Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-43082

June 18, 1937

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

vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.
Pablo Lorenzo and Delfin Joven for plaintiff-appellant.
Office of the Solicitor-General Hilado for defendant-appellant.
LAUREL, J.:
On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as trustee of the estate of Thomas Hanley,
deceased, brought this action in the Court of First Instance of Zamboanga against the defendant, Juan Posadas, Jr.,
then the Collector of Internal Revenue, for the refund of the amount of P2,052.74, paid by the plaintiff as inheritance
tax on the estate of the deceased, and for the collection of interst thereon at the rate of 6 per cent per annum,
computed from September 15, 1932, the date when the aforesaid tax was [paid under protest. The defendant set up
a counterclaim for P1,191.27 alleged to be interest due on the tax in question and which was not included in the
original assessment. From the decision of the Court of First Instance of Zamboanga dismissing both the plaintiff's
complaint and the defendant's counterclaim, both parties appealed to this court.
It appears that on May 27, 1922, one Thomas Hanley died in Zamboanga, Zamboanga, leaving a will (Exhibit 5) and
considerable amount of real and personal properties. On june 14, 1922, proceedings for the probate of his will and
the settlement and distribution of his estate were begun in the Court of First Instance of Zamboanga. The will was
admitted to probate. Said will provides, among other things, as follows:
4. I direct that any money left by me be given to my nephew Matthew Hanley.
5. I direct that all real estate owned by me at the time of my death be not sold or otherwise disposed of for a
period of ten (10) years after my death, and that the same be handled and managed by the executors, and
proceeds thereof to be given to my nephew, Matthew Hanley, at Castlemore, Ballaghaderine, County of
Rosecommon, Ireland, and that he be directed that the same be used only for the education of my brother's
children and their descendants.
6. I direct that ten (10) years after my death my property be given to the above mentioned Matthew Hanley
to be disposed of in the way he thinks most advantageous.
xxx

xxx

xxx

8. I state at this time I have one brother living, named Malachi Hanley, and that my nephew, Matthew
Hanley, is a son of my said brother, Malachi Hanley.
The Court of First Instance of Zamboanga considered it proper for the best interests of ther estate to appoint a
trustee to administer the real properties which, under the will, were to pass to Matthew Hanley ten years after the
two executors named in the will, was, on March 8, 1924, appointed trustee. Moore took his oath of office and gave
bond on March 10, 1924. He acted as trustee until February 29, 1932, when he resigned and the plaintiff herein was
appointed in his stead.
During the incumbency of the plaintiff as trustee, the defendant Collector of Internal Revenue, alleging that the
estate left by the deceased at the time of his death consisted of realty valued at P27,920 and personalty valued at
P1,465, and allowing a deduction of P480.81, assessed against the estate an inheritance tax in the amount of
P1,434.24 which, together with the penalties for deliquency in payment consisting of a 1 per cent monthly interest
from July 1, 1931 to the date of payment and a surcharge of 25 per cent on the tax, amounted to P2,052.74. On
March 15, 1932, the defendant filed a motion in the testamentary proceedings pending before the Court of First
Instance of Zamboanga (Special proceedings No. 302) praying that the trustee, plaintiff herein, be 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,
giftmortis causa, or advance in anticipation of inheritance,devise, or bequest." The tax therefore is upon
transmission or the transfer or devolution of property of a decedent, made effective by his death. (61 C. J., p. 1592.)
It is in reality an excise or privilege tax imposed on the right to succeed to, receive, or take property by or under a
will or the intestacy law, or deed, grant, or gift to become operative at or after death. Acording to article 657 of the
Civil Code, "the rights to the succession of a person are transmitted from the moment of his death." "In other words",
said Arellano, C. J., ". . . the heirs succeed immediately to all of the property of the deceased ancestor. The property
belongs to the heirs at the moment of the death of the ancestor as completely as if the ancestor had executed and
delivered to them a deed for the same before his death." (Bondad vs. Bondad, 34 Phil., 232. See also, Mijares vs.
Nery, 3 Phil., 195; Suilong & Co., vs. Chio-Taysan, 12 Phil., 13; Lubrico vs. Arbado, 12 Phil., 391; Innocencio vs.
Gat-Pandan, 14 Phil., 491; Aliasas vs.Alcantara, 16 Phil., 489; Ilustre vs. Alaras Frondosa, 17 Phil., 321; Malahacan
vs. Ignacio, 19 Phil., 434; Bowa vs. Briones, 38 Phil., 27; Osario vs. Osario & Yuchausti Steamship Co., 41 Phil.,
531; Fule vs. Fule, 46 Phil., 317; Dais vs. Court of First Instance of Capiz, 51 Phil., 396; Baun vs. Heirs of Baun, 53
Phil., 654.) Plaintiff, however, asserts that while article 657 of the Civil Code is applicable to testate as well as
intestate succession, it operates only in so far as forced heirs are concerned. But the language of article 657 of the
Civil Code is broad and makes no distinction between different classes of heirs. That article does not speak of
forced heirs; it does not even use the word "heir". It speaks of the rights of succession and the transmission thereof
from the moment of death. The provision of section 625 of the Code of Civil Procedure regarding the authentication
and probate of a will as a necessary condition to effect transmission of property does not affect the general rule laid
down in article 657 of the Civil Code. The authentication of a will implies its due execution but once probated and
allowed the transmission is effective as of the death of the testator in accordance with article 657 of the Civil Code.
Whatever may be the time when actual transmission of the inheritance takes place, succession takes place in any
event at the moment of the decedent's death. The time when the heirs legally succeed to the inheritance may differ
from the time when the heirs actually receive such inheritance. "Poco importa", says Manresa commenting on article
657 of the Civil Code, "que desde el falleimiento del causante, hasta que el heredero o legatario entre en posesion
de los bienes de la herencia o del legado, transcurra mucho o poco tiempo, pues la adquisicion ha de retrotraerse al
momento de la muerte, y asi lo ordena el articulo 989, que debe considerarse como complemento del presente." (5
Manresa, 305; see also, art. 440, par. 1, Civil Code.) Thomas Hanley having died on May 27, 1922, the inheritance
tax accrued as of the date.
From the fact, however, that Thomas Hanley died on May 27, 1922, it does not follow that the obligation to pay the
tax arose as of the date. The time for the payment on inheritance tax is clearly fixed by section 1544 of the Revised
Administrative Code as amended by Act No. 3031, in relation to section 1543 of the same Code. The two sections
follow:

SEC. 1543. Exemption of certain acquisitions and transmissions. The following shall not be taxed:
(a) The merger of the usufruct in the owner of the naked title.
(b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the
trustees.
(c) The transmission from the first heir, legatee, or donee in favor of another beneficiary, in
accordance with the desire of the predecessor.
In the last two cases, if the scale of taxation appropriate to the new beneficiary is greater than that paid by
the first, the former must pay the difference.
SEC. 1544. When tax to be paid. The tax fixed in this article shall be paid:
(a) In the second and third cases of the next preceding section, before entrance into possession of
the property.
(b) In other cases, within the six months subsequent to the death of the predecessor; but if judicial
testamentary or intestate proceedings shall be instituted prior to the expiration of said period, the
payment shall be made by the executor or administrator before delivering to each beneficiary his
share.
If the tax is not paid within the time hereinbefore prescribed, interest at the rate of twelve per centum per
annum shall be added as part of the tax; and to the tax and interest due and unpaid within ten days after the
date of notice and demand thereof by the collector, there shall be further added a surcharge of twenty-five
per centum.
A certified of all letters testamentary or of admisitration shall be furnished the Collector of Internal Revenue
by the Clerk of Court within thirty days after their issuance.
It should be observed in passing that the word "trustee", appearing in subsection (b) of section 1543, should read
"fideicommissary" or "cestui que trust". There was an obvious mistake in translation from the Spanish to the English
version.
The instant case does fall under subsection (a), but under subsection (b), of section 1544 above-quoted, as there is
here no fiduciary heirs, first heirs, legatee or donee. Under the subsection, the tax should have been paid before the
delivery of the properties in question to P. J. M. Moore as trustee on March 10, 1924.
(b) The plaintiff contends that the estate of Thomas Hanley, in so far as the real properties are concerned, did not
and could not legally pass to the instituted heir, Matthew Hanley, until after the expiration of ten years from the death
of the testator on May 27, 1922 and, that the inheritance tax should be based on the value of the estate in 1932, or
ten years after the testator's death. The plaintiff introduced evidence tending to show that in 1932 the real properties
in question had a reasonable value of only P5,787. This amount added to the value of the personal property left by
the deceased, which the plaintiff admits is P1,465, would generate an inheritance tax which, excluding deductions,
interest and surcharge, would amount only to about P169.52.
If death is the generating source from which the power of the estate to impose inheritance taxes takes its being and
if, upon the death of the decedent, succession takes place and the right of the estate to tax vests instantly, the tax
should be measured by the vlaue of the estate as it stood at the time of the decedent's death, regardless of any
subsequent contingency value of any subsequent increase or decrease in value. (61 C. J., pp. 1692, 1693; 26 R. C.
L., p. 232; Blakemore and Bancroft, Inheritance Taxes, p. 137. See also Knowlton vs. Moore, 178 U.S., 41; 20 Sup.
Ct. Rep., 747; 44 Law. ed., 969.) "The right of the state to an inheritance tax accrues at the moment of death, and
hence is ordinarily measured as to any beneficiary by the value at that time of such property as passes to him.
Subsequent appreciation or depriciation is immaterial." (Ross, Inheritance Taxation, p. 72.)
Our attention is directed to the statement of the rule in Cyclopedia of Law of and Procedure (vol. 37, pp. 1574, 1575)
that, in the case of contingent remainders, taxation is postponed until the estate vests in possession or the
contingency is settled. This rule was formerly followed in New York and has been adopted in Illinois, Minnesota,
Massachusetts, Ohio, Pennsylvania and Wisconsin. This rule, horever, is by no means entirely satisfactory either to
the estate or to those interested in the property (26 R. C. L., p. 231.). Realizing, perhaps, the defects of its anterior
system, we find upon examination of cases and authorities that New York has varied and now requires the
immediate appraisal of the postponed estate at its clear market value and the payment forthwith of the tax on its out
of the corpus of the estate transferred. (In re Vanderbilt, 172 N. Y., 69; 69 N. E., 782; In re Huber, 86 N. Y. App.
Div., 458; 83 N. Y. Supp., 769; Estate of Tracy, 179 N. Y., 501; 72 N. Y., 519; Estate of Brez, 172 N. Y., 609; 64 N.
E., 958; Estate of Post, 85 App. Div., 611; 82 N. Y. Supp., 1079. Vide also, Saltoun vs. Lord Advocate, 1 Peter. Sc.
App., 970; 3 Macq. H. L., 659; 23 Eng. Rul. Cas., 888.) California adheres to this new rule (Stats. 1905, sec. 5, p.
343).

