Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-31364 March 30, 1979
MISAEL P. VERA, as Commissioner of Internal Revenue, and JAIME
ARANETA, as Regional Director, Revenue Region No. 14, Bureau of Internal
Revenue, petitioners,
vs.
HON. JOSE F. FERNANDEZ, Judge of the Court of First Instance of Negros
Occidental, Branch V, and FRANCIS A. TONGOY, Administrator of the Estate
of the late LUIS D. TONGOY respondents.

DE CASTRO, J.:
Appeal from two orders of the Court of First Instance of Negros Occidental, Branch V
in Special Proceedings No. 7794, entitled: "Intestate Estate of Luis D. Tongoy," the
first dated July 29, 1969 dismissing the Motion for Allowance of Claim and for an
Order of Payment of Taxes by the Government of the Republic of the Philippines
against the Estate of the late Luis D. Tongoy, for deficiency income taxes for the
years 1963 and 1964 of the decedent in the total amount of P3,254.80, inclusive 5%
surcharge, 1% monthly interest and compromise penalties, and the second, dated
October 7, 1969, denying the Motion for reconsideration of the Order of dismissal.
The Motion for allowance of claim and for payment of taxes dated May 28, 1969 was
filed on June 3, 1969 in the abovementioned special proceedings, (par. 3, Annex A,
Petition, pp. 1920, Rollo). The claim represents the indebtedness to the Government
of the late Luis D. Tongoy for deficiency income taxes in the total sum of P3,254.80
as above stated, covered by Assessment Notices Nos. 11-50-29-1-11061-21-63 and
11-50-291-1 10875-64, to which motion was attached Proof of Claim (Annex B,
Petition, pp. 21-22, Rollo). The Administrator opposed the motion solely on the
ground that the claim was barred under Section 5, Rule 86 of the Rules of Court
(par. 4, Opposition to Motion for Allowance of Claim, pp. 23-24, Rollo). Finding the
opposition well-founded, the respondent Judge, Jose F. Fernandez, dismissed the
motion for allowance of claim filed by herein petitioner, Regional Director of the
Bureau of Internal Revenue, in an order dated July 29, 1969 (Annex D, Petition, p.
26, Rollo). On September 18, 1969, a motion for reconsideration was filed, of the
order of July 29, 1969, but was denied in an Order dated October 7, 1969.

Hence, this appeal on certiorari, petitioner assigning the following errors:

1. The lower court erred in holding that the claim for taxes by the
government against the estate of Luis D. Tongoy was filed beyond the
period provided in Section 2, Rule 86 of the Rules of Court.
2. The lower court erred in holding that the claim for taxes of the
government was already barred under Section 5, Rule 86 of the Rules
of Court.
which raise the sole issue of whether or not the statute of non-claims Section 5,
Rule 86 of the New Rule of Court, bars claim of the government for unpaid taxes,
still within the period of limitation prescribed in Section 331 and 332 of the National
Internal Revenue Code.
Section 5, Rule 86, as invoked by the respondent Administrator in hid Oppositions to
the Motion for Allowance of Claim, etc. of the petitioners reads as follows:
All claims for money against the decedent, arising from contracts,
express or implied, whether the same be due, not due, or contingent,
all claims for funeral expenses and expenses for the last sickness of
the decedent, and judgment for money against the decedent, must be
filed within the time limited in they notice; otherwise they are barred
forever, except that they may be set forth as counter claims in any
action that the executor or administrator may bring against the
claimants. Where the executor or administrator commence an action,
or prosecutes an action already commenced by the deceased in his
lifetime, the debtor may set forth may answer the claims he has
against the decedents, instead of presenting them independently to
the court has herein provided, and mutual claims may be set of
against each other in such action; and in final judgment is rendered in
favored of the decedent, the amount to determined shall be considered
the true balance against the estate, as though the claim has been
presented directly before the court in the administration proceedings.
Claims not yet due, or contingent may be approved at their present
value.
A perusal of the aforequoted provisions shows that it makes no mention of claims
for monetary obligation of the decedent created by law, such as taxes which is
entirely of diferent character from the claims expressly enumerated therein, such
as: "all claims for money against the decedent arising from contract, express or
implied, whether the same be due, not due or contingent, all claim for funeral
expenses and expenses for the last sickness of the decedent and judgment for
money against the decedent." Under the familiar rule of statutory construction

