Collector of Internal Revenue vs Antonio Campos Rueda on ground that plaintiffs, herein appellants, did not really have a
right of action.
42 SCRA 23 – Political Law – Definition of “State”
In January 1955, Maria Cerdeira died in Tangier, Morocco (an
international zone [foreign country] in North Africa). At the time of
her death, she was a Spanish citizen and was a resident of Tangier.
She however left some personal properties (shares of stocks and
other intangibles) in the Philippines. The designated administrator of
her estate here is Antonio Campos Rueda.
In the same year, the Collector of Internal Revenue (CIR) assessed
the estate for deficiency tax amounting to about P161k. Campos
Rueda refused to pay the assessed tax as he claimed that the estate
is exempt from the payment of said taxes pursuant to section 122 of
the Tax Code which provides:
That no tax shall be collected under this Title in respect of
intangible personal property (a) if the decedent at the time of his
death was a resident of a foreign country which at the time of his
death did not impose a transfer tax or death tax of any character in
respect of intangible person property of the Philippines not residing
in that foreign country, or (b) if the laws of the foreign country of
which the decedent was a resident at the time of his death allow a
similar exemption from transfer taxes or death taxes of every
character in respect of intangible personal property owned by
citizens of the Philippines not residing in that foreign country.
Campos Rueda was able to prove that there is reciprocity between
Tangier and the Philippines.
However, the CIR still denied any tax exemption in favor of the
estate as it averred that Tangier is not a “state” as contemplated by
Section 22 of the Tax Code and that the Philippines does not
recognize Tangier as a foreign country.
ISSUE: Whether or not Tangier is a state.
HELD: Yes. For purposes of the Tax Code, Tangier is a foreign
country.
A foreign country to be identified as a state must be a politically
organized sovereign community independent of outside control
bound by penalties of nationhood, legally supreme within its
territory, acting through a government functioning under a regime
of law. The stress is on its being a nation, its people occupying a
definite territory, politically organized, exercising by means of its
government its sovereign will over the individuals within it and
maintaining its separate international personality.
Further, the Supreme Court noted that there is already an existing
jurisprudence (Collector vs De Lara) which provides that even a tiny
principality, that of Liechtenstein, hardly an international
personality in the sense, did fall under the exempt category
provided for in Section 22 of the Tax Code. Thus, recognition is not
necessary. Hence, since it was proven that Tangier provides such
exemption to personal properties of Filipinos found therein so must
the Philippines honor the exemption as provided for by our tax law
with respect to the doctrine of reciprocity.
Vidal de Roces v. Posadas
G.R. No. 34937 March 13, 1933
Imperial, J.:
Facts:
1. Sometime in 1925, plaintiffs Concepcion Vidal de Roces and her
husband, as well as one Elvira Richards, received as donation several
parcels of land from Esperanza Tuazon. They took possession of the
lands thereafter and likewise obtained the respective transfer
certificates.
2.The donor died a year after without leaving any forced heir. In her
will, which was admitted to probate, she bequeathed to each of the
donees the sum of P5,000. After the distribution of the estate but
before the delivery of their shares, the CIR (appellee) ruled that
plaintiffs as donees and legatees should pay inheritance taxes. The
plaintiffs paid the taxes under protest.
3. CIR filed a demurrer on ground that the facts alleged were not
sufficient to constitute a cause of action. The court sustained the
demurrer and ordered the amendment of the complaint but the
appellants failed to do so. Hence, the trial court dismissed the action
4. Plaintiffs (appellant) contend that Sec. 1540 of the Administrative
Code does not include donation inter vivos and if it does, it is
unconstitutional, null and void for violating SEC. 3 of the Jones Law
(providing that no law shall embrace more than one subject and that
the subject should be expressed in its titles ; that the Legislature has
no authority to tax donation inter vivos; finally, that said provision
violates the rule on uniformity of taxation.
5. CIR however contends that the word 'all gifts' refer clearly to
donation inter vivos and cited the doctrine in Tuason v. Posadas.
Issue: Whether or not the donations should be subjected to
inheritance tax
YES. Sec. 1540 of the Administrative Code clearly refers to those
donation inter vivos that take effect immediately or during the
lifetime of the donor, but made in consideration of the death of the
decedent. Those donations not made in contemplation of the
decedent's death are not included as it would be equivalent to
imposing a direct tax on property and not on its transmission.
The phrase 'all gifts' as held in Tuason v. Posadas refers to gifts inter
