LORENZO v.

POSADAS
June 18, 1937
Petitioner: Pablo Lorenzo, as trustee of the estate of Thomas Hanley, deceased
Respondent: Juan Posadas, the Collector of Internal Revenue
Facts
In 1922, Thomas Hanley, an Irish person residing in Zamboanga, died. He left
behind a will and a lot of real and personal properties. The will provided that all
real estate owned by Hanley at the time of his death should not be sold or
disposed until after 10 years. Such property shall be handled and managed by
executors, and only after ten years will the estate pass on to Hanleys nephew,
Matthew. The lower court deemed it necessary for the appointment of a trustee
for the estate, so a man named Moore was appointed as trustee. He later
resigned, and petitioner Pablo Lorenzo was appointed as the new trustee.
The CIR assessed the estate a tax amounting to P2,052, which represented an II.
inheritance tax and delinquency penalties. Petitioner paid the amount under
protest. They claimed a refund, stating that the tax imposed should have been
lower.
Issues: There were five main questions raised. See ratio.
Held: Refund sought by petitioner was not granted.
Ratio:
I.

When does the inheritance tax accrue and when must it be satisfied?
A. The inheritance tax is an excise or privilege tax imposed on theIII.
right to succeed to, receive or take property by or under a will, deed
or grant, which is operative at or after death.
1. It is a tax upon transmission or the transfer of property of a
decedent.
2. In our succession law, the property of the deceased ancestor
belongs to the heirs at the moment of the ancestors death, as
completely as if the ancestor had executed and delivered a
deed for the same before his death.
B. Plaintiff contends that such tax only applies to situation with forced
heirs. This is wrong.
1. The Civil Code does not make any distinction between classes
IV.
of heirs.

2.

The authentication and probate of a will does not affect the

time when succession takes place, as succession takes place
in any event at the moment of the decedents death.
C. When must this tax be paid, then?
1. According to Section 1544 of the (old) Revised Admin Code,
the tax must be paid within the six months subsequent to the
death of the predecessor; but if judicial testamentary or
intestate proceedings shall be instituted prior to the expiration
of said period, the payment shall be made by the executor or
administrator before delivering to each beneficiary his share.
2. Such section applies to situations where there are no fiduciary
heirs, first heirs, legatees or donees. (The case did not
elaborate as to how the nephew, Matthew Hanley, is not a
fiduciary heir, first heir, legatee or donee.)
3. Thus, the inheritance tax should have been paid before the
delivery of the properties to Moore, the first trustee. (The facts
are silent as to when the proceedings were instituted, though.)
Should the inheritance tax be computed on the basis of the value of the
estate at the time of the testator's death, or on its value ten years later?
A. The right of the State to an inheritance tax accrues at the moment
of a persons death, notwithstanding the postponement of the
actual possession or enjoyment of the estate by the beneficiary.
B. The tax, then, is measured by the value of the property at the time
of death, regardless of future appreciation or depreciation.
C. Thus, petitioners contention that the tax should have been
measured ten years after the death (which was the time when the
nephew can finally enjoy or dispose of the estate) is incorrect.
In determining the net value of the estate subject to tax, is it proper to
deduct the compensation due to trustees?
A. Judicial expenses of testamentary or intestate proceedings are
allowed as deductions for inheritance tax.
B. The CIR in this case allowed the deductions representing expenses
and disbursements of executors, as well as the proven debts of the
deceased.
C. However, the compensation entitled to be received by the trustee
for his services to the estate may not be lawfully deducted.
1. There is no law or statute authorizing this.
2. Besides, the trust was created and intended for the
preservation, and not the administration, of the estate.
What law governs the case at bar? Should the provisions of Act No.
3606 favorable to the tax-payer be given retroactive effect?

A.

V.

Inheritance taxes are governed by the statute in force at the time of

E. Thus, the delinquency in paying the inheritance tax arose when
the death of the decedent.
Moore was appointed as the trustee.
B. Any intent that a tax law be applied retroactively should be perfectly
clear.
CIR v. FISHER (AD)
C. Since Act No. 3606 went into effect on 1930, eight years after
Hanley breathed his last breath, and there was no clear provision G.R. No. L-11622 | January 28, 1961
as to a retroactive application, then that Act cannot apply in thisThe Collector of Internal Revenue, petitioner
Douglas Fisher and Bettina Fisher, and the Court of Tax Appeals, respondents
case.
Has there been delinquency in the payment of the inheritance tax? If so,Barrera, J.:
should the additional interest claimed by the defendant in his appeal be
FACTS:
paid by the estate?

Walter G. Stevenson, born in the Philippines of British parents (so hes

A. As a premise, the mere failure to pay one's tax does not render
not Pinoy) and married to Beatrice Mauricia Stevenson another British
one delinquent until and unless the entire period has elapsed within
died on February 22, 1951 in San Francisco, California, U.S.A. where
which the taxpayer is authorized by law to make such payment
he and his wife moved and established their permanent residence.
without being subjected to the payment of penalties for failure to

In his will executed in San Francisco, Stevenson instituted his wife

pay his taxes within the prescribed period.
Beatrice as his sole heiress to the real and personal properties
B. Arguments of both sides
acquired by the spouses while residing in the Philippines, of which the
1. Respondent contends that the provisions of the Admin Code,
item relevant to our discussion is the 210,000 shares of stock of
Mindanao Mother Lode Mines, Inc. (at P0.38 per share/ P79,800).
as quoted above, should apply, with which the Supreme Court

Ancillary administration proceedings were instituted in the Court of

agreed.
First Instance of Manila for the settlement of the estate in the Philippines
2. However, Petitioner contends that since the property was yet to
and Ian Murray Statt was appointed ancillary administrator of the
be delivered to the true beneficiary (Matthew Hanley), as the
estate, who filed a preliminary estate and inheritance tax return with
property was delivered only to a trustee (Moore and Lorenzo),
the reservation of having the properties declared therein finally
then they should not yet be required to pay the tax.
appraised at their values six months after the death of Stevenson
3. Respondent then counter-argued that the delivery to the
and in order to secure the waiver of the CIR on the inheritance tax
trustee was, in essence, a delivery to the cestui que trust,
due on the 210,000 shares of stock which the estate then desired to
which is Matthew Hanley. The SC agreed to this.
dispose in the United States.
C. A trustee is but an instrument or agent for the cestui que trust.

The CIR accepted the valuation of the personal properties declared

1. The appointment of a trustee was valid and in conformity with
therein.
Hanleys will, as there was an intention to appoint a trustee.

The Collector assessed the state the amount of P5,147.98 for estate tax
2. Moore, upon his acceptance of the estate as trustee,
and P10,875,26 or inheritance tax, or a total of P16,023.23. Both of
acknowledged the fact that the estate did not belong to him,
these assessments were paid by the estate.
but to the cestui que trust.
First amendment of the estate and inheritance tax return (not so
3. Moore did not acquire any beneficial interest in the estate.
important):
D. To rule that the appointment of a trustee postpones the payment of

The ancillary administrator filed an amended estate and inheritance tax

tax is against public policy.
return in pursuance of his earlier reservation.
1. In that case, decedents can just appoint trustees, who would

In this amended return the valuation of the 210,000 shares of stock in

have terms as long as fifty years, in order to evade the tax.
the Mindanao Mother Lode Mines, Inc. was reduced from P79,800.00 to
2. Tax statutes should be construed to avoid the possibilities of
P42,000.00 based on the market notation of the stock from the San
tax evasion.