of expressio unius est exclusio alterius, the mention of one thing implies the
exclusion of another thing not mentioned. Thus, if a statute enumerates the things
upon which it is to operate, everything else must necessarily, and by implication be
excluded from its operation and efect (Crawford, Statutory Construction, pp. 334335).
In the case of Commissioner of Internal Revenue vs. Ilagan Electric & Ice Plant, et
al., G.R. No. L-23081, December 30, 1969, it was held that the assessment,
collection and recovery of taxes, as well as the matter of prescription thereof are
governed by the provisions of the National Internal revenue Code, particularly
Sections 331 and 332 thereof, and not by other provisions of law. (See also Lim Tio,
Dy Heng and Dee Jue vs. Court of Tax Appeals & Collector of Internal Revenue, G.R.
No. L-10681, March 29, 1958). Even without being specifically mentioned, the
provisions of Section 2 of Rule 86 of the Rules of Court may reasonably be presumed
to have been also in the mind of the Court as not afecting the aforecited Section of
the National Internal Revenue Code.
In the case of Pineda vs. CFI of Tayabas, 52 Phil. 803, it was even more pointedly
held that "taxes assessed against the estate of a deceased person ... 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." The abolition of the Committee on Claims does not alter the basic ruling
laid down giving exception to the claim for taxes from being filed as the other
claims mentioned in the Rule should be filed before the Court. Claims for taxes may
be collected even after the distribution of the decedent's estate among his heirs
who shall be liable therefor in proportion of their share in the inheritance.
(Government of the Philippines vs. Pamintuan, 55 Phil. 13).
The reason for the more liberal treatment of claims for taxes against a decedent's
estate in the form of exception from the application of the statute of non-claims, is
not hard to find. Taxes are the lifeblood of the Government and their prompt and
certain availability are imperious need. (Commissioner of Internal Revenue vs.
Pineda, G. R. No. L-22734, September 15, 1967, 21 SCRA 105). Upon taxation
depends the Government ability to serve the people for whose benefit taxes are
collected. To safeguard such interest, neglect or omission of government officials
entrusted with the collection of taxes should not be allowed to bring harm or
detriment to the people, in the same manner as private persons may be made to
sufer individually on account of his own negligence, the presumption being that
they take good care of their personal afairs. This should not hold true to
government officials with respect to matters not of their own personal concern. This
is the philosophy behind the government's exception, as a general rule, from the
operation of the principle of estoppel. (Republic vs. Caballero, L-27437, September
30, 1977, 79 SCRA 177; Manila Lodge No. 761, Benevolent and Protective Order of

the Elks Inc. vs. Court of Appeals, L-41001, September 30, 1976, 73 SCRA 162; Sy
vs. Central Bank of the Philippines, L-41480, April 30,1976, 70 SCRA 571;
Balmaceda vs. Corominas & Co., Inc., 66 SCRA 553; Auyong Hian vs. Court of Tax
Appeals, 59 SCRA 110; Republic vs. Philippine Rabbit Bus Lines, Inc., 66 SCRA 553;
Republic vs. Philippine Long Distance Telephone Company, L-18841, January 27,
1969, 26 SCRA 620; Zamora vs. Court of Tax Appeals, L-23272, November 26, 1970,
36 SCRA 77; E. Rodriguez, Inc. vs. Collector of Internal Revenue, L- 23041, July 31,
1969, 28 SCRA 119.) As already shown, taxes may be collected even after the
distribution of the estate of the decedent among his heirs (Government of the
Philippines vs. Pamintuan, supra; Pineda vs. CFI of Tayabas,supra Clara Diluangco
Palanca vs. Commissioner of Internal Revenue, G. R. No. L-16661, January 31, 1962).
Furthermore, as held in Commissioner of Internal Revenue vs. Pineda, supra, citing
the last paragraph of Section 315 of the Tax Code payment of income tax shall be a
lien in favor of the Government of the Philippines from the time the assessment was
made by the Commissioner of Internal Revenue until paid with interests, penalties,
etc. By virtue of such lien, this court held that the property of the estate already in
the hands of an heir or transferee may be subject to the payment of the tax due the
estate. A fortiori before the inheritance has passed to the heirs, the unpaid taxes
due the decedent may be collected, even without its having been presented under
Section 2 of Rule 86 of the Rules of Court. It may truly be said that until the property
of the estate of the decedent has vested in the heirs, the decedent, represented by
his estate, continues as if he were still alive, subject to the payment of such taxes
as would be collectible from the estate even after his death. Thus in the case above
cited, the income taxes sought to be collected were due from the estate, for the
three years 1946, 1947 and 1948 following his death in May, 1945.
Even assuming arguendo that claims for taxes have to be filed within the time
prescribed in Section 2, Rule 86 of the Rules of Court, the claim in question may be
filed even after the expiration of the time originally fixed therein, as may be gleaned
from the italicized portion of the Rule herein cited which reads:
Section 2. Time within which claims shall be filed. - In the notice
provided in the preceding section, the court shall state the time for the
filing of claims against the estate, which shall not be more than twelve
(12) nor less than six (6) months after the date of the first publication
of the notice. However, at any time before an order of distribution is
entered, on application of a creditor who has failed to file his claim
within the time previously limited the court may, for cause shown and
on such terms as are equitable, allow such claim to be flied within a
time not exceeding one (1) month. (Emphasis supplied)
In the instant case, petitioners filed an application (Motion for Allowance of Claim
and for an Order of Payment of Taxes) which, though filed after the expiration of the

time previously limited but before an order of the distribution is entered, should
have been granted by the respondent court, in the absence of any valid ground, as
none was shown, justifying denial of the motion, specially considering that it was for
allowance Of claim for taxes due from the estate, which in efect represents a claim
of the people at large, the only reason given for the denial that the claim was filed
out of the previously limited period, sustaining thereby private respondents'
contention, erroneously as has been demonstrated.
WHEREFORE, the order appealed from is reverse. Since the Tax Commissioner's
assessment in the total amount of P3,254.80 with 5 % surcharge and 1 % monthly
interest as provided in the Tax Code is a final one and the respondent estate's sole
defense of prescription has been herein overruled, the Motion for Allowance of
Claim is herein granted and respondent estate is ordered to pay and discharge the
same, subject only to the limitation of the interest collectible thereon as provided by
the Tax Code. No pronouncement as to costs.
SO ORDERED.

