CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
CASES
[G.R. No. 43082. June 18, 1937.]
PABLO LORENZO, as trustee of the estate of Thomas Hanley,
deceased, Plaintiff-Appellant, v. JUAN POSADAS, JR., Collector
of Internal Revenue, Defendant-Appellant.
Pablo Lorenzo and Delfin Joven, for Plaintiff-Appellant.
Solicitor-General Hilado, for Defendant-Appellant.
SYLLABUS
1. INHERITANCE TAX; ACCRUAL OF, DISTINCT FROM THE
OBLIGATION TO PAY IT. — The accrual of the inheritance tax is
distinct from the obligation to pay the same. Section 1536 as
amended, of the Administrative Code, imposes the tax upon "every
transmission by virtue of inheritance, devise, bequest, gift mortis
causa, or advance in anticipation of inheritance, devise, or
bequest." The tax therefore is upon transmission or the transfer or
devolution of property of a decedent, made effective by his death.
(61 C. J., p. 1592.)
2. ID.; MEASURE OF, BY VALUE OF ESTATE. — If death is the
generating source from which the power of the state to impose
inheritance taxes takes its being and if, upon the death of the
decedent, succession takes place and the right of the state to tax
vests instantly, the tax should be measured by the value of the
estate as it stood at the time of the decedent’s death, regardless of
any subsequent contingency affecting value of any subsequent
increase or decrease in value. (61 C. J., pp. 1692, 1693; 26 R. C. L.,
232; Blakemore and Bancroft , Inheritance Taxes, p. 137. See also
Knowlton v. Moore, 178 U. S. 41; 20 Sup. Ct. Rep., 747; 44 Law. ed.,
968.)
3. ID.; ID. — "The right of the state to a inheritance tax accrues at
the moment of death, and hence is ordinarily measured as to any
beneficiary by the value at that time of such property as passes to
him. Subsequent appreciation or depreciation is immaterial."
(Ross, Inheritance Taxation, p. 72.)
4. ID.; ID. — Whatever may be the rule in other jurisdiction, 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.
5. ID.; TRUSTS AND TRUSTEES. — A trustee, no doubt, is entitled
to received a fair compensation for his services. (Barney v.
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
commission 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.)
6. ID.; ID.; ADMINISTRATION EXPENSES. — Judicial expenses are
expenses of administration (61 C. J., P. 1705) but, in State v.
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 devisees, does not come properly within
the class or reason for exempting administration expenses. . .
Services 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 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.
7. ID.; RETROACTIVE LEGISLATION. — 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 cannot 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 v. Kelleher, 195 U. S. 351. 360; 49
Law. ed., 232; 25 Sup. Ct. Rep., 44.)
8. ID.; ID. — But legislative intent that a tax statute should operate
retroactively should be perfectly clear. (Scwab v. Doyle, 42 Sup. Ct.
Rep., 491; Smietanka v. First Trust & Savings Bank, 257 U. S. 602;
Stockdale v. Insurance Co., 20 Wall., 323; Lunch v. 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., 1602.)
9. ID.; ID. — 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 be
given the statute by this court.
10. ID.; ID.; PENAL STATUTES. — 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 statutes
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.)
11. ID.; ID.; REVENUE LAW. — 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. v. Worthington, 141 U. S. 468; 12 Sup.
Ct., 55 Rice v. U. S., 4 C. C. A., 104; 53 Fed., 910; Com. v. Standard Oil
Co., 101 Pa. St., 150; State v. Wheeler, 44 P., 430; 25 Nev., 143.)
Article 22 of the Revised Penal Code is not applicable to the case of
bar, and in the absence of clear legislative intent, we cannot give
Act No. 3606 a retroactive effect.
12. ID.; TRUSTS AND TRUSTEES. — 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.)
13. ID.; ID. — 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
appointing a trustee to carry into effect the provision of the will.
(See sec. 582, Code of Civil Procedure.)
14. ID.; ID.; ERROR IN ENGLISH VERSION OF SUBSECTION (B),
SECTION 1543, REVISED ADMINISTRATIVE CODE. — The word
"trustee", appearing in subsection (b) of section 1543, should read
"fidei-commissary" or "cestui que trust." There was an obvious
mistake in translation from the Spanish to the English version.
DECISION
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 interest 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
Page 1 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
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:jgc:chanrobles.com.ph
"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 my
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.
x x x
"8. I state that at this time I have one brother living named Malachi
Hanley, and that my nephew, Matthew Hanley, is a son of my
brother, Malachi Hanley."cralaw virtua1aw library
The Court of First Instance of Zamboanga considered it proper for
the best interests of the estate to appoint a trustee to administer
the real properties which, under the will, were to pass to Matthew
Hanley ten years after the testator’s death. Accordingly, P. J. M.
Moore, one of 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 personality 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 delinquency 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 this
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 or any part thereof.
His administrative remedies exhausted, plaintiff went to court with
the result herein above indicated.
In his appeal, plaintiff contends that the lower court
erred:jgc:chanrobles.com.ph
"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 that time, the latter became
the owner thereof.
"II. In holding, in effect, that there was delinquency 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 "trustee" 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."cralaw virtua1aw library
The defendant-appellant contradicts the theories of the plaintiff
and assigns the following error besides:jgc:chanrobles.com.ph
"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."cralaw virtua1aw library
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
taxpayer be given retroactive effect? (e) Has there been
delinquency in the payment of the inheritance tax? If so, should the
additional interest claimed by the defendant in his appeal be paid
by the estate? Other points of incidental importance, raised by the
parties in their briefs, will be touched upon in the course of this
opinion.
(a) The accrual of the inheritance tax is distinct from the obligation
to pay the same. Section 1536 as amended, of the Administrative
code, imposes the tax upon "every transmission by virtue of
inheritance, devise, bequest, gift mortis causa, or advance in
anticipation of inheritance, devise, or bequest." The tax therefore
is upon transmission or the transfer or devolution of property of a
decedent, made effective by his death. (61 C. J., p. 1592.) It is in
reality an excise or privilege tax imposed on the right to succeed to,
receive, or take property by or under a will or the intestacy law, or
deed, grant, or gift, to become operative at or after death. According
to article 657 of the Civil Code, "the rights to the succession of a
person are transmitted from the moment of his death." "In other
words", said Arellano, C.J.,." . . the heirs succeed immediately to all
of the property of the deceased ancestor. The property belongs to
the heirs at the moment of the death of the ancestor as completely
as if the ancestor had executed and delivered to them a deed for the
same before his death." (Bondad v. Bondad, 34 Phil., 232. See also,
Mijares v. Nery, 3 Phil., 195; Suiliong & Co., v. Chio-Taysan, 12 Phil.,
13; Lubrico v. Arbado, 12 Phil., 391; Inocencio v. Gat- Pandan, 14
Phil., 491; Aliasas v. Alcantara, 16 Phil., 489; Ilustre v. Alaras
Frondosa, 17 Phil., 321; Malahacan v. Ignacio, 19 Phil., 434; Bowa
v. Briones, 38 Phil., 276; Osorio v. Osorio & Ynchausti Steamship
Co., 41 Phil., 531; Fule v. Fule, 46 Phil., 317; Dais v. Court of First
Instance of Capiz, 51 Phil., 396; Baun v. 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 of 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 effect the
general rule laid down in article 647 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
received such inheritance. "Poco importa", says Manresa
commenting on article 567 of the Civil Code, "que desde el
fallecimiento del causante, hasta que el heredero o legatario entre
en posesion de los bienes de la herencia a 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 that date.
From the fact, however, that Thomas Hanley died on May 27, 1922,
it dies not follow that the obligation to pay the tax arose as of that
date. The time for the payment of 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:jgc:chanrobles.com.ph
"SEC. 1543. Exemption of certain acquisitions and transmission. —
The following shall not be taxed:jgc:chanrobles.com.ph
"(a) The merger of the usufruct in the owner of the naked title.
Page 2 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
"(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:jgc:chanrobles.com.ph
"(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 copy of all letters testamentary or of administration
shall be furnished the Collector of Internal Revenue by the Clerk of
Court within thirty days after their issuance."cralaw virtua1aw
library
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 not fall under subsection (a), but under
subsection (b), of section 1544 above-quoted, as there is here no
fiduciary heir, first heir, legatee or donee. Under that 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 state
to impose inheritance taxes its being and if, upon the death of the
decedent, succession takes place and the right of the state to tax
vests instantly, the tax should be measured by the value of the
estate as it stood at the time of the decedent’s death, regardless of
any subsequent contingency affecting value or 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 v. Moore, 178 U. S., 41; 20 Sup. Ct. Rep., 747; 44 Law ed.,
969.) "The right of the state to an inheritance tax accrues at the
moment of death, and hence is ordinarily measured as to any
beneficiary by the value at that time of such property as passes to
him. Subsequent appreciation or depreciation is immaterial."
(Ross, Inheritance Taxation, p. 72.) . not foresee and ought not to be required to guess the outcome of
Our attention is directed to the statement of the rule in Cyclopedia
of Law 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,
however, 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 it
out of the corpus of the estate transferred. (In re Vanderbilt, 172 N.
Y., 69; 69 N. E., 782; In re Hober, 86 N. Y. App. Div., 458; 83 N. Y.
Supp., 769; Estate of Tracy, 179, 179 N. Y., 501; 72 N. Y., 519; Estate
of Brez, 172 N. Y., 609; 64; 64 N. E., 958; Estate of Post, 85 App. Div.,
611; 82 N. Y. Supp., 1079. Vide also, Saltoun v. Lord Advocate, 1
Pater. 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 jurisdiction, 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 value 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 of only P480.81. This sum
represents the expenses and disbursement 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, . . . ."cralaw virtua1aw library
A trustee, no doubt, is entitled to receive a fair compensation for
his services (Barney v. 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 v.
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 devisees, does not come properly within
the class or reason for exempting administration expenses. . . .
Services 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 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."cralaw virtua1aw library
(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 that 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
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 v. Kelleher, 195
U.S., 351, 360; 49 Law. ed., 232; 25 Sup. Ct. Rep., 44.) But legislative
intent that a tax statute should operate retroactively should be
perfectly clear. (Scwab v. Doyle, 42 Sup. Ct., Rep., 491; Smietanka v.
First Trust & Savings Bank, 257 U. S., 602; Stockdale v. Insurance
Co., 20 Wall., 323 Lunch v. 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 presses that it shall have a retroactive
effect, . . . (61 C. J., p. 1602.) Though the last paragraph of section of
Regulations No. 65 of the Department of Finance makes section 3
of Act No. 3606, amending section 1544 of the Revised
Page 3 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
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 be given the statute by this court.
The defendant Collector of Internal Revenue maintains, however,
that certain provisions of Act No. 3606 are more favorable to the
taxpayer than those of Act No. 3031, that said provisions are penal
in nature and, therefore, should operate retroactively in
conformity with the provisions of article 22 of the Revised Penal
Code. This is the reason why he applied Act No. 3606 instead of Act
No. 3031. Indeed, under Act No. 3606, (1) the surcharge of 25 per
cent is based on the tax only, instead of on both the tax and the
interest, as provided for in Act No. 3031, and (2) the taxpayer is
allowed twenty days from notice and demand by the Collector of
Internal Revenue within which to pay the tax, instead of ten days
only as required by the old law.
Properly speaking, a statute is penal when it imposes punishment
for an offense committed against the state which, under the
Constitution, the Executive has the power to pardon. In common
use, however, this sense has been enlarged to include within the
term "penal statutes" all statutes 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., v. Worthington, 141 U.S.,
468; 12 Sup. Ct., 55; Rice v. U. S., 4 C. C. A., 104; 53 Fed., 910; Com.
v. Standard Oil Co., 101 Pa. St., 150; State v. Wheeler, 44 P., 430; 25
Nev., 143.) Article 22 of the Revised Penal Code is not applicable to
the case at bar, and in the absence of clear legislative intent, we
cannot give Act No. 3606 a retroactive effect.
(e) The plaintiff correctly states that the liability to pay a tax may
arise at a certain time and the tax may be paid within another given
time. As stated by this court, "the mere failure to pay one’s tax does
not render one delinquent until and unless the entire period has
elapsed within which the taxpayer is authorized by law to make
such payments without being subjected to the payment of
penalties for failure to pay his taxes within the prescribed period."
(U. S. v. Labadan, 26 Phil., 239.)
The defendant maintains that it was the duty of the executor to pay
the inheritance tax before the delivery of the decedent’s property
to the trustee. Stated otherwise, the defendant contends that
delivery to the trustee was delivery to the cestui que trust, the
beneficiary in this case, within the meaning of the first paragraph
of subsection (b) of section 1544 of the Revised Administrative
Code. This contention is well taken and is sustained. The
appointment of P. J. M. Moore as trustee was made by the trial court
in conformity with the wishes of the testator as expressed in his
will. It is true that the word "trust" is not mentioned or used in the
will but the intention to create one is clear. No particular or
technical words are required to create a testamentary trust (69
C. J., p. 711). The words "trust" and "trustee", though apt for the
purpose, are not necessary. In fact, the use of these two words is
not conclusive on the question that a trust is created (69 C. J., p.
714). "To create a trust by will the testator must indicate in the will
his intention so to do by using language sufficient to separate the
legal from the equitable estate, and with sufficient certainly
designate the beneficiaries, their interest in the trust, 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 ascertained
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 appointing 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 the
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 law. This is so for the reason already stated that the delivery of
the estate to the trustee was in esse delivery of the same estate to
the cestui que trust, the beneficiary in this case. A trustee is but an
instrument or agent for the cestui que trust (Shelton v. King, 299 U.
S., 90; 33 Sup. Ct. Rep., 689; 57 Law. ed., 1086). When Moore
accepted the trust and took possession of the trust estate he
thereby admitted that the estate belonged not to him but to his
cestui que trust (Tolentino v. 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 perpetuities. 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
acceptance of the contention of the plaintiff in the case at bar. Taxes
are essential to the very existence of government. (Dobbins v. Erie
County, 16 Pet., 435; 10 Law. ed., 1022; Kirkland v. Hotchkiss, 100
U. S., 491; 25 Law. ed., 558; Lane County v. Oregon, 7 Wall, 71; 19
Law. ed., 101; Union Refrigerator Transit Co., v. Kentucky, 199 U. S.,
194; 26 Sup. Ct., Rep., 36; 50 Law. ed., 150; Charles River Bridge v.
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 v. Erie County, 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 v. 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 v. McCaughn, 280 U. S.,
124; 74 Law. ed., 226; 50 Sup. Ct. Rep., 46) they also will not place
upon tax laws so loose a construction as to permit evasions on
merely fanciful and insubstantial distinctions. (U. S. v. Watts, 1
Bond, 580; Fed. Cas. No. 16,653; U. S. v. Wigglesworth, 2 Story, 369;
Fed. Cas. No. 16,690, followed in Froelich & Kuttner v. Collector of
Customs, 18 Phil., 461, 481; Castle Bros., Wolf & Sons v. McCoy, 21
Phil., 300; Muñoz & Co. v. Hord, 12 Phil., 624; Hongkong & Shanghai
Banking Corporation v. Rafferty, 39 Phil., 145; Luzon Stevedoring
Co. v. 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 v. Trinidad, 40 Phil., 252).
In the case of Lim Co Chui v. Posadas (47 Phil., 461), this court had
occasion to demonstrate trenchant 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 paying 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 Stated.." . . 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
devolved of collecting the taxes, may derange the operations of
government, and thereby cause serious detriment to the public."
(Dows v. Chicago, 11 Wall., 108; 20 Law. ed., 65.66; Churchill and
Tait v. 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 provision of law requiring the
payment of interest in appropriate cases is mandatory (see and cf.
Lim Co Chui v. Posadas, supra), and neither the Collector of Internal
Revenue nor 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
Page 4 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA

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 communication 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 in accordance
with the conclusion 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 section 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 of the beneficiary exceeds ten
thousand pesos but does not 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 P956.16, 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 surcharge 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 sum
of P1,581.69 is legally due from the estate. This last sum is P390.42
more than the amount demanded by the defendant in his
counterclaim. But, as we cannot give the defendant more than what
he claims, we must hold that the plaintiff is liable only in the sum
of P1,191.27, the amount stated in the counterclaim.

The judgment of the lower court is accordingly modified, with costs

against the plaintiff in both instances. So ordered.

Avanceña, C.J. Abad Santos, Imperial, Diaz and Concepcion, JJ.,

concur.

VILLA-REAL, J.:

Page 5 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA

[G.R. No. L-10128. November 13, 1956.] this point on appeal, although in passing the court insinuated that
residence for purposes of venue need not be permanent. At any
MAMERTO C. CORRE, Plaintiff-Appellant, vs. GUADALUPE TAN rate, this matter should now be regarded as modified by our
CORRE, Defendant-Appellee. decision in the aforesaid case of Evangelista.

Wherefore, the decision appealed from is affirmed, with costs

DECISION against Appellant.

BAUTISTA ANGELO, J.:

Plaintiff brought this action in the Court of First Instance of Manila

seeking his legal separation from Defendant, his wife, and the
placing of their minor children under the care and custody of a
reputable women’s dormitory or institution as the court may
recommend.

Defendant moved to dismiss the complaint on the ground that the

venue is improperly laid. She claims that since it appears in the
complaint that neither the Plaintiff nor the Defendant is a resident
of the City of Manila the court where the action was filed is not the
proper court to take cognizance of the case. The court upheld the
contention of Defendant and, accordingly, dismissed the case
without pronouncement as to costs. This is an appeal from this
decision.

The pertinent portion of the complaint which refers to the

residence of both Plaintiff and Defendant is as
follows:chanroblesvirtuallawlibrary

“1. That Plaintiff is an American citizen, 44 years of age, resident

of 114 North Ist Street, Las Vegas, Nevada, United States of
America, master sergeant in the U. S. Army with military service
address of Ro-6739431, Army Section, Military Assistance
Advisory Group (MAAG) Formosa, APO 63, San Francisco,
California, and for the purpose of filing and maintaining this suit,
temporarily resides at 576 Paltoc, Santa Mesa, Manila;

“2. That Defendant is a Filipino, 40 years of age and resident of the

municipality of Catbalogan, province of Samar, Philippines, where
summons may be served;”

Section 1, Rule 5, of the Rules of Court provides that Civil actions in

Courts of First Instance may be commenced and tried where the
Defendant or any of the Defendants resides or may be found, or
where the Plaintiff or any of the Plaintiffs resides, at the election of
the Plaintiff.” From this rule it may be inferred that Plaintiff can
elect to file the action in the court he may choose if both the Plaintiff
and the Defendant have their residence in the Philippines.
Otherwise, the action can only be brought in the place where either
one resides.

It the present case, it clearly appears in the complaint that the

Plaintiff is a resident of Las Vegas, Nevada, U. S. A. while the
Defendant is a resident of the municipality of Catbalogan, province
of Samar. Such being the case, Plaintiff has no choice other than to
file the action in the court of first instance of the latter province.
The allegation that the Plaintiff “for the purpose of filing and
maintaining this suit, temporarily resides at 576 Paltoc, Santa
Mesa, Manila” cannot serve as basis for the purpose of determining
the venue for that is not the residence contemplated by the rule. If
that were allowed, we would create a situation where a person may
have his residence in one province and, to suit his convenience, or
to harass the Defendant, may bring the action in the court of any
other province. That cannot be the intendment of the rule.

Indeed, residence as used in said rule is synonymous with domicile.

This is define as “the permanent home, the place to which,
whenever absent for business or pleasure, one intends to return,
and depends on facts and circumstances, in the sense that they
disclose intent” (67 C.J., 123-124). This is what we said in the
recent case of Evangelista vs. Santos, 86 Phil.,
387:chanroblesvirtuallawlibrary

“The fact that Defendant was sojourning in Pasay at the time he was
served with summons does not make him a resident of that place
for purposes of venue. Residence is ‘the permanent home, the place
to which, whenever absent for business or pleasure, one intends to
return cralaw.’ (67 C.J. pp. 123-124.) A man can have but one
domicile at a time (Alcantara vs. Secretary of Interior, 61 Phil. 459),
and residence is synonymous with domicile under section 1 of Rule
5 (Moran’s Comments, supra, p. 104).”

The case of Dela Rosa and Go Kee vs. De Borja, 53 Phil., 990, cited
by Appellant to support his contention, is not controlling. In that
case, the Defendant submitted to the jurisdiction of the court and
did not raise the point of venue until after judgment had been
rendered. And so it was held that Defendant was estopped to raise

Page 6 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
EN BANC
[G.R. Nos. L-9456 & L-9481. January 6, 1958.]
THE COLLECTOR OF INTERNAL REVENUE, Petitioner, v.
DOMINGO DE LARA, as ancilliary administrator of the estate of
HUGO H. MILLER (Deceased), and the COURT OF TAX APPEALS,
Respondents.
SYLLABUS
1. TAXATION; ESTATE AND INHERITANCE TAXES FOR TAX
PURPOSES, RESIDENCE SYNONYMOUS WITH DOMICILE. — Foe
estate and inheritance tax purposes, the term "residence" is
synonymous with the term "domicile." The two terms may be used
interchangeably without distinction.
2. ID.; ID.; NON-RESIDENTS; PROPERTIES SUBJECT TO TAX;
EXEMPTION FROM INHERITANCE TAX UNDER SECTION 122 OF
THE TAX CODE. — The decedent, being a non-resident of the
Philippines the only properties of his estate subject to estate and
inheritance taxes are those shares of stock issued by Philippine
corporations. Considering, however, the State of California of
which he was a resident, as a foreign country in relation to section
122 of the National Internal Revenue Code, the decedent is entitled
to exemption from the inheritance tax on the intangible personal
property found in the Philippines. This exemption granted to non-
residents under the provision of multiple taxation, which
otherwise would subject a decedent’s intangible personal property
to the inheritance tax, both on his place of residence and domicile
and the place where those properties are found.
3. ID.; REPUBLIC ACT NO. 1253; WHEN ESTATE OF DECEDENT
ENTITLED TO BENEFITS OF THE ACT. — Inasmuch as the
decedent not only suffered deprivations of the war, but was killed
by the Japanese military forces, his estate is entitled to the benefits
of Republic Act No. 1253, which was passed for the benefit of
veterans, guerrillas, or victims of Japanese atrocities .
Consequently, the interests and other increments imposed on the
decedent’s estate should not be paid.
DECISION
MONTEMAYOR, J.:
These are two separate appeals, one by the Collector of Internal
Revenue, later on referred to as the Collector, and the other by
Domingo de Lara as Ancilliary Administrator of the estate of Hugo
H. Miller, from the decision of the Court of Tax Appeals of June 25,
1955, with the following dispositive part:jgc:chanrobles.com.ph
"WHEREFORE, respondent’s assessment for estate and inheritance
taxes upon the estate of the decedent Hugo H. Miller is hereby
modified in accordance with the computation attached as Annex
"A" of this decision. Petitioner is hereby ordered to pay respondent
the amount of P2,047.22 representing estate taxes due, together
with the interests and other increments. In case of failure to pay
the amount of P2,047.22 within thirty (30) days from the time this
decision has become final, the 5 per cent surcharge and the
corresponding interest due thereon shall be paid as part of the
tax."cralaw virtua1aw library
The facts in the case gathered from the record and as found by the
Court of Tax Appeals may be briefly stated as follows: Hugo H.
Miller, an American citizen, was born in Santa Cruz, California,
U.S.A., in 1883. In 1905, he came to the Philippines. From 1906 to
1917, he was connected with the public school system, first as a
teacher and later as a division superintendent of schools, later
retiring under the Osmeña Retirement Act. After his retirement,
Miller accepted an executive position in the local branch of Ginn &
Co., book publishers with principal offices in New York and Boston,
U.S.A., up to the outbreak of the Pacific War. From 1922 up to
December 7, 1941, he was stationed in the Philippines as Oriental
representative of Ginn & Co., covering not only the Philippines, but
also China and Japan. His principal work was selling books
specially written for Philippine schools. In or about the year 1922,
Miller lived at the Manila Hotel. His wife remained at their home in
Ben-Lomond, Santa Cruz, California, but she used to come to the
Philippines for brief visits with Miller, staying three or four
months. Miller also used to visit his wife in California. He never
lived in any residential house in the Philippines. After the death of
his wife in 1931, he transferred from the Manila Hotel to the Army
and Navy Club, where he was staying at the outbreak of the Pacific
War. On January 17, 1941, Miller executed his last will and
testament in Santa Cruz, California, in which he declared that he
was "of Santa Cruz, California." On December 7, 1941, because of
the Pacific War, the office of Ginn & Co. was closed, and Miller
joined the Board of Censors of the United States Navy. During the
war, he was taken prisoner by the Japanese forces in Leyte, and in
January, 1944, he was transferred to Catbalogan, Samar, where he
was reported to have been executed by said forces on March 11,
1944, and since then, nothing has been heard from him. At the time
of his death in 1944, Miller owned the following
properties:jgc:chanrobles.com.ph
"Real property situated in Ben-Lomond, Santa Cruz,
California valued at P5,000.00
Real property situated in Burlingame, San Mateo,
California valued at 16,200.00
Tangible Personal Property, worth 2,140.00
Cash in the banks in the United States 21,178.20
Accounts Receivable from various persons in the
United States including notes 36,062.74
Stocks in U. S. Corporations and U. S. Savings Bonds,
valued at 123,637.16
Shares of stock in Philippines Corporations, valued
at 51,906.45"
Testate proceedings were instituted before the Superior Court of
California in Santa Cruz County, in the course of which Miller’s will
of January 17, 1941 was admitted to probate on May 10, 1946. Said
court subsequently issued an order and decree of settlement of
final account and final distribution, wherein it found that Miller
was a "resident of the County of Santa Cruz, State of California" at
the time of his death in 1944. Thereafter, ancilliary proceedings
were filed by the executors of the will before the Court of First
Instance of Manila, which court by order of November 21, 1946,
admitted to probate the will of Miller as probated in the California
court, and also found that Miller was a resident of Santa Cruz,
California, at the time of his death. On July 29, 1949, the Bank of
America, National Trust and Savings Association of San Francisco,
California, co-executor named in Miller’s will, filed an estate and
inheritance tax return with the Collector, covering only the shares
of stock issued by Philippine corporations, reporting a liability of
P269.43 for estate taxes and P230.27 for inheritance taxes. After
due investigation, the Collector assessed estate and inheritance
taxes, which was receive by the said executor on April 3, 1950. The
estate of Miller protested the assessment, but the Collector
maintained his stand and made the assessment of the liability for
estate and inheritance taxes, including penalties and other
increments at P77,300 92, as of January 16, 1954. This assessment
was appealed by De Lara as Ancilliary Administrator before the
Board of Tax Appeals, which appeal was later heard and decided
by the Court of Tax Appeals.
In determining the "gross estate" of a decedent, under Section 122
in relation to section 88 of our Tax Code, it is first necessary to
decide whether the decedent was a resident or a non-resident of
the Philippines at the time of his death. The Collector maintains
that under the tax laws, residence and domicile have different
meanings; that tax laws on estate and inheritance taxes only
mention resident and non-resident, and no reference whatsoever
is made to domicile except in Section 93 (d) of the Tax Code; that
Miller during his long stay in the Philippines had acquired a
"residence" in this country, and was a resident thereof at the time
of his death, and consequently, his intangible personal properties
situated here as well as in the United States were subject to said
taxes. The Ancilliary Administrator, however, equally maintains
that for estate and inheritance tax purposes, the term "residence"
is synonymous with the term domicile.
We agree with the Court of Tax Appeals that at the time that the
National Internal Revenue Code was promulgated in 1939, the
prevailing construction given by the courts to the term "residence"
was synonymous with domicile, and that the two were used
interchangeably. Cases were cited in support of this view,
particularly that of Velilla v. Posadas, 62 Phil. 624, wherein this
Tribunal used the terms "residence" and "domicile"
interchangeably and without distinction, the case involving the
application of the term residence employed in the inheritance tax
law at the time (sections 1536-1548 of the Revised Administrative
Page 7 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
Code), and that consequently, it will be presumed that in using the
term residence or resident in the Tax Code of 1939, the Legislature
was giving it the meaning as construed and interpreted by the
Court. Moreover, there is reason to believe that the Legislature
adopted the American (Federal and State) estate and inheritance
tax system (see e.g. Report to the Tax Commission of the
Philippines, Vol. II, pages 122-124, cited in I Dalupan, National
Internal Revenue Code Annotated, p. 469-470). In the United
States, for estate tax purposes, a resident is considered one who at
the time of his death had his domicile in the United States, and in
American jurisprudence, for purposes of estate and inheritance
taxation, "residence" is interpreted as synonymous with domicile,
and that —
"The incidence of estate and succession taxes has historically been
determined by domicile and situs and not by the fact of actual
residence." (Bowring v. Bowers, (1928) 24 F 2d 918, at 921, 6 AFTR
7498, cert. den (1928) 272 U.S. 608).
We also agree with the Court of Tax Appeals that at the time of his
death, Miller had his residence or domicile in Santa Cruz, California.
During his long stay in this country, Miller never acquired a house
for residential purposes for he stayed at the Manila Hotel and later
on at the Army and Navy Club. Except for occasional visits, his wife
never stayed in the Philippines. The bulk of his savings and
properties were in the United States. To his home in California, he
had been sending souvenirs, such as carvings, curios and other
similar collections from the Philippines and the Far East. In
November, 1940, Miller took out a property insurance policy and
indicated therein his address as Santa Cruz, California, this aside
from the fact that Miller, as already stated, executed his will in
Santa Cruz, California, wherein he stated that he was "of Santa Cruz,
California." From the foregoing, it is clear that as a non-resident of
the Philippines, the only properties of his estate subject to estate
and inheritance taxes are those shares of stock issued by Philippine
corporations, valued at P51,906.45. It is true, as stated by the Tax
Court, that while it may be the general rule that personal property,
like shares of stock in the Philippines, is taxable at the domicile of
the owner (Miller) under the doctrine of mobilia secuuntur
persona, nevertheless, when he during his life time,
. . . "extended his activities with respect to his intangibles, so as to
avail himself of the protection and benefits of the laws of the
Philippines, in such a way as to bring his person or property within
the reach of the Philippines, the reason for a single place of taxation
no longer obtains — protection, benefit, and power over the
subject matter are no longer confined to California, but also to the
Philippines (Wells Fargo Bank & Union Trust Co. v. Collector
(1940), 70 Phil. 325). In the instant case, the actual situs of the
shares of stock is in the Philippines, the corporation being
domiciled herein: and besides, the right to vote the certificates at
stockholders’ meetings, the right to collect dividends, and the right
to dispose of the shares including the transmission and acquisition
thereof by succession, all enjoy the protection of the Philippines, so
that the right to collect the estate and inheritance taxes cannot be
questioned (Wells Fargo Bank & Union Trust Co. v. Collector,
supra). It is recognized that the state may, consistently with due
process, impose a tax upon transfer by death of shares of stock in a
domestic corporation owned by a decedent whose domicile was
outside of the state (Burnett v. Brooks, 288 U.S. 378; State
Commission v. Aldrich, (1942) 316 U.S. 174, 86 L. Ed. 1358, 62 ALR.
1008)." (Brief for the Petitioner, p. 79-80).
The Ancilliary Administrator for purposes of exemption invokes
the proviso in Section 122 of the Tax Code, which provides as
follows:chanrob1es virtual 1aw library
. . . "And Provided, however, That no tax shall be collected under
this Title in respect of intangible personal property (a) if the
decedent at the time of his death was a resident of a foreign country
which at the time of his death did not impose a transfer tax or death
tax of any character in respect of intangible personal property of
citizens of the Philippines not residing in that country, or (b) if the
laws of the foreign country of which the decedent was resident at
the 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."cralaw virtua1aw library
The Ancilliary Administrator cases his claim of exemption on (a)
the exemption of non-residents from the California inheritance
taxes with respect to intangibles, and (b) the exemption by way of
reduction of P4,000 from the estates of non-residents, under the
United States Federal Estate Tax Law. Section 6 of the California
Inheritance Tax Act of 1935, now reenacted as Section 13851,
California Revenue and Taxation Code, reads as
follows:jgc:chanrobles.com.ph
"SEC. 6. The following exemption from the tax are hereby
allowed:chanrob1es virtual 1aw library
x x x
"(7) The tax imposed by this act in respect of intangible personal
property shall not be payable if decedent is a resident of a State or
Territory of the United States or a foreign state or country which at
the time of his death imposed a legacy, succession of death tax in
respect of intangible personal property within the State or
Territory or foreign state or country of residents of the States or
Territory or foreign state country, but did not impose a legacy or
succession or a death tax or a death tax of any character in respect
of intangible personal property within the State or Territory or
foreign state or country residence of the decedent at the time of his
death contained a reciprocal provision under which non-residents
were exempted from legacy or succession taxes or death taxes of
every character in respect of intangible personal property
providing the State or Territory or foreign state or country of
residence of such non-residents allowed a similar exemption to
residents of the state, Territory or foreign state or country of
residence of such decedent."cralaw virtua1aw library
Considering the State of California as a foreign country in relation
to section 122 of Our Tax Code we believe and hold, as did the Tax
Court, that the Ancilliary Administrator is entitled to exemption
from the inheritance tax on the intangible personal property found
in the Philippines. Incidentally, this exemption granted to non-
residents under the provision of Section 122 of our Tax Code, was
to reduce the burden of multiple taxation, which otherwise would
subject a decedent’s intangible personal property to the
inheritance tax, both in his place of residence and domicile and the
place where those properties are found. As regards the exemption
or reduction of P4,000 based on the reduction under the Federal
State Tax Law in the amount of $2,000, we agree with the Tax Court
that the amount of $2,000 allowed under the Federal Estate Tax
Law is in the nature of deduction and not of an exemption. Besides,
as the Tax Court observes —
. . . "this exemption is allowed on all gross estates of non- residents
of the United States, who are not citizens thereof, irrespective of
whether there is a corresponding or similar exemption from
transfer or death taxes of non-residents of the Philippines, who are
citizens of the United States; and thirdly, because this exemption is
allowed on all gross estates of non-residents irrespective of
whether it involves tangible or intangible, real or personal
property; so that for these reasons petitioner cannot claim a
reciprocity.." . .
Furthermore, in the Philippines, there is already a reduction on the
gross estate for purposes of the inheritance or estate tax in the
amount of P3,000 under section 85 of the Tax Code, before it was
amended, which in part provides as follows:jgc:chanrobles.com.ph
"SEC. 85. Rates of estate tax. — There shall be levied, assessed,
collected, and paid upon the transfer of the net estate of every
decedent, whether a resident or non-resident of the Philippines, a
tax equal to the sum of the following percentages of the value of the
net estate determined as provided in sections 88 and
89:jgc:chanrobles.com.ph
"One per centum of the amount by which the net estate exceeds
three thousand pesos and does not exceed ten thousand pesos;." . .
It will be noticed from the dispositive part of the appealed decision
of the Tax Court that the Ancilliary Administrator was ordered to
pay the amount of P2,047.22, representing estate taxes due,
together with interest and other increments. Said Ancilliary
Administrator invokes the provisions of Republic Act No. 1253,
which was passed for the benefit of veterans, guerrillas or victims
of Japanese atrocities who died during the Japanese occupation.
The provisions of this Act could not be invoked during the hearing
before the Tax Court for the reason that said Republic Act was
approved only on June 10, 1955. We are satisfied that inasmuch as
Miller not only suffered deprivation of the war, but was killed by
the Japanese military forces, his estate is entitled to the benefits of
this Act. Consequently, the interests and other increments
provided in the appealed judgment should not be paid by his estate.
With the above modification, the appealed decision of the Court of
Tax Appeals is hereby affirmed. We deem it unnecessary to pass
upon the other points raised in the appeal. No costs.
Page 8 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
SECOND DIVISION
[G.R. No. 43314. December 19, 1935.]
A. L. VELILLA, administrator of the estate of Arthur Graydon
Moody, Plaintiff-Appellant, v. JUAN POSADAS, JR., Collector of
Internal Revenue, Defendant-Appellee.
SYLLABUS
1. INHERITANCE TAX; DOMICILE OF TAXPAYER. — To effect the
abandonment of one’s domicile, there must be a deliberate and
provable choice of a new domicile, coupled with actual residence
in the place chosen, with a declared or provable intent that it
should be one’s fixed and permanent place of abode, one’s home.
There is a complete dearth of evidence in the record that M ever
established a new domicile in a foreign country.
2. INHERITANCE AND INCOME TAXES. — As M’s legal domicile at
the time of his death was the Philippine Islands and his estate had
its situs here, the inheritance and income taxes here involved were
lawfully collected.
DECISION
BUTTE, J.:
This is an appeal from a judgment of the Court of First Instance of
Manila in an action to recover from the defendant-appellee as
Collector of Internal Revenue the sum of P77,018,39 as inheritance
taxes and P13,001.41 as income taxes assessed against the estate
of Arthur G. Moody, deceased.
The parties submitted to the court an agreed statement of facts as
follows:jgc:chanrobles.com.ph
"I. That Arthur Graydon Moody died in Calcutta, India, on February
18, 1931.
"II. That Arthur Graydon Moody executed in the Philippine Islands
a will, certified copy of which marked Exhibit AA is hereto attached
and made a part hereof, by virtue of which will, he bequeathed all
his property to his only sister, Ida M. Palmer, who then was and still
is a citizen and resident of the State of New York, United States of
America.
"III. That on February 24, 1931, a petition for appointment of
special administrator of the estate of the deceased Arthur Graydon
Moody was filed by W. Maxwell Thebaut with the Court of First
Instance of Manila, the same being designated as case No. 39113 of
said court. Copy of said petition marked Exhibit BB is hereto
attached and made a part hereof.
"IV. That subsequently or on April 10, 1931, a petition was filed by
Ida M. Palmer, asking for the probate of said will of the deceased
Arthur Graydon Moody, and the same was, after hearing, duly
probated by the court in a decree dated May 5, 1931. Copies of the
petition and of the decree marked Exhibits CC and DD, respectively,
are hereto attached and made parts hereof.
"V. That on July 14, 1931, Ida M. Palmer was declared to be the sole
and only heiress of the deceased Arthur Graydon Moody by virtue
of an order issued by the court in said case No. 39113, copy of
which marked Exhibit EE is hereto attached and made a part
hereof; and that during the hearing for the declaration of heirs, Ida
M. Palmer presented as evidence a letter dated February 28, 1925,
and addressed to her by Arthur Graydon Moody, copy of which
marked Exhibit FF is hereto attached and made a part hereof.
"VI. That the property left by the late Arthur Graydon Moody
consisted principally of bonds and shares of stock of corporations
organized under the laws of the Philippine Islands, bank deposits
and other personal properties, as are more fully shown in the
inventory of April 17, 1931, filed by the special administrator with
the court in said case No. 39113, certified copy of which inventory
marked Exhibit GG is hereto attached and made a part hereof. This
stipulation does not, however, cover the respective values of said
properties for the purpose of the inheritance tax.
"VII. That on July 22, 1931, the Bureau of Internal Revenue
prepared for the estate of the late Arthur Graydon Moody an
inheritance tax return, certified copy of which marked Exhibit HH
is hereto attached and made a part hereof.
"VIII. That on September 9, 1931, an income tax return for the
fractional period from January 1, 1931 to June 30, 1931, certified
copy of which marked Exhibit II is hereto attached and made a part
hereof, was also prepared by the Bureau of Internal Revenue for
the estate of the said deceased Arthur Graydon Moody.
"IX. That on December 3, 1931, the committee on claims and
appraisals filed with the court its report, certified copy of which
marked Exhibit KK is hereto attached and made a part hereof.
"X. That on September 15, 1931, the Bureau of Internal Revenue
addressed to the attorney for the administratrix Ida M. Palmer a
letter, copy of which marked Exhibit LL is hereto attached and
made a part hereof.
"XI. That on October 15, 1931, the attorney for Ida M. Palmer
answered the letter of the Collector of Internal Revenue referred to
in the preceding paragraph. Said answer marked Exhibit MM is
hereto attached and made a part hereof.
"XII. That on November 4, 1931, and in answer to the letter
mentioned in the preceding paragraph, the Bureau of Internal
Revenue addressed to the attorney for Ida M. Palmer another
letter, copy of which marked Exhibit NN is hereto attached and
made a part hereof.
"XIII. That on December 7, 1931, the attorney for Ida M. Palmer
again replied in a letter, marked Exhibit OO, hereto attached and
made a part hereof.
"XIV. That the estate of the late Arthur Graydon Moody paid under
protest the sum of P50,000 on July 22, 1931, and the other sum of
P40,019,75 on January 19, 1932, making a total of P90,019,75, of
which P77,018.39 covers the assessment for inheritance tax and
the sum of P13,001.41 covers the assessment for income tax
against said estate.
"XV. That on January 21, 1932, the Collector of Internal Revenue
overruled the protest made by Ida M. Palmer through her attorney.
"XVI. The parties reserve their right to introduce additional
evidence at the hearing of the present case.
"Manila, August 15, 1933."cralaw virtua1aw library
In addition to the foregoing agreed statement of facts, both parties
introduced oral and documentary evidence from which it appears
that Arthur G. Moody, an American citizen, came to the Philippine
Islands in 1902 or 1903 and engaged actively in business in these
Islands up to the time of his death in Calcutta, India, on February
18, 1931. He had no business elsewhere and at the time of his death
left an estate consisting principally of bonds and shares of stock of
corporations organized under the laws of the Philippine Islands,
bank deposits and other intangibles and personal property valued
by the commissioners of appraisal and claims at P609,767.58 and
by the Collector of Internal Revenue for the purposes of inheritance
tax at P653,657.47. All of said property at the time of his death was
located and had its situs within the Philippine Islands. So far as this
record shows, he left no property of any kind located anywhere
else. In his will, Exhibit AA, executed without date in Manila in
accordance with the formalities of the Philippine law, in which he
bequeathed all his property to his sister, Ida M. Palmer, he
stated:jgc:chanrobles.com.ph
"I, Arthur G. Moody, a citizen of the United States of America,
residing in the Philippine Islands, hereby publish and declare the
following as my last Will and Testament . . . ."cralaw virtua1aw
library
The substance of the plaintiff’s cause of action is stated in
paragraph 7 of his complaint as follows:jgc:chanrobles.com.ph
"That there is no valid law or regulation of the Government of the
Philippine Islands under or by virtue of which any inheritance tax
may be levied, assessed or collected upon transfer, by death and
succession, of intangible personal properties of a person not
domiciled in the Philippine Islands, and the levy and collection by
defendant of inheritance tax computed upon the value of said
stocks, bonds, credits and other intangible properties as aforesaid
constituted and constitutes the taking and deprivation of property
without due process of law contrary to the Bill of Rights and
organic law of the Philippine Islands."cralaw virtua1aw library
Page 9 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
Section 1536 of the Revised Administrative Code (as amended)
provides as follows:jgc:chanrobles.com.ph
"SEC. 1536. Conditions and rate of taxation. — Every transmission
by virtue of inheritance, devise, bequest, gift mortis causa or
advance in anticipation of inheritance, devise, or bequest of real
property located in the Philippine Islands and real rights in such
property; of any franchise which must be exercised in the
Philippine Islands; of any shares, obligations, or bonds issued by
any corporation or sociedad anonima organized or constituted in
the Philippine Islands in accordance with its laws; of any shares or
rights in any partnership, business or industry established in the
Philippine Islands or of any personal property located in the
Philippine Islands shall be subject to the following tax:"
x x x property in Paris or engaged in any settled business on his own
It is alleged in the complaint that at the time of his death, Arthur G.
Moody was a "non-resident of the Philippine Islands." The answer,
besides the general denial, sets up as a special defense that "Arthur
G. Moody, now deceased, was and prior to the date of his death, a
resident in the City of Manila, Philippine Islands, where he was
engaged actively in business." Issue was thus joined on the
question: Where was the legal domicile of Arthur G. Moody at the
time of his death?
The Solicitor-General raises a preliminary objection to the
consideration of any evidence that Moody’s domicile was
elsewhere than in Manila at the time of his death based on the
proposition that as no such objection was made before the
Collector of Internal Revenue as one of the grounds of the protest
against the payment of the tax, this objection cannot be considered
in a suit against the Collector to recover the taxes paid under
protest. He relies upon the decision in the case of W. C. Tucker v. A.
C. Alexander, Collector (15 Fed. [2], 356). We call attention,
however, to the fact that this decision was reversed in 275 U. S.,
232; 72 Law. ed., 256, and the case remanded for trial on the merits
on the ground that the requirement that the action shall be based
upon the same grounds, and only such, as were presented in the
protest had been waived by the collector. In the case before us no
copy of the taxpayer’s protest is included in the record and we have
no means of knowing its contents. We think, therefore, the
preliminary objection made on behalf of the appellee does not lie.
We proceed, therefore, to the consideration of the question on the
merits as to whether Arthur G. Moody was legally domiciled in the
Philippine Islands on the day of his death. Moody was never
married and there is no doubt that he had his legal domicile in the
Philippine Islands from 1902 or 1903 forward during which time
he accumulated a fortune from his business in the Philippine
Islands. He lived in the Elks’ Club in Manila for many years and was
living there up to the date he left Manila the latter part of February,
1928, under the following circumstances: He was afflicted with
leprosy in an advanced stage and had been informed by Dr. Wade
that he would be reported to the Philippine authorities for
confinement in the Culion Leper Colony as required by the law.
Distressed at the thought of being thus segregated and in violation
of his promise to Dr. Wade that he would voluntarily go to Culion,
he surreptitiously left the Islands the latter part of February, 1928,
under cover of night, on a freighter, without ticket, passport or tax
clearance certificate. The record does not show where Moody was
during the remainder of the year 1928. He lived with a friend in
Paris, France, during the months of March and April of the year
1929 where he was receiving treatment for leprosy at the Pasteur
Institute. The record does not show where Moody was in the
interval between April, 1929, and November 26, 1930, on which
latter date he wrote a letter, Exhibit B, to Harry Wendt of Manila,
offering to sell him his interest in the Camera Supply Company, a
Philippine corporation, in which Moody owned 599 out of 603
shares. In this letter, among other things, he states: "Certainly I’ll
never return there to live or enter business again." In this same
letter he says:jgc:chanrobles.com.ph
"I wish to know as soon as possible now (as to the purchase) for I
have very recently decided either to sell or put in a line of school or
office supplies . . . before I go to the necessary investments in
placing any side lines. I concluded to get your definite reply to this
. . . I have given our New York buying agent a conditional order not
to be executed until March and this will give you plenty of time . . .
anything that kills a business is to have it peddled around as being
for sale and this is what I wish to avoid." He wrote letters dated
December 12, 1930, and January 3, 1931, along the same line to
Wendt. As Moody died of leprosy less than two months after these
letters were written, there can be no doubt that he would have
been immediately segregated in the Culion Leper Colony had he
returned to the Philippine Islands. He was, therefore, a fugitive, not
from justice, but from confinement in the Culion Leper Colony in
accordance with the law of the Philippine Islands.
There is no statement of Moody, oral or written, in the record that
he had adopted a new domicile while he was absent from Manila.
Though he was physically present for some months in Calcutta
prior to the date of his death there, the appellant does not claim
that Moody had a domicile there although it was precisely from
Calcutta that he wrote and cabled that he wished to sell his
business in Manila and that he had no intention to live there again.
Much less plausible, it seems to us, is the claim that he established
a legal domicile in Paris in February, 1929. The record contains no
writing whatever of Moody from Paris. There is no evidence as to
where in Paris he had any fixed abode that he intended to be his
permanent home. There is no evidence that he acquired any
account there. There is no evidence of any affirmative factors that
prove the establishment of a legal domicile there. The negative
evidence that he told Cooley that he did not intend to return to
Manila does not prove that he had established a domicile in Paris.
His short stay of three months in Paris is entirely consistent with
the view that he was a transient in Paris for the purpose of
receiving treatments at the Pasteur Institute. The evidence in the
record indicates clearly that Moody’s continued absence from his
legal domicile in the Philippines was due to and reasonably
accounted for by the same motive that caused his surreptitious
departure, namely, to evade confinement in the Culion Leper
Colony; for he doubtless knew that on his return he would be
immediately confined, because his affliction became graver while
he was absent than it was on the day of his precipitous departure
and he could not conceal himself in the Philippines where he was
well known, as he might do in foreign parts.
Our Civil Code (art. 40) defines the domicile of natural persons as
"the place of their usual residence." The record before us leaves no
doubt in our minds that the "usual residence" of this unfortunate
man, whom appellant describes as a "fugitive" and "outcast", was
in Manila where he had lived and toiled for more than a quarter of
a century, rather than in any foreign country he visited during his
wanderings up to the date of his death in Calcutta. To effect the
abandonment of one’s domicile, there must be a deliberate and
provable choice of a new domicile, coupled with actual residence
in the place chosen, with a declared or provable intent that it
should be one’s fixed and permanent place of abode, one’s home.
There is a complete dearth of evidence in the record that Moody
ever established a new domicile in a foreign country.
The contention under the appellant’s third assignment of error that
the defendant collector illegally assessed an income tax of
P13,001.41 against the Moody estate is, in our opinion, untenable.
The grounds for this assessment, stated by the Collector of Internal
Revenue in his letter, Exhibit NN, appear to us to be sound. That the
amount of P259,986.69 was received by the estate of Moody as
dividends declared out of surplus by the Camera Supply Company
is clearly established by the evidence. The appellant contends that
this assessment involves triple taxation: First, because the
corporation paid income tax on the same amount during the years
it was accumulated as surplus; second, that an inheritance tax on
the same amount was assessed against the estate, and third, the
same amount is assessed as income of the estate. As to the first, it
appears from the collector’s assessment, Exhibit II, that the
collector allowed the estate a deduction of the normal income tax
on said amount because it had already been paid at the source by
the Camera Supply Company. The only income tax assessed against
the estate was the additional tax or surtax that had not been paid
by the Camera Supply Company for which the estate, having
actually received the income, is clearly liable. As to the second
alleged double taxation, it is clear that the inheritance tax and the
additional income tax in question are entirely distinct. They are
assessed under different statutes and we are not convinced by the
appellant’s argument that the estate which received these
dividends should not be held liable for the payment of the income
tax thereon because the operation was simply the conversion of the
surplus of the corporation into the property of the individual
stockholders. (Cf. U. S. v. Phellis, 257 U. S., 171, and Taft v. Bowers,
278 U. S., 460.) Section 4 of Act No. 2833 as amended, which is
relied on by the appellant, plainly provides that the income from
exempt property shall be included as income subject to tax.
Finding no merit in any of the assignments of error of the appellant,
we affirm the judgment of the trial court, first, because the
property in the estate of Arthur G. Moody at the time of his death
was located and had its situs within the Philippine Islands and,
second, because his legal domicile up to the time of his death was
within the Philippine Islands. Costs against the Appellant.
Malcolm, Villa-Real, and Imperial, JJ., concur.
Page 10 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
EN BANC
[G.R. No. L-11622 . January 28, 1961.]
THE COLLECTOR OF INTERNAL REVENUE, Petitioner, v.
DOUGLAS FISHER and BETTINA FISHER, and THE COURT OF
TAX APPEALS, Respondents.
[G.R. No. L-11668 . January 28, 1961.]
DOUGLAS FISHER and BETTINA FISHER, Petitioners, v. THE
COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX
APPEALS, Respondents.
SYLLABUS
1. SUCCESSION; FOREIGNERS WHO MARRIED IN THE
PHILIPPINES; LAW DETERMINATIVE OF PROPERTY RELATIONS
OF SPOUSES. — The decedent was born in the Philippines in 1874
of British parents. In 1909, he married another British subject in
Manila. In 1951, he died in San Francisco, California, U.S.A., where
he and his wife established their permanent residence. The
spouses acquired real and personal properties in the Philippines.
Query: What law governs the property relation of the spouses?
Held: Since the marriage took place in 1909, the applicable law is
Article 1325 of the old Civil Code and not Article 124 of the new
Civil Code which became effective only in 1950. It is true that both
articles adhere to the nationality theory of determining the
property relation of spouses where one of them is a foreigner and
they have made no prior agreement as to the administration,
disposition, and ownership of their properties. In such a case, the
national law of the husband becomes the dominant law in
determining the property relation of the spouses. There is,
however, a difference between the two articles in that Art. 124
expressly provides that it shall be applicable regardless of whether
the marriage was celebrated in the Philippines or abroad, while
Art. 1325 is limited to marriages contracted in a foreign land. What
has been said, however refers to mixed marriages between a
Filipino citizen and a foreigner. In the instant case both spouses are
foreigners who married in the Philippines. In such a case, the law
determinative of the property relation of the spouses would be the
English law even if the marriage was celebrated in the Philippines,
both of them being foreigners. (See IX Manresa, Comentarios al
Codigo Civil Español, p. 202).
2. ID.; ID.; ID.; FAILURE TO PROVE FOREIGN LAW; EFFECT OF. —
In the present case, however, the pertinent English law that
allegedly vests in the decedent husband full ownership of the
properties acquired during the marriage has not been proven. In
the absence of proof, the court is, therefore, justified in presuming
that the law of England on this matter is the same as the Philippine
law, viz: in the absence of any ante-nuptial agreement, the
contracting parties are presumed to have adopted the system of
conjugal partnership as to the properties acquired during their
marriage. Hence, the lower court correctly deducted the half of the
conjugal property in determining the hereditary estate by the
decedent.
3. ID.; ID.; APPLICABILITY OF ART. 16 NEW CIVIL CODE. — Article
16 of the new Civil Code (art. 10, old Civil Code) which provides
that in testate and intestate proceedings, the amount of
successional rights, among others, is to be determined by the
national law of the decedent, is not applicable to the present case.
A reading of Article 10 of the old Civil Code, which incidentally is
the one applicable, shows that it does not encompass or
contemplate to govern the question of property relation between
spouses. Said article distinctly speaks of amount of successional
rights and this term properly refers to the extent or amount of
property that each heir is legally entitled to inherit from the estate
available for distribution.
4. TAXATION; ESTATE AND INHERITANCE TAXES; EXEMPTION OF
INTANGIBLE PERSONAL PROPERTIES; PROOF OF FOREIGN LAW
GRANTING EXEMPTION. — Petitioner disputes the action of the
Tax Court in exempting the respondents from paying inheritance
tax on the personal intangible property belonging to the estate in
virtue of the reciprocity proviso of Section 122 of the national
Internal Revenue Code, in relation to Section 13851 of the
California Revenue and Taxation Code. To prove the pertinent
California Law, counsel for respondents testified that as an active
member of the California bar since 1931, he is familiar with the
revenue and taxation laws of the State of California. When asked by
the lower court to state the pertinent California law as regards
exemption of intangible personal properties, the witnesses cited 4,
section 13851 (a) and (b) of the California Internal Revenue Code
as published in the Deering’s California Code. And as part of his
testimony, a full quotation of the cited section was offered in
evidence by the respondents. Held: Section 41, Rule 123 of the
Rules of Court prescribes the manner of proving foreign laws
before Philippine courts. Although it is desirable that foreign laws
be proved in accordance with said rule, this Court held in the case
Willamete Iron and Steel Works v. Muzzal, 61 Phil., 471, that "a
reading of sections 300 and 301 of our Code of Civil Procedure
(now section 41, Rule 123) will convince one that these sections do
not exclude the presentation of other competent evidence to prove
the existence of a foreign law." In that case, this Court considered
the testimony of an attorney-at-law of San Francisco, California,
who quoted verbatim a section of the California Civil Code and who
stated that the same was in force at the time the obligations were
contracted, as sufficient evidence to establish the existence of said
law. In line with this view, the Tax Court, therefore, did not err in
considering the pertinent California law as proved by respondents’
witness.
5. ID.; ID.; ID.; RECIPROCITY EXEMPTION BETWEEN STATE OF
CALIFORNIA AND PHILIPPINES. — Section 122 of the National
Internal Revenue Code exempts payment of both estate and
inheritance taxes on intangible personal properties 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 resident of that
foreign country. On the other hand , Section 13851 of the California
Law exempts the payments of inheritance tax if the laws of the
country in which the decedent resided allow a similar exemption
from legacy, succession, or death taxes of every character. It is clear
from these provisions that the reciprocity must be total, that is,
with respect to transfer or death taxes of any and every character,
in the case of the Philippines law, and to legacy, succession, or
death tax of any and every character, in the case of the California
law. Therefore, if any of the two states collects or imposes and does
not exempt any transfer, death, legacy, or succession tax of any
character, the reciprocity does not work. This is the underlying
principle of the reciprocity clauses in both laws. Since in the
Philippines two taxes are collectible from the decedent’s estate
(inheritance and estate taxes) and in California, only inheritance
tax, reciprocal exemption of the inheritance tax in both countries,
leaving payable the estate tax in the Philippines, will not work as
that would violate the California law that authorizes exemption
only when there is in the other country an exemption from legacy,
succession or death taxes of every character. Held: There could not
be partial reciprocity. It would have to be total or none at all.
6. ID.; ID.; ID.; DEDUCTION UNDER FEDERAL LAW CANNOT BE
CLAIMED UNDER RECIPROCITY PROVISO. — The amount of
$2,000.00 allowed under the Federal Estate Tax Law is in the
nature of a deduction and not of an exemption regarding which
reciprocity cannot be claimed under the proviso of Section 122 of
the National Internal Revenue Code. Nor is reciprocity authorized
under the Federal Law.
7. ID.; ID.; WHEN ASSESSED VALUE CONSIDERED AS FAIR
MARKET VALUE OF PROPERTY. — It is contended that the
assessed values of the real properties situated in Baguio City, as
appearing in the tax rolls 6 months after the death of the decedent,
ought to have been considered by petitioner as their fair market
value, pursuant to Section 91 of the National Internal Revenue
Code. It should be pointed out, however that in accordance with
said proviso the properties are required to be appraised at their
fair market value and the assessed value thereof shall be
considered as the fair market value only when evidence to the
contrary has not been shown. In the present case such evidence
exists to justify the valuation made by petitioner which was
sustained by the Tax Court.
8. ID.; ID.; SHARES OF STOCK; VALUE OF SHARES, HOW
DETERMINED. — Respondents contend that the value of the shares
of stock in the Mindanao Mother Lode Mines, Inc., a domestic
corporation, should be fixed on the basis of the market quotation
obtaining at the San Francisco (California) Stock Exchange, on the
theory that the certificates of stocks were the held in that place and
registered with the said stock exchange. The argument is
untenable. The situs of the shares of stock, for purposes of taxation,
being located in the Philippines, and considering that they are
sought to be taxed in this jurisdiction, their fair market value
should be fixed on the basis of the price prevailing in this country.
9. ID.; ID.; INDEBTEDNESS INCURRED DURING LIFETIME OF
DECEDENT; WHEN MAY BE ALLOWED AS DEDUCTION;
DOMICILLARY ADMINISTRATION DISTINGUISHED FROM
ANCILLARY ADMINISTRATION. — It would appear that while still
living, the decedent obtained a loan of $5,00 from the Bank of
Page 11 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA

