FIRST DIVISION

[G.R. No. 43082. June 18, 1937.]

PABLO LORENZO, as trustee of the estate of Thomas Hanley, deceased, plaintiff-

appellant, vs. JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.

Pablo Lorenzo and Delfin Joven for plaintiff-appellant.

Solicitor-General Hilado for defendant-appellant.

SYLLABUS

1. INHERITANCE TAX; ACCRUAL OF, DISTINCT FROM THE OBLIGATION TO PAY IT. — The accrual of
the inheritance tax is distinct from the obligation to pay the same. Section 1536 as amended, of the
Administrative Code, imposes the tax upon "every transmission by virtue of inheritance, devise, bequest,
gif mortis causa, or advance in anticipation of inheritance, devise, or bequest." The tax therefore is upon
transmission or the transfer or devolution of property of a decedent, made effective by his death. (61 C. J.,
p. 1592.)
2. ID.; MEASURE OF, BY VALUE OF ESTATE. — If death is the generating source from which the power
of the state to impose inheritance taxes takes its being and if, upon the death of the decedent, succession
takes place and the right of the state to tax vests instantly, the tax should be measured by the value of the
estate as it stood at the time of the decedent's death, regardless of any subsequent contingency affecting
value of any subsequent increase or decrease in value. (61 C. J., pp. 1692, 1693; 26 R. C. L., 232; Blakemore
and Bancrof , Inheritance Taxes, p. 137. See also Knowlton vs. Moore, 178 U. S. 41; 20 Sup. Ct. Rep., 747;
44 Law. ed., 968.)
3. ID.; ID. — "The right of the state to a inheritance tax accrues at the moment of death, and hence
is ordinarily measured as to any beneficiary by the value at that time of such property as passes to him.
Subsequent appreciation or depreciation is immaterial." (Ross, Inheritance Taxation, p. 72.)
4. ID.; ID. — Whatever may be the rule in other jurisdiction, we hold that a transmission by
inheritance is taxable at the time of the predecessor's death, notwithstanding the postponement of the
actual possession or enjoyment of the estate by the beneficiary, and the tax measured by the value of the
property transmitted at that time regardless of its appreciation or depreciation.
5. ID.; TRUSTS AND TRUSTEES. — A trustee, no doubt, is entitled to received a fair compensation for
his services. (Barney vs. Saunders, 16 How., 535; 14 Law. ed., 1047.) But from this it does not follow that
the compensation due him may lawfully be deducted in arriving at the net value of the estate subject to
tax. There is no statute in the Philippines which requires trustees commission to be deducted in
determining the net value of the estate subject to inheritance tax (61 C. J., p. 1705.) Furthermore, though a
testamentary trust has been created, it does not appear that the testator intended that the duties of his
executors and trustees should be separated. (Ibid.; In re Vanneck's Estate, 161 N. Y. Supp., 893; 175 App.
Div., 363 In re Collard's Estate, 161 N. Y. Supp., 455.)
6. ID.; ID.; ADMINISTRATION EXPENSES. — Judicial expenses are expenses of administration (61 C.
J., P. 1705) but, in State vs. Hennepin County Probate Court (112 N. W., 878; 101 Minn., 485), it was said:
". . . the compensation of a trustee, earned, not in the administration of the estate, but in the management
thereof for the benefit of the legatees or devisees, does not come properly within the class or reason for
exempting administration expenses. . . Services rendered in that behalf have no reference to closing the
estate for the purpose of a distribution thereof to those entitled to it, and are not required or essential to
the perfection of the rights of the heirs or legatees. . . . Trusts . . . of the character of that here before the
court, are created for the benefit of those to whom the property ultimately passes, are of voluntary
creation, and intended for the preservation of the estate. No sound reason is given to support the
