G.R. No.

123206

March 22, 2000

COMMISSIONER OF INTERNAL REVENUE, petitioner,

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

Extrajudicial Settlement and the amount of P50,000 as the attorney's fees in

Special Proceedings No. 1254 for guardianship.6
On June 15, 1993, the Commissioner of Internal Revenue filed a motion for
reconsideration7 of the CTA's May 6, 1993 decision asserting, among others, that
the notarial fee for the Extrajudicial Settlement and the attorney's fees in the
guardianship proceedings are not deductible expenses.
On June 7, 1994, the CTA issued the assailed Resolution8 ordering the
Commissioner of Internal Revenue to refund Josefina Pajonar, as administratrix of
the estate of Pedro Pajonar, the amount of P76,502.42 representing erroneously
paid estate tax for the year 1988. Also, the CTA upheld the validity of the
deduction of the notarial fee for the Extrajudicial Settlement and the attorney's
fees in the guardianship proceedings.
On July 5, 1994, the Commissioner of Internal Revenue filed with the Court of
Appeals a petition for review of the CTA's May 6, 1993 Decision and its June 7,
1994 Resolution, questioning the validity of the abovementioned deductions. On
December 21, 1995, the Court of Appeals denied the Commissioner's petition.9
Hence, the present appeal by the Commissioner of Internal Revenue.
The sole issue in this case involves the construction of section 79 10 of the
National Internal Revenue Code 11 (Tax Code) which provides for the allowable
deductions from the gross estate of the decedent. More particularly, the question
is whether the notarial fee paid for the extrajudicial settlement in the amount of
P60,753 and the attorney's fees in the guardianship proceedings in the amount of
P50,000 may be allowed as deductions from the gross estate of decedent in order
to arrive at the value of the net estate.
We answer this question in the affirmative, thereby upholding the decisions of the
appellate courts.
In its May 6, 1993 Decision, the Court of Tax Appeals ruled thus:
Respondent maintains that only judicial expenses of the testamentary or intestate
proceedings are allowed as a deduction to the gross estate. The amount of
P60,753.00 is quite extraordinary for a mere notarial fee.
This Court adopts the view under American jurisprudence that expenses incurred
in the extrajudicial settlement of the estate should be allowed as a deduction from
the gross estate. "There is no requirement of formal administration. It is sufficient
that the expense be a necessary contribution toward the settlement of the case." [
34 Am. Jur. 2d, p. 765; Nolledo, Bar Reviewer in Taxation, 10th Ed. (1990), p. 481]
xxx

xxx

xxx

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

xxx

xxx

The guardianship proceeding had been terminated upon delivery of the residuary
estate to the heirs entitled thereto. Thereafter, PNB was discharged of any further
responsibility.

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

xxx

xxx

PNB was appointed as guardian over the assets of the late Pedro Pajonar, who,
even at the time of his death, was incompetent by reason of insanity. The
expenses incurred in the guardianship proceeding was but a necessary expense in
the settlement of the decedent's estate. Therefore, the attorney's fee incurred in
the guardianship proceedings amounting to P50,000.00 is a reasonable and
necessary business expense deductible from the gross estate of the decedent. 12
Upon a motion for reconsideration filed by the Commissioner of Internal Revenue,
the Court of Tax Appeals modified its previous ruling by reducing the refundable
amount to P76,502.43 since it found that a deficiency interest should be imposed
and the compromise penalty excluded. 13 However, the tax court upheld its
previous ruling regarding the legality of the deductions
It is significant to note that the inclusion of the estate tax law in the codification of
all our national internal revenue laws with the enactment of the National Internal
Revenue Code in 1939 were copied from the Federal Law of the United States.
[ UMALI, Reviewer in Taxation (1985), p. 285 ] The 1977 Tax Code, promulgated by
Presidential Decree No. 1158, effective June 3, 1977, reenacted substantially all
the provisions of the old law on estate and gift taxes, except the sections relating
to the meaning of gross estate and gift. [ Ibid, p. 286. ]
In the United States, [a]dministrative expenses, executor's commissions and
attorney's fees are considered allowable deductions from the Gross Estate.
Administrative expenses are limited to such expenses as are actually and
necessarily incurred in the administration of a decedent's estate. [PRENTICE-HALL,
Federal Taxes Estate and Gift Taxes (1936), p. 120, 533.] Necessary expenses of
administration are such expenses as are entailed for the preservation and
productivity of the estate and for its management for purposes of liquidation,
payment of debts and distribution of the residue among the persons entitled
thereto. [Lizarraga Hermanos vs. Abada, 40 Phil. 124.] They must be incurred for
the settlement of the estate as a whole. [34 Am. Jur. 2d, p. 765.] Thus, where
there were no substantial community debts and it was unnecessary to convert
community property to cash, the only practical purpose of administration being
the payment of estate taxes, full deduction was allowed for attorney's fees and
miscellaneous expenses charged wholly to decedent's estate. [Ibid., citing Estate
of Helis, 26 T.C. 143 (A).]
Petitioner stated in her protest filed with the BIR that "upon the death of the ward,
the PNB, which was still the guardian of the estate, (Annex "Z"), did not file an
estate tax return; however, it advised the heirs to execute an extrajudicial
settlement, to pay taxes and to post a bond equal to the value of the estate, for
which the state paid P59,341.40 for the premiums. (See Annex "K")." [p. 17, CTA
record.] Therefore, it would appear from the records of the case that the only
practical purpose of settling the estate by means of an extrajudicial settlement
pursuant to Section 1 of Rule 74 of the Rules of Court was for the payment of
taxes and the distribution of the estate to the heirs. A fortiori, since our estate tax
laws are of American origin, the interpretation adopted by American Courts has

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

xxx

xxx

It is clear then that the extrajudicial settlement was for the purpose of payment of
taxes and the distribution of the estate to the heirs. The execution of the
extrajudicial settlement necessitated the notarization of the same. Hence the
Contract of Legal Services of March 28, 1988 entered into between respondent
Josefina Pajonar and counsel was presented in evidence for the purpose of
showing that the amount of P60,753.00 was for the notarization of the
Extrajudicial Settlement. It follows then that the notarial fee of P60,753.00 was
incurred primarily to settle the estate of the deceased Pedro Pajonar. Said amount
should then be considered an administration expenses actually and necessarily
incurred in the collection of the assets of the estate, payment of debts and
distribution of the remainder among those entitled thereto. Thus, the notarial fee
of P60,753 incurred for the Extrajudicial Settlement should be allowed as a
deduction from the gross estate.
3. Attorney's fees, on the other hand, in order to be deductible from the gross
estate must be essential to the settlement of the estate.
The amount of P50,000.00 was incurred as attorney's fees in the guardianship
proceedings in Spec. Proc. No. 1254. Petitioner contends that said amount are not

expenses of the testamentary or intestate proceedings as the guardianship

proceeding was instituted during the lifetime of the decedent when there was yet
no estate to be settled.

the latter's estate, acts which contributed towards the collection of decedent's
assets and the subsequent settlement of the estate.

Again, this contention must fail.

We find that the Court of Appeals did not commit reversible error in affirming the
questioned resolution of the Court of Tax Appeals.

The guardianship proceeding in this case was necessary for the distribution of the
property of the deceased Pedro Pajonar. As correctly pointed out by respondent
CTA, the PNB was appointed guardian over the assets of the deceased, and that
necessarily the assets of the deceased formed part of his gross estate. . . .

WHEREFORE, the December 21, 1995 Decision of the Court of Appeals is

AFFIRMED. The notarial fee for the extrajudicial settlement and the attorney's fees
in the guardianship proceedings are allowable deductions from the gross estate of
Pedro Pajonar.1wphi1.nt

xxx

SO ORDERED.

xxx

xxx

It is clear therefore that the attorney's fees incurred in the guardianship

proceeding in Spec. Proc. No. 1254 were essential to the distribution of the
property to the persons entitled thereto. Hence, the attorney's fees incurred in the
guardianship proceedings in the amount of P50,000.00 should be allowed as a
deduction from the gross estate of the decedent. 15
The deductions from the gross estate permitted under section 79 of the Tax Code
basically reproduced the deductions allowed under Commonwealth Act No. 466
(CA 466), otherwise known as the National Internal Revenue Code of 1939, 16 and
which was the first codification of Philippine tax laws. Section 89 (a) (1) (B) of CA
466 also provided for the deduction of the "judicial expenses of the testamentary
or intestate proceedings" for purposes of determining the value of the net estate.
Philippine tax laws were, in turn, based on the federal tax laws of the United
States. 17 In accord with established rules of statutory construction, the decisions
of American courts construing the federal tax code are entitled to great weight in
the interpretation of our own tax laws. 18
Judicial expenses are expenses of administration. 19 Administration expenses, as
an allowable deduction from the gross estate of the decedent for purposes of
arriving at the value of the net estate, have been construed by the federal and
state courts of the United States to include all expenses "essential to the
collection of the assets, payment of debts or the distribution of the property to the
persons entitled to it." 20 In other words, the expenses must be essential to the
proper settlement of the estate. Expenditures incurred for the individual benefit of
the heirs, devisees or legatees are not deductible. 21 This distinction has been
carried over to our jurisdiction. Thus, in Lorenzo v. Posadas 22 the Court construed
the phrase "judicial expenses of the testamentary or intestate proceedings" as not
including the compensation paid to a trustee of the decedent's estate when it
appeared that such trustee was appointed for the purpose of managing the
decedent's real estate for the benefit of the testamentary heir. In another case,
the Court disallowed the premiums paid on the bond filed by the administrator as
an expense of administration since the giving of a bond is in the nature of a
qualification for the office, and not necessary in the settlement of the estate. 23
Neither may attorney's fees incident to litigation incurred by the heirs in asserting
their respective rights be claimed as a deduction from the gross estate.
241wphi1
Coming to the case at bar, the notarial fee paid for the extrajudicial settlement is
clearly a deductible expense since such settlement effected a distribution of Pedro
Pajonar's estate to his lawful heirs. Similarly, the attorney's fees paid to PNB for
acting as the guardian of Pedro Pajonar's property during his lifetime should also
be considered as a deductible administration expense. PNB provided a detailed
accounting of decedent's property and gave advice as to the proper settlement of

G.R. No. 138485

September 10, 2001

DR. FELISA L. VDA. DE SAN AGUSTIN, in substitution of JOSE Y. FERIA, in his

capacity as Executor of the Estate of JOSE SAN AGUSTIN, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
VITUG,, J.:
Before the Court is a petition for review seeking to set aside the decision of 24
February 1999 of the Court of Appeals, as well as its resolution of 27 Apri11999, in
CA-G.R. SP No. 34156, which has reversed that of the Court of Tax Appeals in CTA
Case No.4956, entitled "Jose V. Feria, in his capacity as Executor of the Estate of
Jose San Agustin versus Commissioner of Internal Revenue." The tax court's
decision has modified the deficiency assessment of the Commission of Internal
Revenue for surcharge, interests and other penalties imposed against the estate
of the late Jose San Agustin.
The facts of the case narrated by the appellate court would appear, by and large,
to be uncontroverted; thus viz:
"Atty. Jose San Agustin of 2904 Kakarong St., Olympia, Makati died on June 27,
1990 leaving his wife Dra. Felisa L. San Agustin as sole heir. He left a holographic
will executed on April 21, 1980 giving all his estate to his widow, and naming
retired Justice Jose Y. Feria as Executor thereof.
"Probate proceedings were instituted on August 22, 1990, in the Regional Trial
Court (RTC) of Makati, Branch 139, docketed as Sp. Proc. No. M-2554. Pursuantly,
notice of decedent's death was sent to the Commissioner of Internal Revenue on
August 30, 1990.1wphi1.nt
"On September 3, 1990, an estate tax return reporting an estate tax due of
P1,676,432.00 was filed on behalf of the estate, with a request for an extension of
two years for the payment of the tax, inasmuch as the decedent's widow ( did) not
personally have sufficient funds, and that the payment (would) have to come from
the estate.
"In his letter/answer, dated September 4, 1990, BIR Deputy Commissioner Victor
A. Deoferio, Jr., granted the heirs an extension of only six (6) months, subject to
the imposition of penalties and interests under Sections 248 and 249 of the
National Internal Revenue Code, as amended.
"In the probate proceedings, on October 11, 1990 the RTC allowed the will and
appointed Jose Feria as Executor of the estate. On December 5, 1990, the
executor submitted to the probate court an inventory of the estate with a motion
for authority to withdraw funds for the payment of the estate tax.
Such authority was granted by the probate court on March 5, 1991 .Thereafter, on
March 8, 1991 , the executor paid the estate tax in the amount of P1,676,432 as
reported in the Tax Return filed with the BIR. This was well within the six (6)
months extension period granted by the BIR.
"On September 23, 1991, the widow of the deceased, Felisa L. San Agustin,
received a Pre-Assessment Notice from the BIR, dated August 29, 1991, showing a
deficiency estate tax of P538,509.50, which, including surcharge, interest and
penalties, amounted to P976,540.00.