California National Association, secured by a pledge on his shares

of stock in the Mindanao Mother Lode Mines, Inc. The Tax Court Estate at P10.00 each 1,770.00
disallowed this item on the ground that the local probate court had
not approved the same as a valid claim against the estate and (2) 210,000 shares of stock of Mindanao
because it constituted an indebtedness in respect to intangible
personal property which the Tax Court held to exempt from Mother Lode Mines, Inc. at
inheritance tax. Held: The action of the lower court must be
sustained. The approval of the Philippine probate court of this P0.38 per share 79,800.00
particular indebtedness of the decedent is necessary. This is so
although the same has been already admitted and approved by the (3) Cash credit with Canacao
corresponding probate court in California, situs of the principal or
domicillary administration. It is true that there is in the Philippines Estate, Inc. 4,870.88
only an ancillary administration in this case but the distinction
between domicillary or principal administration and ancillary (4) Cash with the Chartered Bank of
administration serves only to distinguish one administration from
the other, for the two proceedings are separate and independent. India, Australia & China 851.97
The reason for the ancillary administration is that, a grant of
administration does not ex proprio vigore, have any effect beyond —————
the limits of the country in which it was granted. Hence, Rule 78,
Secs 1, 2 and 3 of the Rules of Court requires that before a will duly Total Gross Assets P130,792.85
probated outside of the Philippines can have effect here, it must
first be proved and allowed before the Philippine courts, in much =========
the same manner as wills originally presented for allowance
therein. And the estate shall be administered under letters, On May 22, 1951, ancillary administration proceedings were
testamentary, or letters of administration granted by the court, and instituted in the Court of First Instance of Manila for the settlement
disposed of according to the will as probated, after payment of just of the estate in the Philippines. In due time, Stevenson’s will was
debts and expenses of administration (Rule 78, Sec. 4, Rules of duly admitted to probate by our court and Ian Murray Statt was
Court.) appointed ancillary administrator of the estate, who on July 11,
1951, filed a preliminary estate and inheritance tax return with the
10. ID.; ID.; ID.; ID.; EXTENT OF DEDUCTION ALLOWED ESTATE OF reservation of having the properties declared therein finally
DECEDENT. — Another reason for the disallowance of this appraised at their values six months after the death of Stevenson.
indebtedness as a deduction, springs from the provisions of Section Preliminary return was made by the ancillary administrator in
89, letter (d), number (1), of the National Internal Revenue Code order to secure the waiver of the Collector of Internal Revenue on
which provides that no deductions shall be allowed unless a the inheritance tax due on the 210,000 shares of stock in the
statement of the gross estate of the nonresident not situated in the Mindanao Mother Lode Mines, Inc. which the estate then desired to
Philippines appears in the return submitted to the office of the dispose in the United States. Acting upon said return, the Collector
Collector of Internal Revenue. The purpose of this requirement is of Internal Revenue accepted the valuation of the personal
to enable the revenue officer to determine how much of the properties declared therein, but increased the appraisal of the two
indebtedness may be allowed to be deducted, pursuant to letter parcels of land located in Baguio City by fixing their fair market
(b), number (1) of the same section 89 of the Internal Revenue value in the amount of P52,200.00, instead of P43,500.00. After
Code, which allows only deduction to the extent of that portion of allowing the deductions claimed by the ancillary administrator for
the indebtedness which is equivalent to the proportion that the funeral expenses in the amount of P2,000.00 and for judicial and
estate in the Philippines bears to the total estate wherever situated. administration expenses in the sum of P5,500.00, the Collector
Stated differently. if the properties in the Philippines constitute but assessed the estate the amount of P5,147.98 for estate tax and
1/5 of the entire assets wherever situated, then only 1/5 of the P10,875.25 for inheritance tax, or a total of P16,023.23. Both of
indebtedness may be deducted. these assessments were paid by the estate on June 6, 1952.

11. ID.; ID.; OVERPAYMENT OF TAXES; LIABILITY OF On September 27, 1952, the ancillary administrator filed an
GOVERNMENT FOR INTEREST OF AMOUNT REFUNDABLE. — In amended estate and inheritance tax return in pursuance of his
case of overpayment of taxes, the National Government cannot be reservation made at the time of filing of the preliminary return and
required to pay interest on the amount refundable, in the absence for the purpose of availing of the right granted by section 91 of the
of a statutory provision expressly directing or authorizing such National Internal Revenue Code.
payment.
In this amended return the valuation of the 210,000 shares of stock
in the Mindanao Mother Lode Mines, Inc. was reduced from P0.38
DECISION per share, as originally declared, to P0.20 per share, or from a total
valuation of P79,800.00 to P42,000.00. This change in price per
share of stock was based by the ancillary administrator on the
BARRERA, J.: market quotation of the stock obtaining at the San Francisco
(California) Stock Exchange six months from the death of
Stevenson, that is, as of August 22, 1951. In addition, the ancillary
This case relates to the determination and settlement of the administrator made claim for the following
hereditary estate left by the deceased Walter G. Stevenson, and the deductions:chanrob1es virtual 1aw library
laws applicable thereto.
Funeral expenses ($1,043.26) P2,086.52
Walter G. Stevenson (born in the Philippines on August 9, 1874 of
British parents and married in the City of Manila on January Judicial Expenses:chanrob1es virtual 1aw library
23,1909 to Beatrice Mauricia Stevenson, another British subject)
died on February 22, 1951 in San Francisco, California, U.S.A., (a) Administrator’s Fee P1,204.34
whereto he and his wife moved and established their permanent
residence since May 10, 1945. In his will executed in San Francisco (b) Attorney’s Fee P6,000.00
on May 22,1947, and which was duly probated in the Superior
Court of California on April 11, 1951, Stevenson instituted his wife (c) Judicial and administration
Beatrice as his sole heiress to the following real and personal
properties acquired by the spouses while residing in the expenses as of August 9, 1952 1,400.05 8,604.39
Philippines, described and preliminarily assessed as
follows:chanrob1es virtual 1aw library Real Estate Tax for 1951 on Baguio

Gross Estate real properties (O. R. No.

Real Property — 2 parcels of land in Baguio, B-1 686836) 652.50

covered by T.C.T. Nos. 378 and 379 P43,500.00 Claims against the estate:chanrob1es virtual 1aw library

Personal Property ($5,000.00) P10,000.00 P10,000.00

(1) 177 shares of stock of Canacao Plus: 4% int. p.a. from Feb. 2

Page 12 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
to 22, 1951 22.47 10,022.47
————
Sub Total P21,365.88
In the meantime, on December 1,1952, Beatrice Mauricia
Stevenson assigned all her rights and interests in the estate to the
spouses, Douglas and Bettina Fisher, respondents herein.
On September 7, 1953, the ancillary administrator filed a second
amended estate and inheritance tax return (Exh. "M-N"). This
return declared the same assets of the estate stated in the amended
return of September 22, 1952, except that it contained new claims
for additional exemption and deduction to wit: (1) deduction in the
amount of P4,000.00 from the gross estate of the decedent as
provided for in Section 861 (4) of the U.S. Federal Internal Revenue
Code which the ancillary administrator averred was allowable by
way of the reciprocity granted by Section 122 of the National
Internal Revenue Code, as then held by the Board of Tax Appeals in
case No. 71 entitled "Housman v. Collector", August 14, 1952; and
(2) exemption from the imposition of estate and inheritance taxes
on the 210,000 shares of stock in the Mindanao Mother Lode Mines,
Inc. also pursuant to the reciprocity proviso of Section 122 of the
National Internal Revenue Code. In this last return, the estate
claimed that it was liable only for the amount of P525.34 for estate
tax and P238.06 for inheritance tax and that, as a consequence, it
had overpaid the government. The refund of the amount of
P15,259.83, allegedly overpaid, was accordingly requested by the
estate. The Collector denied the claim. For this reason, action was
commenced in the Court of First Instance of Manila by respondents,
as assignees of Beatrice Mauricia Stevenson, for the recovery of
said amount. Pursuant to Republic Act No. 1125, the case was
forwarded to the Court of Tax Appeals which court, after hearing,
rendered decision the dispositive portion of which reads as
follows:jgc:chanrobles.com.ph
"In fine, we are of the opinion and so hold that: (a) the one- half
(1/2) share of the surviving spouse in the conjugal partnership
property as diminished by the obligations properly chargeable to
such property should be deducted from the net estate of the
deceased Walter G. Stevenson, pursuant to Section 89-C of the
National Internal Revenue Code; (b) the intangible personal
property belonging to the estate of said Stevenson is exempt from
inheritance tax, pursuant to the proviso of section 122 of the
National Internal Revenue Code in relation to the California
Inheritance Tax Law but decedent’s estate is not entitled to an
exemption of P4,000.00 in the computation of the estate tax; (c) for
purposes of estate and inheritance taxation the Baguio real estate
of the spouses should be valued at P52,200.00, and the 210,000
shares of stock in the Mindanao Mother Lode Mines Inc. should be
appraised at P0.38 per share; and (d) the estate shall be entitled to
a deduction of P2,000.00 for funeral expenses and judicial
expenses of P8,604.39."cralaw virtua1aw library
From this decision, both parties appealed.
The Collector of Internal Revenue, hereinafter called petitioner,
assigned four errors allegedly committed by the trial court, while
the assignees, Douglas and Bettina Fisher, hereinafter called
respondents, made six assignments of error. Together, the
assigned errors raise the following main issues for resolution by
this Court:chanrob1es virtual 1aw library
(1) Whether or not, in determining the taxable net estate of the
decedent, one-half (1/2) of the net estate should be deducted
therefrom as the share of the surviving spouse in accordance with
our law on conjugal partnership and in relation to section 89 (c) of
the National Internal Revenue Code;
(2) Whether or not the estate can avail itself of the reciprocity
proviso embodied in Section 122 of the National Internal Revenue
Code granting exemption from the payment of estate and
inheritance taxes on the 210,000 shares of stock in the Mindanao
Mother Lode Mines, Inc.;
(3) Whether or not the estate is entitled to the deduction of
P4,000.00 allowed by Section 861, U.S. Internal Revenue Code, in
relation to section 122 of the National Internal Revenue Code;
(4) Whether or not the real estate properties of the decedent
located in Baguio City and the 210,000 shares of stock in the
Mindanao Mother Lode Mines, Inc., were correctly appraised by the
lower court;
(5) Whether or not the estate is entitled to the following
deductions: P8,604.39 for judicial and administration expenses;
P2,086.52 for funeral expenses; P652.50 for real estate taxes; and
P10,022.47 representing the amount of indebtedness allegedly
incurred by the decedent during his lifetime; and
(6) Whether or not the estate is entitled to the payment of interest
on the amount it claims to have overpaid the government and to be
refundable to it.
In deciding the first issue, the lower court applied well-known
doctrine in our civil law that in the absence of any ante-nuptial
agreement, the contracting parties are presumed to have adopted
the system of conjugal partnership as to the properties acquired
during their marriage. The application of this doctrine to the
instant case is being disputed, however, by petitioner Collector of
Internal Revenue, who contends that pursuant to Article 124 of the
New Civil Code, the property relation of the spouses Stevensons
ought not to be determined by the Philippine law, but by the
national law of the decedent husband, in this case, the law of
England. It is alleged by petitioner that English laws do not
recognize legal partnership between spouses, and that what
obtains in that jurisdiction is another regime of property relation,
wherein all properties acquired during the marriage pertain and
belong exclusively to the husband. In further support of his stand,
petitioner cites Article 16 of the New Civil Code (Art. 10 of the old)
to the effect that in testate and intestate proceedings, the amount
of successional rights, among others, is to be determined by the
national law of the decedent.
In this connection, let it be noted that since the marriage of the
Stevensons in the Philippines took place in 1909, the applicable
law is Article 1325 of the old Civil Code and not Article 124 of the
New Civil Code which became effective only in 1950. It is true that
both articles adhere to the so-called nationality theory of
determining the property relation of spouses where one of them is
a foreigner and they have made no prior agreement as to the
administration, disposition, and ownership of their conjugal
properties. In such a case, the national law of the husband becomes
the dominant law in determining the property relation of the
spouses. There is, however, a difference between the two articles
in that Article 124 1 of the New Civil Code expressly provides that
it shall be applicable regardless of whether the marriage was
celebrated in the Philippines or abroad, while Article 1325 2 of the
old Civil Code is limited to marriages contracted in a foreign land.
It must be noted, however, that what has just been said refers to
mixed marriages between a Filipino citizen and a foreigner. In the
instant case, both spouses are foreigners who married in the
Philippines. Manresa, 3 in his Commentaries, has this to say on this
point:jgc:chanrobles.com.ph
"La regla establecida en el art. 1.315, se refiere a las capitulaciones
otorgadas en España y entre españoles. El 1.325, a las celebradas
en el extranjero cuando alguno de los conyuges es español. En
cuanto a la regla procedente cuando dos extranjeros se casan en
España, o dos españoles en el extranjero, hay que atender en el
primer caso a la legislacion del pais a que aquellos pertenezcan, y
en el segundo, a las reglas generales consignadas en los articulos 9
y 10 de nuestro Codigo." (Emphasis supplied.)
If we adopt the view of Manresa, the law determinative of the
property relation of the Stevensons, married in 1909, would be the
English law even if the marriage was celebrated in the Philippines,
both of them being foreigners. But, as correctly observed by the Tax
Court, the pertinent English law that allegedly vests in the decedent
husband full ownership of the properties acquired during the
marriage has not been proven by petitioner. Except for a mere
allegation in his answer, which is not sufficient, the record is bereft
of any evidence as to what English law says on the matter. In the
absence of proof, the Court is justified, therefore, in indulging in
what Wharton calls "processual presumption", in presuming that
the law of England on this matter is the same as our law. 4
Nor do we believe petitioner can make use of Article 16 of the New
Civil Code (art. 10, old Civil Code) to bolster his stand. A reading of
Article 10 of the old Civil Code, which incidentally is the one
applicable, shows that it does not encompass or contemplate to
govern the question of property relation between spouses. Said
article distinctly speaks of amount of successional rights and this
term, in our opinion, properly refers to the extent or amount of
property that each heir is legally entitled to inherit from the estate
available for distribution. It needs to be pointed out that the
property relation of spouses, as distinguished from their
successional rights, is governed differently by the specific and
express provisions of Title VI, Chapter I of our new Civil Code (Title
III, Chapter I of the old Civil Code.) We, therefore, find that the
lower court correctly deducted the half of the conjugal property in
Page 13 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
determining the hereditary estate left by the deceased Stevenson.
On the second issue, petitioner disputes the action of the Tax Court
in exempting the respondents from paying inheritance tax on the
210,000 shares of stock in the Mindanao Mother Lode Mines, Inc.
in virtue of the reciprocity proviso of Section 122 of the National
Internal Revenue Code, in relation to Section 13851 of the
California Revenue and Taxation Code, on the ground that: (1) the
said proviso of the California Revenue and Taxation Code has not
been duly proven by the respondents; (2) the reciprocity
exemptions granted by section 122 of the National Internal
Revenue Code can only be availed of by residents of foreign
countries and not of residents of a state in the United States; and
(3) there is no "total" reciprocity between the Philippines and the
state of California in that while the former exempts payment of
both estate and inheritance taxes on intangible personal
properties, the latter only exempts the payment of inheritance tax.
To prove the pertinent California law, Attorney Allison Gibbs,
counsel for herein respondents, testified that as an active member
of the California Bar since 1931, he is familiar with the revenue and
taxation laws of the State of California. When asked by the lower
court to state the pertinent California law as regards exemption of
intangible personal properties, the witness cited article 4, sections
13851 (a) and (b) of the California Internal and Revenue Code as
published in Deerings’s California Code, a publication of the
Bancroft-Whitney Company, Inc. And as part of his testimony, a full
quotation of the cited section was offered in evidence as Exhibit "V-
2" by the respondents.
It is well-settled that foreign laws do not prove themselves in our
jurisdiction and our courts are not authorized to take judicial
notice of them. 5 Like any other fact, they must be alleged and
proved. 6 other hand, if we exempt the Californian from paying the estate tax,
Section 41, Rule 123 of our Rules of Court prescribes the manner
of proving foreign laws before our tribunals. However, although we
believe it desirable that these laws be proved in accordance with
said rule, we held in the case of Willamette Iron and Steel Works v.
Muzzal, 61 Phil., 471, that "a reading of sections 300 and 301 of our
Code of Civil Procedure (now section 41, Rule 123) will convince
one that these sections do not exclude the presentation of other
competent evidence to prove the existence of a foreign law." In that
case, we considered the testimony of an attorney-at-law of San
Francisco, California, who quoted verbatim a section of the
California Civil Code and who stated that the same was in force at
the time the obligations were contracted, as sufficient evidence to
establish the existence of said law. In line with this view, we find
no error, therefore, on the part of the Tax Court in considering the
pertinent California law as proved by respondents’ witness.
We now take up the question of reciprocity in exemption from
transfer or death taxes, between the State of California and the
Philippines.
Section 122 of our National Internal Revenue Code, in pertinent
part, provides:jgc:chanrobles.com.ph
". . . And, provided, further, That no tax shall be collected under this
Title in respect of intangible personal property (a) if the decedent
at the time of his death was a resident of a foreign country which
at the time of his death did not impose a transfer tax or death tax
of any character in respect of intangible personal property of
citizens of the Philippines not residing in that foreign country or
(b) if the laws of the foreign country of which the decedent was a
resident at the time of his death allow a similar exemption from
transfer taxes or death taxes of every character in respect of
intangible personal property owned by citizens of the Philippines
not residing in that foreign country." (Emphasis supplied.)
On the other hand, section 13851 of the California Inheritance Tax
Law, insofar as pertinent, reads:jgc:chanrobles.com.ph
"SEC. 13851, Intangibles of nonresident: Conditions. — Intangible
personal property is exempt from the tax imposed by this part if
the decedent at the time of his death was a resident of a Territory
or another State of the United States or of a foreign state or country
which then imposed a legacy, succession, or death tax in respect to
intangible personal property of its own residents, but
either:jgc:chanrobles.com.ph
"(a) Did not impose a legacy, succession, or death tax of any
character in respect to intangible personal property of residents of
this State, or
"(b) Had in its laws a reciprocal provision under which intangible
personal property of a non-resident was exempt from legacy,
succession, or death taxes of every character if the Territory or
other State of the United States or foreign state or country in which
the non-resident resided allowed a similar exemption in respect to
intangible personal property of residents of the Territory or State
of the United States or foreign state or country of residence of the
decedent." (Id.)
It is clear from both these quoted provisions that the reciprocity
must be total, that is, with respect to transfer or death taxes of any
and every character, in the case of the Philippine law, and to legacy,
succession, or death tax of any and every character, in the case of
the California law. Therefore, if any of the two states collects or
imposes and does not exempt any transfer, death, legacy, or
succession tax of any character, the reciprocity does not work. This
is the underlying principle of the reciprocity clauses in both laws.
In the Philippines, upon the death of any citizen or resident, or non-
resident with properties therein, there are imposed upon his estate
and its settlement, both an estate and an inheritance tax. Under the
laws of California, only inheritance tax is imposed. On the other
hand, the Federal Internal Revenue Code imposes an estate tax on
non-residents not citizens of the United States, but does not
provide for any exemption on the basis of reciprocity. Applying
these laws in the manner the Court of Tax Appeals did in the instant
case, we will have a situation where a Californian, who is non-
resident in the Philippines but has intangible personal properties
here, will be subject to the payment of an estate tax, although
exempt from the payment of the inheritance tax. This being the
case, will a Filipino, non-resident of California, but with intangible
personal properties there, be entitled to the exemption clause of
the California law, since the Californian has not been exempted
from every character of legacy, succession, or death tax because he
is, under our law, under obligation to pay an estate tax? Upon the
we do not thereby entitle a Filipino to be exempt from a similar
estate tax in California because under the Federal Law, which is
equally enforceable in California, he is bound to pay the same, there
being no reciprocity recognized in respect thereto. In both
instances, the Filipino citizen is always at a disadvantage. We do
not believe that our legislature has intended such an unfair
situation to the detriment of our own government and people. We,
therefore, find and declare that the lower court erred in exempting
the estate in question from payment of the inheritance tax.
We are not unaware of our ruling in the case of Collector of Internal
Revenue v. Lara (G.R. Nos. L-9456 & L-9481, prom. January 6, 1958,
54 O.G. 2881) exempting the estate of the deceased Hugo H. Miller
from payment of the inheritance tax imposed by the Collector of
Internal Revenue. It will be noted, however, that the issue of
reciprocity between the pertinent provisions of our tax law and
that of the State of California was not there squarely raised, and the
ruling therein cannot control the determination of the case at bar.
Be that as it may, we now declare that in view of the express
provisions of both the Philippine and California laws that the
exemption would apply only if the law of the other grants an
exemption from legacy, succession, or death taxes of every
character, there could not be partial reciprocity. It would have to
be total or none at all.
With respect to the question of deduction or reduction in the
amount of P4,000.00 based on the U. S. Federal Estate Tax Law
which is also being claimed by respondents, we uphold and adhere
to our ruling in the Lara case (supra) that the amount of $2,000.00
allowed under the Federal Estate Tax Law is in the nature of a
deduction and not of an exemption regarding which reciprocity
cannot be claimed under the proviso of section 122 of our National
Internal Revenue Code. Nor is reciprocity authorized under the
Federal Law.
On the issue of the correctness of the appraisal of the two parcels
of land situated in Baguio City, it is contended that their assessed
values, as appearing in the tax rolls 6 months after the death of
Stevenson, ought to have been considered by petitioner as their
fair market value, pursuant to section 91 of the National Internal
Revenue Code. It should be pointed out, however, that in
accordance with said proviso the properties are required to be
appraised at their fair market value and the assessed value thereof
shall be considered as the fair market value only when evidence to
the contrary has not been shown. After a careful review of the
record, we are satisfied that such evidence exists to justify the
valuation made by petitioner which was sustained by the tax court,
for as the tax court aptly observed:jgc:chanrobles.com.ph
"The two parcels of land containing 36,254 square meters were
valued by the administrator of the estate in the Estate and
Inheritance tax returns filed by him at P43,500.00 which is the
assessed value of said properties. On the other hand, defendant
Page 14 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
appraised the same at P52,200.00. It is of common knowledge, and
this Court can take judicial notice of it, that assessments for real
estate taxation purposes are very much lower than the true and fair
market value of the properties at a given time and place. In fact one
year after decedent’s death or in 1952 the said properties were
sold for a price of P72,000.00 and there is no showing that special
or extraordinary circumstances caused the sudden increase from
the price of P43,500.00, if we were to accept this value as a fair and
reasonable one as of 1951. Even more, the counsel for plaintiffs
himself admitted in open court that he was willing to purchase the
said properties at P2.00 per square meter. In the light of these facts
we believe and therefore hold that the valuation of P52,200.00 of
the real estate in Baguio made by defendant is fair, reasonable and
justified in the premises." (Decision, p. 19).
In respect to the valuation of the 210,000 shares of stock in the
Mindanao Mother Lode Mines, Inc., (a domestic corporation),
respondents contend that their value should be fixed on the basis
of the market quotation obtaining at the San Francisco (California)
Stock Exchange, on the theory that the certificates of stocks were
then held in that place and registered with the said stock exchange.
We cannot agree with respondents’ argument. The situs of the
shares of stock, for purposes of taxation, being located here in the
Philippines, as respondents themselves concede, and considering
that they are sought to be taxed in this jurisdiction, consistent with
the exercise of our government’s taxing authority, their fair market
value should be fixed on the basis of the price prevailing in our
country.
Upon the other hand, we find merit in respondents’ other
contention that the said shares of stock commanded a lesser value
at the Manila Stock Exchange six months after the death of
Stevenson. Through Atty. Allison Gibbs, respondents have shown
that at that time a share of said stock was bid for at only P.325 (p.
103, t.s.n.) . Significantly, the testimony of Atty. Gibbs in this
respect has never been questioned nor refuted by petitioner either
before this court or in the court below. In the absence of evidence
to the contrary, we are, therefore, constrained to reverse the Tax
Court on this point and to hold that the value of a share in the said
mining company on August 22, 1951 in the Philippine market was
P.325 as claimed by respondents.
It should be noted that the petitioner and the Tax Court valued each
share of stock at P.38 on the basis of the declaration made by the
estate in its preliminary return. Patently, this should not have been
the case, in view of the fact that the ancillary administrator had
reserved and availed of his legal right to have the properties of the
estate declared at their fair market value as of six months from the
time the decedent died.
On the fifth issue, we shall consider the various deductions, from
the allowance or disallowance of which by the Tax Court, both
petitioner and respondents have appealed.
Petitioner, in this regard, contends that no evidence of record
exists to support the allowance of the sum of P8,604.39 for the
following expenses:chanrob1es virtual 1aw library
(1) Administrators fee P1,204.34
(2) Attorney’s fee 6,000.00
(3) Judicial and Administrative expenses 1,400.05
————
Total Deductions P8,604.39
An examination of the record discloses, however, that the
foregoing items were considered deductible by the Tax Court on
the basis of their approval by the probate court to which said
expenses, we may presume, had also been presented for
consideration. It is to be supposed that the probate court would not
have approved said items were they not supported by evidence
presented by the estate. In allowing the items in question, the Tax
Court had before it the pertinent order of the probate court which
was submitted in evidence by respondents. (Exh. "AA-2", p. 100,
record). As the Tax Court said, it found no basis for departing from
the findings of the probate court, as it must have been satisfied that
those expenses were actually incurred. Under the circumstances,
we see no ground to reverse this finding of fact which, under
Republic Act No. 1125, we are not at liberty to review unless the
same is not supported by any evidence. For the same reason, we
are not inclined to pass upon the claim of respondents in respect to
the additional amount of P86.52 for funeral expenses which was
disapproved by the court a quo for lack of evidence.
In connection with the deduction of P652.50 representing the
amount of realty taxes paid in 1951 on the decedent’s two parcels
of land in Baguio City, which respondents claim was disallowed by
the Tax Court, we find that this claim has in fact been allowed. What
happened here, which a careful review of the record will reveal,
was that the Tax Court, in itemizing the liabilities of the estate,
viz:chanrob1es virtual 1aw library
(1) Administrator’s fee P1,204.34
(2) Attorney’s fee 6,000.00
(3) Judicial and Administration expenses
as of August 9, 1952 2,052.55
————
Total P9,256.89
added the P652.50 for realty taxes as a liability of the estate, to the
P1,400.05 for judicial and administration expenses approved by
the court, making a total of P2,052.55, exactly the same figure
which was arrived at by the Tax Court for judicial and
administration expenses. Hence, the difference between the total
of P9,256.98 allowed by the Tax Court as deductions, and the
P8,604.39 as found by the probate court, which is P652.50, the
same amount allowed for realty taxes.
An evident oversight has involuntarily been made in omitting the
P2,000.00 for funeral expenses in the final computation. This
amount has been expressly allowed by the lower court and there is
no reason why it should not be.
We come now to the other claim of respondents that pursuant to
section 89(b) (1) in relation to section 89(a) (1) (E) and section 89
(d), National Internal Revenue Code, the amount of P10,022.47
should have been allowed the estate as a deduction, because it
represented an indebtedness of the decedent incurred during his
lifetime. In support thereof, they offered in evidence a duly
certified claim, presented to the probate court in California by the
Bank of California National Association, which it would appear,
that while still living, Walter G. Stevenson obtained a loan of
$5,000.00 secured by a pledge on 140,000 of his shares of stock in
the Mindanao Mother Lode Mines, Inc. (Exhs. "Q-Q4", pp. 53-59,
record). The Tax Court disallowed this item on the ground that the
local probate court had not approved the same as a valid claim
against the estate and because it constituted an indebtedness in
respect to intangible personal property which the Tax Court held
to be exempt from inheritance tax.
For two reasons, we uphold the action of the lower court in
disallowing the deduction.
Firstly, we believe that the approval of the Philippine probate court
of this particular indebtedness of the decedent is necessary. This is
so although the same, it is averred, has been already admitted and
approved by the corresponding probate court in California, situs of
the principal or domiciliary administration. It is true that we have
here in the Philippines only an ancillary administration in this case,
but, it has been held, the distinction between domiciliary or
principal administration and ancillary administration serves only
to distinguish one administration from the other, for the two
proceedings are separate and independent. 8 The reason for the
ancillary administration is that, a grant of administration does not,
ex proprio vigore, have any effect beyond the limits of the country
in which it was granted. Hence, we have the requirement that
before a will duly probated outside of the Philippines can have
effect here, it must first be proved and allowed before our courts,
in much the same manner as wills originally presented for
allowance therein. 9 And the estate shall be administered under
letters testamentary, or letters of administration granted by the
court, and disposed of according to the will as probated, after
payment of just debts and expenses of administration. 10 In other
words, there is a regular administration under the control of the
court, where claims must be presented and approved, and
expenses of administration allowed before deductions from the
estate can be authorized. Otherwise, we would have the actuations
of our own probate court, in the settlement and distribution of the
estate situated here, subject to the proceedings before the foreign
court over which our courts have no control. We do not believe
such a procedure is countenanced or contemplated in the Rules of
Court.
Another reason for the disallowance of this indebtedness as a
deduction, springs from the provisions of Section 89, letter (d),
number (1), of the National Internal Revenue Code which
Page 15 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA

reads:jgc:chanrobles.com.ph

"(d) Miscellaneous provisions. — (1) No deductions shall be

allowed in the case of a non-resident not a citizen of the Philippines
unless the executor, administrator or anyone of the heirs, as the
case may be, includes in the return required to be filed under
section ninety-three the value at the time of his death of that part
of the gross estate of the non-resident not situated in the
Philippines."cralaw virtua1aw library

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

"(b) Deductions allowed to nonresident estates. — In the case of a

nonresident not a citizen of the Philippines, by deducting from the
value of that part of his gross estate which at the time of his death
is situated in the Philippines —

"(1) Expenses, losses, indebtedness, and taxes. — That proportion

of the deductions specified in paragraph (1) of subsection (a) of
this section 11 which the value of such part bears to the value of
his entire gross estate wherever situated;"

In other words, the allowable deduction is only to the extent of that

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

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

In recapitulation, we hold and declare that.