FIRST DIVISION
COMMISSIONER OF INTERNAL G.R. No. 134062
REVENUE,
Petitioner, Present:
PUNO, C.J., Chairperson,
SANDOVAL-GUTIERREZ,
- v e r s u s - CORONA,
AZCUNA and
GARCIA, JJ.
BANK OF THE PHILIPPINE
ISLANDS,
Respondent. Promulgated:
April 17, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
DECISION
CORONA, J.:

This is a petition for review on certiorari [1] of a decision[2] of the Court of Appeals
(CA) dated May 29, 1998 in CA-G.R. SP No. 41025 which reversed and set aside the
decision[3] and resolution[4] of the Court of Tax Appeals (CTA) dated November 16,
1995 and May 27, 1996, respectively, in CTA Case No. 4715.
In two notices dated October 28, 1988, petitioner Commissioner of Internal
Revenue (CIR) assessed respondent Bank of the Philippine Islands (BPIs) deficiency
percentage and documentary stamp taxes for the year 1986 in the total amount
of P129,488,656.63:
1986 Deficiency Percentage Tax
Deficiency percentage tax P 7, 270,892.88
Add: 25% surcharge 1,817,723.22
20% interest from 1-21-87 to
10-28-88 3,215,825.03
Compromise penalty 15,000.00
TOTAL AMOUNT DUE AND COLLECTIBLE P12,319,441.13
1986 Deficiency Documentary Stamp Tax
Deficiency percentage tax P93,723,372.40
Add: 25% surcharge 23,430,843.10
Compromise penalty 15,000.00
TOTAL AMOUNT DUE AND COLLECTIBLE P117,169,215.50.[5]

Both notices of assessment contained the following note:

Please be informed that your [percentage and documentary stamp
taxes have] been assessed as shown above. Said assessment has been
based on return (filed by you) (as verified) (made by this Office)
(pending investigation) (after investigation). You are requested to pay
the above amount to this Office or to our Collection Agent in the Office
of the City or Deputy Provincial Treasurer of xxx[6]
In a letter dated December 10, 1988, BPI, through counsel, replied as follows:
1. Your deficiency assessments are no assessments at all. The
taxpayer is not informed, even in the vaguest terms, why it is being
assessed a deficiency. The very purpose of a deficiency assessment is
to inform taxpayer why he has incurred a deficiency so that he can

make an intelligent decision on whether to pay or to protest the

assessment. This is all the more so when the assessment involves
astronomical amounts, as in this case.
We therefore request that the examiner concerned be required to
state, even in the briefest form, why he believes the taxpayer has a
deficiency documentary and percentage taxes, and as to the
percentage tax, it is important that the taxpayer be informed also as to
what particular percentage tax the assessment refers to.
2. As to the alleged deficiency documentary stamp tax, you are aware
of the compromise forged between your office and the Bankers
Association
of
the Philippines [BAP]
on
this
issue
and
of BPIs submission of its computations under this compromise. There is
therefore no basis whatsoever for this assessment, assuming it is on
the subject of the BAP compromise. On the other hand, if it relates to
documentary stamp tax on some other issue, we should like to be
informed about what those issues are.
3. As to the alleged deficiency percentage tax, we are completely at a
loss on how such assessment may be protested since your letter does
not even tell the taxpayer what particular percentage tax is involved
and how your examiner arrived at the deficiency. As soon as this is
explained and clarified in a proper letter of assessment, we shall
inform you of the taxpayers decision on whether to pay or protest the
assessment.[7]

On June 27, 1991, BPI received a letter from CIR dated May 8, 1991 stating
that:
although in all respects, your letter failed to qualify as a protest under
Revenue Regulations No. 12-85 and therefore not deserving of any
rejoinder by this office as no valid issue was raised against the validity
of our assessment still we obliged to explain the basis of the
assessments.
xxx xxx xxx
this constitutes the final decision of this office on the matter. [8]
On July 6, 1991, BPI requested a reconsideration of the assessments stated in
the CIRs May 8, 1991 letter.[9] This was denied in a letter dated December 12, 1991,
received by BPI on January 21, 1992.[10]

On February 18, 1992, BPI filed a petition for review in the CTA. [11] In a
decision dated November 16, 1995, the CTA dismissed the case for lack of
jurisdiction since the subject assessments had become final and unappealable. The
CTA ruled that BPI failed to protest on time under Section 270 of the National
Internal Revenue Code (NIRC) of 1986 and Section 7 in relation to Section 11 of RA
1125.[12] It denied reconsideration in a resolution dated May 27, 1996.[13]

On appeal, the CA reversed the tax courts decision and resolution and
remanded the case to the CTA[14] for a decision on the merits.[15] It ruled that
the October 28, 1988 notices were not valid assessments because they did not
inform the taxpayer of the legal and factual basestherefor. It declared that the
proper assessments were those contained in the May 8, 1991 letter which provided
the reasons for the claimed deficiencies. [16] Thus, it held that BPI filed the petition
for review in the CTA on time.[17] The CIR elevated the case to this Court.

This petition raises the following issues:

1)

whether or not the assessments issued to BPI for deficiency

percentage and documentary stamp taxes for 1986 had already
become final and unappealable and

2)

whether or not BPI was liable for the said taxes.

The former Section 270[18] (now renumbered as Section 228) of the NIRC
stated:
Sec. 270. Protesting of assessment. When the [CIR] 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 [CIR] shall issue an assessment

based on his findings.
xxx xxx xxx (emphasis supplied)

WERE THE OCTOBER 28, 1988

NOTICES VALID ASSESSMENTS?