"On October 1, 1991, within the ten-day period given in the pre-assessment
notice, the executor filed a letter with the petitioner Commissioner expressing
readiness to pay the basic deficiency estate tax of P538,509.50 as soon as the
Regional Trial Court approves withdrawal thereof, but, requesting that the
surcharge, interest, and other penalties, amounting to P438,040.38 be waived,
considering that the assessed deficiency arose only on account of the difference in
zonal valuation used by the Estate and the BIR, and that the estate tax due per
return of P1,676,432.00 was already paid in due time within the extension period.
"On October 4, 1991, the Commissioner issued an Assessment Notice reiterating
the demand in the pre- assessment notice and requesting payment on or before
thirty (30) days upon receipt thereof.
"In a letter, dated October 31, 1991, the executor requested the Commissioner a
reconsideration of the assessment of P976,549.00 and waiver of the surcharge,
interest, etc.
"On December 18, 1991, the Commissioner accepted payment of the basic
deficiency tax in the amount of P538,509.50 through its Receivable Accounts
Billing Division.
"The request for reconsideration was not acted upon until January 21, 1993, when
the executor received a letter, dated September 21, 1992, signed by the
Commissioner, stating that there is no legal justification for the waiver of the
interests, surcharge and compromise penalty in this case, and requiring full
payment of P438,040.38 representing such charges within ten (10) days from
receipt thereof.
"In view thereof, the respondent estate paid the amount of P438,040.38 under
protest on January 25, 1993.
"On February 18, 1993, a Petition for Review was filed by the executor with the CT
A with the prayer that the Commissioner's letter/decision, dated September 21,
1992 be reversed and that a refund of the amount of P438,040.38 be ordered .
"The Commissioner opposed the said petition, alleging that the CTA's jurisdiction
was not properly invoked inasmuch as no claim for a tax refund of the deficiency
tax collected was filed with the Bureau of Internal Revenue before the petition was
filed, in violation of Sections 204 and 230 of the National Internal Revenue Code.
Moreover, there is no statutory basis for the refund of the deficiency surcharges,
interests and penalties charged by the Commissioner upon the estate of the
decedent.
"Upholding its jurisdiction over the dispute, the CTA rendered its Decision, dated
April 21, 1994, modifying the CIR's assessment for surcharge, interests and other
penalties from P438,040.38 to P13,462.74, representing interest on the deficiency
estate tax, for which reason the CTA ordered the reimbursement to the
respondent estate the balance of P423,577.64, to wit:
"WHEREFORE, respondent's deficiency assessment for surcharge, interests, and
other penalties is hereby modified and since petitioner has clearly paid the full
amount of P438,040.38, respondent is hereby ordered to refund to the Estate of
Jose San Agustin the overpayment amounting to P423,577.64."1
On 30 May 1994, the decision of the Court of Tax Appeals was appealed by the
Commissioner of Internal Revenue to the Court of Appeals. There, the petition for
review raised the following issues:

"2. Whether or not respondent Tax Court was correct in ordering the refund to the
Estate of Jose San Agustin the reduced amount of P423,577.64 as alleged
overpaid surcharge, interests and compromise penalty imposed on the basic
deficiency estate tax of P538,509.50 due on the transmission of the said Estate to
the sole heir in 1990."2

of his properties that had been placed under distraint by the respondent Collector
since December 4, 1957. To hold that the taxpayer has now lost the right to
appeal from the ruling on, the disputed assessment but must prosecute his appeal
under section 306 of the Tax Code, which requires a taxpayer to file a claim for
refund of the taxes paid as a condition precedent to his right to appeal, would in
effect require of him to go through a useless and needless ceremony that would
only delay the ! disposition of the case, for the Collector (now Commissioner)
would cer1ainly disallow the claim for refund in the same way as he disallowed
the protest against the assessment. The law, should not be interpreted as to result
in absurdities."5

In its decision of 24 February 1999, the Court of Appeals granted the petition of
the Commissioner of Internal Revenue and held that the Court of Tax Appeals did
not acquire jurisdiction over the subject matter and that, accordingly, its decision
was null and void.

The Court sees no cogent reason to abandon the above dictum and to require a
useless formality that can serve the interest of neither the government nor the
taxpayer. The tax court has aptly acted in taking cognizance of the taxpayer's
appeal to it.

Hence, the instant petition where petitioner submits that -

On the second issue, the National Internal Revenue Code, relative to the
imposition of surcharges, interests, and penalties, provides thusly:

"1. Whether respondent Tax Court has jurisdiction to take cognizance of the case
considering the failure of private respondent to comply with the mandatory
requirements of Sections 204 and 230 of the National Internal Revenue Code.

"1. The filing of a claim for refund [is] not essential before the filing of the petition
for review.
"2. The imposition by the respondent of surcharge, interest and penalties on the
deficiency estate tax is not in accord with the law and therefore illegal."3
The Court finds the petition partly meritorious.
The case has a striking resemblance to the controversy in Roman Catholic
Archbishop of Cebu vs. Collector of Internal Revenue.4
The petitioner in that case paid under protest the sum of P5,201.52 by way of
income tax, surcharge and interest and, forthwith, filed a petition for review
before the Court of Tax Appeals. Then respondent Collector (now Commissioner) of
Internal Revenue set up several defenses, one of which was that petitioner had
failed to first file a written claim for refund, pursuant to Section 306 of the Tax
Code, of the amounts paid. Convinced that the lack of a written claim for refund
was fatal to petitioner's recourse to it, the Court of Tax Appeals dismissed the
petition for lack of jurisdiction. On appeal to this Court, the tax court's ruling was
reversed; the Court held:
"We agree with petitioner that Section 7 of Republic Act No.1125, creating the
Court of Tax Appeals, in providing for appeals from '(1) Decisions of the Collector of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising under the National Internal
Revenue Code or other law or part of the law administered by the Bureau of
Internal Revenue allows an appeal from a decision of the Collector in cases involving' disputed
assessments' as distinguished from cases involving' refunds of internal revenue
taxes, fees or other charges, x x'; that the present action involves a disputed
assessment'; because from the time petitioner received assessments Nos. 17-EC00301-55 and 17-AC-600107-56 disallowing certain deductions claimed by him in
his income tax returns for the years 1955 and 1956, he already protested and
refused to pay the same, questioning the correctness and legality of such
assessments; and that the petitioner paid the disputed assessments under protest
before filing his petition for review with the Court a quo, only to forestall the sale

"Sec. 248. Civil Penalties. "(a) There shall be imposed, in addition to the tax required to be paid, a penalty
equivalent to twenty-five percent (25% ) of the amount due, in the following
cases:
"(1) Failure to file any return and pay the tax due thereon as required under the
provisions of this Code or rules and regulations on the date prescribed; or
"(2) Unless otherwise authorized by the Commissioner, filing a return with an
internal revenue officer other than those with whom the return is required to be
filed; or
"(3) Failure to pay the deficiency tax within the time prescribed for its payment in
the notice of assessment; or
"(4) Failure to pay the full or part of the amount of tax shown on any return
required to be filed under the provisions of this Code or rules and regulations, or
the full amount of tax due for which no return is required to be filed, on or before
the date prescribed for its payment."
"Sec.249. Interest. "(A) In General. -There shall be assessed and collected on any unpaid amount of
tax, interest at the rate of twenty percent (20%) per annum, or such higher rate
as may be prescribed by rules and regulations, from the date prescribed for
payment until the amount is fully paid.
"(B) Deficiency Interest. - Any deficiency in the tax due, as the term is defined in
this Code, shall be subject to the interest prescribed in Subsection (A) hereof,
which interest shall be assessed and collected from the date prescribed for its
payment until the full payment thereof.
"(C) Delinquency Interest. -In case of failure to pay:
"(1) The amount of the tax due on any return to be filed, or
"(2) The amount of the tax due for which no return is required, or

"(3) A deficiency tax, or any surcharge or interest thereon on the due date
appearing in the notice and demand of the Commissioner, there shall be assessed
and collected on the unpaid amount, interest at the rate prescribed in Subsection
(A) hereof until the amount is fully paid, which interest shall form part of the tax.
"(D) Interest on Extended Payment. -If any person required to pay the tax is
qualified and elects to pay the tax on installment under the provisions of this
Code, but fails to pay the tax or any installment hereof, or any part of such
amount or installment on or before the date prescribed for its payment, or where
the Commissioner has authorized an extension of time within which to pay a tax
or a deficiency tax or any part thereof, there shall be assessed and collected
interest at the rate hereinabove prescribed on the tax or deficiency tax or any part
thereof unpaid from the date of notice and demand until it is paid."
It would appear that, as early as 23 September 1991, the estate already received
a pre-assessment notice indicating a deficiency estate tax of P538,509.50. Within
the ten-day period given in the pre-assessment notice, respondent Commissioner
received a letter from petitioner expressing the latter's readiness to pay the basic
deficiency estate tax of P538,509.50 as soon as the trial court would have
approved the withdrawal of that sum from the estate but requesting that the
surcharge, interests and penalties be waived. On 04 October 1991, however,
petitioner received from the Commissioner notice insisting payment of the tax due
on or before the lapse of thirty (30) days from receipt thereof. The deficiency
estate tax of P538,509.50 was not paid until 19 December 1991.6
The delay in the payment of the deficiency tax within the time prescribed for its
payment in the notice of assessment justifies the imposition of a 25% surcharge in
consonance with Section 248A(3) of the Tax Code. The basic deficiency tax in this
case being P538,509.50, the twenty-five percent thereof comes to P134,627.37.
Section 249 of the Tax Code states that any deficiency in the tax due would be
subject to interest at the rate of twenty percent (20%) per annum, which interest
shall be assessed and collected from the date prescribed for its payment until full
payment is made. The computation of interest by the Court of Tax Appeals "Deficiency estate tax
P538,509.50
x
Interest Rate
20% per annum
x
Terms
11/2 mo./12 mos
(11/04/91 to 12/19/91)
= P13,462.74"7
conforms with the law, i.e., computed on the deficiency tax from the date
prescribed for its payment until it is paid.
The Court of Tax Appeals correctly held that the compromise penalty of
P20,000.00 could not be imposed on petitioner, a compromise being, by its
nature, mutual in essence. The payment made under protest by petitioner could

only signify that there was no agreement that had effectively been reached
between the parties.
Regrettably for petitioner, the need for an authority from the probate court in the
payment of the deficiency estate tax, over which respondent Commissioner has
hardly any control, is not one that can negate the application of the Tax Code
provisions aforequoted. Taxes, the lifeblood of the government, are meant to be
paid without delay and often oblivious to contingencies or conditions.
In. sum, the tax liability of the estate includes a surcharge of P134,627.37 and
interest of P13,462.74 or a total of P148,090.00.
WHEREFORE, the instant petition is partly GRANTED. The deficiency assessment
for surcharge, interest and penalties is modified and recomputed to be in the
amount of P148,090.00 surcharge of P134,627.37 and interest of P13,462.74.
Petitioner estate having since paid the sum of P438,040.38, respondent
Commissioner is hereby ordered to refund to the Estate of Jose San Agustin the
overpaid amount of P289,950.38. No costs.
SO ORDERED.

[G.R. No. 120880. June 5, 1997]

enforced by the summary remedy of levying upon the properties of the late
President, as was done by the respondent Commissioner of Internal Revenue.