But whatever may be the rule in other jurisdictions, we hold that a transmission by inheritance is taxable at the time
of the predecessor's death, notwithstanding the postponement of the actual possession or enjoyment of the estate
by the beneficiary, and the tax measured by the value of the property transmitted at that time regardless of its
appreciation or depreciation.
(c) Certain items are required by law to be deducted from the appraised gross in arriving at the net value of the
estate on which the inheritance tax is to be computed (sec. 1539, Revised Administrative Code). In the case at bar,
the defendant and the trial court allowed a deduction of only P480.81. This sum represents the expenses and
disbursements of the executors until March 10, 1924, among which were their fees and the proven debts of the
deceased. The plaintiff contends that the compensation and fees of the trustees, which aggregate P1,187.28
(Exhibits C, AA, EE, PP, HH, JJ, LL, NN, OO), should also be deducted under section 1539 of the Revised
Administrative Code which provides, in part, as follows: "In order to determine the net sum which must bear the tax,
when an inheritance is concerned, there shall be deducted, in case of a resident, . . . the judicial expenses of the
testamentary or intestate proceedings, . . . ."
A trustee, no doubt, is entitled to receive a fair compensation for his services (Barney vs. Saunders, 16 How., 535;
14 Law. ed., 1047). But from this it does not follow that the compensation due him may lawfully be deducted in
arriving at the net value of the estate subject to tax. There is no statute in the Philippines which requires trustees'
commissions to be deducted in determining the net value of the estate subject to inheritance tax (61 C. J., p. 1705).
Furthermore, though a testamentary trust has been created, it does not appear that the testator intended that the
duties of his executors and trustees should be separated. (Ibid.; In re Vanneck's Estate, 161 N. Y. Supp., 893; 175
App. Div., 363; In re Collard's Estate, 161 N. Y. Supp., 455.) On the contrary, in paragraph 5 of his will, the testator
expressed the desire that his real estate be handled and managed by his executors until the expiration of the period
of ten years therein provided. Judicial expenses are expenses of administration (61 C. J., p. 1705) but, in State vs.
Hennepin County Probate Court (112 N. W., 878; 101 Minn., 485), it was said: ". . . The compensation of a trustee,
earned, not in the administration of the estate, but in the management thereof for the benefit of the legatees or
devises, does not come properly within the class or reason for exempting administration expenses. . . . Service
rendered in that behalf have no reference to closing the estate for the purpose of a distribution thereof to those
entitled to it, and are not required or essential to the perfection of the rights of the heirs or legatees. . . . Trusts . . . of
the character of that here before the court, are created for the the benefit of those to whom the property ultimately
passes, are of voluntary creation, and intended for the preservation of the estate. No sound reason is given to
support the contention that such expenses should be taken into consideration in fixing the value of the estate for the
purpose of this tax."
(d) The defendant levied and assessed the inheritance tax due from the estate of Thomas Hanley under the
provisions of section 1544 of the Revised Administrative Code, as amended by section 3 of Act No. 3606. But Act
No. 3606 went into effect on January 1, 1930. It, therefore, was not the law in force when the testator died on May
27, 1922. The law at the time was section 1544 above-mentioned, as amended by Act No. 3031, which took effect
on March 9, 1922.
It is well-settled that inheritance taxation is governed by the statute in force at the time of the death of the decedent
(26 R. C. L., p. 206; 4 Cooley on Taxation, 4th ed., p. 3461). The taxpayer can not foresee and ought not to be
required to guess the outcome of pending measures. Of course, a tax statute may be made retroactive in its
operation. Liability for taxes under retroactive legislation has been "one of the incidents of social life." (Seattle vs.
Kelleher, 195 U. S., 360; 49 Law. ed., 232 Sup. Ct. Rep., 44.) But legislative intent that a tax statute should operate
retroactively should be perfectly clear. (Scwab vs. Doyle, 42 Sup. Ct. Rep., 491; Smietanka vs. First Trust & Savings
Bank, 257 U. S., 602; Stockdale vs. Insurance Co., 20 Wall., 323; Lunch vs. Turrish, 247 U. S., 221.) "A statute
should be considered as prospective in its operation, whether it enacts, amends, or repeals an inheritance tax,
unless the language of the statute clearly demands or expresses that it shall have a retroactive effect, . . . ." (61 C.
J., P. 1602.) Though the last paragraph of section 5 of Regulations No. 65 of the Department of Finance makes
section 3 of Act No. 3606, amending section 1544 of the Revised Administrative Code, applicable to all estates the
inheritance taxes due from which have not been paid, Act No. 3606 itself contains no provisions indicating legislative
intent to give it retroactive effect. No such effect can begiven the statute by this court.
The defendant Collector of Internal Revenue maintains, however, that certain provisions of Act No. 3606 are more
favorable to the taxpayer than those of Act No. 3031, that said provisions are penal in nature and, therefore, should
operate retroactively in conformity with the provisions of article 22 of the Revised Penal Code. This is the reason
why he applied Act No. 3606 instead of Act No. 3031. Indeed, under Act No. 3606, (1) the surcharge of 25 per cent
is based on the tax only, instead of on both the tax and the interest, as provided for in Act No. 3031, and (2) the
taxpayer is allowed twenty days from notice and demand by rthe Collector of Internal Revenue within which to pay
the tax, instead of ten days only as required by the old law.
Properly speaking, a statute is penal when it imposes punishment for an offense committed against the state which,
under the Constitution, the Executive has the power to pardon. In common use, however, this sense has been
enlarged to include within the term "penal statutes" all status which command or prohibit certain acts, and establish
penalties for their violation, and even those which, without expressly prohibiting certain acts, impose a penalty upon
their commission (59 C. J., p. 1110). Revenue laws, generally, which impose taxes collected by the means ordinarily
resorted to for the collection of taxes are not classed as penal laws, although there are authorities to the contrary.
(See Sutherland, Statutory Construction, 361; Twine Co. vs. Worthington, 141 U. S., 468; 12 Sup. Ct., 55; Rice vs.
U. S., 4 C. C. A., 104; 53 Fed., 910; Com. vs. Standard Oil Co., 101 Pa. St., 150; State vs. Wheeler, 44 P., 430; 25

Nev. 143.) Article 22 of the Revised Penal Code is not applicable to the case at bar, and in the absence of clear
legislative intent, we cannot give Act No. 3606 a retroactive effect.
(e) The plaintiff correctly states that the liability to pay a tax may arise at a certain time and the tax may be paid
within another given time. As stated by this court, "the mere failure to pay one's tax does not render one delinqent
until and unless the entire period has eplased within which the taxpayer is authorized by law to make such payment
without being subjected to the payment of penalties for fasilure to pay his taxes within the prescribed period." (U. S.
vs. Labadan, 26 Phil., 239.)
The defendant maintains that it was the duty of the executor to pay the inheritance tax before the delivery of the
decedent's property to the trustee. Stated otherwise, the defendant contends that delivery to the trustee was
delivery to the cestui que trust, the beneficiery in this case, within the meaning of the first paragraph of subsection
(b) of section 1544 of the Revised Administrative Code. This contention is well taken and is sustained. The
appointment of P. J. M. Moore as trustee was made by the trial court in conformity with the wishes of the testator as
expressed in his will. It is true that the word "trust" is not mentioned or used in the will but the intention to create one
is clear. No particular or technical words are required to create a testamentary trust (69 C. J., p. 711). The words
"trust" and "trustee", though apt for the purpose, are not necessary. In fact, the use of these two words is not
conclusive on the question that a trust is created (69 C. J., p. 714). "To create a trust by will the testator must
indicate in the will his intention so to do by using language sufficient to separate the legal from the equitable estate,
and with sufficient certainty designate the beneficiaries, their interest in the ttrust, the purpose or object of the trust,
and the property or subject matter thereof. Stated otherwise, to constitute a valid testamentary trust there must be a
concurrence of three circumstances: (1) Sufficient words to raise a trust; (2) a definite subject; (3) a certain or
ascertain object; statutes in some jurisdictions expressly or in effect so providing." (69 C. J., pp. 705,706.) There is
no doubt that the testator intended to create a trust. He ordered in his will that certain of his properties be kept
together undisposed during a fixed period, for a stated purpose. The probate court certainly exercised sound
judgment in appointment a trustee to carry into effect the provisions of the will (see sec. 582, Code of Civil
Procedure).
P. J. M. Moore became trustee on March 10, 1924. On that date trust estate vested in him (sec. 582 in relation to
sec. 590, Code of Civil Procedure). The mere fact that the estate of the deceased was placed in trust did not remove
it from the operation of our inheritance tax laws or exempt it from the payment of the inheritance tax. The
corresponding inheritance tax should have been paid on or before March 10, 1924, to escape the penalties of the
laws. This is so for the reason already stated that the delivery of the estate to the trustee was in esse delivery of the
same estate to the cestui que trust, the beneficiary in this case. A trustee is but an instrument or agent for thecestui
que trust (Shelton vs. King, 299 U. S., 90; 33 Sup. Ct. Rep., 689; 57 Law. ed., 1086). When Moore accepted the
trust and took possesson of the trust estate he thereby admitted that the estate belonged not to him but to his cestui
que trust (Tolentino vs. Vitug, 39 Phil.,126, cited in 65 C. J., p. 692, n. 63). He did not acquire any beneficial interest
in the estate. He took such legal estate only as the proper execution of the trust required (65 C. J., p. 528) and, his
estate ceased upon the fulfillment of the testator's wishes. The estate then vested absolutely in the beneficiary (65
C. J., p. 542).
The highest considerations of public policy also justify the conclusion we have reached. Were we to hold that the
payment of the tax could be postponed or delayed by the creation of a trust of the type at hand, the result would be
plainly disastrous. Testators may provide, as Thomas Hanley has provided, that their estates be not delivered to
their beneficiaries until after the lapse of a certain period of time. In the case at bar, the period is ten years. In other
cases, the trust may last for fifty years, or for a longer period which does not offend the rule against petuities. The
collection of the tax would then be left to the will of a private individual. The mere suggestion of this result is a
sufficient warning against the accpetance of the essential to the very exeistence of government. (Dobbins vs. Erie
Country, 16 Pet., 435; 10 Law. ed., 1022; Kirkland vs. Hotchkiss, 100 U. S., 491; 25 Law. ed., 558; Lane County vs.
Oregon, 7 Wall., 71; 19 Law. ed., 101; Union Refrigerator Transit Co. vs. Kentucky, 199 U. S., 194; 26 Sup. Ct.
Rep., 36; 50 Law. ed., 150; Charles River Bridge vs. Warren Bridge, 11 Pet., 420; 9 Law. ed., 773.) The obligation to
pay taxes rests not upon the privileges enjoyed by, or the protection afforded to, a citizen by the government but
upon the necessity of money for the support of the state (Dobbins vs. Erie Country, supra). For this reason, no one
is allowed to object to or resist the payment of taxes solely because no personal benefit to him can be pointed out.
(Thomas vs. Gay, 169 U. S., 264; 18 Sup. Ct. Rep., 340; 43 Law. ed., 740.) While courts will not enlarge, by
construction, the government's power of taxation (Bromley vs. McCaughn, 280 U. S., 124; 74 Law. ed., 226; 50 Sup.
Ct. Rep., 46) they also will not place upon tax laws so loose a construction as to permit evasions on merely fanciful
and insubstantial distictions. (U. S. vs. Watts, 1 Bond., 580; Fed. Cas. No. 16,653; U. S. vs. Wigglesirth, 2 Story,
369; Fed. Cas. No. 16,690, followed in Froelich & Kuttner vs. Collector of Customs, 18 Phil., 461, 481; Castle Bros.,
Wolf & Sons vs. McCoy, 21 Phil., 300; Muoz & 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.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
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
Palay
Carabaos

P6,444.00
1,000.00

P7,444.00

Real properties:
Capital, 74 parcels )
assessed
at

Conjugal 19 parcels)
Total gross estate

P179,760.00
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

Real properties:
Capital, 25 parcels assessed at
1/2 of Conjugal, 130 parcels
assessed at
Total

P10,444.00

P87,715.32
P121,425.00

P209,140.32
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
Packard car
Aparadors
Cash in Bank (PNB)
Palay
Carabaos

P8,100.00
2,000.00
500.00
8,858.46
6,444.00
1,500.00

P27,402.46

P324,797.21
4,500.00

P329,297.21

Real properties:
Land, 174 parcels
assessed at
Buildings
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
Compromise
No notice of death
Late payment

11,868.90
P15.00
40.00

Total
Inheritance Tax

55.00
P28,581.23
P38,178.12

5% surcharge

1,105.86

Delinquency interest
Compromise for late payment
Total
Total estate and inheritance taxes

28,808.75
50.00
P69,142.73
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 onethird, 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.9And
the finding of said court as to its existence and non-existence is final unless clearly shown to be erroneous.10As 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 oversight 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. Nonobservance 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.16We
quote Section 332(a):
SEC. 332. Exceptions as to period of limitation of assessment and collection of taxes. (a) In the case of a
false or fraudulent return with intent to evade tax or of a failure to file a return, the tax may be assessed, or a
proceeding in court for the collection of such tax may be begun without assessment, at any time within ten
years after the discovery of the falsity, fraud or omission.
As stated, the Commissioner came to know of the identity of the heirs on September 24, 1953 and the huge
underdeclaration in the gross estate on July 12, 1957. From the latter date, Section 94 of the Tax Code obligated
him to make a return or amend one already filed based on his own knowledge and information obtained through
testimony or otherwise, and subsequently to assess thereon the taxes due. The running of the period of limitations
under Section 332(a) of the Tax Code should therefore be reckoned from said date for, as aforesaid, it is from that
time that the Commissioner was expected by law to make his return and assess the tax due thereon. From July 12,
1957 to February 13, 1958, the date of the assessment now in dispute, less than ten years have elapsed. Hence,
prescription did not abate the Commissioner's right to issue said assessment.
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.
Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Regala, Makalintal, Sanchez and Castro, JJ., concur.
Zaldivar, J., took no part.