Francisco California Stock Exchange six months after the death of

exempts payment of both estate and inheritance taxes on
Stevenson.
intangible personal properties, the US only exempts the
payment of inheritance tax.

In the meantime, Beatrice Mauricia Stevenson assigned all her

rights and interests in the estate to the spouses, Douglas and
RATIO:
Bettina Fisher, respondents herein.

Section 122 of our National Internal Revenue Code, in pertinent part,

Second amendment of the estate and inheritance tax return:

The ancillary administrator filed a second amended estate and

provides:
inheritance tax return. It declared the same assets, except that it
o ... And, provided, further, That no tax shall be collected under
contained new claims for additional exemption and deduction to
this Title in respect of intangible personal property (a) if the
wit:
decedent at the time of his death was a resident of a foreign
o (1) deduction in the amount of P4,000.00 from the gross estate
country which at the time of his death did not impose a transfer
of the decedent as provided for in Section 861 (4) of the U.S.
of tax or death tax of any character in respect of intangible
Federal Internal Revenue Code which the ancillary
personal property of citizens of the Philippines not residing in
administrator argued was allowable by way of the reciprocity
that foreign country, or (b) if the laws of the foreign country
granted by Section 122 of the NIRC, and
o (2) exemption from the imposition of estate and
of which the decedent was a resident at the time of his
inheritance taxes on the 210,000 shares of stock in the
death allow a similar exemption from transfer taxes or
Mindanao Mother Lode Mines, Inc. pursuant to the
death taxes of every character in respect of intangible
reciprocity proviso of Section 122 of the NIRC
personal property owned by citizens of the Philippines not

In this last return, the estate claimed that it had overpaid the
residing in that foreign country." (Emphasis supplied).
government. It therefore asked for a refund. The Collector denied

On the other hand, Section 13851 of the California Inheritance Tax Law,
the claim.
insofar as pertinent, reads:.
o "SEC. 13851, Intangibles of nonresident: Conditions.
ISSUE:
Intangible personal property is exempt from the tax

Whether or not the estate can avail itself of the reciprocity proviso
imposed by this part if the decedent at the time of his death
embodied in Section 122 of the National Internal Revenue Code
granting exemption from the payment of estate and inheritance
was a resident of a territory or another State of the United
taxes on the 210,000 shares of stock in the Mindanao Mother Lode
States or of a foreign state or country which then imposed
Mines Inc.;
a legacy, succession, or death tax in respect to intangible
personal property of its own residents, but either:.
HELD: No, it cannot because the law requires total reciprocity.
o (a) Did not impose a legacy, succession, or death tax of any
character in respect to intangible personal property of residents
Argument of the CIR:
of this State, or

CIR disputes the action of the Tax Court in exempting the Spouses
o (b) Had in its laws a reciprocal provision under which
Fisher from paying inheritance tax on the 210,000 shares of stock
in virtue of the reciprocity proviso of Section 122 of the NIRC, in relation
intangible personal property of a non-resident was exempt
to Section 13851 of the California Revenue and Taxation Code, on the
from legacy, succession, or death taxes of every character
ground that:
if the Territory or other State of the United States or
o
(2) the reciprocity exemptions granted by section 122 of the
foreign state or country in which the nonresident resided
National Internal Revenue Code can only be availed of by
allowed a similar exemption in respect to intangible
residents of foreign countries and not of residents of a state in
personal property of residents of the Territory or State of
the United States; and
the United States or foreign state or country of residence
o (3) there is no "total" reciprocity between the Philippines
of the decedent."
and the state of California in that while the Philippines

It is clear from both these quoted provisions that the reciprocity

In view of the express provisions of both the Philippine and California
must be total, that is, with respect to transfer or death taxes of any
laws that the exemption would apply only if the law of the other grants
and every character, in the case of the Philippine law, and to
an exemption from legacy, succession, or death taxes of every
legacy, succession, or death taxes of any and every character, in
character, there could not be partial reciprocity. It would have to be
the case of the California law. Therefore, if any of the two states
total or none at all.
collects or imposes and does not exempt any transfer, death, legacy, or
succession tax of any character, the reciprocity does not work. This is
3. ZAPANTA v. POSADAS, December 29, 1928 (RS)
the underlying principle of the reciprocity clauses in both laws.

In the Philippines, upon the death of any citizen or resident, or nonresident with properties therein, there are imposed upon his estate
*6 separate actions against the Commissioner of Internal Revenue and his
and its settlement, both an estate and an inheritance tax. Under the
deputy
laws of California, only inheritance tax is imposed. On the other
hand, the Federal Internal Revenue Code imposes an estate tax on
Plaintiffs-appellees: Rufina Zapanta, Rosario Pineda, Olimpio Guanzon, Leoncia
non-residents who are not citizens of the United States, but does not
Pineda, Emigdio David, Geronima Pineda, et al.
provide for any exemption on the basis of reciprocity.
(The next paragraph is the pinaka-explanation of the doctrine. I think this Defendant-appellants: Juan Posadas, Jr., et al.
paragraph is crucial. Pero sorry kasi di ko siya nagets so I copy-pasted it na
lang verbatim.)
Laws:

Applying these laws in the manner the Court of Tax Appeals did in the

Section 1536 of the Administrative Code, as amended by Section 10 of

instant case, we will have a situation where a Californian, who is nonAct No. 2835
resident in the Philippines but has intangible personal properties here,
o "Every transmission by virtue of inheritance, devise, bequest,
will be subject to the payment of an estate tax, although exempt from
gift mortis causa, or advance in anticipation of inheritance,
the payment of the inheritance tax. This being the case, will a Filipino,
devise, or bequest of real property located in the Philippine
non-resident of California, but with intangible personal properties there,
Islands and real rights in such property; * * *"
be entitled to the exemption clause of the California law, since the

Section 1 of Act No. 3031

Californian has not been exempted from every character of legacy,
succession, or death tax because he is, under our law, under obligation
to pay an estate tax? Upon the other hand, if we exempt the
Californian from paying the estate tax, we do not thereby entitle a FACTS:
Filipino to be exempt from a similar estate tax in California

Father Braulio Pineda died in January 1925 without any ascendants or

because under the Federal Law, which is equally enforceable in
descendants, leaving a will in which he instituted his sister Irene Pineda
California he is bound to pay the same, there being no reciprocity
as his sole heiress.
recognized in respect thereto. In both instances, the Filipino citizen is
always at a disadvantage. We do not believe that our legislature has

During his lifetime Father Braulio donated some of his property by

intended such an unfair situation to the detriment of our own
public instruments to the six plaintiffs, severally, with the condition
government and people.
that some of them would pay him a certain amount of rice, and others of

We, therefore, find and declare that the lower court erred in exempting
money every year, and with the express provision that failure to fulfill
this condition would revoke the donations ipso facto.
the estate in question from payment of the inheritance tax.

These six plaintiff- donees are relatives, and some of them

brothers of Father Braulio Pineda.
o The donations contained another clause that they would take
effect upon acceptance. They were accepted during Father
Braulio's lifetime by every one of the donees.
The trial court in deciding these six cases, held that the donations to
the six plaintiffs made by the deceased Father Braulio Pineda are
donations inter vivos, and therefore, not subject to the inheritance
tax, and ordered the defendants to return to each of the plaintiffs the
sums paid by the latter.
Defendants appealed.
o

ISSUE: Whether the donations made by Father Braulio Pineda to each of the
plaintiffs are donations inter vivos, or mortis causa, for it is the latter upon which
the Administrative Code imposes inheritance tax.