FERDINAND R. MARCOS II, petitioner, vs. COURT OF APPEALS, THE COMMISSIONER

OF THE BUREAU OF INTERNAL REVENUE and HERMINIA D. DE GUZMAN,
respondents.
DECISION
TORRES, JR., J.:
In this Petition for Review on Certiorari, Government action is once again assailed
as precipitate and unfair, suffering the basic and oftly implored requisites of due
process of law. Specifically, the petition assails the Decision[1] of the Court of
Appeals dated November 29, 1994 in CA-G.R. SP No. 31363, where the said court
held:
"In view of all the foregoing, we rule that the deficiency income tax assessments
and estate tax assessment, are already final and (u)nappealable -and- the
subsequent levy of real properties is a tax remedy resorted to by the government,
sanctioned by Section 213 and 218 of the National Internal Revenue Code. This
summary tax remedy is distinct and separate from the other tax remedies (such
as Judicial Civil actions and Criminal actions), and is not affected or precluded by
the pendency of any other tax remedies instituted by the government.
WHEREFORE, premises considered, judgment is hereby rendered DISMISSING the
petition for certiorari with prayer for Restraining Order and Injunction.
No pronouncements as to costs.
SO ORDERED."
More than seven years since the demise of the late Ferdinand E. Marcos, the
former President of the Republic of the Philippines, the matter of the settlement of
his estate, and its dues to the government in estate taxes, are still unresolved, the
latter issue being now before this Court for resolution. Specifically, petitioner
Ferdinand R. Marcos II, the eldest son of the decedent, questions the actuations of
the respondent Commissioner of Internal Revenue in assessing, and collecting
through the summary remedy of Levy on Real Properties, estate and income tax
delinquencies upon the estate and properties of his father, despite the pendency
of the proceedings on probate of the will of the late president, which is docketed
as Sp. Proc. No. 10279 in the Regional Trial Court of Pasig, Branch 156.
Petitioner had filed with the respondent Court of Appeals a Petition for Certiorari
and Prohibition with an application for writ of preliminary injunction and/or
temporary restraining order on June 28, 1993, seeking to I. Annul and set aside the Notices of Levy on real property dated February 22,
1993 and May 20, 1993, issued by respondent Commissioner of Internal Revenue;
II. Annul and set aside the Notices of Sale dated May 26, 1993;
III. Enjoin the Head Revenue Executive Assistant Director II (Collection Service),
from proceeding with the Auction of the real properties covered by Notices of
Sale.
After the parties had pleaded their case, the
Decision[2] on November 29, 1994, ruling that
estate and income tax made upon the petitioner
President Marcos have already become final and

Court of Appeals rendered its

the deficiency assessments for
and the estate of the deceased
unappealable, and may thus be

"WHEREFORE, premises considered judgment is hereby rendered DISMISSING the

petition for Certiorari with prayer for Restraining Order and Injunction.
No pronouncements as to cost.
SO ORDERED."
Unperturbed, petitioner is now before us assailing the validity of the appellate
court's decision, assigning the following as errors:
A. RESPONDENT COURT MANIFESTLY ERRED IN RULING THAT THE SUMMARY TAX
REMEDIES RESORTED TO BY THE GOVERNMENT ARE NOT AFFECTED AND
PRECLUDED BY THE PENDENCY OF THE SPECIAL PROCEEDING FOR THE
ALLOWANCE OF THE LATE PRESIDENT'S ALLEGED WILL. TO THE CONTRARY, THIS
PROBATE PROCEEDING PRECISELY PLACED ALL PROPERTIES WHICH FORM PART OF
THE LATE PRESIDENT'S ESTATE IN CUSTODIA LEGIS OF THE PROBATE COURT TO
THE EXCLUSION OF ALL OTHER COURTS AND ADMINISTRATIVE AGENCIES.
B. RESPONDENT COURT ARBITRARILY ERRED IN SWEEPINGLY DECIDING THAT
SINCE THE TAX ASSESSMENTS OF PETITIONER AND HIS PARENTS HAD ALREADY
BECOME FINAL AND UNAPPEALABLE, THERE WAS NO NEED TO GO INTO THE
MERITS OF THE GROUNDS CITED IN THE PETITION. INDEPENDENT OF WHETHER
THE TAX ASSESSMENTS HAD ALREADY BECOME FINAL, HOWEVER, PETITIONER
HAS THE RIGHT TO QUESTION THE UNLAWFUL MANNER AND METHOD IN WHICH
TAX COLLECTION IS SOUGHT TO BE ENFORCED BY RESPONDENTS COMMISSIONER
AND DE GUZMAN.
THUS, RESPONDENT COURT SHOULD HAVE FAVORABLY
CONSIDERED THE MERITS OF THE FOLLOWING GROUNDS IN THE PETITION:
(1) The Notices of Levy on Real Property were issued beyond the period provided
in the Revenue Memorandum Circular No. 38-68.
(2) [a] The numerous pending court cases questioning the late President's
ownership or interests in several properties (both personal and real) make the
total value of his estate, and the consequent estate tax due, incapable of exact
pecuniary determination at this time. Thus, respondents assessment of the
estate tax and their issuance of the Notices of Levy and Sale are premature,
confiscatory and oppressive.
[b] Petitioner, as one of the late President's compulsory heirs, was never notified,
much less served with copies of the Notices of Levy, contrary to the mandate of
Section 213 of the NIRC. As such, petitioner was never given an opportunity to
contest the Notices in violation of his right to due process of law.
C. ON ACCOUNT OF THE CLEAR MERIT OF THE PETITION, RESPONDENT COURT
MANIFESTLY ERRED IN RULING THAT IT HAD NO POWER TO GRANT INJUNCTIVE
RELIEF TO PETITIONER. SECTION 219 OF THE NIRC NOTWITHSTANDING, COURTS
POSSESS THE POWER TO ISSUE A WRIT OF PRELIMINARY INJUNCTION TO
RESTRAIN RESPONDENTS COMMISSIONER'S AND DE GUZMAN'S ARBITRARY
METHOD OF COLLECTING THE ALLEGED DEFICIENCY ESTATE AND INCOME TAXES
BY MEANS OF LEVY.
The facts as found by the appellate court are undisputed, and are hereby adopted:

"On September 29, 1989, former President Ferdinand Marcos died in Honolulu,
Hawaii, USA.

On May 20, 1993, four more Notices of Levy on real property were issued for the
purpose of satisfying the deficiency income taxes.

On June 27, 1990, a Special Tax Audit Team was created to conduct investigations
and examinations of the tax liabilities and obligations of the late president, as well
as that of his family, associates and "cronies". Said audit team concluded its
investigation with a Memorandum dated July 26, 1991. The investigation disclosed
that the Marcoses failed to file a written notice of the death of the decedent, an
estate tax returns [sic], as well as several income tax returns covering the years
1982 to 1986, -all in violation of the National Internal Revenue Code (NIRC).

On May 26, 1993, additional four (4) notices of Levy on real property were again
issued. The foregoing tax remedies were resorted to pursuant to Sections 205
and 213 of the National Internal Revenue Code (NIRC).

Subsequently, criminal charges were filed against Mrs. Imelda R. Marcos before
the Regional Trial of Quezon City for violations of Sections 82, 83 and 84 (has
penalized under Sections 253 and 254 in relation to Section 252- a & b) of the
National Internal Revenue Code (NIRC).
The Commissioner of Internal Revenue thereby caused the preparation and filing
of the Estate Tax Return for the estate of the late president, the Income Tax
Returns of the Spouses Marcos for the years 1985 to 1986, and the Income Tax
Returns of petitioner Ferdinand 'Bongbong' Marcos II for the years 1982 to 1985.
On July 26, 1991, the BIR issued the following: (1) Deficiency estate tax
assessment no. FAC-2-89-91-002464 (against the estate of the late president
Ferdinand Marcos in the amount of P23,293,607,638.00 Pesos); (2) Deficiency
income tax assessment no. FAC-1-85-91-002452 and Deficiency income tax
assessment no. FAC-1-86-91-002451 (against the Spouses Ferdinand and Imelda
Marcos in the amounts of P149,551.70 and P184,009,737.40 representing
deficiency income tax for the years 1985 and 1986); (3) Deficiency income tax
assessment nos. FAC-1-82-91-002460 to FAC-1-85-91-002463 (against petitioner
Ferdinand 'Bongbong' Marcos II in the amounts of P258.70 pesos; P9,386.40
Pesos; P4,388.30 Pesos; and P6,376.60 Pesos representing his deficiency income
taxes for the years 1982 to 1985).
The Commissioner of Internal Revenue avers that copies of the deficiency estate
and income tax assessments were all personally and constructively served on
August 26, 1991 and September 12, 1991 upon Mrs. Imelda Marcos (through her
caretaker Mr. Martinez) at her last known address at No. 204 Ortega St., San Juan,
M.M. (Annexes 'D' and 'E' of the Petition). Likewise, copies of the deficiency tax
assessments issued against petitioner Ferdinand 'Bongbong' Marcos II were also
personally and constructively served upon him (through his caretaker) on
September 12, 1991, at his last known address at Don Mariano Marcos St. corner
P. Guevarra St., San Juan, M.M. (Annexes 'J' and 'J-1' of the Petition). Thereafter,
Formal Assessment notices were served on October 20, 1992, upon Mrs. Marcos
c/o petitioner, at his office, House of Representatives, Batasan Pambansa, Quezon
City. Moreover, a notice to Taxpayer inviting Mrs. Marcos (or her duly authorized
representative or counsel), to a conference, was furnished the counsel of Mrs.
Marcos, Dean Antonio Coronel - but to no avail.
The deficiency tax assessments were not protested administratively, by Mrs.
Marcos and the other heirs of the late president, within 30 days from service of
said assessments.
On February 22, 1993, the BIR Commissioner issued twenty-two notices of levy on
real property against certain parcels of land owned by the Marcoses - to satisfy
the alleged estate tax and deficiency income taxes of Spouses Marcos.

In response to a letter dated March 12, 1993 sent by Atty. Loreto Ata (counsel of
herein petitioner) calling the attention of the BIR and requesting that they be duly
notified of any action taken by the BIR affecting the interest of their client
Ferdinand 'Bongbong Marcos II, as well as the interest of the late president copies of the aforesaid notices were served on April 7, 1993 and on June 10, 1993,
upon Mrs. Imelda Marcos, the petitioner, and their counsel of record, 'De Borja,
Medialdea, Ata, Bello, Guevarra and Serapio Law Office'.
Notices of sale at public auction were posted on May 26, 1993, at the lobby of the
City Hall of Tacloban City. The public auction for the sale of the eleven (11)
parcels of land took place on July 5, 1993. There being no bidder, the lots were
declared forfeited in favor of the government.
On June 25, 1993, petitioner Ferdinand 'Bongbong' Marcos II filed the instant
petition for certiorari and prohibition under Rule 65 of the Rules of Court, with
prayer for temporary restraining order and/or writ of preliminary injunction."
It has been repeatedly observed, and not without merit, that the enforcement of
tax laws and the collection of taxes, is of paramount importance for the
sustenance of government. Taxes are the lifeblood of the government and should
be collected without unnecessary hindrance. However, such collection should be
made in accordance with law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the apparently conflicting
interests of the authorities and the taxpayers so that the real purpose of taxation,
which is the promotion of the common good, may be achieved."[3]
Whether or not the proper avenues of assessment and collection of the said tax
obligations were taken by the respondent Bureau is now the subject of the Court's
inquiry.
Petitioner posits that notices of levy, notices of sale, and subsequent sale of
properties of the late President Marcos effected by the BIR are null and void for
disregarding the established procedure for the enforcement of taxes due upon the
estate of the deceased. The case of Domingo vs. Garlitos[4] is specifically cited to
bolster the argument that "the ordinary procedure by which to settle claims of
indebtedness against the estate of a deceased, person, as in an inheritance
(estate) tax, is for the claimant to present a claim before the probate court so that
said court may order the administrator to pay the amount therefor." This remedy
is allegedly, exclusive, and cannot be effected through any other means.
Petitioner goes further, submitting that the probate court is not precluded from
denying a request by the government for the immediate payment of taxes, and
should order the payment of the same only within the period fixed by the probate
court for the payment of all the debts of the decedent. In this regard, petitioner
cites the case of Collector of Internal Revenue vs. The Administratrix of the Estate
of Echarri (67 Phil 502), where it was held that:
"The case of Pineda vs. Court of First Instance of Tayabas and Collector of Internal
Revenue (52 Phil 803), relied upon by the petitioner-appellant is good authority on
the proposition that the court having control over the administration proceedings