RESOLUTION
April 24, 1967
BENGZON, J.P., J.:
Respondent Lilia Yusay Gonzales seeks reconsideration of our decision holding her liable for the payment of
P97,723.96 as estate and inheritance taxes plus delinquency penalties as administratrix of the intestate estate of
Matias Yusay. The grounds raised by her deserve this extended resolution.
Firstly, movant maintains that the issue of whether or not the estate and inheritance tax return filed by Jose Yusay
on May 13, 1949 was sufficient to start the running of the statute of limitations on assessment, was neither raised in
the Court of Tax Appeals nor assigned as error before this Court. The records in the Court of Tax Appeals however
show the contrary. Paragraph 2 of the answer filed by the Commissioner of Internal Revenue states:
2. That he likewise admits, as alleged in paragraph 1 thereof having received the letter of the petitioner
dated November 27, 1959 (Annex "A" of the Petition for Review), contesting the assessment of estate and
inheritance taxes levied against the Intestate Estate of the late Matias Yusay, Special Proceedings No. 459,
Court of First Instance of Iloilo, on the ground that the said assessment has already prescribed, but
specifically denies the allegation that the assessment have already prescribed, the truth of the matter being
that the returns filed on May 11, 1949 cannot be considered as a true, and complete return sufficient to start
the running of the period of five (5) years prescribed in Sec. 331 of the Tax Code;
This point was discussed in the memorandum of the Commissioner of Internal Revenue, thus:

In the estate and inheritance tax return filed by Jose S. Yusay (Exhibits B & 1, pp. 14-20, B.I.R. records) the
net value of the estate of the deceased was claimed to be P203,354.00 and no inheritance tax was shown
as the heirs were not indicated. In the final computation of the estate by an examiner of the respondent, the
net estate was found to be worth P410,518.38 (p. 105, B.I.R. records) or about more than twice the original
amount declared in the return. In the subsequent investigation of this case, it was also determined that the
heirs of the deceased were Jose S. Yusay, a legitimate son, and Lilia Yusay, an acknowledged natural child,
(petitioner herein).
Under the circumstances, we believe the return filed on May 11, 1949 was false or fraudulent in the sense
that the value of the properties were underdeclared and that the said return was also incomplete as the heirs
to the estate were not specified. Inasmuch as the respondent was not furnished adequate data upon which
to base an assessment, the said return cannot be considered a true and complete return sufficient to start
the running of the period of limitations of five (5) years prescribed in Section 331 of the Tax Code.
In the lower court the defense of the Commissioner of Internal Revenue against Lilia Yusay Gonzales' plea of
prescription, centered on the insufficiency and fraudulence or falsity of the return filed by Jose Yusay. The Court of
Tax Appeals overruled the Commissioner of Internal Revenue. Said the Tax Code:
The provision of Section 332(a) of the Tax Code cannot be invoked in this case as it was neither alleged in
respondent's answer, nor proved during the hearing that the return was false or fraudulent with intent to
evade the payment of tax. Moreover, the failure of respondent to charge fraud and impose the penalty
thereof in the assessments made in 1953, 1955 and 1956 is an eloquent demonstration that the filing of
petitioner's transfer tax return was not attended by falsity or fraud with intent to evade tax.
xxx

xxx

xxx

But respondent urges upon us that the filing of the return did not start the running of the five (5) year period
for the reason that the return did not disclose the heirs of the deceased Matias Yusay, and contained
inadequate data regarding the value of the estate. We believe that these mere omissions do not require
additional returns for the same. Altho incomplete for being deficient on these matters, the return cannot be
regarded as a case of failure to file a return where want of good faith and intent to evade the tax on the part
of petitioner are not charged. It served as a sufficient notice to the Commissioner of Internal Revenue to
make his assessment and start the running, of the period of limitation. In this connection, it must be borne in
mind that the Commissioner is not confined to the taxpayer's return in making assessment of the tax, and for
this purpose he may secure additional information from other sources. As was done in the case at bar, he
sends investigators to examine the taxpayer's records and other pertinent data. His assessment is based
upon the facts uncovered by the investigation (Collector vs. Central Azucarera de Tarlac, G.R. Nos. L-11760
and L-11761, July 31, 1958).
Furthermore, the failure to state the heirs in the return can be attributed to the then unsettled conflict raging
before the probate court as to who are the heirs of the estate. Such failure could not have been a deliberate
attempt to mislead the government in the assessment of the correct taxes.
In his appeal, the Commissioner of Internal Revenue assigned as third error of the Court of Tax Appeals the finding
that the assessment in question was "made beyond the five-year statutory period provided in Section 332 (a) of the
Tax Code," and that the right of the Commissioner of Internal Revenue to assess the estate and inheritance taxes
has already prescribed. To sustain his side, the Commissioner ventilated in his brief, fraud in the filing of the return,
absence of certain data from the return which prevented him from assessing thereon the tax due and the pendency
in this Court of L-11374 entitled "Intestate Estate of the late Matias Yusay, Jose C. Yusay, Administrator vs. Lilia
Yusay Gonzales" which allegedly had the effect of suspending the running of the period of limitations on
assessment.
Clearly, therefore, it would be incorrect to say that the question of whether or not the return filed by Jose Yusay was
sufficient to start the running of the statute of limitations to assess the corresponding tax, was not raised by the
Commissioner in the Court of Tax Appeals and in this Court.
Second. Movant contend that contrary to Our ruling, the return filed by Jose Yusay was sufficient to start the statute
of limitations on assessment. Inasmuch as this question was amply discussed in Our decision sought to be
reconsidered, and no new argument was advanced, We deem it unnecessary to pass upon the same. There is no
reason for any change on Our stand on this point.
Third. Movant insists that since she administers only one-third of the estate of Matias Yusay, she should not be
liable for the whole tax. And she suggests that We hold the intestate estate of Matias Yusay liable for said taxes,
one-third to be paid by Lilia Yusay Gonzales and two-thirds to be paid by Florencia P. Vda. de Yusay.
The foregoing suggestion to require payment of two-thirds of the total taxes by Florencia P. Vda. de Yusay is not
acceptable, for she (Florencia P. Vda. de Yusay) is not a party in this case.

It should be pointed out that Lilia Yusay Gonzales appealed the whole assessment to the Court of Tax Appeals.
Thereupon, the Commissioner of Internal Revenue questioned her legal capacity to institute the appeal on the
ground that she administered only one-third of the estate of Matias Yusay. In opposition, she espoused the view,
which was sustained by the Tax Court, that in co-administration, the administratrices are regarded as one person
and the acts of one of them in relation to the regular administration of the estate are deemed to be the acts of all;
hence, each administratrix can represent the whole estate. In advancing such proposition, Lilia Yusay Gonzales
represented the whole estate and hoped to benefit from the favorable outcome of the case. For the same reason
that she represented her co-administratrix and the whole estate of Matias Yusay, she risked being ordered to pay
the whole assessment, should the assessment be sustained.
Her change of stand adopted in the motion for reconsideration to the effect that she should be made liable for only
one-third of the total tax, would negate her aforesaid proposition before the Court of Tax Appeals. She is now
estopped from denying liability for the whole tax.
At any rate, estate and inheritance taxes are satisfied from the estate and are to be paid by the executor or
administrator.1 Where there are two or more executors, all of them are severally liable for the payment of the estate
tax.2 The inheritance tax, although charged against the account of each beneficiary, should be paid by the executor
or administrator.3 Failure to pay the estate and inheritance taxes before distribution of the estate would subject the
executor or administrator to criminal liability under Section 107(c) of the Tax Code.
It is immaterial therefore that Lilia Yusay Gonzales administers only one-third of the estate and will receive as her
share only said portion, for her right to the estate comes after taxes.4 As an administratrix, she is liable for the entire
estate tax. As an heir, she is liable for the entire inheritance tax although her liability would not exceed the amount of
her share in the estate.5 The entire inheritance tax which amounts to P39,178.12 excluding penalties is obviously
much less than her distributive share.
Motion for reconsideration denied.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-56340 June 24, 1983
SPOUSES ALVARO PASTOR, JR. and MA. ELENA ACHAVAL DE PASTOR, petitioners,
vs.
THE COURT OF APPEALS, JUAN Y. REYES, JUDGE OF BRANCH I, COURT OF FIRST INSTANCE OF CEBU
and LEWELLYN BARLITO QUEMADA, respondents.
Pelaez, Pelaez, & Pelaez Law Office for petitioners.
Ceniza, Rama & Associates for private respondents.

PLANA, J.:
I. FACTS:
This is a case of hereditary succession.
Alvaro Pastor, Sr. (PASTOR, SR.), a Spanish subject, died in Cebu City on June 5, 1966, survived by his Spanish
wife Sofia Bossio (who also died on October 21, 1966), their two legitimate children Alvaro Pastor, Jr. (PASTOR,
JR.) and Sofia Pastor de Midgely (SOFIA), and an illegitimate child, not natural, by the name of Lewellyn Barlito
Quemada QUEMADA PASTOR, JR. is a Philippine citizen, having been naturalized in 1936. SOFIA is a Spanish
subject. QUEMADA is a Filipino by his mother's citizenship.
On November 13, 1970, QUEMADA filed a petition for the probate and allowance of an alleged holographic will of
PASTOR, SR. with the Court of First Instance of Cebu, Branch I (PROBATE COURT), docketed as SP No. 3128-R.
The will contained only one testamentary disposition: a legacy in favor of QUEMADA consisting of 30% of PASTOR,
SR.'s 42% share in the operation by Atlas Consolidated Mining and Development Corporation (ATLAS) of some
mining claims in Pina-Barot, Cebu.
On November 21, 1970, the PROBATE COURT, upon motion of QUEMADA and after an ex parte hearing,
appointed him special administrator of the entire estate of PASTOR, SR., whether or not covered or affected by the
holographic will. He assumed office as such on December 4, 1970 after filing a bond of P 5,000.00.
On December 7, 1970, QUEMADA as special administrator, instituted against PASTOR, JR. and his wife an action
for reconveyance of alleged properties of the estate, which included the properties subject of the legacy and which
were in the names of the spouses PASTOR, JR. and his wife, Maria Elena Achaval de Pastor, who claimed to be
the owners thereof in their own rights, and not by inheritance. The action, docketed as Civil Case No. 274-R, was
filed with the Court of First Instance of Cebu, Branch IX.
On February 2, 1971, PASTOR, JR. and his sister SOFIA filed their opposition to the petition for probate and the
order appointing QUEMADA as special administrator.
On December 5, 1972, the PROBATE COURT issued an order allowing the will to probate. Appealed to the Court of
Appeals in CA-G.R. No. 52961- R, the order was affirmed in a decision dated May 9, 1977. On petition for review,
the Supreme Court in G.R. No. L-46645 dismissed the petition in a minute resolution dated November 1, 1977 and
remanded the same to the PROBATE COURT after denying reconsideration on January 11, 1978.
For two years after remand of the case to the PROBATE COURT, QUEMADA filed pleading after pleading asking
for payment of his legacy and seizure of the properties subject of said legacy. PASTOR, JR. and SOFIA opposed
these pleadings on the ground of pendency of the reconveyance suit with another branch of the Cebu Court of First
Instance. All pleadings remained unacted upon by the PROBATE COURT.
On March 5, 1980, the PROBATE COURT set the hearing on the intrinsic validity of the will for March 25, 1980, but
upon objection of PASTOR, JR. and SOFIA on the e ground of pendency of the reconveyance suit, no hearing was
held on March 25. Instead, the PROBATE COURT required the parties to submit their respective position papers as
to how much inheritance QUEMADA was entitled to receive under the wig. Pursuant thereto, PASTOR. JR. and
SOFIA submitted their Memorandum of authorities dated April 10, which in effect showed that determination of how
much QUEMADA should receive was still premature. QUEMADA submitted his Position paper dated April 20, 1980.
ATLAS, upon order of the Court, submitted a sworn statement of royalties paid to the Pastor Group of tsn from June