vivos as they are considered as advances in anticipation of
inheritance since they are made in consideration of death.
Vidal de Roces v. Posadas
G.R. No. 34937 March 13, 1933
Imperial, J.:
Facts:
1. Sometime in 1925, plaintiffs Concepcion Vidal de Roces and her
husband, as well as one Elvira Richards, received as donation several
parcels of land from Esperanza Tuazon. They took possession of the
lands thereafter and likewise obtained the respective transfer
certificates.
2.The donor died a year after without leaving any forced heir. In her
will, which was admitted to probate, she bequeathed to each of the
donees the sum of P5,000. After the distribution of the estate but
before the delivery of their shares, the CIR (appellee) ruled that
plaintiffs as donees and legatees should pay inheritance taxes. The
plaintiffs paid the taxes under protest.
3. CIR filed a demurrer on ground that the facts alleged were not
sufficient to constitute a cause of action. The court sustained the
demurrer and ordered the amendment of the complaint but the
appellants failed to do so. Hence, the trial court dismissed the action
on ground that plaintiffs, herein appellants, did not really have a
right of action.
4. Plaintiffs (appellant) contend that Sec. 1540 of the Administrative
Code does not include donation inter vivos and if it does, it is
unconstitutional, null and void for violating SEC. 3 of the Jones Law
(providing that no law shall embrace more than one subject and that
the subject should be expressed in its titles ; that the Legislature has
no authority to tax donation inter vivos; finally, that said provision
violates the rule on uniformity of taxation.
5. CIR however contends that the word 'all gifts' refer clearly to
donation inter vivos and cited the doctrine in Tuason v. Posadas.
Issue: Whether or not the donations should be subjected to
inheritance tax
YES. Sec. 1540 of the Administrative Code clearly refers to those
donation inter vivos that take effect immediately or during the
lifetime of the donor, but made in consideration of the death of the
decedent. Those donations not made in contemplation of the
decedent's death are not included as it would be equivalent to
imposing a direct tax on property and not on its transmission.
The phrase 'all gifts' as held in Tuason v. Posadas refers to gifts inter
vivos as they are considered as advances in anticipation of
inheritance since they are made in consideration of death.
Tax II 1st Set Case Digest Page 1 of 4
 LUIS W. DISON
vs.
JUAN POSADAS, JR., Collector of Internal Revenue
G.R. No. L-36770 November 4, 1932
Facts:
 Don Feluix Dison, before his death, made a gift inter vivos
consisting of all his properties in favor of his legitimate and
only son, Luis Dison.
 Plaintiff did not receive property of any kind of Don Felix
Dison upon the death of the latter;
 The assessment of the inheritance tax payable by Luis
Dison included the gift made to him by his deceased
father. The same was paid under protest.
 Thereafter, plaintiff sued for the recovery of the
inheritance tax paid under protest on the ground that he
was not an heir of his father within the meaning of
Sec1540 of the Administrative Code, there being no
property left for plaintiff to inherit when his father died.
 The lower court ruled in favor of defendant Posadas.
Issue:
Whether plaintiff is required to pay the inheritance tax under the
Administrative Code
Ruling:
The facts warrant the inference that the transfer was an
advancement upon the inheritance which the donee, as the sole and
forced heir of the donor, would be entitled to receive upon the
death of the donor. The argument that plaintiff is not an heir
because there was no longer any property is fallacious.
Section 1540 Administrative Code. Additions of Gifts and Advances.
— After the aforementioned deductions have been made, there
shall be added to the resulting amount the value of all gifts or
advances made by the predecessor to any of those who, after his
death, shall prove to be his heirs, devises, legatees, or donees mortis
causa.
The phrase “any of those who, after his death, shall prove to be his
heirs” include those who are given the status and rights of heirs,
regardless of the quantity of property they may receive. Thus,
construing the conveyance in question, which is the girft inter vivos,
the SC held that Sec, 1540 is thus applicable and the tax was
properly assessed by the Collector of IR.
Judgment of the lower court affirmed.
MISAEL P. VERA VS. HON. JUDGE PEDRO C. NAVARRO
G.R. NO. L-27745; OCTOBER 18, 1977
CASTRO, C.J.:
FACTS:
Elsie M. Gaches died without a child. However, she left a
last will and testament in which he distributed her properties. Judge
Tan filed a petition for the probate of the will, he was appointed as
the executor of the estate. Judge Tan informed the Commissioner
that the testate estate was about 10 million and that the estate and
inheritance taxes dues were about 9.5 million. Tan preliminarily
submitted a motion for advance payment of allowances,
inheritance, etc. pending the finality of probate of the will. He
maintained that there are sufficient assets to cover whatever