HELD: Donations were made inter vivos; thus, they are not subject to inheritance
tax.
Judgment appealed from is affirmed.

RATIO:

of these donations is not affected by the fact that they were

subject to a condition, since it was imposed as a resolutory
condition, and in this sense, it necessarily implies that the right came
into existence first as well as its effect, because otherwise there would
be nothing to resolve upon the non-fulfillment of the condition imposed.
Neither does the fact that these donations are revocable, give them the
character of donations mortis causa, inasmuch as the revocation is not
made to depend on the donor's exclusive will, but on the failure to
fulfill the condition imposed.
Neither can these donations be considered as an advance on
inheritance or legacy, according to the terms of section 1536 of the
Administrative Code, because they are neither an inheritance nor a
legacy.
o

And it cannot be said that the plaintiffs received such advance

on inheritance or legacy, since they were not heirs or
legatees of their predecessor in interest upon his death
(sec. 1540 of the Administrative Code).

Neither can it be said that they obtained this inheritance or

legacy by virtue of a document which does not contain the
requisites of a will (sec. 618 of the Code of Civil Procedure).

Besides, if the donations made by the plaintiffs are, as the appellants

contend, mortis causa, then they must be governed by the law on
testate succession (art. 620 of the Civil Code). In such a case, the
documents in which these donations appear, being instruments which
do not contain the requisites of a will, are not valid to transmit the
property to the donees (sec. 618, Code of Civil Procedure.) Then the
defendants are not justified in collecting from the donees the inheritance
tax on property which has not been legally transferred to them, and in
which they acquired no right.

[Said donations are inter vivos because] it is so expressly stated in the

instruments in which they appear.
o They were made in consideration of the donor's affection for
the donees, and of the services they had rendered him, but he
has charged them with the obligation to pay him a certain
amount of rice and money, respectively, each year during his
lifetime, the donations to become effective upon acceptance.
Tuason vs. Posadas
Essentially, the principal characteristic of a donation mortis causa,
Topic: Gross Estate
which distinguishes it from a donation inter vivos, is that in the former, it
Relevant Laws: Sec. 85 & 104 NIRC
is the donor's death that determines the acquisition of, or the right
to, the property, and that it is revocable at the will of the donor.
G.R. No. L-30885
In the donations in question, their effect, that is, the acquisition of, or theJanuary 23, 1930
right to, the property, was produced while the donor was still alive, for,AVANCEA, C.J.:
according to their expressed terms they were to have this effect upon
acceptance, and this took place during the donor's lifetime. The nature

Petitioners: ALFONSO TUASON Y ANGELES and MARIANO TUASON Y

ANGELES
Respondents: JUAN POSADAS, JR., Collector of Internal Revenue
Facts:

On September 15, 1922, Esperanza Tuason y Chuajap made a

donation inter vivos of certain property to plaintiff Mariano Tuason y
Angeles. On April 30, 1923, she made another donation inter vivos to
Alfonso Tuason y Angeles, the other plaintiff. On January 5, 1926, she
died of senile weakness at the age of 73, leaving a will bequeathing of
P5,025 to Mariano Tuason y Angeles. Her judicial administratrix paid the
prescribed inheritance tax on these two bequests.

Issues:
1. Are the donations inter vivos made in anticipation of death part of Gross
Estate? - YES
Held:

Ratio:
1.

Petition DISMISSED.
Decision of lower court REVERSED.

violation of that portion of section 3 of the Autonomy Act (Jones Law)

which declares that the rule of taxation in these Islands shall be uniform.
To demonstrate this conclusion it is desirable to fix in the mind the exact
state of fact upon which the decision should turn. In this connection we
note that the plaintiffs are not persons who would have inherited any
part of the estate of Esperanza Tuason y Chuajap, if she had died
intestate. It is clear therefore that the donations made to the two
plaintiffs in 1922 and 1923, respectively, were not made "in anticipation
of inheritance," and they are therefore not taxable in that character. The
gifts in question were donations inter vivos, and as such they should be
free from the inheritance tax.
Further to illustrate this, let it be supposed that a person, desirous of
conferring a benefit upon two persons held in about equal esteem,
makes a gift of P10,000 to one and P9,900 to the other. In a subsequent
will, in order to equalize the gifts, the same benefactor gives a legacy of
P100 to the second donee. Under the statute, as interpreted by the
court, the first donee is not liable to any inheritance tax, but the second
is liable upon the entire amount first given to him. This shows the lack of
logical relation between the incidence of the tax and the fact taken as a
basis for its imposition.

When the law say all gifts, it doubtless refers to gifts inter vivos, and not
mortis causa. Both the letter and the spirit of the law leave no room for
any other interpretation. Such, clearly, is the tenor of the language
which refers to donation that took effect before the donor's death, and
not to mortis causa donations, which can only be made with the
formalities of a will, and can only take effect after the donor's death.
When such gifts have been made in anticipation of inheritance, devise,
bequest, or gift mortis causa, when the donee, after the death of the
donor proves to be his heir, devisee or donee mortis causa, for the
purpose of evading the tax, and it is to prevent this that it provides that
they shall be added to the resulting amount.

It will be noted that we do not here question the proposition that section
1540 of the Administrative Code might lawfully operate upon a donee
who at the time of receiving the gift inter vivos belongs to the class who
could take by intestate succession, in the absence of a will, for in this
case the donation may be made in anticipation of inheritance (sec.
1536, Adm. Code). It was for this very reason that the undersigned
sustained the position in Zapanta vs. Posadas (52 Phil., 557), that the
gifts there made were taxable. But section 1540 of the Administrative
Code cannot, in my opinion, properly be interpreted to extend to gifts
inter vivos made to a person not in a position to take as heir of the
donor dying intestate.

This being so, and it appearing that the appellees after the death of
Esperanza Tuason y Chuajap, were found to be legatees under her will,
the donation inter vivos she had made to them in 1922 and 1923, must
be added to the net amount that is to be taxed.

In closing I wish to point out that the vital difference between this case
and that under consideration in Zapanta vs. Posadas, supra, is that in
the latter case the donees were persons who would have been heirs of
the donor if the latter had died intestate, while in this case the donees
are not in such position.

STREET, J., dissenting:

The two plaintiffs in this case are suing to recover two several sums of
money, the payment of which has been exacted from them in the
character of taxes upon inheritance, and it is very manifest to me that
the taxes in question were imposed, and have been collected, in

Dison vs. Posadas (HQ)

Topic: Estate Tax
Relevant Laws:

Act No. 2601 (Chapter 40, Section 1540) Inheritance Tax Statute

Ratio:

G.R. No. L-36770

November 4, 1932
Butte, J.

