioner of Internal Revenue filed a proof of claim
for the estate and inheritance taxes due and a motion for its allowance with the settlement court in voting priority of
lien pursuant to Section 315 of the Tax Code.

On June 1, 1959, Lilia Yusay, through her counsel, Ramon Gonzales, filed an answer to the proof of claim alleging non-
receipt of the assessment of February 13, 1958, the existence of two administrators, namely Florencia Piccio Vda. de
Yusay who administered two-thirds of the estate, and Lilia Yusay, who administered the remaining one-third, and her
willingness to pay the taxes corresponding to her share, and praying for deferment of the resolution on the motion for
the payment of taxes until after a new assessment corresponding to her share was issued.

On November 17, 1959 Lilia Yusay disputed the legality of the assessment dated February 13, 1958. She claimed that the
right to make the same had prescribed inasmuch as more than five years had elapsed since the filing of the estate and
inheritance tax return on May 11, 1949. She therefore requested that the assessment be declared invalid and without
force and effect. This request was rejected by the Commissioner in his letter dates January 20, 1960, received by Lilia
Yusay on March 14, 1960, for the reasons, namely, (1) that the right to assess the taxes in question has not been lost by
prescription since the return which did not name the heirs cannot be considered a true and complete return sufficient to
start the running of the period of limitations of five years under Section 331 of the Tax Code and pursuant to Section 332
of the same Code he has ten years within which to make the assessment counted from the discovery on September 24,
1953 of the identity of the heirs; and (2) that the estate's administrator waived the defense of prescription when he filed
a surety bond on March 3, 1955 to guarantee payment of the taxes in question and when he requested postponement
of the payment of the taxes pending determination of who the heirs are by the settlement court.

On April 13, 1960 Lilia Yusay filed a petition for review in the Court of Tax Appeals assailing the legality of the
assessment dated February 13, 1958. After hearing the parties, said Court declared the right of the Commissioner of
Internal Revenue to assess the estate and inheritance taxes in question to have prescribed and rendered the following
judgment:

WHEREFORE, the decision of respondent assessing against the estate of the late Matias Yusay estate and inheritance
taxes is hereby reversed. No costs.

The Commissioner of Internal Revenue appealed to this Court and raises the following issues:

1. Was the petition for review in the Court of Tax Appeals within the 30-day period provided for in Section 11 of Republic
Act 1125?

2. Could the Court of Tax Appeals take cognizance of Lilia Yusay's appeal despite the pendency of the "Proof of Claim"
and "Motion for Allowance of Claim and for an Order of Payment of Taxes" filed by the Commissioner of Internal
Revenue in Special Proceedings No. 459 before the Court of First Instance of Iloilo?

3. Has the right of the Commissioner of Internal Revenue to assess the estate and inheritance taxes in question
prescribed?

On November 17, 1959 Lilia Yusay disputed the legality of the assessment of February 13, 1958. On March 14, 1960 she
received the decision of the Commissioner of Internal Revenue on the disputed assessment. On April 13, 1960 she filed
her petition for review in the Court of Tax Appeals. Said Court correctly held that the appeal was seasonably interposed
pursuant to Section 11 of Republic Act 1125. We already ruled in St. Stephen's Association v. Collector of Internal
Revenue,1 that the counting of the thirty days within which to institute an appeal in the Court of Tax Appeals should
commence from the date of receipt of the decision of the Commissioner on the disputed assessment, not from the date
the assessment was issued.
Accordingly, the thirty-day period should begin running from March 14, 1960, the date Lilia Yusay received the
appealable decision. From said date to April 13, 1960, when she filed her appeal in the Court of Tax Appeals, is exactly
thirty days. Hence, the appeal was timely.

Next, the Commissioner attacks the jurisdiction of the Court of Tax Appeals to take cognizance of Lilia Yusay's appeal on
the ground of lis pendens. He maintains that the pendency of his motion for allowance of claim and for order of
payment of taxes in the Court of First Instance of Iloilo would preclude the Court of Tax Appeals from acquiring
jurisdiction over Lilia Yusay's appeal. This contention lacks merit.

Lilia Yusay's cause seeks to resist the legality of the assessment in question. Should she maintain it in the settlement
court or should she elevate her cause to the Court of Tax Appeals? We say, she acted correctly by appealing to the latter
court. An action involving a disputed assessment for internal revenue taxes falls within the exclusive jurisdiction of the
Court of Tax Appeals.2 It is in that forum, to the exclusion of the Court of First Instance,3 where she could ventilate her
defenses against the assessment.