liability to the government for taxes and other charges. The
Commissioner opposed this motion and showed some proof of
claims for estate taxes and inheritance taxes. The court then
disapproved the motion of Tan. On a later date, Tan paid the taxes
due but there was deficiency in payment of the inheritance taxes.
Upon payment, he moved again that he be allowed to pay advance
inheritance, allowances, etc. This time, the court allowed him to do
so. The Commissioner tried to oppose this but to no avail. He then
tried to garnish the bank accounts of the estate but wasn't able to
do so due to the quick thinking of Tan to have the writ of
garnishment discharged.
ISSUE:
Whether or not the herein respondent heirs be required to pay first
the inheritance tax before the probate court may authorize the
delivery of the hereditary share pertaining to each of them.
RULING:
No, under the provisions of the Rules of Court, together
with the provision in the tax code, the distribution of a decedent’s
assets may only be ordered under the following circumstances 1.
When the inheritance tax, among others, is paid 2. When a sufficient
bond is given to meet the payment of the inheritance tax and all
other obligations of the nature enumerated 3. When the payment of
the said tax and all the other obligations mentioned in the Rule has
been provided for. None of these were present when the
questioned orders were issued at the case at bar. Also, the Supreme
Court held that there is no evidence on record that would show that
the probate court ever made a serious attempt to de what the
values of the different assets the correctness of that such properties
shall be preserved for the satisfaction of those case In the third
place that main of pesos taxes were being called by the Bureau of
Inc. Revenue, the least reasonable thing that the probate court
should have done was to require the heirs to deposit the amount of
inheritance tax being claimed in a suitable institution or to authorize
the sale of non-cash assets under the court's control and
supervision.
Testate Estate of the Late Felix J. de Guzman. VICTORINO G. DE
GUZMAN, administrator-appellee,
vs.
CRISPINA DE GUZMAN-CARILLO, ARSENIO DE GUZMAN and
HONORATA DE GUZMAN-MENDIOLA, oppositors-appellants.
Lessons Applicable: allowable administration expenses
FACTS:
 The late Felix J. de Guzman was survived by 8
children. Letters of administration were issued to his son,
Doctor Victorino G. de Guzman. One of the properties left
by the decedent was a residential house located in the
poblacion of which 8 children were given a 1/8 proindiviso
share in the project of partition. 3 heirs Crispina de
Guzmans-Carillo Honorata de Guzman-Mendiola and
Arsenio de Guzman interposed objections to the
administrator's disbursements in the total sum of
P13,610.48.
o Expense for the improvement and renovation of the decedent's
residential house
o Living expenses of Librada de Guzman while occupying the
family home without paying rent
o Other expenses: Lawyer's subsistence, Gratuity pay in lieu of
medical fee, stenographic notes, decedent's first death
anniversary, representation expenses
o Irrigation fee
 Lower court: allowed the expenses
ISSUE: W/N they were allowable administration expenses
Held: Some yes and some no. Affirmed with modification.
 An executor or administrator is allowed the necessary
expenses in the care, management, and settlement of the
estate. He is entitled to possess and manage the
decedent's real and personal estate as long as it is
necessary for the payment of the debts and the expenses
of administration. He is accountable for the whole
decedent's estate which has come into his possession,
with all the interest, profit, and income thereof, and with
the proceeds of so much of such estate as is sold by him,
at the price at which it was sold (Sec. 3, Rule 84; Secs. 1
and 7, Rule 85, Rules of Court).
Tax II 1st Set Case Digest Page 2 of 4
  One of the Conditions of the administrator's bond is that
he should render a true and just account of his
administration to the court
 A hearing is usually held before an administrator's account
is approved, especially if an interested Party raises
objections to certain items in the accounting report
 Expenses:
o Expense for the improvement and renovation of the decedent's
residential house – allowable
§ 5 out of 8 co-owners consented to the use of the funds of the
estate for repair and improvement of the family home. It is
obvious that the expenses in question were incurred to
preserve the family home and to maintain the family's social
standing in the community.
o Living expenses of Librada de Guzman while occupying the family
home without paying rent – disallowed
o Other expenses:
§ Lawyer's subsistence – allowable
§ Gratuity pay in lieu of medical fee – allowable
§ stenographic notes – disallowed
§ decedent's first death anniversary - disallowed
§ representation expenses - unexplained = disallowed
 Irrigation fee – allowable since unquestioned though duplicate
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
COURT OF APPEALS, COURT OF TAX APPEALS and JOSEFINA P.
PAJONAR, as Administratrix of the Estate of Pedro P. Pajonar,