contention that such expenses should be taken into consideration in fixing the value of the estate for the
purpose of this tax.
7. ID.; RETROACTIVE LEGISLATION. — It is well-settled that inheritance taxation is governed by the
statute in force at the time of the death of the decedent (26 R. C. L., p. 206; 4 Cooley on Taxation, 4th ed.,
p. 3461). The taxpayer cannot foresee and ought not to be required to guess the outcome of pending
measures. Of course, a tax statute may be made retroactive in its operation. Liability for taxes under
retroactive legislation has been "one of the incidents of social life." (Seattle vs. Kelleher, 195 U. S. 351. 360;
49 Law. ed., 232; 25 Sup. Ct. Rep., 44.)
8. ID.; ID. — But legislative intent that a tax statute should operate retroactively should be perfectly
clear. (Scwab vs. Doyle, 42 Sup. Ct. Rep., 491; Smietanka vs. First Trust & Savings Bank, 257 U. S. 602;
Stockdalevs. Insurance Co., 20 Wall., 323; Lunch vs. Turrish, 247 U. S., 221.) "A statute should be considered
as prospective in its operation, whether it enacts, amends, or repeals an inheritance tax, unless the
language of the statute clearly demands or expresses that it shall have a retroactive effect, . . ." (61 C. J.,
1602.)
9. ID.; ID. — Though the last paragraph of section 5 of Regulations No. 65 of the Department of
Finance makes section 3 of Act No. 3606, amending section 1544 of the Revised Administrative Code,
applicable to all estates the inheritance taxes due from which have not been paid, Act No. 3606 itself
contains no provisions indicating legislative intent to give it retroactive effect. No such effect can be given
the statute by this court.
10. ID.; ID.; PENAL STATUTES. — Properly speaking, a statute is penal when it imposes punishment
for an offense committed against the state which, under the Constitution, the executive has the power to
pardon. In common use, however, this sense has been enlarged to include within the term "penal statutes"
all statutes which command or prohibit certain acts, and establish penalties for their violation, and even
those which without expressly prohibiting certain acts, impose a penalty upon their commission. (59 C. J.,
P. 1110.)
11. ID.; ID.; REVENUE LAW. — Revenue laws, generally, which impose taxes collected by the means
ordinarily resorted to for the collection of taxes are not classed as penal laws, although there are
authorities to the contrary. (SeeSutherland, Statutory Construction, 361; Twine Co. vs. Worthington, 141 U.
S. 468; 12 Sup. Ct., 55 Rice vs. U. S., 4 C. C. A., 104; 53 Fed., 910; Com. vs. Standard Oil Co., 101 Pa. St., 150;
State vs. Wheeler, 44 P., 430; 25 Nev., 143.) Article 22 of the Revised Penal Code is not applicable to the
case of bar, and in the absence of clear legislative intent, we cannot give Act No. 3606 a retroactive effect.
12. ID.; TRUSTS AND TRUSTEES. — The word "trust" is not mentioned or used in the will but the
intention to create one is clear. No particular or technical words are required to create a testamentary
trust. (69 C. J., p. 711.) The words "trust" and "trustee", though apt for the purpose, are not necessary. In
fact, the use of these two words is not conclusive on the question that a trust is created. (69 C. J., p. 714.)
13. ID.; ID. — There is no doubt that the testator intended to create a trust. He ordered in his will
that certain of his properties be kept together undisposed during a fixed period, for a stated purpose. The
probate court certainly exercised sound judgment in appointing a trustee to carry into effect the provision
of the will. (See sec. 582, Code of Civil Procedure.)
 14. ID.; ID.; ERROR IN ENGLISH VERSION OF SUBSECTION (B), SECTION 1543, REVISED
ADMINISTRATIVE CODE. — The word "trustee", appearing in subsection (b) of section 1543, should read
"fidei-commissary" or "cestui que trust." There was an obvious mistake in translation from the Spanish to
the English version.