The first issue for our resolution is whether or not the October 28,
1988 notices[19] were valid assessments. If they were not, as held by the CA, then
the correct assessments were in the May 8, 1991 letter, received by BPI on June 27,
1991. BPI, in its July 6, 1991 letter, seasonably asked for a reconsideration of the
findings which the CIR denied in his December 12, 1991 letter, received by BPI
on January 21, 1992. Consequently, the petition for review filed by BPI in the CTA
on February 18, 1992 would be well within the 30-day period provided by law. [20]

The CIR argues that the CA erred in holding that the October 28, 1988 notices
were invalid assessments. He asserts that he used BIR Form No. 17.08 (as revised in
November 1964) which was designed for the precise purpose of notifying taxpayers
of the assessed amounts due and demanding payment thereof. [21] He contends that
there was no law or jurisprudence then that required notices to state the reasons for
assessing deficiency tax liabilities.[22]

BPI counters that due process demanded that the facts, data and law upon
which the assessments were based be provided to the taxpayer. It insists that the
NIRC, as worded now (referring to Section 228), specifically provides that:

[t]he taxpayer shall be informed in writing of the law and the facts on
which the assessment is made; otherwise, the assessment shall be
void.

According to BPI, this is declaratory of what sound tax procedure is and a

confirmation of what due process requires even under the former Section 270.
BPIs contention has no merit. The present Section 228 of the NIRC provides:
Sec. 228. Protesting of Assessment. When the [CIR] or his
duly authorized representative finds that proper taxes should
be assessed, he shall first notify the taxpayer of his
findings: Provided, however, That a preassessment notice shall not be
required in the following cases:
xxx xxx xxx
The taxpayer shall be informed in writing of the law and
the facts on which the assessment is made; otherwise, the
assessment shall be void.
xxx xxx xxx (emphasis supplied)

Admittedly, the CIR did not inform BPI in writing of the law and facts on which the
assessments of the deficiency taxes were made. He merely notified BPI of his
findings, consisting only of the computation of the tax liabilities and a demand for
payment thereof within 30 days after receipt.
In merely notifying BPI of his findings, the CIR relied on the provisions of the former
Section 270 prior to its amendment by RA 8424 (also known as the Tax Reform Act
of 1997).[23] In CIR v. Reyes,[24] we held that:
In the present case, Reyes was not informed in writing of the law
and the facts on which the assessment of estate taxes had been made.
She was merely notified of the findings by the CIR, who had simply
relied upon the provisions of former Section 229 prior to its amendment
by [RA] 8424, otherwise known as the Tax Reform Act of 1997.
First, RA 8424 has already amended the provision of Section 229
on
protesting
an
assessment. The
old
requirement
of merely notifying the taxpayer of the CIR'sfindings was

changed in 1998 to informing the taxpayer of not only the law, but
also of the facts on which an assessment would be made; otherwise,
the assessment itself would be invalid.
It was on February 12, 1998, that a preliminary assessment
notice was issued against the estate. On April 22, 1998, the final estate
tax assessment notice, as well as demand letter, was also issued.
During those dates, RA 8424 was already in efect. The notice
required under the old law was no longer sufficient under the
new law.[25] (emphasis supplied; italics in the original)

Accordingly, when the assessments were made pursuant to the former Section 270,
the only requirement was for the CIR to notify or inform the taxpayer of his
findings. Nothing in the old law required a written statement to the taxpayer of the
law and facts on which the assessments were based. The Court cannot read into the
law what obviously was not intended by Congress. That would be judicial legislation,
nothing less.
Jurisprudence, on the other hand, simply required that the assessments
contain a computation of tax liabilities, the amount the taxpayer was to pay and a
demand for payment within a prescribed period. [26] Everything considered, there
was no doubt the October 28, 1988 notices sufficiently met the requirements of a
valid assessment under the old law and jurisprudence.
The sentence
[t]he taxpayers shall be informed in writing of the law and the facts on
which the assessment is made; otherwise, the assessment shall be
void

was not in the old Section 270 but was only later on inserted in the renumbered
Section 228 in 1997. Evidently, the legislature saw the need to modify the former
Section 270 by inserting the aforequoted sentence.[27] The fact that the amendment

was necessary showed that, prior to the introduction of the amendment, the statute
had an entirely diferent meaning.[28]
Contrary to the submission of BPI, the inserted sentence in the renumbered
Section 228 was not an affirmation of what the law required under the former
Section 270. The amendment introduced by RA 8424 was an innovation and could
not be reasonably inferred from the old law. [29] Clearly, the legislature intended to
insert a new provision regarding the form and substance of assessments issued by
the CIR.[30]
In ruling that the October 28, 1988 notices were not valid assessments, the
CA explained:
xxx. Elementary concerns of due process of law should have
prompted the [CIR] to inform [BPI] of the legal and factual basis of
the formers decision to charge the latter for deficiency documentary
stamp and gross receipts taxes.[31]

In other words, the CAs theory was that BPI was deprived of due process
when the CIR failed to inform it in writing of the factual and legal bases of the
assessments even if these were not called for under the old law.

We disagree.

Indeed, the underlying reason for the law was the basic constitutional
requirement that no person shall be deprived of his property without due process of
law.[32] We note, however, what the CTA had to say:
xxx xxx xxx
From the foregoing testimony, it can be safely adduced that not
only was [BPI] given the opportunity to discuss with the [CIR] when the
latter issued the former a Pre-Assessment Notice (which [BPI] ignored)

but that the examiners themselves went to [BPI] and "we talk to them
and we try to [thresh] out the issues, present evidences as to what
they need." Now, how can [BPI] and/or its counsel honestly tell this
Court that they did not know anything about the assessments?
Not only that. To further buttress the fact that [BPI] indeed knew
beforehand the assessments[,] contrary to the allegations of its
counsel[,] was the testimony of Mr. JerryLazaro, Assistant Manager of
the Accounting Department of [BPI]. He testified to the fact that he
prepared worksheets which contain his analysis regarding the findings
of the [CIRs] examiner, Mr. San Pedro and that the same worksheets
were presented to Mr. Carlos Tan, Comptroller of [BPI].
xxx xxx xxx
From all the foregoing discussions, We can now conclude that
[BPI] was indeed aware of the nature and basis of the assessments,
and was given all the opportunity to contest the same but ignored it
despite the notice conspicuously written on the assessments which
states that "this ASSESSMENT becomes final and unappealable if not
protested within 30 days after receipt." Counsel resorted to dilatory
tactics and dangerously played with time. Unfortunately, such strategy
proved fatal to the cause of his client.[33]