has jurisdiction to entertain the claim presented by the government for taxes due
and to order the administrator to pay the tax should it find that the assessment
was proper, and that the tax was legal, due and collectible. And the rule laid
down in that case must be understood in relation to the case of Collector of
Customs vs. Haygood, supra., as to the procedure to be followed in a given case
by the government to effectuate the collection of the tax. Categorically stated,
where during the pendency of judicial administration over the estate of a
deceased person a claim for taxes is presented by the government, the court has
the authority to order payment by the administrator; but, in the same way that it
has authority to order payment or satisfaction, it also has the negative authority
to deny the same. While there are cases where courts are required to perform
certain duties mandatory and ministerial in character, the function of the court in
a case of the present character is not one of them; and here, the court cannot be
an organism endowed with latitude of judgment in one direction, and converted
into a mere mechanical contrivance in another direction."
On the other hand, it is argued by the BIR, that the state's authority to collect
internal revenue taxes is paramount. Thus, the pendency of probate proceedings
over the estate of the deceased does not preclude the assessment and collection,
through summary remedies, of estate taxes over the same. According to the
respondent, claims for payment of estate and income taxes due and assessed
after the death of the decedent need not be presented in the form of a claim
against the estate. These can and should be paid immediately. The probate court
is not the government agency to decide whether an estate is liable for payment of
estate of income taxes. Well-settled is the rule that the probate court is a court
with special and limited jurisdiction.
Concededly, the authority of the Regional Trial Court, sitting, albeit with limited
jurisdiction, as a probate court over estate of deceased individual, is not a trifling
thing. The court's jurisdiction, once invoked, and made effective, cannot be
treated with indifference nor should it be ignored with impunity by the very parties
invoking its authority.
In testament to this, it has been held that it is within the jurisdiction of the probate
court to approve the sale of properties of a deceased person by his prospective
heirs before final adjudication;[5] to determine who are the heirs of the decedent;
[6] the recognition of a natural child;[7] the status of a woman claiming to be the
legal wife of the decedent;[8] the legality of disinheritance of an heir by the
testator;[9] and to pass upon the validity of a waiver of hereditary rights.[10]
The pivotal question the court is tasked to resolve refers to the authority of the
Bureau of Internal Revenue to collect by the summary remedy of levying upon,
and sale of real properties of the decedent, estate tax deficiencies, without the
cognition and authority of the court sitting in probate over the supposed will of the
deceased.
The nature of the process of estate tax collection has been described as follows:
"Strictly speaking, the assessment of an inheritance tax does not directly involve
the administration of a decedent's estate, although it may be viewed as an
incident to the complete settlement of an estate, and, under some statutes, it is
made the duty of the probate court to make the amount of the inheritance tax a
part of the final decree of distribution of the estate. It is not against the property
of decedent, nor is it a claim against the estate as such, but it is against the
interest or property right which the heir, legatee, devisee, etc., has in the property
formerly held by decedent. Further, under some statutes, it has been held that it
is not a suit or controversy between the parties, nor is it an adversary proceeding

between the state and the person who owes the tax on the inheritance. However,
under other statutes it has been held that the hearing and determination of the
cash value of the assets and the determination of the tax are adversary
proceedings. The proceeding has been held to be necessarily a proceeding in
rem.[11]
In the Philippine experience, the enforcement and collection of estate tax, is
executive in character, as the legislature has seen it fit to ascribe this task to the
Bureau of Internal Revenue. Section 3 of the National Internal Revenue Code
attests to this:
"Sec. 3. Powers and duties of the Bureau.-The powers and duties of the Bureau of
Internal Revenue shall comprehend the assessment and collection of all national
internal revenue taxes, fees, and charges, and the enforcement of all forfeitures,
penalties, and fines connected therewith, including the execution of judgments in
all cases decided in its favor by the Court of Tax Appeals and the ordinary courts.
Said Bureau shall also give effect to and administer the supervisory and police
power conferred to it by this Code or other laws."
Thus, it was in Vera vs. Fernandez[12] that the court recognized the liberal
treatment of claims for taxes charged against the estate of the decedent. Such
taxes, we said, were exempted from the application of the statute of non-claims,
and this is justified by the necessity of government funding, immortalized in the
maxim that taxes are the lifeblood of the government. Vectigalia nervi sunt rei
publicae - taxes are the sinews of the state.
"Taxes assessed against the estate of a deceased person, after administration is
opened, need not be submitted to the committee on claims in the ordinary course
of administration. In the exercise of its control over the administrator, the court
may direct the payment of such taxes upon motion showing that the taxes have
been assessed against the estate."
Such liberal treatment of internal revenue taxes in the probate proceedings
extends so far, even to allowing the enforcement of tax obligations against the
heirs of the decedent, even after distribution of the estate's properties.
"Claims for taxes, whether assessed before or after the death of the deceased,
can be collected from the heirs even after the distribution of the properties of the
decedent. They are exempted from the application of the statute of non-claims.
The heirs shall be liable therefor, in proportion to their share in the
inheritance."[13]
"Thus, the Government has two ways of collecting the taxes 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. Another remedy, pursuant to the
lien created by Section 315 of the Tax Code upon all property and rights to
property belong to the taxpayer for unpaid income tax, is by subjecting said
property of the estate which is in the hands of an heir or transferee to the
payment of the tax due the estate. (Commissioner of Internal Revenue vs. Pineda,
21 SCRA 105, September 15, 1967.)
From the foregoing, it is discernible that the approval of the court, sitting in
probate, or as a settlement tribunal over the deceased is not a mandatory
requirement in the collection of estate taxes. It cannot therefore be argued that
the Tax Bureau erred in proceeding with the levying and sale of the properties
allegedly owned by the late President, on the ground that it was required to seek
first the probate court's sanction. There is nothing in the Tax Code, and in the

pertinent remedial laws that implies the necessity of the probate or estate
settlement court's approval of the state's claim for estate taxes, before the same
can be enforced and collected.
On the contrary, under Section 87 of the NIRC, it is the probate or settlement
court which is bidden not to authorize the executor or judicial administrator of the
decedent's estate to deliver any distributive share to any party interested in the
estate, unless it is shown a Certification by the Commissioner of Internal Revenue
that the estate taxes have been paid. This provision disproves the petitioner's
contention that it is the probate court which approves the assessment and
collection of the estate tax.
If there is any issue as to the validity of the BIR's decision to assess the estate
taxes, this should have been pursued through the proper administrative and
judicial avenues provided for by law.
Section 229 of the NIRC tells us how:
"Sec. 229. Protesting of assessment.-When the Commissioner of Internal Revenue
or his duly authorized representative finds that proper taxes should be assessed,
he shall first notify the taxpayer of his findings. Within a period to be prescribed
by implementing regulations, the taxpayer shall be required to respond to said
notice.
If the taxpayer fails to respond, the Commissioner shall issue an
assessment based on his findings.
Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation in such form and manner as may be prescribed
by implementing regulations within (30) days from receipt of the assessment;
otherwise, the assessment shall become final and unappealable.

Notices of Levy were issued only on 22 February 1993 and 20 May 1993 when at
least seventeen (17) months had already lapsed from the last service of tax
assessment on 12 September 1991. As no notices of distraint of personal
property were first issued by respondents, the latter should have complied with
Revenue Memorandum Circular No. 38-68 and issued these Notices of Levy not
earlier than three (3) months nor later than six (6) months from 12 September
1991. In accordance with the Circular, respondents only had until 12 March 1992
(the last day of the sixth month) within which to issue these Notices of Levy. The
Notices of Levy, having been issued beyond the period allowed by law, are thus
void and of no effect."[15]
We hold otherwise. The Notices of Levy upon real property were issued within the
prescriptive period and in accordance with the provisions of the present Tax Code.
The deficiency tax assessment, having already become final, executory, and
demandable, the same can now be collected through the summary remedy of
distraint or levy pursuant to Section 205 of the NIRC.
The applicable provision in regard to the prescriptive period for the assessment
and collection of tax deficiency in this instance is Article 223 of the NIRC, which
pertinently provides:
"Sec. 223. Exceptions as to a period of limitation of assessment and collection of
taxes.- (a) In the case of a false or fraudulent return with intent to evade tax or of
a failure to file a return, the tax may be assessed, or a proceeding in court for the
collection of such tax may be begun without assessment, at any time within ten
(10) years after the discovery of the falsity, fraud, or omission: Provided, That, in
a fraud assessment which has become final and executory, the fact of fraud shall
be judicially taken cognizance of in the civil or criminal action for the collection
thereof.

If the protest is denied in whole or in part, the individual, association or

corporation adversely affected by the decision on the protest may appeal to the
Court of Tax Appeals within thirty (30) days from receipt of said decision;
otherwise, the decision shall become final, executory and demandable. (As
inserted by P.D. 1773)"

xxx

Apart from failing to file the required estate tax return within the time required for
the filing of the same, petitioner, and the other heirs never questioned the
assessments served upon them, allowing the same to lapse into finality, and
prompting the BIR to collect the said taxes by levying upon the properties left by
President Marcos.

xxx

Petitioner submits, however, that "while the assessment of taxes may have been
validly undertaken by the Government, collection thereof may have been done in
violation of the law. Thus, the manner and method in which the latter is enforced
may be questioned separately, and irrespective of the finality of the former,
because the Government does not have the unbridled discretion to enforce
collection without regard to the clear provision of law."[14]
Petitioner specifically points out that applying Memorandum Circular No. 38-68,
implementing Sections 318 and 324 of the old tax code (Republic Act 5203), the
BIR's Notices of Levy on the Marcos properties, were issued beyond the allowed
period, and are therefore null and void:
"...the Notices of Levy on Real Property (Annexes 0 to NN of Annex C of this
Petition) in satisfaction of said assessments were still issued by respondents well
beyond the period mandated in Revenue Memorandum Circular No. 38-68. These

(c) Any internal revenue tax which has been assessed within the period of
limitation above prescribed, may be collected by distraint or levy or by a
proceeding in court within three years following the assessment of the tax.

The omission to file an estate tax return, and the subsequent failure to contest or
appeal the assessment made by the BIR is fatal to the petitioner's cause, as under
the above-cited provision, in case of failure to file a return, the tax may be
assessed at any time within ten years after the omission, and any tax so assessed
may be collected by levy upon real property within three years following the
assessment of the tax. Since the estate tax assessment had become final and
unappealable by the petitioner's default as regards protesting the validity of the
said assessment, there is now no reason why the BIR cannot continue with the
collection of the said tax. Any objection against the assessment should have been
pursued following the avenue paved in Section 229 of the NIRC on protests on
assessments of internal revenue taxes.
Petitioner further argues that "the numerous pending court cases questioning the
late president's ownership or interests in several properties (both real and
personal) make the total value of his estate, and the consequent estate tax due,
incapable of exact pecuniary determination at this time. Thus, respondents'
assessment of the estate tax and their issuance of the Notices of Levy and sale
are premature and oppressive." He points out the pendency of Sandiganbayan
Civil Case Nos. 0001-0034 and 0141, which were filed by the government to

question the ownership and interests of the late President in real and personal
properties located within and outside the Philippines. Petitioner, however, omits
to allege whether the properties levied upon by the BIR in the collection of estate
taxes upon the decedent's estate were among those involved in the said cases
pending in the Sandiganbayan. Indeed, the court is at a loss as to how these
cases are relevant to the matter at issue. The mere fact that the decedent has
pending cases involving ill-gotten wealth does not affect the enforcement of tax
assessments over the properties indubitably included in his estate.

Even if we are to rule out the notices of assessments personally given to the
caretaker of Mrs. Marcos at the latter's last known address, on August 26, 1991
and September 12, 1991, as well as the notices of assessment personally given
to the caretaker of petitioner also at his last known address on September 12,
1991 - the subsequent notices given thereafter could no longer be ignored as they
were sent at a time when petitioner was already here in the Philippines, and at a
place where said notices would surely be called to petitioner's attention, and
received by responsible persons of sufficient age and discretion.

Petitioner also expresses his reservation as to the propriety of the BIR's total
assessment of P23,292,607,638.00, stating that this amount deviates from the
findings of the Department of Justice's Panel of Prosecutors as per its resolution of
20 September 1991. Allegedly, this is clear evidence of the uncertainty on the
part of the Government as to the total value of the estate of the late President.

Thus, on October 20, 1992, formal assessment notices were served upon Mrs.
Marcos c/o the petitioner, at his office, House of Representatives, Batasan
Pambansa,
Q.C.
(Annexes
"A",
"A-1",
"A-2",
"A-3";
pp.
207-210,
Comment/Memorandum of OSG). Moreover, a notice to taxpayer dated October 8,
1992 inviting Mrs. Marcos to a conference relative to her tax liabilities, was
furnished the counsel of Mrs. Marcos - Dean Antonio Coronel (Annex "B", p. 211,
ibid). Thereafter, copies of Notices were also served upon Mrs. Imelda Marcos, the
petitioner and their counsel "De Borja, Medialdea, Ata, Bello, Guevarra and
Serapio Law Office", on April 7, 1993 and June 10, 1993. Despite all of these
Notices, petitioner never lifted a finger to protest the assessments, (upon which
the Levy and sale of properties were based), nor appealed the same to the Court
of Tax Appeals.