DECISION

LAUREL, J p:

On October 4, 1932, the plaintiff, Pablo Lorenzo, in his capacity as trustee of the estate of Thomas
Hanley, deceased, brought this action in the Court of First Instance of Zamboanga against the defendant,
JuanPosadas, Jr., then the Collector of Internal Revenue, for the refund of the amount of P2,052.74, paid by
the plaintiff as inheritance tax on the estate of the deceased, and for the collection of interest thereon at
the rate of 6 per cent per annum, computed from September 15, 1932, the date when the aforesaid tax
was paid under protest. The defendant set up a counterclaim for P1,191.27 alleged to be interest due on
the tax in question and which was not included in the original assessment. From the decision of the Court
of First Instance of Zamboanga dismissing both the plaintiff's complaint and the defendant's counterclaim,
both parties appealed to this court.
It appears that on May 27, 1922, one Thomas Hanley died in Zamboanga, Zamboanga, leaving a will
(Exhibit 5) and considerable amount of real and personal properties. On June 14, 1922, proceedings for the
probate of his will and the settlement and distribution of his estate were begun in the Court of First
Instance of Zamboanga. The will was admitted to probate. Said will provides among other things, as
follows:
"4. I direct that any money lef by me be given to my nephew Matthew Hanley.
"5. I direct that all real estate owned by me at the time of my death be not sold or
otherwise disposed of for a period of ten (10) years afer my death, and that the same be
handled and managed by my executors, and proceeds thereof to be given to my nephew,
Matthew Hanley, at Castlemore, Ballaghaderine, County of Rosecommon, Ireland, and that he
be directed that the same be used only for the education of my brother's children and their
descendants.
"6. I direct that ten (10) years afer my death my property be given to the above-
mentioned Matthew Hanley to be disposed of in the way he thinks most advantageous.
xxx xxx xxx
"8. I state that at this time I have one brother living named Malachi Hanley, and that
my nephew, Matthew Hanley, is a son of my brother, Malachi Hanley."