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

(b) the intangible personal property is not exempt from

inheritance tax, there existing no complete total reciprocity as
required in section 122 of the National Internal Revenue Code, nor
is the decedent’s estate entitled to an exemption of P4,000.00 in the
computation of the estate tax;

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

(d) the P2,000.00 for funeral expenses should be deducted in the

determination of the net estate of the deceased Stevenson.

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

affirmed.

Respondents’ claim for interest on the amount allegedly overpaid,

if any actually results after a recomputation on the basis of this
decision, is hereby denied in line with our recent decision in
Collector of Internal Revenue v. St. Paul’s Hospital (G.R. No. L-
12127, May 29, 1959) wherein we held that "in the absence of a
statutory provision clearly or expressly directing or authorizing
such payment, and none has been cited by respondents, the
National Government cannot be required to pay interest."cralaw
virtua1aw library

WHEREFORE, as modified in the manner heretofore indicated, the

judgment of the lower court is hereby affirmed in all other respects
not inconsistent herewith. No costs. So ordered.

Page 16 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
EN BANC
G.R. No. L-13250 October 29, 1971
THE COLLECTOR OF INTERNAL REVENUE, petitioner,
vs.
ANTONIO CAMPOS RUEDA, respondent..
Assistant Solicitor General Jose P. Alejandro and Special Attorney
Jose G. Azurin, (O.S.G.) for petitioner.
Ramirez and Ortigas for respondent.
FERNANDO, J.:
The basic issue posed by petitioner Collector of Internal Revenue
in this appeal from a decision of the Court of Tax Appeals as to
whether or not the requisites of statehood, or at least so much
thereof as may be necessary for the acquisition of an international
personality, must be satisfied for a "foreign country" to fall within
the exemption of Section 122 of the National Internal Revenue
Code1 is now ripe for adjudication. The Court of Tax Appeals
answered the question in the negative, and thus reversed the
action taken by petitioner Collector, who would hold respondent
Antonio Campos Rueda, as administrator of the estate of the late
Estrella Soriano Vda. de Cerdeira, liable for the sum of P161,874.95
as deficiency estate and inheritance taxes for the transfer of
intangible personal properties in the Philippines, the deceased, a
Spanish national having been a resident of Tangier, Morocco from
1931 up to the time of her death in 1955. In an earlier resolution
promulgated May 30, 1962, this Court on the assumption that the
need for resolving the principal question would be obviated,
referred the matter back to the Court of Tax Appeals to determine
whether the alleged law of Tangier did grant the reciprocal tax
exemption required by the aforesaid Section 122. Then came an
order from the Court of Tax Appeals submitting copies of
legislation of Tangier that would manifest that the element of
reciprocity was not lacking. It was not until July 29, 1969 that the
case was deemed submitted for decision. When the petition for
review was filed on January 2, 1958, the basic issue raised was
impressed with an element of novelty. Four days thereafter,
however, on January 6, 1958, it was held by this Court that the
aforesaid provision does not require that the "foreign country"
possess an international personality to come within its
terms.2 Accordingly, we have to affirm.
The decision of the Court of Tax Appeals, now under review, sets
forth the background facts as follows: "This is an appeal interposed
by petitioner Antonio Campos Rueda as administrator of the estate
of the deceased Doña Maria de la Estrella Soriano Vda. de Cerdeira,
from the decision of the respondent Collector of Internal Revenue,
assessing against and demanding from the former the sum
P161,874.95 as deficiency estate and inheritance taxes, including
interest and penalties, on the transfer of intangible personal
properties situated in the Philippines and belonging to said Maria
de la Estrella Soriano Vda. de Cerdeira. Maria de la Estrella Soriano
Vda. de Cerdeira (Maria Cerdeira for short) is a Spanish national,
by reason of her marriage to a Spanish citizen and was a resident
of Tangier, Morocco from 1931 up to her death on January 2, 1955.
At the time of her demise she left, among others, intangible
personal properties in the Philippines."3 Then came this portion:
"On September 29, 1955, petitioner filed a provisional estate and
inheritance tax return on all the properties of the late Maria
Cerdeira. On the same date, respondent, pending investigation,
issued an assessment for state and inheritance taxes in the
respective amounts of P111,592.48 and P157,791.48, or a total of
P369,383.96 which tax liabilities were paid by petitioner ... . On
November 17, 1955, an amended return was filed ... wherein
intangible personal properties with the value of P396,308.90 were
claimed as exempted from taxes. On November 23, 1955,
respondent, pending investigation, issued another assessment for
estate and inheritance taxes in the amounts of P202,262.40 and
P267,402.84, respectively, or a total of P469,665.24 ... . In a letter
dated January 11, 1956, respondent denied the request for
exemption on the ground that the law of Tangier is not reciprocal
to Section 122 of the National Internal Revenue Code. Hence,
respondent demanded the payment of the sums of P239,439.49
representing deficiency estate and inheritance taxes including ad
valorem penalties, surcharges, interests and compromise penalties
... . In a letter dated February 8, 1956, and received by respondent
on the following day, petitioner requested for the reconsideration
of the decision denying the claim for tax exemption of the
intangible personal properties and the imposition of the 25% and
5% ad valorem penalties ... . However, respondent denied request,
in his letter dated May 5, 1956 ... and received by petitioner on May
21, 1956. Respondent premised the denial on the grounds that
there was no reciprocity [with Tangier, which was moreover] a
mere principality, not a foreign country. Consequently, respondent
demanded the payment of the sums of P73,851.21 and P88,023.74
respectively, or a total of P161,874.95 as deficiency estate and
inheritance taxes including surcharges, interests and compromise
penalties."4
The matter was then elevated to the Court of Tax Appeals. As there
was no dispute between the parties regarding the values of the
properties and the mathematical correctness of the deficiency
assessments, the principal question as noted dealt with the
reciprocity aspect as well as the insisting by the Collector of
Internal Revenue that Tangier was not a foreign country within the
meaning of Section 122. In ruling against the contention of the
Collector of Internal Revenue, the appealed decision states: "In
fine, we believe, and so hold, that the expression "foreign country",
used in the last proviso of Section 122 of the National Internal
Revenue Code, refers to a government of that foreign power which,
although not an international person in the sense of international
law, does not impose transfer or death upon intangible person
properties of our citizens not residing therein, or whose law allows
a similar exemption from such taxes. It is, therefore, not necessary
that Tangier should have been recognized by our Government
order to entitle the petitioner to the exemption benefits of the
proviso of Section 122 of our Tax. Code."5
Hence appeal to this court by petitioner. The respective briefs of
the parties duly submitted, but as above indicated, instead of ruling
definitely on the question, this Court, on May 30, 1962, resolve to
inquire further into the question of reciprocity and sent back the
case to the Court of Tax Appeals for the motion of evidence thereon.
The dispositive portion of such resolution reads as follows: "While
section 122 of the Philippine Tax Code aforequoted speaks of
'intangible personal property' in both subdivisions (a) and (b); the
alleged laws of Tangier refer to 'bienes muebles situados en
Tanger', 'bienes muebles radicantes en Tanger', 'movables' and
'movable property'. In order that this Court may be able to
determine whether the alleged laws of Tangier grant the reciprocal
tax exemptions required by Section 122 of the Tax Code, and
without, for the time being, going into the merits of the issues
raised by the petitioner-appellant, the case is [remanded] to the
Court of Tax Appeals for the reception of evidence or proof on
whether or not the words `bienes muebles', 'movables' and
'movable properties as used in the Tangier laws, include or
embrace 'intangible person property', as used in the Tax Code."6 In
line with the above resolution, the Court of Tax Appeals admitted
evidence submitted by the administrator petitioner Antonio
Campos Rueda, consisting of exhibits of laws of Tangier to the
effect that "the transfers by reason of death of movable properties,
corporeal or incorporeal, including furniture and personal effects
as well as of securities, bonds, shares, ..., were not subject, on that
date and in said zone, to the payment of any death tax, whatever
might have been the nationality of the deceased or his heirs and
legatees." It was further noted in an order of such Court referring
the matter back to us that such were duly admitted in evidence
during the hearing of the case on September 9, 1963. Respondent
presented no evidence."7
The controlling legal provision as noted is a proviso in Section 122
of the National Internal Revenue Code. It reads thus: "That no tax
shall be collected under this Title in respect of intangible personal
property (a) if the decedent at the time of his death was a resident
of a foreign country which at the time of his death did not impose
a transfer tax or death tax of any character in respect of intangible
person property of the Philippines not residing in that foreign
country, or (b) if the laws of the foreign country of which the
decedent was a resident at the time of his death allow a similar
exemption from transfer taxes or death taxes of every character in
respect of intangible personal property owned by citizens of the
Philippines not residing in that foreign country."8 The only obstacle
therefore to a definitive ruling is whether or not as vigorously
insisted upon by petitioner the acquisition of internal personality
is a condition sine qua non to Tangier being considered a "foreign
country". Deference to the De Lara ruling, as was made clear in the
opening paragraph of this opinion, calls for an affirmance of the
decision of the Court of Tax Appeals.
Page 17 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA

It does not admit of doubt that if a foreign country is to be identified

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

Even on the assumption then that Tangier is bereft of international

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

What is undeniable is that even prior to the De Lara ruling, this

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

WHEREFORE, the decision of the respondent Court of Tax Appeals

of October 30, 1957 is affirmed. Without pronouncement as to
costs.

Page 18 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA

EN BANC Miller lived at the Manila Hotel. His wife remained at their home in
Ben-Lomond, Santa Cruz, California, but she used to come to the
[G.R. Nos. L-9456 & L-9481. January 6, 1958.] Philippines for brief visits with Miller, staying three or four
months. Miller also used to visit his wife in California. He never
THE COLLECTOR OF INTERNAL REVENUE, Petitioner, v. lived in any residential house in the Philippines. After the death of
DOMINGO DE LARA, as ancilliary administrator of the estate of his wife in 1931, he transferred from the Manila Hotel to the Army
HUGO H. MILLER (Deceased), and the COURT OF TAX and Navy Club, where he was staying at the outbreak of the Pacific
APPEALS, Respondents. War. On January 17, 1941, Miller executed his last will and
testament in Santa Cruz, California, in which he declared that he
Allison J. Gibbs, Zafra, De Leon & Veneracion for Domingo E. de was "of Santa Cruz, California." On December 7, 1941, because of
Lara. the Pacific War, the office of Ginn & Co. was closed, and Miller
joined the Board of Censors of the United States Navy. During the
Assistant Solicitor General Ramon L. Avanceña and Cezar L. war, he was taken prisoner by the Japanese forces in Leyte, and in
Kierulf for the Collector of Internal Revenue. January, 1944, he was transferred to Catbalogan, Samar, where he
was reported to have been executed by said forces on March 11,
1944, and since then, nothing has been heard from him. At the time
SYLLABUS of his death in 1944, Miller owned the following
properties:jgc:chanrobles.com.ph

1. TAXATION; ESTATE AND INHERITANCE TAXES FOR TAX "Real property situated in Ben-Lomond, Santa Cruz,
PURPOSES, RESIDENCE SYNONYMOUS WITH DOMICILE. — Foe
estate and inheritance tax purposes, the term "residence" is California valued at P5,000.00
synonymous with the term "domicile." The two terms may be used
interchangeably without distinction. Real property situated in Burlingame, San Mateo,

2. ID.; ID.; NON-RESIDENTS; PROPERTIES SUBJECT TO TAX; California valued at 16,200.00

EXEMPTION FROM INHERITANCE TAX UNDER SECTION 122 OF
THE TAX CODE. — The decedent, being a non-resident of the Tangible Personal Property, worth 2,140.00
Philippines the only properties of his estate subject to estate and
inheritance taxes are those shares of stock issued by Philippine Cash in the banks in the United States 21,178.20
corporations. Considering, however, the State of California of
which he was a resident, as a foreign country in relation to section Accounts Receivable from various persons in the
122 of the National Internal Revenue Code, the decedent is entitled
to exemption from the inheritance tax on the intangible personal United States including notes 36,062.74
property found in the Philippines. This exemption granted to non-
residents under the provision of multiple taxation, which Stocks in U. S. Corporations and U. S. Savings Bonds,
otherwise would subject a decedent’s intangible personal property
to the inheritance tax, both on his place of residence and domicile valued at 123,637.16
and the place where those properties are found.
Shares of stock in Philippines Corporations, valued
3. ID.; REPUBLIC ACT NO. 1253; WHEN ESTATE OF DECEDENT
ENTITLED TO BENEFITS OF THE ACT. — Inasmuch as the at 51,906.45"
decedent not only suffered deprivations of the war, but was killed
by the Japanese military forces, his estate is entitled to the benefits Testate proceedings were instituted before the Superior Court of
of Republic Act No. 1253, which was passed for the benefit of California in Santa Cruz County, in the course of which Miller’s will
veterans, guerrillas, or victims of Japanese atrocities . of January 17, 1941 was admitted to probate on May 10, 1946. Said
Consequently, the interests and other increments imposed on the court subsequently issued an order and decree of settlement of
decedent’s estate should not be paid. final account and final distribution, wherein it found that Miller
was a "resident of the County of Santa Cruz, State of California" at
the time of his death in 1944. Thereafter, ancilliary proceedings
DECISION were filed by the executors of the will before the Court of First
Instance of Manila, which court by order of November 21, 1946,
admitted to probate the will of Miller as probated in the California
MONTEMAYOR, J.: court, and also found that Miller was a resident of Santa Cruz,
California, at the time of his death. On July 29, 1949, the Bank of
America, National Trust and Savings Association of San Francisco,
These are two separate appeals, one by the Collector of Internal California, co-executor named in Miller’s will, filed an estate and
Revenue, later on referred to as the Collector, and the other by inheritance tax return with the Collector, covering only the shares
Domingo de Lara as Ancilliary Administrator of the estate of Hugo of stock issued by Philippine corporations, reporting a liability of
H. Miller, from the decision of the Court of Tax Appeals of June 25, P269.43 for estate taxes and P230.27 for inheritance taxes. After
1955, with the following dispositive part:jgc:chanrobles.com.ph due investigation, the Collector assessed estate and inheritance
taxes, which was receive by the said executor on April 3, 1950. The
"WHEREFORE, respondent’s assessment for estate and inheritance estate of Miller protested the assessment, but the Collector
taxes upon the estate of the decedent Hugo H. Miller is hereby maintained his stand and made the assessment of the liability for
modified in accordance with the computation attached as Annex estate and inheritance taxes, including penalties and other
"A" of this decision. Petitioner is hereby ordered to pay respondent increments at P77,300 92, as of January 16, 1954. This assessment
the amount of P2,047.22 representing estate taxes due, together was appealed by De Lara as Ancilliary Administrator before the
with the interests and other increments. In case of failure to pay Board of Tax Appeals, which appeal was later heard and decided
the amount of P2,047.22 within thirty (30) days from the time this by the Court of Tax Appeals.
decision has become final, the 5 per cent surcharge and the
corresponding interest due thereon shall be paid as part of the In determining the "gross estate" of a decedent, under Section 122
tax."cralaw virtua1aw library in relation to section 88 of our Tax Code, it is first necessary to
decide whether the decedent was a resident or a non-resident of
The facts in the case gathered from the record and as found by the the Philippines at the time of his death. The Collector maintains
Court of Tax Appeals may be briefly stated as follows: Hugo H. that under the tax laws, residence and domicile have different
Miller, an American citizen, was born in Santa Cruz, California, meanings; that tax laws on estate and inheritance taxes only
U.S.A., in 1883. In 1905, he came to the Philippines. From 1906 to mention resident and non-resident, and no reference whatsoever
1917, he was connected with the public school system, first as a is made to domicile except in Section 93 (d) of the Tax Code; that
teacher and later as a division superintendent of schools, later Miller during his long stay in the Philippines had acquired a
retiring under the Osmeña Retirement Act. After his retirement, "residence" in this country, and was a resident thereof at the time
Miller accepted an executive position in the local branch of Ginn & of his death, and consequently, his intangible personal properties
Co., book publishers with principal offices in New York and Boston, situated here as well as in the United States were subject to said
U.S.A., up to the outbreak of the Pacific War. From 1922 up to taxes. The Ancilliary Administrator, however, equally maintains
December 7, 1941, he was stationed in the Philippines as Oriental that for estate and inheritance tax purposes, the term "residence"
representative of Ginn & Co., covering not only the Philippines, but is synonymous with the term domicile.
also China and Japan. His principal work was selling books
specially written for Philippine schools. In or about the year 1922, We agree with the Court of Tax Appeals that at the time that the

Page 19 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
National Internal Revenue Code was promulgated in 1939, the
prevailing construction given by the courts to the term "residence"
was synonymous with domicile, and that the two were used
interchangeably. Cases were cited in support of this view,
particularly that of Velilla v. Posadas, 62 Phil. 624, wherein this
Tribunal used the terms "residence" and "domicile"
interchangeably and without distinction, the case involving the
application of the term residence employed in the inheritance tax
law at the time (sections 1536-1548 of the Revised Administrative
Code), and that consequently, it will be presumed that in using the
term residence or resident in the Tax Code of 1939, the Legislature
was giving it the meaning as construed and interpreted by the
Court. Moreover, there is reason to believe that the Legislature
adopted the American (Federal and State) estate and inheritance
tax system (see e.g. Report to the Tax Commission of the
Philippines, Vol. II, pages 122-124, cited in I Dalupan, National
Internal Revenue Code Annotated, p. 469-470). In the United
States, for estate tax purposes, a resident is considered one who at
the time of his death had his domicile in the United States, and in
American jurisprudence, for purposes of estate and inheritance
taxation, "residence" is interpreted as synonymous with domicile,
and that —
"The incidence of estate and succession taxes has historically been
determined by domicile and situs and not by the fact of actual
residence." (Bowring v. Bowers, (1928) 24 F 2d 918, at 921, 6 AFTR
7498, cert. den (1928) 272 U.S. 608).
We also agree with the Court of Tax Appeals that at the time of his
death, Miller had his residence or domicile in Santa Cruz, California.
During his long stay in this country, Miller never acquired a house
for residential purposes for he stayed at the Manila Hotel and later
on at the Army and Navy Club. Except for occasional visits, his wife
never stayed in the Philippines. The bulk of his savings and
properties were in the United States. To his home in California, he
had been sending souvenirs, such as carvings, curios and other
similar collections from the Philippines and the Far East. In
November, 1940, Miller took out a property insurance policy and
indicated therein his address as Santa Cruz, California, this aside
from the fact that Miller, as already stated, executed his will in
Santa Cruz, California, wherein he stated that he was "of Santa Cruz,
California." From the foregoing, it is clear that as a non-resident of
the Philippines, the only properties of his estate subject to estate
and inheritance taxes are those shares of stock issued by Philippine
corporations, valued at P51,906.45. It is true, as stated by the Tax
Court, that while it may be the general rule that personal property,
like shares of stock in the Philippines, is taxable at the domicile of
the owner (Miller) under the doctrine of mobilia secuuntur
persona, nevertheless, when he during his life time,
. . . "extended his activities with respect to his intangibles, so as to
avail himself of the protection and benefits of the laws of the
Philippines, in such a way as to bring his person or property within
the reach of the Philippines, the reason for a single place of taxation
no longer obtains — protection, benefit, and power over the
subject matter are no longer confined to California, but also to the
Philippines (Wells Fargo Bank & Union Trust Co. v. Collector
(1940), 70 Phil. 325). In the instant case, the actual situs of the
shares of stock is in the Philippines, the corporation being
domiciled herein: and besides, the right to vote the certificates at
stockholders’ meetings, the right to collect dividends, and the right
to dispose of the shares including the transmission and acquisition
thereof by succession, all enjoy the protection of the Philippines, so
that the right to collect the estate and inheritance taxes cannot be
questioned (Wells Fargo Bank & Union Trust Co. v. Collector,
supra). It is recognized that the state may, consistently with due
process, impose a tax upon transfer by death of shares of stock in a
domestic corporation owned by a decedent whose domicile was
outside of the state (Burnett v. Brooks, 288 U.S. 378; State
Commission v. Aldrich, (1942) 316 U.S. 174, 86 L. Ed. 1358, 62 ALR.
1008)." (Brief for the Petitioner, p. 79-80).
The Ancilliary Administrator for purposes of exemption invokes
the proviso in Section 122 of the Tax Code, which provides as
follows:chanrob1es virtual 1aw library
. . . "And Provided, however, That no tax shall be collected under
this Title in respect of intangible personal property (a) if the
decedent at the time of his death was a resident of a foreign country
which at the time of his death did not impose a transfer tax or death
tax of any character in respect of intangible personal property of
citizens of the Philippines not residing in that country, or (b) if the
laws of the foreign country of which the decedent was resident at
the 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."cralaw virtua1aw library
The Ancilliary Administrator cases his claim of exemption on (a)
the exemption of non-residents from the California inheritance
taxes with respect to intangibles, and (b) the exemption by way of
reduction of P4,000 from the estates of non-residents, under the
United States Federal Estate Tax Law. Section 6 of the California
Inheritance Tax Act of 1935, now reenacted as Section 13851,
California Revenue and Taxation Code, reads as
follows:jgc:chanrobles.com.ph
"SEC. 6. The following exemption from the tax are hereby
allowed:chanrob1es virtual 1aw library
x x x
"(7) The tax imposed by this act in respect of intangible personal
property shall not be payable if decedent is a resident of a State or
Territory of the United States or a foreign state or country which at
the time of his death imposed a legacy, succession of death tax in
respect of intangible personal property within the State or
Territory or foreign state or country of residents of the States or
Territory or foreign state country, but did not impose a legacy or
succession or a death tax or a death tax of any character in respect
of intangible personal property within the State or Territory or
foreign state or country residence of the decedent at the time of his
death contained a reciprocal provision under which non-residents
were exempted from legacy or succession taxes or death taxes of
every character in respect of intangible personal property
providing the State or Territory or foreign state or country of
residence of such non-residents allowed a similar exemption to
residents of the state, Territory or foreign state or country of
residence of such decedent."cralaw virtua1aw library
Considering the State of California as a foreign country in relation
to section 122 of Our Tax Code we believe and hold, as did the Tax
Court, that the Ancilliary Administrator is entitled to exemption
from the inheritance tax on the intangible personal property found
in the Philippines. Incidentally, this exemption granted to non-
residents under the provision of Section 122 of our Tax Code, was
to reduce the burden of multiple taxation, which otherwise would
subject a decedent’s intangible personal property to the
inheritance tax, both in his place of residence and domicile and the
place where those properties are found. As regards the exemption
or reduction of P4,000 based on the reduction under the Federal
State Tax Law in the amount of $2,000, we agree with the Tax Court
that the amount of $2,000 allowed under the Federal Estate Tax
Law is in the nature of deduction and not of an exemption. Besides,
as the Tax Court observes —
. . . "this exemption is allowed on all gross estates of non- residents
of the United States, who are not citizens thereof, irrespective of
whether there is a corresponding or similar exemption from
transfer or death taxes of non-residents of the Philippines, who are
citizens of the United States; and thirdly, because this exemption is
allowed on all gross estates of non-residents irrespective of
whether it involves tangible or intangible, real or personal
property; so that for these reasons petitioner cannot claim a
reciprocity.." . .
Furthermore, in the Philippines, there is already a reduction on the
gross estate for purposes of the inheritance or estate tax in the
amount of P3,000 under section 85 of the Tax Code, before it was
amended, which in part provides as follows:jgc:chanrobles.com.ph
"SEC. 85. Rates of estate tax. — There shall be levied, assessed,
collected, and paid upon the transfer of the net estate of every
decedent, whether a resident or non-resident of the Philippines, a
tax equal to the sum of the following percentages of the value of the
net estate determined as provided in sections 88 and
89:jgc:chanrobles.com.ph
"One per centum of the amount by which the net estate exceeds
three thousand pesos and does not exceed ten thousand pesos;." . .
It will be noticed from the dispositive part of the appealed decision
of the Tax Court that the Ancilliary Administrator was ordered to
pay the amount of P2,047.22, representing estate taxes due,
together with interest and other increments. Said Ancilliary
Administrator invokes the provisions of Republic Act No. 1253,
which was passed for the benefit of veterans, guerrillas or victims
of Japanese atrocities who died during the Japanese occupation.
The provisions of this Act could not be invoked during the hearing
before the Tax Court for the reason that said Republic Act was
approved only on June 10, 1955. We are satisfied that inasmuch as
Miller not only suffered deprivation of the war, but was killed by
the Japanese military forces, his estate is entitled to the benefits of
Page 20 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA

this Act. Consequently, the interests and other increments

provided in the appealed judgment should not be paid by his estate.

With the above modification, the appealed decision of the Court of

Tax Appeals is hereby affirmed. We deem it unnecessary to pass
upon the other points raised in the appeal. No costs.