This is, to our mind, the petitioner's last ditch effort to assail the assessment of
estate tax which had already become final and unappealable.
It is not the Department of Justice which is the government agency tasked to
determine the amount of taxes due upon the subject estate, but the Bureau of
Internal Revenue[16] whose determinations and assessments are presumed
correct and made in good faith.[17] The taxpayer has the duty of proving
otherwise. In the absence of proof of any irregularities in the performance of
official duties, an assessment will not be disturbed. Even an assessment based on
estimates is prima facie valid and lawful where it does not appear to have been
arrived at arbitrarily or capriciously. The burden of proof is upon the complaining
party to show clearly that the assessment is erroneous. Failure to present proof of
error in the assessment will justify the judicial affirmance of said assessment.[18]
In this instance, petitioner has not pointed out one single provision in the
Memorandum of the Special Audit Team which gave rise to the questioned
assessment, which bears a trace of falsity. Indeed, the petitioner's attack on the
assessment bears mainly on the alleged improbable and unconscionable amount
of the taxes charged. But mere rhetoric cannot supply the basis for the charge of
impropriety of the assessments made.
Moreover, these objections to the assessments should have been raised,
considering the ample remedies afforded the taxpayer by the Tax Code, with the
Bureau of Internal Revenue and the Court of Tax Appeals, as described earlier, and
cannot be raised now via Petition for Certiorari, under the pretext of grave abuse
of discretion. The course of action taken by the petitioner reflects his disregard or
even repugnance of the established institutions for governance in the scheme of a
well-ordered society. The subject tax assessments having become final, executory
and enforceable, the same can no longer be contested by means of a disguised
protest. In the main, Certiorari may not be used as a substitute for a lost appeal
or remedy.[19] This judicial policy becomes more pronounced in view of the
absence of sufficient attack against the actuations of government.
On the matter of sufficiency of service of Notices of Assessment to the petitioner,
we find the respondent appellate court's pronouncements sound and resilient to
petitioner's attacks.
"Anent grounds 3(b) and (B) - both alleging/claiming lack of notice - We find, after
considering the facts and circumstances, as well as evidences, that there was
sufficient, constructive and/or actual notice of assessments, levy and sale, sent to
herein petitioner Ferdinand "Bongbong" Marcos as well as to his mother Mrs.
Imelda Marcos.

There being sufficient service of Notices to herein petitioner (and his mother) and
it appearing that petitioner continuously ignored said Notices despite several
opportunities given him to file a protest and to thereafter appeal to the Court of
Tax Appeals, - the tax assessments subject of this case, upon which the levy and
sale of properties were based, could no longer be contested (directly or indirectly)
via this instant petition for certiorari."[20]
Petitioner argues that all the questioned Notices of Levy, however, must be
nullified for having been issued without validly serving copies thereof to the
petitioner. As a mandatory heir of the decedent, petitioner avers that he has an
interest in the subject estate, and notices of levy upon its properties should have
been served upon him.
We do not agree. In the case of notices of levy issued to satisfy the delinquent
estate tax, the delinquent taxpayer is the Estate of the decedent, and not
necessarily, and exclusively, the petitioner as heir of the deceased. In the same
vein, in the matter of income tax delinquency of the late president and his spouse,
petitioner is not the taxpayer liable. Thus, it follows that service of notices of levy
in satisfaction of these tax delinquencies upon the petitioner is not required by
law, as under Section 213 of the NIRC, which pertinently states:
"xxx
...Levy shall be effected by writing upon said certificate a description of the
property upon which levy is made. At the same time, written notice of the levy
shall be mailed to or served upon the Register of Deeds of the province or city
where the property is located and upon the delinquent taxpayer, or if he be
absent from the Philippines, to his agent or the manager of the business in respect
to which the liability arose, or if there be none, to the occupant of the property in
question.
xxx"
The foregoing notwithstanding, the record shows that notices of warrants of
distraint and levy of sale were furnished the counsel of petitioner on April 7, 1993,

and June 10, 1993, and the petitioner himself on April 12, 1993 at his office at the
Batasang Pambansa.[21] We cannot therefore, countenance petitioner's insistence
that he was denied due process. Where there was an opportunity to raise
objections to government action, and such opportunity was disregarded, for no
justifiable reason, the party claiming oppression then becomes the oppressor of
the orderly functions of government. He who comes to court must come with
clean hands. Otherwise, he not only taints his name, but ridicules the very
structure of established authority.
IN VIEW WHEREOF, the Court RESOLVED to DENY the present petition. The
Decision of the Court of Appeals dated November 29, 1994 is hereby AFFIRMED in
all respects.
SO ORDERED.

[G.R. No. 106755. February 1, 2002]

APOLINARIA AUSTRIA-MAGAT, petitioner, vs. HON. COURT OF APPEALS and
FLORENTINO LUMUBOS, DOMINGO COMIA, TEODORA CARAMPOT, ERNESTO
APOLO, SEGUNDA SUMPELO, MAMERTO SUMPELO and RICARDO SUMPELO,
respondents.
DECISION
DE LEON, JR., J.:
Before us is a petition for review of the Decision[1] of the Court of Appeals,[2]
dated June 30, 1989 reversing the Decision,[3] dated August 15, 1986 of the
Regional Trial Court (RTC) of Cavite, Branch 17. The Decision of the RTC dismissed
Civil Case No. 4426 which is an action for annulment of title, reconveyance and
damages.
The facts of the case are as follows:
Basilisa Comerciante is a mother of five (5) children, namely, Rosario Austria,
Consolacion Austria, herein petitioner Apolinaria Austria-Magat, Leonardo, and one
of herein respondents, Florentino Lumubos. Leonardo died in a Japanese
concentration camp at Tarlac during World War II.
In 1953, Basilisa bought a parcel of residential land together with the
improvement thereon covered and described in Transfer Certificate of Title No. RT4036 (T-3268) and known as Lot 1, Block 1, Cavite Beach Subdivision, with an area
of 150 square meters, located in Bagong Pook, San Antonio, Cavite City.
On December 17, 1975, Basilisa executed a document designated as Kasulatan
sa Kaloobpala (Donation). The said document which was notarized by Atty. Carlos
Viniegra, reads as follows:
KASULATANG SA KALOOBPALA
(DONATION)
TALASTASIN NG LAHAT AT SINUMAN:
Na ako, si BASELISA COMERCIANTE, may sapat na gulang, Filipina, balo, at
naninirahan sa blg. 809 L. Javier Bagong Pook, San Antonio, Lungsod ng Kabite,
Filipinas, sa pamamagitan ng kasulatang itoy
NAGSASALAYSAY
Na alang-alang sa mabuting paglilingkod at pagtingin na iniukol sa akin ng apat
kong mga tunay na anak na sila:
ROSARIO AUSTRIA, Filipina, may sapat na gulang, balo, naninirahan sa 809 L.
Javier, Bagong Pook, San Antonio, Lungsod ng Kabite;
CONSOLACION AUSTRIA, Filipina, may sapat na gulang, balo naninirahan sa 809 L.
Javier, Bagong Pook, San Antonio, Lungsod ng Kabite;

Kusang loob na ibinibigay ko at ipinagkakaloob ng ganap at hindi na mababawi sa

naulit ng apat na anak ko at sa kanilang mga tagamagmana (sic), ang aking isang
lupang residential o tirahan sampu ng aking bahay nahan ng nakatirik doon na
nasa Bagong Pook din, San Antonio, Lungsod ng Kabite, at nakikilala bilang Lote
no. 7, Block no.1, of Subdivision Plan Psd-12247; known as Cavite Beach
Subdivision, being a portion of Lot No. 1055, of the Cadastral survey of Cavite,
GLRO Cadastral Rec. no. 9539; may sukat na 150 metros cuadrados, at nakatala
sa pangalan ko sa Titulo Torrens bilang TCT-T-3268 (RT-4036) ng Lungsod ng
Kabite;
Na ang Kaloob palang ito ay magkakabisa lamang simula sa araw na akoy
pumanaw sa mundo, at sa ilalim ng kondision na:
Magbubuhat o babawasin sa halaga ng nasabing lupa at bahay ang anumang
magugul o gastos sa aking libing at nicho at ang anumang matitira ay hahatiin ng
APAT na parte, parepareho isang parte sa bawat anak kong nasasabi sa itaas nito
upang maliwanang (sic) at walang makakalamang sinoman sa kanila;
At kaming apat na anak na nakalagda o nakadiit sa kasulatang ito ay
TINATANGGAP NAMIN ang kaloob-palang ito ng aming magulang na si Basilisa
Comerciante, at tuloy pinasasalamatan namin siya ng taos sa (sic) puso dahil sa
kagandahan look (sic) niyang ito sa amin.
SA KATUNAYAN, ay nilagdaan o diniitan namin ito sa Nobeleta, Kabite, ngayong
ika-17 ng Disyembre taong 1975.
HER MARK
BASELISA COMERCIANTE

HER MARK
ROSARIO AUSTRIA

Tagakaloobpala
(Sgd.) APOLINARIA AUSTRIA
Tagatanggap-pala

HER MARK
CONSOLACION AUSTRIA

(Sgd.)FLORENTINO LUMUBOS
Tagatanggap-pala
(Acknowledgment signed by Notary Public C.T. Viniegra is omitted).[4]
Basilisa and her said children likewise executed another notarized document
denominated as Kasulatan which is attached to the deed of donation. The said
document states that:
KASULATAN
TALASTASIN NG MADLA:

APOLINARIA AUSTRIA, Filipina, may sapat na gulang, may asawa, naninirahan sa

Pasong Kawayan, Hen. Trias, Kabite;

Na kaming mga nakalagda o nakadiit sa labak nito sila Basilisa Comerciante at

ang kanyang mga anak na sila:

FLORENTINO LUMUBOS, Filipino, may sapat na gulang, asawa ni Encarnacion

Magsino, at naninirahan din sa 809 L. Javier, Bagong Pook, San Antonio, Lungsod
ng Kabite; ay

Rosario Austria, Consolacion Austria, Apolonio Austria, at Florentino Lumubos,

pawang may mga sapat na gulang, na lumagda o dumiit sa kasulatang kaloob
pala, na sinangayunan namin sa harap ng Notario Publico, Carlos T. Viniegra, ay
nagpapahayag ng sumusunod:

Na ang titulo numero TCT-T-2260 (RT-4036) ng Lungsod ng Kabite, bahay sa loteng

tirahan ng Bagong Pook na nababanggit sa nasabing kasulatan, ay mananatili sa
poder o possession ng Ina, na si Basilisa Comerciante habang siya ay nabubuhay
at
Gayon din ang nasabing Titulo ay hindi mapapasangla o maipagbibili ang lupa
habang maybuhay ang nasabing Basilisa Comerciante.
Sa katunayan ang nagsilagda kaming lahat sa labak nito sa harap ng abogado
Carlos T. Viniegra at dalawang saksi.

1. declaring null and void the Deed of Sale of Registered Land (Annex B) and
Transfer Certificate of Title No. T-10434 of the Registry of Deeds of Cavite City
(Annex E) and ordering the cancellation thereof; and
2. declaring appellants and appellee co-owners of the house and lot in question in
accordance with the deed of donation executed by Basilisa Comerciante on
December 17, 1975.
No pronouncement as to costs.
SO ORDERED.[7]

Nobeleta, Kabite. Ika-17 ng Disyembre, 1975.[5]

The appellate court declared in its decision that:

On February 6, 1979, Basilisa executed a Deed of Absolute Sale of the subject

house and lot in favor of herein petitioner Apolinaria Austria-Magat for Five
Thousand Pesos (P5,000.00). As the result of the registration of that sale, Transfer
Certificate of Title (TCT for brevity) No. RT-4036 in the name of the donor was
cancelled and in lieu thereof TCT No. T-10434 was issued by the Register of
Deeds of Cavite City in favor of petitioner Apolinaria Austria-Magat on February 8,
1979.