The CA never disputed these findings of fact by the CTA:

[T]his Court recognizes that the [CTA], which by the very nature
of its function is dedicated exclusively to the consideration of tax
problems, has necessarily developed an expertise on the subject, and
its conclusions will not be overturned unless there has been an abuse
or improvident exercise of authority. Such findings can only be
disturbed on appeal if they are not supported by substantial evidence
or there is a showing of gross error or abuse on the part of the [CTA]. [34]

Under the former Section 270, there were two instances when an assessment
became final and unappealable: (1) when it was not protested within 30 days from
receipt and (2) when the adverse decision on the protest was not appealed to the
CTA within 30 days from receipt of the final decision: [35]
Sec. 270. Protesting of assessment.
xxx xxx xxx

Such assessment may be protested administratively by filing a

request for reconsideration or reinvestigation in such form and manner
as may be prescribed by the implementing regulations within thirty
(30) days from receipt of the assessment; otherwise, the assessment
shall become final and unappealable.
If the protest is denied in whole or in part, the individual,
association or corporation adversely afected by the decision on the
protest may appeal to the [CTA] within thirty (30) days from receipt of
the
said
decision; otherwise, the
decision
shall
become
final, executory and demandable.

IMPLICATIONS OF A
VALID ASSESSMENT

Considering that the October 28, 1988 notices were valid assessments, BPI
should have protested the same within 30 days from receipt thereof. The December
10, 1988 reply it sent to the CIR did not qualify as a protest since the letter itself
stated that [a]s soon as this is explained and clarified in a proper letter of
assessment, we shall inform you of the taxpayers decision on whether to
pay or protest the assessment.[36] Hence, by its own declaration, BPI did not
regard this letter as a protest against the assessments. As a matter of fact, BPI
never deemed this a protest since it did not even consider the October 28,
1988 notices as valid or proper assessments.

The inevitable conclusion is that BPIs failure to protest the assessments

within the 30-day period provided in the former Section 270 meant that they
became final and unappealable. Thus, the CTA correctly dismissed BPIs appeal for
lack of jurisdiction. BPI was, from then on, barred from disputing the correctness of
the assessments or invoking any defense that would reopen the question of its

liability on the merits.[37] Not only that. There arose a presumption of correctness
when BPI failed to protest the assessments:
Tax assessments by tax examiners are presumed correct and
made in good faith. The taxpayer has the duty to prove otherwise. In
the absence of proof of any irregularities in the performance of duties,
an assessment duly made by a Bureau of Internal Revenue examiner
and approved by his superior officers will not be disturbed. All
presumptions are in favor of the correctness of tax assessments. [38]

Even if we considered the December 10, 1988 letter as a protest, BPI must
nevertheless be deemed to have failed to appeal the CIRs final decision regarding
the disputed assessments within the 30-day period provided by law. The CIR, in
his May 8, 1991 response, stated that it was his final decision on the matter. BPI
therefore had 30 days from the time it received the decision on June 27, 1991 to
appeal but it did not. Instead it filed a request for reconsideration and lodged its
appeal

in

the

CTA

only

on February

18,

1992,

way

beyond

the reglementary period.BPI must now sufer the repercussions of its omission. We
have already declared that:
the [CIR] should always indicate to the taxpayer in clear and
unequivocal language whenever his action on an assessment
questioned by a taxpayer constitutes his final determination on the
disputed assessment, as contemplated by Sections 7 and 11 of [RA
1125], as amended. On the basis of his statement indubitably
showing that the Commissioner's communicated action is his
final decision on the contested assessment, the aggrieved
taxpayer would then be able to take recourse to the tax court
at the opportune time. Without needless difficulty, the
taxpayer would be able to determine when his right to appeal
to the tax court accrues.
The rule of conduct would also obviate all desire and
opportunity on the part of the taxpayer to continually delay
the finality of the assessment and, consequently, the collection
of the amount demanded as taxes by repeated requests

for recomputation and reconsideration. On the part of the [CIR],

this would encourage his office to conduct a careful and thorough
study of every questioned assessment and render a correct and
definite decision thereon in the first instance. This would also deter the
[CIR] from unfairly making the taxpayer grope in the dark and
speculate as to which action constitutes the decision appealable to the
tax court. Of greater import, this rule of conduct would meet a pressing
need for fair play, regularity, and orderliness in administrative action.
[39]
(emphasis supplied)

Either way (whether or not a protest was made), we cannot absolve BPI of its
liability under the subject tax assessments.