1966 (when Pastor, Sr. died) to February 1980. The statement revealed that of the mining claims being operated by
ATLAS, 60% pertained to the Pastor Group distributed as follows:
1. A. Pastor, Jr. ...................................40.5%
2. E. Pelaez, Sr. ...................................15.0%
3. B. Quemada .......................................4.5%
On August 20, 1980, while the reconveyance suit was still being litigated in Branch IX of the Court of First Instance
of Cebu, the PROBATE COURT issued the now assailed Order of Execution and Garnishment, resolving the
question of ownership of the royalties payable by ATLAS and ruling in effect that the legacy to QUEMADA was not
inofficious. [There was absolutely no statement or claim in the Order that the Probate Order of December 5, 1972
had previously resolved the issue of ownership of the mining rights of royalties thereon, nor the intrinsic validity of
the holographic will.]
The order of August 20, 1980 found that as per the holographic will and a written acknowledgment of PASTOR, JR.
dated June 17, 1962, of the above 60% interest in the mining claims belonging to the Pastor Group, 42% belonged
to PASTOR, SR. and only 33% belonged to PASTOR, JR. The remaining 25% belonged to E. Pelaez, also of the
Pastor Group. The PROBATE COURT thus directed ATLAS to remit directly to QUEMADA the 42% royalties due
decedent's estate, of which QUEMADA was authorized to retain 75% for himself as legatee and to deposit 25% with
a reputable banking institution for payment of the estate taxes and other obligations of the estate. The 33% share of
PASTOR, JR. and/or his assignees was ordered garnished to answer for the accumulated legacy of QUEMADA
from the time of PASTOR, SR.'s death, which amounted to over two million pesos.
The order being "immediately executory", QUEMADA succeeded in obtaining a Writ of Execution and Garnishment
on September 4, 1980, and in serving the same on ATLAS on the same day. Notified of the Order on September 6,
1980, the oppositors sought reconsideration thereof on the same date primarily on the ground that the PROBATE
COURT gravely abused its discretion when it resolved the question of ownership of the royalties and ordered the
payment of QUEMADA's legacy after prematurely passing upon the intrinsic validity of the will. In the meantime, the
PROBATE COURT ordered suspension of payment of all royalties due PASTOR, JR. and/or his assignees until
after resolution of oppositors' motion for reconsideration.
Before the Motion for Reconsideration could be resolved, however, PASTOR, JR., this time joined by his wife Ma.
ELENA ACHAVAL DE PASTOR, filed with the Court of Appeals a Petition for certiorari and Prohibition with a prayer
for writ of preliminary injunction (CA-G.R. No. SP- 11373-R). They assailed the Order dated August 20, 1980 and
the writ of execution and garnishment issued pursuant thereto. The petition was denied on November 18, 1980 on
the grounds (1) that its filing was premature because the Motion for Reconsideration of the questioned Order was
still pending determination by the PROBATE COURT; and (2) that although "the rule that a motion for
reconsideration is prerequisite for an action for certiorari is never an absolute rule," the Order assailed is "legally
valid. "
On December 9, 1980, PASTOR, JR. and his wife moved for reconsideration of the Court of Appeal's decision of
November 18, 1980, calling the attention of the appellate court to another order of the Probate Court dated
November 11, 1980 (i.e., while their petition for certiorari was pending decision in the appellate court), by which the
oppositors' motion for reconsideration of the Probate Court's Order of August 20, 1980 was denied. [The November
11 Order declared that the questions of intrinsic validity of the will and of ownership over the mining claims (not the
royalties alone) had been finally adjudicated by the final and executory Order of December 5, 1972, as affirmed by
the Court of Appeals and the Supreme Court, thereby rendering moot and academic the suit for reconveyance then
pending in the Court of First Instance of Cebu, Branch IX. It clarified that only the 33% share of PASTOR, JR. in the
royalties (less than 7.5% share which he had assigned to QUEMADA before PASTOR, SR. died) was to be
garnished and that as regards PASTOR, SR.'s 42% share, what was ordered was just the transfer of its possession
to the custody of the PROBATE COURT through the special administrator. Further, the Order granted QUEMADA
6% interest on his unpaid legacy from August 1980 until fully paid.] Nonetheless, the Court of Appeals denied
reconsideration.
Hence, this Petition for Review by certiorari with prayer for a writ of pre y injunction, assailing the decision of the
Court of Appeals dated November 18, 1980 as well as the orders of the Probate Court dated August 20, 1980,
November 11, 1980 and December 17, 1980, Med by petitioners on March 26, 1981, followed by a Supplemental
Petition with Urgent Prayer for Restraining Order.
In April 1981, the Court (First Division) issued a writ of preliminary injunction, the lifting of which was denied in the
Resolution of the same Division dated October 18, 1982, although the bond of petitioners was increased from
P50,000.00 to P100,000.00.
Between December 21, 1981 and October 12, 1982, private respondent filed seven successive motions for early
resolution. Five of these motions expressly prayed for the resolution of the question as to whether or not the petition
should be given due course.

On October 18, 1982, the Court (First Division) adopted a resolution stating that "the petition in fact and in effect
was given due course when this case was heard on the merits on September 7, (should be October 21, 1981) and
concise memoranda in amplification of their oral arguments on the merits of the case were filed by the parties
pursuant to the resolution of October 21, 1981 . . . " and denied in a resolution dated December 13, 1982, private
respondent's "Omnibus motion to set aside resolution dated October 18, 1982 and to submit the matter of due
course to the present membership of the Division; and to reassign the case to another ponente."
Upon Motion for Reconsideration of the October 18, 1982 and December 13, 1982 Resolutions, the Court en banc
resolved to CONFIRM the questioned resolutions insofar as hey resolved that the petition in fact and in effect had
been given due course.
II. ISSUES:
Assailed by the petitioners in these proceedings is the validity of the Order of execution and garnishment dated
August 20, 1980 as well as the Orders subsequently issued allegedly to implement the Probate Order of December
5, 1972, to wit: the Order of November 11, 1980 declaring that the Probate Order of 1972 indeed resolved the
issues of ownership and intrinsic validity of the will, and reiterating the Order of Execution dated August 20, 1980;
and the Order of December 17, 1980 reducing to P2,251,516.74 the amount payable to QUEMADA representing the
royalties he should have received from the death of PASTOR, SR. in 1966 up to February 1980.
The Probate Order itself, insofar as it merely allowed the holographic will in probate, is not questioned. But
petitioners denounce the Probate Court for having acted beyond its jurisdiction or with grave abuse of discretion
when it issued the assailed Orders. Their argument runs this way: Before the provisions of the holographic win can
be implemented, the questions of ownership of the mining properties and the intrinsic validity of the holographic will
must first be resolved with finality. Now, contrary to the position taken by the Probate Court in 1980 i.e., almost
eight years after the probate of the will in 1972 the Probate Order did not resolve the two said issues. Therefore,
the Probate Order could not have resolved and actually did not decide QUEMADA's entitlement to the legacy. This
being so, the Orders for the payment of the legacy in alleged implementation of the Probate Order of 1972 are
unwarranted for lack of basis.
Closely related to the foregoing is the issue raised by QUEMADA The Probate Order of 1972 having become final
and executory, how can its implementation (payment of legacy) be restrained? Of course, the question assumes
that QUEMADA's entitlement to the legacy was finally adjudged in the Probate Order.
On the merits, therefore, the basic issue is whether the Probate Order of December 5, 1972 resolved with finality the
questions of ownership and intrinsic validity. A negative finding will necessarily render moot and academic the other
issues raised by the parties, such as the jurisdiction of the Probate Court to conclusively resolve title to property,
and the constitutionality and repercussions of a ruling that the mining properties in dispute, although in the name of
PASTOR, JR. and his wife, really belonged to the decedent despite the latter's constitutional disqualification as an
alien.
On the procedural aspect, placed in issue is the propriety of certiorari as a means to assail the validity of the order of
execution and the implementing writ.
III. DISCUSSION:
1. Issue of Ownership
(a) In a special proceeding for the probate of a will, the issue by and large is restricted to the extrinsic validity of the
will, i.e., whether the testator, being of sound mind, freely executed the will in accordance with the formalities
prescribed by law. (Rules of Court, Rule 75, Section 1; Rule 76, Section 9.) As a rule, the question of ownership is
an extraneous matter which the Probate Court cannot resolve with finality. Thus, for the purpose of determining
whether a certain property should or should not be included in the inventory of estate properties, the Probate Court
may pass upon the title thereto, but such determination is provisional, not conclusive, and is subject to the final
decision in a separate action to resolve title. [3 Moran, Comments on the Rules of Court (1980 ed.), p. 458; Valero
Vda. de Rodriguez vs. Court of Appeals, 91 SCRA 540.]
(b) The rule is that execution of a judgment must conform to that decreed in the dispositive part of the decision.
(Philippine-American Insurance Co. vs. Honorable Flores, 97 SCRA 811.) However, in case of ambiguity or
uncertainty, the body of the decision may be scanned for guidance in construing the judgment. (Heirs of Presto vs.
Galang, 78 SCRA 534; Fabular vs. Court of Appeals, 119 SCRA 329; Robles vs. Timario. 107 Phil. 809.)
The Order sought to be executed by the assailed Order of execution is the Probate Order of December 5, 1972
which allegedly resolved the question of ownership of the disputed mining properties. The said Probate Order
enumerated the issues before the Probate Court, thus:
Unmistakably, there are three aspects in these proceedings: (1) the probate of the holographic will
(2) the intestate estate aspect; and (3) the administration proceedings for the purported estate of the
decedent in the Philippines.