In the case at bar, the decisive proof that the deed is a donation inter vivos is in
the provision that :

On September 21, 1983, herein respondents Teodora Carampot, Domingo Comia,

and Ernesto Apolo (representing their deceased mother Consolacion Austria),
Ricardo, Mamerto and Segunda, all surnamed Sumpelo (representing their
deceased mother Rosario Austria) and Florentino Lumubos filed before the
Regional Trial Court of Cavite an action, docketed as Civil Case No. 4426 against
the petitioner for annulment of TCT No. T-10434 and other relevant documents,
and for reconveyance and damages.
On August 15,1986, the trial court dismissed Civil Case No. 4426 per its Decision,
the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, this Court hereby renders judgment for
defendant dismissing this case and ordering plaintiffs to pay the amount of
P3,000.00 as attorneys fees and the costs of suit.
SO ORDERED.[6]
According to the trial court, the donation is a donation mortis causa pursuant to
Article 728 of the New Civil Code inasmuch as the same expressly provides that it
would take effect upon the death of the donor; that the provision stating that the
donor reserved the right to revoke the donation is a feature of a donation mortis
causa which must comply with the formalities of a will; and that inasmuch as the
donation did not follow the formalities pertaining to wills, the same is void and
produced no effect whatsoever. Hence, the sale by the donor of the said property
was valid since she remained to be the absolute owner thereof during the time of
the said transaction.
On appeal, the decision of the trial court was reversed by the Court of Appeals in
its subject decision, the dispositive portion of which reads, to wit:
WHEREFORE, in view of the foregoing, the appealed decision is hereby SET ASIDE
and a new one rendered:

Ibinibigay ko at ipinagkakaloob ng ganap at hindi mababawi sa naulit na apat na

anak ko at sa kanilang mga tagapagmana, ang aking lupang residential o tirahan
sampu ng aking bahay nakatirik doon xxx. (emphasis supplied)
This is a clear expression of the irrevocability of the conveyance. The irrevocability
of the donation is a characteristic of a donation inter vivos. By the words hindi
mababawi, the donor expressly renounced the right to freely dispose of the
house and lot in question. The right to dispose of a property is a right essential to
full ownership. Hence, ownership of the house and lot was already with the
donees even during the donors lifetime. xxx
xxx
xxx

xxx

In the attached document to the deed of donation, the donor and her children
stipulated that:
Gayon din ang nasabing titulo ay hindi mapapasangla o maipagbibili ang lupa
habang may buhay ang nasabing Basilisa Comerciante.
The stipulation is a reiteration of the irrevocability of the dispossession on the part
of the donor. On the other hand, the prohibition to encumber, alienate or sell the
property during the lifetime of the donor is a recognition of the ownership over the
house and lot in issue of the donees for only in the concept of an owner can one
encumber or dispose a property.[8]
Hence this appeal grounded on the following assignment of errors:
I
THE RESPONDENT COURT OF APPEALS, WITH DUE RESPECT, IGNORED THE RULES
OF INTERPRETATION OF CONTRACTS WHEN IT CONSIDERED THE DONATION IN
QUESTION AS INTER VIVOS.
II
THE RESPONDENT COURT OF APPEALS, AGAIN WITH DUE RESPECT, ERRED IN NOT
HOLDING THAT THE PRESENT ACTION HAS PRESCRIBED UNDER THE STATUTE OF
LIMITATIONS.[9]

Anent the first assignment of error, the petitioner argues that the Court of Appeals
erred in ruling that the donation was a donation inter vivos. She claims that in
interpreting a document, the other relevant provisions therein must be read in
conjunction with the rest. While the document indeed stated that the donation
was irrevocable, that must be interpreted in the light of the provisions providing
that the donation cannot be encumbered, alienated or sold by anyone, that the
property donated shall remain in the possession of the donor while she is alive,
and that the donation shall take effect only when she dies. Also, the petitioner
claims that the donation is mortis causa for the reason that the contemporaneous
and subsequent acts of the donor, Basilisa Comerciante, showed such intention.
Petitioner cites the testimony of Atty. Viniegra, who notarized the deed of
donation, that it was the intent of the donor to maintain control over the property
while she was alive; that such intent was shown when she actually sold the lot to
herein petitioner.
We affirm the appellate courts decision.
The provisions in the subject deed of donation that are crucial for the
determination of the class to which the donation belongs are, as follows:
xxx(I)binibigay ko at ipinagkakaloob ng ganap at hindi mababawi sa naulit na apat
na anak ko at sa kanilang mga tagapagmana, ang aking lupang residential o
tirahan sampu ng aking bahay nakatirik doon na nasa Bagong Pook din, San
Antonio, Lungsod ng Kabite
Na ang Kaloob palang ito ay magkakabisa lamang simula sa araw na akoy
pumanaw sa mundo,
Na ang titulo numero TCT-T-2260 (RT-4036) ng Lungsod ng Kabite, bahay sa loteng
tirahan ng Bagong Pook na nababanggit sa nasabing kasulatan, ay mananatili sa
poder o possesion ng Ina, na si Basilisa Comerciante habang siya ay nabubuhay at
Gayon din ang nasabing Titulo ay hindi mapapasangla o maipagbibili ang lupa
habang maybuhay ang nasabing Basilisa Comerciante xxx.
It has been held that whether the donation is inter vivos or mortis causa depends
on whether the donor intended to transfer ownership over the properties upon the
execution of the deed.[10] In Bonsato v. Court of Appeals,[11] this Court
enumerated the characteristics of a donation mortis causa, to wit:
(1)
It conveys no title or ownership to the transferee before the death of
the transferor; or, what amounts to the same thing, that the transferor should
retain the ownership (full or naked) and control of the property while alive;
(2)
That before his death, the transfer should be revocable by the
transferor at will, ad nutum; but revocability may be provided for indirectly by
means of a reserved power in the donor to dispose of the properties conveyed;
(3)
transferee.

That the transfer should be void if the transferor should survive the

Significant to the resolution of this issue is the irrevocable character of the

donation in the case at bar. In Cuevas v. Cuevas,[12] we ruled that when the deed
of donation provides that the donor will not dispose or take away the property
donated (thus making the donation irrevocable), he in effect is making a donation
inter vivos. He parts away with his naked title but maintains beneficial ownership
while he lives. It remains to be a donation inter vivos despite an express provision

that the donor continues to be in possession and enjoyment of the donated

property while he is alive. In the Bonsato case, we held that:
(W)hat is most significant [in determining the type of donation] is the absence of
stipulation that the donor could revoke the donations; on the contrary, the deeds
expressly declare them to be irrevocable, a quality absolutely incompatible with
the idea of conveyances mortis causa where revocability is of the essence of the
act, to the extent that a testator can not lawfully waive or restrict his right of
revocation (Old Civil Code, Art.737; New Civil Code, Art. 828).[13]
Construing together the provisions of the deed of donation, we find and so hold
that in the case at bar the donation is inter vivos. The express irrevocability of the
same (hindi na mababawi) is the distinctive standard that identifies that
document as a donation inter vivos. The other provisions therein which seemingly
make the donation mortis causa do not go against the irrevocable character of
the subject donation. According to the petitioner, the provisions which state that
the same will only take effect upon the death of the donor and that there is a
prohibition to alienate, encumber, dispose, or sell the same, are proofs that the
donation is mortis causa. We disagree. The said provisions should be harmonized
with its express irrevocability. In Bonsato where the donation per the deed of
donation would also take effect upon the death of the donor with reservation for
the donor to enjoy the fruits of the land, the Court held that the said statements
only mean that after the donors death, the donation will take effect so as to
make the donees the absolute owners of the donated property, free from all liens
and encumbrances; for it must be remembered that the donor reserved for
himself a share of the fruits of the land donated.[14]
In Gestopa v. Court of Appeals,[15] this Court held that the prohibition to alienate
does not necessarily defeat the inter vivos character of the donation. It even
highlights the fact that what remains with the donor is the right of usufruct and
not anymore the naked title of ownership over the property donated. In the case
at bar, the provision in the deed of donation that the donated property will remain
in the possession of the donor just goes to show that the donor has given up his
naked title of ownership thereto and has maintained only the right to use (jus
utendi) and possess (jus possidendi) the subject donated property.
Thus, we arrive at no other conclusion in that the petitioners cited provisions are
only necessary assurances that during the donors lifetime, the latter would still
enjoy the right of possession over the property; but, his naked title of ownership
has been passed on to the donees; and that upon the donors death, the donees
would get all the rights of ownership over the same including the right to use and
possess the same.
Furthermore, it also appeared that the provision in the deed of donation regarding
the prohibition to alienate the subject property is couched in general terms such
that even the donor is deemed included in the said prohibition (Gayon din ang
nasabing Titulo ay hindi mapapasangla o maipagbibili ang lupa habang maybuhay
ang nasabing Basilisa Comerciante). Both the donor and the donees were
prohibited from alienating and encumbering the property during the lifetime of the
donor. If the donor intended to maintain full ownership over the said property
until her death, she could have expressly stated therein a reservation of her right
to dispose of the same. The prohibition on the donor to alienate the said property
during her lifetime is proof that naked ownership over the property has been
transferred to the donees. It also supports the irrevocable nature of the donation
considering that the donor has already divested herself of the right to dispose of
the donated property. On the other hand, the prohibition on the donees only
meant that they may not mortgage or dispose the donated property while the

donor enjoys and possesses the property during her lifetime. However, it is clear
that the donees were already the owners of the subject property due to the
irrevocable character of the donation.
The petitioner argues that the subsequent and contemporaneous acts of the
donor would show that her intention was to maintain control over her properties
while she was still living. We disagree. Respondent Domingo Comia testified that
sometime in 1977 or prior to the sale of the subject house and lot, his
grandmother, the donor in the case at bar, delivered the title of the said property
to him; and that the act of the donor was a manifestation that she was
acknowledging the ownership of the donees over the property donated.[16]
Moreover, Atty. Viniegra testified that when the donor sold the lot to the petitioner
herein, she was not doing so in accordance with the agreement and intent of the
parties in the deed of donation; that she was disregarding the provision in the
deed of donation prohibiting the alienation of the subject property; and that she
knew that the prohibition covers her as well as the donees.[17]
Another indication in the deed of donation that the donation is inter vivos is the
acceptance clause therein of the donees.
We have ruled that an acceptance
clause is a mark that the donation is inter vivos. Acceptance is a requirement for
donations inter vivos. On the other hand, donations mortis causa, being in the
form of a will, are not required to be accepted by the donees during the donors
lifetime.[18]
We now rule on whether the donor validly revoked the donation when one of her
daughters and donees, Consolacion Austria, violated the prohibition to encumber
the property. When Consolacion Austria mortgaged the subject property to a
certain Baby Santos, the donor, Basilisa Comerciante, asked one of the
respondents herein, Domingo Comia, to redeem the property, which the latter
did. After the petitioner in turn redeemed the property from respondent Domingo,
the donor, Basilisa, sold the property to the petitioner who is one of the donees.
The act of selling the subject property to the petitioner herein cannot be
considered as a valid act of revocation of the deed of donation for the reason that
a formal case to revoke the donation must be filed pursuant to Article 764 of the
Civil Code[19] which speaks of an action that has a prescriptive period of four (4)
years from non-compliance with the condition stated in the deed of donation. The
rule that there can be automatic revocation without benefit of a court action does
not apply to the case at bar for the reason that the subject deed of donation is
devoid of any provision providing for automatic revocation in event of noncompliance with the any of the conditions set forth therein. Thus, a court action is
necessary to be filed within four (4) years from the non-compliance of the
condition violated. As regards the ground of estoppel, the donor, Basilisa, cannot
invoke the violation of the provision on the prohibition to encumber the subject
property as a basis to revoke the donation thereof inasmuch as she acknowledged
the validity of the mortgage executed by the donee, Consolacion Austria, when
the said donor asked respondent Domingo Comia to redeem the same. Thereafter,
the donor, Basilisa likewise asked respondent Florentino Lumubos and the
petitioner herein to redeem the same.[20] Those acts implied that the donees
have the right of control and naked title of ownership over the property
considering that the donor, Basilisa condoned and acknowledged the validity of
the mortgage executed by one of the donees, Consolacion Austria.
Anent the second issue, the petitioner asserts that the action, against the
petitioner, for annulment of TCT No. T-10434 and other relevant documents, for
reconveyance and damages, filed by the respondents on September 21, 1983 on
the ground of fraud and/or implied trust has already prescribed. The sale

happened on February 6, 1979 and its registration was made on February 8, 1979
when TCT No. RT-4036 in the name of the donor was cancelled and in lieu thereof
TCT No. T-10434 in the name of the petitioner was issued. Thus, more than four
(4) years have passed since the sale of the subject real estate property was
registered and the said new title thereto was issued to the petitioner. The
petitioner contends that an action for reconveyance of property on the ground of
alleged fraud must be filed within four (4) years from the discovery of fraud which
is from the date of registration of the deed of sale on February 8, 1979; and that
the same prescriptive period also applies to a suit predicated on a trust
relationship that is rooted on fraud of breach of trust.
When ones property is registered in anothers name without the formers consent,
an implied trust is created by law in favor of the true owner. Article 1144 of the
New Civil Code provides:
Art. 1144. The following actions must be brought within ten years from the time
the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment. (n)
Thus, an action for reconveyance of the title to the rightful owner prescribes in ten
(10) years from the issuance of the title.[21] It is only when fraud has been
committed that the action will be barred after four (4) years.[22]
However, the four-year prescriptive period is not applicable to the case at bar for
the reason that there is no fraud in this case. The findings of fact of the appellate
court which are entitled to great respect, are devoid of any finding of fraud. The
records do not show that the donor, Basilisa, and the petitioner ever intended to
defraud the respondents herein with respect to the sale and ownership of the said
property. On the other hand, the sale was grounded upon their honest but
erroneous interpretation of the deed of donation that it is mortis causa, not inter
vivos; and that the donor still had the rights to sell or dispose of the donated
property and to revoke the donation.
There being no fraud in the trust relationship between the donor and the donees
including the herein petitioner, the action for reconveyance prescribes in ten (10)
years. Considering that TCT No. T-10434 in the name of the petitioner and
covering the subject property was issued only on February 8, 1979, the filing of
the complaint in the case at bar in 1983 was well within the ten-year prescriptive
period.
The Court of Appeals, therefore, committed no reversible error in its appealed
Decision.
WHEREFORE, the appealed Decision dated June 30, 1989 of the Court of Appeals
is hereby AFFIRMED. No pronouncement as to costs.
SO ORDERED.