We realize that these assessments (which have been pending for almost 20
years) involve a considerable amount of money. Be that as it may, we cannot legally
presume the existence of something which was never there. The state will be
deprived of the taxes validly due it and the public will sufer if taxpayers will not be
held liable for the proper taxes assessed against them:
Taxes are the lifeblood of the government, for without taxes, the
government can neither exist nor endure. A principal attribute of
sovereignty, the exercise of taxing power derives its source from the
very existence of the state whose social contract with its citizens
obliges it to promote public interest and common good. The theory
behind the exercise of the power to tax emanates from necessity;
without taxes, government cannot fulfill its mandate of promoting the
general welfare and well-being of the people. [40]

WHEREFORE, the petition is hereby GRANTED. The May 29, 1998 decision
of the Court of Appeals in CA-G.R. SP No. 41025 is REVERSEDand SET ASIDE.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-22734

September 15, 1967

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
MANUEL B. PINEDA, as one of the heirs of deceased ATANASIO
PINEDA, respondent.
Office of the Solicitor General for petitioner.
Manuel B. Pineda for and in his own behalf as respondent.

BENGZON, J.P., J.:

On May 23, 1945 Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and
15 children, the eldest of whom is Manuel B. Pineda, a lawyer. Estate proceedings
were had in the Court of First Instance of Manila (Case No. 71129) wherein the
surviving widow was appointed administratrix. The estate was divided among and
awarded to the heirs and the proceedings terminated on June 8, 1948. Manuel B.
Pineda's share amounted to about P2,500.00.
After the estate proceedings were closed, the Bureau of Internal Revenue
investigated the income tax liability of the estate for the years 1945, 1946, 1947
and 1948 and it found that the corresponding income tax returns were not filed.
Thereupon, the representative of the Collector of Internal Revenue filed said returns
for the estate on the basis of information and data obtained from the aforesaid
estate proceedings and issued an assessment for the following:
1. Deficiency income tax
194
P135.83
5
194
436.95
6
194
1,206.91 P1,779.69
7
Add: 5% surcharge
88.98
1% monthly interest
720.77
from November 30,

1953 to April 15,

1957
Compromise for late
filing
Compromise for late
payment
Total amount due

2.

Additional residence tax

for 1945

3. Real Estate dealer's tax

for the fourth quarter of
1946 and the whole year
of 1947

80.00
40.00
P2,707.44
======
=====
P14.50
======
=====
P207.50
======
=====

Manuel B. Pineda, who received the assessment, contested the same. Subsequently,
he appealed to the Court of Tax Appeals alleging that he was appealing "only that
proportionate part or portion pertaining to him as one of the heirs."
After hearing the parties, the Court of Tax Appeals rendered judgment reversing the
decision of the Commissioner on the ground that his right to assess and collect the
tax has prescribed. The Commissioner appealed and this Court affirmed the findings
of the Tax Court in respect to the assessment for income tax for the year 1947 but
held that the right to assess and collect the taxes for 1945 and 1946 has not
prescribed. For 1945 and 1946 the returns were filed on August 24, 1953;
assessments for both taxable years were made within five years therefrom or on
October 19, 1953; and the action to collect the tax was filed within five years from
the latter date, on August 7, 1957. For taxable year 1947, however, the return was
filed on March 1, 1948; the assessment was made on October 19, 1953, more than
five years from the date the return was filed; hence, the right to assess income tax
for 1947 had prescribed. Accordingly, We remanded the case to the Tax Court for
further appropriate proceedings.1
In the Tax Court, the parties submitted the case for decision without additional
evidence.
On November 29, 1963 the Court of Tax Appeals rendered judgment holding Manuel
B. Pineda liable for the payment corresponding to his share of the following taxes:
Deficiency income tax
1945
1946
Real estate

P135.8
3
436.9
5
P187.

dealer's fixed tax

4th quarter of
1946 and whole
year of 1947

50

The Commissioner of Internal Revenue has appealed to Us and has proposed to hold
Manuel B. Pineda liable for the payment of all the taxes found by the Tax Court to be
due from the estate in the total amount of P760.28 instead of only for the amount of
taxes corresponding to his share in the estate.1awphl.nt
Manuel B. Pineda opposes the proposition on the ground that as an heir he is liable
for unpaid income tax due the estate only up to the extent of and in proportion to
any share he received. He relies on Government of the Philippine Islands v.
Pamintuan2 where We held that "after the partition of an estate, heirs and
distributees are liable individually for the payment of all lawful outstanding claims
against the estate in proportion to the amount or value of the property they have
respectively received from the estate."
We hold that the Government can require Manuel B. Pineda to pay the full amount
of the taxes assessed.
Pineda is liable for the assessment as an heir and as a holder-transferee of property
belonging to the estate/taxpayer. As an heir he is individually answerable for the
part of the tax proportionate to the share he received from the inheritance. 3 His
liability, however, cannot exceed the amount of his share. 4
As a holder of property belonging to the estate, Pineda is liable for he tax up to the
amount of the property in his possession. The reason is that the Government has a
lien on the P2,500.00 received by him from the estate as his share in the
inheritance, for unpaid income taxes4a for which said estate is liable, pursuant to the
last paragraph of Section 315 of the Tax Code, which we quote hereunder:
If any person, corporation, partnership, joint-account (cuenta en
participacion), association, or insurance company liable to pay the income
tax, neglects or refuses to pay the same after demand, the amount shall be a
lien in favor of the Government of the Philippines from the time when the
assessment was made by the Commissioner of Internal Revenue until paid
with interest, penalties, and costs that may accrue in addition thereto upon
all property and rights to property belonging to the taxpayer: . . .
By virtue of such lien, the Government has the right to subject the property in
Pineda's possession, i.e., the P2,500.00, to satisfy the income tax assessment in the
sum of P760.28. After such payment, Pineda will have a right of contribution from
his co-heirs,5 to achieve an adjustment of the proper share of each heir in the
distributable estate.
All told, the Government has two ways of collecting the tax in question. One, by
going after all the heirs and collecting from each one of them the amount of the tax
proportionate to the inheritance received. This remedy was adopted in Government