Dison filed an appeal from the decision of CFI Pampanga for the
recovery of an inheritance tax (P 2,808.73) paid under protest.
Dison alleged in his complaint that the tax is illegal because he
received the property, which is the basis of the tax, from his father
before his death by a deed of gift inter vivos, which was duly accepted
and registered before the death of his father.
The only pieces of evidence introduced were the proof of payment of
the tax under protest and the deed of gift executed by Felix Dison
(father) on April 9, 1928 in favor of his son Dison. The deed of gift
transferred 22 tracts of land to the donee, reserving to the donor for his
life the usufruct of 3 tracts.
It was acknowledged by the donor before notary public on April 16, and
was formally accepted by Dison on April 17, which he acknowledged
before the notary public on April 20.
At the trial, the parties agreed to the following stipulation of facts: 1.)
Felix Dison died on April 21, 1928, 2.) before his death, Felix Dison
made a gift inter vivos in favor of Luis Dison of all his properties
according to a deed of gift, 3.) that Luis Dison did not receive property of
any kind from Felix Dison upon the death of the latter, and 4.) that Luis
Dison was a legitimate and only child of Felix Dison.
It is the theory of Dison that he received and holds that properties by a
consummated gift, and that Act No. 2601, being the inheritance
statute, does NOT tax gifts.

Issues:
2. Whether or not section 1540 of the Administrative Code (Act No. 2601)
subjects Dison to the payment of an inheritance tax? - YES

The Court held that section 1540 is applicable and the tax was properly
assessed by the Collector of Internal Revenue. Accordingly, Section
1540 states that:
Additions of Gifts and Advances. After the
aforementioned deductions have been made, there
shall be added to the resulting amount the value of
all gifts or advances made by the predecessor to
any of those who, after his death, shall prove to be
his heirs, devises, legatees, or donees mortis
causa.

Petitioners: Luis W. Dison (Dison)

Respondents: Juan Posadas, Jr., Collector of Internal Revenue (Posadas)
Facts:

Petition DENIED.
Decision of lower court AFFIRMED.

The facts may not warrant the inference that the conveyance
(acknowledged by the donor five days before his death and accepted by
the donee one day before the donors death) was fraudulently made for
the purpose of evading the inheritance tax.
However, the facts do warrant the inference that the transfer was an
advancement upon the inheritance which the donee, as the sole
and forced heir of the donor, would be entitled to receive upon the
death of the donor.
The argument by Dison that he is not an heir of his father within the
meaning of section 1540 because his father in his lifetime had given him
all his fathers property and left no property to be inherited, is fallacious.
It is not stated whether or not the father left a will, but in any event,
Dison could not be deprived of his share of inheritance because
the Civil Code confers upon him the status of a forced heir.
Moreover, the Court construed the expression in section 1540 any of
those who, after his death, shall prove to be his heirs, to include those
who, by our law, are given the status and rights of heirs,
regardless of the quantity of property they may receive as such
heirs.
Other Matter: Dison also attacked the constitutionality of section 1540,
based on the sole ground that such section levies a tax upon gifts inter
vivos, which violates section 3 of the organic Act. Accordingly, it
provides that no bill which may be enacted into law shall embrace more
than one subject, and that subject shall be expressed in the title of the
bill.

Held:

Neither the title of the Act nor chapter 40 of the Admin Code makes any
reference to a tax on gifts.
It can also be argued that section 1540 plainly does not tax gifts per se
but only when those gifts are made to those who shall prove to be the
heirs, devisees, legatees or donees mortis causa of the donor.
Section 1540 the law presumes that such gifts have been made in
anticipation of inheritance, devise, bequest, or gift mortis causa, when
the donee, after the death of the donor proves to be his heir, devisee or
donee mortis causa, for the purpose of evading the tax, and it is to
prevent this that it provides that they shall be added to the
resulting amount.
The Court held that there is no merit in this attack upon the
constitutionality of section 1540 under the view of the facts.

P13,951.45, respectively. Of these sums P15,191.48 was levied as tax

on the donation to De Roces and P1,481.52 on her legacy, and,
likewise, P12,388.95 was imposed upon the donation made to De
Richards and P1,462.50 on her legacy.
De Roces's argument:
Sec. 1540 of the Administrative Code does NOT include
donations inter vivos and if it does, it is unconstitutional, null and
void because the Legislature has no authority to impose inheritance
tax on donations inter vivos and it contravenes the fundamental rule
of uniformity of taxation.
CIRs argument:
The words "all gifts" refer clearly to donations inter vivos.
Citing the doctrine in Tuason: "all gifts" refers to gifts inter vivos,
because the law considers them as advances in anticipation of
inheritance in the sense that they are gifts inter vivos made in
consideration of death.

Issues:
Vidal de Roces vs. Posadas (NM)
Whether or not Sec. 1540 of the Administrative Code includes donation inter
Topic: imposition of inheritance tax on donations inter vivos in consideration of vivos and, thus, subject De Roces, and De Richards to the payment of an
death
inheritance tax? - YES
Relevant Laws:
Section 1540 of the Administrative Code (Act No. 2061) Inheritance Tax Statute Held:
G.R. No. L-34937
March 13, 1933
Imperial, J.
Plaintiff-appellants: Concepcion Vidal De Roces and her husband, Marcos
Roces, and Elvira Vidal De Richards
Defendant-apellee: Juan Posadas, Jr. and CIR
Facts:

Tuazon donated certain parcels of land to De Roces and De Richards,

who accepted them in the same public documents, and which were duly
recorded in the registry of deeds. By virtue of said donations, they took
possession of the said lands, received the fruits thereof and obtained
the corresponding TCTs.
Tuazon died without leaving any forced heir and her will which was
admitted to probate, she bequeathed to each of the donees the sum of
P5,000.
After the estate had been distributed among the instituted legatees and
before delivery of their respective shares, CIR ruled that the donees and
legatees should pay as inheritance tax the sums of P16,673 and

Ratio:

Judgment appealed from is AFFIRMED.

Section 1536 of the Administrative Code provides that every
transmission by virtue of inheritance, devise, bequest, gift mortis causa,
or advance in anticipation of inheritance, devise, or bequest shall be
subject to tax.
Section 1540 then provides that after deductions have been made,
there shall be added to the resulting amount the value of all gifts or
advances made by the predecessor to any of those who, after his
death, shall prove to be his heirs, devisees, legatees, or donees mortis
causa.
The gifts referred to in section 1540 are, obviously, those
donations inter vivos that take effect immediately or during the lifetime
of the donor but are made in consideration or in contemplation of
death. Gifts inter vivos, the transmission of which is NOT made in
contemplation of the donor's death should NOT be understood as
included within the said legal provision for the reason that it would
amount to imposing a direct tax on property and not on the transmission
thereof.