In its broad and total perspective the whole proceedings are being impugned by the oppositors on
jurisdictional grounds, i.e., that the fact of the decedent's residence and existence of properties in the
Philippines have not been established.
Specifically placed in issue with respect to the probate proceedings are: (a) whether or not the
holographic will (Exhibit "J") has lost its efficacy as the last will and testament upon the death of
Alvaro Pastor, Sr. on June 5, 1966, in Cebu City, Philippines; (b) Whether or not the said will has
been executed with all the formalities required by law; and (c) Did the late presentation of the
holographic will affect the validity of the same?
Issues In the Administration Proceedings are as follows: (1) Was the ex- parte appointment of the
petitioner as special administrator valid and proper? (2) Is there any indispensable necessity for the
estate of the decedent to be placed under administration? (3) Whether or not petition is qualified to
be a special administrator of the estate; and (4) Whether or not the properties listed in the inventory
(submitted by the special administrator but not approved by the Probate Court) are to be excluded.
Then came what purports to be the dispositive portion:
Upon the foregoing premises, this Court rules on and resolves some of the problems and issues
presented in these proceedings, as follows:
(a) The Court has acquired jurisdiction over the probate proceedings as it hereby allows and
approves the so-called holographic will of testator Alvaro Pastor, Sr., executed on July 31, 1961 with
respect to its extrinsic validity, the same having been duly authenticated pursuant to the requisites or
solemnities prescribed by law. Let, therefore, a certificate of its allowance be prepared by the Branch
Clerk of this Court to be signed by this Presiding Judge, and attested by the seal of the Court, and
thereafter attached to the will, and the will and certificate filed and recorded by the clerk. Let attested
copies of the will and of the certificate of allowance thereof be sent to Atlas Consolidated Mining &
Development Corporation, Goodrich Bldg., Cebu City, and the Register of Deeds of Cebu or of
Toledo City, as the case may be, for recording.
(b) There was a delay in the granting of the letters testamentary or of administration for as a matter
of fact, no regular executor and/or administrator has been appointed up to this time and - the
appointment of a special administrator was, and still is, justified under the circumstances to take
possession and charge of the estate of the deceased in the Philippines (particularly in Cebu) until
the problems causing the delay are decided and the regular executor and/or administrator
appointed.
(c) There is a necessity and propriety of a special administrator and later on an executor and/or
administrator in these proceedings, in spite of this Court's declaration that the oppositors are the
forced heirs and the petitioner is merely vested with the character of a voluntary heir to the extent of
the bounty given to him (under) the will insofar as the same will not prejudice the legitimes of the
oppositor for the following reasons:
1. To submit a complete inventory of the estate of the decedenttestator Alvaro Pastor, Sr.
2. To administer and to continue to put to prolific utilization of the
properties of the decedent;
3. To keep and maintain the houses and other structures and
belonging to the estate, since the forced heirs are residing in Spain,
and prepare them for delivery to the heirs in good order after partition
and when directed by the Court, but only after the payment of estate
and inheritance taxes;
(d) Subject to the outcome of the suit for reconveyance of ownership and possession of real and
personal properties in Civil Case No. 274-T before Branch IX of the Court of First Instance of
Cebu,the intestate estate administration aspect must proceed, unless, however, it is duly proven by
the oppositors that debts of the decedent have already been paid, that there had been an
extrajudicial partition or summary one between the forced heirs, that the legacy to be given and
delivered to the petitioner does not exceed the free portion of the estate of the testator, that the
respective shares of the forced heirs have been fairly apportioned, distributed and delivered to the
two forced heirs of Alvaro Pastor, Sr., after deducting the property willed to the petitioner, and the
estate and inheritance taxes have already been paid to the Government thru the Bureau of Internal
Revenue.
The suitability and propriety of allowing petitioner to remain as special administrator or administrator
of the other properties of the estate of the decedent, which properties are not directly or indirectly

affected by the provisions of the holographic will (such as bank deposits, land in Mactan etc.), will be
resolved in another order as separate incident, considering that this order should have been properly
issued solely as a resolution on the issue of whether or not to allow and approve the aforestated will.
(Emphasis supplied.)
Nowhere in the dispositive portion is there a declaration of ownership of specific properties. On the contrary, it is
manifest therein that ownership was not resolved. For it confined itself to the question of extrinsic validity of the win,
and the need for and propriety of appointing a special administrator. Thus it allowed and approved the holographic
win "with respect to its extrinsic validity, the same having been duly authenticated pursuant to the requisites or
solemnities prescribed by law." It declared that the intestate estate administration aspect must proceed " subject to
the outcome of the suit for reconveyance of ownership and possession of real and personal properties in Civil Case
274-T before Branch IX of the CFI of Cebu." [Parenthetically, although the statement refers only to the "intestate"
aspect, it defies understanding how ownership by the estate of some properties could be deemed finally resolved for
purposes of testate administration, but not so for intestate purposes. Can the estate be the owner of a property for
testate but not for intestate purposes?] Then again, the Probate Order (while indeed it does not direct the
implementation of the legacy) conditionally stated that the intestate administration aspect must proceed "unless . . .
it is proven . . . that the legacy to be given and delivered to the petitioner does not exceed the free portion of the
estate of the testator," which clearly implies that the issue of impairment of legitime (an aspect of intrinsic validity)
was in fact not resolved. Finally, the Probate Order did not rule on the propriety of allowing QUEMADA to remain as
special administrator of estate properties not covered by the holographic will, "considering that this (Probate) Order
should have been properly issued solely as a resolution on the issue of whether or not to allow and approve the
aforestated will. "
(c) That the Probate Order did not resolve the question of ownership of the properties listed in the estate inventory
was appropriate, considering that the issue of ownership was the very subject of controversy in the reconveyance
suit that was still pending in Branch IX of the Court of First Instance of Cebu.
(d) What, therefore, the Court of Appeals and, in effect, the Supreme Court affirmed en toto when they reviewed the
Probable Order were only the matters properly adjudged in the said Order.
(e) In an attempt to justify the issuance of the Order of execution dated August 20, 1980, the Probate Court in its
Order of November 11, 1980 explained that the basis for its conclusion that the question of ownership had been
formally resolved by the Probate Order of 1972 are the findings in the latter Order that (1) during the lifetime of the
decedent, he was receiving royalties from ATLAS; (2) he had resided in the Philippines since pre-war days and was
engaged in the mine prospecting business since 1937 particularly in the City of Toledo; and (3) PASTOR, JR. was
only acting as dummy for his father because the latter was a Spaniard.
Based on the premises laid, the conclusion is obviously far-fetched.
(f) It was, therefore, error for the assailed implementing Orders to conclude that the Probate Order adjudged with
finality the question of ownership of the mining properties and royalties, and that, premised on this conclusion, the
dispositive portion of the said Probate Order directed the special administrator to pay the legacy in dispute.
2. Issue of Intrinsic Validity of the Holographic Will (a) When PASTOR, SR. died in 1966, he was survived by his wife, aside from his two legitimate children and one
illegitimate son. There is therefore a need to liquidate the conjugal partnership and set apart the share of PASTOR,
SR.'s wife in the conjugal partnership preparatory to the administration and liquidation of the estate of PASTOR, SR.
which will include, among others, the determination of the extent of the statutory usufructuary right of his wife until
her death. * When the disputed Probate order was issued on December 5, 1972, there had been no liquidation of the community properties of PASTOR, SR.
and his wife.

(b) So, also, as of the same date, there had been no prior definitive determination of the assets of the estate of
PASTOR, SR. There was an inventory of his properties presumably prepared by the special administrator, but it
does not appear that it was ever the subject of a hearing or that it was judicially approved. The reconveyance or
recovery of properties allegedly owned but not in the name of PASTOR, SR. was still being litigated in another court.
(c) There was no appropriate determination, much less payment, of the debts of the decedent and his estate.
Indeed, it was only in the Probate Order of December 5, 1972 where the Probate Court ordered that... a notice be issued and published pursuant to the provisions of Rule 86 of the Rules of Court,
requiring all persons having money claims against the decedent to file them in the office of the
Branch Clerk of this Court."
(d) Nor had the estate tax been determined and paid, or at least provided for, as of December 5, 1972.
(e) The net assets of the estate not having been determined, the legitime of the forced heirs in concrete figures
could not be ascertained.

(f) All the foregoing deficiencies considered, it was not possible to determine whether the legacy of QUEMADA - a
fixed share in a specific property rather than an aliquot part of the entire net estate of the deceased - would produce
an impairment of the legitime of the compulsory heirs.
(g) Finally, there actually was no determination of the intrinsic validity of the will in other respects. It was obviously
for this reason that as late as March 5, 1980 - more than 7 years after the Probate Order was issued the Probate
Court scheduled on March 25, 1980 a hearing on the intrinsic validity of the will.
3. Propriety of certiorari
Private respondent challenges the propriety of certiorari as a means to assail the validity of the disputed Order of
execution. He contends that the error, if any, is one of judgment, not jurisdiction, and properly correctible only by
appeal, not certiorari.
Under the circumstances of the case at bar, the challenge must be rejected. Grave abuse of discretion amounting to
lack of jurisdiction is much too evident in the actuations of the probate court to be overlooked or condoned.
(a) Without a final, authoritative adjudication of the issue as to what properties compose the estate of PASTOR, SR.
in the face of conflicting claims made by heirs and a non-heir (MA. ELENA ACHAVAL DE PASTOR) involving
properties not in the name of the decedent, and in the absence of a resolution on the intrinsic validity of the will here
in question, there was no basis for the Probate Court to hold in its Probate Order of 1972, which it did not, that
private respondent is entitled to the payment of the questioned legacy. Therefore, the Order of Execution of August
20, 1980 and the subsequent implementing orders for the payment of QUEMADA's legacy, in alleged
implementation of the dispositive part of the Probate Order of December 5, 1972, must fall for lack of basis.
(b) The ordered payment of legacy would be violative of the rule requiring prior liquidation of the estate of the
deceased, i.e., the determination of the assets of the estate and payment of all debts and expenses, before
apportionment and distribution of the residue among the heirs and legatees. (Bernardo vs. Court of Appeals, 7
SCRA 367.)
(c) Neither has the estate tax been paid on the estate of PASTOR, SR. Payment therefore of the legacy to
QUEMADA would collide with the provision of the National Internal Revenue Code requiring payment of estate tax
before delivery to any beneficiary of his distributive share of the estate (Section 107 [c])
(d) The assailed order of execution was unauthorized, having been issued purportedly under Rule 88, Section 6 of
the Rules of Court which reads:
Sec. 6. Court to fix contributive shares where devisees, legatees, or heirs have been in possession.
Where devisees, legatees, or heirs have entered into possession of portions of the estate before
the debts and expenses have been settled and paid and have become liable to contribute for the
payment of such debts and expenses, the court having jurisdiction of the estate may, by order for
that purpose, after hearing, settle the amount of their several liabilities, and order how much and in
what manner each person shall contribute, and may issue execution as circumstances require.
The above provision clearly authorizes execution to enforce payment of debts of estate. A legacy is not a debt of the
estate; indeed, legatees are among those against whom execution is authorized to be issued.
... there is merit in the petitioners' contention that the probate court generally cannot issue a writ of
execution. It is not supposed to issue a writ of execution because its orders usually refer to the
adjudication of claims against the estate which the executor or administrator may satisfy without the
necessity of resorting to a writ of execution. The probate court, as such, does not render any
judgment enforceable by execution.
The circumstances that the Rules of Court expressly specifies that the probate court may issue
execution (a) to satisfy (debts of the estate out of) the contributive shares of devisees, legatees and
heirs in possession of the decedent's assets (Sec. 6. Rule 88), (b) to enforce payment of the
expenses of partition (Sec. 3, Rule 90), and (c) to satisfy the costs when a person is cited for
examination in probate proceedings (Sec. 13, Rule 142) may mean, under the rule of inclusion unius
est exclusion alterius, that those are the only instances when it can issue a writ of execution. (Vda.
de Valera vs. Ofilada, 59 SCRA 96, 108.)
(d) It is within a court's competence to order the execution of a final judgment; but to order the execution of a final
order (which is not even meant to be executed) by reading into it terms that are not there and in utter disregard of
existing rules and law, is manifest grave abuse of discretion tantamount to lack of jurisdiction. Consequently, the
rule that certiorari may not be invoked to defeat the right of a prevailing party to the execution of a valid and final
judgment, is inapplicable. For when an order of execution is issued with grave abuse of discretion or is at variance
with the judgment sought to be enforced (PVTA vs. Honorable Gonzales, 92 SCRA 172), certiorari will lie to abate
the order of execution.