respondents.
G.R. No. 123206
March 22, 2000
Doctrine: [Judicial Expenses] Expenses on extrajudicial settlement of
the estate are allowed as deductions. They come within the meaning
of administration expenses.
Petitioner: Commissioner of Internal Revenue
Respondents: Court Of Appeals, Court Of Tax Appeals & Josefina P.
Pajonar (as Administratrix Of The Estate Of Pedro P. Pajonar)
Ponente: J. Gonzaga-Reyes
Nature of the Case: Petition for Review on Certiorari on the Decision
of the Court of Appeals affirming the Resolution of the Court of Tax
Appeals granting 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.
Summary:
By reason of the Bataan Death March during World War II, Pedro
Pajonar became insane. His property was placed under the
guardianship of PNB, while his sister Josefina became the guardian
over his person, and eventually the administratrix of his estate when
he died. After his death, his heirs executed an extrajudicial
settlement and paid the estate tax. Thereafter, BIR assessed the
estate of Pedro deficiency taxes. The estate paid under protest and
filed a case with the CTA, which in turn allowed P60,753
representing the notarial fee for the Extrajudicial Settlement and
P50,000 attorney's fees for guardianship proceedings as among the
allowed deductions from the gross estate.
Issue is WON the notarial fee and attorney's fees allowed as
deductions from the gross estate. – YES.
The notarial fee paid for the extrajudicial settlement is a deductible
expense since such settlement effected a distribution of Pedro’s
estate to his lawful heirs. Similarly, attorney's fees paid to PNB for
acting as the guardian of Pedro’s property during his lifetime should
also be considered as a deductible administration expense. This is
because 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.
FACTS:
 Pedro Pajonar was a member of the Philippine Scout, Bataan
Contingent, during World War II and was a part of the infamous
Death March by reason of which he suffered shock and became
insane. His sister Josefina became the guardian over his person,
while his property was placed under the guardianship of the
Philippine National Bank (PNB) by RTC of Dumaguete.
 After his death, PNB filed an accounting of his property under
guardianship valued at P3,037,672.09 in a Special Proceeding.
However, PNB did NOT file an estate tax return, instead it
advised Pedro's heirs to execute an extrajudicial settlement and
to pay the taxes on his estate.
 Pursuant to the assessment by the BIR, the estate of Pedro paid
taxes in the amount of P2,557.
 Josefina then filed a petition with RTC of Dumaguete for the
issuance in her favor of letters of administration of the estate
of her brother. This was granted and she was appointed as the
regular administratrix of Pedro’s estate.
 The BIR then made a second assessment for deficiency estate
tax which Josefina, in her capacity as administratrix and heir of
Pedro’s estate, paid under protest. And without waiting for her
protest to be resolved by the BIR, she 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.
 The CTA ordered the Commissioner of Internal Revenue to
refund Josefina P252,585.59, representing erroneously paid
estate tax for the year 1988. Among the deductions from the
gross estate allowed by the CTA were P60,753 representing the
notarial fee for the Extrajudicial Settlement and the amount of
P50,000 as the attorney's fees for guardianship proceedings.
 CIR filed a MR which the CTA denied. It then filed with the CA a
petition for review which was also denied Hence, the present
appeal.
ISSUE: WON the notarial fee paid for the extrajudicial settlement of
P60,753 and the attorney's fees in the guardianship proceedings of
P50,000 may be allowed as deductions from the gross estate of
decedent in order to arrive at the value of the net estate. – YES.
RATIO
 Judicial expenses are expenses of administration.
o 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." In other words, the expenses
must be essential to the proper settlement of the estate.
 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.
 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.
o 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.
 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
entered into between Josefina and counsel was presented in
Tax II 1st Set Case Digest Page 3 of 4
 evidence for the purpose of showing that the amount of
P60,753.00 was for the notarization of the Extrajudicial
Settlement.
o The notarial fee of P60,753.00 was incurred primarily to
settle the estate of Pedro. 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.
 Attorney's fees, on the other hand, 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.
o The amount of P50,000.00 was incurred as attorney's fees
in the guardianship proceedings.
o The guardianship proceeding in this case was necessary for
the distribution of the property of the deceased Pedro.
PNB was appointed guardian over the assets of the
deceased, and that necessarily the assets of the deceased
formed part of his gross estate.
 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.