The Court of First Instance of Zamboanga considered it proper for the best interests of the estate to
appoint a trustee to administer the real properties which, under the will, were to pass to Matthew Hanley
ten years afer the testator's death. Accordingly, P. J. M. Moore, one of the two executors named in the will,
was, on March 8, 1924, appointed trustee. Moore took his oath of office and gave bond on March 10, 1924.
He acted as trustee until February 29, 1932, when he resigned and the plaintiff herein was appointed in his
stead.
 During the incumbency of the plaintiff as trustee, the defendant Collector of Internal Revenue,
alleging that the estate lef by the deceased at the time of his death consisted of realty valued at P27,920
and personality valued at P1,465, and allowing a deduction of P480.81, assessed against the estate an
inheritance tax in the amount of P1,434.24 which, together with the penalties for delinquency in payment
consisting of a 1 per cent monthly interest from July 1, 1931 to the date of payment and a surcharge of 25
per cent on the tax, amounted to P2,052.74. On march 15, 1932, the defendant filed a motion in the
testamentary proceedings pending before the Court of First Instance of Zamboanga (Special proceedings
No. 302) praying that the trustee, plaintiff herein, be ordered to pay to the Government the said sum of
P2,052.74. The motion was granted. On September 15, 1932, the plaintiff paid this amount under protest,
notifying the defendant at the same time that unless the amount was promptly refunded suit would be
brought for its recovery. The defendant overruled the plaintiff's protest and refused to refund the said
amount or any part thereof. His administrative remedies exhausted, plaintiff went to court with the result
herein above indicated.
In his appeal, plaintiff contends that the lower court erred:
"I. In holding that the real property of Thomas Hanley, deceased, passed to his
instituted heir, Matthew Hanley, from the moment of the death of the former, and that from
that time, the latter became the owner thereof.
"II. In holding, in effect, that there was delinquency in the payment of inheritance tax
due on the estate of said deceased.
"III. In holding that the inheritance tax in question be based upon the value of the
estate upon the death of the testator, and not, as it should have been held, upon the value
thereof at the expiration of the period of ten years afer which, according to the testator's will,
the property could be and was to be delivered to the instituted heir.
"IV. In not allowing as lawful deductions, in the determination of the net amount of
the estate subject to said tax, the amounts allowed by the court as compensation to the
"trustee" and paid to them from the decedent's estate.
"V. In not rendering judgment in favor of the plaintiff and in denying his motion for
new trial."
The defendant-appellant contradicts the theories of the plaintiff and assigns the following error
besides:
"The lower court erred in not ordering the plaintiff to pay to the defendant the sum of
P1,191.27, representing part of the interest at the rate of 1 per cent per month from April 10,
1924, to June 30, 1931, which the plaintiff had failed to pay on the inheritance tax assessed by
the defendant against the estate of Thomas Hanley."
The following are the principal questions to be decided by this court in this appeal: (a) When does
the inheritance tax accrue and when must it be satisfied? (b) Should the inheritance tax be computed on
the basis of the value of the estate at the time of the testator's death, or on its value ten years later? (c) In
determining the net value of the estate subject to tax, is it proper to deduct the compensation due to
trustees? (d) What law governs the case at bar? Should the provisions of Act No. 3606 favorable to the
taxpayer be given retroactive effect? (e) Has there been delinquency in the payment of the inheritance tax?
If so, should the additional interest claimed by the defendant in his appeal be paid by the estate? Other
points of incidental importance, raised by the parties in their briefs, will be touched upon in the course of
this opinion.
(a) The accrual of the inheritance tax is distinct from the obligation to pay the same. Section 1536
as amended, of the Administrative code, imposes the tax upon "every transmission by virtue of
inheritance, devise, bequest, gif mortis causa, or advance in anticipation of inheritance, devise, or
bequest." The tax therefore is upon transmission or the transfer or devolution of property of a decedent,
made effective by his death. (61 C. J., p. 1592.) It is in reality an excise or privilege tax imposed on the right
to succeed to, receive, or take property by or under a will or the intestacy law, or deed, grant, or gif, to
become operative at or afer death. According to article 657 of the Civil Code, "the rights to the succession
of a person are transmitted from the moment of his death." "In other words", said Arellano, C. J., ". . . the