Moreover, the settlement court, where the Commissioner would wish Lilia Yusay to contest the assessment, is of limited
jurisdiction. And under the Rules,4 its authority relates only to matters having to do with the settlement of estates and
probate of wills of deceased persons.5 Said court has no jurisdiction to adjudicate the contentions in question, which —
assuming they do not come exclusively under the Tax Court's cognizance — must be submitted to the Court of First
Instance in the exercise of its general jurisdiction.6

We now come to the issue of prescription. Lilia Yusay claims that since the latest assessment was issued only on
February 13, 1958 or eight years, nine months and two days from the filing of the estate and inheritance tax return, the
Commissioner's right to make it has expired. She would rest her stand on Section 331 of the Tax Code which limits the
right of the Commissioner to assess the tax within five years from the filing of the return.

The Commissioner claims that fraud attended the filing of the return; that this being so, Section 332(a) of the Tax Code
would apply.7 It may be well to note that the assessment letter itself (Exhibit 22) did not impute fraud in the return with
intent to evade payment of tax. Precisely, no surcharge for fraud was imposed. In his answer to the petition for review
filed by Lilia Yusay in the Court of Tax Appeals, the Commissioner alleged no fraud. Instead, he broached the
insufficiency of the return as barring the commencement of the running of the statute of limitations. He raised the point
of fraud for the first time in the proceedings, only in his memorandum filed with the Tax Court subsequent to resting his
case. Said Court rejected the plea of fraud for lack of allegation and proof, and ruled that the return, although not
accurate, was sufficient to start the period of prescription.

Fraud is a question of fact.8 The circumstances constituting it must be alleged and proved in the court below.9 And the
finding of said court as to its existence and non-existence is final unless clearly shown to be erroneous.10 As the court a
quo found that no fraud was alleged and proved therein, We see no reason to entertain the Commissioner's assertion
that the return was fraudulent.

The conclusion, however, that the return filed by Jose S. Yusay was sufficient to commence the running of the
prescriptive period under Section 331 of the Tax Code rests on no solid ground.

Paragraph (a) of Section 93 of the Tax Code lists the requirements of a valid return. It states:

(a) Requirements.—In all cases of inheritance or transfers subject to either the estate tax or the inheritance tax, or both,
or where, though exempt from both taxes, the gross value of the estate exceeds three thousand pesos, the executor,
administrator, or anyone of the 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 ; (2) the deductions allowed from gross estate in determining net estate as defined in section eighty-nine; (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.

A return need not be complete in all particulars. It is sufficient if it complies substantially with the law. There is
substantial compliance (1) when the return is made in good faith and is not false or fraudulent; (2) when it covers the
entire period involved; and (3) when it contains information as to the various items of income, deduction and credit with
such definiteness as to permit the computation and assessment of the tax.11

There is no question that the state and inheritance tax return filed by Jose S. Yusay was substantially defective.

First, it was incomplete. It declared only ninety-three parcels of land representing about 400 hectares and left out
ninety-two parcels covering 503 hectares. Said huge under declaration could not have been the result of an over-sight or
mistake. As found in L-11378, supra note 7, Jose S. Yusay very well knew of the existence of the ommited properties.
Perhaps his motive in under declaring the inventory of properties attached to the return was to deprive Lilia Yusay from
inheriting her legal share in the hereditary estate, but certainly not because he honestly believed that they did not form
part of the gross estate.
Second, the return mentioned no heir. Thus, no inheritance tax could be assessed. As a matter of law, on the basis of the
return, there would be no occasion for the imposition of estate and inheritance taxes. When there is no heir - the return
showed none - the intestate estate is escheated to the State.12 The State taxes not itself.

In a case where the return was made on the wrong form, the Supreme Court of the United States held that the filing
thereof did not start the running of the period of limitations.13 The reason is that the return submitted did not contain
the necessary information required in the correct form. In this jurisdiction, however, the Supreme Court refrained from
applying the said ruling of the United States Supreme Court in Collector of Internal Revenue v. Central Azucarera de
Tarlac, L-11760-61, July 31, 1958, on the ground that the return was complete in itself although inaccurate. To our mind,
it would not make much difference where a return is made on the correct form prescribed by the Bureau of Internal
Revenue if the data therein required are not supplied by the taxpayer. Just the same, the necessary information for the
assessment of the tax would be missing.

The return filed in this case was so deficient that it prevented the Commissioner from computing the taxes due on the
estate. It was as though no return was made. The Commissioner had to determine and assess the taxes on data
obtained, not from the return, but from other sources. We therefore hold the view that the return in question was no
return at all as required in Section 93 of the Tax Code.

The law imposes upon the taxpayer the burden of supplying by the return the information upon which an assessment
would be based.14 His duty complied with, the taxpayer is not bound to do anything more than to wait for the
Commissioner to assess the tax. However, he is not required to wait forever. Section 331 of the Tax Code gives the
Commissioner five years within which to make his assessment.15 Except, of course, if the taxpayer failed to observe the
law, in which case Section 332 of the same Code grants the Commissioner a longer period. Non-observance consists in
filing a false or fraudulent return with intent to evade the tax or in filing no return at all.