Page 21 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
UNITED STATES v. WELLS (1931)
No. 252
Argued: March 13, 1931Decided: April 13, 1931
[283 U.S. 102, 103] The Attorney General and Mr Charles B.
Rugg, Asst. Atty. Gen., for the United States. [283 U.S. 102, 104]
Mr. W. W. Spalding, of Washington, D. C., for respondents.
Mr. Chief Justice HUGHES delivered the opinion of the Court.
John W. Wells, a resident of Menominee, Mich., died on August 17,
1921. The Commissioner of Internal Revenue assessed additional
estate taxes, upon the ground [283 U.S. 102, 105] that certain
transfers by the decedent within two years prior to his death, were
made in contemplation of death and should be included in the
taxable estate under the provisions of section 402(c) of the
Revenue Act of 1918, 40 Stat. 1057, 1097. The amount of the
additional tax was paid by the executors and claim for refund was
filed. The claim having been rejected, the executors brought this
suit in the Court of Claims to recover the amount paid. The Court of
Claims decided in favor of the executors (39 F.( 2d) 998, 69 Ct. Cl.
485), and this Court granted a writ of certiorari.
The substance of the findings of the Court of Claims with respect to
the circumstances of the transfers may be stated as follows:
The decedent died at the age of seventy-three years; his wife and
five children, three sons and two daughters, survived him. When a
young man he became interested in the business of acquiring and
selling timber lands and of manufacturing lumber. He continued in
that business to the time of his death.
As early as the year 1901, decedent began the making of
advancements of money and other property to his children. He
kept a set of books on which he charged to his children some, but
not all, of the amounts transferred to them. The decedent believed
that the appropriate course for a man of wealth was to give to his
children substantial sums of money during his lifetime while he
could advise with them as to its proper use. He informed one of his
friends: 'I am making distribution from time to time of part of my
property to see what my children will do during my lifetime, and I
will then know when my time is up what I ought to do with the
balance.' 1 [283 U.S. 102, 106] In 1918, decedent advanced to
three of his children, Ralph W. Wells, Mrs. Edna Walsh, and Mrs.
Florence Law, shares of stock in the Dunbar & Wausaukee Railway
Company for which he charged each of them, in the equalization
hereafter mentioned, the sum of $25,460. Neither this transfer, nor
any of the earlier transfers, is in controversy.
In December, 1919, decedent transferred to his son Artemus C.
Wells, 343 shares, and to his son Daniel Wells, 73 shares, of the
stock of the J. W. Wells Lumber Company. He charged Artemus with
$89,180, and Daniel with $ 18,890, on account of these transfers.
On January 1, 1921, after carefully examining his accounts in
preparing for the final equalization of the prior advancements,
decedent transferred to his children 68,985 shares of the stock of
the Girard Lumber Company. His summaries of accounts with each
of his children showed debit balances, on which he had computed
interest, as follows: Daniel Wells, $266,530; Artemus C. Wells,
$231,651; Ralph W. Wells, $214,008; Mrs. Florence Law, $216,445;
and Mrs. Edna Walsh, $180,662. The decedent indorsed each of
these statements with the words, 'Account with _____,' 'This account
is canceled and ledger balanced to date as a gift to _____' ( the name
of the son or daughter being inserted), or with other words to the
same effect.
In this process of equalization decedent charged his children with
a total of 3458 shares of the capital stock of the Lloyd
Manufacturing Company. These shares were not delivered at that
time, as decedent had agreed to exchange them for a like number
of shares in a new company to result from an expected merger. On
January 26, 1921, decedent transferred to Marshall B. Lloyd, as
trustee for the benefit of his wife and five children, 3,713 shares of
the stock of the Lloyd Manufacturing Company with authority to
exchange these shares for shares of the stock of the new
corporation, on the issue of which the trustee [283 U.S. 102, 107]
was to assign the shares to decedent's wife and children,
respectively, in designated amounts, or, in the event that the
exchange was not consummated before December 1, 1921, to
distribute to them the shares of the Lloyd company. 2 On April 6,
1921, Lloyd, the trustee, distributed the certificates for the shares
in the new company, but the finding states that the decedent had
divested himself of all interest in the 3,713 shares of the Lloyd
stock when they were transferred in trust.
The transfers which the Commissioner deemed to be subject to the
additional estate tax are these:
That of December, 1919, to his sons Daniel and Artemus, of 416
shares of the stock of the J. W. Wells Lumber [283 U.S. 102, 108]
Company, increased by a subsequent stock dividend to 1,280
shares at the date of the decedent's death;
That of January 1, 1921, to his children, of 68,985 shares of the
stock of the Girard Lumber Company:
That of January 26, 1921, in trust for his wife and children, of 3, 713
shares of the stock of the Lloyd Manufacturing Company.
The aggregate value at the time of the decedent's death of all the
property embraced in these transfers was $782,903. Excluding this
property, the value of decedent's estate at the time of his death was
$881,314.61, on which the decedent's annual income was
approximately $50,000 a year.
The Court of Claims made detailed findings as to the state of
decedent's health. It appeared that for some time prior to the year
1919, he had suffered from attacks of asthma. In May of that year
he went to a hospital in Chicago for treatment and remained eleven
days. About the middle of April, 1920, decedent began to be
afflicted with ulcerative colitis, a condition in which the large
intestine becomes inflamed. The finding states: 'It is a curable
disease. About eighty to eighty-five per cent of the cases are cured.'
In June, 1920, decedent was advised by physicians in California
that he was suffering from cancer of the intestines. In the following
July, decedent again entered the hospital in Chicago and, on an
examination by a specialist in diseases of the bowels, the case was
diagnosed as ulcerative colitis. Between July and September, 1920,
decedent was informed in detail of his condition. His physician told
him that 'he would get well.'
While at the hospital, following an inquiry by his business
associate, Marshall B. Lloyd, whether decedent had made any
agreement with his second wife, Katherine Wells, with reference to
a division of property after his death, decedent made such an
agreement. Reciting his [283 U.S. 102, 109] illness, it provided that
his wife 'should have $100,000 in money and certain other
property in lieu of her statutory and dower rights.' Mrs. Wells
ratified all gifts theretofore made by the decedent to his children
and all gifts which might be made to his children thereafter 'and
before his death whether any of such gifts be made in
contemplation of his death, or otherwise.' Pursuant to the
agreement, decedent made his will on August 18, 1920, the
provisions of which differed only slightly from those of an earlier
will. After providing for the payment of $100,000 to his widow and
making other bequests, decedent devised his residuary estate to
his five children, with the proviso: 'Provided, however, that the
amount shown to be due me from each of my children severally in
accordance with my books at the time of my death, shall be
considered advancement made by me to them from time to time
and shall be chargeable to each of them severally as advancements
and shall be deducted from their respective shares.'
On September 14, 1920, decedent wrote to his son Ralph: 'The
doctors say that I will be absolutely cured if I am careful for two or
three months after leaving and I certainly will be careful after this.'
3
On September 22, 1920, decedent was discharged from the
hospital in an improved condition. His medial a dviser stated that
decedent's condition was 'excellent,' 'he had not fully at that time
recovered but he did within the next two of three months.' 'His
appearance was normal; he had gained an appreciable amount of
weight' and 'he was in a very fair state of health.' On his return to
Menominee, decedent said to his son, who had been in charge of his
affairs during his absence, that [283 U.S. 102, 110] 'he was
completely cured of the trouble that he had had and he felt good.'
Decedent then resumed his normal business activities. 4
Decedent was again admitted to the hospital in Chicago, on
November 30, 1920, for the purpose of an operation to relieve his
asthma. His physician stated that at that time 'he found him to be
in good general condition.' 5 On December 9, 1920, decedent was
discharged from the hospital and returned to his home. He went
back to the hospital on January 10, 1921, for the completion of the
nasal operation. 6 At the time of his discharge on January 14, 1921,
the medical examination showed "a very greatly improved
condition' and that 'in respect to the ulcerative colitis it was '90 per
cent normal."
On January 26, 1921, the date of the trust agreement (constituting
the last of the transfers in question), decedent wrote to his son
Page 22 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
Ralph: 'The doctors pronounce me cured of bowel trouble, but I
will always have asthma. I weight 140 stripped.' On February 3,
1921, he left for California, where he was accustomed to spend the
winter months. His physician stated that decedent at that time
'considered himself well, and I told him that he need have no
anxiety whatever about his state of health; [283 U.S. 102, 111] that
I considered him in excellent condition; that he need have no fears
of any recurrence of the ulcerated colitis.' 7
But in April, 1921, while still in California, decedent had such a
recurrence. He consulted a specialist of reputation who after
examination informed him that he might have a cancer, and
advised an operation. In June, 1921, decedent reentered the
hospital in Chicago. His condition proved to be due to a virulent
form of infection that failed to yield to treatment. Returning to his
home, he continud to lose ground and he died on August 17, 1921.
An autopsy disclosed a severe and extensive inflammation of the
large intestine, with ulceration of the bowel. No trace of cancer was
found. The death certificate signed by his physician set forth the
cause of decedent's death as 'suppurative colitis' and its 'duration
one year.'
The Court of Claims did not find, in terms, that the transfers in
question were not made in contemplation of death, but it is evident
that the court considered that its findings of fact amounted to that
in substance, in view [283 U.S. 102, 112] of the conclusion of law,
based upon these findings, that the executors were entitled to
recover the additional tax. This is also manifest from the reasoning
of the court's opinion. The court said:
'The plaintiffs have not only overcome the presumption created by
the statute that the transfers were made in contemplation of death,
but have definitely established the fact that the immediate and
moving cause of the transfers was the carrying out of a policy long
followed by decedent in dealing with his children of making liberal
gifts to them during his lifetime. He had consistently followed that
policy for nearly thirty years, and the three transfers in question
were a continuation and final consummation of such policy. In the
last transfer such amounts were given to his children as would
even them up one with another, in the gifts and advancements
made to them.
'That this was the motive which actuated the decedent in making
these transfers seems unquestioned. He repeatedly, in letters to his
children and in statements to business associates at about the time
the transfers were made, gave this as his reason for such transfers.
After the final transfer in which the advancements and gifts to the
children were evened up in January, 1921, the decedent still
possessed property of the value of nearly $900,000, from which he
drew an annual income of approximately $50,000. At the time the
transfers were made, decedent had no reason to believe otherwise
than, aside from his asthma, he was, for a man of his age, in
ordinary health. While he had gone through a most serious and
painful illness, he had, as he believed, made an almost complete
recovery. He was assured of this fact by his physician, an eminent
specialist, in whom he had great confidence. The repeated
statements made by him to close friends and associates, his daily
activities in matters connected with his business affairs, his letters
to his children assuring them of his renewed health, show [283 U.S.
102, 113] that he fully believed the assurances given him by his
physician that he was cured and had nothing to fear on account of
his former illness.
'The presumption created by the statute that the transfers in
question were made in contemplation of death cannot stand
against ascertained and proven facts showing the contrary to be
true. The best evidence of the state of the decedent's health at the
time the transfers were made is the statement of his doctor. The
best evidence of the decedent's state of mind at that time and the
reasons actuating him in making the transfers are the statements
and expressions of the decedent himself, supported as such
statements are by all the circumstances concerning the transfers.'8
The Government contests the decision of the Court of Claims upon
the ground that the conclusion was reached by an erroneous
construction of the words 'in contemplation of death' as used in the
statute. The court held that "contemplation of death' does not mean
that general knowledge of all men that they must die, but that [283
U.S. 102, 114] there must be a present apprehension, from some
existing bodily or mental condition or impending peril, creating a
reasonable fear that death is near at hand, and that such reasonable
fear or apprehension must be the direct or animating cause, and
the only cause of the transfer.' 9 The Government insists that this
definition is too narrow; that transfers in contemplation of death
are not limited to those induced by a condition causing expectation
of death in the near future; that the character of such gifts is
determined by the state of mind of the donor at the time they are
made, and that the statutory presumption may be overcome only
by proof that the decedent's purpose in making the gift was to
attain some object desirable to him during his life, as distinguished
from the distribution of his estate as at death. [283 U.S. 102, 115]
The phrase 'in contemplation of death,' previously found in state
statutes, was first used by the Congress in the Revenue Act of 1916,
imposing an estate tax. It was coupled with a clause creating a
statutory presumption in case of gifts within two years before
death. 10 The provision was continued in the Revenue Act of
1918,11 which governs the present case, and in later legislation.
While the interpretation of the phrase has not been uniform, there
had been agreement upon certain fundamental considerations. It is
recognized that the reference is not to the general expectation of
death which all entertain. It must be a particular concern, giving
rise to a definite motive. 12 The provision is not confined to gifts
causa mortis, [283 U.S. 102, 116] which are made in anticipation
of impending death, are revocable, and are defeated if the donor
survives the apprehended peril. Basket v. Hassell, 107 U S. 602,
609, 610, 2 S. Ct. 415.13 The statutory description embraces gifts
inter vivos, despite the fact that they are fully executed, are
irrevocable and indefeasible. The quality which brings the transfer
within the statute is indicated by the context and manifest purpose.
Transfers in contemplation of death are included within the same
category, for the purpose of taxation, with transfers intended to
take effect at or after the death of the transferor. The dominant
[283 U.S. 102, 117] purpose is to reach substitutes for
testamentary dispositions and thus to prevent the evasion of the
estate tax. Nichols v. Coolidge, 274 U.S. 531, 542 , 47 S. Ct. 710, 52
A. L. R. 1081; Milliken v. United States, 283 U.S. 15 , 51 S. Ct. 324,
decided March 2, 1931. As the transfer may otherwise have all the
indicia of a valid gift inter vivos, the differentiating factor must be
found in the transferor's motive. Death must be 'contemplated,'
that is, the motive which induces the transfer must be of the sort
which leads to testamentary disposition. As a condition of body and
mind that naturally gives rise to the feeling that death is near, that
the donor is about to reach the moment of inevitable surrender of
ownership, is most likely to prompt such a disposition to those who
are deemed to be the proper objects of his bounty, the evidence of
the existence or nonexistence of such a condition at the time of the
gift is obviously of great importance in determining whether it is
made in contemplation of death. The natural and reasonable
inference which may be drawn from the fact that but a short period
intervenes between the transfer and death is recognized by the
statutory provision creating a presumption in the case of gifts
within two years prior to death. But this presumption, by the
statute before us, is expressly stated to be a rebuttable one, and the
mere fact that death ensues even shortly after the gift does not
determine absolutely that it is in contemplation of death. The
question, necessarily, is as to the state of mind of the donor.
As the test, despite varying circumstances, is always to be found in
motive, it cannot be said that the determinative motive is lacking
merely because of the absence of a consciousness that death is
imminent. It is contemplation of death, not necessarily
contemplation of imminent death, to which the statute refers. It is
conceivable that the idea of death may possess the mind so as to
furnish a controlling motive for the disposition of property,
although death is not thought to be close at hand. Old age [283 U.S.
102, 118] may give premonitions and promptings independent of
mortal disease. Yet age in itself cannot be regarded as furnishing a
decisive test, for sound health and purposes associated with life,
rather than with death, may motivate the transfer. The words 'in
contemplation of death' mean that the thought of death is the
impelling cause of the transfer, and while the belief in the
imminence of death may afford convincing evidence, the statute is
not to be limited, and its purpose thwarted, by a rule of
construction which in place of contemplation of death makes the
final criterion to be an apprehension that death is 'near at hand.'
If it is the thought of death, as a controlling motive prompting the
disposition of property, that affords the test, it follows that the
statute does not embrace gifts inter vivos which spring from a
different motive. Such transfers were made the subject of a distinct
gift tax, since repealed. 14 As illustrating transfers found to be
related to purposes associated with life, rather than with the
distribution of property in anticipation of death, the Government
mentions transfers made 'for the purpose of relieving the donor of
the cares of management or in order that his children may
experience the responsibilities of business under his guidance and
supervision.' The illustrations are useful but not exhaustive. The
purposes which may be served by gifts are of great variety. It is
common knowledge that a frequent inducement is not only the
desire to be relieved of responsibilities, but to have children, or
others who may be the appropriate objects of the donor's bounty,
independently established with competencies of their own,
without being compelled to await the death of the donor and
without particular [283 U.S. 102, 119] consideration of that event.
There may be the desire to recognize special needs or exigencies
or to discharge moral obligations. The gratification of such desires
may be a more compelling motive than any thought of death.
Page 23 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
It is apparent that there can be no precise delimitation of the
transactions embraced within the conception of transfers in
'contemplation of death,' as there can be none in relation to fraud,
undue influence, due process of law, or other familiar legal
concepts which are applicable to many varying circumstances.
There is no escape from the necessity of carefully scrutinizing the
circumstances of each case to detect the dominant motive of the
donor in the light of his bodily and mental condition, and thus to
give effect to the manifest purpose of the statute.
We think that the Government is right in its criticism of the
narrowness of the rule laid down by the Court of Claims, in
requiring that there be a condition 'creating a reasonable fear that
death is near at hand,' and that 'such reasonable fear or
apprehension' must be 'the only cause of the transfer.' It is
sufficient if contemplation of death be the inducing cause of the
transfer whether or not death is believed to be near. But it does not
appear that the decision of the court rests upon the limitation thus
expressed. The court did not rely merely upon the fact that at the
time of the transfers decedent considered that he had recovered
from his former illness and believed the assurances given him by
his physician that he need have no fear of its recurrence or any
'anxiety whatever about his state of health.' That fact was
manifestly important, but, in addition to that, the court held that
'immediate and moving cause of the transfers was the carrying out
of a policy, long followed by decedent in dealing with his children
of making liberal gifts to them during his lifetime.' The court
regarded the transfers in question as 'a continuation and and final
consummation of such policy,' saying 'that this was the motive [283
U.S. 102, 120] which actuated the decedent in making these
transfers seems unquestioned.' In the view of the court as thus
explicitly stated, not only was there no fear at the time of the
transfers that death was near at hand, but the motive for the
transfers brought them within the category of those which, as
described by the Government, are intended by the donor 'to
accomplish some purpose desirable to him if he continues to live.'
In the presence of such a motive, appropriately found, and of the
underlying facts which have been expressly found, there would be
no ground for a reversal of the judgment merely because of an
inaccuracy in the general statement as to the meaning of the
statutory phrase.
The only difficulty presented by the record is that this statement
with respect to the motive of decedent appears in the opinion of
the court and not in its findings of fact. We are not at liberty to refer
to the opinion for additional findings. The findings of fact of the
Court of Claims are to be treated like the verdict of a jury. 15 We
cannot add to them, or modify them, but the absence of the finding
of an ultimate fact does not require a reversal of the judgment if the
circumstantial facts as found are such that the ultimate fact follows
from them as a necessary inference. 16
It is evident that the court did not consider the statements in its
opinion, which we have quoted, as additional findings of fact, but
as an argument with respect to the conclusion to be drawn from its
findings. In its opinion, the court was summarizing what it
considered to be the effect of its findings, and no useful purpose
would be served in returning the case for a specific finding that the
motive which impelled the decedent to make the transfers [283
U.S. 102, 121] wasprec isely that which the court has thus
definitely stated. While, in accordance with proper practice and the
rule of this Court,17 the Court of Claims should have found the
ultimate fact, and we do not approve the method it adopted, we are
of the opinion that, in view of the findings of fact actually made and
the conclusion they import, the judgment should be sustained. 18
Judgment affirmed.
Mr. Justice ROBERTS took no part in the consideration or decision
of this case.
Footnotes
[ Footnote 1 ] Speaking of a less liberal policy of a former business
associate, who died in or about the year 1918, decedent frequently
expressed his opinion that his friend 'had made a big mistake in not
distributing his property to his children while he was alive to help
them handle it properly and said 'that is not my policy."
[ Footnote 2 ] On the day that this trust agreement was made,
decedent wrote to his son Ralph (then in England): 'I am going to
divide Lloyd pref. stock and most of G. L. Co. (Girard Lumber Co.)
among you children at once so you will have enough to keep you
from hunger at least. I own now 5103 Lloyd stock, $100 per share.
Income $35,721. I am going to even up my gifts to all now, and the
following is the way they stand before the evening up' (inserting
statement). 'I have charged all of you interest on your accounts at
5% and I have charged you and Art $50,000 apiece for motor loss
and credit you for W. P. L. Co. stock charged you. I am mighty busy
getting ready for the West, so good-by.'
On February 3, 1921, on leaving for California, decedent wrote to
his daughter, Mrs. Edna Walsh: 'I have been working on my books
and evening up all your accounts. Dan, Art, and Ralph have had
advances that were more than you and Florence had and I have
equalized one with the other by charging each with what they have
had and charging them interest on the account to date, and the
inclosed sheet shows what each has had and how I equalized your
a/cs by giving stock to even. Your Lloyd stock will be delivered as
soon as the deal is closed, which will be very soon. Your Lloyd stock
is worth $108,600 and the Girard stock is worth $252000, so you
need not take in washing for support unless you throw it away on
copper or other junk. In making out these accounts, the thing that
seems most important is how interest runs up. Good safe bonds are
the best investment for a person who does not understand
business. Well, my dear girl, take good care of this, remember the
poor and needy, and you will receive your reward. Good-by.'
[ Footnote 3 ] At about this time, the hospital physician found
marked evidence of an inflammation of the ethmoid cells which are
connected with the nasal cavity, and concluded that there was very
likely a close relation between the ethmoiditis and the asthma.
[ Footnote 4 ] Writing to his son Ralph on October 30, 1920,
decedent said: 'I am around about the same as usual. ... I feel as well
as ever, and bowels seem normal, but doctor says I must diet and
take bismuth medicine for a while and be careful. Gained six
pounds since I came home.'
[ Footnote 5 ] The physician said that decedent 'came to the
hospital for treatment of the asthma, not for the bowel trouble. In
fact, it was by arrangement when he left the hospital in September
that he came back at this time, in November, to have the operative
work done on the nose that was designed to clear up the asthma.'
[ Footnote 6 ] His physician then made the following entry in the
hospital record with respect to decedent's condition: 'In general
feels very well. Gained six pounds in weight. Asthma has been
somewhat troublesome at times. Has had very good bowel
function. No pain. Returns for completion of nasal operation.'
[ Footnote 7 ] In February, 1921, friends of the decedent, visiting
him in California, were taken by him on extended motor trips.
'Decedent drove the car himself through the congested portion of
the city (Los Angeles), as well as around or over the mountains
near that city. At places on these mountain roads the automobile
party driven by the decedent traversed roads that ran along a
precipice where there is a sheer fall of six or seven thousand feet
without any apparent concern or distress on the part of the
decedent.' His friends 'did not see any difference in his appearance.
He seemed to be just as spry as he ever was, and handled the car in
pretty good shape.' He was thought to be 'very cheerful.'
In a letter dated February 21, 1921, written to his children,
decedent said: 'I am about free of my bowel trouble, but have my
old complaint, asthma, but I have taken treatment at Batch Creek
Treatment Rooms here the last two years and they have cleared it
up and they are now treating me and it is clearing up.'
[ Footnote 8 ] Referring to the agreement made in the summer of
1920 with the decedent's wife as to her share of his property, and
to the making of his will, the court said: 'While these transactions
are entitled to consideration in connection with all the other facts
and circumstances shown, we do not regard them as having a great
deal of weight in determining the question as to the decedent's
state of mind, and the motives actuating him in making transfers of
property, four months later. No transfers of property were made to
the children at the time of the execution of the property agreement
with his wife, and the provisions made for their benefit in the will
executed at that time were identical with the provisions of a former
will. Whatever apprehensions the decedent entertained at the tie
of the making of the property agreement with his wife as to the
chances of recovery from the illness from which he was suffering
at that time, had ceased to exist before the transfer of the Girard
Lumber Company stock on January 1, 1921, and the Lloyd
Manufacturing Company stock on January 26, 1921.'
[ Footnote 9 ] In support of this view, the court cited Spreckels v.
State, 30 Cal. App. 363, 158 P. 549; Shwab v. Doyle (C. C. A.) 269 F.
321; Meyer v. United States, 60 Ct. Cl. 474; Rea v. Heiner (D. C.) 6
F.(2d) 389; and Appeal of Starck, Executor, 3 B. T. A. 514. See, also,
Phillips, Executor, 7 B. T. A. 1054; Stein et al., Executors, 9 B. T. A.
486; Gimbel et al., Executors, 11 B. T. A. 214; George A. Wheelock's
Estate, 13 B. T. A. 831; Commonwealth v. Fenley, 189 Ky. 480, 225
Page 24 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA

S. W. 154; State v. Pabst, 139 Wis. 561, 121 N. W. 351; State v. [ Footnote 16 ] United States v. Pugh, 99 U.S. 265, 269 , 270 S.;
Thompson, 154 Wis. 320, 142 N. W. 647, 46 L. R. A. (N. S.) 790, Ann. Botany Worsted Mills v. United States, 278 U.S. 282, 290 , 49 S. Ct.
Cas. 1915B, 1084; Gaither v. Miles (D. C.) 268 F. 692; Vaughan v. 129.
Riordan (D. C.) 280 F. 742; Flannery v. Willcuts (C. C. A.) 25 F.(2d)
951; Beeler v. Motter (D. C.) 33 F.(2d) 788; Rosenthal v. People, 211 [ Footnote 17 ] Rule 41 (28 USCA 354).
Ill. 306, 71 N. E. 1121; People v. Burkhalter, 247 Ill. 600, 93 N. E.
379, 139 Am. St. Rep. 351; People v. Carpenter, 264 Ill. 400, 106 N. [ Footnote 18 ] Act of February 26, 1919, c. 48, 40 Stat. 1181, U. S.
E. 302; People v. Northern Trust Co., 324 Ill. 625, 155 N. E. 768; C., Tit. 28 , 391 (28 USCA 391).
Matter of Baker, 83 App. Div. 530, 82 N. Y. S. 390, affirmed 178 N.
Y. 575, 70 N. E. 1094; Matter of Palmer, 117 App. Div. 361, 102 N.
Y. S. 236; Matter of Baird, 219 App. Div. 418, 219 N. Y. S. 158. But,
compare Estate of Reynolds, 169 Cal. 600, 147 P. 268; Estate of
Pauson, 186 Cal. 358, 199 P. 331; Chambers v. Larronde, 196 Cal.
100, 235 P. 1024, 41 A. L. R. 980; Armstrong v. State of Indiana, 72
Ind. App. 303, 120 N. E. 717; Matter of Crary, 31 Misc. Rep. 72, 64
N. Y. S. 566; Matter of Price, 62 Misc. Rep. 149, 116 N. Y. S. 283; Tax
Commission v. Parker, 117 Ohio St. 215, 158 N. E. 89; Rengstorff v.
McLaughlin (D. C.) 21 F.(2d) 177.

[ Footnote 10 ] 39 Stat. 756, 777, 778.

[ Footnote 11 ] 40 Stat. 1057, 1097. Section 402(c) provides: 'To

the extent of any interest therein of which the decedent has at any
time made a transfer, or with respect to which he has at any time
created a trust, in contemplation of or intended to take effect in
possession or enjoyment at or after his death (whether such
transfer or trust is made or created before or after the passage of
this Act), except in case of a bona fide sale for a fair consideration
in money or money's worth. Any transfer of a material part of his
property in the nature of a final disposition or distribution thereof,
made by the decedent within two years prior to is death without
such a consideration, shall, unless shown to the contrary, be
deemed to have been made in contemplation of death within the
meaning of this title;'

[ Footnote 12 ] Article 23 of Regulations 37, under the Revenue Act

of 1918, contained the following:

'Art. 23. Nature of Transfer.-The words 'in contemplation of death'

do not refer to the general expectation of death which all persons
entertain. A transfer, however, is made in contemplation of death
wherever the person making it is influenced to do so by such an
expectation of death, arising from bodily or mental conditions, as
prompts persons to dispose of their property to those whom they
deem proper objects of their bounty. The cause which induces such
bodily or mental conditions is immaterial; and it is not necessary
that the decedent be in the immediate expectation of death. Such a
transfer is taxable, although the decedent parts absolutely and
immediately with his title to and possession of the property.
Transfers made within two years of a decedent's death are
presumed to be taxable if they are of a material part of his property
and are in the nature of a final disposition thereof. ... All facts
relating to the transfer should be stated, including the motive
therefor, the decedent's state of health, and his anticipation of
death. The pesum ption of taxability may be rebutted by proof that
the transfer was not induced by bodily or mental conditions
leading the grantor to make a disposition of property testamentary
in its nature. The fact that a gift was made as an advancement, to
be taken into account upon the final distribution of the decedent's
estate, is not enough, standing alone, to establish taxability; but it
is a circumstance to be considered in determining whether the
transfer was made in contemplation of death.'
[ Footnote 13 ] In Matter of Seaman, 147 N. Y. 69, 76, 41 N. E. 401,
403. the court, referring to the words 'in contemplation of death' in
the Inheritance Tax Law of New York, said that the clause
'evidently referred to grants or gifts causa mortis.' See, also, Matter
of Edgerton, 35 App. Div. 125, 54 N. Y. S. 700, affirmed 158 N. Y.
671, 52 N. E. 1124; Matter of Spaulding, 49 App. Div. 541, 63 N. Y.
S. 694, affirmed 163 N. Y. 607, 57 N. E. 1124; Matter of Baker, 83
App. Div. 530, 82 N. Y. S. 390, affirmed 178 N. Y. 575, 70 N. E. 1094.
But compare Matter of Palmer, 117 App. Div. 361, 366-368, 102 N.
Y. S. 236; Matter of Crary, 31 Misc. Rep. 72, 75, 64 N. Y. S. 566;
Matter of Price, 62 Misc. Rep. 149, 151, 152, 116 N. Y. S. 283; Matter
of Dee (Sur.) 148 N. Y. S. 423, affirmed 161 App. Div. 881, 145 N. Y.
S. 1120, affirmed 210 N. Y. 625, 104 N. E. 1128; Matter of Hodges,
215 N. Y. 447, 109 N. E. 559.

[ Footnote 14 ] Revenue Act of 1924, 319-324, 43 Stat. 253, 313,

and section 319, as amended by Revenue Act of 1926, 324, 44 Stat.
9, 86; Bromley v. McCaughn, 280 U.S. 124 50 S. Ct. 46. Revenue Act
of 1926 , 1200(a), 44 Stat. 9, 125, 126 (26 USCA 1a note).

[ Footnote 15 ] Stone v. United States, 164 U.S. 380, 382 , 383 S., 17
S. Ct. 71; Crocker v. United States, 240 U.S. 74, 78 , 36 S. Ct. 245;
Brothers v. United States, 250 U.S. 88, 93 , 39 S. Ct. 426.

Page 25 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
EN BANC
G.R. No. L-34937 March 13, 1933
CONCEPCION VIDAL DE ROCES and her husband,
MARCOS ROCES, and ELVIRA VIDAL DE RICHARDS, plaintiff-
appellants,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-
appellee.
IMPERIAL, J.:
The plaintiffs herein brought this action to recover from the
defendant, Collector of Internal Revenue, certain sums of money
paid by them under protest as inheritance tax. They appealed from
the judgment rendered by the Court of First Instance of Manila
dismissing the action, without costs.
On March 10 and 12, 1925, Esperanza Tuazon, by means of public
documents, donated certain parcels of land situated in Manila to
the plaintiffs herein, who, with their respective husbands, accepted
them in the same public documents, which were duly recorded in
the registry of deeds. By virtue of said donations, the plaintiffs took
possession of the said lands, received the fruits thereof and
obtained the corresponding transfer certificates of title.
On January 5, 1926, the donor died in the City of Manila without
leaving any forced heir and her will which was admitted to probate,
she bequeathed to each of the donees the sum of P5,000. After the
estate had been distributed among the instituted legatees and
before delivery of their respective shares, the appellee herein, as
Collector of Internal Revenue, ruled that the appellants, as donees
and legatees, should pay as inheritance tax the sums of P16,673
and P13,951.45, respectively. Of these sums P15,191.48 was levied
as tax on the donation to Concepcion Vidal de Roces and P1,481.52
on her legacy, and, likewise, P12,388.95 was imposed upon the
donation made to Elvira Vidal de Richards and P1,462.50 on her
legacy. At first the appellants refused to pay the aforementioned
taxes but, at the insistence of the appellee and in order not to delay
the adjudication of the legacies, they agreed at last, to pay them
under protest.
The appellee filed a demurrer to the complaint on the ground that
the facts alleged therein were not sufficient to constitute a cause of
action. After the legal questions raised therein had been discussed,
the court sustained the demurrer and ordered the amendment of
the complaint which the appellants failed to do, whereupon the
trial court dismissed the action on the ground that the afore-
mentioned appellants did not really have a right of action.
In their brief, the appellants assign only one alleged error, to wit:
that the demurrer interposed by the appellee was sustained
without sufficient ground.
The judgment appealed from was based on the provisions of
section 1540 Administrative Code which reads as follows:
SEC. 1540. Additions of gifts and advances. — After the
aforementioned deductions have been made, there shall
be added to the resulting amount the value of all gifts or
advances made by the predecessor to any those who,
after his death, shall prove to be his heirs, devisees,
legatees, or donees mortis causa.
The appellants contend that the above-mentioned legal provision
does not include donations inter vivos and if it does, it is
unconstitutional, null and void for the following reasons: first,
because it violates section 3 of the Jones Law which provides that
no law should embrace more than one subject, and that subject
should be expressed in the title thereof; second that the Legislature
has no authority to impose inheritance tax on donations inter vivos;
and third, because a legal provision of this character contravenes
the fundamental rule of uniformity of taxation. The appellee, in
turn, contends that the words "all gifts" refer clearly to
donations inter vivos and, in support of his theory, cites the
doctrine laid in the case of Tuason and Tuason vs. Posadas (54 Phil.,
289). After a careful study of the law and the authorities applicable
thereto, we are the opinion that neither theory reflects the true
spirit of the aforementioned provision. The gifts referred to in
section 1540 of the Revised Administration Code are, obviously,
those donations inter vivos that take effect immediately or during
the lifetime of the donor but are made in consideration or in
contemplation of death. Gifts inter vivos, the transmission of which
is not made in contemplation of the donor's death should not be
understood as included within the said legal provision for the
reason that it would amount to imposing a direct tax on property
and not on the transmission thereof, which act does not come
within the scope of the provisions contained in Article XI of Chapter
40 of the Administrative Code which deals expressly with the tax
on inheritances, legacies and other acquisitions mortis causa.
Our interpretation of the law is not in conflict with the rule laid
down in the case of Tuason and Tuason vs. Posadas, supra. We said
therein, as we say now, that the expression "all gifts" refers to
gifts inter vivos inasmuch as the law considers them as advances on
inheritance, in the sense that they are gifts inter vivos made in
contemplation or in consideration of death. In that case, it was not
held that that kind of gifts consisted in those made completely
independent of death or without regard to it.
Said legal provision is not null and void on the alleged ground that
the subject matter thereof is not embraced in the title of the section
under which it is enumerated. On the contrary, its provisions are
perfectly summarized in the heading, "Tax on Inheritance, etc."
which is the title of Article XI. Furthermore, the constitutional
provision cited should not be strictly construed as to make it
necessary that the title contain a full index to all the contents of the
law. It is sufficient if the language used therein is expressed in such
a way that in case of doubt it would afford a means of determining
the legislators intention. (Lewis' Sutherland Statutory
Construction, Vol. II, p. 651.) Lastly, the circumstance that the
Administrative Code was prepared and compiled strictly in
accordance with the provisions of the Jones Law on that matter
should not be overlooked and that, in a compilation of laws such as
the Administrative Code, it is but natural and proper that
provisions referring to diverse matters should be found. (Ayson
and Ignacio vs. Provincial Board of Rizal and Municipal Council of
Navotas, 39 Phil., 931.)
The appellants question the power of the Legislature to impose
taxes on the transmission of real estate that takes effect
immediately and during the lifetime of the donor, and allege as
their reason that such tax partakes of the nature of the land tax
which the law has already created in another part of the
Administrative Code. Without making express pronouncement on
this question, for it is unnecessary, we wish to state that such is not
the case in these instance. The tax collected by the appellee on the
properties donated in 1925 really constitutes an inheritance tax
imposed on the transmission of said properties in contemplation
or in consideration of the donor's death and under the
circumstance that the donees were later instituted as the former's
legatees. For this reason, the law considers such transmissions in
the form of gifts inter vivos, as advances on inheritance and nothing
therein violates any constitutional provision, inasmuch as said
legislation is within the power of the Legislature.
Property Subject to Inheritance Tax. — The inheritance
tax ordinarily applies to all property within the power
of the state to reach passing by will or the laws
regulating intestate succession or by gift inter vivos in
the manner designated by statute, whether such
property be real or personal, tangible or intangible,
corporeal or incorporeal. (26 R.C.L., p. 208, par. 177.)
In the case of Tuason and Tuason vs. Posadas, supra, it was also held
that section 1540 of the Administrative Code did not violate the
constitutional provision regarding uniformity of taxation. It cannot
be null and void on this ground because it equally subjects to the
same tax all of those donees who later become heirs, legatees or
donees mortis causa by the will of the donor. There would be a
repugnant and arbitrary exception if the provisions of the law were
not applicable to all donees of the same kind. In the case cited
above, it was said: "At any rate the argument adduced against its
constitutionality, which is the lack of Uniformity, does not seem to
be well founded. It was said that under such an interpretation,
while a donee inter vivos who, after the predecessor's death proved
to be an heir, a legatee, or a donee mortis causa, would have to pay
the tax, another donee inter vivos who did not prove to he an heir,
a legatee, or a donee mortis causa of the predecessor, would be
exempt from such a tax. But as these are two different cases, the
principle of uniformity is inapplicable to them."
The last question of a procedural nature arising from the case at
bar, which should be passed upon, is whether the case, as it now
stands, can be decided on the merits or should be remanded to the
Page 26 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA

court a quo for further proceedings. According to our view of the

case, it follows that, if the gifts received by the appellants would
have the right to recover the sums of money claimed by them.
Hence the necessity of ascertaining whether the complaint
contains an allegation to that effect. We have examined said
complaint and found nothing of that nature. On the contrary, it be
may be inferred from the allegations contained in paragraphs 2 and
7 thereof that said donations inter vivos were made in
consideration of the donor's death. We refer to the allegations that
such transmissions were effected in the month of March, 1925, that
the donor died in January, 1926, and that the donees were
instituted legatees in the donor's will which was admitted to
probate. It is from these allegations, especially the last, that we
infer a presumption juris tantum that said donations were
made mortis causa and, as such, are subject to the payment of
inheritance tax.

Wherefore, the demurrer interposed by the appellee was well-

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

Wherefore, the judgment appealed from is hereby affirmed, with

costs of this instance against the appellants. So ordered.

Page 27 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA

EN BANC here involved is section 1540 of the Administrative Code which

read as follows:jgc:chanrobles.com.ph
[G.R. No. 36770. November 4, 1932.]
"Additions of Gifts and Advances. — After the aforementioned
LUIS W. DISON, Plaintiff-Appellant, v. JUAN POSADAS, Jr., deductions have been made, there shall be added to the resulting
Collector of Internal Revenue, Defendant-Appellant. 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,
Marcelino Aguas, for Plaintiff-Appellant. devisees, legatees, or donees mortis causa."cralaw virtua1aw
library
Attorney-General Jaranilla, for Defendant-Appellant.
The question to be resolved may be stated thus: Does section 1540
SYLLABUS of the Administrative Code subject the plaintiff-appellant to the
payment of an inheritance tax?
1. INTERNAL REVENUE; INHERITANCE TAX; GIFTS "INTER
VIVOS." — Section 1540 of the Administrative Code subjects the The appellant argues that there is no evidence in this case to
plaintiff and appellant to the payment of the inheritance tax upon support a finding that the gift was simulated and that it was an
the gift inter vivos he received from his father and which really was artifice for evading the payment of the inheritance tax, as is
an advancement upon the inheritance he would be entitled to intimated in the decision of the court below and the brief of the
receive upon the death of the donor. Attorney-General. We see no reason why the court may not go
behind the language in which the transaction is masked in order to
2. ID.; ID.; ID. — Section 1540 of the Administrative Code does not ascertain its true character and purpose. In this case the scanty
tax gifts per se, but only when those gifts are made to those who facts before us may not warrant the inference that the conveyance,
shall prove to be the heirs, devises, legatees or donees mortis causa acknowledged by the donor five days before his death and
of the donor. accepted by the donee one day before the donor’s death, was
fraudulently made for the purpose of evading the inheritance tax.
3. ID.; ID.; ID.; "HEIRS." — The expression in section 1540 of the But the facts, in our opinion, do warrant the inference that the
Administrative Code "those who, after his death, shall prove to be transfer was an advancement upon the inheritance which the
his heirs" includes those who are given the status and rights of donee, as the sole and forced heir of the donor, would be entitled
heirs, regardless of the quantity of property they may receive as to receive upon the death of the donor.
such heirs.
The argument advanced by the appellant that he is not an heir of
his deceased father within the meaning of section 1540 of the
DECISION Administrative Code because his father in his lifetime had given the
appellant all his property and left no property to be inherited, is so
fallacious that the urging of it here casts a suspicion upon the
BUTTE, J.: appellant’s reason for completing the legal formalities of the
transfer on the eve of the latter’s death. We do not know whether
or not the father in his case left a will; in any event, this appellant
This is an appeal from the decision of the Court of First Instance of could not be deprived of his share of the inheritance because the
Pampanga in favor of the defendant Juan Posadas, jr., Collector of Civil Code confers upon him the status of a forced heir. We construe
Internal Revenue, in a suit filed by the plaintiff, Luis W. Dison, for the expression in section 1540 "any of those who, after his death,
the recovery of an inheritance tax in the sum of P2,808.73 paid shall prove to be his heirs", to include those who, by our law, are
under protest. The petitioner alleged in his complaint that the tax given the status and rights of heirs, regardless of the quantity of
is illegal because he received the property, which is the basis of the property they may receive as such heirs. That the appellant in this
tax, from his father before his death by a deed of gift inter vivos case occupies the status of heir to his deceased father cannot be
which was duly accepted and registered before the death of his questioned. Construing the conveyance here in question, under the
father. The defendant answered with a general denial and with a facts presented, as an advance made by Felix Dison to his only child,
counterdemand for the sum of P1,254.56 which it was alleged is a we hold section 1540 to be applicable and the tax to have been
balance still due and unpaid on account of said tax. The plaintiff properly assessed by the Collector of Internal Revenue.
replied to the counterdemand with a general denial. The court a
quo held that the cause of action set up in the counterdemand was This appeal was originally assigned to a Division of Five but
not proven and dismissed the same. Both sides appealed to this referred to the court in banc by reason of the appellant’s attack
court, but the cross-complaint and appeal of the Collector of upon the constitutionality of section 1540. This attack is based on
Internal Revenue were dismissed by this court on March 17, 1932, the sole ground that insofar as section 1540 levies a tax upon gifts
on motion of the Attorney-General. inter vivos, it violates that provision of section 3 of the Organic Act
of the Philippine Islands (39 Stat. L., 545) which reads as follows:
The only evidence introduced at the trial of this cause was the proof "That no bill which may be enacted into law shall embrace more
of payment of the tax under protest, as stated, and the deed of gift than one subject, and that subject shall be expressed in the title of
executed by Felix Dison on April 9, 1928, in favor of his son Luis W. the bill." Neither the title of Act No. 2601 nor chapter 40 of the
Dison, the plaintiff-appellant. This deed of gift transferred twenty- Administrative Code makes any reference to a tax on gifts. Perhaps
two tracts of land to the donee, reserving to the door for his life the it is enough to say of this contention that section 1540 plainly does
usufruct of three tracts. This deed was acknowledged before a not tax gifts per se but only when those gifts are made to those who
notary public on April 20, 1928. shall prove to be the heirs, devisees, legatees or donees mortis
causa of the donor. This court said in the case of Tuason and
At the trial the parties agreed to and filed the following ingenious Tuason v. Posadas (54 Phil., 289):jgc:chanrobles.com.ph
stipulation of fact:jgc:chanrobles.com.ph
"When the law says all gifts, it doubtless refers to gifts inter vivos,
"1. That Don Felix Dison died on April 21, 1928; and not mortis causa. Both the letter and the spirit of the law leave
no room for any other interpretation. Such, clearly, is the tenor of
"2. That Don Felix Dison, before his death, made a gift inter vivos in the language which refers to donations that took effect before the
favor of the plaintiff Luis W. Dison of all his property according to donor’s death, and not to mortis causa donations, which can only
a deed of gift (Exhibit D) which includes all the property of Don be made with the formalities of a will, and can only take effect after
Felix Dison; the donor’s death. Any other construction would virtually change
this provision into:jgc:chanrobles.com.ph
"3. That the plaintiff did not receive property of any kind of Don
Felix Dison upon the death of the latter; "‘. . . there shall be added to the resulting amount the value of all
gifts mortis causa . . . made by the predecessor to those who, after
"4. Than Don Luis W. Dison was the legitimate and only child of Don his death, shall prove to be his . . . donees mortis causa.’ We cannot
Felix Dison."cralaw virtua1aw library give to the law an interpretation that would so vitiate its language.
The truth of the matter is that in this section (1540) the law
It is inferred from Exhibit D that Felix Dison was a widower at the presumes that such gifts have been made in anticipation of
time of his death. inheritance, devise, bequest, or gift mortis causa, when the donee,
after the death of the donor proves to be his heir, devisee or donee
The theory of the plaintiff-appellant is that he received and holds mortis causa, for the purpose of evading the tax, and it is to prevent
the property mentioned by a consummated gift and that Act No. this that it provides that they shall be added to the resulting
2601 (chapter 40 of the Administrative Code) being the amount." However much appellant’s argument on this point may
inheritance tax statute, does not tax gifts. The provision directly fit his preconceived notion that the transaction between him and

Page 28 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA

his father was a consummated gift with no relation to the

inheritance, we hold that there is no merit in this attack upon the
constitutionality of section 1540 under our view of the facts. No
other constitutional questions were raised in this case.

The judgment below is affirmed with costs in this instance against

the appellant. So ordered.