of the Philippine Islands v. Pamintuan, supra. In said case, the Government filed an
action against all the heirs for the collection of the tax. This action rests on the
concept that hereditary property consists only of that part which remains after the
settlement of all lawful claims against the estate, for the settlement of which the
entire estate is first liable.6 The reason why in case suit is filed against all the heirs
the tax due from the estate is levied proportionately against them is to achieve
thereby two results: first, payment of the tax; and second, adjustment of the shares
of each heir in the distributed estate as lessened by the tax.
Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon
all property and rights to property belonging to the taxpayer for unpaid income tax,
is by subjecting said property of the estate which is in the hands of an heir or
transferee to the payment of the tax due, the estate. This second remedy is the
very avenue the Government took in this case to collect the tax. The Bureau of
Internal Revenue should be given, in instances like the case at bar, the necessary
discretion to avail itself of the most expeditious way to collect the tax as may be
envisioned in the particular provision of the Tax Code above quoted, because taxes
are the lifeblood of government and their prompt and certain availability is an
imperious need.7 And as afore-stated in this case the suit seeks to achieve only one
objective: payment of the tax. The adjustment of the respective shares due to the
heirs from the inheritance, as lessened by the tax, is left to await the suit for
contribution by the heir from whom the Government recovered said tax.
WHEREFORE, the decision appealed from is modified. Manuel B. Pineda is hereby
ordered to pay to the Commissioner of Internal Revenue the sum of P760.28 as
deficiency income tax for 1945 and 1946, and real estate dealer's fixed tax for the
fourth quarter of 1946 and for the whole year 1947, without prejudice to his right of
contribution for his co-heirs. No costs. So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles
and Fernando, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-28896 February 17, 1988
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.

CRUZ, J.:
Taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance On the other hand, 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.
The main issue in this case is whether or not the Collector of Internal Revenue
correctly disallowed the P75,000.00 deduction claimed by private respondent Algue
as legitimate business expenses in its income tax returns. The corollary issue is
whether or not the appeal of the private respondent from the decision of the
Collector of Internal Revenue was made on time and in accordance with law.
We deal first with the procedural question.
The record shows that on January 14, 1965, the private respondent, a domestic
corporation engaged in engineering, construction and other allied activities,
received a letter from the petitioner assessing it in the total amount of P83,183.85
as delinquency income taxes for the years 1958 and 1959. 1 On January 18, 1965,
Algue flied a letter of protest or request for reconsideration, which letter was stamp
received on the same day in the office of the petitioner. 2 On March 12, 1965, a
warrant of distraint and levy was presented to the private respondent, through its
counsel, Atty. Alberto Guevara, Jr., who refused to receive it on the ground of the
pending protest. 3 A search of the protest in the dockets of the case proved fruitless.
Atty. Guevara produced his file copy and gave a photostat to BIR agent Ramon
Reyes, who deferred service of the warrant. 4 On April 7, 1965, Atty. Guevara was
finally informed that the BIR was not taking any action on the protest and it was
only then that he accepted the warrant of distraint and levy earlier sought to be
served. 5 Sixteen days later, on April 23, 1965, Algue filed a petition for review of
the decision of the Commissioner of Internal Revenue with the Court of Tax
Appeals. 6
The above chronology shows that the petition was filed seasonably. According to
Rep. Act No. 1125, the appeal may be made within thirty days after receipt of the
decision or ruling challenged. 7 It is true that as a rule the warrant of distraint and
levy is "proof of the finality of the assessment" 8 and renders hopeless a request for
reconsideration," 9being "tantamount to an outright denial thereof and makes the
said request deemed rejected." 10 But there is a special circumstance in the case at
bar that prevents application of this accepted doctrine.
The proven fact is that four days after the private respondent received the
petitioner's notice of assessment, it filed its letter of protest. This was apparently

not taken into account before the warrant of distraint and levy was issued; indeed,
such protest could not be located in the office of the petitioner. It was only after
Atty. Guevara gave the BIR a copy of the protest that it was, if at all, considered by
the tax authorities. During the intervening period, the warrant was premature and
could therefore not be served.
As the Court of Tax Appeals correctly noted," 11 the protest filed by private
respondent was not pro forma and was based on strong legal considerations. It thus
had the efect of suspending on January 18, 1965, when it was filed, the
reglementary period which started on the date the assessment was received, viz.,
January 14, 1965. The period started running again only on April 7, 1965, when the
private respondent was definitely informed of the implied rejection of the said
protest and the warrant was finally served on it. Hence, when the appeal was filed
on April 23, 1965, only 20 days of the reglementary period had been consumed.
Now for the substantive question.
The petitioner contends that the claimed deduction of P75,000.00 was properly
disallowed because it was not an ordinary reasonable or necessary business
expense. The Court of Tax Appeals had seen it diferently. Agreeing with Algue, it
held that the said amount had been legitimately paid by the private respondent for
actual services rendered. The payment was in the form of promotional fees. These
were collected by the Payees for their work in the creation of the Vegetable Oil
Investment Corporation of the Philippines and its subsequent purchase of the
properties of the Philippine Sugar Estate Development Company.
Parenthetically, it may be observed that the petitioner had Originally claimed these
promotional fees to be personal holding company income 12 but later conformed to
the decision of the respondent court rejecting this assertion. 13 In fact, as the said
court found, the amount was earned through the joint eforts of the persons among
whom it was distributed It has been established that the Philippine Sugar Estate
Development Company had earlier appointed Algue as its agent, authorizing it to
sell its land, factories and oil manufacturing process. Pursuant to such authority,
Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo
Sanchez, worked for the formation of the Vegetable Oil Investment Corporation,
inducing other persons to invest in it. 14 Ultimately, after its incorporation largely
through the promotion of the said persons, this new corporation purchased the
PSEDC properties. 15 For this sale, Algue received as agent a commission of
P126,000.00, and it was from this commission that the P75,000.00 promotional fees
were paid to the aforenamed individuals. 16
There is no dispute that the payees duly reported their respective shares of the fees
in their income tax returns and paid the corresponding taxes thereon. 17 The Court