Accordingly, for purposes of determining whether or not the Commissioner's assessment of February 13, 1958 is barred
by prescription, Section 332(a) which is an exception to Section 331 of the Tax Code finds application.16 We quote
Section 332(a):

SEC. 332. Exceptions as to period of limitation of assessment and collection of taxes.— (a) In the case of a false or
fraudulent return with intent to evade tax or of a failure to file a return, the tax may be assessed, or a proceeding in
court for the collection of such tax may be begun without assessment, at any time within ten years after the discovery of
the falsity, fraud or omission.

As stated, the Commissioner came to know of the identity of the heirs on September 24, 1953 and the huge under
declaration in the gross estate on July 12, 1957. From the latter date, Section 94 of the Tax Code obligated him to make
a return or amend one already filed based on his own knowledge and information obtained through testimony or
otherwise, and subsequently to assess thereon the taxes due. The running of the period of limitations under Section
332(a) of the Tax Code should therefore be reckoned from said date for, as aforesaid, it is from that time that the
Commissioner was expected by law to make his return and assess the tax due thereon. From July 12, 1957 to February
13, 1958, the date of the assessment now in dispute, less than ten years have elapsed. Hence, prescription did not abate
the Commissioner's right to issue said assessment.

Anent the Commissioner's contention that Lilia Yusay is estopped from raising the defense of prescription because she
failed to raise the same in her answer to the motion for allowance of claim and for the payment of taxes filed in the
settlement court (Court of First Instance of Iloilo), suffice it to state that it would be unjust to the taxpayer if We were to
sustain such a view. The Court of First Instance acting as a settlement court is not the proper tribunal to pass upon such
defense, therefore it would be but futile to raise it therein. Moreover, the Tax Code does not bar the right to contest the
legality of the tax after a taxpayer pays it. Under Section 306 thereof, he can pay the tax and claim a refund therefor. A
fortiori his willingness to pay the tax is no waiver to raise defenses against the tax's legality.

WHEREFORE, the judgment appealed from is set aside and another entered affirming the assessment of the
Commissioner of Internal Revenue dated February 13, 1958. Lilia Yusay Gonzales, as administratrix of the intestate
estate of Matias Yusay, is hereby ordered to pay the sums of P16,246.04 and P39,178.12 as estate and inheritance taxes,
respectively, plus interest and surcharge for delinquency in accordance with Section 101 of the National Internal
Revenue Code, without prejudice to reimbursement from her co-administratrix, Florencia Piccio Vda. de Yusay for the
latter's corresponding tax liability. No costs. So ordered.
Government v. Pamintuan, G.R. No. L-33139, October 11, 1930

G.R. No. L-33139 October 11, 1930

THE GOVERNMENT OF THE PHILIPPINE ISLANDS, plaintiff-appellants,

vs.

JOSE MA. PAMINTUAN, ET AL., defendants-appellees.

Attorney-General Jaranilla for appellant.

Jose Ma.Cavanna for appellees.

VILLA-REAL, J.:

This is an appeal taken by the Government of the Philippine Islands from the judgment of the Court of First Instance of
Manila dismissing its complaint and absolving the defendants, without costs. In support of the appeal the following
alleged errors have been assigned to the court below in its judgment:

1. The lower court erred in holding that the failure of the plaintiff to file its claim with the committee on claims and
appraisals barred it from collecting the tax in questions in this action.

2. The lower court erred in holding that this case is governed by the principle laid down in the case of the Government of
the Philippine Islands vs. Inchausti & Co. (24 Phil., 315).

3. The lower court erred in absolving the defendants from the complaint and in denying the plaintiff's motion for new
trial.

The present case was submitted to the court below upon the following agreed statement of facts:

I. That on February 27, 1920, Florentino Pamintuan, represented by J. V. Ramirez or his attorney-in-fact charged with the
administration of his property, filed income-tax return for the year 1919, paying the amount of P 672.99 on the basis of
said return, and the additional sum of P151.01 as a result of a subsequent assessment received from the Collector of
Internal Revenue.

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

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

IV. That on April 28,1925, the Court of First Instance of Manila appointed Maximo de la Paz and Candido Ilagan
commissioners of appraisal of the property left by the deceased Pamintuan, the said appointees taking their oaths of
office on May 4 and May 9, 1925, respectively, and letters of appointment to the committee on claims and appraisals
were made on May 9,1925. 1awph!l.net

V. That the said committee on claims and appraisals after the publications of the notices required by law held the
necessary sessions in accordance with said notices for the presentation and determination of all claims and credits
against the estate of the deceased Pamintuan.

VI. That on December 1, 1925, the above-mentioned committee rendered its report which was duly approved by the
court, and in which report it appears that he only claims presented and that were approved were those of Tomasa
Centeno, Jose, Paz, Caridad, and Natividad Pamintuan and Cavanna, Aboitiz and Agan.

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

VIII. That the defendants herein inherited from the deceased Florentino Pamintuan in the following proportions: Tomasa
Pamintuan inherited 0.0571 per cent of the decedent's estate and the other defendants 0.0784 per cent each according
to the partition approved by the court in civil case No. 27948.