The language refers to donation that took effect before the donor's COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF
death, and not to mortis causa donations, which can only be made with APPEALS, COURT OF TAX APPEALS and JOSEFINA P. PAJONAR, as
the formalities of a will, and can only take effect after the donor's death. Administratrix of the Estate of Pedro P. Pajonar, respondents.
HOWEVER, if the donee inter vivos was found to be legatees, heirs,
devisees OR donees mortis causa of the decedent, then they would Facts:
have to pay the inheritance tax. The reason for this is because the
donation inter vivos is deemed to be a transfer in anticipation of
inheritance/death, meaning that it is a scheme to evade payment of
taxes.
1. Pedro Pajonar was a part of the infamous Death March by reason of

It be may be inferred from the allegations of De Roces and De Richards

which he suffered shock and became insane. His sister Josefina
that said donations inter vivos were made in consideration of the
Pajonar became the guardian over his person, while his property was
donor's death. We refer to the allegations that such transmissions were
placed under the guardianship of the PNB by the RTC of Dumaguete,
effected in the month of March, 1925, that the donor died in January,
Branch 31, Special Proceedings 1254. He died on Jan. 10, 1988.
1926, and that the donees were instituted legatees in the donor's will
which was admitted to probate. It is from these allegations, especially
2. PNB filed an accounting of the decedent's property under guardianship
the last, that we infer a presumption juris tantum that said
valued at P3,037,672.09 in Special Proceedings No. 1254. However,
donations were made mortis causa and, as such, are subject to the
the PNB did not file an estate tax return, instead it advised Pedro's heirs
payment of inheritance tax. The law considers such transmissions
to execute an extrajudicial settlement and to pay the taxes on his estate.
in the form of gifts inter vivos, as advances on inheritance.
On April 5, 1988, pursuant to the assessment by the BIR, the estate of

Such interpretation of the law is not in conflict with the rule laid down in
Pedro Pajonar paid taxes in the amount of P2,557.
the case of Tuason wherein it was said that the expression "all gifts"
refers to gifts inter vivos, because the law considers them as advances
in anticipation of inheritance in the sense that they are gifts inter
3. Josefina filed a petition with the RTC of Dumaguete for the issuance in
vivos made in consideration of death. In that case, it was not held
her favor of letters of administration of the estate of her brother. The
that that kind of gifts consisted in those made completely independent of
case was docketed as Special Proceedings No. 2399. On July 18, 1988,
death or without regard to it.
the RTC appointed Josefina as the regular administratrix of Pedro's

Section 1540 did not violate the constitutional provision regarding

estate.
uniformity of taxation. It cannot be null and void on this ground because
it equally subjects to the same tax all of those donees who later become
heirs, legatees or donees mortis causa by the will of the donor.
4. Pursuant to a second assessment by the BIR for deficiency estate tax,

In a nutshell: Even if a donation is made inter vivos, it is presumed as

the estate of Pedro paid estate tax in the amount of P1,527,790.98.
made mortis causa if it is made in consideration of donors death and
Josefina in her capacity as administratrix and heir of Pedro's estate,
therefore, it is subject to inheritance tax.
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
DISSENTING OPINION OF JUSTICE VILLAREAL: Donations inter vivos made
it, be returned to the heirs.
to persons who are not forced heirs, but who are instituted legatees in the
donor's will, should be presumed as not made mortis causa, unless the contrary
is proven. In the case under consideration, the burden of the proof rests with the
5. However without waiting for her protest to be resolved by the BIR,
person who contends that the donation inter vivos has been made mortis causa.
Josefina filed a petition for review with the CTA, praying for the refund of
P1,527,790.98, or in the alternative, P840,202.06, as erroneously paid
estate tax.
[G.R. No. 123206. March 22, 2000]
6.

CTA ordered the CIR to refund Josefina the amount of P252,585.59,

representing erroneously paid estate tax for the year 1988.

7.

2.

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. 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.

3.

Judicial expenses are expenses of administration. Administration

expenses, as an allowable deduction from the gross estate of the
decedent for purposes of arriving at the value of the net estate, have
been construed by the federal and state courts of the United States to
include all expenses "essential to the collection of the assets,
payment of debts or the distribution of the property to the persons
entitled to it." In other words, the expenses must be essential to the
proper settlement of the estate.

4.

Expenditures incurred for the individual benefit of the heirs, devisees

or legatees are NOT deductible. This distinction has been carried over
to our jurisdiction. Thus, in Lorenzo v. Posadas 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. 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.

5.

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's estate to his lawful heirs.

6.

Similarly, the attorney's fees paid to PNB for acting as the guardian
of Pedros property during his lifetime should also be considered
as a deductible administration expense. PNB provided a detailed
accounting of decedent's property and gave advice as to the proper
settlement of the latter's estate, acts which contributed towards the

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.

8.

CIR filed a MR of the CTA's May 6, 1993 decision asserting that the
notarial fee for the Extrajudicial Settlement and the attorney's fees in the
guardianship proceedings are NOT deductible expenses.

9.

CTA issued the assailed Resolution ordering the Commissioner of

Internal Revenue to refund Josefina, 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.

10. CIR filed with the CA 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.
Issue: WON 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
Held: Notarial fees and attys fees may be allowed as deductions from
gross estate
1.

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, and which was the first codification of
Philippine tax laws.

10

collection of decedent's assets and the subsequent settlement of the

estate.

includible in the decedent's estate. 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.

Other matters: (portions of CTA decision which is cited by the SC)

1.

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."

2.

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 of Dumaguete.

3.

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. In this
case, the guardianship proceeding was necessary for the distribution of
the property of the late Pedro to his rightful heirs.

6.

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.

7.

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 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. 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.

4.

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.

5.

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 areDe Guzman v. De Guzman-Carillo (MR)
expenses incurred in terminating an inter vivos trust that was

11

GR No. L.-29276

Ratio

May 18, 1978

Preliminaries

Aquino, J.

Petitioner: Testate Estate of the Late Felix J. de Guzman. VICTORINO G. DE

GUZMAN, administrator-appellee

Respondent: CRISPINA DE GUZMAN- CARILLO, ARSENIO DE GUZMAN and

HONORA T A DE
GUZMAN-MENDIOLA, oppositors-appellants
Facts

Issue

court cited important provisions. The one cited below is the only
important one for the ratio. But if you wanna check the others: sec. 1(c)
rule 81, sec. 8,9,10 rule 85
An executor or administrator is allowed the necessary expenses in
the care, management, and settlement of the estate entitled to
possess and manage the decedents real and personal estate as long
as it is necessary for the payment of the debts and the expenses of
administration accountable for the whole decedents estate which
has come into his possession, with all the interest, profit, and income
thereof, and with the proceeds of so much of such estate as is sold by
him, at the price at which it was sold (Sec. 3, Rule 84; Secs. 1 and 7,
Rule 85, Rules of Court)
But actually, none of the provisions are important to the outline topic.
Haha

Deceased testator was survived by 8 children and his will was probated
Letter of administration were issued to his son Doc Victorino pursuant to
an order of the court in a special proceeding
One of the properties left was a residential house, adjudicated to the 8 I. expenses for the renovation and improvement of the family home
children pro-indiviso, each being given a 1/8 share
The project of partition was signed by all children and approved by court

includes repair of terrace and interior, bathroom, fence

order dated April 14, 1967, but subject to the outcome of the instant

according the oppositors theyre not necessary expenses of

accounting incident:
administration, as clarified in the Lizarraga case: administration
o Administrator (Victorino) submitted 4 accounting reports for
expenses should be those which are necessary for the management of
June 1974-September 1967
the estate, for protecting it against destruction or deterioration, and,
o 3 heirs interposed objections to his disbursements, which
possibly, for the production of fruits. They are expenses entailed for the
breakdown consists of: expenses for the improvement and
preservation and productivity of the estate and its management for
renovation of the house, living expenses of Librada de
purposes of liquidation, payment of debts, and distribution of the
Guzman while occupying the home without paying rent and
residue among the persons entitled thereto.
other expenses (which will be mentioned more specifically in

SC: the partition was pro-indiviso; 5 of the 8 consented to the expenses;

the ratio)
they obviously redounded to the benefit of the ownerspreservation of
o the probate court instructed the administrator not to make
home and social standing. Thus, probate court did not err
these expenses without first seeking authority of court such
was obtained by order. It is from that order that the oppositors
now appeal to the SC
II. expenses incurred by Librada de Guzman as occupant of the house without
paying rent