(e) Aside from the propriety of resorting to certiorari to assail an order of execution which varies the terms of the
judgment sought to be executed or does not find support in the dispositive part of the latter, there are circumstances
in the instant case which justify the remedy applied for.
Petitioner MA. ELENA ACHAVAL DE PASTOR, wife of PASTOR, JR., is the holder in her own right of three mining
claims which are one of the objects of conflicting claims of ownership. She is not an heir of PASTOR, SR. and was
not a party to the probate proceedings. Therefore, she could not appeal from the Order of execution issued by the
Probate Court. On the other hand, after the issuance of the execution order, the urgency of the relief she and her
co-petitioner husband seek in the petition for certiorari states against requiring her to go through the cumbersome
procedure of asking for leave to intervene in the probate proceedings to enable her, if leave is granted, to appeal
from the challenged order of execution which has ordered the immediate transfer and/or garnishment of the royalties
derived from mineral properties of which she is the duly registered owner and/or grantee together with her husband.
She could not have intervened before the issuance of the assailed orders because she had no valid ground to
intervene. The matter of ownership over the properties subject of the execution was then still being litigated in
another court in a reconveyance suit filed by the special administrator of the estate of PASTOR, SR.
Likewise, at the time petitioner PASTOR, JR. Med the petition for certiorari with the Court of Appeals, appeal was
not available to him since his motion for reconsideration of the execution order was still pending resolution by the
Probate Court. But in the face of actual garnishment of their major source of income, petitioners could no longer wait
for the resolution of their motion for reconsideration. They needed prompt relief from the injurious effects of the
execution order. Under the circumstances, recourse to certiorari was the feasible remedy.
WHEREFORE, the decision of the Court of Appeals in CA G.R. No. SP-11373-R is reversed. The Order of
execution issued by the probate Court dated August 20, 1980, as well as all the Orders issued subsequent thereto
in alleged implementation of the Probate Order dated December 5, 1972, particularly the Orders dated November
11, 1980 and December 17, 1980, are hereby set aside; and this case is remanded to the appropriate Regional Trial
Court for proper proceedings, subject to the judgment to be rendered in Civil Case No. 274-R.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 123206

March 22, 2000

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
COURT OF APPEALS, COURT OF TAX APPEALS and JOSEFINA P. PAJONAR, as Administratrix of the
Estate of Pedro P. Pajonar, respondents.
RESOLUTION
GONZAGA-REYES, J.:
Assailed in this petition for review on certiorari is the December 21, 1995 Decision1 of the Court of Appeals2 in CAG.R. Sp. No. 34399 affirming the June 7, 1994 Resolution of the Court of Tax Appeals in CTA Case No. 4381
granting private respondent Josefina P. Pajonar, as administratrix of the estate of Pedro P. Pajonar, a tax refund in
the amount of P76,502.42, representing erroneously paid estate taxes for the year 1988.
Pedro Pajonar, a member of the Philippine Scout, Bataan Contingent, during the second World War, was a part of
the infamous Death March by reason of which he suffered shock and became insane. His sister Josefina Pajonar
became the guardian over his person, while his property was placed under the guardianship of the Philippine
National Bank (PNB) by the Regional Trial Court of Dumaguete City, Branch 31, in Special Proceedings No. 1254.
He died on January 10, 1988. He was survived by his two brothers Isidro P. Pajonar and Gregorio Pajonar, his sister
Josefina Pajonar, nephews Concordio Jandog and Mario Jandog and niece Conchita Jandog.
On May 11, 1988, the PNB filed an accounting of the decedent's property under guardianship valued at
P3,037,672.09 in Special Proceedings No. 1254. However, the PNB did not file an estate tax return, instead it
advised Pedro Pajonar's heirs to execute an extrajudicial settlement and to pay the taxes on his estate. On April 5,
1988, pursuant to the assessment by the Bureau of Internal Revenue (BIR), the estate of Pedro Pajonar paid taxes
in the amount of P2,557.
On May 19, 1988, Josefina Pajonar filed a petition with the Regional Trial Court of Dumaguete City for the issuance
in her favor of letters of administration of the estate of her brother. The case was docketed as Special Proceedings
No. 2399. On July 18, 1988, the trial court appointed Josefina Pajonar as the regular administratrix of Pedro
Pajonar's estate.
On December 19, 1988, pursuant to a second assessment by the BIR for deficiency estate tax, the estate of Pedro
Pajonar paid estate tax in the amount of P1,527,790.98. Josefina Pajonar, in her capacity as administratrix and heir
of Pedro Pajonar's estate, filed a protest on January 11, 1989 with the BIR praying that the estate tax payment in
the amount of P1,527,790.98, or at least some portion of it, be returned to the heirs. 3
However, on August 15, 1989, without waiting for her protest to be resolved by the BIR, Josefina Pajonar filed a
petition for review with the Court of Tax Appeals (CTA), praying for the refund of P1,527,790.98, or in the
alternative, P840,202.06, as erroneously paid estate tax. 4 The case was docketed as CTA Case No. 4381.
On May 6, 1993, the CTA ordered the Commissioner of Internal Revenue to refund Josefina Pajonar the amount of
P252,585.59, representing erroneously paid estate tax for the year 1988.5 Among the deductions from the gross
estate allowed by the CTA were the amounts of P60,753 representing the notarial fee for the Extrajudicial
Settlement and the amount of P50,000 as the attorney's fees in Special Proceedings No. 1254 for guardianship.6
On June 15, 1993, the Commissioner of Internal Revenue filed a motion for reconsideration7 of the CTA's May 6,
1993 decision asserting, among others, that the notarial fee for the Extrajudicial Settlement and the attorney's fees
in the guardianship proceedings are not deductible expenses.
On June 7, 1994, the CTA issued the assailed Resolution8 ordering the Commissioner of Internal Revenue to refund
Josefina Pajonar, as administratrix of the estate of Pedro Pajonar, the amount of P76,502.42 representing
erroneously paid estate tax for the year 1988. Also, the CTA upheld the validity of the deduction of the notarial fee
for the Extrajudicial Settlement and the attorney's fees in the guardianship proceedings.
On July 5, 1994, the Commissioner of Internal Revenue filed with the Court of Appeals a petition for review of the
CTA's May 6, 1993 Decision and its June 7, 1994 Resolution, questioning the validity of the abovementioned
deductions. On December 21, 1995, the Court of Appeals denied the Commissioner's petition.9
Hence, the present appeal by the Commissioner of Internal Revenue.

The sole issue in this case involves the construction of section 79 10 of the National Internal Revenue Code 11(Tax
Code) which provides for the allowable deductions from the gross estate of the decedent. More particularly, the
question is whether the notarial fee paid for the extrajudicial settlement in the amount of P60,753 and the attorney's
fees in the guardianship proceedings in the amount of P50,000 may be allowed as deductions from the gross estate
of decedent in order to arrive at the value of the net estate.
We answer this question in the affirmative, thereby upholding the decisions of the appellate courts.
In its May 6, 1993 Decision, the Court of Tax Appeals ruled thus:
Respondent maintains that only judicial expenses of the testamentary or intestate proceedings are allowed
as a deduction to the gross estate. The amount of P60,753.00 is quite extraordinary for a mere notarial fee.
This Court adopts the view under American jurisprudence that expenses incurred in the extrajudicial
settlement of the estate should be allowed as a deduction from the gross estate. "There is no requirement of
formal administration. It is sufficient that the expense be a necessary contribution toward the settlement of
the case." [ 34 Am. Jur. 2d, p. 765; Nolledo, Bar Reviewer in Taxation, 10th Ed. (1990), p. 481]
xxx

xxx

xxx

The attorney's fees of P50,000.00, which were already incurred but not yet paid, refers to the guardianship
proceeding filed by PNB, as guardian over the ward of Pedro Pajonar, docketed as Special Proceeding No.
1254 in the RTC (Branch XXXI) of Dumaguete City. . . .
xxx

xxx

xxx

The guardianship proceeding had been terminated upon delivery of the residuary estate to the heirs entitled
thereto. Thereafter, PNB was discharged of any further responsibility.
Attorney's fees in order to be deductible from the gross estate must be essential to the collection of assets,
payment of debts or the distribution of the property to the persons entitled to it. The services for which the
fees are charged must relate to the proper settlement of the estate. [34 Am. Jur. 2d 767.] In this case, the
guardianship proceeding was necessary for the distribution of the property of the late Pedro Pajonar to his
rightful heirs.
xxx

xxx

xxx

PNB was appointed as guardian over the assets of the late Pedro Pajonar, who, even at the time of his
death, was incompetent by reason of insanity. The expenses incurred in the guardianship proceeding was
but a necessary expense in the settlement of the decedent's estate. Therefore, the attorney's fee incurred in
the guardianship proceedings amounting to P50,000.00 is a reasonable and necessary business expense
deductible from the gross estate of the decedent. 12
Upon a motion for reconsideration filed by the Commissioner of Internal Revenue, the Court of Tax Appeals
modified its previous ruling by reducing the refundable amount to P76,502.43 since it found that a deficiency interest
should be imposed and the compromise penalty excluded. 13 However, the tax court upheld its previous ruling
regarding the legality of the deductions
It is significant to note that the inclusion of the estate tax law in the codification of all our national internal revenue
laws with the enactment of the National Internal Revenue Code in 1939 were copied from the Federal Law of the
United States. [ UMALI, Reviewer in Taxation (1985), p. 285 ] The 1977 Tax Code, promulgated by Presidential
Decree No. 1158, effective June 3, 1977, reenacted substantially all the provisions of the old law on estate and gift
taxes, except the sections relating to the meaning of gross estate and gift. [ Ibid, p. 286. ]
In the United States, [a]dministrative expenses, executor's commissions and attorney's fees are considered
allowable deductions from the Gross Estate. Administrative expenses are limited to such expenses as are actually
and necessarily incurred in the administration of a decedent's estate. [PRENTICE-HALL, Federal Taxes Estate and
Gift Taxes (1936), p. 120, 533.] Necessary expenses of administration are such expenses as are entailed for the
preservation and productivity of the estate and for its management for purposes of liquidation, payment of debts and
distribution of the residue among the persons entitled thereto. [Lizarraga Hermanos vs. Abada, 40 Phil. 124.] They
must be incurred for the settlement of the estate as a whole. [34 Am. Jur. 2d, p. 765.] Thus, where there were no
substantial community debts and it was unnecessary to convert community property to cash, the only practical
purpose of administration being the payment of estate taxes, full deduction was allowed for attorney's fees and
miscellaneous expenses charged wholly to decedent's estate. [Ibid., citing Estate of Helis, 26 T.C. 143 (A).]
Petitioner stated in her protest filed with the BIR that "upon the death of the ward, the PNB, which was still the
guardian of the estate, (Annex "Z"), did not file an estate tax return; however, it advised the heirs to execute an
extrajudicial settlement, to pay taxes and to post a bond equal to the value of the estate, for which the state paid
P59,341.40 for the premiums. (See Annex "K")." [p. 17, CTA record.] Therefore, it would appear from the records of

the case that the only practical purpose of settling the estate by means of an extrajudicial settlement pursuant to
Section 1 of Rule 74 of the Rules of Court was for the payment of taxes and the distribution of the estate to the
heirs. A fortiori, since our estate tax laws are of American origin, the interpretation adopted by American Courts has
some persuasive effect on the interpretation of our own estate tax laws on the subject.
Anent the contention of respondent that the attorney's fees of P50,000.00 incurred in the guardianship proceeding
should not be deducted from the Gross Estate, We consider the same unmeritorious. Attorneys' and guardians' fees
incurred in a trustee's accounting of a taxable inter vivos trust attributable to the usual issues involved in such an
accounting was held to be proper deductions because these are expenses incurred in terminating an inter vivos
trust that was includible in the decedent's estate. [Prentice Hall, Federal Taxes on Estate and Gift, p. 120, 861]
Attorney's fees are allowable deductions if incurred for the settlement of the estate. It is noteworthy to point that
PNB was appointed the guardian over the assets of the deceased. Necessarily the assets of the deceased formed
part of his gross estate. Accordingly, all expenses incurred in relation to the estate of the deceased will be
deductible for estate tax purposes provided these are necessary and ordinary expenses for administration of the
settlement of the estate. 14
In upholding the June 7, 1994 Resolution of the Court of Tax Appeals, the Court of Appeals held that:
2. Although the Tax Code specifies "judicial expenses of the testamentary or intestate proceedings," there is no
reason why expenses incurred in the administration and settlement of an estate in extrajudicial proceedings should
not be allowed. However, deduction is limited to such administration expenses as are actually and necessarily
incurred in the collection of the assets of the estate, payment of the debts, and distribution of the remainder among
those entitled thereto. Such expenses may include executor's or administrator's fees, attorney's fees, court fees and
charges, appraiser's fees, clerk hire, costs of preserving and distributing the estate and storing or maintaining it,
brokerage fees or commissions for selling or disposing of the estate, and the like. Deductible attorney's fees are
those incurred by the executor or administrator in the settlement of the estate or in defending or prosecuting claims
against or due the estate. (Estate and Gift Taxation in the Philippines, T. P. Matic, Jr., 1981 Edition, p. 176).
xxx