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

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

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

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

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

With regard to the first assignment of error, this court held in Pineda vs. Court of First Instance of Tayabas and Collector
of Internal Revenue (52 Phil., 803):

To reply to these contentions in turn , we observe that, while there are a few courts that have expressed themselves to
the effect that a claim for taxes due to the Government should be presented like other claims to the committee
appointed for the purpose of passing upon claims, the clear weight of judicial authority is to the effect that claims for
taxes and assessments, whether assessed before or after the death of the decedent, are not required to be presented to
the committee. (24 C. J., 325; People vs. Olvera, 43 Cal., 492; Hancock vs.Whittemore, 50 Cal., 522; Findley vs. Taylor, 97
Iowa, 420; Bogue vs.Laughlin,149 Wis., 271; 40 L. R. A. [N.S.], 927; Ann. Cas.1913 C.,p.1367.)

See also In re Estate of Frank H.Goulette (G. R. No. 32361, 1 decided on September 22,1930.)

The administration proceedings of the late Florentino Pamintuan having been closed, and his estate distributed among
his heirs, the defendants herein, the latter are responsible for the payment of the income tax here in question in
proportion to the share of each in said estate, in accordance with section 731 of the Code of Civil Procedure, and the
doctrine of this court laid down in Lopez vs. Enriquez (16 Phil.,336) as follows:

ESTATE; LIABILITY OF HEIRS AND DISTRIBUTEES. — Heirs are not required to respond with their own property for the
debts of their deceased ancestors. But even after the partition of an estate, heirs and distributees are liable individually
for the payment of all lawful outstanding claims against the estate in proportion to the amount or value of the property
they have respectively received from the estate. The hereditary property consists only of that part which remains after
the settlement of all lawful claims against the estate, for the settlement of which the entire estate is first liable. The
heirs cannot, by any act of their own or by agreement among themselves, reduce the creditors' security for the payment
of their claims. (Pavia vs. De la Rosa, 8 Phil.,70; secs. 731, 749, Code of Civil Procedure; art,1257, Civil Code.)

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

Wherefore, let the defendants pay the plaintiff the sum of P462, with 1 per centum monthly interest from August 19,
1927 until fully paid, as follows: Tomasa Centeno 0.0571 per cent, and each one of the other defendants 0.0784 per
cent, with costs against the appellees. So ordered.

CIR v. Pineda, G.R. No. L-22734, September 15, 1967

G.R. No. L-22734 September 15, 1967

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.

MANUEL B. PINEDA, as one of the heirs of deceased ATANASIO PINEDA, respondent.

Office of the Solicitor General for petitioner.

Manuel B. Pineda for and in his own behalf as respondent.

BENGZON, J.P., J.:

On May 23, 1945 Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15 children, the eldest of whom is
Manuel B. Pineda, a lawyer. Estate proceedings were had in the Court of First Instance of Manila (Case No. 71129)
wherein the surviving widow was appointed administratrix. The estate was divided among and awarded to the heirs and
the proceedings terminated on June 8, 1948. Manuel B. Pineda's share amounted to about P2,500.00.

After the estate proceedings were closed, the Bureau of Internal Revenue investigated the income tax liability of the
estate for the years 1945, 1946, 1947 and 1948 and it found that the corresponding income tax returns were not filed.
Thereupon, the representative of the Collector of Internal Revenue filed said returns for the estate on the basis of
information and data obtained from the aforesaid estate proceedings and issued an assessment for the following:

1. Deficiency income tax

1945 P135.83

1946 436.95

1947 1,206.91 P1,779.69

Add: 5% surcharge 88.98

1% monthly interest from November 30, 1953 to April 15, 1957 720.77

Compromise for late filing 80.00

Compromise for late payment 40.00

Total amount due

P2,707.44

===========

2. Additional residence tax for 1945 P14.50

===========

3. Real Estate dealer's tax for the fourth quarter of 1946 and the whole year of 1947 P207.50

===========

Manuel B. Pineda, who received the assessment, contested the same. Subsequently, he appealed to the Court of Tax
Appeals alleging that he was appealing "only that proportionate part or portion pertaining to him as one of the heirs."

After hearing the parties, the Court of Tax Appeals rendered judgment reversing the decision of the Commissioner on
the ground that his right to assess and collect the tax has prescribed. The Commissioner appealed and this Court
affirmed the findings of the Tax Court in respect to the assessment for income tax for the year 1947 but held that the
right to assess and collect the taxes for 1945 and 1946 has not prescribed. For 1945 and 1946 the returns were filed on
August 24, 1953; assessments for both taxable years were made within five years therefrom or on October 19, 1953;
and the action to collect the tax was filed within five years from the latter date, on August 7, 1957. For taxable year
1947, however, the return was filed on March 1, 1948; the assessment was made on October 19, 1953, more than five
years from the date the return was filed; hence, the right to assess income tax for 1947 had prescribed. Accordingly, We
remanded the case to the Tax Court for further appropriate proceedings.1

In the Tax Court, the parties submitted the case for decision without additional evidence.