G.R. No. L-68385 May 12, 1989

ILDEFONSO O. ELEGADO, as Ancillary Administrator of the Testate Estate of the
late WARREN TAYLOR GRAHAM, petitioner
vs.
HON. COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE
respondents.

The petitioner regarded this motion as an implied denial of the protest filed on
August 13, 1980, against the second assessment of P72,948.87. 14 On this
understanding, he filed on September 15, 1981, a petition for review with the
Court of Tax Appeals challenging the said assessment. 15

The Office of the Solictor General for public respondents.

The Commissioner did not immediately answer (in fact, as the petitioner stressed,
no answer was filed during a delay of 195 days) and in the end instead cancelled
the protested assessment in a letter to the decedent's estate dated March 31,
1982. 16 This cancellation was notified to the Court of Tax Appeals in a motion to
dismiss on the ground that the protest had become moot and academic. 17

CRUZ, J.:

The motion was granted and the petition dismissed on April 25, 1984. 18 The
petitioner then came to this Court on certiorari under Rule 45 of the Rules of
Court.

What the petitioner presents as a rather complicated problem is in reality a very

simple question from the viewpoint of the Solicitor General. We agree with the
latter. There is actually only one issue to be resolved in this action. That issue is
whether or not the respondent Court of Tax Appeals erred in dismissing the
petitioner's appeal on grounds of jurisdiction and lack of a cause of action.

The petitioner raises three basic questions, to wit, (1) whether the shares of stocks
left by the decedent should be treated as his exclusive, and not conjugal,
property; (2) whether the said stocks should be assessed as of the time of the
owner's death or six months thereafter; and (3) whether the appeal filed with the
respondent court should be considered moot and academic.

Appeal from what? That indeed is the question.

We deal first with the third issue as it is decisive of this case.

But first the facts.

In the letter to the decedent's estate dated March 31, 1982, the Commissioner of
Internal Revenue wrote as follows:

On March 14, 1976, Warren Taylor Graham, an American national formerly

resident in the Philippines, died in Oregon, U.S.A. 1 As he left certain shares of
stock in the Philippines, his son, Ward Graham, filed an estate tax return on
September 16, 1976, with the Philippine Revenue Representative in San Francisco,
U.S.A. 2

Estate of WARREN T. GRAHAM c/o Mr. ILDEFENSO O. ELEGADO

Administrator
Philex Building cor. Brixton &
Fairlane Sts.
Manila

On the basis of this return, the respondent Commissioner of Internal Revenue

assessed the decedent's estate an estate tax in the amount of P96,509.35 on
February 9, 1978. 3 This assessment was protested on March 7, 1978, by the law
firm of Bump, Young and Walker on behalf of the estate . 4 The protest was denied
by the Commissioner on July 7, 1978. 5 No further action was taken by the estate
in pursuit of that protest.

This is with regard to the estate of the late WARREN TAYLOR GRAHAM, who died a
resident of Oregon, U.S.A. on March 14, 1976. It appears that two (2) letters of
demand were issued by this Bureau. One is for the amount of P96,509.35 based
on the first return filed, and the other in the amount of P72,948.87, based on the
second return filed.

Meanwhile, on January 18, 1977, the decedent's will had been admitted to probate
in the Circuit Court of Oregon 6 Ward Graham, the designated executor, then
appointed Ildefonso Elegado, the herein petitioner, as his attorney-in-fact for the
allowance of the will in the Philippines. 7

It appears that the first assessment of P96,509.35 was issued on February 9, 1978
on the basis of the estate tax return filed on September 16, 1976. The said
assessment was, however, protested in a letter dated March 7, 1978 but was
denied on July 7, 1978. Since no appeal was made within the regulatory period,
the same has become final.

Agrava, Lucero & Gineta for petitioners.

Pursuant to such authority, the petitioner commenced probate proceedings in the

Court of First Instance of Rizal. 8 The will was allowed on December 18, 1978, with
the petitioner as ancillary administrator. 9 As such, he filed a second estate tax
return with the Bureau of Internal Revenue on June 4, 1980. 10
On the basis of this second return, the Commissioner imposed an assessment on
the estate in the amount of P72,948.87. 11 This was protested on behalf of the
estate by the Agrava, Lucero and Gineta Law Office on August 13, 1980. 12
While this protest was pending, the Commissioner filed in the probate proceedings
a motion for the allowance of the basic estate tax of P96,509.35 as assessed on
February 9, 1978. 13 He said that this liability had not yet been paid although the
assessment had long become final and executory.

Ancillary
Pasig, Metro

Sir:

In view thereof, it is requested that you settle the aforesaid assessment for
P96,509.35 within fifteen (15) days upon receipt hereof to the Receivable
Accounts Division, this Bureau, BIR National Office Building, Diliman, Quezon City.
The assessment for P72,949.57 dated July 3, 1980, referred to above is hereby
cancelled.
Very truly yours,
(SGD.) RUBEN B. ANCHETA Acting Commissioner 19

It is obvious from the express cancellation of the second assessment for

P72,948.87 that the petitioner had been deprived of a cause of action as it was
precisely from this assessment that he was appealing.
In its decision, the Court of Tax Appeals said that the petition questioning the
assessment of July 3, 1980, was "premature" since the protest to the assessment
had not yet been resolved. 20 As a matter of fact it had: the said assessment had
been cancelled by virtue of the above-quoted letter. The respondent court was on
surer ground, however, when it followed with the finding that the said cancellation
had rendered the petition moot and academic. There was really no more
assessment to review.
The petitioner argues that the issuance of the second assessment on July 3, 1980,
had the effect of canceling the first assessment of February 9, 1978, and that the
subsequent cancellation of the second assessment did not have the effect of
automatically reviving the first. Moreover, the first assessment is not binding on
him because it was based on a return filed by foreign lawyers who had no
knowledge of our tax laws or access to the Court of Tax Appeals.
The petitioner is clutching at straws.
It is noted that in the letter of July 3, 1980, imposing the second assessment of
P72,948.87, the Commissioner made it clear that "the aforesaid amount is
considered provisional only based on the estate tax return filed subject to
investigation by this Office for final determination of the correct estate tax due
from the estate. Any amount that may be found due after said investigation will
be assessed and collected later." 21 It is illogical to suggest that a provisional
assessment can supersede an earlier assessment which had clearly become final
and executory.
The second contention is no less flimsy. The petitioner cannot be serious when he
argues that the first assessment was invalid because the foreign lawyers who filed
the return on which it was based were not familiar with our tax laws and
procedure. Is the petitioner suggesting that they are excused from compliance
therewith because of their ignorance?
If our own lawyers and taxpayers cannot claim a similar preference because they
are not allowed to claim a like ignorance, it stands to reason that foreigners
cannot be any less bound by our own laws in our own country. A more obvious and
shallow discrimination than that suggested by the petitioner is indeed difficult to
find.
But the most compelling consideration in this case is the fact that the first
assessment is already final and executory and can no longer be questioned at this
late hour. The assessment was made on February 9, 1978. It was protested on
March 7, 1978. The protest was denied on July 7, 1978. As no further action was
taken thereon by the decedent's estate, there is no question that the assessment
has become final and executory.
In fact, the law firm that had lodged the protest appears to have accepted its
denial. In his motion with the probate court, the respondent Commissioner
stressed that "in a letter dated January 29, 1980, the Estate of Warren Taylor
Graham thru the aforesaid foreign law firm informed claimant that they have paid
said tax liability thru the Agrava, Velarde, Lucero and Puno, Philippine law firm of
313 Buendia Avenue Ext., Makati, Metro Manila that initiated the instant ancillary
proceedings" although he added that such payment had not yet been received. 22

This letter was an acknowledgment by the estate of the validity and finality of the
first assessment. Significantly, it has not been denied by the petitioner.
In view of the finality of the first assessment, the petitioner cannot now raise the
question of its validity before this Court any more than he could have done so
before the Court of Tax Appeals. What the estate of the decedent should have
done earlier, following the denial of its protest on July 7, 1978, was to appeal to
the Court of Tax Appeals within the reglementary period of 30 days after it
received notice of said denial. It was in such appeal that the petitioner could then
have raised the first two issues he now raises without basis in the present petition.
The question of whether or not the shares of stock left by the decedent should be
considered conjugal property or belonging to him alone is immaterial in these
proceedings. So too is the time at which the assessment of these shares of stock
should have been made by the BIR. These questions were not resolved by the
Court of Tax Appeals because it had no jurisdiction to act on the petitioner's
appeal from an assessment that had already been cancelled. The assessment
being no longer controversial or reviewable, there was no justification for the
respondent court to rule on the petition except to dismiss it.
If indeed the Commissioner of Internal Revenue committed an error in the
computation of the estate tax, as the petitioner insists, that error can no longer be
rectified because the original assessment has long become final and executory. If
that assessment was not challenged on time and in accordance with the
prescribed procedure, that error for error it was was committed not by the
respondents but by the decedent's estate itself which the petitioner represents. So
how can he now complain.
WHEREFORE, the petition is DENIED, with costs against the petitioner. It is so
ordered,

G.R. No. 140944

April 30, 2008

187,822,576.06

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.

Net Conjugal Estate

DECISION

NIL.

NACHURA, J.:

Net Share in Conjugal Estate

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

NIL

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

NIL
Less: Share of Surviving Spouse

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

P10,855,020.00

However, on November 26, 1991, the Assistant Commissioner for Collection of the
BIR, Themistocles Montalban, issued Estate Tax Assessment Notice No. FAS-E-8791-003269,17 demanding the payment of P66,973,985.40 as deficiency estate
tax, itemized as follows:

Conjugal Personal Property (Sch.2)

Deficiency Estate Tax- 1987

3,460,591.34

Estate tax

Taxable Transfer (Sch. 3)

P31,868,414.48

Gross Conjugal Estate

25% surcharge- late filing

14,315,611.34

7,967,103.62

Less: Deductions (Sch. 4)

late payment

Conjugal Real Property (Sch. 1)

7,967,103.62

"B" & "B-1"

Interest

3.

19,121,048.68

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

Compromise-non filing
25,000.00
non payment

"C"
4.

25,000.00

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

no notice of death

"C-1" to "C-17"

15.00

5.

no CPA Certificate
300.00

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

Total amount due & collectible

"D" to "D-24"

P66,973,985.4018

6.

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.

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

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

Claim of the Manila Banking Corporation (MBC) which as of November 7, 1987

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

In the hearings conducted, petitioner did not present testimonial evidence but
merely documentary evidence consisting of the following:
Nature of Document (sic)
Exhibits
1.
Letter dated October 13, 1988 from Arsenio P. Dizon addressed to the
Commissioner of Internal Revenue informing the latter of the special proceedings
for the settlement of the estate (p. 126, BIR records);

"E" to "E-3"
7.

"F" to "F-3"
8.
Demand letter of Manila Banking Corporation prepared by Asedillo, Ramos and
Associates Law Offices addressed to Fernandez Hermanos, Inc., represented by
Jose P. Fernandez, as mortgagors, in the total amount of P240,479,693.17 as of
February 28, 1989 (pp. 186-187, BIR records);
"G" & "G-1"

"A"

9.

2.

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

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

"H" to "H-16"

10.
Letter dated March 14, 1990 of Arsenio P. Dizon addressed to Atty. Jesus M.
Gonzales, (p. 184, BIR records);
"I"
11.

Signatures of Ma. Anabella Abuloc and Alberto Enriquez, Jr. appearing at the lower
Portion of Exh. "1";
-do3.
Memorandum for the Commissioner, dated July 19, 1991, prepared by revenue
examiners, Ma. Anabella A. Abuloc, Alberto S. Enriquez and Raymund S. Gallardo;
Reviewed by Maximino V. Tagle

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

pp. 143-144

"J"

4.