xxx

xxx

It is clear then that the extrajudicial settlement was for the purpose of payment of taxes and the distribution of the
estate to the heirs. The execution of the extrajudicial settlement necessitated the notarization of the same. Hence
the Contract of Legal Services of March 28, 1988 entered into between respondent Josefina Pajonar and counsel
was presented in evidence for the purpose of showing that the amount of P60,753.00 was for the notarization of the
Extrajudicial Settlement. It follows then that the notarial fee of P60,753.00 was incurred primarily to settle the estate
of the deceased Pedro Pajonar. Said amount should then be considered an administration expenses actually and
necessarily incurred in the collection of the assets of the estate, payment of debts and distribution of the remainder
among those entitled thereto. Thus, the notarial fee of P60,753 incurred for the Extrajudicial Settlement should be
allowed as a deduction from the gross estate.
3. Attorney's fees, on the other hand, in order to be deductible from the gross estate must be essential to the
settlement of the estate.
The amount of P50,000.00 was incurred as attorney's fees in the guardianship proceedings in Spec. Proc. No.
1254. Petitioner contends that said amount are not expenses of the testamentary or intestate proceedings as the
guardianship proceeding was instituted during the lifetime of the decedent when there was yet no estate to be
settled.
Again, this contention must fail.
The guardianship proceeding in this case was necessary for the distribution of the property of the deceased Pedro
Pajonar. As correctly pointed out by respondent CTA, the PNB was appointed guardian over the assets of the
deceased, and that necessarily the assets of the deceased formed part of his gross estate. . . .
xxx

xxx

xxx

It is clear therefore that the attorney's fees incurred in the guardianship proceeding in Spec. Proc. No. 1254 were
essential to the distribution of the property to the persons entitled thereto. Hence, the attorney's fees incurred in the
guardianship proceedings in the amount of P50,000.00 should be allowed as a deduction from the gross estate of
the decedent. 15
The deductions from the gross estate permitted under section 79 of the Tax Code basically reproduced the
deductions allowed under Commonwealth Act No. 466 (CA 466), otherwise known as the National Internal Revenue
Code of 1939, 16 and which was the first codification of Philippine tax laws. Section 89 (a) (1) (B) of CA 466 also
provided for the deduction of the "judicial expenses of the testamentary or intestate proceedings" for purposes of
determining the value of the net estate. Philippine tax laws were, in turn, based on the federal tax laws of the United
States. 17 In accord with established rules of statutory construction, the decisions of American courts construing the
federal tax code are entitled to great weight in the interpretation of our own tax laws. 18

Judicial expenses are expenses of administration. 19 Administration expenses, as an allowable deduction from the
gross estate of the decedent for purposes of arriving at the value of the net estate, have been construed by the
federal and state courts of the United States to include all expenses "essential to the collection of the assets,
payment of debts or the distribution of the property to the persons entitled to it." 20 In other words, the expenses
must be essential to the proper settlement of the estate. Expenditures incurred for the individual benefit of the heirs,
devisees or legatees are not deductible. 21 This distinction has been carried over to our jurisdiction. Thus, in Lorenzo
v. Posadas 22 the Court construed the phrase "judicial expenses of the testamentary or intestate proceedings" as not
including the compensation paid to a trustee of the decedent's estate when it appeared that such trustee was
appointed for the purpose of managing the decedent's real estate for the benefit of the testamentary heir. In another
case, the Court disallowed the premiums paid on the bond filed by the administrator as an expense of administration
since the giving of a bond is in the nature of a qualification for the office, and not necessary in the settlement of the
estate. 23 Neither may attorney's fees incident to litigation incurred by the heirs in asserting their respective rights be
claimed as a deduction from the gross estate. 24
1wphi1

Coming to the case at bar, the notarial fee paid for the extrajudicial settlement is clearly a deductible expense since
such settlement effected a distribution of Pedro Pajonar's estate to his lawful heirs. Similarly, the attorney's fees paid
to PNB for acting as the guardian of Pedro Pajonar's property during his lifetime should also be considered as a
deductible administration expense. PNB provided a detailed accounting of decedent's property and gave advice as
to the proper settlement of the latter's estate, acts which contributed towards the collection of decedent's assets and
the subsequent settlement of the estate.
We find that the Court of Appeals did not commit reversible error in affirming the questioned resolution of the Court
of Tax Appeals.
WHEREFORE, the December 21, 1995 Decision of the Court of Appeals is AFFIRMED. The notarial fee for the
extrajudicial settlement and the attorney's fees in the guardianship proceedings are allowable deductions from the
gross estate of Pedro Pajonar.
1wphi1.nt

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
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
letter7dated 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 letter9addressed 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)
Conjugal Personal Property (Sch.2)

P10,855,020.00
3,460,591.34

Taxable Transfer (Sch. 3)

Gross Conjugal Estate
Less: Deductions (Sch. 4)

14,315,611.34
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 letter19 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. 107108, 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
ofP19,756,428.31 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
ofP84,199,160.46; 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. 186187, 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. 8638599 entitled "State Investment House, Inc., Plaintiff,
versus Maritime Company Overseas, Inc. and/or Jose P.

"H" to "H-16"

Fernandez, Defendants," (pp. 200-215, BIR records);

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);

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"

"K" to "K-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;

2.

Signatures of Ma. Anabella Abuloc and Alberto Enriquez,

Jr. appearing at the lower Portion of Exh. "1";

-do-

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";

-do-

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
ofP66,973,985.40; and

p. 169

14.

Assessment Notice FAS-E-87-91-00

The CTA's Ruling

p. 138

pp. 169-17022

On June 17, 1997, the CTA denied the said petition for review. Citing this Court's ruling in Vda. de Oate v. Court of
Appeals,23 the CTA opined that the aforementioned pieces of evidence introduced by the BIR were admissible in
evidence. The CTA ratiocinated:
Although the above-mentioned documents were not formally offered as evidence for respondent, considering that
respondent has been declared to have waived the presentation thereof during the hearing on March 20, 1996, still
they could be considered as evidence for respondent since they were properly identified during the presentation of
respondent's witness, whose testimony was duly recorded as part of the records of this case. Besides, the
documents marked as respondent's exhibits formed part of the BIR records of the case.24
Nevertheless, the CTA did not fully adopt the assessment made by the BIR and it came up with its own computation
of the deficiency estate tax, to wit:
Conjugal Real Property

P 5,062,016.00

Conjugal Personal Prop.

33,021,999.93

Gross Conjugal Estate

38,084,015.93

Less: Deductions

26,250,000.00

Net Conjugal Estate

P 11,834,015.93

Less: Share of Surviving Spouse

5,917,007.96

Net Share in Conjugal Estate

P 5,917,007.96

Add: Capital/Paraphernal
Properties P44,652,813.66
Less: Capital/Paraphernal
Deductions

44,652,813.66

Net Taxable Estate

P 50,569,821.62
============

Estate Tax Due P 29,935,342.97

Add: 25% Surcharge for Late Filing

7,483,835.74

Add: Penalties for-No notice of death

15.00

No CPA certificate

300.00

Total deficiency estate tax

P 37,419,493.71
============

exclusive of 20% interest from due date of its payment until full payment thereof
[Sec. 283 (b), Tax Code of 1987].25
Thus, the CTA disposed of the case in this wise:
WHEREFORE, viewed from all the foregoing, the Court finds the petition unmeritorious and denies the
same. Petitioner and/or the heirs of Jose P. Fernandez are hereby ordered to pay to respondent the amount
of P37,419,493.71 plus 20% interest from the due date of its payment until full payment thereof as estate tax
liability of the estate of Jose P. Fernandez who died on November 7, 1987.
SO ORDERED.26
Aggrieved, petitioner, on March 2, 1998, went to the CA via a petition for review.27
The CA's Ruling
On April 30, 1999, the CA affirmed the CTA's ruling. Adopting in full the CTA's findings, the CA ruled that the
petitioner's act of filing an estate tax return with the BIR and the issuance of BIR Certification Nos. 2052 and 2053
did not deprive the BIR Commissioner of her authority to re-examine or re-assess the said return filed on behalf of
the Estate.28
On May 31, 1999, petitioner filed a Motion for Reconsideration29 which the CA denied in its Resolution30 dated
November 3, 1999.
Hence, the instant Petition raising the following issues:

1. Whether or not the admission of evidence which were not formally offered by the respondent BIR by the
Court of Tax Appeals which was subsequently upheld by the Court of Appeals is contrary to the Rules of
Court and rulings of this Honorable Court;
2. Whether or not the Court of Tax Appeals and the Court of Appeals erred in recognizing/considering the
estate tax return prepared and filed by respondent BIR knowing that the probate court appointed
administrator of the estate of Jose P. Fernandez had previously filed one as in fact, BIR Certification
Clearance Nos. 2052 and 2053 had been issued in the estate's favor;
3. Whether or not the Court of Tax Appeals and the Court of Appeals erred in disallowing the valid and
enforceable claims of creditors against the estate, as lawful deductions despite clear and convincing
evidence thereof; and
4. Whether or not the Court of Tax Appeals and the Court of Appeals erred in validating erroneous double
imputation of values on the very same estate properties in the estate tax return it prepared and filed which
effectively bloated the estate's assets.31
The petitioner claims that in as much as the valid claims of creditors against the Estate are in excess of the gross
estate, no estate tax was due; that the lack of a formal offer of evidence is fatal to BIR's cause; that the doctrine laid
down in Vda. de Oate has already been abandoned in a long line of cases in which the Court held that evidence
not formally offered is without any weight or value; that Section 34 of Rule 132 of the Rules on Evidence requiring a
formal offer of evidence is mandatory in character; that, while BIR's witness Alberto Enriquez (Alberto) in his
testimony before the CTA identified the pieces of evidence aforementioned such that the same were marked, BIR's
failure to formally offer said pieces of evidence and depriving petitioner the opportunity to cross-examine Alberto,
render the same inadmissible in evidence; that assuming arguendo that the ruling in Vda. de Oate is still
applicable, BIR failed to comply with the doctrine's requisites because the documents herein remained simply part of
the BIR records and were not duly incorporated in the court records; that the BIR failed to consider that although the
actual payments made to the Estate creditors were lower than their respective claims, such were compromise
agreements reached long after the Estate's liability had been settled by the filing of its estate tax return and the
issuance of BIR Certification Nos. 2052 and 2053; and that the reckoning date of the claims against the Estate and
the settlement of the estate tax due should be at the time the estate tax return was filed by the judicial administrator
and the issuance of said BIR Certifications and not at the time the aforementioned Compromise Agreements were
entered into with the Estate's creditors.32
On the other hand, respondent counters that the documents, being part of the records of the case and duly identified
in a duly recorded testimony are considered evidence even if the same were not formally offered; that the filing of
the estate tax return by the Estate and the issuance of BIR Certification Nos. 2052 and 2053 did not deprive the BIR
of its authority to examine the return and assess the estate tax; and that the factual findings of the CTA as affirmed
by the CA may no longer be reviewed by this Court via a petition for review.33
The Issues
There are two ultimate issues which require resolution in this case:
First. Whether or not the CTA and the CA gravely erred in allowing the admission of the pieces of evidence which
were not formally offered by the BIR; and
Second. Whether or not the CA erred in affirming the CTA in the latter's determination of the deficiency estate tax
imposed against the Estate.
The Courts Ruling
The Petition is impressed with merit.
Under Section 8 of RA 1125, the CTA is categorically described as a court of record. As cases filed before it are
litigated de novo, party-litigants shall prove every minute aspect of their cases. Indubitably, no evidentiary value can
be given the pieces of evidence submitted by the BIR, as the rules on documentary evidence require that these
documents must be formally offered before the CTA.34 Pertinent is Section 34, Rule 132 of the Revised Rules on
Evidence which reads:
SEC. 34. Offer of evidence. The court shall consider no evidence which has not been formally offered.
The purpose for which the evidence is offered must be specified.
The CTA and the CA rely solely on the case of Vda. de Oate, which reiterated this Court's previous rulings
inPeople v. Napat-a35 and People v. Mate36 on the admission and consideration of exhibits which were not formally
offered during the trial. Although in a long line of cases many of which were decided after Vda. de Oate, we held
that courts cannot consider evidence which has not been formally offered,37 nevertheless, petitioner cannot validly
assume that the doctrine laid down in Vda. de Oate has already been abandoned. Recently, in Ramos v.
Dizon,38 this Court, applying the said doctrine, ruled that the trial court judge therein committed no error when he