On November 29, 1963 the Court of Tax Appeals rendered judgment holding Manuel B. Pineda liable for the payment
corresponding to his share of the following taxes:

Deficiency income tax

1945 P135.83

1946 436.95

Real estate dealer's fixed tax 4th quarter of 1946 and whole year of 1947 P187.50

The Commissioner of Internal Revenue has appealed to Us and has proposed to hold Manuel B. Pineda liable for the
payment of all the taxes found by the Tax Court to be due from the estate in the total amount of P760.28 instead of only
for the amount of taxes corresponding to his share in the estate.

Manuel B. Pineda opposes the proposition on the ground that as an heir he is liable for unpaid income tax due the estate
only up to the extent of and in proportion to any share he received. He relies on Government of the Philippine Islands v.
Pamintuan2 where We held that "after the partition of an estate, heirs and distributees are liable individually for the
payment of all lawful outstanding claims against the estate in proportion to the amount or value of the property they
have respectively received from the estate."

We hold that the Government can require Manuel B. Pineda to pay the full amount of the taxes assessed.

Pineda is liable for the assessment as an heir and as a holder-transferee of property belonging to the estate/taxpayer. As
an heir he is individually answerable for the part of the tax proportionate to the share he received from the
inheritance.3 His liability, however, cannot exceed the amount of his share.
As a holder of property belonging to the estate, Pineda is liable for he tax up to the amount of the property in his
possession. The reason is that the Government has a lien on the P2,500.00 received by him from the estate as his share
in the inheritance, for unpaid income taxes4a for which said estate is liable, pursuant to the last paragraph of Section
315 of the Tax Code, which we quote hereunder:

If any person, corporation, partnership, joint-account (cuenta en participacion), association, or insurance company liable
to pay the income tax, neglects or refuses to pay the same after demand, the amount shall be a lien in favor of the
Government of the Philippines from the time when the assessment was made by the Commissioner of Internal Revenue
until paid with interest, penalties, and costs that may accrue in addition thereto upon all property and rights to property
belonging to the taxpayer: . . .

By virtue of such lien, the Government has the right to subject the property in Pineda's possession, i.e., the P2,500.00, to
satisfy the income tax assessment in the sum of P760.28. After such payment, Pineda will have a right of contribution
from his co-heirs,5 to achieve an adjustment of the proper share of each heir in the distributable estate.

All told, the Government has two ways of collecting the tax in question. One, by going after all the heirs and collecting
from each one of them the amount of the tax proportionate to the inheritance received. This remedy was adopted in
Government of the Philippine Islands v. Pamintuan, supra. In said case, the Government filed an action against all the
heirs for the collection of the tax. This action rests on the concept that hereditary property consists only of that part
which remains after the settlement of all lawful claims against the estate, for the settlement of which the entire estate is
first liable.6 The reason why in case suit is filed against all the heirs the tax due from the estate is levied proportionately
against them is to achieve thereby two results: first, payment of the tax; and second, adjustment of the shares of each
heir in the distributed estate as lessened by the tax.

Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all property and rights to property
belonging to the taxpayer for unpaid income tax, is by subjecting said property of the estate which is in the hands of an
heir or transferee to the payment of the tax due, the estate. This second remedy is the very avenue the Government
took in this case to collect the tax. The Bureau of Internal Revenue should be given, in instances like the case at bar, the
necessary discretion to avail itself of the most expeditious way to collect the tax as may be envisioned in the particular
provision of the Tax Code above quoted, because taxes are the lifeblood of government and their prompt and certain
availability is an imperious need.7 And as afore-stated in this case the suit seeks to achieve only one objective: payment
of the tax. The adjustment of the respective shares due to the heirs from the inheritance, as lessened by the tax, is left
to await the suit for contribution by the heir from whom the Government recovered said tax.

WHEREFORE, the decision appealed from is modified. Manuel B. Pineda is hereby ordered to pay to the Commissioner of
Internal Revenue the sum of P760.28 as deficiency income tax for 1945 and 1946, and real estate dealer's fixed tax for
the fourth quarter of 1946 and for the whole year 1947, without prejudice to his right of contribution for his co-heirs. No
costs. So ordered.

Estate of Hilario M. Ruiz V. Court of Appeals, G.R. No. 118671, January 29, 1996

G.R. No. 118671 January 29, 1996

THE ESTATE OF HILARIO M. RUIZ, EDMOND RUIZ, Executor, petitioner,

vs.

THE COURT OF APPEALS (Former Special Sixth Division), MARIA PILAR RUIZ-MONTES, MARIA CATHRYN RUIZ, CANDICE
ALBERTINE RUIZ, MARIA ANGELINE RUIZ and THE PRESIDING JUDGE OF THE REGIONAL TRIAL COURT OF PASIG,
respondents.