WON the expenses made by the administrator were necessary expenses in the
care, management and settlement of the estateYES to some, NO to others,
discusses in the ratio. The outline topic is IV of the ratio

Includes house help, light and water bill, gas, oil etc.
Probate court allowed the use of estate income for this simply because
the occupany of that heir did not prevent the others from themselves
occupying also

12

SC: these were personal expenses, inuring only to her benefit and
should not be charged against the estate. She should shoulder these.
Trial court erred in approving these

III. other expenses

Includes Steno notes, representation expenses, expenses in celebration

of the first death anniversary
SC: all disallowed because they have nothing to do with care,
management and settlement of estate. Only expenses for lawyers
subsistence and gift to the physician attending to the deceased when he
was still alive should be allowed

IV. irrigation fee (OUTLINE TOPIC ALERT!!! ETO LANG!!!)

Oppositors: should not be a deductible expense on the ground that it

seems to be a duplication of the item of P1,320 as irrigation fee for the
same 1966-67 crop year
Administrator explained that the P1,320 represented allotments for
irrigation fees to the 8 tenants who cultivated Intan crop and were
treated as assumed expenses deducting from farming expenses from
the value of the net harvests
SC: the explanation was not clear but it was not disputed by the
oppositors. The sum of P1,049.58 was paid to Penaranda Irrigation
System as shown by an OR. It was included in the administrators
accounting as part of farming expenses and properly allowed as
legitimate expense of administration

13

DIZON v. CTA/CIR
April 30, 2008

Issue and Held: W/N the deductible amount of the estate can be adjusted by
post-death developmentsNO.

Petitioner: Rafael Dizon, in his capacity as the Judicial Administrator of theNote: The bulk of the ratio of the case is based on an evidentiary issue.
Estate of the deceased Jose Fernandez
Basically, in the trials in the CTA and the CA, the BIR presented evidence that
Respondent: CTA and CIR
were not formally offered, which were considered by both courts. The BIR relied
on the SCs ruling in Onate v. CA and Ramos v. Dizon, wherein the SC allowed
Facts
the evidence to be used, even if the same were not formally offered. However, in
Jose Fernandez died. A petition for the probate of his will was filed with thethose cases, the evidence was duly presented and marked during the pre-trial
Manila RTC, who appointed the late Supreme Court Justice Arsenio Dizon and and was thus incorporated into the records of the case. Such circumstances
Atty. Rafael Dizon (petitioner herein) as administrator and assistant administrator,were completely absent in this case, so the CTA and CA should not have
respectively, of Fernandezs estate. Justice Dizon then filed an estate tax return considered the evidence of BIR.
with the BIR Regional Office. The return showed a nil (or completely zero) estate
tax liability. (The gross value of the estate was estimated at P14 million, while the Ratio (on the estate tax deductions):
deductions presented amounted to P187 million.)
I.
Section 86 of the NIRC (then Section 79) allows as deductions from the
The BIR Regional Director then issued a certification, stating that the taxes due
value of the gross estate the amounts represented as claims against the
on the transfer of Fernandezs properties had been fully paid, and may be
estate.
II.
To answer the question on allowable deduction (i.e. whether the
transferred to his heirs.
deductible amount of the estate can be adjusted by post-death
developments, such as condonation of debts), the SC turned to the
Thereafter, Rafael Dizon (who at this point became the administrator at this point
American legal system, on which the NIRC was based.
as Justice Dizon passed away) requested the probate courts authority to sell
A. There are two American theories on the issue:
some of the estates properties to pay off Fernandezs creditors, namely
1. In Propstra v. US, where a lien claimed against the estate was
Equitable Bank, Banque de LIndochine, Manila Bank and State Investment
certain and enforceable on the date of the decedent's death,
House. The amounts paid to these creditors, however, were significantly lower
the fact that the claimant subsequently settled for a lesser
than their respective claims. Some claims were lowered due to compromise
amount did not preclude the estate from deducting the entire
agreements, while others were fully condoned.
amount of the claim for estate tax purposes. This principle is
called the Ithaca Trust date-of-death valuation principle.
A few months later, the Assistant Commissioner of BIR issued an Estate Tax
2. The Internal Revenue Service or IRS, on the other hand, says
Assessment Notice, demanding the estate to pay around P66.9 million as
that post-death developments should be taken into
deficiency estate tax (P31.8 million as the estate tax itself, with the rest of the
consideration, and that the creditors claim should be allowed
amount being surcharges and penalties for late payment). The BIR basically
only to the extent of the amount paid
reduced the deductions filed beforehand, and only the amount actually paid to
B. Our Supreme Court affirmed the theory stated in Propstra.
the creditors, and not the amount that was due to the creditors at the time of the
1. Elaborating on the Ithaca Trust date-of-death valuation
death of Jose Fernandez, was allowed as a deduction.
principle, the US court said in Propstra that the estate tax is
basically a tax imposed on the act of transferring property by
The BIR denied the motion to reconsider the tax assessment, so the case was
will or intestacy.
elevated to the CTA, then the CA, and finally the SC.
2. Because the act on which the tax is imposed occurs at a very
distinct time (i.e. the instance of death of the decedent), the

14

III.

value of the property transferred should be ascertained as of

that time.
3. In addition, there is no Philippine law that disallows or
disregards the date-of-death valuation principle. (Remember
that tax statutes are construed strictissimi juris against the
taxing authority.)
4. Also, in our Rules of Court, the term claims is generally
construed to consist of those debts which could have been
enforced against the deceased in his lifetime, or liability
contracted by the deceased before his death.
Thus, the claims existing at the time of death are significant to, and
should be made the basis of, the determination of allowable deductions.

GOVERNMENT OF THE PHILIPPINES v. PAMINTUAN (AD)

G.R. No. L-33139 | October 11, 1930
The Government of the Philippine Islands, plaintiff-appellants
Jose Ma. Pamintuan, et al., defendants-appellees.
*Simple case lang. After your first reading, you can just read the bold parts for
review.

and Natividad Pamintuan and Cavanna, Aboitiz and Agan (and no

claim from the Government of the Philippines).
The duly appointed judicial administrator of the estate of the deceased
Florentino Pamintuan presented a proposed partition of the
decedent's estate which was approved by the court, the court
ordering the delivery to the heirs, the defendants herein, of their
respective shares of the inheritance after paying the corresponding
inheritance taxes which were duly paid in the amount of P25,047.19 as
appears on the official receipt No. 4421361.
The intestate proceedings were definitely closed on October 27,
1926, by order of the court of the same date.
Subsequent to the distribution of the decedent's estate to the
defendants herein, in 1927, the the Government of the Philippines
discovered the fact that the deceased Florentino Pamintuan has
not paid P462 as additional income tax and surcharge for the
calendar year 1919, on account of the sale made by him on
November 14, 1919, of his house and lot located in Manila, from
which sale he realized a net profit or income of P11,000, which was not
included in his income-tax return filed for said year 1919.
The defendants cannot disprove that the deceased Florentino
Pamintuan made a profit of P11,000 in the sale of the house because
they have destroyed the voluminous records and evidences regarding
the sale in question and other similar transactions and other expenses
tending to reduce the profit obtained as mentioned above.
Demand for the payment of the income tax referred to herein was made
on February 24, 1927, on the defendants but they refused and still
refuse to pay the same either in full or in part.