DECISION: WHEREFORE, the December 21, 1995 Decision of the

Court of Appeals is AFFIRMED.

MORAN SISON VS. TEODORO

G.R. NO. L-9271 MARCH 29, 1957
BAUTISTA ANGELO, J.:

Facts:
1. The CFI of Manila which had jurisdiction over the estate of
Margarita David, issued an order appointing appellantCarlos Moran
Sison as judicial administrator without compensation after filing a
bond. After entering into his duties as administrator, he filed an
accounting of his administration which included items as an expense
of administration the premiums he paid on his bond.

2. One of the heirs, herein appellee Narcisa Teodoro, objected to the

approval of the items. The court approved the report but disallowed
the items objected to on the ground that these cannot be
considered as expenses of administration. Moran Sison filed a
motion for reconsideration but was denied hence this appeal.

Issue: Whether or not an executor or judicial administrator can

validly charge the premiums on his bond as an expense of
administration against the estate

NO.

The premiums paid by an executor or administrator serving without

a compensation for his bond cannot be charged against the estate.
Further Sec. 7 of Rule 86 of the Rules of Court does not authorize
the executor or administrator to charge to the estate the money
spent for the bond. As held in the case of Sulit v. Santos (56 Phil
626), the position of an executor or administrator is one of trust. The
law safeguards the estates of deceased persons by making as a
requirement for qualification the ability to give a suitable bond. The
execution of said bond is therefore a condition precedent to
acceptance of the responsibilities of the trust.

Further, the giving of the bond is not a necessary expense in the

care, management, and settlement of the estate within the meaning
of Sec. 680 of the Civil Code of Procedure, since such are the
requirements after the executor or administrator has already
qualified for the office and has entered the performance of his
duties.

Tax II 1st Set Case Digest Page 4 of 4