DECISION

PUNO, J.:

This petition for review on certiorari seeks to annul and set aside the decision dated November 10, 1994 and the
resolution dated January 5, 1995 of the Court of Appeals in CA-G.R. SP No. 33045.

The facts show that on June 27, 1987, Hilario M. Ruiz1 executed a holographic will naming as his heirs his only son,
Edmond Ruiz, his adopted daughter, private respondent Maria Pilar Ruiz Montes, and his three granddaughters, private
respondents Maria Cathryn, Candice Albertine and Maria Angeline, all children of Edmond Ruiz. The testator
bequeathed to his heirs substantial cash, personal and real properties and named Edmond Ruiz executor of his estate.2

On April 12, 1988, Hilario Ruiz died. Immediately thereafter, the cash component of his estate was distributed among
Edmond Ruiz and private respondents in accordance with the decedent's will. For unbeknown reasons, Edmond, the
named executor, did not take any action for the probate of his father's holographic will.
On June 29, 1992, four years after the testator's death, it was private respondent Maria Pilar Ruiz Montes who filed
before the Regional Trial Court, Branch 156, Pasig, a petition for the probate and approval of Hilario Ruiz's will and for
the issuance of letters testamentary to Edmond Ruiz,3 Surprisingly, Edmond opposed the petition on the ground that
the will was executed under undue influence.

On November 2, 1992, one of the properties of the estate — the house and lot at No. 2 Oliva Street, Valle Verde IV,
Pasig which the testator bequeathed to Maria Cathryn, Candice Albertine and Maria Angeline4 — was leased out by
Edmond Ruiz to third persons.

On January 19, 1993, the probate court ordered Edmond to deposit with the Branch Clerk of Court the rental deposit
and payments totalling P540,000.00 representing the one-year lease of the Valle Verde property. In compliance, on
January 25, 1993, Edmond turned over the amount of P348,583.56, representing the balance of the rent after deducting
P191,416.14 for repair and maintenance expenses on the estate.5

In March 1993, Edmond moved for the release of P50,000.00 to pay the real estate taxes on the real properties of the
estate. The probate court approved the release of P7,722.00.6

On May 14, 1993, Edmond withdrew his opposition to the probate of the will. Consequently, the probate court, on May
18, 1993, admitted the will to probate and ordered the issuance of letters testamentary to Edmond conditioned upon
the filing of a bond in the amount of P50,000.00. The letters testamentary were issued on June 23, 1993.

On July 28, 1993, petitioner Testate Estate of Hilario Ruiz, with Edmond Ruiz as executor, filed an "Ex-Parte Motion for
Release of Funds." It prayed for the release of the rent payments deposited with the Branch Clerk of Court. Respondent
Montes opposed the motion and concurrently filed a "Motion for Release of Funds to Certain Heirs" and "Motion for
Issuance of Certificate of Allowance of Probate Will." Montes prayed for the release of the said rent payments to Maria
Cathryn, Candice Albertine and Maria Angeline and for the distribution of the testator's properties, specifically the Valle
Verde property and the Blue Ridge apartments, in accordance with the provisions of the holographic will.

On August 26, 1993, the probate court denied petitioner's motion for release of funds but granted respondent Montes'
motion in view of petitioner's lack of opposition. It thus ordered the release of the rent payments to the decedent's
three granddaughters. It further ordered the delivery of the titles to and possession of the properties bequeathed to the
three granddaughters and respondent Montes upon the filing of a bond of P50,000.00.

Petitioner moved for reconsideration alleging that he actually filed his opposition to respondent Montes's motion for
release of rent payments which opposition the court failed to consider. Petitioner likewise reiterated his previous
motion for release of funds.

On November 23, 1993, petitioner, through counsel, manifested that he was withdrawing his motion for release of funds
in view of the fact that the lease contract over the Valle Verde property had been renewed for another year.7

Despite petitioner's manifestation, the probate court, on December 22, 1993, ordered the release of the funds to
Edmond but only "such amount as may be necessary to cover the expenses of administration and allowances for
support" of the testator's three granddaughters subject to collation and deductible from their share in the inheritance.
The court, however, held in abeyance the release of the titles to respondent Montes and the three granddaughters until
the lapse of six months from the date of first publication of the notice to creditors.8 The court stated thus:

xxx xxx xxx

After consideration of the arguments set forth thereon by the parties the court resolves to allow Administrator Edmond
M. Ruiz to take possession of the rental payments deposited with the Clerk of Court, Pasig Regional Trial Court, but only
such amount as may be necessary to cover the expenses of administration and allowances for support of Maria Cathryn
Veronique, Candice Albertine and Maria Angeli, which are subject to collation and deductible from the share in the
inheritance of said heirs and insofar as they exceed the fruits or rents pertaining to them.