of Tax Appeals also found, after examining the evidence, that no distribution of
dividends was involved. 18
The petitioner claims that these payments are fictitious because most of the payees
are members of the same family in control of Algue. It is argued that no indication
was made as to how such payments were made, whether by check or in cash, and
there is not enough substantiation of such payments. In short, the petitioner
suggests a tax dodge, an attempt to evade a legitimate assessment by involving an
imaginary deduction.
We find that these suspicions were adequately met by the private respondent when
its President, Alberto Guevara, and the accountant, Cecilia V. de Jesus, testified that
the payments were not made in one lump sum but periodically and in diferent
amounts as each payee's need arose. 19 It should be remembered that this was a
family corporation where strict business procedures were not applied and
immediate issuance of receipts was not required. Even so, at the end of the year,
when the books were to be closed, each payee made an accounting of all of the
fees received by him or her, to make up the total of P75,000.00. 20 Admittedly,
everything seemed to be informal. This arrangement was understandable, however,
in view of the close relationship among the persons in the family corporation.
We agree with the respondent court that the amount of the promotional fees was
not excessive. The total commission paid by the Philippine Sugar Estate
Development Co. to the private respondent was P125,000.00. 21After deducting the
said fees, Algue still had a balance of P50,000.00 as clear profit from the
transaction. The amount of P75,000.00 was 60% of the total commission. This was a
reasonable proportion, considering that it was the payees who did practically
everything, from the formation of the Vegetable Oil Investment Corporation to the
actual purchase by it of the Sugar Estate properties. This finding of the respondent
court is in accord with the following provision of the Tax Code:
SEC. 30. Deductions from gross income.--In computing net income
there shall be allowed as deductions
(a) Expenses:
(1) In general.--All the ordinary and necessary expenses paid or
incurred during the taxable year in carrying on any trade or business,
including a reasonable allowance for salaries or other compensation for
personal services actually rendered; ... 22
and Revenue Regulations No. 2, Section 70 (1), reading as follows:

SEC. 70. Compensation for personal services.--Among the ordinary and

necessary expenses paid or incurred in carrying on any trade or
business may be included a reasonable allowance for salaries or other
compensation for personal services actually rendered. The test of
deductibility in the case of compensation payments is whether they
are reasonable and are, in fact, payments purely for service. This test
and deductibility in the case of compensation payments is whether
they are reasonable and are, in fact, payments purely for service. This
test and its practical application may be further stated and illustrated
as follows:
Any amount paid in the form of compensation, but not in fact as the
purchase price of services, is not deductible. (a) An ostensible salary
paid by a corporation may be a distribution of a dividend on stock. This
is likely to occur in the case of a corporation having few stockholders,
Practically all of whom draw salaries. If in such a case the salaries are
in excess of those ordinarily paid for similar services, and the excessive
payment correspond or bear a close relationship to the stockholdings
of the officers of employees, it would seem likely that the salaries are
not paid wholly for services rendered, but the excessive payments are
a distribution of earnings upon the stock. . . . (Promulgated Feb. 11,
1931, 30 O.G. No. 18, 325.)
It is worth noting at this point that most of the payees were not in the regular
employ of Algue nor were they its controlling stockholders. 23
The Solicitor General is correct when he says that the burden is on the taxpayer to
prove the validity of the claimed deduction. In the present case, however, we find
that the onus has been discharged satisfactorily. The private respondent has proved
that the payment of the fees was necessary and reasonable in the light of the
eforts exerted by the payees in inducing investors and prominent businessmen to
venture in an experimental enterprise and involve themselves in a new business
requiring millions of pesos. This was no mean feat and should be, as it was,
sufficiently recompensed.
It is said that taxes are what we pay for civilization society. Without taxes, the
government would be paralyzed for lack of the motive power to activate and
operate it. Hence, despite the natural reluctance to surrender part of one's hard
earned income to the taxing authorities, every person who is able to must
contribute his share in the running of the government. The government for its part,
is expected to respond in the form of tangible and intangible benefits intended to
improve the lives of the people and enhance their moral and material values. This
symbiotic relationship is the rationale of taxation and should dispel the erroneous
notion that it is an arbitrary method of exaction by those in the seat of power.

But even as we concede the inevitability and indispensability of taxation, it is a

requirement in all democratic regimes that it be exercised reasonably and in
accordance with the prescribed procedure. If it is not, then the taxpayer has a right
to complain and the courts will then come to his succor. For all the awesome power
of the tax collector, he may still be stopped in his tracks if the taxpayer can
demonstrate, as it has here, that the law has not been observed.
We hold that the appeal of the private respondent from the decision of the
petitioner was filed on time with the respondent court in accordance with Rep. Act
No. 1125. And we also find that the claimed deduction by the private respondent
was permitted under the Internal Revenue Code and should therefore not have been
disallowed by the petitioner.
ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in
toto, without costs.
SO ORDERED.