FACTS:

In 1920, Florentino Pamintuan, represented by J. V. Ramirez or his

attorney-in-fact, filed income-tax return for the year 1919, paying the
amount of P 672 and the additional sum of P151.01 as a result of a

subsequent assessment received from the CIR

In 1925, Florentino Pamintuan died in Washington, D. C., U. S. A.,

leaving the defendants herein as his heirs.

Intestate proceedings were instituted in the Court of First Instance of

ISSUE: W/N the lower court erred in holding that the failure of the plaintiff to file
Manila
its claim with the committee on claims and appraisals barred it from collecting the

The CFI of Manila appointed commissioners for the appraisal of the tax in questions in this action.
property left by the deceased Pamintuan.

That the said committee, after the publications of the notices required byHELD: Yes
law, held the necessary sessions in accordance with said notices for the
presentation and determination of all claims and credits against theRATIO:

This court held in Pineda vs. Court of First Instance of Tayabas and
estate of the deceased Pamintuan.
Collector of Internal Revenue

The committee rendered its report which was duly approved by the
o the clear weight of judicial authority is to the effect that claims
court, and in which report it appears that the only claims presented and
for taxes and assessments, whether assessed before or after
that were approved were those of Tomasa Centeno, Jose, Paz, Caridad,
the death of the decedent, are not required to be presented
to the committee

15

The administration proceedings of the late Florentino Pamintuan having

been closed, and his estate distributed among his heirs, the
defendants herein, they are responsible for the payment of the
income tax here in question in proportion to the share of each in
said estate, in accordance with section 731 of the Code of Civil
Procedure, and the doctrine of this court laid down in Lopez vs.
Enriquez:
o ESTATE; LIABILITY OF HEIRS AND DISTRIBUTEES. Heirs
are not required to respond with their own property for the
debts of their deceased ancestors. But even 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. The 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. The heirs cannot, by any act of their own or by
agreement among themselves, reduce the creditors' security
for the payment of their claims.
For the reasons stated, we are of opinion and so hold that claims for
income taxes need not be filed with the committee on claims and
appraisals appointed in the course of testate proceedings and may
be collected even after the distribution of the decedent's estate
among his heirs, who shall be liable therefor in proportion to their
share in the inheritance.

11. CIR v. PINEDA (RS)

No. L-22734, September 15, 1967
Petitioner: Commissioner of Internal Revenue (CIR)
Respondent: Manuel Pineda (Manuel, for brevity), as one of the heirs of
deceased Anastasio Pineda (Anastasio, for brevity)
LAW: in-text
FACTS:

5/23/1945 Anastasio died, survived by wife, Felicisima Bagtas, and 15

children, the eldest of whom is Manuel, a lawyer.
o Estate proceedings in the CFI of Manila widow was
appointed administratrix.
o Estate was divided and awarded to the heirs.
o 6/8/1948 proceedings were terminated.
o Manuels share P2,500.00 (two thousand five hundred
pesos)
After the estate proceedings were closed, the Bureau of Internal
Revenue (BIR) investigated the income tax (IT) liability of the estate for
the years 1945-1948; it found that the corresponding returns were not
filed.
o Representative of the CIR filed said returns for the estate on
the basis of info acquired from the estate proceedings; the
estate was assessed deficiency taxes.
Manuel received the assessment; he contested it. Subsequently, he
appealed to the Court of Tax Appeals (CTA), alleging that he was
appealing only that proportionate part or portion pertaining to him as
one of the heirs.
CTA reversed the CIRs decision. Ground: CIRs right to assess has
already prescribed.
o CIR appealed.
o SC affirmed the findings of the CTA 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, SC remanded the case to the CTA for further proceedings.

In the CTA, no further evidence was presented.

11/29/1963 CTA held Manuel liable for the payment corresponding to

his share (only his portion) of the deficiency taxes.

16

CIR appealed to SC arguing that Manuel should be held liable

for all the deficiency taxes assessed by the CTA (P760.28).

inheritance, for unpaid IT for which said estate is

liable, pursuant to the last paragraph of Section 315
of the Tax Code, which states:

Manuel opposed: he should be liable only for the

unpaid IT due the estate only up to his share

If any person, corporation, partnership, jointaccount

(cuenta
en
participation),
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: x x x

By virtue of such lien, the Govt can subject

the whole property in Manuels possession
(i.e., P2,500) to satisfy the IT assessment in
the sum of P760.28.

Manuel relies on Government of the Philippine

Islands v. Pamintuan: SC 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.

ISSUE: Whether Manuel should be held liable for the whole deficiency tax, and
not just for his corresponding share in the estate of his father.

HELD: Government can require Manuel to pay the full amount of the deficiency
tax.

RATIO:

After such payment, Pineda will have a right of

contribution from his co- heirs, to achieve an
adjustment of the proper share of each heir in the
distributable estate.

Government has two ways of collecting the tax in question.

Pineda is liable for the assessment as an heir and as a holdertransferee of property belonging to the estate/ taxpayer (Note:
differentiate!).

1.

by going after all the heirs and collecting from each one of them
the amount of the tax proportionate to the inheritance received.
(used in Govt v. Pamintuan, supra)

As an heir he is individually answerable for the part of the tax

proportionate to the share he received from the inheritance.
His liability [as an heir], however, cannot exceed the amount of
his share.

2.

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.
(used in this case)

As a holder of property belonging to the estate, Pineda is

liable for the tax up to the amount of the property in his
possession.

Reason: Govt has a lien on the P2,500.00, which

Manuel received from the estate as his share in the

The BIR should be given 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

17

CIR v. Gonzales
Topic: Administrative Requirements
Relevant Laws: Sec. 89-97 NIRC
G.R. No. L-19495
November 24, 1966
BENGZON, J.P., J.:

Total gross estate

Petitioner: COMMISSIONER OF INTERNAL REVENUE

Respondents: LILIA YUSAY GONZALES and THE COURT OF TAX APPEALS
Facts:

Matias Yusay, a resident of Pototan, Iloilo, died intestate on May 13,

1948, leaving two heirs, namely, Jose S. Yusay (Jose), a legitimate
child, and Lilia Yusay Gonzales (Lilia), an acknowledged natural child.
Intestate proceedings for the settlement of his estate were instituted in
the Court of First Instance of Iloilo
Jose was therein appointed administrator.

The return mentioned no heir.

The fair market value of the real properties was computed by increasing
the assessed value by forty percent.

Based on the above findings, the Bureau of Internal Revenue assessed

on October 29, 1953 estate and inheritance taxes in the sums of
P6,849.78 and P16,970.63, respectively.