12.

Signature of Alberto S. Enriquez appearing at the lower portion on p. 2 of Exh. "2";

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

-do-

"K" to "K-5"

Signature of Ma. Anabella A. Abuloc appearing at the lower portion on p. 2 of Exh.

"2";

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

5.

-do6.

"L"

Signature of Raymund S. Gallardo appearing at the Lower portion on p. 2 of Exh.

"2";

14.

-do-

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

7.

"M" to "M-5"

-do-

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

8.

Documents/Signatures
BIR Record
1.
Estate Tax Return prepared by the BIR;
p. 138
2.

Signature of Maximino V. Tagle also appearing on p. 2 of Exh. "2";

Summary of revenue Enforcement Officers Audit Report, dated July 19, 1991;
p. 139
9.
Signature of Alberto Enriquez at the lower portion of Exh. "3";
-do10.
Signature of Ma. Anabella A. Abuloc at the lower portion of Exh. "3";
-do-

11.
Signature of Raymond S. Gallardo at the lower portion of Exh. "3";
-do12.
Signature of Maximino V. Tagle at the lower portion of Exh. "3";
-do13.
Demand letter (FAS-E-87-91-00), signed by the Asst. Commissioner for Collection
for the Commissioner of Internal Revenue, demanding payment of the amount of
P66,973,985.40; and
p. 169
14.
Assessment Notice FAS-E-87-91-00
pp. 169-17022
The CTA's Ruling
On June 17, 1997, the CTA denied the said petition for review. Citing this Court's
ruling in Vda. de Oate v. Court of Appeals,23 the CTA opined that the
aforementioned pieces of evidence introduced by the BIR were admissible in
evidence. The CTA ratiocinated:
Although the above-mentioned documents were not formally offered as evidence
for respondent, considering that respondent has been declared to have waived the
presentation thereof during the hearing on March 20, 1996, still they could be
considered as evidence for respondent since they were properly identified during
the presentation of respondent's witness, whose testimony was duly recorded as
part of the records of this case. Besides, the documents marked as respondent's
exhibits formed part of the BIR records of the case.24
Nevertheless, the CTA did not fully adopt the assessment made by the BIR and it
came up with its own computation of the deficiency estate tax, to wit:
Conjugal Real Property
P 5,062,016.00
Conjugal Personal Prop.
33,021,999.93
Gross Conjugal Estate
38,084,015.93
Less: Deductions

26,250,000.00
Net Conjugal Estate
P 11,834,015.93
Less: Share of Surviving Spouse
5,917,007.96
Net Share in Conjugal Estate
P 5,917,007.96
Add: Capital/Paraphernal
Properties P44,652,813.66
Less: Capital/Paraphernal Deductions
44,652,813.66
Net Taxable Estate
P 50,569,821.62
============
Estate Tax Due P 29,935,342.97
Add: 25% Surcharge for Late Filing
7,483,835.74
Add: Penalties for-No notice of death
15.00
No CPA certificate
300.00
Total deficiency estate tax
P 37,419,493.71
============
exclusive of 20% interest from due date of its payment until full payment thereof
[Sec. 283 (b), Tax Code of 1987].25
Thus, the CTA disposed of the case in this wise:
WHEREFORE, viewed from all the foregoing, the Court finds the petition
unmeritorious and denies the same. Petitioner and/or the heirs of Jose P.
Fernandez are hereby ordered to pay to respondent the amount of P37,419,493.71
plus 20% interest from the due date of its payment until full payment thereof as

estate tax liability of the estate of Jose P. Fernandez who died on November 7,
1987.
SO ORDERED.26
Aggrieved, petitioner, on March 2, 1998, went to the CA via a petition for
review.27
The CA's Ruling
On April 30, 1999, the CA affirmed the CTA's ruling. Adopting in full the CTA's
findings, the CA ruled that the petitioner's act of filing an estate tax return with
the BIR and the issuance of BIR Certification Nos. 2052 and 2053 did not deprive
the BIR Commissioner of her authority to re-examine or re-assess the said return
filed on behalf of the Estate.28
On May 31, 1999, petitioner filed a Motion for Reconsideration29 which the CA
denied in its Resolution30 dated November 3, 1999.
Hence, the instant Petition raising the following issues:
1. Whether or not the admission of evidence which were not formally offered by
the respondent BIR by the Court of Tax Appeals which was subsequently upheld by
the Court of Appeals is contrary to the Rules of Court and rulings of this Honorable
Court;
2. Whether or not the Court of Tax Appeals and the Court of Appeals erred in
recognizing/considering the estate tax return prepared and filed by respondent
BIR knowing that the probate court appointed administrator of the estate of Jose P.
Fernandez had previously filed one as in fact, BIR Certification Clearance Nos.
2052 and 2053 had been issued in the estate's favor;
3. Whether or not the Court of Tax Appeals and the Court of Appeals erred in
disallowing the valid and enforceable claims of creditors against the estate, as
lawful deductions despite clear and convincing evidence thereof; and
4. Whether or not the Court of Tax Appeals and the Court of Appeals erred in
validating erroneous double imputation of values on the very same estate
properties in the estate tax return it prepared and filed which effectively bloated
the estate's assets.31
The petitioner claims that in as much as the valid claims of creditors against the
Estate are in excess of the gross estate, no estate tax was due; that the lack of a
formal offer of evidence is fatal to BIR's cause; that the doctrine laid down in Vda.
de Oate has already been abandoned in a long line of cases in which the Court
held that evidence not formally offered is without any weight or value; that
Section 34 of Rule 132 of the Rules on Evidence requiring a formal offer of
evidence is mandatory in character; that, while BIR's witness Alberto Enriquez
(Alberto) in his testimony before the CTA identified the pieces of evidence
aforementioned such that the same were marked, BIR's failure to formally offer
said pieces of evidence and depriving petitioner the opportunity to cross-examine
Alberto, render the same inadmissible in evidence; that assuming arguendo that
the ruling in Vda. de Oate is still applicable, BIR failed to comply with the
doctrine's requisites because the documents herein remained simply part of the
BIR records and were not duly incorporated in the court records; that the BIR
failed to consider that although the actual payments made to the Estate creditors
were lower than their respective claims, such were compromise agreements

reached long after the Estate's liability had been settled by the filing of its estate
tax return and the issuance of BIR Certification Nos. 2052 and 2053; and that the
reckoning date of the claims against the Estate and the settlement of the estate
tax due should be at the time the estate tax return was filed by the judicial
administrator and the issuance of said BIR Certifications and not at the time the
aforementioned Compromise Agreements were entered into with the Estate's
creditors.32
On the other hand, respondent counters that the documents, being part of the
records of the case and duly identified in a duly recorded testimony are
considered evidence even if the same were not formally offered; that the filing of
the estate tax return by the Estate and the issuance of BIR Certification Nos. 2052
and 2053 did not deprive the BIR of its authority to examine the return and assess
the estate tax; and that the factual findings of the CTA as affirmed by the CA may
no longer be reviewed by this Court via a petition for review.33
The Issues
There are two ultimate issues which require resolution in this case:
First. Whether or not the CTA and the CA gravely erred in allowing the admission
of the pieces of evidence which were not formally offered by the BIR; and
Second. Whether or not the CA erred in affirming the CTA in the latter's
determination of the deficiency estate tax imposed against the Estate.
The Courts Ruling
The Petition is impressed with merit.
Under Section 8 of RA 1125, the CTA is categorically described as a court of
record. As cases filed before it are litigated de novo, party-litigants shall prove
every minute aspect of their cases. Indubitably, no evidentiary value can be given
the pieces of evidence submitted by the BIR, as the rules on documentary
evidence require that these documents must be formally offered before the
CTA.34 Pertinent is Section 34, Rule 132 of the Revised Rules on Evidence which
reads:
SEC. 34. Offer of evidence. The court shall consider no evidence which has not
been formally offered. The purpose for which the evidence is offered must be
specified.
The CTA and the CA rely solely on the case of Vda. de Oate, which reiterated this
Court's previous rulings 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
Oate, we held that courts cannot consider evidence which has not been formally
offered,37 nevertheless, petitioner cannot validly assume that the doctrine laid
down in Vda. de Oate has already been abandoned. Recently, in Ramos v.
Dizon,38 this Court, applying the said doctrine, ruled that the trial court judge
therein committed no error when he admitted and considered the respondents'
exhibits in the resolution of the case, notwithstanding the fact that the same were
not formally offered. Likewise, in Far East Bank & Trust Company v. Commissioner
of Internal Revenue,39 the Court made reference to said doctrine in resolving the
issues therein. Indubitably, the doctrine laid down in Vda. De Oate still subsists in
this jurisdiction. In Vda. de Oate, we held that:

From the foregoing provision, it is clear that for evidence to be considered, the
same must be formally offered. Corollarily, the mere fact that a particular
document is identified and marked as an exhibit does not mean that it has already
been offered as part of the evidence of a party. In Interpacific Transit, Inc. v. Aviles
[186 SCRA 385], we had the occasion to make a distinction between identification
of documentary evidence and its formal offer as an exhibit. We said that the first
is done in the course of the trial and is accompanied by the marking of the
evidence as an exhibit while the second is done only when the party rests its case
and not before. A party, therefore, may opt to formally offer his evidence if he
believes that it will advance his cause or not to do so at all. In the event he
chooses to do the latter, the trial court is not authorized by the Rules to consider
the same.
However, in People v. Napat-a [179 SCRA 403] citing People v. Mate [103 SCRA
484], we relaxed the foregoing rule and allowed evidence not formally offered to
be admitted and considered by the trial court provided the following requirements
are present, viz.: first, the same must have been duly identified by testimony duly
recorded and, second, the same must have been incorporated in the records of
the case.40
From the foregoing declaration, however, it is clear that Vda. de Oate is merely
an exception to the general rule. Being an exception, it may be applied only when
there is strict compliance with the requisites mentioned therein; otherwise, the
general rule in Section 34 of Rule 132 of the Rules of Court should prevail.
In this case, we find that these requirements have not been satisfied. The assailed
pieces of evidence were presented and marked during the trial particularly when
Alberto took the witness stand. Alberto identified these pieces of evidence in his
direct testimony.41 He was also subjected to cross-examination and re-cross
examination by petitioner.42 But Albertos account and the exchanges between
Alberto and petitioner did not sufficiently describe the contents of the said pieces
of evidence presented by the BIR. In fact, petitioner sought that the lead
examiner, one Ma. Anabella A. Abuloc, be summoned to testify, inasmuch as
Alberto was incompetent to answer questions relative to the working papers.43
The lead examiner never testified. Moreover, while Alberto's testimony identifying
the BIR's evidence was duly recorded, the BIR documents themselves were not
incorporated in the records of the case.
A common fact threads through Vda. de Oate and Ramos that does not exist at
all in the instant case. In the aforementioned cases, the exhibits were marked at
the pre-trial proceedings to warrant the pronouncement that the same were duly
incorporated in the records of the case. Thus, we held in Ramos:
In this case, we find and so rule that these requirements have been satisfied. The
exhibits in question were presented and marked during the pre-trial of the case
thus, they have been incorporated into the records. Further, Elpidio himself
explained the contents of these exhibits when he was interrogated by
respondents' counsel...
xxxx
But what further defeats petitioner's cause on this issue is that respondents'
exhibits were marked and admitted during the pre-trial stage as shown by the PreTrial 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 dateof-death valuation principle, it was making a judgment about the nature of the
federal estate tax specifically, that it is a tax imposed on the act of transferring
property by will or intestacy and, because the act on which the tax is levied occurs
at a discrete time, i.e., the instance of death, the net value of the property
transferred should be ascertained, as nearly as possible, as of that time. This
analysis supports broad application of the date-of-death valuation rule.67
We express our agreement with the date-of-death valuation rule, made pursuant
to the ruling of the U.S. Supreme Court in Ithaca Trust Co. v. United States.68 First.
There is no law, nor do we discern any legislative intent in our tax laws, which
disregards the date-of-death valuation principle and particularly provides that
post-death developments must be considered in determining the net value of the
estate. It bears emphasis that tax burdens are not to be imposed, nor presumed
to be imposed, beyond what the statute expressly and clearly imports, tax
statutes being construed strictissimi juris against the government.69 Any doubt
on whether a person, article or activity is taxable is generally resolved against
taxation.70 Second. Such construction finds relevance and consistency in our
Rules on Special Proceedings wherein the term "claims" required to be presented
against a decedent's estate is generally construed to mean debts or demands of a
pecuniary nature which could have been enforced against the deceased in his
lifetime, or liability contracted by the deceased before his death.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.