heirs succeed immediately to all of the property of the deceased ancestor. The property belongs to the
heirs at the moment of the death of the ancestor as completely as if the ancestor had executed and
delivered to them a deed for the same before his death." (Bondad vs. Bondad, 34 Phil., 232. See also,
Mijares vs. Nery, 3 Phil., 195; Suiliong & Co., vs. Chio-Taysan, 12 Phil., 13; Lubrico vs. Arbado, 12 Phil., 391;
Inocencio vs. Gat- Pandan, 14 Phil., 491; Aliasas vs. Alcantara, 16 Phil., 489; Ilustre vs. Alaras Frondosa, 17
Phil., 321; Malahacan vs. Ignacio, 19 Phil., 434; Bowa vs. Briones, 38 Phil., 276; Osorio vs. Osorio &
Ynchausti Steamship Co., 41 Phil., 531; Fule vs. Fule, 46 Phil., 317; Dais vs. Court of First Instance of Capiz,
51 Phil., 396; Baun vs. Heirs of Baun, 53 Phil., 654.) Plaintiff, however, asserts that while article 657 of the
Civil Code is applicable to testate as well as intestate succession, it operates only in so far as forced heirs
are concerned. But the language of Article 657 of the Civil Code is broad and makes no distinction between
different classes of heirs. That article does not speak of forced heirs; it does not even use the word "heir".
It speaks of the rights of succession and of the transmission thereof from the moment of death. The
provision of section 625 of the Code of Civil Procedure regarding the authentication and probate of a will as
a necessary condition to effect transmission of property does not effect the general rule laid down in article
647 of the Civil Code. The authentication of a will implies its due execution but once probated and allowed
the transmission is effective as of the death of the testator in accordance with article 657 of the Civil Code.
Whatever may be the time when actual transmission of the inheritance takes place, succession takes place
in any event at the moment of the decedent's death. The time when the heirs legally succeed to the
inheritance may differ from the time when the heirs actually received such inheritance. "Poco importa",
says Manresa commenting on article 567 of the Civil Code, "que desde el fallecimiento del causante, hasta
que el heredero o legatario entre en posesion de los bienes de la herencia a del legado, transcurra mucho o
poco tiempo, pues la adquisicion ha de retrotraerse al momento de la muerte, y asi lo ordena el articulo
989, que debe considerarse como complemento del presente." (5 Manresa, 305; see also art. 440, par. 1,
Civil Code.) Thomas Hanley having died on May 27, 1922, the inheritance tax accrued as of that date.
From the fact, however, that Thomas Hanley died on May 27, 1922, it dies not follow that the
obligation to pay the tax arose as of that date. The time for the payment of inheritance tax is clearly fixed
by section 1544 of the Revised Administrative code as amended by Act No. 3031, in relation to section
1543 of the same code. The two sections follow:
"SEC. 1543. Exemption of certain acquisitions and transmission. — The following shall
not be taxed:
"(a) The merger of the usufruct in the owner of the naked title.
"(b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or
legatee to the trustees.
"(c) The transmission from the first heir, legatee, or donee in favor of another
beneficiary, in accordance with the desire of the predecessor.
"In the last two cases, if the scale of taxation appropriate to the new beneficiary is
greater than that paid by the first, the former must pay the difference.
"SEC. 1544. When tax to be paid. — The Tax fixed in this article shall be paid:
"(a) In the second and third cases of the next preceding section, before entrance into
possession of the property.
 "(b) In other cases, within the six months subsequent to the death of the predecessor;
but if judicial testamentary or intestate proceedings shall be instituted prior to the expiration
of said period, the payment shall be made by the executor or administrator before delivering
to each beneficiary his share.
"If the tax is not paid within the time hereinbefore prescribed, interest at the rate of
twelve per centum per annum shall be added as part of the tax; and to the tax and interest
due and unpaid within ten days afer the date of notice and demand thereof by the Collector,
there shall be further added a surcharge of twenty-five per centum.
"A certified copy of all letters testamentary or of administration shall be furnished the
Collector of Internal Revenue by the Clerk of Court within thirty days afer their issuance."
It should be observed in passing that the word "trustee", appearing in subsection (b) of section
1543, should read "fideicommissary" or "cestui que trust". There was an obvious mistake in translation
from the Spanish to the English version.
The instant case does not fall under subsection (a), but under subsection (b), of section 1544 above-
quoted, as there is here no fiduciary heir, first heir, legatee or donee. Under that subsection, the tax should
have been paid before the delivery of the properties in question to P. J. M. Moore as trustee on March 10,
1924.