Later on BIR increased this assessment and added delinquency interest

On May 11, 1949 Jose filed with the Bureau of Internal Revenue an
estate and inheritance tax return declaring therein the following
properties:

P187,204.00

Upon investigation however the Bureau of Internal Revenue found the

following properties:

Personal properties:
Personal properties

Palay
Carabaos

P6,444.00
1,000.00

P7,444.00

Real properties:
Capital, 25 parcels assessed at

Real properties:
Capital, 74 parcels )

Conjugal 19 parcels)

Palay
Carabaos
Packard Automobile
2 Aparadors

assessed at

P6,444.00
1,500.00
2,000.00
500.00

P10,444.00

P87,715.32

P179,760.00

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1/2 of Conjugal, 130 parcels

assessed at

P121,425.00

Total

Compromise
P209,140.32 No notice of death
Late payment

P15.00
40.00

P219,584.32
Total

The fair market value of the real properties was computed by increasing
the assessed value by forty percent
Jose requested extension of time to pay the tax by posting a surety
bond.
BIR denied the request and issued a warrant of distraint and levy which
he transmitted to the Municipal Treasurer of Pototan for execution. This
warrant was not enforced because all the personal properties subject to
distraint were located in Iloilo City.
The Provincial Treasurer of Iloilo requested the BIR Provincial Revenue
Officer to furnish him copies of the assessment notices to support a
motion for payment of taxes which the Provincial Fiscal would file in CFI
Iloilo.
The records do not however show whether the Provincial Fiscal filed a
claim with the Court of First Instance for the taxes due.
Internal Revenue Commissioner caused the estate of Matias Yusay to
be reinvestigated for estate and inheritance tax liability issuing the
following assessment:
Estate tax

Inheritance Tax

5% surcharge

1,105.86

Delinquency interest

28,808.75

Compromise for late payment

50.00

P16,246.04
P69,142.73

411.29
Total estate and inheritance taxes

Delinquency interest

P28,581.23

P38,178.12

Total
5% surcharge

55.00

11,868.90

P97,723.96

The widower received the assessment and still made no payments

despite repeated demands.
The Commissioner of Internal Revenue filed a proof of claim for the
estate and inheritance taxes due and a motion for its allowance with the

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settlement court in voting priority of lien pursuant to Section 315 of the

Tax Code.
Lilia alleged non-receipt of the assessment
Lilia also disputed the legality of the assessment. She claimed that the
right to make the same had prescribed inasmuch as more than five
years had elapsed since the filing of the estate and inheritance tax
return on May 11, 1949
BIR rejected Lilias disposition that (1) that the right to assess the
taxes in question has not been lost by prescription since the
return which did not name the heirs cannot be considered a true
and complete return sufficient to start the running of the period of
limitations of five years under Section 331 of the Tax Code and
pursuant to Section 332 of the same Code he has ten years within
which to make the assessment counted from the discovery on
September 24, 1953 of the identity of the heirs; and (2) that the
estate's administrator waived the defense of prescription when he
filed a surety bond on March 3, 1955 to guarantee payment of the
taxes in question and when he requested postponement of the
payment of the taxes pending determination of who the heirs are
by the settlement court.
CTA ruled in favor of Lilia

Issues:
3. Was the petition for review in the Court of Tax Appeals within the 30-day
period provided for in Section 11 of Republic Act 1125? YES
4. Lilia Yusay's cause seeks to resist the legality of the assessment in
question. Should she maintain it in the settlement court or should she
elevate her cause to the Court of Tax Appeals? Appealing to CTA
5. Has the right of the Commissioner of Internal Revenue to assess the
estate and inheritance taxes in question prescribed? NO
Held:

Ratio:
1.

Petition DISMISSED.
Decision of lower court REVERSED.
The counting of the thirty days within which to institute an appeal
in the Court of Tax Appeals should commence from the date of
receipt of the decision of the Commissioner on the disputed
assessment, not from the date the assessment was issued.
Accordingly, the thirty-day period should begin running from March 14,
1960, the date Lilia Yusay received the appealable decision. From said
date to April 13, 1960, when she filed her appeal in the Court of Tax
Appeals, is exactly thirty days. Hence, the appeal was timely.

2.

3.

Lilia acted correctly by appealing to the latter court. An action involving a

disputed assessment for internal revenue taxes falls within the exclusive
jurisdiction of the Court of Tax Appeals. An action involving a disputed
assessment for internal revenue taxes falls within the exclusive
jurisdiction of the Court of Tax Appeals. It is in that forum, to the
exclusion of the Court of First Instance, where she could ventilate her
defenses against the assessment. Moreover, the settlement court,
where the Commissioner would wish Lilia Yusay to contest the
assessment, is of limited jurisdiction. And under the Rules, its authority
relates only to matters having to do with the settlement of estates and
probate of wills of deceased persons. Said court has no jurisdiction to
adjudicate the contentions in question, which assuming they do not
come exclusively under the Tax Court's cognizance must be
submitted to the Court of First Instance in the exercise of its general
jurisdiction.
In a case where the return was made on the wrong form, the
Supreme Court of the United States held that the filing thereof did
not start the running of the period of limitations. The Commissioner
claims that fraud attended the filing of the return; that this being so,
Section 332(a) of the Tax Code would apply. It may be well to note that
the assessment letter itself did not impute fraud in the return with intent
to evade payment of tax. Fraud is a question of fact. As the court a
quo found that no fraud was alleged and proved therein.

Paragraph (a) of Section 93 of the Tax Code lists the requirements of a

valid return. It states:
(a) Requirements.In all cases of inheritance or transfers subject to either
the estate tax or the inheritance tax, or both, or where, though exempt from
both taxes, the gross value of the estate exceeds three thousand pesos, the
executor, administrator, or anyone of the heirs, as the case may be, shall file
a return under oath in duplicate, setting forth (1) the value of the gross estate
of the decedent at the time of his death, or, in case of a nonresident not a
citizen of the Philippines ; (2) the deductions allowed from gross estate in
determining net estate as defined in section eighty-nine; (3) such part of
such information as may at the time be ascertainable and such supplemental
data as may be necessary to establish the correct taxes.
A return need not be complete in all particulars. It is sufficient if it complies
substantially with the law. There is substantial compliance (1) when the
return is made in good faith and is not false or fraudulent; (2) when it covers
the entire period involved; and (3) when it contains information as to the
various items of income, deduction and credit with such definiteness as to
permit the computation and assessment of the tax.

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SEC. 332. Exceptions as to period of limitation of assessment and collection*First, it was incomplete. It declared only ninety-three parcels of land
of taxes. (a) In the case of a false or fraudulent return with intent to evade representing about 400 hectares and left out ninety-two parcels covering 503
tax or of a failure to file a return, the tax may be assessed, or a proceeding hectares.
in court for the collection of such tax may be begun without assessment, at *Second, the return mentioned no heir. Thus, no inheritance tax could be
any time within ten years after the discovery of the falsity, fraud or omission. assessed. As a matter of law, on the basis of the return, there would be no
occasion for the imposition of estate and inheritance taxes. When there is no heir

Anent the Commissioner's contention that Lilia Yusay is estopped - the return showed none - the intestate estate is escheated to the State.
from raising the defense of prescription because she failed to raise
the same in her answer to the motion for allowance of claim and for A return need not be complete in all particulars. It is sufficient if it complies
the payment of taxes filed in the settlement court (Court of First substantially with the law. There is substantial compliance (1) when the
Instance of Iloilo), suffice it to state that it would be unjust to the return is made in good faith and is not false or fraudulent; (2) when it
taxpayer if We were to sustain such a view. The Court of First covers the entire period involved; and (3) when it contains information as
Instance acting as a settlement court is not the proper tribunal toto the various items of income, deduction and credit with such definiteness
pass upon such defense, therefore it would be but futile to raise itas to permit the computation and assessment of the tax.
therein. Moreover, the Tax Code does not bar the right to contest
the legality of the tax after a taxpayer pays it. Under Section 306
thereof, he can pay the tax and claim a refund therefor. A fortiori his
willingness to pay the tax is no waiver to raise defenses against the
tax's legality.
Evidently the estate return filed is defective.

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