As to the release of the titles bequeathed to petitioner Maria Pilar Ruiz-Montes and the above-named heirs, the same is
hereby reconsidered and held in abeyance until the lapse of six (6) months from the date of first publication of Notice to
Creditors.

WHEREFORE, Administrator Edmond M. Ruiz is hereby ordered to submit an accounting of the expenses necessary for
administration including provisions for the support Of Maria Cathryn Veronique Ruiz, Candice Albertine Ruiz and Maria
Angeli Ruiz before the amount required can be withdrawn and cause the publication of the notice to creditors with
reasonable dispatch.9

Petitioner assailed this order before the Court of Appeals. Finding no grave abuse of discretion on the part of
respondent judge, the appellate court dismissed the petition and sustained the probate court's order in a decision dated
November 10, 199410 and a resolution dated January 5, 1995.11

Hence, this petition.

Petitioner claims that:

THE PUBLIC RESPONDENT COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION IN AFFIRMING AND CONFIRMING THE ORDER OF RESPONDENT REGIONAL TRIAL COURT OF
PASIG, BRANCH 156, DATED DECEMBER 22, 1993, WHICH WHEN GIVEN DUE COURSE AND IS EFFECTED WOULD: (1)
DISALLOW THE EXECUTOR/ADMINISTRATOR OF THE ESTATE OF THE LATE HILARIO M. RUIZ TO TAKE POSSESSION OF ALL
THE REAL AND PERSONAL PROPERTIES OF THE ESTATE; (2) GRANT SUPPORT, DURING THE PENDENCY OF THE
SETTLEMENT OF AN ESTATE, TO CERTAIN PERSONS NOT ENTITLED THERETO; AND (3) PREMATURELY PARTITION AND
DISTRIBUTE THE ESTATE PURSUANT TO THE PROVISIONS OF THE HOLOGRAPHIC WILL EVEN BEFORE ITS INTRINSIC
VALIDITY HAS BEEN DETERMINED, AND DESPITE THE EXISTENCE OF UNPAID DEBTS AND OBLIGATIONS OF THE ESTATE.12

The issue for resolution is whether the probate court, after admitting the will to probate but before payment of the
estate's debts and obligations, has the authority: (1) to grant an allowance from the funds of the estate for the support
of the testator's grandchildren; (2) to order the release of the titles to certain heirs; and (3) to grant possession of all
properties of the estate to the executor of the will.

On the matter of allowance, Section 3 of Rule 83 of the Revised Rules of Court provides:

Sec. 3. Allowance to widow and family. — The widow and minor or incapacitated children of a deceased person, during
the settlement of the estate, shall receive therefrom under the direction of the court, such allowance as are provided by
law.

Petitioner alleges that this provision only gives the widow and the minor or incapacitated children of the deceased the
right to receive allowances for support during the settlement of estate proceedings. He contends that the testator's
three granddaughters do not qualify for an allowance because they are not incapacitated and are no longer minors but
of legal age, married and gainfully employed. In addition, the provision expressly states "children" of the deceased which
excludes the latter's grandchildren.

It is settled that allowances for support under Section 3 of Rule 83 should not be limited to the "minor or incapacitated"
children of the deceased. Article 18813 of the Civil Code of the Philippines, the substantive law in force at the time of
the testator's death, provides that during the liquidation of the conjugal partnership, the deceased's legitimate spouse
and children, regardless of their age, civil status or gainful employment, are entitled to provisional support from the
funds of the estate.14 The law is rooted on the fact that the right and duty to support, especially the right to education,
subsist even beyond the age of majority.15

Be that as it may, grandchildren are not entitled to provisional support from the funds of the decedent's estate. The law
clearly limits the allowance to "widow and children" and does not extend it to the deceased's grandchildren, regardless
of their minority or incapacity.16 It was error, therefore, for the appellate court to sustain the probate court's order
granting an allowance to the grandchildren of the testator pending settlement of his estate.

Respondent courts also erred when they ordered the release of the titles of the bequeathed properties to private
respondents six months after the date of first publication of notice to creditors. An order releasing titles to properties of
the estate amounts to an advance distribution of the estate which is allowed only under the following conditions:

Sec. 2. Advance distribution in special proceedings. — Nothwithstanding a pending controversy or appeal in proceedings
to settle the estate of a decedent, the court may, in its discretion and upon such terms as it may deem proper and just,
permit that such part of the estate as may not be affected by the controversy or appeal be distributed among the heirs
or legatees, upon compliance with the conditions set forth in Rule 90 of these Rules.17

And Rule 90 provides that:

Sec. 1. When order for distribution of residue made. — When the debts, funeral charges, and expenses of administration
the allowance to the widow, and inheritance tax if any, chargeable to the estate in accordance with law, have been paid,
the court, on the application of the executor or administrator, or of a person interested in the estate, and after hearing
upon notice shall assign the residue of the estate to the persons entitled to the same, naming them and the proportions
or parts, to which each is entitled, and such persons may demand and recover their respective shares from the executor
or administrator, or any other person having the same in his possession. If there is a controversy before the court as to
who are the lawful heirs of the deceased person or as to the distributive shares to which each person is entitled under
the law, the controversy shall be heard and decided as in ordinary cases.