Page 29 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA

EN BANC the powers conferred to said attorney-in-fact was the

power to represent her in all legal actions instituted by
or against her;
G.R. No. L-34583 October 22, 1931

4. That the defendant, of legal age, is and at all times

THE BANK OF THE PHILIPPINE ISLANDS, administrator of the
hereinafter mentioned the duly appointed Collector of
estate of the late Adolphe Oscar Schuetze, plaintiff-appellant,
Internal Revenue with offices at Manila, Philippine
vs.
Islands;
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-
appellee.
5. That the deceased Adolphe Oscar Schuetze came to
the Philippine Islands for the first time of March 31,
Araneta, De Joya, Zaragoza and Araneta for appellant.
1890, and worked in the several German firms as a mere
Attorney-General Jaranilla for appellee.
employee and that from the year 1903 until the year
1918 he was partner in the business of Alfredo Roensch;

6. That from 1903 to 1922 the said Adolphe Oscar

Schuetze was in the habit of making various trips to
VILLA-REAL, J.: Europe;

The Bank of the Philippine Islands, as administrator of the estate of
the deceased Adolphe Oscar Schuetze, has appealed to this court
from the judgment of the Court of First Instance of Manila
absolving the defendant Juan Posadas, Jr., Collector of Internal
Revenue, from the complaint filed against him by said plaintiff
bank, and dismissing the complaint with costs.
The appellant has assigned the following alleged errors as
committed by the trial court in its judgment, to wit:
7. That on December 3, 1927, the late Adolphe Oscar
Schuetze coming from Java, and with the intention of
going to Bremen, landed in the Philippine Islands where
he met his death on February 2, 1928;
8. That on March 31, 1926, the said Adolphe Oscar
Schuetze, while in Germany, executed a will, in
accordance with its law, wherein plaintiff was named his
universal heir;

1. The lower court erred in holding that the testimony of
Mrs. Schuetze was inefficient to established the domicile
of her husband.
2. The lower court erred in holding that under section
1536 of the Administrative Code the tax imposed by the
defendant is lawful and valid.
3. The lower court erred in not holding that one-half (½)
of the proceeds of the policy in question is community
property and that therefore no inheritance tax can be
levied, at least on one-half (½) of the said proceeds.
9. That the Bank of the Philippine Islands by order of the
Court of First Instance of Manila under date of May 24,
1928, was appointed administrator of the estate of the
deceased Adolphe Oscar Schuetze;
10. That, according to the testamentary proceedings
instituted in the Court of First Instance of Manila, civil
case No. 33089, the deceased at the time of his death was
possessed of not only real property situated in the
Philippine Islands, but also personal property consisting
of shares of stock in nineteen (19) domestic
corporations;

11. That the fair market value of all the property in the
4. The lower court erred in not declaring that it would
Philippine Islands left by the deceased at the time of his
be unconstitutional to impose an inheritance tax upon
death in accordance with the inventory submitted to the
the insurance policy here in question as it would be a
Court of First Instance of Manila, civil case No. 33089,
taking of property without due process of law.
was P217,560.38;

The present complaint seeks to recover from the defendant Juan

12. That the Bank of the Philippine Islands, as
Posadas, Jr., Collector of Internal Revenue, the amount of P1,209
administrator of the estate of the deceased rendered its
paid by the plaintiff under protest, in its capacity of administrator
final account on June 19, 1929, and that said estate was
of the estate of the late Adolphe Oscar Schuetze, as inheritance tax
closed on July 16, 1929;
upon the sum of P20,150, which is the amount of an insurance
policy on the deceased's life, wherein his own estate was named
the beneficiary. 13. That among the personal property of the deceased
was found life-insurance policy No. 194538 issued at
Manila, Philippine Islands, on January 14, 1913, for the
At the hearing, in addition to documentary and parol evidence,
sum of $10,000 by the Sun Life Assurance Company of
both parties submitted the following agreed statement of facts of
Canada, Manila branch, a foreign corporation duly
the court for consideration:
organized and existing under and by virtue of the laws
of Canada, and duly authorized to transact business in
It is hereby stipulated and agreed by and between the the Philippine Islands;
parties in the above-entitled action through their
respective undersigned attorneys:
14. That in the insurance policy the estate of the said
Adolphe Oscar Schuetze was named the beneficiary
1. That the plaintiff, Rosario Gelano Vda. de Schuetze, without any qualification whatsoever;
window of the late Adolphe Oscar Schuetze, is of legal
age, a native of Manila, Philippine Islands, and is and was
15. That for five consecutive years, the deceased
at all times hereinafter mentioned a resident of
Adolphe Oscar Schuetze paid the premiums of said
Germany, and at the time of the death of her husband,
policy to the Sun Life Assurance Company of Canada,
the late Adolphe Oscar Schuetze, she was actually
Manila branch;
residing and living in Germany;

16. That on or about the year 1918, the Sun Life

2. That the Bank of the Philippine Islands, is and was at
Assurance Company of Canada, Manila branch,
all times hereinafter mentioned a banking institution
transferred said policy to the Sun Life Assurance
duly organized and existing under and by virtue of the
Company of Canada, London branch;
laws of the Philippine Islands;

17. That due to said transfer the said Adolphe Oscar

3. That on or about August 23, 1928, the herein plaintiff
Schuetze from 1918 to the time of his death paid the
before notary public Salvador Zaragoza, drew a general
premiums of said policy to the Sun Life Assurance
power appointing the above-mentioned Bank of the
Company of Canada, London Branch;
Philippine Islands as her attorney-in-fact, and among

Page 30 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
18. That the sole and only heir of the deceased Adolphe
Oscar Schuetze is his widow, the plaintiff herein;
19. That at the time of the death of the deceased and at
all times thereafter including the date when the said
insurance policy was paid, the insurance policy was not
in the hands or possession of the Manila office of the Sun
Life Assurance Company of Canada, nor in the
possession of the herein plaintiff, nor in the possession
of her attorney-in-fact the Bank of the Philippine
Islands, but the same was in the hands of the Head Office
of the Sun Life Assurance Company of Canada, at
Montreal, Canada;
20. That on July 13, 1928, the Bank of the Philippine
Islands as administrator of the decedent's estate
received from the Sun Life Assurance Company of
Canada, Manila branch, the sum of P20,150 representing
the proceeds of the insurance policy, as shown in the
statement of income and expenses of the estate of the
deceased submitted on June 18, 1929, by the
administrator to the Court of First Instance of Manila,
civil case No. 33089;
21. That the Bank of the Philippine Islands delivered to
the plaintiff herein the said sum of P20,150;
22. That the herein defendant on or about July 5, 1929,
imposed an inheritance tax upon the transmission of the
proceeds of the policy in question in the sum of P20,150
from the estate of the late Adolphe Oscar Schuetze to the
sole heir of the deceased, or the plaintiff herein, which
inheritance tax amounted to the sum of P1,209;
23. That the Bank of the Philippine Islands as
administrator of the decedent's estate and as attorney-
in-fact of the herein plaintiff, having been demanded by
the herein defendant to pay inheritance tax amounting
to the sum of P1,209, paid to the defendant under
protest the above-mentioned sum;
24. That notwithstanding the various demands made by
plaintiff to the defendant, said defendant has refused
and refuses to refund to plaintiff the above mentioned
sum of P1,209;
25. That plaintiff reserves the right to adduce evidence
as regards the domicile of the deceased, and so the
defendant, the right to present rebuttal evidence;
26. That both plaintiff and defendant submit this
stipulation of facts without prejudice to their right to
introduce such evidence, on points not covered by the
agreement, which they may deem proper and necessary
to support their respective contentions.
In as much as one of the question raised in the appeal is whether
an insurance policy on said Adolphe Oscar Schuetze's life was, by
reason of its ownership, subject to the inheritance tax, it would be
well to decide first whether the amount thereof is paraphernal or
community property.
According to the foregoing agreed statement of facts, the estate of
Adolphe Oscar Schuetze is the sole beneficiary named in the life-
insurance policy for $10,000, issued by the Sun Life Assurance
Company of Canada on January 14, 1913. During the following five
years the insured paid the premiums at the Manila branch of the
company, and in 1918 the policy was transferred to the London
branch.
The record shows that the deceased Adolphe Oscar Schuetze
married the plaintiff-appellant Rosario Gelano on January 16,
1914.
With the exception of the premium for the first year covering the
period from January 14, 1913 to January 14, 1914, all the money
used for paying the premiums, i. e., from the second year, or
January 16, 1914, or when the deceased Adolphe Oscar Schuetze
married the plaintiff-appellant Rosario Gelano, until his death on
February 2, 1929, is conjugal property inasmuch as it does not
appear to have exclusively belonged to him or to his wife (art. 1407,
Civil Code). As the sum of P20,150 here in controversy is a product
of such premium it must also be deemed community property,
because it was acquired for a valuable consideration, during said
Adolphe Oscar Schuetze's marriage with Rosario Gelano at the
expense of the common fund (art. 1401, No. 1, Civil Code), except
for the small part corresponding to the first premium paid with the
deceased's own money.
In his Commentaries on the Civil Code, volume 9, page 589, second
edition, Manresa treats of life insurance in the following terms, to
wit:
The amount of the policy represents the premiums to be
paid, and the right to it arises the moment the contract
is perfected, for at the moment the power of disposing
of it may be exercised, and if death occurs payment may
be demanded. It is therefore something acquired for a
valuable consideration during the marriage, though the
period of its fulfillment, depend upon the death of one of
the spouses, which terminates the partnership. So
considered, the question may be said to be decided by
articles 1396 and 1401: if the premiums are paid with
the exclusive property of husband or wife, the policy
belongs to the owner; if with conjugal property, or if the
money cannot be proved as coming from one or the
other of the spouses, the policy is community property.
The Supreme Court of Texas, United States, in the case of Martin vs.
Moran (11 Tex. Civ. A., 509) laid down the following doctrine:
COMMUNITY PROPERTY — LIFE INSURANCE POLICY.
— A husband took out an endowment life insurance
policy on his life, payable "as directed by will." He paid
the premiums thereon out of community funds, and by
his will made the proceeds of the policy payable to his
own estate. Held, that the proceeds were community
estate, one-half of which belonged to the wife.
In In re Stan's Estate, Myr. Prob. (Cal.), 5, the Supreme Court of
California laid down the following doctrine:
A testator, after marriage, took out an insurance policy,
on which he paid the premiums from his salary. Held
that the insurance money was community property, to
one-half of which, the wife was entitled as survivor.
In In re Webb's Estate, Myr. Prob. (Cal.), 93, the same court laid
down the following doctrine:
A decedent paid the first third of the amount of the
premiums on his life-insurance policy out of his
earnings before marriage, and the remainder from his
earnings received after marriage. Held, that one-third of
the policy belonged to his separate estate, and the
remainder to the community property.
Thus both according to our Civil Code and to the ruling of those
North American States where the Spanish Civil Code once
governed, the proceeds of a life-insurance policy whereon the
premiums were paid with conjugal money, belong to the conjugal
partnership.
The appellee alleges that it is a fundamental principle that a life-
insurance policy belongs exclusively to the beneficiary upon the
death of the person insured, and that in the present case, as the late
Adolphe Oscar Schuetze named his own estate as the sole
beneficiary of the insurance on his life, upon his death the latter
became the sole owner of the proceeds, which therefore became
subject to the inheritance tax, citing Del Val vs. Del Val (29 Phil.,
534), where the doctrine was laid down that an heir appointed
beneficiary to a life-insurance policy taken out by the deceased,
becomes the absolute owner of the proceeds of such policy upon
the death of the insured.
The estate of a deceased person cannot be placed on the same
footing as an individual heir. The proceeds of a life-insurance policy
payable to the estate of the insured passed to the executor or
administrator of such estate, and forms part of its assets (37
Corpus Juris, 565, sec. 322); whereas the proceeds of a life-
insurance policy payable to an heir of the insured as beneficiary
belongs exclusively to said heir and does not form part of the
deceased's estate subject to administrator. (Del Val vs. Del
Page 31 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
Val, supra; 37 Corpus Juris, 566, sec. 323, and articles 419 and 428
of the Code of Commerce.)
Just as an individual beneficiary of a life-insurance policy taken out
by a married person becomes the exclusive owner of the proceeds
upon the death of the insured even if the premiums were paid by
the conjugal partnership, so, it is argued, where the beneficiary
named is the estate of the deceased whose life is insured, the
proceeds of the policy become a part of said estate upon the death
of the insured even if the premiums have been paid with conjugal
funds.
In a conjugal partnership the husband is the manager, empowered
to alienate the partnership property without the wife's consent
(art. 1413, Civil Code), a third person, therefore, named beneficiary
in a life-insurance policy becomes the absolute owner of its
proceeds upon the death of the insured even if the premiums
should have been paid with money belonging to the community
property. When a married man has his life insured and names his
own estate after death, beneficiary, he makes no alienation of the
proceeds of conjugal funds to a third person, but appropriates
them himself, adding them to the assets of his estate, in
contravention of the provisions of article 1401, paragraph 1, of the
Civil Code cited above, which provides that "To the conjugal
partnership belongs" (1) Property acquired for a valuable
consideration during the marriage at the expense of the common
fund, whether the acquisition is made for the partnership or for
one of the spouses only." Furthermore, such appropriation is a
fraud practised upon the wife, which cannot be allowed to
prejudice her, according to article 1413, paragraph 2, of said Code.
Although the husband is the manager of the conjugal partnership,
he cannot of his own free will convert the partnership property
into his own exclusive property.
As all the premiums on the life-insurance policy taken out by the
late Adolphe Oscar Schuetze, were paid out of the conjugal funds,
with the exceptions of the first, the proceeds of the policy,
excluding the proportional part corresponding to the first
premium, constitute community property, notwithstanding the
fact that the policy was made payable to the deceased's estate, so
that one-half of said proceeds belongs to the estate, and the other
half to the deceased's widow, the plaintiff-appellant Rosario
Gelano Vda. de Schuetze.
The second point to decide in this appeal is whether the Collector
of Internal Revenue has authority, under the law, to collect the
inheritance tax upon one-half of the life-insurance policy taken out
by the late Adolphe Oscar Schuetze, which belongs to him and is
made payable to his estate.
According to the agreed statement of facts mentioned above, the
plaintiff-appellant, the Bank of the Philippine Islands, was
appointed administrator of the late Adolphe Oscar Schuetze's
testamentary estate by an order dated March 24, 1928, entered by
the Court of First Instance of Manila. On July 13, 1928, the Sun Life
Assurance Company of Canada, whose main office is in Montreal,
Canada, paid Rosario Gelano Vda. de Schuetze upon her arrival at
Manila, the sum of P20,150, which was the amount of the insurance
policy on the life of said deceased, payable to the latter's estate. On
the same date Rosario Gelano Vda. de Schuetze delivered the
money to said Bank of the Philippine Islands, as administrator of
the deceased's estate, which entered it in the inventory of the
testamentary estate, and then returned the money to said widow.
Section 1536 of the Administrative Code, as amended by section 10
of Act No. 2835 and section 1 of Act No. 3031, contains the
following relevant provision:
SEC. 1536. Conditions and rate of taxation. — Every
transmission by virtue of inheritance, devise, bequest,
gift mortis causa or advance in anticipation of
inheritance, devise, or bequest of real property located
in the Philippine Islands and real rights in such
property; of any franchise which must be exercised in
the Philippine Islands; of any shares, obligations, or
bonds issued by any corporation or sociedad
anonima organized or constituted in the Philippine
Islands in accordance with its laws; of any shares or
rights in any partnership, business or industry
established in the Philippine Islands or of any personal
property located in the Philippine Islands shall be
subject to the following tax:
xxx xxx xxx
In as much as the proceeds of the insurance policy on the life of the
late Adolphe Oscar Schuetze were paid to the Bank of the
Philippine Islands, as administrator of the deceased's estate, for
management and partition, and as such proceeds were turned over
to the sole and universal testamentary heiress Rosario Gelano Vda.
de Schuetze, the plaintiff-appellant, here in Manila, the situs of said
proceeds is the Philippine Islands.
In his work "The Law of Taxation," Cooley enunciates the general
rule governing the levying of taxes upon tangible personal
property, in the following words:
GENERAL RULE. — The suits of tangible personal
property, for purposes of taxation may be where the
owner is domiciled but is not necessarily so. Unlike
intangible personal property, it may acquire a taxation
situs in a state other than the one where the owner is
domiciled, merely because it is located there. Its taxable
situs is where it is more or less permanently located,
regardless of the domicile of the owner. It is well settled
that the state where it is more or less permanently
located has the power to tax it although the owner
resides out of the state, regardless of whether it has
been taxed for the same period at the domicile of the
owner, provided there is statutory authority for taxing
such property. It is equally well settled that the state
where the owner is domiciled has no power to tax it
where the property has acquired an actual situs in
another state by reason of its more or less permanent
location in that state. ... (2 Cooley, The Law of Taxation,
4th ed., p. 975, par. 451.)
With reference to the meaning of the words "permanent" and "in
transit," he has the following to say:
PERMANENCY OF LOCATION; PROPERTY IN TRANSIT.
— In order to acquire a situs in a state or taxing district
so as to be taxable in the state or district regardless of
the domicile of the owner and not taxable in another
state or district at the domicile of the owner, tangible
personal property must be more or less permanently
located in the state or district. In other words, the situs
of tangible personal property is where it is more or less
permanently located rather than where it is merely in
transit or temporarily and for no considerable length of
time. If tangible personal property is more or less
permanently located in a state other than the one where
the owner is domiciled, it is not taxable in the latter state
but is taxable in the state where it is located. If tangible
personal property belonging to one domiciled in one
state is in another state merely in transitu or for a short
time, it is taxable in the former state, and is not taxable
in the state where it is for the time being. . . . .
Property merely in transit through a state ordinarily is
not taxable there. Transit begins when an article is
committed to a carrier for transportation to the state of
its destination, or started on its ultimate passage.
Transit ends when the goods arrive at their destination.
But intermediate these points questions may arise as to
when a temporary stop in transit is such as to make the
property taxable at the place of stoppage. Whether the
property is taxable in such a case usually depends on the
length of time and the purpose of the interruption of
transit. . . . .
. . . It has been held that property of a construction
company, used in construction of a railroad, acquires a
situs at the place where used for an indefinite period. So
tangible personal property in the state for the purpose
of undergoing a partial finishing process is not to be
regarded as in the course of transit nor as in the state for
a mere temporary purpose. (2 Cooley, The Law of
Taxation, 4th ed., pp. 982, 983 and 988, par. 452.)
If the proceeds of the life-insurance policy taken out by the late
Adolphe Oscar Schuetze and made payable to his estate, were
delivered to the Bank of the Philippine Islands for administration
and distribution, they were not in transit but were more or less
permanently located in the Philippine Islands, according to the
foregoing rules. If this be so, half of the proceeds which is
Page 32 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA

community property, belongs to the estate of the deceased and is

subject to the inheritance tax, in accordance with the legal
provision quoted above, irrespective of whether or not the late
Adolphe Oscar Schuetze was domiciled in the Philippine Islands at
the time of his death.

By virtue of the foregoing, we are of opinion and so hold: (1) That

the proceeds of a life-insurance policy payable to the insured's
estate, on which the premiums were paid by the conjugal
partnership, constitute community property, and belong one-half
to the husband and the other half to the wife, exclusively; (2) that
if the premiums were paid partly with paraphernal and partly
conjugal funds, the proceeds are likewise in like proportion
paraphernal in part and conjugal in part; and (3) that the proceeds
of a life-insurance policy payable to the insured's estate as the
beneficiary, if delivered to the testamentary administrator of the
former as part of the assets of said estate under probate
administration, are subject to the inheritance tax according to the
law on the matter, if they belong to the assured exclusively, and it
is immaterial that the insured was domiciled in these Islands or
outside.1awphil.net

Wherefore, the judgment appealed from is reversed, and the

defendant is ordered to return to the plaintiff the one-half of the
tax collected upon the amount of P20,150, being the proceeds of
the insurance policy on the life of the late Adolphe Oscar Schuetze,
after deducting the proportional part corresponding to the first
premium, without special pronouncement of costs. So ordered.

Page 33 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
EN BANC
G.R. No. L-9374 February 16, 1915
FRANCISCO DEL VAL, ET AL., plaintiffs-appellants,
vs.
ANDRES DEL VAL, defendant-appellee.
Ledesma, Lim and Irureta Goyena for appellants.
O'Brien and DeWitt for appellee.
MORELAND, J.:
This is an appeal from a judgment of the Court of First Instance of
the city of Manila dismissing the complaint with costs.
The pleadings set forth that the plaintiffs and defendant are
brother and sisters; that they are the only heirs at law and next of
kin of Gregorio Nacianceno del Val, who died in Manila on August
4, 1910, intestate; that an administrator was appointed for the
estate of the deceased, and, after a partial administration, it was
closed and the administrator discharged by order of the Court of
First Instance dated December 9, 1911; that during the lifetime of
the deceased he took out insurance on his life for the sum of
P40,000 and made it payable to the defendant as sole beneficiary;
that after his death the defendant collected the face of the policy;
that of said policy he paid the sum of P18,365.20 to redeem certain
real estate which the decedent had sold to third persons with a
right to repurchase; that the redemption of said premises was
made by the attorney of the defendant in the name of the plaintiff
and the defendant as heirs of the deceased vendor; that the
redemption of said premises they have had the use and benefit
thereof; that during that time the plaintiffs paid no taxes and made
no repairs.
It further appears from the pleadings that the defendant, on the
death of the deceased, took possession of most of his personal
property, which he still has in his possession, and that he has also
the balance on said insurance policy amounting to P21,634.80.
Plaintiffs contend that the amount of the insurance policy belonged
to the estate of the deceased and not to the defendant personally;
that, therefore, they are entitled to a partition not only of the real
and personal property, but also of the P40,000 life insurance. The
complaint prays a partition of all the property, both real and
personal, left by the deceased; that the defendant account for
P21,634.80, and that that sum be divided equally among the
plaintiffs and defendant along with the other property of deceased.
The defendant denies the material allegations of the complaint and
sets up as special defense and counterclaim that the redemption of
the real estate sold by his father was made in the name of the
plaintiffs and himself instead of in his name alone without his
knowledge or consent; and that it was not his intention to use the
proceeds of the insurance policy for the benefit of any person but
himself, he alleging that he was and is the sole owner thereof and
that it is his individual property. He, therefore, asks that he be
declared the owner of the real estate redeemed by the payment of
the P18,365.20, the owner of the remaining P21,634.80, the
balance of the insurance policy, and that the plaintiff's account for
the use and occupation of the premises so redeemed since the date
of the redemption.
The learned trial court refused to give relief to either party and
dismissed the action.
It says in its opinion: "This purports to be an action for partition,
brought against an heir by his coheirs. The complaint, however,
fails to comply with Code Civ., Pro. sec. 183, in that it does not
'contain an adequate description of the real property of which
partition is demanded.' Because of this defect (which has not been
called to our attention and was discovered only after the cause was
submitted) it is more than doubtful whether any relief can be
awarded under the complaint, except by agreement of all the
parties."
This alleged defect of the complaint was made one of the two bases
for the dismissal of the action.
We do not regard this as sufficient reason for dismissing the action.
It is the doctrine of this court, set down in several decisions,
Lizarraga Hermanos vs. Yap Tico, 24 Phil. Rep., 504, that, even
though the complaint is defective to the extent of failing in
allegations necessary to constitute a cause of action, if, on the trial
of the cause, evidence is offered which establishes the cause of
action which the complaint intended to allege, and such evidence
is received without objection, the defect is thereby cured and
cannot be made the ground of a subsequent objection. If, therefore,
evidence was introduced on the trial in this case definitely and
clearly describing the real estate sought to be partitioned, the
defect in the complaint was cured in that regard and should not
have been used to dismiss the action. We do not stop to inquire
whether such evidence was or was not introduced on the trial,
inasmuch as this case must be turned for a new trial with
opportunity to both parties to present such evidence as is
necessary to establish their respective claims.
The court in its decision further says: "It will be noticed that the
provision above quoted refers exclusively to real estate. . . . It is, in
other words, an exclusive real property action, and the institution
thereof gives the court no jurisdiction over chattels. . . . But no relief
could possibly be granted in this action as to any property except
the last (real estate), for the law contemplated that all the personal
property of an estate be distributed before the administration is
closed. Indeed, it is only in exceptional cases that the partition of
the real estate is provided for, and this too is evidently intended to
be effected as a part of the administration, but here the complaint
alleges that the estate was finally closed on December 9, 1911, and
we find upon referring to the record in that case that subsequent
motion to reopen the same were denied; so that the matter of the
personal property at least must be considered res judicata (for the
final judgment in the administration proceedings must be treated
as concluding not merely what was adjudicated, but what might
have been). So far, therefore, as the personal property at least is
concerned, plaintiffs' only remedy was an appeal from said order."
We do not believe that the law is correctly laid down in this
quotation. The courts of the Islands have jurisdiction to divide
personal property between the common owners thereof and that
power is as full and complete as is the power to partition real
property. If an actual partition of personal property cannot be
made it will be sold under the direction of the court and the
proceeds divided among the owners after the necessary expenses
have been deducted.
The administration of the estate of the decedent consisted simply,
so far as the record shows, in the payment of the debts. No division
of the property, either real or personal, seems to have been made.
On the contrary, the property appears, from the record, to have
been turned over to the heirs in bulk. The failure to partition the
real property may have been due either to the lack of request to the
court by one or more of the heirs to do so, as the court has no
authority to make a partition of the real estate without such
request; or it may have been due to the fact that all the real
property of decedent had been sold under pacto de retro and that,
therefore, he was not the owner of any real estate at the time of his
death. As to the personal property, it does not appear that it was
disposed of in the manner provided by law. (Sec. 753, Code of Civil
Procedure.) So far as this action is concerned, however, it is
sufficient for us to know that none of the property was actually
divided among the heirs in the administration proceeding and that
they remain coowners and tenants-in- common thereof at the
present time. To maintain an action to partition real or personal
property it is necessary to show only that it is owned in common.
The order finally closing the administration and discharging the
administrator, referred to in the opinion of the trial court, has
nothing to do with the division of either the real or the personal
property. The heirs have the right to ask the probate court to turn
over to them both the real and personal property without division;
and where that request is unanimous it is the duty of the court to
comply with it, and there is nothing in section 753 of the Code of
Civil Procedure which prohibits it. In such case an order finally
settling the estate and discharging the administrator would not bar
a subsequent action to require a division of either the real or
personal property. If, on the other hand, an order had been made
in the administration proceedings dividing the personal or the real
property, or both, among the heirs, then it is quite possible that, to
a subsequent action brought by one of the heirs for a partition of
the real or personal property, or both, there could have been
interposed a plea of res judicata based on such order. As the matter
now stands, however, there is no ground on which to base such a
plea. Moreover, no such plea has been made and no evidence
offered to support it.
Page 34 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA

With the finding of the trial court that the proceeds of the life-
insurance policy belong exclusively to the defendant as his
individual and separate property, we agree. That the proceeds of
an insurance policy belong exclusively to the beneficiary and not to
the estate of the person whose life was insured, and that such
proceeds are the separate and individual property of the
beneficiary, and not of the heirs of the person whose life was
insured, is the doctrine in America. We believe that the same
doctrine obtains in these Islands by virtue of section 428 of the
Code of Commerce, which reads:
We do not wish to be understood as having decided in this opinion
any question of fact which will arise on the trial and be there in
controversy. The trial court is left free to find the facts as the
evidence requires. To the facts as so found he will apply the law as
herein laid down.
The judgment appealed from is set aside and the cause returned to
the Court of First Instance whence it came for the purpose
hereinabove stated. So ordered.

The amount which the underwriter must deliver to the

person insured, in fulfillment of the contract, shall be the
property of the latter, even against the claims of the
legitimate heirs or creditors of any kind whatsoever of
the person who effected the insurance in favor of the
former.

It is claimed by the attorney for the plaintiffs that the section just
quoted is subordinate to the provisions of the Civil Code as found
in article 1035. This article reads:

An heir by force of law surviving with others of the same

character to a succession must bring into the hereditary
estate the property or securities he may have received
from the deceased during the life of the same, by way of
dowry, gift, or for any good consideration, in order to
compute it in fixing the legal portions and in the account
of the division.

Counsel also claim that the proceeds of the insurance policy were
a donation or gift made by the father during his lifetime to the
defendant and that, as such, its ultimate destination is determined
by those provisions of the Civil Code which relate to donations,
especially article 819. This article provides that "gifts made to
children which are not betterments shall be considered as part of
their legal portion."

We cannot agree with these contentions. The contract of life

insurance is a special contract and the destination of the proceeds
thereof is determined by special laws which deal exclusively with
that subject. The Civil Code has no provisions which relate directly
and specifically to life- insurance contracts or to the destination of
life insurance proceeds. That subject is regulated exclusively by the
Code of Commerce which provides for the terms of the contract,
the relations of the parties and the destination of the proceeds of
the policy.

The proceeds of the life-insurance policy being the exclusive

property of the defendant and he having used a portion thereof in
the repurchase of the real estate sold by the decedent prior to his
death with right to repurchase, and such repurchase having been
made and the conveyance taken in the names of all of the heirs
instead of the defendant alone, plaintiffs claim that the property
belongs to the heirs in common and not to the defendant alone.

We are not inclined to agree with this contention unless the fact
appear or be shown that the defendant acted as he did with the
intention that the other heirs should enjoy with him the ownership
of the estate — in other words, that he proposed, in effect, to make
a gift of the real estate to the other heirs. If it is established by the
evidence that that was his intention and that the real estate was
delivered to the plaintiffs with that understanding, then it is
probable that their contention is correct and that they are entitled
to share equally with the defendant therein. If, however, it appears
from the evidence in the case that the conveyances were taken in
the name of the plaintiffs without his knowledge or consent, or that
it was not his intention to make a gift to them of the real estate,
then it belongs to him. If that facts are as stated, he has two
remedies. The one is to compel the plaintiffs to reconvey to him and
the other is to let the title stand with them and to recover from
them the sum he paid on their behalf.

For the complete and proper determination of the questions at

issue in this case, we are of the opinion that the cause should be
returned to the trial court with instructions to permit the parties
to frame such issues as will permit the settlement of all the
questions involved and to introduce such evidence as may be
necessary for the full determination of the issues framed. Upon
such issues and evidence taken thereunder the court will decide
the questions involved according to the evidence, subordinating
his conclusions of law to the rules laid down in this opinion.

Page 35 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
EN BANC
G.R. No. L-11622 January 28, 1961
THE COLLECTOR OF INTERNAL REVENUE, petitioner,
vs.
DOUGLAS FISHER AND BETTINA FISHER, and the COURT OF
TAX APPEALS, respondents.
x---------------------------------------------------------x
G.R. No. L-11668 January 28, 1961.
DOUGLAS FISHER AND BETTINA FISHER, petitioner,
vs.
THE COLLECTOR OF INTERNAL REVENUE, and the COURT OF
TAX APPEALS, respondents.
BARRERA, J.:
This case relates to the determination and settlement of the
hereditary estate left by the deceased Walter G. Stevenson, and the
laws applicable thereto. Walter G. Stevenson (born in the
Philippines on August 9, 1874 of British parents and married in the
City of Manila on January 23, 1909 to Beatrice Mauricia Stevenson
another British subject) died on February 22, 1951 in San
Francisco, California, U.S.A. whereto he and his wife moved and
established their permanent residence since May 10, 1945. In his
will executed in San Francisco on May 22, 1947, and which was
duly probated in the Superior Court of California on April 11, 1951,
Stevenson instituted his wife Beatrice as his sole heiress to the
following real and personal properties acquired by the spouses
while residing in the Philippines, described and preliminary
assessed as follows:
Gross Estate
Real Property — 2 parcels of land in Baguio, covered
T.C.T. Nos. 378 and 379
Personal Property
(1) 177 shares of stock of Canacao Estate at P10.00 each
(2) 210,000 shares of stock of Mindanao Mother(2)
Mines, Inc. at P0.38 per share
(3) Cash credit with Canacao Estate Inc.
(4) Cash, with the Chartered Bank of India, Australia & China
Total Gross Assets
On May 22, 1951, ancillary administration proceedings were
instituted in the Court of First Instance of Manila for the settlement
of the estate in the Philippines. In due time Stevenson's will was
duly admitted to probate by our court and Ian Murray Statt was
appointed ancillary administrator of the estate, who on July 11,
1951, filed a preliminary estate and inheritance tax return with the
reservation of having the properties declared therein finally
appraised at their values six months after the death of Stevenson.
Preliminary return was made by the ancillary administrator in
order to secure the waiver of the Collector of Internal Revenue on
the inheritance tax due on the 210,000 shares of stock in the
Mindanao Mother Lode Mines Inc. which the estate then desired to
dispose in the United States. Acting upon said return, the Collector
of Internal Revenue accepted the valuation of the personal
properties declared therein, but increased the appraisal of the two
parcels of land located in Baguio City by fixing their fair market
value in the amount of P52.200.00, instead of P43,500.00. After
allowing the deductions claimed by the ancillary administrator for
funeral expenses in the amount of P2,000.00 and for judicial and
administration expenses in the sum of P5,500.00, the Collector
assessed the state the amount of P5,147.98 for estate tax and
P10,875,26 or inheritance tax, or a total of P16,023.23. Both of
these assessments were paid by the estate on June 6, 1952.
On September 27, 1952, the ancillary administrator filed in
amended estate and inheritance tax return in pursuance f his
reservation made at the time of filing of the preliminary return and
for the purpose of availing of the right granted by section 91 of the
National Internal Revenue Code.
In this amended return the valuation of the 210,000 shares of stock
in the Mindanao Mother Lode Mines, Inc. was reduced from 0.38
per share, as originally declared, to P0.20 per share, or from a total
valuation of P79,800.00 to P42,000.00. This change in price per
share of stock was based by the ancillary administrator on the
market notation of the stock obtaining at the San Francisco
California) Stock Exchange six months from the death of Stevenson,
that is, As of August 22, 1931. In addition, the ancillary
administrator made claim for the following deductions:
Funeral expenses ($1,04326)
Judicial Expenses:
(a) Administrator's Fee P1,204.34
(b) Attorney's Fee 6.000.00
(c) Judicial and Administration expenses as of
August 9, 1952 1,400.05
Real Estate Tax for 1951 on Baguio real properties
(O.R. No. B-1 686836)
Claims against the estate:
($5,000.00) P10,000.00 P10,000.00
Plus: 4% int. p.a. from Feb. 2 to 22, 1951 22.47
Sub-Total
In the meantime, on December 1, 1952, Beatrice Mauricia
Stevenson assigned all her rights and interests in the estate to the
spouses, Douglas and Bettina Fisher, respondents herein.
On September 7, 1953, the ancillary administrator filed a second
amended estate and inheritance tax return (Exh. "M-N"). This
return declared the same assets of the estate stated in the amended
return of September 22, 1952, except that it contained new claims
for additional exemption and deduction to wit: (1) deduction in the
amount of P4,000.00 from the gross estate of the decedent as
by for in Section 861 (4) of the U.S. Federal Internal Revenue
provided
P43,500.00
Code which the ancillary administrator averred was allowable by
way of the reciprocity granted by Section 122 of the National
Internal Revenue Code, as then held by the Board of Tax Appeals in
case No.1,770.00
71 entitled "Housman vs. Collector," August 14, 1952; and
exemption from the imposition of estate and inheritance taxes
Lode
on the 210,000 shares of stock in the Mindanao Mother Lode Mines,
79,800.00
Inc. also pursuant to the reciprocity proviso of Section 122 of the
National4,870.88
Internal Revenue Code. In this last return, the estate
claimed that it was liable only for the amount of P525.34 for estate
851.97
tax and P238.06 for inheritance tax and that, as a consequence, it
had overpaid the government. The refund of the amount of
P130,792.85
P15,259.83, allegedly overpaid, was accordingly requested by the
estate. The Collector denied the claim. For this reason, action was
commenced in the Court of First Instance of Manila by respondents,
as assignees of Beatrice Mauricia Stevenson, for the recovery of
said amount. Pursuant to Republic Act No. 1125, the case was
forwarded to the Court of Tax Appeals which court, after hearing,
rendered decision the dispositive portion of which reads as
follows:
In fine, we are of the opinion and so hold that: (a) the
one-half (½) share of the surviving spouse in the
conjugal partnership property as diminished by the
obligations properly chargeable to such property should
be deducted from the net estate of the deceased Walter
G. Stevenson, pursuant to Section 89-C of the National
Internal Revenue Code; (b) the intangible personal
property belonging to the estate of said Stevenson is
exempt from inheritance tax, pursuant to the provision
of section 122 of the National Internal Revenue Code in
relation to the California Inheritance Tax Law but
decedent's estate is not entitled to an exemption of
P4,000.00 in the computation of the estate tax; (c) for
purposes of estate and inheritance taxation the Baguio
real estate of the spouses should be valued at
P52,200.00, and 210,000 shares of stock in the
Mindanao Mother Lode Mines, Inc. should be appraised
at P0.38 per share; and (d) the estate shall be entitled to
a deduction of P2,000.00 for funeral expenses and
judicial expenses of P8,604.39.
From this decision, both parties appealed.
Page 36 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
The Collector of Internal Revenue, hereinafter called petitioner
assigned four errors allegedly committed by the trial court, while
the assignees, Douglas and Bettina Fisher hereinafter called
respondents, made six assignments of error. Together, the
assigned errors raise the following main issues for resolution by
this Court:
(1) Whether or not, in determining the taxable net estate of the
decedent, one-half (½) of the net estate should be deducted
therefrom as the share of tile surviving spouse in accordance with
our law on conjugal partnership and in relation to section 89 (c) of
the National Internal revenue Code;
(2) Whether or not the estate can avail itself of the reciprocity
proviso embodied in Section 122 of the National Internal Revenue
Code granting exemption from the payment of estate and
inheritance taxes on the 210,000 shares of stock in the Mindanao
Mother Lode Mines Inc.;
(3) Whether or not the estate is entitled to the deduction of
P4,000.00 allowed by Section 861, U.S. Internal Revenue Code in
relation to section 122 of the National Internal Revenue Code;
(4) Whether or not the real estate properties of the decedent
located in Baguio City and the 210,000 shares of stock in the
Mindanao Mother Lode Mines, Inc., were correctly appraised by the
lower court;
(5) Whether or not the estate is entitled to the following
deductions: P8,604.39 for judicial and administration expenses;
P2,086.52 for funeral expenses; P652.50 for real estate taxes; and
P10,0,22.47 representing the amount of indebtedness allegedly
incurred by the decedent during his lifetime; and
(6) Whether or not the estate is entitled to the payment of interest
on the amount it claims to have overpaid the government and to be
refundable to it.
In deciding the first issue, the lower court applied a well-known
doctrine in our civil law that in the absence of any ante-nuptial
agreement, the contracting parties are presumed to have adopted
the system of conjugal partnership as to the properties acquired
during their marriage. The application of this doctrine to the
instant case is being disputed, however, by petitioner Collector of
Internal Revenue, who contends that pursuant to Article 124 of the
New Civil Code, the property relation of the spouses Stevensons
ought not to be determined by the Philippine law, but by the
national law of the decedent husband, in this case, the law of
England. It is alleged by petitioner that English laws do not
recognize legal partnership between spouses, and that what
obtains in that jurisdiction is another regime of property relation,
wherein all properties acquired during the marriage pertain and
belong Exclusively to the husband. In further support of his stand,
petitioner cites Article 16 of the New Civil Code (Art. 10 of the old)
to the effect that in testate and intestate proceedings, the amount
of successional rights, among others, is to be determined by the
national law of the decedent.
In this connection, let it be noted that since the mariage of the
Stevensons in the Philippines took place in 1909, the applicable
law is Article 1325 of the old Civil Code and not Article 124 of the
New Civil Code which became effective only in 1950. It is true that
both articles adhere to the so-called nationality theory of
determining the property relation of spouses where one of them is
a foreigner and they have made no prior agreement as to the
administration disposition, and ownership of their conjugal
properties. In such a case, the national law of the husband becomes
the dominant law in determining the property relation of the
spouses. There is, however, a difference between the two articles
in that Article 1241 of the new Civil Code expressly provides that it
shall be applicable regardless of whether the marriage was
celebrated in the Philippines or abroad while Article 13252 of the
old Civil Code is limited to marriages contracted in a foreign land.
It must be noted, however, that what has just been said refers to
mixed marriages between a Filipino citizen and a foreigner. In the
instant case, both spouses are foreigners who married in the
Philippines. Manresa,3 in his Commentaries, has this to say on this
point:
La regla establecida en el art. 1.315, se refiere a las
capitulaciones otorgadas en Espana y entre espanoles.
El 1.325, a las celebradas en el extranjero cuando alguno
de los conyuges es espanol. En cuanto a la regla
procedente cuando dos extranjeros se casan en Espana,
o dos espanoles en el extranjero hay que atender en el
primer caso a la legislacion de pais a que aquellos
pertenezean, y en el segundo, a las reglas generales
consignadas en los articulos 9 y 10 de nuestro Codigo.
(Emphasis supplied.)
If we adopt the view of Manresa, the law determinative of the
property relation of the Stevensons, married in 1909, would be the
English law even if the marriage was celebrated in the Philippines,
both of them being foreigners. But, as correctly observed by the Tax
Court, the pertinent English law that allegedly vests in the decedent
husband full ownership of the properties acquired during the
marriage has not been proven by petitioner. Except for a mere
allegation in his answer, which is not sufficient, the record is bereft
of any evidence as to what English law says on the matter. In the
absence of proof, the Court is justified, therefore, in indulging in
what Wharton calls "processual presumption," in presuming that
the law of England on this matter is the same as our law. 4
Nor do we believe petitioner can make use of Article 16 of the New
Civil Code (art. 10, old Civil Code) to bolster his stand. A reading of
Article 10 of the old Civil Code, which incidentally is the one
applicable, shows that it does not encompass or contemplate to
govern the question of property relation between spouses. Said
article distinctly speaks of amount of successional rights and this
term, in speaks in our opinion, properly refers to the extent or
amount of property that each heir is legally entitled to inherit from
the estate available for distribution. It needs to be pointed out that
the property relation of spouses, as distinguished from their
successional rights, is governed differently by the specific and
express provisions of Title VI, Chapter I of our new Civil Code (Title
III, Chapter I of the old Civil Code.) We, therefore, find that the
lower court correctly deducted the half of the conjugal property in
determining the hereditary estate left by the deceased Stevenson.
On the second issue, petitioner disputes the action of the Tax Court
in the exempting the respondents from paying inheritance tax on
the 210,000 shares of stock in the Mindanao Mother Lode Mines,
Inc. in virtue of the reciprocity proviso of Section 122 of the
National Internal Revenue Code, in relation to Section 13851 of the
California Revenue and Taxation Code, on the ground that: (1) the
said proviso of the California Revenue and Taxation Code has not
been duly proven by the respondents; (2) the reciprocity
exemptions granted by section 122 of the National Internal
Revenue Code can only be availed of by residents of foreign
countries and not of residents of a state in the United States; and
(3) there is no "total" reciprocity between the Philippines and the
state of California in that while the former exempts payment of
both estate and inheritance taxes on intangible personal
properties, the latter only exempts the payment of inheritance tax..
To prove the pertinent California law, Attorney Allison Gibbs,
counsel for herein respondents, testified that as an active member
of the California Bar since 1931, he is familiar with the revenue and
taxation laws of the State of California. When asked by the lower
court to state the pertinent California law as regards exemption of
intangible personal properties, the witness cited article 4, section
13851 (a) and (b) of the California Internal and Revenue Code as
published in Derring's California Code, a publication of the
Bancroft-Whitney Company inc. And as part of his testimony, a full
quotation of the cited section was offered in evidence as Exhibits
"V-2" by the respondents.
It is well-settled that foreign laws do not prove themselves in our
jurisdiction and our courts are not authorized to take judicial
notice of them.5 Like any other fact, they must be alleged and
proved.6
Section 41, Rule 123 of our Rules of Court prescribes the manner
of proving foreign laws before our tribunals. However, although we
believe it desirable that these laws be proved in accordance with
said rule, we held in the case of Willamette Iron and Steel Works v.
Muzzal, 61 Phil. 471, that "a reading of sections 300 and 301 of our
Code of Civil Procedure (now section 41, Rule 123) will convince
one that these sections do not exclude the presentation of other
competent evidence to prove the existence of a foreign law." In that
case, we considered the testimony of an attorney-at-law of San
Francisco, California who quoted verbatim a section of California
Civil Code and who stated that the same was in force at the time the
obligations were contracted, as sufficient evidence to establish the
existence of said law. In line with this view, we find no error,
Page 37 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
therefore, on the part of the Tax Court in considering the pertinent
California law as proved by respondents' witness.
We now take up the question of reciprocity in exemption from
transfer or death taxes, between the State of California and the
Philippines.F
Section 122 of our National Internal Revenue Code, in pertinent
part, provides:
... And, provided, further, That no tax shall be collected
under this Title in respect of intangible personal
property (a) if the decedent at the time of his death was
a resident of a foreign country which at the time of his
death did not impose a transfer of tax or death tax of any
character in respect of intangible personal property of
citizens of the Philippines not residing in that foreign
country, or (b) if the laws of the foreign country of which
the decedent was a resident at the time of his death
allow a similar exemption from transfer taxes or death
taxes of every character in respect of intangible personal
property owned by citizens of the Philippines not
residing in that foreign country." (Emphasis supplied).
On the other hand, Section 13851 of the California Inheritance Tax
Law, insofar as pertinent, reads:.
"SEC. 13851, Intangibles of nonresident: Conditions.
Intangible personal property is exempt from the tax
imposed by this part if the decedent at the time of his
death was a resident of a territory or another State of the
United States or of a foreign state or country which then
imposed a legacy, succession, or death tax in respect to
intangible personal property of its own residents, but
either:.
(a) Did not impose a legacy, succession, or death tax of
any character in respect to intangible personal property
of residents of this State, or
(b) Had in its laws a reciprocal provision under which
intangible personal property of a non-resident was
exempt from legacy, succession, or death taxes of every
character if the Territory or other State of the United
States or foreign state or country in which the
nonresident resided allowed a similar exemption in
respect to intangible personal property of residents of
the Territory or State of the United States or foreign
state or country of residence of the decedent." (Id.)
It is clear from both these quoted provisions that the reciprocity
must be total, that is, with respect to transfer or death taxes of any
and every character, in the case of the Philippine law, and to legacy,
succession, or death taxes of any and every character, in the case of
the California law. Therefore, if any of the two states collects or
imposes and does not exempt any transfer, death, legacy, or
succession tax of any character, the reciprocity does not work. This
is the underlying principle of the reciprocity clauses in both laws.
In the Philippines, upon the death of any citizen or resident, or non-
resident with properties therein, there are imposed upon his estate
and its settlement, both an estate and an inheritance tax. Under the
laws of California, only inheritance tax is imposed. On the other
hand, the Federal Internal Revenue Code imposes an estate tax on
non-residents not citizens of the United States, 7 but does not
provide for any exemption on the basis of reciprocity. Applying
these laws in the manner the Court of Tax Appeals did in the instant
case, we will have a situation where a Californian, who is non-
resident in the Philippines but has intangible personal properties
here, will the subject to the payment of an estate tax, although
exempt from the payment of the inheritance tax. This being the
case, will a Filipino, non-resident of California, but with intangible
personal properties there, be entitled to the exemption clause of
the California law, since the Californian has not been exempted
from every character of legacy, succession, or death tax because he
is, under our law, under obligation to pay an estate tax? Upon the
other hand, if we exempt the Californian from paying the estate tax,
we do not thereby entitle a Filipino to be exempt from a similar
estate tax in California because under the Federal Law, which is
equally enforceable in California he is bound to pay the same, there
being no reciprocity recognized in respect thereto. In both
instances, the Filipino citizen is always at a disadvantage. We do
not believe that our legislature has intended such an unfair
situation to the detriment of our own government and people. We,
therefore, find and declare that the lower court erred in exempting
the estate in question from payment of the inheritance tax.
We are not unaware of our ruling in the case of Collector of Internal
Revenue vs. Lara (G.R. Nos. L-9456 & L-9481, prom. January 6,
1958, 54 O.G. 2881) exempting the estate of the deceased Hugo H.
Miller from payment of the inheritance tax imposed by the
Collector of Internal Revenue. It will be noted, however, that the
issue of reciprocity between the pertinent provisions of our tax law
and that of the State of California was not there squarely raised,
and the ruling therein cannot control the determination of the case
at bar. Be that as it may, we now declare that in view of the express
provisions of both the Philippine and California laws that the
exemption would apply only if the law of the other grants an
exemption from legacy, succession, or death taxes of every
character, there could not be partial reciprocity. It would have to
be total or none at all.
With respect to the question of deduction or reduction in the
amount of P4,000.00 based on the U.S. Federal Estate Tax Law
which is also being claimed by respondents, we uphold and adhere
to our ruling in the Lara case (supra) that the amount of $2,000.00
allowed under the Federal Estate Tax Law is in the nature of a
deduction and not of an exemption regarding which reciprocity
cannot be claimed under the provision of Section 122 of our
National Internal Revenue Code. Nor is reciprocity authorized
under the Federal Law. .
On the issue of the correctness of the appraisal of the two parcels
of land situated in Baguio City, it is contended that their assessed
values, as appearing in the tax rolls 6 months after the death of
Stevenson, ought to have been considered by petitioner as their
fair market value, pursuant to section 91 of the National Internal
Revenue Code. It should be pointed out, however, that in
accordance with said proviso the properties are required to be
appraised at their fair market value and the assessed value thereof
shall be considered as the fair market value only when evidence to
the contrary has not been shown. After all review of the record, we
are satisfied that such evidence exists to justify the valuation made
by petitioner which was sustained by the tax court, for as the tax
court aptly observed:
"The two parcels of land containing 36,264 square
meters were valued by the administrator of the estate in
the Estate and Inheritance tax returns filed by him at
P43,500.00 which is the assessed value of said
properties. On the other hand, defendant appraised the
same at P52,200.00. It is of common knowledge, and this
Court can take judicial notice of it, that assessments for
real estate taxation purposes are very much lower than
the true and fair market value of the properties at a
given time and place. In fact one year after decedent's
death or in 1952 the said properties were sold for a price
of P72,000.00 and there is no showing that special or
extraordinary circumstances caused the sudden
increase from the price of P43,500.00, if we were to
accept this value as a fair and reasonable one as of 1951.
Even more, the counsel for plaintiffs himself admitted in
open court that he was willing to purchase the said
properties at P2.00 per square meter. In the light of
these facts we believe and therefore hold that the
valuation of P52,200.00 of the real estate in Baguio
made by defendant is fair, reasonable and justified in the
premises." (Decision, p. 19).
In respect to the valuation of the 210,000 shares of stock in the
Mindanao Mother Lode Mines, Inc., (a domestic corporation),
respondents contend that their value should be fixed on the basis
of the market quotation obtaining at the San Francisco (California)
Stock Exchange, on the theory that the certificates of stocks were
then held in that place and registered with the said stock exchange.
We cannot agree with respondents' argument. The situs of the
shares of stock, for purposes of taxation, being located here in the
Philippines, as respondents themselves concede and considering
that they are sought to be taxed in this jurisdiction, consistent with
the exercise of our government's taxing authority, their fair market
value should be taxed on the basis of the price prevailing in our
country.
Upon the other hand, we find merit in respondents' other
contention that the said shares of stock commanded a lesser value
at the Manila Stock Exchange six months after the death of
Stevenson. Through Atty. Allison Gibbs, respondents have shown
Page 38 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
that at that time a share of said stock was bid for at only P.325 (p.
103, t.s.n.). Significantly, the testimony of Atty. Gibbs in this respect
has never been questioned nor refuted by petitioner either before
this court or in the court below. In the absence of evidence to the
contrary, we are, therefore, constrained to reverse the Tax Court
on this point and to hold that the value of a share in the said mining
company on August 22, 1951 in the Philippine market was P.325
as claimed by respondents..
It should be noted that the petitioner and the Tax Court valued each
share of stock of P.38 on the basis of the declaration made by the
estate in its preliminary return. Patently, this should not have been
the case, in view of the fact that the ancillary administrator had
reserved and availed of his legal right to have the properties of the
estate declared at their fair market value as of six months from the
time the decedent died..
On the fifth issue, we shall consider the various deductions, from
the allowance or disallowance of which by the Tax Court, both
petitioner and respondents have appealed..
Petitioner, in this regard, contends that no evidence of record
exists to support the allowance of the sum of P8,604.39 for the
following expenses:.
1) Administrator's fee
2) Attorney's fee
3) Judicial and Administrative expenses
Total Deductions
An examination of the record discloses, however, that the
foregoing items were considered deductible by the Tax Court on
the basis of their approval by the probate court to which said
expenses, we may presume, had also been presented for
consideration. It is to be supposed that the probate court would not
have approved said items were they not supported by evidence
presented by the estate. In allowing the items in question, the Tax
Court had before it the pertinent order of the probate court which
was submitted in evidence by respondents. (Exh. "AA-2", p. 100,
record). As the Tax Court said, it found no basis for departing from
the findings of the probate court, as it must have been satisfied that
those expenses were actually incurred. Under the circumstances,
we see no ground to reverse this finding of fact which, under
Republic Act of California National Association, which it would
appear, that while still living, Walter G. Stevenson obtained we are
not inclined to pass upon the claim of respondents in respect to the
additional amount of P86.52 for funeral expenses which was
disapproved by the court a quo for lack of evidence.
In connection with the deduction of P652.50 representing the
amount of realty taxes paid in 1951 on the decedent's two parcels
of land in Baguio City, which respondents claim was disallowed by
the Tax Court, we find that this claim has in fact been allowed. What
happened here, which a careful review of the record will reveal,
was that the Tax Court, in itemizing the liabilities of the estate, viz:
1) Administrator's fee
2) Attorney's fee
3) Judicial and Administration expenses as of August 9, 1952requirement is to enable
Total
added the P652.50 for realty taxes as a liability of the estate, to the
P1,400.05 for judicial and administration expenses approved by
the court, making a total of P2,052.55, exactly the same figure
which was arrived at by the Tax Court for judicial and
administration expenses. Hence, the difference between the total
of P9,256.98 allowed by the Tax Court as deductions, and the
P8,604.39 as found by the probate court, which is P652.50, the
same amount allowed for realty taxes. An evident oversight has
involuntarily been made in omitting the P2,000.00 for funeral
expenses in the final computation. This amount has been expressly
allowed by the lower court and there is no reason why it should not
be. .
We come now to the other claim of respondents that pursuant to
section 89(b) (1) in relation to section 89(a) (1) (E) and section
89(d), National Internal Revenue Code, the amount of P10,022.47
should have been allowed the estate as a deduction, because it
represented an indebtedness of the decedent incurred during his
lifetime. In support thereof, they offered in evidence a duly
certified claim, presented to the probate court in California by the
Bank of California National Association, which it would appear,
that while still living, Walter G. Stevenson obtained a loan of
$5,000.00 secured by pledge on 140,000 of his shares of stock in
the Mindanao Mother Lode Mines, Inc. (Exhs. "Q-Q4", pp. 53-59,
record). The Tax Court disallowed this item on the ground that the
local probate court had not approved the same as a valid claim
against the estate and because it constituted an indebtedness in
respect to intangible personal property which the Tax Court held
to be exempt from inheritance tax.
For two reasons, we uphold the action of the lower court in
disallowing the deduction.
Firstly, we believe that the approval of the Philippine probate court
of this particular indebtedness of the decedent is necessary. This is
so although the same, it is averred has been already admitted and
approved by the corresponding probate court in California, situs of
the principal or domiciliary administration. It is true that we have
here in the Philippines only an ancillary administration in this case,
but, it has been held, the distinction between domiciliary or
principal administration and ancillary administration serves only
to distinguish one administration from the other, for the two
proceedings are separate and independent.8 The reason for the
ancillary administration is that, a grant of administration does
not ex P1,204.34
proprio vigore, have any effect beyond the limits of the
country in which it was granted. Hence, we have the requirement
6,000.00
that before a will duly probated outside of the Philippines can have
effect here, it must first be proved and allowed before our courts,
2,052.55
in much the same manner as wills originally presented for
P8,604.39
allowance therein.9 And the estate shall be administered under
letters testamentary, or letters of administration granted by the
court, and disposed of according to the will as probated, after
payment of just debts and expenses of administration. 10 In other
words, there is a regular administration under the control of the
court, where claims must be presented and approved, and
expenses of administration allowed before deductions from the
estate can be authorized. Otherwise, we would have the actuations
of our own probate court, in the settlement and distribution of the
estate situated here, subject to the proceedings before the foreign
court over which our courts have no control. We do not believe
such a procedure is countenanced or contemplated in the Rules of
Court.
Another reason for the disallowance of this indebtedness as a
deduction, springs from the provisions of Section 89, letter (d),
number (1), of the National Internal Revenue Code which reads:
(d) Miscellaneous provisions — (1) No deductions shall
be allowed in the case of a non-resident not a citizen of
the Philippines unless the executor, administrator or
anyone of the heirs, as the case may be, includes in the
return required to be filed under section ninety-three
the value at the time of his death of that part of the gross
estate of the non-resident not situated in the
Philippines."
In the case at bar, no such statement of the gross estate of the non-
resident StevensonP1,204.34
not situated in the Philippines appears in the
three returns submitted to the court or to the office of the
petitioner Collector 6,000.00
of Internal Revenue. The purpose of this
the revenue officer to determine how
2,052.55
much of the indebtedness may be allowed to be deducted, pursuant
to (b), number (1) P9,256.89
of the same section 89 of the Internal Revenue
Code which provides:
(b) Deductions allowed to non-resident estates. — In the
case of a non-resident not a citizen of the Philippines, by
deducting from the value of that part of his gross estate
which at the time of his death is situated in the
Philippines —
(1) Expenses, losses, indebtedness, and taxes. — That
proportion of the deductions specified in paragraph (1)
of subjection (a) of this section11 which the value of such
part bears the value of his entire gross estate wherever
situated;"
In other words, the allowable deduction is only to the extent of
the portion of the indebtedness which is equivalent to the
proportion that the estate in the Philippines bears to the total
estate wherever situated. Stated differently, if the properties in the
Page 39 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA

Philippines constitute but 1/5 of the entire assets wherever

situated, then only 1/5 of the indebtedness may be deducted. But
since, as heretofore adverted to, there is no statement of the value
of the estate situated outside the Philippines, no part of the
indebtedness can be allowed to be deducted, pursuant to Section
89, letter (d), number (1) of the Internal Revenue Code.

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

In recapitulation, we hold and declare that:

(a) only the one-half (1/2) share of the decedent

Stevenson in the conjugal partnership property
constitutes his hereditary estate subject to the estate
and inheritance taxes;

(b) the intangible personal property is not exempt from

inheritance tax, there existing no complete total
reciprocity as required in section 122 of the National
Internal Revenue Code, nor is the decedent's estate
entitled to an exemption of P4,000.00 in the
computation of the estate tax;

(c) for the purpose of the estate and inheritance taxes,

the 210,000 shares of stock in the Mindanao Mother
Lode Mines, Inc. are to be appraised at P0.325 per share;
and

(d) the P2,000.00 for funeral expenses should be

deducted in the determination of the net asset of the
deceased Stevenson.

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

affirmed.

Respondent's claim for interest on the amount allegedly overpaid,

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

WHEREFORE, as modified in the manner heretofore indicated, the

judgment of the lower court is hereby affirmed in all other respects
not inconsistent herewith. No costs. So ordered.

Page 40 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
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
letter7 dated October 13, 1988, Justice Dizon informed respondent
Commissioner of the Bureau of Internal Revenue (BIR) of the
special proceedings for the Estate.
Petitioner alleged that several requests for extension of the period
to file the required estate tax return were granted by the BIR since
the assets of the estate, as well as the claims against it, had yet to
be collated, determined and identified. Thus, in a letter8 dated
March 14, 1990, Justice Dizon authorized Atty. Jesus M. Gonzales
(Atty. Gonzales) to sign and file on behalf of the Estate the required
estate tax return and to represent the same in securing a Certificate
of Tax Clearance. Eventually, on April 17, 1990, Atty. Gonzales
wrote a letter9 addressed to the BIR Regional Director for San
Pablo City and filed the estate tax return10 with the same BIR
Regional Office, showing therein a NIL estate tax liability,
computed as follows:
COMPUTATION OF TAX
Conjugal Real Property (Sch. 1) P10,855,020.00
Conjugal Personal Property (Sch.2) 3,460,591.34
Taxable Transfer (Sch. 3)
Gross Conjugal Estate 14,315,611.34
Less: Deductions (Sch. 4) 187,822,576.06
Net Conjugal Estate NIL
Less: Share of Surviving Spouse NIL.
Net Share in Conjugal Estate NIL
xxx
Net Taxable Estate NIL.
Estate Tax Due NIL.11
On April 27, 1990, BIR Regional Director for San Pablo City,
Osmundo G. Umali issued Certification Nos. 2052[12] and
2053[13] stating that the taxes due on the transfer of real and
personal properties[14] of Jose had been fully paid and said
properties may be transferred to his heirs. Sometime in August
1990, Justice Dizon passed away. Thus, on October 22, 1990, the
probate court appointed petitioner as the administrator of the
Estate.15
Petitioner requested the probate court's authority to sell several
properties forming part of the Estate, for the purpose of paying its
creditors, namely: Equitable Banking Corporation
(P19,756,428.31), Banque de L'Indochine et. de Suez
(US$4,828,905.90 as of January 31, 1988), Manila Banking
Corporation (P84,199,160.46 as of February 28, 1989) and State
Investment House, Inc. (P6,280,006.21). Petitioner manifested that
Manila Bank, a major creditor of the Estate was not included, as it
did not file a claim with the probate court since it had security over
several real estate properties forming part of the Estate. 16
However, on November 26, 1991, the Assistant Commissioner for
Collection of the BIR, Themistocles Montalban, issued Estate Tax
Assessment Notice No. FAS-E-87-91-003269,17 demanding the
payment of P66,973,985.40 as deficiency estate tax, itemized as
follows:
Deficiency Estate Tax- 1987
Estate tax P31,868,414
25% surcharge- late filing 7,967,103.62
late payment 7,967,103.62
Interest 19,121,048.6
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
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)
1. Letter dated October 13, 1988 from Arsenio P. Dizo
Commissioner of Internal Revenue informing the la
proceedings for the settlement of the estate (p. 126, BIR re
2. Petition for the probate of the will and issuance of letter o
with the Regional Trial Court (RTC) of Manila, docketed
42980 (pp. 107-108, BIR records);
3. Pleading entitled "Compliance" filed with the probate Cour
inventory of all the properties of the deceased (p. 106, BIR
4. Attachment to Exh. "C" which is the detailed and com
properties of the deceased (pp. 89-105, BIR rec.);
5. Claims against the estate filed by Equitable Banking Corp. w
in the amount of P19,756,428.31 as of March 31, 198
Annexes to the claim (pp. 64-88, BIR records);
6. Claim filed by Banque de L' Indochine et de Suez with the
amount of US $4,828,905.90 as of January 31, 1988 (pp. 26
7. Claim of the Manila Banking Corporation (MBC) which as
amounts to P65,158,023.54, but recomputed as of Februa
amount of P84,199,160.46; together with the demand lett
(pp. 194-197, BIR records);
8. Demand letter of Manila Banking Corporation prepared by
Associates Law Offices addressed to Fernandez Hermanos
Jose P. Fernandez, as mortgagors, in the total amount of P
February 28, 1989 (pp. 186-187, BIR records);
9. Claim of State Investment House, Inc. filed with the RTC,
docketed as Civil Case No. 86-38599 entitled "State Inv
Plaintiff, versus Maritime Company Overseas, Inc. and/o
Defendants," (pp. 200-215, BIR records);
Page 41 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA

10. Letter dated March 14, 1990 of Arsenio P. Dizon addressed

Gross Conjugal
to Atty.
Estate
Jesus M. "I" 38,084,0
Gonzales, (p. 184, BIR records);
Less: Deductions 26,250,0
11. Letter dated April 17, 1990 from J.M. Gonzales addressed to the Regional "J"
Net Conjugal Estate P 11,834
Director of BIR in San Pablo City (p. 183, BIR records);
Less: Share of Surviving Spouse 5,917,00
12. Estate Tax Return filed by the estate of the late Jose P. Fernandez through its "K" to "K-5"
authorized representative, Atty. Jesus M. Gonzales, Net Share in P.
for Arsenio Conjugal
Dizon, Estate
with P 5,917,0
attachments (pp. 177-182, BIR records);
Add: Capital/Paraphernal
13. Certified true copy of the Letter of Administration issued by RTC Manila, Branch "L"
51, in Sp. Proc. No. 87-42980 appointing Atty. Rafael S. Dizon
Properties as Judicial
– P44,652,813.66
Administrator of the estate of Jose P. Fernandez; (p. 102, CTA records) and
14. Certification of Payment of estate taxes Nos. 2052 and 2053, both dated
Less:April "M" to "M-5" Deductions
Capital/Paraphernal 44,652,8
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.).
Net Taxable Estate P 50,569
=======
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 Estate Tax Due P 29,935,342.97
the late Jose P. Fernandez. In the course of the direct
examination of the witness, he identified the Add: 25% Surcharge for Late Filing 7,483,83
following:
Add: Penalties for-No notice of death 15.00
No CPA certificate 300.00
Documents/Signatures BIR Record

Total deficiency estate tax P 37,419

1. Estate Tax Return prepared by the BIR; p. 138
=======
2. Signatures of Ma. Anabella Abuloc and Alberto Enriquez, Jr. appearing at the -do-
lower Portion of Exh. "1"; exclusive of 20% interest from due date of its payment
3. Memorandum for the Commissioner, dated July 19, until
1991,full payment
prepared bythereof
revenue pp. 143-144
examiners, Ma. Anabella A. Abuloc, Alberto S. Enriquez and Raymund S.
Gallardo; Reviewed by Maximino V. Tagle [Sec. 283 (b), Tax Code of 1987].25
4. Signature of Alberto S. Enriquez appearing at the lower portion on p. 2 of Exh. -do-
"2"; Thus, the CTA disposed of the case in this wise:
5. Signature of Ma. Anabella A. Abuloc appearing at the lower portion on p. 2 of -do-
Exh. "2"; WHEREFORE, viewed from all the foregoing, the Court
6. finds portion
Signature of Raymund S. Gallardo appearing at the Lower the petition
on p. unmeritorious
2 of Exh. -do- and denies the same.
"2"; Petitioner and/or the heirs of Jose P. Fernandez are
hereby ordered to pay to respondent the amount
7. Signature of Maximino V. Tagle also appearing on p. of
2 of Exh. "2";
P37,419,493.71 plus 20% -do-
interest from the due date
of its payment until full payment thereof as estate tax
8. Summary of revenue Enforcement Officers Audit Report, dated July 19, 1991; p. 139
liability of the estate of Jose P. Fernandez who died on
November 7, 1987.
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";26
SO ORDERED. -do-

11. Signature of Raymond S. Gallardo at the lower portion of Exh. "3"; -do-
Aggrieved, petitioner, on March 2, 1998, went to the CA via a
12. petition
Signature of Maximino V. Tagle at the lower forofreview.
portion
27
Exh. "3"; -do-

13. Demand letter (FAS-E-87-91-00), signed ThebyCA'sthe Asst. Commissioner for p. 169
Ruling
Collection for the Commissioner of Internal Revenue, demanding payment of the
amount of P66,973,985.40; and
On April 30, 1999, the CA affirmed the CTA's ruling. Adopting in full
14. Assessment Notice FAS-E-87-91-00 the CTA's findings, the CA ruled that thepp. 169-17022act of filing an
petitioner's
estate tax return with the BIR and the issuance of BIR Certification
Nos. 2052 and 2053 did not deprive the BIR Commissioner of her
The CTA's Ruling authority to re-examine or re-assess the said return filed on behalf
of the Estate.28
On June 17, 1997, the CTA denied the said petition for review.
Citing this Court's ruling in Vda. de Oñate v. Court of Appeals,23 the On May 31, 1999, petitioner filed a Motion for
CTA opined that the aforementioned pieces of evidence introduced Reconsideration29 which the CA denied in its Resolution30 dated
by the BIR were admissible in evidence. The CTA ratiocinated: November 3, 1999.

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
Conjugal Personal Prop.
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
P 5,062,016.00
estate's favor;
33,021,999.93

Page 42 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
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 Oñate 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 Oñate 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 Court’s 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 Oñate, which
reiterated this Court's previous rulings in People 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
Oñate, 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 Oñate 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 Oñate still subsists
in this jurisdiction. In Vda. de Oñate, 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
Oñate 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 Alberto’s 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 Oñate 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
Page 43 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
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 non-
compliance 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.64 Recognizing 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-of-death 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
Page 44 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA

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.71 Therefore, 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.