(b) The plaintiff contends that the estate of Thomas Hanley, in so far as the real properties are
concerned, did not and could not legally pass to the instituted heir, Matthew Hanley, until afer the
expiration of ten years from the death of the testator on May 27, 1922 and, that the inheritance tax should
be based on the value of the estate in 1932, or ten years afer the testator's death. The plaintiff introduced
evidence tending to show that in 1932 the real properties in question had a reasonable value of only
P5,787. This amount added to the value of the personal property lef by the deceased, which the plaintiff
admits is P1,465, would generate an inheritance tax which, excluding deductions, interest and surcharge,
would amount only to about P169.52.
If death is the generating source from which the power of the state to impose inheritance taxes its
being and if, upon the death of the decedent, succession takes place and the right of the state to tax vests
instantly, the tax should be measured by the value of the estate as it stood at the time of the decedent's
death, regardless of any subsequent contingency affecting value or any subsequent increase or decrease in
value. (61 C. J., pp. 1692, 1693; 26 R. C. L., p. 232; Blakemore and Bancrof, Inheritance Taxes, p. 137. See
also Knowlton vs. Moore, 178 U. S., 41; 20 Sup. Ct. Rep., 747; 44 Law ed., 969.) "The right of the state to an
inheritance tax accrues at the moment of death, and hence is ordinarily measured as to any beneficiary by
the value at that time of such property as passes to him. Subsequent appreciation or depreciation is
immaterial." (Ross, Inheritance Taxation, p. 72.).
Our attention is directed to the statement of the rule in Cyclopedia of Law and Procedure (vol. 37,
pp. 1574, 1575) that, in the case of contingent remainders, taxation is postponed until the estate vests in
possession or the contingency is settled. This rule was formerly followed in New York and has been
adopted in Illinois, Minnesota, Massachusetts, Ohio, Pennsylvania and Wisconsin. this rule, however, is by
no means entirely satisfactory either to the estate or to those interested in the property (26 R. C. L., p.
231). Realizing, perhaps, the defects of its anterior system, we find upon examination of cases and
authorities that New York has varied and now requires the immediate appraisal of the postponed estate at
its clear market value and the payment forthwith of the tax on it out of the corpus of the estate
transferred. (In re Vanderbilt, 172 N. Y., 69; 69 N. E., 782;In re Hober, 86 N. Y. App. Div., 458; 83 N. Y. Supp.,
769; Estate of Tracy, 179, 179 N. Y., 501; 72 N. Y., 519; Estate of Brez, 172 N. Y., 609; 64; 64 N. E., 958; Estate
of Post, 85 App. Div., 611; 82 N. Y. Supp., 1079. Vide also, Saltounvs. Lord Advocate, 1 Pater. Sc. App., 970; 3
Macq. H. L., 659; 23 Eng. Rul. Cas., 888.) California adheres to this new rule (Stats. 1905, sec. 5, p. 343).
But whatever may be the rule in other jurisdiction, we hold that a transmission by inheritance is
taxable at the time of the predecessor's death, notwithstanding the postponement of the actual
possession or enjoyment of the estate by the beneficiary, and the tax measured by the value of the
property transmitted at that time regardless of its appreciation or depreciation.
(c) Certain items are required by law to be deducted from the appraised gross value in arriving at
the net value of the estate on which the inheritance tax is to be computed (sec. 1539, Revised
Administrative Code). In the case at of only P480.81. This sum represents the expenses and disbursement
of the executors until March 10, 1924, among which were their fees and the proven debts of the deceased.
The plaintiff contends that the compensation and fees of the trustees, which aggregate P1,187.28 (Exhibits
C, AA, EE, PP, HH, JJ, LL, NN, OO)., should also be deducted under section 1539 of the Revised
Administrative Code which provides, in part, as follows: "In order to determine the net sum which must
bear the tax, when an inheritance is concerned, there shall be deducted, in case of a resident, . . . the
judicial expenses of the testamentary or intestate proceedings, . . .."
A trustee, no doubt, is entitled to receive a fair compensation for his services (Barney vs. Saunders,
16 How., 535; 14 Law. ed., 1047). But from this it does not follow that the compensation due him may
lawfully be deducted in arriving at the net value of the estate subject to tax. There is no statute in the
Philippines which requires trustees' commissions to be deducted in determining the net value of the estate
subject to inheritance tax (61 C. J., p. 1705). Furthermore, though a testamentary trust has been created, it
does not appear that the testator intended that the duties of his executors and trustees should be
separated. (Ibid.; In re Vanneck's Estate, 161 N. Y. Supp., 893; 175 App. Div., 363; In re Collard's Estate, 161
N. Y. Supp., 455.) On the contrary, in paragraph 5 of his will, the testator expressed the desire that his real
estate be handled and managed by his executors until the expiration of the period of ten years therein
provided. Judicial expenses are expenses of administration (61 C. J., p. 1705) but, in State vs. Hennepin
County Probate Court (112 N. W., 878; 101 Minn., 485), it was said: " . . . The compensation of a trustee,
earned, not in the administration of the estate, but in the management thereof for the benefit of the
legatees or devisees, does not come properly within the class or reason for exempting administration
expenses. . . . Services rendered in that behalf have no reference to closing the estate for the purpose of a