No distribution shall be allowed until the payment of the obligations above-mentioned has been made or provided for,
unless the distributees, or any of them, give a bond, in a sum to be fixed by the court, conditioned for the payment of
said obligations within such time as the court directs.18

In settlement of estate proceedings, the distribution of the estate properties can only be made: (1) after all the debts,
funeral charges, expenses of administration, allowance to the widow, and estate tax have been paid; or (2) before
payment of said obligations only if the distributees or any of them gives a bond in a sum fixed by the court conditioned
upon the payment of said obligations within such time as the court directs, or when provision is made to meet those
obligations.19

In the case at bar, the probate court ordered the release of the titles to the Valle Verde property and the Blue Ridge
apartments to the private respondents after the lapse of six months from the date of first publication of the notice to
creditors. The questioned order speaks of "notice" to creditors, not payment of debts and obligations. Hilario Ruiz
allegedly left no debts when he died but the taxes on his estate had not hitherto been paid, much less ascertained. The
estate tax is one of those obligations that must be paid before distribution of the estate. If not yet paid, the rule requires
that the distributees post a bond or make such provisions as to meet the said tax obligation in proportion to their
respective shares in the inheritance.20 Notably, at the time the order was issued the properties of the estate had not yet
been inventoried and appraised.

It was also too early in the day for the probate court to order the release of the titles six months after admitting the will
to probate. The probate of a will is conclusive as to its due execution and extrinsic validity21 and settles only the
question of whether the testator, being of sound mind, freely executed it in accordance with the formalities prescribed
by law.22 Questions as to the intrinsic validity and efficacy of the provisions of the will, the legality of any devise or
legacy may be raised even after the will has been authenticated.23

The intrinsic validity of Hilario's holographic will was controverted by petitioner before the probate court in his Reply to
Montes' Opposition to his motion for release of funds24 and his motion for reconsideration of the August 26, 1993 order
of the said court.25 Therein, petitioner assailed the distributive shares of the devisees and legatees inasmuch as his
father's will included the estate of his mother and allegedly impaired his legitime as an intestate heir of his mother. The
Rules provide that if there is a controversy as to who are the lawful heirs of the decedent and their distributive shares in
his estate, the probate court shall proceed to hear and decide the same as in ordinary cases.26

Still and all, petitioner cannot correctly claim that the assailed order deprived him of his right to take possession of all
the real and personal properties of the estate. The right of an executor or administrator to the possession and
management of the real and personal properties of the deceased is not absolute and can only be exercised "so long as it
is necessary for the payment of the debts and expenses of administration,"27 Section 3 of Rule 84 of the Revised Rules
of Court explicitly provides:

Sec. 3. Executor or administrator to retain whole estate to pay debts, and to administer estate not willed. — An executor
or administrator shall have the right to the possession and management of the real as well as the personal estate of the
deceased so long as it is necessary for the payment of the debts and expenses for administration.28

When petitioner moved for further release of the funds deposited with the clerk of court, he had been previously
granted by the probate court certain amounts for repair and maintenance expenses on the properties of the estate, and
payment of the real estate taxes thereon. But petitioner moved again for the release of additional funds for the same
reasons he previously cited. It was correct for the probate court to require him to submit an accounting of the necessary
expenses for administration before releasing any further money in his favor.

It was relevantly noted by the probate court that petitioner had deposited with it only a portion of the one-year rental
income from the Valle Verde property. Petitioner did not deposit its succeeding rents after renewal of the lease.29
Neither did he render an accounting of such funds.

Petitioner must be reminded that his right of ownership over the properties of his father is merely inchoate as long as
the estate has not been fully settled and partitioned.30 As executor, he is a mere trustee of his father's estate. The funds
of the estate in his hands are trust funds and he is held to the duties and responsibilities of a trustee of the highest
order.31 He cannot unilaterally assign to himself and possess all his parents' properties and the fruits thereof without
first submitting an inventory and appraisal of all real and personal properties of the deceased, rendering a true account
of his administration, the expenses of administration, the amount of the obligations and estate tax, all of which are
subject to a determination by the court as to their veracity, propriety and justness.32

IN VIEW WHEREOF, the decision and resolution of the Court of Appeals in CA-G.R. SP No. 33045 affirming the order
dated December 22, 1993 of the Regional Trial Court, Branch 156, Pasig in SP Proc. No. 10259 are affirmed with the
modification that those portions of the order granting an allowance to the testator's grandchildren and ordering the
release of the titles to the private respondents upon notice to creditors are annulled and set aside.

Respondent judge is ordered to proceed with dispatch in the proceedings below.

SO ORDERED.