Page 45 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
LORENZO V. POSADAS
GR NO. 43082, June 18, 1937
(page 1)
EN BANC
[G.R. No. 10278. November 23, 1915.
THE MANILA RAILROAD COMPANY, Plaintiff-Appellant, v.
ROMANA VELASQUEZ, MELECIO ALLAREY and DEOGRACIAS
MALIGALIG, Defendants-Appellants.
William A. Kincaid and Thomas L. Hartigan for plaintiff.
Ledesma, Lim & Irureta Goyena for defendants.
SYLLABUS
1. EMINENT DOMAIN; VIEW BY THE COMMISSIONERS; ITS
PURPOSE AND EFFECT. — The view of the premises made by the
commissioners is for the purpose of better enabling them to
determine upon the weight of conflicting evidence. Being
disinterested land owners, selected for their ability to arrive at a
judicious decision in the assessment of damages, and being allowed
to view the property, their report is entitled to greater weight than
that of an ordinary trier of facts.
2. ID.; COMPENSATION; ESTIMATE OF VALUE CONFINED TO
EVIDENCE OF RECORD. — Notwithstanding the respect due the
report of the commissioners, their valuation of the property must
be supported by competent evidence of record, and in those cases
where the evidence as to value and damages is conflicting, they
should always set forth in full their reasons for accepting certain
evidence, especially in those cases where a view of the premises
has been made.
3. ID.; ID.; REPORT OF COMMISSIONERS; POWER OF COURT TO
SUBSTITUTE ITS OWN ESTIMATE OF VALUE. — A Court of First
Instance or, on appeal under sections 496 and 497 of the Code of
Civil Procedure, the Supreme Court may substitute its own
estimate of value as gathered from the record submitted to it, in
cases where the only error of the commissioners is that they have
applied illegal principles to the evidence submitted to them; or that
they have disregarded a clear preponderance of the evidence; or
that they have used an improper rule of assessment in arriving at
the amount of the award; provided always that the evidence be
clear and convincing and the amount allowed by the
commissioners is grossly inadequate or excessive.
4. ID.; ID.; ID.; ID. — Adjudicated cases of this Supreme Court and
of courts of other jurisdictions having similar procedure reviewed
and found to support the power of the court to thus modify the
report of the commissioners.
5. ID.; ID.; EVIDENCE OF SALES OF NEARBY LAND; WHEN
ADMISSIBLE. — Evidence of bona fide sales of other nearby parcels
is competent if the character of such parcels, as sites for business
purposes, dwellings, or for whatever use which enhances the
pecuniary value of the condemned land, is sufficiently similar to the
latter that it may be reasonably assumed that the price of the
condemned land would be approximately near the price paid for
the parcels sold. But to be admissible, the property thus sold must
be in the immediate neighborhood, that is, in the zone of
commercial activity with which the condemned property is
identified. The sales must also be sufficiently near in point of time
with the date of the condemnation proceedings to exclude general
increases or decreases in property values due to changed
commercial conditions in the vicinity, and must be made by one
who is desirous but not obliged to sell, and to one who is desirous
but not obliged to buy.
6. ID.; JUST COMPENSATION. — "Compensation" means an
equivalent for the value of the land taken. Anything beyond that is
more and anything short of that is less than compensation. The
word "just" is used merely to intensify the meaning of the word
"compensation."cralaw virtua1aw library
7. ID.; ID.; MARKET VALUE. — The market value of the condemned
land is all that the owner is entitled to. Evidence that the locality
may become a business or choice residential district, when its
history over a period of years shows that there are large tracts of
agricultural land in the vicinity, including the condemned land,
which have never been appropriated for any of those purposes,
does not justify appraising such land at figures which it would be
worth if such development were an actual fact. Such evidence
amounts to a mere expectancy, the market value of which is
comparatively insignificant.
8. ID.; IMPROVEMENTS UNDERTAKEN WITH KNOWLEDGE THAT
EXPROPRIATION PROCEEDINGS ARE CONTEMPLATED. — The
owner of property cannot be divested of his title until
compensation is made or security given. Act NO. 1258 as amended
affords a method whereby a railroad company may, by the exercise
] of due diligence, protect itself from the payment of damages for
such improvements; and until it takes a decisive step towards
appropriating the land, the owner cannot be estopped from
claiming damages for such improvements.
DECISION
TRENT, J. :
This action was instituted by the Manila Railroad Company for the
purpose of expropriating twelve small parcels of land for a railroad
station site at Lucena, Province of Tayabas.
The original defendants were Romana Velasquez, Melecio Allarey,
and Deogracias Maligalig. After the filing of the complaint Simeon
Perez, Filemon Perez, and Francisco Icasiano, having bought
Romana Velasquez’ interest, were included as defendants. The
commissioners fixed the value of the twelve parcels at P81,412.75,
and awarded P600 to Simeon Perez as damages for the removal of
an uncompleted camarin. Upon hearing, the commissioners’ report
was approved and the plaintiff directed to pay to the "Tayabas
Land Company" the total amount awarded, with interest and costs.
The plaintiff company alleges that that amount is grossly excessive,
pointing out that the land has never been used except for rice
culture.
Upon this appeal we are asked to review the evidence and reduce
the appraised value of the condemned land in accordance with our
findings rendering judgment accordingly. Has this court, under the
law, authority to take such action? And along with this question it
must be decided whether the Courts of First Instance have such
power over the reports of commissioners. Section 246 of the Code
of Civil Procedure reads:jgc:chanrobles.com.ph
"Action of Court Upon Commissioners’ Report. — Upon the filing of
such report in court, the court shall, upon hearing, accept the same
and render judgment in accordance therewith; or for cause shown,
it may recommit the report to the commissioners for further report
of facts; or it may set aside the report and appoint new
commissioners; or it may accept the report in part and reject it in
part, and may make such final order and judgment as shall secure
to the plaintiff the property essential to the exercise of his rights
under the law, and to the defendant just compensation for the land
so taken; and the judgment shall require payment of the sum
awarded as provided in the next section, before the plaintiff can
enter upon the ground and appropriate it to the public use."cralaw
virtua1aw library
From this section it clearly appears that the report of the
commissioners on the value of the condemned land is not final. The
judgment of the court is necessary to give effect to their estimated
valuation. (Crawford v. Valley R. R. Co., 25 Grat., 467.) Nor is the
report of the commissioners conclusive, under any circumstances,
so that the judgment of the court is a mere detail or formality
requisite to the proceedings. The judgment of the court on the
question of the value of the land sought to be condemned is
rendered after a consideration of the evidence submitted to the
commissioners, their report, and the exceptions thereto submitted
upon the hearing of the report. By this judgment the court may
accept the commissioners’ report unreservedly; it may return the
report for additional facts; or it may set the report aside and
appoint new commissioners; or it may accept the report in part or
reject it in part, and "make such final order and judgment as shall
secure to the plaintiff the property essential to the exercise of his
rights under the law, and to the defendant just compensation for
the land so taken." Any one of these methods of disposing of the
report is available to and may be adopted by the court according as
they are deemed suited to secure to the plaintiff the necessary
property and to the defendant just compensation therefor. But can
the latter method produce a different result in reference to any part
of the report from that recommended by the commissioner?
Section 246 expressly authorizes the court to "accept the report in
part and reject it in part." If this phrase stood alone, it might be said
that the court is only empowered to accept as a whole certain parts
of the report and reject as a whole other parts. That is, if the
commissioners fixed the value of the land taken at P5,000, the
Page 46 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
improvements at P1,000, and the consequential damages at P500,
the court could accept the report in full as to any one item and
reject it as to any other item, but could not accept or reject a part
of the report in such a way as to change any one of the amounts.
But the court is also empowered "to make such final order and
judgment as shall secure to the plaintiff the property essential to
the exercise of his rights under the law, and to the defendant just
compensation for the land so taken." The court is thereby expressly
authorized to issue such orders and render such judgment as will
produce these results. If individual items which make up the total
amount of the award in the commissioners’ report could only be
accepted or rejected in their entirety, it would be necessary to
return the case, so far as the rejected portions of the report were
concerned, for further consideration before the same or new
commissioners, and the court could not make a "final order and
judgment" in the cause until the rejected portions of the report had
been rereported to it. Thus, in order to give the quotation from 246
its proper meaning, it is obvious that the court may, in its discretion
correct the commissioners’ report in any manner deemed suitable
to the occasion so that final judgment may be rendered and thus
end the litigation. The "final order and judgment" are reviewable
by this court by means of a bill of exceptions in the same way as
any other "action." Section 496 provides that the Supreme Court
may, in the exercise of its appellate jurisdiction, affirm, reverse, or
modify any final judgment, order, or decree of the Court of First
Instance, and section 497, as amended by Act No. 1596, provides
that if the excepting party filed a motion in the Court of First
Instance for a new trial upon the ground that the evidence was
insufficient to justify the decision and the judge overruled such
motion and due exception was taken to his ruling, the Supreme
Court may review the evidence and make such findings upon the
facts by a preponderance of the evidence and render such final
judgment as justice and equity may require. So it is clear from these
provisions that this court, in those cases where the right of eminent
domain has been exercised and where the provisions of the above
section have been complied with, may examine the testimony and
decide the case by a preponderance of the evidence; or, in other
words, retry the case upon the merits and render such order or
judgment as justice and equity may require. The result is that, in
our opinion, there is ample authority in the statute to authorize the
courts to change or modify the report of the commissioners by
increasing or decreasing the amount of the award, if the facts of the
case will justify such change or modification. As it has been
suggested that this conclusion is in conflict with some of the former
holdings of this court upon the same question, it might be well to
briefly review the decisions to ascertain whether or not, as a matter
of fact, such conflict exists.
In City of Manila v. Tuason (R. G. No. 3367, decided March 23, 1907,
unreported), the Court of First Instance modified the report of the
commissioners as to some of the items and confirmed it as to
others. On appeal, the Supreme Court remanded the cause,
apparently for the reason that the evidence taken by the
commissioners and the lower court was not before it, and perhaps
also because the commissioners adopted a wrong principle of
assessing damages.
In Manila Railway Co. v. Fabie (17 Phil. Rep., 206) the majority
report of the commissioners appraised the land at P56,337.18,
while a dissenting commissioner estimated it at P27,415.92. The
Court of First Instance, after taking additional evidence upon the
consequential benefits to the remainder of defendants’ land by the
construction of the railroad, and also as to the rental value of
various pieces of land in the locality, fixed the value of the land at
the sum estimated by the dissenting commissioner. The
defendants appealed to this court. This court remarked that the
only evidence tending to support the majority report of the
commissioners consisted of deeds of transfer of real estate
between parties in that community showing the prices paid by the
vendees in such conveyances. It was held that without its being
shown that such transfers had been made in the ordinary course of
business and competition, and that the parties therein stated were
not fictitious, such deeds were incompetent as evidence of the
value of the condemned land. As to the action of the court in fixing
the price of the land at P27,415.92, the court
said:jgc:chanrobles.com.ph
"Conceding, without deciding, that he also had the right to
formulate an opinion of his own as to the value of the land in
question, nevertheless, if he formulate such an opinion, he must
base it upon competent evidence. The difficulty with the case is that
it affirmatively appears from the record on appeal that there is an
entire absence of competent evidence to support the finding either
of the commissioners or of the court, even if the court had a right
to make a finding of his own at all under the circumstances."cralaw
virtua1aw library
In Manila Railroad Co. v. Attorney-General (22 Phil. Rep., 192) the
only question raised was the value of certain improvements on the
condemned portion of a hacienda, such improvements consisting
mainly of plants and trees and belonging to a lessee of the
premises. The total damages claimed were P24,126.50. The
majority report of the commission allowed P19,478, which amount
was reduced by the Court of First Instance to P16,778. The plaintiff
company, upon appeal to this court, alleged that the damages
allowed were grossly excessive and that the amount allowed by the
commissioners should have been reduced by at least P17,000;
while the defendant urged that the damages as shown by the
record were much greater than those allowed, either by the
commissioners or by the court. In disposing of the case this court
said:jgc:chanrobles.com.ph
"The only ground upon which the plaintiff company bases its
contention that the valuations are excessive is the minority report
of one of the commissioners. The values assigned to some of the
improvements may be excessive but we are not prepared to say
that such is the case. Certainly there is no evidence in the record
which would justify us in holding these values to be grossly
excessive. The commissioners in their report go into rather minute
detail as to the reasons for the conclusions reached and the
valuations fixed for the various items included therein. There was
sufficient evidence before the commissioners to support the
valuations fixed by them except only those later modified by the
court below. The trial court was of opinion that the price of P2 each
which was fixed for the orange trees (naranjitos) was excessive,
and this was reduced to P1.50 for each tree; this on the ground that
the evidence discloses that these trees were comparatively young
at the time of the expropriation, and that the value fixed by the
majority report of the commissioners was that of full-grown or
nearly full-grown trees. We are of opinion that this reduction was
just and reasonable. Aside from the evidence taken into
consideration by the trial judge we find no evidence in the record
in support of the contention of the railroad plaintiff that the
valuations fixed in the majority report of the commissioners and
by the trial court are grossly excessive, and plaintiff company
having wholly failed to offer evidence in support of its allegations
in this regard when the opportunity so to do was provided in
accordance with law, it has no standing in this court to demand a
new trial based on its unsupported allegations of grossly excessive
valuation of the property by the commissioners and the court
below."cralaw virtua1aw library
This court affirmed the finding of damages made by the trial court
with the exception of an item for damages caused by fire to
improvements on lands adjoining those condemned, which was
held not to be a proper matter to be considered in condemnation
proceedings. The court here approved of the action of the Court of
First Instance in reducing the amount of damages fixed by the
commissioners as to the value of the young orange trees on the
strength of the evidence of record.
In Manila Railroad Company v. Caligsihan (R. G. No. 7932, decided
March 25, 1913, unreported), it appears that the lower court
approved in toto the report of the commissioners. On appeal, this
Supreme Court reversed the lower court and remanded the case
with orders to appoint new commissioners,
saying:jgc:chanrobles.com.ph
"Under the evidence in this case the award is excessive. Section 246
of the Code of Civil Procedure giving to the court the power to
’make such final order and judgment as shall secure to the party
the property essential to the exercise of his rights under the law,
and to the defendant just compensation for the land so taken,’ we
exercise that right in this case for the purpose of preventing the
defendants from obtaining that which would be more than ’just
compensation’ under all the evidence of the case.
"The judgment is reversed and the cause remanded, with
instructions to the lower court to appoint a new commission and
to proceed from that point de novo."cralaw virtua1aw library
We will now examine the case (Philippine Railway Co. v. Solon, 13
Phil. Rep., 34) relied upon to support the proposition that the
courts should not interfere with the report of the commissioners to
correct the amount of damages except in cases of gross error,
showing prejudice or corruption.
In that case the property belonging to the appellant which the
company sought to appropriate was his interest as tenant in a tract
of land belonging to the Government, together with a house
standing thereon and other property belonging to him. He asked
that he be awarded for all the property taken P19,398.42. The
commissioners allowed him P10,745.25. At the hearing had upon
the report, the court reduced this amount and allowed the
Page 47 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
appellant P9,637.75. The commissioners took a large amount of
evidence relative to the amount of damages. The testimony was
conflicting as to the value of the house, two witnesses fixing it at
over P12,000; another at over P14,000; one at P8,750; another at
P6,250; and another at P7,050.95. The commissioners fixed the
value of the house alone at P9,500, and the court at P8,792.50. This
court said:jgc:chanrobles.com.ph
"Nor do we decide whether, in a case where the damages awarded
by the commissioners are grossly excessive or grossly insufficient,
the court can, upon the same evidence presented before the
commissioners, itself change the award. We restrict ourselves to
deciding the precise question presented by this case, in which it is
apparent that, in the opinion of the court below, the damages were
not grossly excessive, for its own allowance was only P1,000 less
than the amount allowed by the commissioners, and the question
is whether in such a case the court can substitute its own opinion
upon the evidence presented before the commissioners for the
opinion which the commissioners themselves formed, not only
from that evidence but also from a view of the premises which by
law they were required to make."cralaw virtua1aw library
Referring to the manner in which the trial court arrived at its
valuation of the various items, including the house, this court
said:jgc:chanrobles.com.ph
"Without considering the correctness of the rule adopted by the
court for determining the value of the property it is sufficient to say
that the evidence before the commissioners as to the value of the
property taken was contradictory and that their award was not
palpably excessive or inadequate. Under such circumstances, we
are of the opinion that the court had no right to interfere with
it."cralaw virtua1aw library
From the foregoing it is clear that (1) the testimony was conflicting;
(2) that the award as allowed by the commissioners was well
within the amounts fixed by the witnesses; and (3) that the award
was not grossly excessive. That it was not grossly excessive is
shown by the difference between the amount fixed by the
commissioners and that fixed by the court, this difference being
P1,117.50, a reduction of a little over 10 per cent.
In City of Manila v. Estrada (25 Phil. Rep., 208), the city sought to
expropriate an entire parcel of land with its improvements for use
in connection with a public market. The commissioners, after
viewing the premises and receiving evidence, being unable to
agree, submitted two reports to the court. In the majority report
the value of the land was fixed at P20 per square meter and in the
minority report at P10. The Court of First Instance fixed the value
at P15 per square meter. Upon appeal this court, after re- viewing
the evidence, held that P10 per square meter was a just
compensation for the land taken and rendered judgment
accordingly, saying:jgc:chanrobles.com.ph
"After a careful examination of the entire record in this case and
the law applicable to the questions raised therein, we are of the
opinion that P10 per square meter is a just compensation for the
land taken."cralaw virtua1aw library
From the above review of the cases it will be seen that this court
has not only not decided that the courts cannot interfere with the
report of the commissioners unless prejudice or fraud has been
shown, but the decisions, aside from the case of the City of Manila
v. Estrada, tend to show the contrary; that is, an award which is
grossly excessive or grossly insufficient in the opinion of the court
can be increased or decreased, although there be nothing which
tends to indicate prejudice or fraud on the part of the
commissioners. The case of the City of Manila v. Estrada is direct
authority supporting the conclusions which we have reached in the
case at bar. And we are not without authority outside of this
jurisdiction which supports the view we have taken in the case
under consideration. In Morgan’s Louisiana & Texas R. R. Co. v.
Barton (51 La. Ann., 1338), the court, in considering a procedural
law similar to our own, stated:jgc:chanrobles.com.ph
"On the question of the value of the land, 8.34 acres, the
commissioners have allowed $2,500, or $300 per acre. The
defendant has put in the record the testimony of witnesses claimed
to support the allowance. Without disregarding this testimony, it is
sufficient to say that the opinions of the witnesses do not seem to
be based on any fact calculated to show the value of the land. . . . On
the other hand the plaintiff has placed before us the titles of
defendant of recent date showing the price paid by him (the
defendant) for the entire body of land of which the 8 acres are part;
the acts of sale of land in the same neighborhood, and of the same
quality; the assessment of defendant’s property, and other
testimony on this issue of value. . . . Giving all possible weight, or
rather restricting the testimony of the plaintiffs’ witnesses to its
due influence, and giving, we think, necessary effect to the acts by
which defendant purchased, the acts of sale of other land, the
assessment of value, with due allowance for under assessment, and
the other testimony of record, we reach the conclusion that the
award gives two-thirds more than the value of the land. We fix the
value of the land at $833.33."cralaw virtua1aw library
See also T. & P. R. R. Co. v. Southern Develop. Co. (52 La. Ann., 535),
where the court held the appraisement too low and after
discussing the evidence, increased the amount of the award
accordingly. A similar case is Abney v. Railroad Co. (105 La., 446).
See also T. & P. R. R. Co. v. Wilson (108 La., 1; 32 So., 173); and
Louisiana Western R. Co. v. Crossman’s Heirs (111 La., 611; 35 So.,
784), where the point is touched upon.
In Missouri the statute (1 Mo. Ann. Stat., sec. 1268) directs that "the
court shall make such order therein as right and justice may
require, and may order a new appraisement, upon good cause
shown." Owing to a constitutional restriction, this provision has
been construed to apply only to damages and benefits resulting to
land owners in consequence of proposed improvements, the cash
value of property expropriated being an issue triable, at the
instance of either party by a jury subsequent to the findings of the
commissioners. Subject to this restriction, however, it has been
held that the above provision of law gives the court the right to
increase or decrease the amount awarded by the commissioners.
In the late case of Tarkio Drainage District v. Richardson (237 Mo.,
49), the court presents a lengthy review of its decisions on this
subject.
The question now arises, when may the courts, with propriety,
overrule the award of the commissioners in whole or in part, and
substitute their own valuation of the condemned property? We
shall consider this question in two ways: first, as one of procedure
under section 246, above quoted; and second, as to the evidence
which must appear in the record in order to justify such action.
From a mere reading of section 246 and the remarks just made, it
should be clear that the court is permitted to act upon the
commissioners’ report in one of several ways, at its own discretion.
The whole duty of the court in considering the commissioners’
report is to satisfy itself that just compensation will be made to the
defendant by its final judgment in the matter, and in order to fulfill
its duty in this respect the court will be obliged to exercise its
discretion in dealing with the report as the particular
circumstances of the case may require. But generally speaking,
when the commissioners’ report cannot with justice be approved
by the court, one of three or four circumstances will usually
present itself, each of which has for its antidote one of the methods
of dealing with the report placed at the disposal of the court by
section 246. Thus, if it be successfully established that the
commissioners refused to hear competent evidence material to the
case, then all the evidence in the case would not be before the court.
The court could not, with reason, attempt to either approve or
change the report, as it stood, for the reason that all the evidence
of the case would not have been considered by the commissioners
nor have been presented to the court; and the remedy would be to
"recommit the report of the commissioners for further report of
facts." Again, if improper conduct, fraud, or prejudice be charged
against the commissioners and this charge be sustained it would
be safer to set aside the award thus vitiated and "appoint new
commissioners" who could render a report not tainted by these
things. But when the only error of the commissioners is that they
have applied illegal principles to the evidence submitted to them;
or that they have disregarded a clear preponderance of the
evidence; or that they have used an improper rule of assessment in
arriving at the amount of the award, then, in such a case, if the
evidence be clear and convincing, the court should ordinarily be
able, by the use of those correct legal principles which govern the
case, to determine upon the amount which should be awarded
without returning the report to the commissioners. When the
matter stands in this light, it becomes the duty of the court to make
"final order and judgment" in which the proper award will be made
and thus end the litigation between the parties.
Now, what evidence as to value must the record contain in order to
justify the court in disregarding the valuation fixed upon the
condemned property by the commissioners and substituting
therefor its own finding of value? It is almost a universal practice
in the United States to submit the question of value in
expropriation cases to a jury or commission, usually of local
property owners, and one of the things they are specially
instructed to do is to view or inspect the condemned property. The
purpose of this view and the additional weight which should be
given to the award of the appraisers because of the view are
questions often discussed. After a careful examination of a number
Page 48 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
of adjudicated cases, we have concluded that the following cases,
all agreeing in principle, correctly state the purpose of the view.
In Denver Co. v. Howe (49 Colo., 256; 112 P., 779), it was said: "The
jury viewed the premises and were better able to judge of the
number of acres in each, as well as other conditions affecting the
land. The facts ascertained by the view of the premises are not in
the record, whether they were regarded as so much additional
evidence, or were used to better understand and apply the
evidence adduced at the trial. Keeping in view the evidence relating
to the special value of the building site, the value of improvements
and of the ground, it will be found that the verdict is within and
supported by the values as testified to, and these values, as fixed by
the several witnesses, represented to each the market value, as
conceded by appellants. The verdict is supported by the evidence
of market value and on that ground would have to be sustained if
the matter complained of in the instruction had been entirely
omitted."cralaw virtua1aw library
In Gorgas v. Railroad Co. (114 Pa., 1; 22 Atl., 715), it was said: "A
view may sometimes be of the highest importance, where there is
a conflict of testimony. It may enable the jurors to see on which side
the truth lies. And if the witnesses on the one side or the other have
testified to a state of facts which exists only in their imagination, as
to the location of the property, the manner in which it is cut by the
road, the character of the improvements, or any other physical fact
bearing upon the case, they surely cannot be expected to ignore the
evidence of their senses and give weight to testimony which their
view shows to be false. . . . The true rule in such cases is believed to
be that the jury in estimating the damages shall consider the
testimony as given by the witnesses, in connection with the facts as
they appear upon the view; and upon the whole case, as thus
presented, ascertain the difference between the market value of
the property immediately before and immediately after the land
was taken. This difference is the proper measure of
damages."cralaw virtua1aw library
In Close v. Samm (27 Iowa, 503), subsequently approved in Guinn
v. Railway Co. (131 Iowa, 680, 683; 109 N. W., 209), it was said:
"The question then arises as to the purposes and intent of this
statute. It seems to us that it was to enable the jury, by the view of
the premises or place to better understand and comprehend the
testimony of the witnesses respecting the same, and thereby the
more intelligently to apply the testimony to the issues on trial
before them, and not to make them silent witnesses in the case,
burdened with testimony unknown to both parties, and in respect
to which no opportunity for cross-examination or correction of
error, if any, could be afforded either party. If they are thus
permitted to include their personal examination, how could a court
ever properly set aside their verdict as being against the evidence,
or even refuse to set it aside without knowing the facts ascertained
by such personal examination by the jury? It is a general rule
certainly, if not universal, that the jury must base their verdict upon
the evidence delivered to them in open court, and they may not
take into consideration facts known to them personally, but
outside of the evidence produced before them in court. If a party
would avail himself of the facts known to a juror. he must have him
sworn and examined as other witnesses."cralaw virtua1aw library
In C. K. & W. R. Co. v. Mouriquand (45 Kan., 170), the court
approved of the practice of instructing the jury that their view of
the premises was to be used in deter-mining the value of conflicting
testimony, saying: "Had the jury disregarded all the sworn
evidence, and returned a verdict upon their own view of the
premises, then it might be said that the evidence which the jurors
acquired from making the view had been elevated to the character
of exclusive and predominating evidence. This is not allowable. The
evidence of the witnesses introduced in the court on the part of the
landowner supports fully the verdict. If the verdict was not
supported by substantial testimony given by witnesses sworn
upon the trial, we would set it aside, but as the jury only took into
consideration the result of their view of the premises, in
connection with the sworn evidence produced before them, to
determine between conflicting evidence, the instruction was not so
erroneous as to require a new trial."cralaw virtua1aw library
In Postal Telegraph-Cable Co. v. Peyton (124 Ga., 746; 52 S. E., 803;
3 L. R. A., N. S., 333), it was said: "A jury cannot be left to roam
without any evidence in the ascertainment and assessment of
damages. The damages which the law allows to be assessed in favor
of a landowner whose property has been taken or damaged under
the right of eminent domain are purely compensatory. The land
actually appropriated by the telegraph company amounted to only
a fraction of an acre; and while it appeared that the construction
and maintenance of the telegraph line would cause consequential
damages to the plaintiff, no proof was offered from which any fair
and reasonable estimate of the amount of damages thereby
sustained could be made. The jury should have been supplied with
the data necessary in arriving at such an estimate. In the absence
of this essential proof, a verdict many times in excess of the highest
proved value of the land actually taken must necessarily be
deemed excessive. Judgment reversed."cralaw virtua1aw library
In New York, where the question has doubtless been raised more
often than anywhere else, the late cases illustrate the rule, perhaps
the most clearly. The appellate division, supreme court, in In re
Titus Street in City of New York (123 N. Y. S., 1018), where it
appeared that the city’s witnesses testified that the property was
worth $9,531 and the commissioners awarded $2,000 less,
said:jgc:chanrobles.com.ph
"We do not think that this is meeting the requirements of the law;
we do not believe that it is within the province of commissioners
to arbitrarily set up their own opinion against that of the witnesses
called by the city, and to ward damages largely below the figure to
which the moving party is committed, without something
appearing in the record to justify such action. When a party comes
into court and makes an admission against his interest, no court or
judicial tribunal is justified in assuming that the admission is not
true without at least pointing out the reason for discrediting it; it
carries with it the presumption of truth, and this presumption is
not to be overcome by the mere fact that the commissioners might
themselves have reached a different conclusion upon the viewing
of the premises. . . . This view of the commissioners, it seems to us,
is for the purpose of enabling the commissioners to give proper
weight and effect to the evidence before them, and it might justify
them in giving larger damages than some of the witnesses thought
proper, or even less than some of them declared to be sustained,
but where the evidence produced by the moving party in a
proceeding for taking property for public purposes fixes a sum,
without any disagreement in the testimony on that side, we are of
the opinion that the cases do not justify a holding that the
commissioners are authorized to ignore such testimony and to
substitute their own opinion, in such a manner as to preclude the
supreme court from reviewing the determination. That is not in
harmony with that due process of law which is always demanded
where rights of property are involved, and would make it possible
for a corrupt commission to entirely disregard the rights of the
individual to the undisturbed enjoyment of his property, or its
equivalent."cralaw virtua1aw library
From these authorities and keeping in mind the local law on the
subject, we think the correct rule to be that, if the testimony of
value and damages is conflicting, the commissioners may resort to
their knowledge of the elements which affect the assessment and
which were obtained from a view of the premises, in order to
determine the relative weight of conflicting testimony, but their
award must be supported by the evidence adduced at their
hearings and made of record, or it cannot stand; or, in other words,
the view is intended solely for the purpose of better understanding
the evidence submitted. To allow the commissioners to make up
their judgment on their own individual knowledge of disputed
facts material to the case, or upon their private opinions, would be
most dangerous and unjust. It would deprive the losing party of the
right of cross-examination and the benefit of all the tests of
credibility which the law affords. It would make each
commissioner the absolute judge of the accuracy and value of his
own knowledge or opinions and compel the court to affirm the
report on the facts when all of such facts were not before it. The
evidence of such knowledge or of the grounds of such opinions
could not be preserved in a bill of exceptions or questioned upon
appeal. It is no hardship upon any of the parties to require that the
award must be based upon the evidence. It is the duty of each party
to submit what evidence of value he has and if he fails to do so he
can not complain if the appraisement is kept within the bounds of
the evidence presented to the commissioners.
In those cases where the testimony as to value and damages is
conflicting the commissioners should always set forth in full their
reasons for accepting the testimony of certain witnesses and
rejecting that of others, especially in those cases where a view of
the premises has been made.
The commissioners are required by law to be disinterested
landowners of the province, selected by the court with a view to
their ability to arrive at a judicious decision in the assessment of
damages. The judgment of men with these qualifications upon the
price of real property is entitled to some considerable weight.
Being local men, it may be assumed that they are familiar with the
local land values, the needs of the community in that line, and the
adaptability of particular sites to commercial purposes. Then, too,
their view of the premises enables commissioners to better
understand the evidence submitted to them, as we have said above.
The declarations oœ witnesses as to the value of the land; as to its
Page 49 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
condition, or the conditions of improvements which may be
located upon it, and comparisons made between the condemned
land and other land in the vicinity may all be better understood by
the commissioners if they have viewed the premises. It is,
therefore, no slight divergence from the seeming preponderance of
the evidence of record, as viewed by the court, which will justify
the court in brushing side the commissioners’ report and
appraising the property itself, based only upon a perusal of the
evidence which was submitted to them. It is in those cases where
the evidence submitted to the commissioners as to value varies
greatly that the real difficulty lies. In these cases it is clear that
some of the evidence must be untrustworthy. Hence, it is necessary
to reject that evidence which shows the price to be greatly higher
or lower than the just compensation to which the defendant owner
is entitled. If, after making due allowance for the superior facilities
which the commissioners had for arriving at the correct value of
the property, the court is clearly of the opinion that the evidence
relied upon by them is untrustworthy, and that other evidence
rejected by the commission and which fixes the value of the
property at a figure greatly at variance with their valuation of the
property bears the earmarks of truth, then it becomes the duty of
the court to substitute for the commissions’ award the amount
indicated by such evidence. That the estimated value made by the
appraisers is to be given "great weight;" that such valuation is not
to be "lightly set aside;" that it will not be set aside "if there is
substantial testimony to support it," unless error is "plainly
manifest;" "unless it is apparent that injustice has been done;"
"unless the commissioners have clearly gone astray or adopted
erroneous principles;" "unless the commissioners acted upon
wrong principles, or their award is grossly inadequate;" unless the
award is "palpably excessive or inadequate;" unless it is "grossly
inadequate or un-equal," is the burden of all the cases.
Let us now examine the evidence, keeping these legal principles in
mind. The only discussion of the evidence of value made by the
lower court was as follows:jgc:chanrobles.com.ph
"To determine this question (the value of the land) the court abides
by and refers to the report of the commissioners dated July 10,
1913, because it understands that it must accept this report in all
its parts for the reason that the prices fixed in the said report of
P3.75 per square meter for parcel 21-B, that of P3.50 per square
meter for parcel 21-A, and that of P2 per square meter for the rest
of the parcels (naming them) are reasonable and just; the
compensation which is made in the said report for the damages
occasioned to the defendant Simeon Perez being also reasonable
and just."cralaw virtua1aw library
It will be seen that the lower court relied entirely upon the findings
of the commissioners. The commissioners justified their
appraisement of the land at a price so greatly in excess of its value
as agricultural land upon the following considerations. First, the
construction of the provincial building and the high school had
increased the price of land in their vicinity. Second, the
neighborhood of these buildings had become a choice residential
district. Third, the population in the vicinity had increased since it
became known that the condemned property had been selected as
a station site by the railroad company. We propose to discuss the
evidence of value precisely along these lines, starting first,
however, with its value as agricultural land, the only use to which
it has ever been put.
The condemned land is not located in the commercial district of the
town of Lucena, but is located near the provincial building and the
high school. The land has been used from time out of mind solely
for the cultivation of rice Deogracias Maligalig, one of the
defendants, testified that rice land in the municipality of Lucena
was worth P500 per cavan (hectare). Melecio Allarey, another
defendant, testified that such land was worth from P300 to P400
per hectare. Agustin testified that such land was worth between
P400 and P500 per hectare if not under irrigation, and if under
irrigation, more than P1,000. Ambrosio Zaballero, owner of more
than 30 parcels of land in the municipality of Lucena, said that the
site of the railroad station was nothing but a rice field prior to the
coming of the railroad, worth from P300 to P400 per hectare. Cayo
Alzona, the only witness for the plaintiff, testified that, in
Candelaria, rice land was worth between P200 and P250 per
hectare, he having purchased an uncleared parcel of rice land for
P150 per hectare. It seems fair to accept the statement of the two
defendants, Maligalig and Allarey, and fix the price of the
condemned land for agricultural purposes at P500 per hectare.
Witnesses for the defendants, including three of the latter, fixed the
value of the condemned land at prices ranging from P5 to P8 per
square meter. The remaining defendant, Icasiano, did not testify
before the commissioners. But in his answer filed about seven
months after purchasing the land for P0.81 per square meter, he
alleged that his parcel was worth P5 per square meter. So that we
have all of the defendants and several other witnesses estimating
the value of the condemned land at about the same figure, or from
P50,000 to P80,000 per hectare.
The defendant, Melecio Allarey, testified that he owned 30,000
square meters of land in the vicinity of the railroad station site,
2,895 square meters of which was wanted by the plaintiff
company. Upon being asked what the value of his land was, he
promptly replied that it was worth P5.50 per square meter. Asked
if he were making his will whether he would list this property at a
total value of P150,000, he evaded a direct reply by saying that he
would divide it among his children. Asked if he considered himself
the owner of land valued at P150,000, he replied that for his
purpose he figured on that price. Asked if he would declare the land
to be worth that sum in his sworn tax declaration, he replied that
he would accept the figures fixed upon by the tax appraisers. His
testimony shows clearly that he did not desire to commit himself
positively to the assertion that his three hectares of land was worth
P150,000. His ambiguous and evasive replies on cross-
examination do not at all harmonize with his unequivocal
statement in his direct examination that his land was worth P5.50
per square meter. Apparently, when confronted with the price per
hectare, which this estimate would put upon his land, he was
somewhat astounded. Indeed, we are inclined to believe that one
of the reasons for the high value placed upon the condemned land
by all the witnesses is that they were estimating the price per
square meter instead of per hectare, which is the customary
method of fixing the price of agricultural land. A perusal of the
remainder of the testimony of defendant Allarey shows that he is
paying annual taxes on his 30,000 square meters of land
amounting to between P12 and P13. He also naively informs us that
he has not been able to till the land lately because he has no
carabaos or other work animals.
Several of the witnesses for the defendants testified to having
purchased land in the vicinity of the station site for residential
purposes. Thus, Edard testified that he paid P1,400 for 220 square
meters in 1910. Andres Dinlasan sold 119 square meters for P10
per square meter on June 6, 1912. He could give no reason why the
purchaser had paid so much for the land, but in response to a
question said the purchaser had some more land joining it. Agustin
bought 1,900 square meters in 1910 for P2 per square meter.
Esteban Lagos paid P1,000 for a plot 16 by 18 meters in 1911. A
most remarkable thing about these purchases is that, as choice
residential sites, they are so extremely small. With the possible
exception of the parcel purchased by Agustin, the parcels in
question are hardly generous enough to permit of the construction
of even a modest mansion. Cayo Alzona testified that he purchased
2,200 square meters in 1906 for P350, and that he purchased a
little less than one hectare in 1912, all in the vicinity of the station
site, for which he paid P1,500. It will be noted that there is
considerable difference between these figures and the prices at
which the other witnesses testified they purchased land in that
neighborhood. That the evidence of sales of nearby land was
competent, there can be no doubt.
In Aledo Terminal Ry. Co. v. Butler (246 Ill., 406; 92 N. E., 909), the
court said: "Evidence of voluntary sales of other lands in the
vicinity and similarly situated is admissible in evidence to aid in
estimating the value of the tract sought to be condemned, but the
value of such testimony depends upon the similarity of the land to
that in question and the time when such sales were made and the
distance such lands are from those the value of which is the subject
of inquiry."cralaw virtua1aw library
In an earlier case, the supreme court of Illinois stated the rule as
follows: "The theory upon which evidence of sales of other similar
property in the neighborhood, at about the same time, is held to be
admissible is that it tends to show the fair market value of the
property sought to be condemned. And it can not be doubted that
such sales, when made in a free and open market, where a fair
opportunity for competition has existed, become material and
often very important factors in determining the value of the
particular property in question." (Peoria Gas Light Co. v. Peoria
Term. Ry. Co., 146 Ill., 372; 21 L. R. A., 373; 34 N. E. 550.)
The supreme court of Massachusetts, in Fourth National Bank v.
Com. (212 Mass., 66; 98 N. E., 86), affirms the rule as follows: "It
long has been settled that in the assessment of damages where
lands are acquired by eminent domain evidence is admissible of
the price received from sales of land similar in character, and
situated in the vicinity, if the transactions are not so remote in
point of time that a fair comparison practically is
impossible."cralaw virtua1aw library
In Hewitt v. Price (204 Mo., 31), it was said: "It is sufficient to say
Page 50 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
upon this proposition that the law is well-settled in this State upon
that subject, and while the value or-selling price of similar property
may be taken into consideration in determining the value of the
piece of property in litigation, it is equally true that the location and
character of such property should be similar and the sale of such
other property should at least be reasonably near in point of time
to the time at which the inquiry of the value of the property in
dispute is directed."cralaw virtua1aw library
In Laing v. United New Jersey R. R. & C. Co. (54 N. J. L., 576; 33 Am.
St. Rep., 682; 25 A., 409), it was said: "Generally in this and other
states evidence of sales of land in the neighborhood is competent
on an inquiry as to the value of land, and if the purchases or sales
were made by the party against whom the evidence was offered it
might stand as an admission. But such testimony is received only
upon the idea that there is substantial similarity between the
properties. The practice does not extend, and the rule should not
be applied, to cases where the conditions are so dissimilar as not
easily to admit of reasonable comparison, and much must be left to
the discretion of the trial judge in the determination of the
preliminary question whether the conditions are fairly
comparable."cralaw virtua1aw library
Evidence of other sales made in good faith is competent if the
character of such parcels as sites for business purposes, dwellings,
or for whatever other use which enhances the pecuniary value of
the condemned land is sufficiently similar to the latter that it may
be reasonably assumed that the price of the condemned land
would be approximately near the price brought by the parcels sold.
The value of such evidence, of course, diminishes as the differences
between the property sold and the condemned land increase. The
property must be in the immediate neighborhood, that is, in the
zone of commercial activity with which the condemned property is
identified, and the sales must be sufficiently near in point of time
with the date of the condemnation proceedings as to exclude
general increases or decreases in property values due to changed
commercial conditions in the vicinity. No two estates are ever
exactly alike, and as the differences between parcels sold and the
land condemned must necessarily be taken into consideration in
comparing values, we think it much better that those differences
should be shown as part of the evidence of such sales, as is the
practice in Iowa. (Town of Cherokee v. S. C. & I. F. Town Lot and
Land Co., 52 Iowa, 279; 3 N. W., 42.) And where these differences
are so great that the sales in question can form no reliable standard
for comparison, such evidence should not be admitted. (Presbrey
v. Old Colony & Newport R. Co., 103 Mass., 1.)
Aside from the bare fact that the real estate transactions referred
to by the witnesses were somewhere in the vicinity of the
condemned land, there is nothing to guide us as to the relative
value of the condemned land. The differences which must have
existed between the various parcels of land in the vicinity we are
left to imagine. And while the commissioners’ view of the
condemned land undoubtedly assisted them in forming their
estimate of value, still counsel should not have relied upon their
astuteness to discover differences in values, but should have
brought them specifically to the attention of the commissioners. It
seems rather unusual, also, that the bare statements of witnesses
should be accepted as to the prices which nearby parcels brought,
in view of the insistence of counsel that the condemned land is
nothing more than agricultural land. These sales should have been
thoroughly investigated to determine whether they were made
bona fide and, if so, whether they were not attended by unusual
circumstances which materially in- creased the purchase price.
But while these transfers of nearby land are interesting as bearing
upon the value of the condemned land, the record also shows
several transfers of the latter itself after it became generally known
that it had been selected by the railroad company as the site for its
Lucena station. We take it that these transactions, in which the
defendants were themselves parties, offer a far more certain basis
for estimating the value of the land than do their testimony before
the commissioners or the testimony of other witnesses as to fancy
prices paid for neighboring parcels. Romana Velasquez, who
owned the major portion of the condemned land, disposed of hers
to her nephews surnamed Perez. Her first sale was on July 21,
1912. This parcel contained 16,094 square meters and brought at
this time P6,500, or a little more than P0.40 per square meter. A
month later Perez sold this parcel to one Icasiano for P13,000, or a
little less than P0.81 per square meter. Sra. Velasquez’ next sale
was of three parcels, the first two of which contained
approximately 23,000 square meters, while the area of the third
was described as three gantas of rice. The total price of the three
parcels was P2,500 or a little over P0.10 per meter. In one of these
parcels was located approximately 8,700 square meters of the
condemned land which the commissioners reported at a price
higher than any of the rest.
On May 26, 1913, Icasiano, the then owner of the parcel containing
16,094 square meters, sold it to the Tayabas Land Company for
P18,000; and on July 1, 1913, some twenty days after the
commissioners had rendered their report, all of the remaining
owners of the condemned land sold their holdings, parcel by
parcel, as it had been assessed by the commissioners, to the same
company for P1.05 per square meter, with the exception of Simeon
Perez who sold the two parcels owned by him at P2.27 and P2.11,
respectively. Here is the most convincing argument that all the
witnesses who placed values on the condemned property, ranging
from P5 per square meter to P8 per meter, were seriously in error.
After all the speculation concerning the land, after the
commissioners had reported its value at prices ranging from P2 to
P3.75 per square meter, the owners sold the land, parcel by parcel,
as it had been assessed by the commissioners for a little more than
P1 per meter, with the exception of Simeon Perez who accepted
P2.11 and P2.27 for the two parcels which the commissioners had
appraised at P3.50 and P3.75 per meter, respectively. It is
unfortunate that the commissioners did not have an opportunity to
consider the deeds executed by the defendants in favor of the
Tayabas Land Company. With the commissioners’ valuation of the
land before them, the Tayabas Land Company was actually able to
purchase from the defendant all of the condemned land at a greatly
inferior price. The defendants were not able to resist an offer of P1
and P2 per meter for their holdings, notwithstanding their fervid
declarations before the commissioners that their property was
worth P5 per meter, and notwithstanding the official report by a
board composed of local men that it was worth from P2 to P3.75
per meter. This, of course, does not include the defendant Icasiano
who sold out to the land company after the commission had been
appointed but before it had begun its labors. It is to be
remembered, however, that he both bought and sold the land after
the railroad company had made known its intention of
expropriating it, and that in his answer to the complaint he alleged
his land to be worth P5 per meter.
Now, what was the object of the Tayabas Land Company in
purchasing the land? Evidently it was not with the intention of
making any use of it, for the railroad company had long since taken
possession. They, as well as the owners, were simply speculating
on the probability that the award of the commissioners would be
approved by the court. It was little more than a sporty guess on
each side as to what would be allowed for the land by the final
judgment of the court. The company believed the award would
exceed P1.05 per meter, and the defendants thought the risk that
the award would be in a lesser amount was so great that they let
the land go for the price the company offered them. Nor is it at all
certain that the prices inserted in these deeds of sale were not
fictitiously inflated. The circumstances under which the sales were
made would readily suggest the expediency of inserting fictitious
prices in the deeds.
The moment a parcel of land is wanted by a public service
corporation the price, for some occult reason, immediately soars
far beyond what the owner would think of asking or receiving in
the open market. Owners ask fabulous prices for it and neighbors
look on with an indulgent smile or even persuade themselves that
the land is worth the price for which the owner holds out — in view
of the fact that it is wanted by a corporation, whose financial
resources are popularly supposed to be inexhaustible. The
resultant good to a community due to the investment of new
capital, the increased employment of labor, and the services the
corporation will render are for the moment forgotten; and persons
called upon for opinions as to the price of the desired property,
unconsciously perhaps, relax from that sound business acumen
which guides them in their daily affairs, while they are considering,
not the price which they would care to pay if they wanted the land,
but the price which the corporation ought to pay in view of the fact
that it is a corporation.
The owner of condemned land is entitled to just compensation.
That is all the law allows him. "Compensation" means an equivalent
for the value of the land (property) taken. Anything beyond that is
more and anything short of that is less than compensation. To
compensate is to render something which is equal in value to that
taken or received. The word "just" is used to intensify the meaning
of the word "compensation;" to convey the idea that the equivalent
to be rendered for the property taken shall be real, substantial, full,
ample. "Just compensation," therefore, as used in section 246 of the
Code of Civil Procedure, means a fair and full equivalent for the loss
sustained.
"The exercise of the power being necessary for the public good, and
all property being held subject to its exercise when, and as the
public good requires it, it would be unjust to the public that it
should be required to pay the owner more than a fair indemnity for
Page 51 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
such loss. To arrive at this fair indemnity, the interests of the public
and of the owner and all the circumstances of the particular
appropriation should be taken into consideration." (Lewis on
Eminent Domain, sec. 462.)
The compensation must be just to the public as well as to the
owners. (Searl v. School District, 133 U. S., 533- 33 L. ed. 740.)
Section 244 of our code says that:jgc:chanrobles.com.ph
"The commissioners shall assess the value of the property taken
and used, and shall also assess the consequential damages to the
property not taken and deduct from such consequential damages
the consequential benefits to be derived by the owners from the
public use of the land taken."cralaw virtua1aw library
"To assess" is to perform a judicial act. The commissioners’ power
is limited to assessing the value and to determining the amount of
the damages. There it stops; they can go no farther. The value and
damages awarded must be a just compensation and no more and
no less. But in fixing these amounts, the commissioners are not to
act ad libitum. They are to discharge the trust reposed in them
according to well established rules and form their judgment upon
correct legal principles. To deny this is to place them where no one
else in this country is placed, above the law and beyond
accountability.
There is no question but that the compensation to which a
defendant owner is entitled is the market value of the condemned
property, to which, of course, must be added his consequential
damages if any, or from which must be deducted his consequential
benefits, if any. Such was our holding in Manila Railway Co. v. Fabie
(17 Phil. Rep., 206). But, as stated in Packard v. Bergen Neck Ry. Co.
(54 N. J. L., 553; 23 A., 506):jgc:chanrobles.com.ph
"The difficulty is not with the rule, but with its application. For the
determination of the market value of land, which is that sum of
money which a person, desirous but not compelled to buy and an
owner willing but not compelled to sell, would agree on as a price
to be given and received therefor, is beyond doubt difficult. The test
is logically and legally correct, but is cannot be applied to land with
the accuracy with which it can be applied to stocks, bonds and
personal property generally. Still it is this test which admittedly
must be applied, even when the value of the land and the damages
are found in separate sums."cralaw virtua1aw library
It is a very difficult matter to limit the scope of the inquiry as to
what the market value of condemned property is. The market value
of a piece of land is attained by a consideration of all those facts
which make it commercially valuable. Whether evidence
considered by those whose duty it is to appraise the land is of that
nature is often a very difficult matter to decide. The Supreme Court
of the United States, in a carefully worded statement, marks out the
scope of the inquiry as follows:jgc:chanrobles.com.ph
"In determining the value of land appropriated for public purposes,
the same considerations are to be regarded as in a sale of property
between private parties. The inquiry in such cases must be: What
is the property worth in the market, viewed not merely with
reference to the uses to which it is at the time applied, but with
reference to the uses to which it is plainly adapted; that is to say,
what is it worth from its availability for valuable uses? . . . As a
general thing, we should say that the compensation to the owner is
to be estimated by reference to the uses for which the property is
suitable, having regard to the existing business or wants of the
community, or such as may be reasonably expected in the
immediate future." (Boom Co. v. Patterson, 98 U. S., 403.)
This passage is quoted with approval in the late case of St. Louis I.
M. & S. R. Co. v. Theodore Maxfield Co. (94 Ark., 135; 26 L. R. A., N.
S;, 1111; 126 S. W., 83), a very well considered case.
The supreme court of Missouri has also formulated an exceedingly
clear statement of the matter in the Stock Yards Case (120 Mo.,
541):jgc:chanrobles.com.ph
"The market value of the property means its actual value
independent of the location of plaintiff’s road thereon, that is, the
fair value of the property as between one who wants to purchase
and one who wants to sell it; not what could be obtained for it in
peculiar circumstances when greater than its fair price could be
obtained; nor its speculative value; nor the value obtained through
the necessities of another. Nor, on the other hand, is it to be limited
to that price which the property would bring when forced off at
auction under the hammer. The question is, if the defendant
wanted to sell its property, what could be obtained for it upon the
market from parties who wanted to buy and would give its full
value."cralaw virtua1aw library
These views are practically in accord with Lewis on Eminent
Domain (2d ed.) , section 478, where the rule is stated as
follows:jgc:chanrobles.com.ph
"The market value of property is the price which it will bring when
it is offered for sale by one who desires, but is not obliged to sell it,
and is bought by one who is under no necessity of having it. In
estimating its value all the capabilities of the property, and all the
uses to which it may be applied or for which it is adapted are to be
considered, and not merely the condition it is in at the time and the
use to which it is then applied by the owner. It is not a question of
the value of the property to the owner. Nor can the damages be
enhanced by his unwillingness to sell. On the other hand, the
damages cannot be measured by the value of the property to the
party condemning it, nor by its need of the particular property. All
the facts as to the condition of the property and its surroundings,
its improvements and capabilities, may be shown and considered
in estimating its value." (Approved in Seaboard Air Line v.
Chamblin, 108 Va., 42.)
Now, what was the utility of the land condemned? So far as the
record shows, its possible uses were, first, for the cultivation of
rice; second, as a residential site owing to its proximity to the
provincial building and the high school; and third, as a railroad
station site.
Its location from a farmer’s point of view would doubtless enhance
its value, since it was so close to the town of Lucena that the
marketing of crops was a decidedly simple matter. For this reason
it was more valuable as agriculture land than other farms farther
away from town.
As a residential site it seems to have been-so far a complete failure.
How long the high school had stood there the record does not state.
But although the provincial building had stood near it for several
years, not a single homebuilder had selected any portion of the
condemned land as a site for his residence. We note that all those
who testified at the hearing before the commissioners to having
purchased’ land in the vicinity for home sites, purchased other land
than that condemned. Nor does the record contain any intimation
that any of the owners of the land had ever attempted to dispose of
any part of it as building lots.
As a residential site, therefore, its value was decidedly
problematical. Possibly, in the next dozen years a few houses might
have been built upon the land, but, judging by the past record, its
development along this line would have been extremely slow.
As a railroad station site, the record gives no indication that it is the
sole possible location for that purpose in Lucena. It is not shown
that its location for that purpose is at all superior to other possible
locations. Indeed, it seems that the railroad company at first
selected another site for its station on the other side of town.
Hence, possessing no exclusive natural advantages for this
purpose, it is a foregone conclusion that the railroad company
would not willingly pay P81,000 for such a site when it could have
purchased another site for, say, P1,500.
Here it seems proper to say that the appearance of the railroad in
the town of Lucena was the occasion for an incipient real estate
boom in the vicinity of the provincial building and the high school.
Several of the witnesses for the defendants testified what they
would offer, if they were in the market for land in the vicinity of the
station site, and the witness Alzona, the single witness who
testified for the plaintiff, testified that some owners of land near
the provincial building were asking between P500 and P700 for
lots of 400 square meters. It is clear that these hypothetical
purchases and sales do not offer any reliable basis upon which to
calculate the actual market value of the land. The fond dreams of
the owners of a sudden shift of the business center of the town of
Lucena to their vicinity, or of its becoming a choice residential
district, are not capital in hand.
"Proof must be limited to showing the present condition of the
property and the uses to which it is naturally adapted. It is not
competent for the owner to show to what use he intended to put
the property, nor what plans he had for its improvement, nor the
probable future use of the property. Nothing can be allowed for
damages to an intended use." (Lewis on Eminent Domain, 2d ed.,
sec. 709.)
From the evidence we have discussed above, it is apparent that a
good price for rice land in the vicinity of Lucena is P500 per
hectare. With this as a basis, at what would the prospective buyer
estimate the possibility of the land being used as a residential site
sometime in the future and its possible advantages as a railroad
Page 52 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA

site? Certainly at nothing like the estimates contained in the report this finding to be grossly excessive, we must accept it as correct.
of the commissioners. To secure an adequate return on such a large
investment as P80,000, every meter of the land would have to be For the foregoing reasons, the judgment of the court below is
put to immediate use as residential sites, supposing that people modified by reducing the award for the parcel containing 16,094
could be induced to buy it for that purpose at such figures or to pay square meters to the sum of P6,500. The damages for the
the necessarily large rent therefor based on such a valuation. And. remaining parcels will be fixed at the same proportionate amount.
to hold out for such a figure in case a railroad company wanted the As thus modified the judgment appealed from is affirmed. No costs
land as a depot site would mean that the company would locate its will be allowed on this appeal. The amount as herein fixed, together
depot at some other place. It seems to us that, either as a residential with interest, will be deposited with the clerk of the Court of First
site or as a railroad station site, its value should be principally Instance of Tayabas, subject to the rights of the defendants and the
regulated by the value of other agricultural land on the outskirts of Tayabas Land Company. So ordered.
the town. In other words, the chance that it would be wanted for
either of these purposes owing to its superior location was but
slightly greater than that of other agricultural land adjacent to the
town. We are, therefore, led to the conclusion that the price at
which practically half of the condemned land was sold by Romana
Velasquez to the defendant, Filemon Perez, is a most liberal
estimate of its value. We refer to her sale of the parcel of 16,094
square meters for P6,500. This parcel comprises practically one-
half of the entire station site and no outside land was included in
the transaction. The sale was made after it became known that the
land sold was to be part of the station site, and a statement to this
effect was included in the deed. Both parties being aware that the
land was to be condemned by the plaintiff- company, it cannot be
said that they were not aware of all the latent utility of the land. For
these reasons, the price which this parcel brought should serve as
an excellent criterion of the value of the entire station site. And
while no explanation is given of why the sale occurred, since, of
course, no one would buy it with the expectation of using it himself
when he knew that it would shortly be occupied by the railroad
company, still there is not sufficient indication that it was sold for
speculative purposes or that the element of speculation entered
into the transaction to enable us to say that the price was inflated
and exceeded the actual market value of the condemned land as
agricultural land to be worth P500 per hectare, and leaves a little
more than P3,500 for its potential value as a residential district and
as a railroad station site. This is, furthermore, approximately 400
per cent higher than Sra. Velasquez’ second sale (some four months
later) to Simeon Perez, when she sold about 23,000 square meters
in the same neighborhood for a little over P1,000 per hectare.

It is to be further noted that the average assessed valuation of the

condemned property is somewhat less than P0.08 per square
meter, while the highest assessed valuation of any of it is only P0.23
per square meter, which is carried by some 5,973 square meters,
or less than one-sixth of the whole. It is also to be noted that these
5,973 square meters were appraised by the commissioners as
being worth exactly what the 16,094 square meters were worth,
the latter being assessed for taxation purposes at only P0.03 per
square meter.

At the price we have fixed, we are of the opinion that any

consequential damages which may have been occasioned to any of
the defendants by the condemnation proceedings is amply cared
for.