admitted and considered the respondents' exhibits in the resolution of the case, notwithstanding the fact that the
same were not formally offered. Likewise, in Far East Bank & Trust Company v. Commissioner of Internal
Revenue,39 the Court made reference to said doctrine in resolving the issues therein. Indubitably, the doctrine laid
down in Vda. De Oate still subsists in this jurisdiction. In Vda. de Oate, we held that:
From the foregoing provision, it is clear that for evidence to be considered, the same must be formally
offered. Corollarily, the mere fact that a particular document is identified and marked as an exhibit does not
mean that it has already been offered as part of the evidence of a party. In Interpacific Transit, Inc. v.
Aviles[186 SCRA 385], we had the occasion to make a distinction between identification of documentary
evidence and its formal offer as an exhibit. We said that the first is done in the course of the trial and is
accompanied by the marking of the evidence as an exhibit while the second is done only when the party
rests its case and not before. A party, therefore, may opt to formally offer his evidence if he believes that it
will advance his cause or not to do so at all. In the event he chooses to do the latter, the trial court is not
authorized by the Rules to consider the same.
However, in People v. Napat-a [179 SCRA 403] citing People v. Mate [103 SCRA 484], we relaxed the
foregoing rule and allowed evidence not formally offered to be admitted and considered by the trial
court provided the following requirements are present, viz.: first, the same must have been duly
identified by testimony duly recorded and, second, the same must have been incorporated in the
records of the case.40
From the foregoing declaration, however, it is clear that Vda. de Oate is merely an exception to the general rule.
Being an exception, it may be applied only when there is strict compliance with the requisites mentioned therein;
otherwise, the general rule in Section 34 of Rule 132 of the Rules of Court should prevail.
In this case, we find that these requirements have not been satisfied. The assailed pieces of evidence were
presented and marked during the trial particularly when Alberto took the witness stand. Alberto identified these
pieces of evidence in his direct testimony.41 He was also subjected to cross-examination and re-cross examination
by petitioner.42 But Albertos account and the exchanges between Alberto and petitioner did not sufficiently describe
the contents of the said pieces of evidence presented by the BIR. In fact, petitioner sought that the lead examiner,
one Ma. Anabella A. Abuloc, be summoned to testify, inasmuch as Alberto was incompetent to answer questions
relative to the working papers.43 The lead examiner never testified. Moreover, while Alberto's testimony identifying
the BIR's evidence was duly recorded, the BIR documents themselves were not incorporated in the records of the
case.
A common fact threads through Vda. de Oate and Ramos that does not exist at all in the instant case. In the
aforementioned cases, the exhibits were marked at the pre-trial proceedings to warrant the pronouncement that the
same were duly incorporated in the records of the case. Thus, we held in Ramos:
In this case, we find and so rule that these requirements have been satisfied. The exhibits in question
were presented and marked during the pre-trial of the case thus, they have been incorporated into
the records. Further, Elpidio himself explained the contents of these exhibits when he was interrogated by
respondents' counsel...
xxxx
But what further defeats petitioner's cause on this issue is that respondents' exhibits were marked and
admitted during the pre-trial stage as shown by the Pre-Trial Order quoted earlier.44
While the CTA is not governed strictly by technical rules of evidence,45 as rules of procedure are not ends in
themselves and are primarily intended as tools in the administration of justice, the presentation of the BIR's
evidence is not a mere procedural technicality which may be disregarded considering that it is the only means by
which the CTA may ascertain and verify the truth of BIR's claims against the Estate.46 The BIR's failure to formally
offer these pieces of evidence, despite CTA's directives, is fatal to its cause.47 Such failure is aggravated by the fact
that not even a single reason was advanced by the BIR to justify such fatal omission. This, we take against the BIR.
Per the records of this case, the BIR was directed to present its evidence48 in the hearing of February 21, 1996, but
BIR's counsel failed to appear.49 The CTA denied petitioner's motion to consider BIR's presentation of evidence as
waived, with a warning to BIR that such presentation would be considered waived if BIR's evidence would not be
presented at the next hearing. Again, in the hearing of March 20, 1996, BIR's counsel failed to appear.50 Thus, in its
Resolution51 dated March 21, 1996, the CTA considered the BIR to have waived presentation of its evidence. In the
same Resolution, the parties were directed to file their respective memorandum. Petitioner complied but BIR failed
to do so.52 In all of these proceedings, BIR was duly notified. Hence, in this case, we are constrained to apply our
ruling in Heirs of Pedro Pasag v. Parocha:53
A formal offer is necessary because judges are mandated to rest their findings of facts and their judgment
only and strictly upon the evidence offered by the parties at the trial. Its function is to enable the trial judge to
know the purpose or purposes for which the proponent is presenting the evidence. On the other hand, this

allows opposing parties to examine the evidence and object to its admissibility. Moreover, it facilitates review
as the appellate court will not be required to review documents not previously scrutinized by the trial court.
Strict adherence to the said rule is not a trivial matter. The Court in Constantino v. Court of Appeals ruled
that the formal offer of one's evidence is deemed waived after failing to submit it within a
considerable period of time. It explained that the court cannot admit an offer of evidence made after
a lapse of three (3) months because to do so would "condone an inexcusable laxity if not noncompliance with a court order which, in effect, would encourage needless delays and derail the
speedy administration of justice."
Applying the aforementioned principle in this case, we find that the trial court had reasonable ground to
consider that petitioners had waived their right to make a formal offer of documentary or object evidence.
Despite several extensions of time to make their formal offer, petitioners failed to comply with their
commitment and allowed almost five months to lapse before finally submitting it. Petitioners' failure to
comply with the rule on admissibility of evidence is anathema to the efficient, effective, and
expeditious dispensation of justice.
Having disposed of the foregoing procedural issue, we proceed to discuss the merits of the case.
Ordinarily, the CTA's findings, as affirmed by the CA, are entitled to the highest respect and will not be disturbed on
appeal unless it is shown that the lower courts committed gross error in the appreciation of facts.54 In this case,
however, we find the decision of the CA affirming that of the CTA tainted with palpable error.
It is admitted that the claims of the Estate's aforementioned creditors have been condoned. As a mode of
extinguishing an obligation,55 condonation or remission of debt56 is defined as:
an act of liberality, by virtue of which, without receiving any equivalent, the creditor renounces the
enforcement of the obligation, which is extinguished in its entirety or in that part or aspect of the same to
which the remission refers. It is an essential characteristic of remission that it be gratuitous, that there is no
equivalent received for the benefit given; once such equivalent exists, the nature of the act changes. It may
become dation in payment when the creditor receives a thing different from that stipulated; or novation,
when the object or principal conditions of the obligation should be changed; or compromise, when the matter
renounced is in litigation or dispute and in exchange of some concession which the creditor receives.57
Verily, the second issue in this case involves the construction of Section 7958 of the National Internal Revenue
Code59 (Tax Code) which provides for the allowable deductions from the gross estate of the decedent. The specific
question is whether the actual claims of the aforementioned creditors may be fully allowed as deductions from the
gross estate of Jose despite the fact that the said claims were reduced or condoned through compromise
agreements entered into by the Estate with its creditors.
"Claims against the estate," as allowable deductions from the gross estate under Section 79 of the Tax Code, are
basically a reproduction of the deductions allowed under Section 89 (a) (1) (C) and (E) of Commonwealth Act No.
466 (CA 466), otherwise known as the National Internal Revenue Code of 1939, and which was the first codification
of Philippine tax laws. Philippine tax laws were, in turn, based on the federal tax laws of the United States. Thus,
pursuant to established rules of statutory construction, the decisions of American courts construing the federal tax
code are entitled to great weight in the interpretation of our own tax laws.60
It is noteworthy that even in the United States, there is some dispute as to whether the deductible amount for a
claim against the estate is fixed as of the decedent's death which is the general rule, or the same should be
adjusted to reflect post-death developments, such as where a settlement between the parties results in the
reduction of the amount actually paid.61 On one hand, the U.S. court ruled that the appropriate deduction is the
"value" that the claim had at the date of the decedent's death.62 Also, as held in Propstra v. U.S., 63 where a lien
claimed against the estate was certain and enforceable on the date of the decedent's death, the fact that the
claimant subsequently settled for lesser amount did not preclude the estate from deducting the entire amount of the
claim for estate tax purposes. These pronouncements essentially confirm the general principle that post-death
developments are not material in determining the amount of the deduction.
On the other hand, the Internal Revenue Service (Service) opines that post-death settlement should be taken into
consideration and the claim should be allowed as a deduction only to the extent of the amount actually
paid.64Recognizing the dispute, the Service released Proposed Regulations in 2007 mandating that the deduction
would be limited to the actual amount paid.65
In announcing its agreement with Propstra,66 the U.S. 5th Circuit Court of Appeals held:
We are persuaded that the Ninth Circuit's decision...in Propstra correctly apply the Ithaca Trust date-ofdeath valuation principle to enforceable claims against the estate. As we interpret Ithaca Trust, when the
Supreme Court announced the date-of-death valuation principle, it was making a judgment about the nature
of the federal estate tax specifically, that it is a tax imposed on the act of transferring property by will or
intestacy and, because the act on which the tax is levied occurs at a discrete time, i.e., the instance of

death, the net value of the property transferred should be ascertained, as nearly as possible, as of that time.
This analysis supports broad application of the date-of-death valuation rule.67
We express our agreement with the date-of-death valuation rule, made pursuant to the ruling of the U.S. Supreme
Court in Ithaca Trust Co. v. United States.68 First. There is no law, nor do we discern any legislative intent in our tax
laws, which disregards the date-of-death valuation principle and particularly provides that post-death developments
must be considered in determining the net value of the estate. It bears emphasis that tax burdens are not to be
imposed, nor presumed to be imposed, beyond what the statute expressly and clearly imports, tax statutes being
construed strictissimi juris against the government.69 Any doubt on whether a person, article or activity is taxable is
generally resolved against taxation.70 Second. Such construction finds relevance and consistency in our Rules on
Special Proceedings wherein the term "claims" required to be presented against a decedent's estate is generally
construed to mean debts or demands of a pecuniary nature which could have been enforced against the deceased
in his lifetime, or liability contracted by the deceased before his death.71Therefore, the claims existing at the time of
death are significant to, and should be made the basis of, the determination of allowable deductions.
WHEREFORE, the instant Petition is GRANTED. Accordingly, the assailed Decision dated April 30, 1999 and the
Resolution dated November 3, 1999 of the Court of Appeals in CA-G.R. S.P. No. 46947 are REVERSED and SET
ASIDE. The Bureau of Internal Revenue's deficiency estate tax assessment against the Estate of Jose P.
Fernandez is hereby NULLIFIED. No costs.
SO ORDERED.