The defendant, Simeon Perez, was awarded P600 damages by the

commissioners for being compelled to remove a building in course
of construction at the time the expropriation proceedings were
started. This building was designed to serve partly as a warehouse
and partly for stores. He commenced its construction about the
middle of December, 1912, after it became known that the plaintiff
company wanted the land for a railroad station. Construction work
was ordered stopped by the court. From the vague description of
this order in the record, we presume it was the order of the court
of date of January 22, 1913, placing the plaintiff in possession ~f
the land under the provisions of Act No. 1258 as amended by Act
No. 1592. Until such action was taken by the railroad company, or
until the commissioners were appointed and had appraised the
land, we know of no legal provision which would prohibit the
owner from doing with the land what he pleased. The Act in
question gives to the company "the right to enter immediately
upon the possession of the land involved." (Sec. 3.) This
amendment to Act No. 1258 was enacted especially for the benefit
of railroad companies, and affords full protection to them if they
act with due diligence. Until some such positive assertion of its
desire to expropriate the land, no reason is seen why the company
might not ask for a dismissal of the proceedings in accordance with
section 127 of the Code of Civil Procedure. The right of the owner
to the enjoyment of his property ought not to be made to depend
so entirely upon the whims of a third party. No attempt was made
to meet the statement of Perez that he had expended a large sum
of money on the construction of the building. The commissioners
probably saw the structure or some of the materials which entered
into it and are in a much better position to judge of the amount
expended upon the work than are we. They have fixed that amount
at P600. In the absence of positive evidence in the record showing

Page 53 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA

EN BANC filed in this case was so deficient, that it prevented the

[G.R. No. L-19495. November 24, 1966.]
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. LILIA
YUSAY GONZALES and THE COURT OF TAX
APPEALS, Respondents.
Solicitor General for the petitioner.
Ramon A. Gonzalez for respondent Lilia Yusay Gonzales.
SYLLABUS
1. TAXATION; DISPUTED ASSESSMENTS; APPEAL FROM A
DECISION THEREON TO BE BROUGHT TO THE COURT OF TAX
APPEALS. — An action involving a disputed assessment for
internal revenue taxes falls within the exclusive appellate
jurisdiction of the Court of Tax Appeals (Sec. 7[1], Rep. Act 1125;
Blaquera v. Rodriguez, L-11295, March 29, 1958). It is in that forum
to the exclusion of the Court of First Instance where the taxpayer
can ventilate his or her defense against the assessment.
2. ID.; ID.; ID.; 30-DAY PERIOD TO COMMENCE FROM DATE OF
RECEIPT OF COMMISSIONER OF INTERNAL REVENUE’S
DECISION. — On November 17, 1959 Lilia Yusay disputed the
legality of the assessment of February 13, 1958. On March 14,
1960, Lilia Yusay received the decision of the Commissioner of
Internal Revenue on a disputed assessment. On April 13, 1960 she
filed her petition for review in the Court of Tax Appeals. HELD: 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 (L-11238, August 21, 1958), 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.
3. ID.; ID.; PROBATE COURT WITHOUT JURISDICTION TO
ADJUDICATE THE SAME. — The settlement court is of limited
jurisdiction. And under the Rules (Rules 74-92, now Rules 73-91,
Rules of Court), its authority relates only to matters of estates and
probate of wills of deceased persons. Said Court has no jurisdiction
to adjudicate on questions of disputed tax assessments.
4. ID.; TAX RETURNS; FRAUD IN THE MAKING THEREOF MUST BE
PROVED. — Fraud is a question of fact. The circumstances
constituting it must be alleged and proved in the court below. And
the finding of said court as to its existence and non-existence is
final unless clearly shown to be erroneous. (Perez v. Court of Tax
Appeals, L-9738, May 31, 1957). As the court a quo found that no
fraud was alleged and proved therein, we see no reason to
entertain the Commissioner’s assertion that the return was
fraudulent.
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. If the taxpayer failed to observe the law, Section 332
of the National Internal Revenue Code which grants the
Commissioner 10 years period within which to bring an action for
tax collection applies. As stated, the Commissioner came to know
of the identity of the heirs on September 24, 1953 and the huge
under declaration in the gross estate on July 12, 1957. From the
latter date, Section 94 of the Tax Code obligated him to make a
return or amend one already filed based on his own knowledge and
information obtained through testimony or otherwise, and
subsequently to assess thereon the taxes due. The running of the
period of limitations under Section 332(a) of the Tax Code should
therefore be reckoned from said date. 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.
8. ID.; ID.; TAXPAYER’S WILLINGNESS TO PAY NO BAR TO RAISE
DEFENSES AGAINST THE TAX LEGALITY. — Commissioner
contends 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. Held: The Court of First Instance acting as
a settlement court is not the proper tribunal to pass upon such
defense, therefore it would be 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.
DECISION
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:chanrob1es virtual 1aw library
Personal properties:chanrob1es virtual 1aw library
Palay P6,444.00
Carabaos 1,000.00 P7,444.00
Real properties:chanrob1es virtual 1aw library

5. ID.; ID.; REQUIREMENTS OF SUBSTANTIAL COMPLIANCE WITH Capital, 74)

THE LAW. — A return need not be complete in all particulars. It is
sufficient if it complies substantially with the law. There is parcels)
substantial compliance (1) when the return is made in good faith
and is not false or fraudulent; (2) when it covers the entire period Conjugal 19)
involved; and (3) when it contains information as to the various
items of income, deduction and credit with such definiteness as to parcels)
permit the computation and assessment of the tax. (Jacob Mertens,
Jr., The Law of Federal Income Taxation, 1958 ed., Vol. 10, Section assessed at P179,760.00
57.13.)
—————
6. ID.; ID.; ESTATE AND INHERITANCE TAX RETURN IN CASE AT
BAR INSUFFICIENT. — Tax return filed by Jose S. Yusay was Total gross estate P187,204.00
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 The return mentioned no heir.
mistake. Second, the return mentioned no heir. Thus, no
inheritance tax could be assessed. As a matter of law, on the basis Upon investigation however the Bureau of Internal Revenue found
of the return, there would be no occasion for the imposition of the following properties:chanrob1es virtual 1aw library
estate and inheritance taxes.
Personal properties:chanrob1es virtual 1aw library
7. ID.; ID.; RETURNS MADE ON THE WRONG FORM; PRESCRIPTION
DOES NOT RUN. — Where the return was made on the wrong form, Palay P6,444.00
the Supreme Court of the United States held that the filing thereof
did not start the running of the period of limitations. The return Carabaos 1,500.00

Page 54 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA

Packard Automobile 2,000.00 Total P356,699.67

2 Aparadors 500.00 P10,444.00 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 recommended project of partition.
Whereupon, the Internal Revenue Commissioner caused the estate
Real properties:chanrob1es virtual 1aw library of Matias Yusay to be reinvestigated for estate and inheritance tax
liability. Accordingly, on February 13, 1958 he issued the following
Capital, 25 parcels assessment:chanrob1es virtual 1aw library

assessed P 87,715.32 Estate tax P16,246.04

1/2 of Conjugal, 130 5% surcharge 411.29

parcels assessed at P121,425.00 P209,140.32 Delinquency interest 11,868.90

————— ————— Compromise

Total P219,584.32 No notice of death P15.00

————— Late payment 40.00 55.00

The fair market value of the real properties was computed by ——— ————
increasing the assessed value by forty percent.
Total P28,581.23
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.
Inheritance Tax P38,178.12
On January 25, 1955 the Bureau of Internal Revenue increased the
assessment to P8,225.89 as estate tax and P22,117.10 as 5% surcharge 1,105.86
inheritance tax plus delinquency interest and demanded payment
thereof on or before February 28, 1955. Meanwhile, on February Delinquency interest 28,808.75
16, 1955, the Court of First Instance of Iloilo required Jose S. Yusay
to show proof of payment of said estate and inheritance taxes. Compromise for late payment 50.00

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 Total P69,142.73
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 Total estate and inheritance taxes P97,723.96
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 Like in previous assessments, the fail market value of the real
assessment notices to support a motion for payment of taxes which properties was arrived at by adding 40% to the assessed value.
the Provincial Fiscal would file in Special Proceedings No. 459
before the Court of First Instance of Iloilo. The papers requested In view of the demise of Jose S. Yusay, said assessment was sent to
were sent by the Commissioner of Internal Revenue to the his widow, Mrs. Florencia Piccio Vda. de Yusay, who succeeded him
Provincial Revenue Officer of Iloilo to be transmitted to the in the administration of the estate of Matias Yusay.
Provincial Treasurer. The records do not however show whether
the Provincial Fiscal filed a claim with the Court of First Instance No payment having been made despite repeated demands, the
for the taxes due. Commissioner of Internal Revenue filed a proof of claim for the
estate and inheritance taxes due and a motion for its allowance
On May 30, 1956 the commissioner appointed by the Court of First with the settlement court invoking priority of lien pursuant to
Instance for the purpose, submitted a recommended project of Section 315 of the Tax Code.
partition which listed the following properties:chanrob1es virtual
1aw library On June 1, 1959, Lilia Yusay, through her counsel, Ramon Gonzalez,
filed an answer to the proof of claim alleging non-receipt of the
Personal properties:chanrob1es virtual 1aw library assessment of February 13, 1958, the existence of two
administrators, namely, Florencia Piccio Vda. de Yusay who
Buick Sedan P 8,100.00 administered two-thirds of the estate, and Lilia Yusay, who
administered the remaining one-third, and her willingness to pay
Packard car 2,000.00 the taxes corresponding to her share, and praying for deferment of
the resolution on the motion for the payment of taxes until after a
Aparadors 500.00 new assessment corresponding to her share was issued.

Cash in Bank (PNB) 8,858.46 On November 17, 1959 Lilia Yusay disputed the legality of the
assessment dated February 13, 1958. She claimed that the right to
Palay 6,444.00 make the same had prescribed inasmuch as more than five years
had elapsed since the filing of the estate and inheritance tax return
Carabaos 1,500.00 P27,402.46 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 dated January 20, 1960,
received by Lilia Yusay on March 14, 1960, for the reasons, namely,
Real properties:chanrob1es virtual 1aw library (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
Land, 174 parcels cannot be considered a true and complete return sufficient to start
the running of the period of limitations of five years under Section
assessed at P324,797.21 331 of the Tax Code and pursuant to Section 332 of the same Code
he has ten years within which to make the assessment counted
Buildings 4,500.00 P329,297.21 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

Page 55 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
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:jgc:chanrobles.com.ph
"WHEREFORE, the decision of respondent assessing against the
estate of the late Matias Yusay estate and inheritance taxes is
hereby reversed. No. costs."cralaw virtua1aw library
The Commissioner of Internal Revenue appealed to this Court and
raises the following issues:chanrob1es virtual 1aw library
1. Was the petition for review filed 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 appellate 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 however, the Supreme Court refrained from applying the said
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 the tax. Precisely, no surcharge for fraud was imposed.
In his answer to the petition for review filed by Lilia Yusay in the
Court of Tax Appeals, the Commissioner alleged no fraud. Instead,
he broached the insufficiency of the return as barring the
commencement of the running of the statute of limitations. He
raised the point of fraud for the first time in the proceedings, only
in his memorandum filed with the Tax Court subsequent to resting
his case. Said Court rejected the plea of fraud for lack of allegation
and proof, and ruled that the return, although not accurate, was
sufficient to start the period of prescription.
Fraud is a question of fact. 8 The circumstances constituting it must
be alleged and proved in the court below. 9 And the finding of said
court as to its existence and nonexistence is final unless clearly
shown to be erroneous. 10 As the court a quo found that no fraud
was alleged and proved therein, we see no reason to entertain the
Commissioner’s assertion that the return was fraudulent.
The conclusion, however, that the return filed by Jose S. Yusay was
sufficient to commence the running of the prescriptive period,
under Section 331 of the Tax Code rests on no solid ground.
Paragraph (a) of Section 93 of the Tax Code lists the requirements
of a valid return. It states:jgc:chanrobles.com.ph
"(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, or that part of his gross estate
situated in 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."cralaw virtua1aw library
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 estate 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 omitted 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,
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
Page 56 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
as though no return was made. The Commissioner had to
determine and assess the taxes on data obtained, not from the
return, but from other sources. We therefore hold the view that the
return in question was no return at all as required in Section 93 of
the Tax Code.
The law imposes upon the taxpayer the burden of supplying by the
return the information upon which an assessment would be based.
14 His duty complied with, the taxpayer is not bound to do
anything more than to wait for the Commissioner to assess the tax.
However, he is not required to wait forever. Section 331 of the Tax
Code gives the Commissioner five years within which to make his
assessment. 15 Except, of course, if the taxpayer failed to observe
the law, in which case Section 332 of the same Code grants the
Commissioner a longer period. Non-observance consists in filing a
false or fraudulent return with intent to evade the tax or in filing
no return at all.
Accordingly, for purposes of determining whether or not the
Commissioner’s assessment of February 13, 1958 is barred by
prescription, Section 332 (a) which is an exception to Section 331
of the Tax Code finds application. 16 We quote Section
332(a):jgc:chanrobles.com.ph
"SEC. 332. Exception as to period of limitations 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."cralaw
virtua1aw library
As stated, the Commissioner came to know of the identity of the
heirs on September 24, 1953 and the huge under declaration in the
gross estates 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
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 therefore. 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
ON MOTION FOR RECONSIDERATION
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 Commission of Internal Revenue
states:jgc:chanrobles.com.ph
"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
allegations that the assessments 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:jgc:chanrobles.com.ph
"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 under declared 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."cralaw virtua1aw library
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 of Tax
Code:jgc:chanrobles.com.ph
"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.
x x x
"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 regard 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 of
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 his
Page 57 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA

purpose he may secure additional information from other sources. inheritance tax which amounts to P39,178.12 excluding penalties
As was done in the case at bar, he sends investigators to examine is obviously much less than her distributive share.
the taxpayer’s records and other pertinent data. His assessment is
based upon the facts uncovered by the investigation (Collector v. Motion for reconsideration denied.
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."cralaw virtua1aw library

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 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 contends 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

totals 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

Page 58 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA

EN BANC On November 29, 1963 the Court of Tax Appeals rendered

judgment holding Manuel B. Pineda liable for the payment
corresponding to his share of the following taxes:
G.R. No. L-22734 September 15, 1967

Deficiency income tax

COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
MANUEL B. PINEDA, as one of the heirs of deceased ATANASIO P135.8
PINEDA, respondent. 1945
3
1946 436.95
Office of the Solicitor General for petitioner. Real estate dealer's fixed tax 4th
Manuel B. Pineda for and in his own behalf as respondent. quarter of 1946 and whole year
of 1947 P187.50

The Commissioner of Internal Revenue has appealed to Us and has

BENGZON, J.P., J.:
On May 23, 1945 Atanasio Pineda died, survived by his wife,
Felicisima Bagtas, and 15 children, the eldest of whom is Manuel B.
Pineda, a lawyer. Estate proceedings were had in the Court of First
Instance of Manila (Case No. 71129) wherein the surviving widow
was appointed administratrix. The estate was divided among and
awarded to the heirs and the proceedings terminated on June 8,
1948. Manuel B. Pineda's share amounted to about P2,500.00.
After the estate proceedings were closed, the Bureau of Internal
Revenue investigated the income tax liability of the estate for the
years 1945, 1946, 1947 and 1948 and it found that the
corresponding income tax returns were not filed. Thereupon, the
representative of the Collector of Internal Revenue filed said
returns for the estate on the basis of information and data obtained
from the aforesaid estate proceedings and issued an assessment
for the following:
1. Deficiency income tax
1945 P135.83
1946 436.95
1947 1,206.91 P1,779.69
Add: 5% surcharge 88.98
1% monthly interest from November
30, 1953 to April 15, 1957 720.77
Compromise for late filing 80.00
Compromise for late payment 40.00
Total amount due P2,707.44
===========
P14.50
2. Additional residence tax for 1945
===========
3. Real Estate dealer's tax for the fourth quarter P207.50
of 1946 and the whole year of 1947 ===========
Manuel B. Pineda, who received the assessment, contested the
same. Subsequently, he appealed to the Court of Tax Appeals
alleging that he was appealing "only that proportionate part or
portion pertaining to him as one of the heirs."
After hearing the parties, the Court of Tax Appeals rendered
judgment reversing the decision of the Commissioner on the
ground that his right to assess and collect the tax has prescribed.
The Commissioner appealed and this Court affirmed the findings of
the Tax Court in respect to the assessment for income tax for the
year 1947 but held that the right to assess and collect the taxes for
1945 and 1946 has not prescribed. For 1945 and 1946 the returns
were filed on August 24, 1953; assessments for both taxable years
were made within five years therefrom or on October 19, 1953; and
the action to collect the tax was filed within five years from the
latter date, on August 7, 1957. For taxable year 1947, however, the
return was filed on March 1, 1948; the assessment was made on
October 19, 1953, more than five years from the date the return
was filed; hence, the right to assess income tax for 1947 had
prescribed. Accordingly, We remanded the case to the Tax Court
for further appropriate proceedings.1
In the Tax Court, the parties submitted the case for decision
without additional evidence.
proposed to hold Manuel B. Pineda liable for the payment of all the
taxes found by the Tax Court to be due from the estate in the total
amount of P760.28 instead of only for the amount of taxes
corresponding to his share in the estate.1awphîl.nèt
Manuel B. Pineda opposes the proposition on the ground that as an
heir he is liable for unpaid income tax due the estate only up to the
extent of and in proportion to any share he received. He relies
on Government of the Philippine Islands v. Pamintuan2 where We
held that "after the partition of an estate, heirs and distributees are
liable individually for the payment of all lawful outstanding claims
against the estate in proportion to the amount or value of the
property they have respectively received from the estate."
We hold that the Government can require Manuel B. Pineda to pay
the full amount of the taxes assessed.
Pineda is liable for the assessment as an heir and as a holder-
transferee of property belonging to the estate/taxpayer. As an heir
he is individually answerable for the part of the tax proportionate
to the share he received from the inheritance.3 His liability,
however, cannot exceed the amount of his share.4
As a holder of property belonging to the estate, Pineda is liable for
he tax up to the amount of the property in his possession. The
reason is that the Government has a lien on the P2,500.00 received
by him from the estate as his share in the inheritance, for unpaid
income taxes4a for which said estate is liable, pursuant to the last
paragraph of Section 315 of the Tax Code, which we quote
hereunder:
If any person, corporation, partnership, joint-account
(cuenta en participacion), association, or insurance
company liable to pay the income tax, neglects or
refuses to pay the same after demand, the amount shall
be a lien in favor of the Government of the Philippines
from the time when the assessment was made by the
Commissioner of Internal Revenue until paid with
interest, penalties, and costs that may accrue in addition
thereto upon all property and rights to property
belonging to the taxpayer: . . .
By virtue of such lien, the Government has the right to subject the
property in Pineda's possession, i.e., the P2,500.00, to satisfy the
income tax assessment in the sum of P760.28. After such payment,
Pineda will have a right of contribution from his co-heirs,5 to
achieve an adjustment of the proper share of each heir in the
distributable estate.
All told, the Government has two ways of collecting the tax in
question. One, by going after all the heirs and collecting from each
one of them the amount of the tax proportionate to the inheritance
received. This remedy was adopted in Government of the Philippine
Islands v. Pamintuan, supra. In said case, the Government filed an
action against all the heirs for the collection of the tax. This action
rests on the concept that hereditary property consists only of that
part which remains after the settlement of all lawful claims against
the estate, for the settlement of which the entire estate is first
liable.6 The reason why in case suit is filed against all the heirs the
tax due from the estate is levied proportionately against them is to
achieve thereby two results: first, payment of the tax; and second,
adjustment of the shares of each heir in the distributed estate
as lessened by the tax.
Another remedy, pursuant to the lien created by Section 315 of the
Tax Code upon all property and rights to property belonging to the
taxpayer for unpaid income tax, is by subjecting said property of

Page 59 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA

the estate which is in the hands of an heir or transferee to the

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

WHEREFORE, the decision appealed from is modified. Manuel B.

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

Page 60 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
G.R. No. L-28821 December 19, 1980
LILIA YUSAY GONZALES, as Judicial Co-Administratrix of the
Intestate Estate of the late MATIAS YUSAY, petitioner,
vs.
THE COURT OF TAX APPEALS and THE COMMISSIONER OF
INTERNAL REVENUE, respondents.
CONCEPCION JR., J.:
Petition for certiorari with preliminary injunction questioning, as
alleged grave abuse of and acting without jurisdiction, the
resolution dated September 11, 967, by the respondent Court of
Tax Appeals (Presiding Judge Ramon M. Umali, Associate Judge
Ramon L. Avanceña, Associate Judge Estanislao R. Alvarez) in CTA
Case No. 777 (G.R. No. L-19495), ordering the issuance of a writ of
execution.in pursuance of its ministenal duty, with dispositive
portion, to wit:
Finding the said motion of respondent to be
well taken, the mm is hereby granted. The
Clerk of Court is hereby ordered to issue the
corresponding writ of execution against the
petitioner for the satisfaction of the sum 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 In Revenue
Code, and to deputize the Commissioner of In
Revenue to execute the said writ.
SO ORDERED. 1
Petitioner's motion for reconsideration of the foregoing resolution
was denied by the respondent Court of Tax Appeals, as follows:
The judgment of the Supreme Court (G.R. No.
L-19495, November 24, 1966) is not a general
one money judgement against the estate of
the late Matias Yusay but a direct and
categorical order against Lilia Yusay Gonzales
which is 'without prejudice to
reimbursement from her co-administratrix.'
We may add that the liability of the
administratrices under the judgment of the
Supreme Court is without prejudice to their
filing their own claims against the estate in
the probate proceeding.
WHEREFORE, the motion for reconsideration
is hereby denied.
SO ORDERED. 2
Pertinent undisputed facts are:
On April 18, 1980, petitioner filed before the Court of Tax Appeals
a petition for review of the assessment of respondent
Commissioner of Internal Revenue of the estate and inheritance
taxes of the estate of the late Matias Yusay on the ground for
prescription ,docketed therein as CTA Case No. 777, to which an
Answer was filed by respondent Commissioner of .Internal
Revenue on August 10, 1960. 3
After hearing, respondent Court of Tax Appeals rendered
judgement on January 11, 1962, holding that the assesment had
prescribed, and reversing the decision of the respondent
Commissioner of Internal Revenue, whereupon respondent
Commissioner of Internal Revenue appealed to the SupremeCourt.
In a decision dated November 24, 1966, this Court upheld the
Commissioner of Internal Revenue and reversed the respondent
Court of Tax Appeals in G. R. No. L-19495, with dispositive portion,
to wit:
WHEREFORE, the judgment appealed from is
sat aside and mother 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 sum of P16,246.04 and P39,178.12 as
estate and inheritance taxes, taxes
respectively, plus interest and surcharge -for
delinquency in accordance with Section 101
of the National Revenue, without prejudice to
reimbursement from her co-administratrix ,
Florencia Piccio Vda. de Yusay for the latter's
corresponding tax liability.
No costs.
SO ORDERED. 4
Petitioner filed a motion for reconsideration dated December 27,
1966 of the decision in G.R. No. L-19495, praying that the decision
be amended so that the liability for the estate and inheritance taxes
to be paid be alloted as 1/3 to to petitioner and 2/3 to
administratrix Florencia P. Vda. de Yusay. 5
This Court, on April 24, 1967, in an extended resolution ruled that
when petitioner represented her co-administratrix and the whole
estate of Matias Yusay in CTA Case No. 777, she risked being
ordered to pay the whole assessment, should the assessment be
sustained. Petitioner was estopped from denying liability for the
whole tax. As administratrix, petitioner is liable for the entire
inheritance tax although her liability would not exceed the amount
of her share in the estate. The entire inheritance tax which amounts
to P39,178.12 excluding penalties is obviously much less than her
distributive share. 6
After the decision in G.R. No. L-19495 became final, respondent
Commissioner of Internal Revenue filed a Motion for Execution on
August 1, 1967 before respondent Court of Tax Appeals. Petitioner
filed an opposition on August 11, 1967, contenting that it should be
the Court of First Instance of Iloilo before which Special
Proceedings No. 459 (Intestate Estate of the late Matias Yusay) was
pending that should enforce the decision in G.R. No. L-19495, and
not the Court of Tax Appeals.
On September 11, 1967, respondent Court of Tax Appeals granted
the writ of execution. On October 26, 1967, petitioner filed a
motion for reconsideration which the respondent Court of Tax
Appeals denied on January 18, 1968.
The only issue in this case is whether or not respondent Court of
Tax Appeals committed a grave abuse of discretion tantamount to
lack of jurisdiction when it ordered the execution of the decision of
this Court in G.R. No. L-19495.
There is no question that respondent Court of Tax Appeals
acquired jurisdiction to review the assessment of respondent
Commissioner of Internal Revenue when petitioner, herself,
initiated CTA Case No. 777, The said respondent Court rendered a
decision favorable to petitioner which respondent Commissioner
of Internal Revenue appealed to this Court in G.R. No. L-19495. The
decision of this Court reversed and set aside the decision of the
respondent Court of Tax Appeals and entered a new one affirming
the assessment of the Commissioner of Intenal Revenue. 7
It is crystal clear, therefore, that what is ordered executed by
respondent Court in it, controverted resolution dated September
11, 1967, 8 is the judgment of this Court in G.R. No. L-19495. It is
but proper that when the record of CTA Case No. 777 was returned
to the respondent Court of Tax Appeals, it must in a ministerial
manner enforce the judgment as rendered by this Court 'm G.R. No.
L-19495. Under Section 8 of Rule 39 of the Rules of Court, the writ
of execution must issue in the name of the Republic of the
Philippines from the court in which the judgment or order is
entered.
When this Court ordered "petitioner Lilia Yusay Gonzales in G.R.
No. L-19495 to pay the estate and inheritance taxes of the estate of
Matias Yusay without prejudice to reimbursement from her
administratrix Florencia P. Vda. de Yusay, for the latter's
corresponding tax liability, it did so,realizing that the properties of
the estate have already- been distributed to the heirs (1/3 to
petitioner and 2/3 to Florencia P. Vda. de Yusay) as the amended
project of partition in the intestate case was affirmed by this Court
in G.R. No. L-11378, promulgated August 1, 1959. 9 Petitioner,
herself, filed a motion to declare Special Proceedings No. 459 in the
Court of First Instance of Iloilo, regarding the intestate estate of
Matias Yusay, closed. 10
Page 61 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA

This Court in the resolution dated April 24, 1967, in G.R. No. L-
19495, declared that petitioner is liable personally for the taxes
imposed limited only by the value of the properties she received
from the estate. 11

For Us now to rule that the proper procedure would be for the
decision of this Court in G.R. No. L-19495 to be filed in Special
Proceedings No. 459 of the Court of First Instance of Iloilo as a
money claim is not only too late, but also impractical circuitous,
and a cumbersome procedure that would lead to further delay in
the enforcement of the judgment in this case which is for tax
liability. We cannot ignore that there has been a delay of about 29
years in the payment of these taxes.

Respondent Court of Tax Appeals did not commit an error, much

less abuse of discretion, in ordering the execution of the decision
of this Court in G.R. No. L-19495. Obviously, this petition is merely
intended to delay payment of taxes due the government.

WHEREFORE, this petition is dismissed for lack of merit,the writ of

preliminary injunction issued on March 27, 1968, lifted with
double costs against petitioner.

SO ORDERED.

Page 62 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
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
Page 63 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA

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.
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 —

In April 1981, the Court (First Division) issued a writ of (a) In a special proceeding for the probate of a will, the issue by and
preliminary injunction, the lifting of which was denied in the large is restricted to the extrinsic validity of the will, i.e., whether
Resolution of the same Division dated October 18, 1982, although the testator, being of sound mind, freely executed the will in
the bond of petitioners was increased from P50,000.00 to accordance with the formalities prescribed by law. (Rules of Court,
P100,000.00. 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
Between December 21, 1981 and October 12, 1982, private
a certain property should or should not be included in the
respondent filed seven successive motions for early resolution.
inventory of estate properties, the Probate Court may pass upon
Five of these motions expressly prayed for the resolution of the
the title thereto, but such determination is provisional, not
question as to whether or not the petition should be given due
conclusive, and is subject to the final decision in a separate action
course.
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
On October 18, 1982, the Court (First Division) adopted a 540.]
resolution stating that "the petition in fact and in effect was given
due course when this case was heard on the merits on September
(b) The rule is that execution of a judgment must conform to that
7, (should be October 21, 1981) and concise memoranda in
decreed in the dispositive part of the decision. (Philippine-
amplification of their oral arguments on the merits of the case were
American Insurance Co. vs. Honorable Flores, 97 SCRA 811.)
filed by the parties pursuant to the resolution of October 21, 1981
However, in case of ambiguity or uncertainty, the body of the
. . . " and denied in a resolution dated December 13, 1982, private
decision may be scanned for guidance in construing the judgment.
respondent's "Omnibus motion to set aside resolution dated
(Heirs of Presto vs. Galang, 78 SCRA 534; Fabular vs. Court of
October 18, 1982 and to submit the matter of due course to the
Appeals, 119 SCRA 329; Robles vs. Timario. 107 Phil. 809.)
present membership of the Division; and to reassign the case to
another ponente."
The Order sought to be executed by the assailed Order of execution
is the Probate Order of December 5, 1972 which allegedly resolved
Upon Motion for Reconsideration of the October 18, 1982 and
the question of ownership of the disputed mining properties. The
December 13, 1982 Resolutions, the Court en banc resolved to
said Probate Order enumerated the issues before the Probate
CONFIRM the questioned resolutions insofar as hey resolved that
Court, thus:
the petition in fact and in effect had been given due course.

Unmistakably, there are three aspects in

II. ISSUES:
these proceedings: (1) the probate of the
holographic will (2) the intestate estate
Assailed by the petitioners in these proceedings is the validity of aspect; and (3) the administration
the Order of execution and garnishment dated August 20, 1980 as proceedings for the purported estate of the
well as the Orders subsequently issued allegedly to implement the decedent in the Philippines.
Probate Order of December 5, 1972, to wit: the Order of November
11, 1980 declaring that the Probate Order of 1972 indeed resolved
In its broad and total perspective the whole
the issues of ownership and intrinsic validity of the will, and
proceedings are being impugned by the
reiterating the Order of Execution dated August 20, 1980; and the
oppositors on jurisdictional grounds, i.e., that
Order of December 17, 1980 reducing to P2,251,516.74 the
the fact of the decedent's residence and
amount payable to QUEMADA representing the royalties he should
existence of properties in the Philippines
have received from the death of PASTOR, SR. in 1966 up to
have not been established.
February 1980.

Specifically placed in issue with respect to the

The Probate Order itself, insofar as it merely allowed the
probate proceedings are: (a) whether or not
holographic will in probate, is not questioned. But petitioners
the holographic will (Exhibit "J") has lost its
denounce the Probate Court for having acted beyond its
efficacy as the last will and testament upon
jurisdiction or with grave abuse of discretion when it issued the
the death of Alvaro Pastor, Sr. on June 5, 1966,
assailed Orders. Their argument runs this way: Before the
in Cebu City, Philippines; (b) Whether or not
provisions of the holographic win can be implemented, the
the said will has been executed with all the
questions of ownership of the mining properties and the intrinsic
formalities required by law; and (c) Did the
validity of the holographic will must first be resolved with finality.
late presentation of the holographic will
Now, contrary to the position taken by the Probate Court in 1980
affect the validity of the same?
— 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 Issues In the Administration Proceedings are
decide QUEMADA's entitlement to the legacy. This being so, the as follows: (1) Was the ex- parte appointment
Orders for the payment of the legacy in alleged implementation of of the petitioner as special administrator
the Probate Order of 1972 are unwarranted for lack of basis. valid and proper? (2) Is there any
indispensable necessity for the estate of the
decedent to be placed under administration?
Closely related to the foregoing is the issue raised by QUEMADA
(3) Whether or not petition is qualified to be
The Probate Order of 1972 having become final and executory,
a special administrator of the estate; and (4)
how can its implementation (payment of legacy) be restrained? Of
Whether or not the properties listed in the
course, the question assumes that QUEMADA's entitlement to the
inventory (submitted by the special
legacy was finally adjudged in the Probate Order.

Page 64 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
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 decedent-testator 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 -
Page 65 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
(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
Page 66 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA

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.

Page 67 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
SECOND DIVISION
G.R. No. 170632 July 10, 2007
EUGENIA D. POLIDO, Petitioner,
vs.
HON. COURT OF APPEALS and MARIANO P.
GASAT, Respondents.
DECISION
CARPIO MORALES, J.:
After the death of her husband Jacinto Polido (Polido), Eugenia
Duque Polido, petitioner, tried to withdraw the joint savings
deposit they maintained at the Philippine National Bank, Camiling,
Tarlac Branch, but failed because one Mariano Gasat (Gasat),
herein respondent who claimed to be the couple’s adopted child,
objected thereto.
Petitioner thus filed on January 21, 2004 a complaint before the
Regional Trial Court of Tarlac, with Motion for the Issuance of a
Writ of Preliminary Injunction, against Gasat.
In her complaint, petitioner prayed for the following reliefs:
1. An Order granting the issuance of [a] writ of
preliminary injunction enjoining and restraining the
defendant and all persons acting under him from
preventing the officers or employee[s] of the Philippine
National Bank, Camiling, Tarlac Branch from releasing
in favor of the plaintiff the money deposited with the
said bank upon posting of a bond by the plaintiff in an
amount to be fixed by the Court;
2. After trial, to declare the defendant not the adopted
child of the plaintiff and her husband Jacinto Polido;
3. Directing the defendant to pay plaintiff attorney’s fees
and litigation expenses in the amount of P100,000.00
and moral damages in the amount of P50,000.00.
Other reliefs which are just and equitable under the premises are
likewise prayed for.1 (Underscoring supplied)
In his Answer with Compulsory Counterclaim,2 Gasat alleged that
petitioner and her late husband had adopted him as their child,
annexing as proof thereof a photocopy of an Order dated
September 23, 1970 of the Municipal Trial Court (MTC) of Camiling
in Civil Case No. 2497, "In the Matter of the Adoption of the Minors,
Lea D. Tomas and Mariano Gasat, JACINTO POLIDO AND EUGENIA
POLIDO, Petitioners,"3 and a copy of a Certification4 from the MTC
Clerk of Court that a "[c]opy of the decree of adoption dated
September 23, 1970 was furnished to the Office of the Local Civil
Registrar" and said decree had become final and executory; and
that petitioner cannot withdraw any amount from the bank
account because she should follow legal procedures governing
settlement of the estate of a deceased, unless a competent court
issues an order allowing her to withdraw from said account.5
In his Opposition to the Issuance of Preliminary Injunction and
Motion to Set the Affirmative Defenses for Preliminary
Hearing,6 Gasat argued that:
xxxx
3. Even assuming but without admitting that the
defendant’s adoption paper is ineffective, still he cannot
be deprived of his inheritance from the Estate of Jacinto
Polido because said deceased and the plaintiff are
childless and all the properties subject of inheritance
are exclusive properties of the late Jacinto Polido, the
same being inherited from his late father, NARCISO
POLIDO[,] who died in Hawaii, USA.
4. The Estate of Narciso Polido was inherited by his two
children, namely, said JACINTO POLIDO and PETRA P.
GASAT, also deceased and the latter was survived by her
husband and SEVEN (7) children of which the defendant
(MARIANO D. POLIDO) is one . . .;
5. Thus, by virtue of the provision of Art. 1001 of the
Civil Code of the Philippines, which reads as follows:
"ART. 1001. Should brothers and sisters or their children survive
with the widow or widower, the latter shall be entitled to one-half
of the inheritance and the brothers and sisters or their children to
the other half."
[T]he heirs of the late Jacinto Polido are his WIFE (plaintiff) [who
is entitled to] one-half (1/2) and Petra P. Gasat’s SEVEN (7)
CHILDREN which would include the defendant[, who are entitled
to] one-half (1/2).
HENCE, THERE IS NO WAY WHATSOEVER TO JUSTIFY THE
ISSUANCE OF PRELIMINARY INJUNCTION AGAINST THE
DEFENDANT EVEN IF HIS ADOPTION WOULD BE NULLIFIED OR
OF NO EFFECT WHATSOEVER.7 (Emphasis in the original;
underscoring supplied)
Gasat subsequently filed an Omnibus Motion8 withdrawing 1) the
allegation he had made in various pleadings that he is an adopted
son of the couple and 2) his Motion to Set the Affirmative Defenses
for Preliminary Hearing. And he moved to convert the case to an
action for partition, at his instance, of the estate of his grandfather
Narciso Polido,9 father of petitioner’s husband and Gasat’s mother,
and to require petitioner to file income tax returns and pay the
estate tax due.
To Gasat’s prayer to convert the action to one for partition and to
require her to file Estate Tax Returns, petitioner filed an
Opposition.10 And she moved for Judgment on the Pleadings.11
To justify her motion for judgment on the pleadings, petitioner
argued that Gasat, in withdrawing his claim and allegation that he
is an adopted child, "practically admitted [her] material allegations
[in the Complaint] that [he] is not an adopted child."12
By Order13 dated December 7, 2004, the trial court denied Gasat’s
motion to convert the case to an action for partition and granted
petitioner’s motion for judgment on the pleadings in this wise:
On November 30, 2004, the plaintiff filed a Motion for Judgment on
the ground that by withdrawing all his allegations that he is [an]
adopted child of the plaintiff, defendant practically admitted all the
material allegations in the complaint and prayed that judgment be
rendered as the complaint may warrant.
This Court resolves to grant the motion for judgment on the ground
that the defense that he is an adopted child of the plaintiff is
withdrawn by the defendant himself. By withdrawing his
defense, he is deemed to have admitted the main allegation of the
plaintiff that he is not an adopted child. On the motion of the
defendant that the instant action be converted into a partition and
that the plaintiff be ordered to file her real estate tax return, the
same is denied for lack of merit.14 (Underscoring supplied)
Accordingly, the trial court disposed as follows:
WHEREFORE, judgment is hereby rendered:
1. Declaring the defendant not the adopted child of the
plaintiff,
2. Ordering the Manager of the Philippine National Bank,
Camiling Branch or any other branch to release to
plaintiff upon her request the money she deposited or
her deceased husband Jacinto Polido;
3. Directing the defendant to pay the plaintiff moral
damages in the amount of P25,000.00 and attorney’s
fee[s] in the amount of P25,000.00.
SO ORDERED.15 (Underscoring supplied)
Gasat filed a Notice of Appeal.16 On May 26, 2005, before the Court
of Appeals, he filed an Ex-Parte Motion to Admit Payment of Docket
Page 68 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA
Fee,17 explaining that being jobless, it took some time for him to
raise the docket fee. He added that he had to borrow at an
exorbitant interest rate. Finally, he explained that when he went to
the trial court to pay the docket fee, he was advised to pay the same
at the Court of Appeals, the records having already been forwarded
to it.
The Court of Appeals denied his motion and dismissed his
appeal.18 On Motion for Reconsideration, however, the Court of
Appeals, by Resolution dated July 19, 2005, admitted Gasat’s
docket fee.19 Petitioner filed a Motion for Reconsideration, which
the Court of Appeals denied in this wise: 20
It is settled that "delay in the payment of the docket fees confers a
discretionary, and not mandatory, power to dismiss the proposed
appeal." While the payment of the prescribed docket fee is a
jurisdictional requirement, its non-payment at the time of filing
does not automatically cause the dismissal of the case, as long as
the fee is paid within the applicable prescriptive or reglementary
period, moreso, when the party involved demonstrates a
willingness to abide by the rules prescribing such payment. On this
score is the case of Spouses Gregorio Go and Juan Tan Go v. Johnson
Y. Tong, et. al., where the Supreme Court ruled that:
While the cause of action of the private respondent was supposed
to prescribe in four (4) years, he was allowed to pay; and he in fact
paid the docket fee in a year’s time. We do not see how this period
can be deemed unreasonable. Moreover, on his part there is no
showing of any pattern or intent to defraud the government of the
required docket fee.
In the instant case, the period between the filing of the notice of
appeal on February 28, 2005 and the payment of docket fee on May
26, 2005 is deemed reasonable. Moreover, justice will be better
served with the admission of such belated
payment.21 (Underscoring supplied)
Hence, the present Petition for Certiorari and Prohibition with
Urgent Motion for Injunction and Temporary Restraining
Order,22 petitioner faulting the Court of Appeals for committing
grave abuse of discretion in relaxing the rule on the payment of
docket fees on the ground of substantial justice.23
The petition fails.
Indeed, jurisprudence allows the relaxation of the Rule on non-
payment of appellate docket fees.
Notwithstanding the mandatory nature of the requirement of
payment of appellate docket fees, we also recognize that its strict
application is qualified by the following: first, failure to pay those
fees within the reglementary period allows only discretionary, not
automatic, dismissal; second, such power should be used by the
court in conjunction with its exercise of sound discretion in
accordance with the tenets of justice and fair play, as well as with
a great deal of circumspection in consideration of all attendant
circumstances.24
The relaxation by the appellate court of the rule on non-payment
of the appellate docket fee appears justified as a perusal of the
records of the case shows persuasive and weighty reasons to give
due course to the appeal.25
Instead of remanding the case to the appellate court, however, this
Court, in the interest of speedy dispensation of justice,26 especially
given that the main issue is a question of law, now passes on the
merits of the appeal of Gasat.
Section 1 of Rule 34 of the Rules of Court provides:
SECTION 1. Judgment on the Pleadings. – Where an answer fails to
tender an issue, or otherwise admits the material allegations of the
adverse party’s pleading, the court may, on motion of that party,
direct judgment on such pleading. However, in actions for
declaration of nullity or annulment of marriage or for legal
separation, the material facts alleged in the complaint shall always
be proved. (Emphasis and underscoring supplied)
Passing on this rule, the Court declared:
x x x The answer would fail to tender an issue x x x if it does not
comply with the requirements for a specific denial set out in
Section 10 (or Section 8) of Rule 8; and it would admit the material
allegations of the adverse party’s pleadings not only where it
expressly confesses the truthfulness thereof but also if it omits to
deal with them at all.
Now, if an answer does in fact specifically deny the material
averments of the complaint in the manner indicated by said Section
10 of Rule 8, and/or asserts affirmative defenses (allegations of
new matter which, while admitting the material allegations of the
complaint expressly or impliedly, would nevertheless bar recovery
by the plaintiff) x x x, a judgment on the pleadings would naturally
not be proper.27
In the case at bar, the trial court granted petitioner’s motion for
judgment on the pleadings on petitioner’s argument that in
withdrawing Gasat’s allegation of her having adopted him, he
"practically admitted her material allegations [in her Complaint]
that [he] is not an adopted child."
Gasat’s Answer with Compulsory Counterclaim raised other issues,
however, which are independent of his claim of adoptive
filiation and which would defeat petitioner’s main cause of action
– for the court to enjoin Gasat "and all persons acting under him
from preventing the officers or employees of the [PNB] from
releasing" the deposit to her.
11. . . Further, defendant has all the rights to prohibit the plaintiff
from personally withdrawing [from] the said bank account
because, it is mandated by law that after the death of the owner of
the said account, any withdrawal is prohibited except by order of
the Court or upon presentation of an Extrajudicial Settlement
executed by the legal heirs and after compliance with all the
requirements of the law. Likewise the bank is prohibited to allow
any withdrawal without submitting to it said requirements.
xxxx
13. With respect to the allegations of said paragraph 14, to wit –
Unless an injunction be issued against the defendant restraining
him from claiming in the bank account, the plaintiff would suffer
irreparable damage. The plaintiff is willing to post a bond in an
amount to be fixed by the Honorable Court.
this allegation is UNFOUNDED AND BASELESS and the court
cannot use [it] as a ground for the issuance of any restraining order.
Even assuming that the court will issue an Order restraining
defendant from claiming the bank account, the plaintiff still cannot
withdraw any amount thereof, because it is a part of the ESTATE of
Jacinto Polido, and as provided for by laws before the bank allows
any withdrawal, the plaintiff has to follow certain
procedures required by other laws governing estate settlement,
that is, - (a) Payment of Estate Tax, if any; (b) BIR Tax Clearance;
(c) Present a duly published Extrajudicial Partition executed by the
heirs adjudicating said amount to such heir, unless a competent
Court issues an Order allowing the plaintiff to withdraw [from] said
account. 28 (Underscoring supplied)
It bears noting that petitioner and her deceased husband Polido
were childless; hence, Gasat, who is a son of Polido’s sister Petra P.
Gasat, could inherit from Polido.
Parenthetically, Section 97 of the National Internal Revenue Code
states:
xxxx
If a bank has knowledge of the death of a person, who maintained
a bank deposit account alone, or jointly with another, it shall not
allow any withdrawal from the said deposit account unless the
Commissioner had certified that the taxes imposed thereon by this
Title have been paid; Provided, however, That the administrator of
the estate or any one (1) of the heirs of the decedent may, upon
authorization by the Commissioner, withdraw an amount not
exceeding Twenty thousand pesos (₱20,000) without the said
certification. For this purpose, all withdrawal slips shall contain a
statement to the effect that all of the joint depositors are still living
at the time of withdrawal by any one of the joint depositors and
such statement shall be under oath by the said depositors.
Page 69 of 70
CASES ON: ESTATE TAX
Based on the syllabus of Atty. Kriska Marna A. Buena, CPA

There being no ground to merit petitioner’s Motion for Judgment

on the Pleadings, the trial court erred in granting the
same.lawphil.net

WHEREFORE, the assailed petition is DENIED. The Court of

Appeals Resolution admitting respondent’s payment of docket fee
is upheld.

The Order of the Regional Trial Court of Camiling, Tarlac, Branch

68 dated December 7, 2004 granting petitioner’s Motion for
Judgment on the Pleadings is REVERSED and SET ASIDE.

Let the case be REMANDED to the trial court which is directed to

continue with dispatch its proceedings on and/or resolve the case
in light of the foregoing discussions.

Costs against petitioner.

SO ORDERED.

Page 70 of 70