distribution thereof to those entitled to it and are not required or essential to the perfection of the rights
of the heirs or legatees. . . . Trusts . . . of the character of that here before the court, are created for the
benefit of those to whom the property ultimately passes, are of voluntary creation, and intended for the
preservation of the estate. No sound reason is given to support the contention that such expenses should
be taken into consideration in fixing the value of the estate for the purpose of this tax."
(d) The defendant levied and assessed the inheritance tax due from the estate of Thomas Hanley
under the provisions of section 1544 of the Revised Administrative Code, as amended by section 3 of Act
No. 3606. But Act No. 3606 went into effect on January 1, 1930. It, therefore, was not the law in force
when the testator died on May 27, 1922. The law at that time was section 1544 above-mentioned, as
amended by Act No. 3031, which took effect on March 9, 1922.
It is well-settled that inheritance taxation is governed by the statute in force at the time of the
death of the decedent (26 R. C. L., p. 206; 4 Cooley on Taxation, 4th ed., p. 3461). The taxpayer can not
foresee and ought not to be required to guess the outcome of pending measures. Of course, a tax statute
may be made retroactive in its operation. Liability for taxes under retroactive legislation has been "one of
the incidents of social life." (Seattle vs. Kelleher, 195 U.S., 351, 360; 49 Law. ed., 232; 25 Sup. Ct. Rep., 44.)
But legislative intent that a tax statute should operate retroactively should be perfectly clear. (Scwab vs.
Doyle, 42 Sup. Ct., Rep., 491; Smietankavs. First Trust & Savings Bank, 257 U. S., 602; Stockdale vs.
Insurance Co., 20 Wall., 323 Lunch vs. Turrish, 247 U. S., 221.) "A statute should be considered as
prospective in its operation, whether it enacts, amends, or repeals an inheritance tax, unless the language
of the statute clearly demands or presses that it shall have a retroactive effect, . . . (61 C. J., p. 1602.)
Though the last paragraph of section of Regulations No. 65 of the Department of Finance makes section 3
of Act No. 3606, amending section 1544 of the Revised Administrative Code, applicable to all estates the
inheritance taxes due from which have not been paid, Act No. 3606 itself contains no provisions indicating
legislative intent to give it retroactive effect. No Such effect can be given the statute by this court.
The defendant Collector of Internal Revenue maintains, however, that certain provisions of Act No.
3606 are more favorable to the taxpayer than those of Act No. 3031, that said provisions are penal in
nature and, therefore, should operate retroactively in conformity with the provisions of article 22 of the
Revised Penal Code. This is the reason why he applied Act No. 3606 instead of Act No. 3031. Indeed, under
Act No. 3606, (1) the surcharge of 25 per cent is based on the tax only, instead of on both the tax and the
interest, as provided for in Act No. 3031, and (2) the taxpayer is allowed twenty days from notice and
demand by the Collector of Internal Revenue within which to pay the tax, instead of ten days only as
required by the old law.
Properly speaking, a statute is penal when it imposes punishment for an offense committed against
the state which, under the Constitution, the Executive has the power to pardon. In common use, however,
this sense has been enlarged to include within the term "penal statutes" all statutes which command or
prohibit certain acts, and establish penalties for their violation, and even those which, without expressly
prohibiting certain acts, impose a penalty upon their commission (59 C. J., p. 1110). Revenue laws,
generally, which impose taxes collected by the means ordinarily resorted to for the collection of taxes are
not classed as penal laws, although there are authorities to the contrary. (See Sutherland, Statutory
Construction, 361; Twine Co., vs. Worthington, 141 U.S. , 468; 12 Sup. Ct., 55; Rice vs. U. S., 4 C. C. A., 104;
53 Fed., 910; Com. vs. Standard Oil Co., 101 Pa. St., 150; State vs. Wheeler, 44 P., 430; 25 Nev., 143.) Article
22 of the Revised Penal Code is not applicable to the case at bar, and in the absence of clear legislative
intent, we cannot give Act No. 3606 a retroactive effect.

(e) The plaintiff correctly states that the liability to pay a tax may arise at a certain time and the tax
may be paid within another given time. As stated by this court, "the mere failure to pay one's tax does not
render one delinquent until and unless the entire period has elapsed within which the taxpayer is
authorized by law to make such payments without being subjected to the payment of penalties for failure
to pay his taxes within the prescribed period." (U. S. vs. Labadan, 26 Phil., 239.)
The defendant maintains that it was the duty of the executor to pay the inheritance tax before the
delivery of the decedent's property to the trustee. Stated otherwise, the defendant contends that delivery
to the trustee was delivery to the cestui que trust, the beneficiary in this case, within the meaning of the
first paragraph of subsection (b) of section 1544 of the Revised Administrative Code. This contention is well
taken and is sustained. The appointment of P. J. M. Moore as trustee was made by the trial court in
conformity with the wishes of the testator as expressed in his will. It is true that the word "trust" is not
mentioned or used in the will but the intention to create one is clear. No particular or technical words are
required to create a testamentary trust (69 C. J., p. 711). The words "trust" and "trustee", though apt for
the purpose, are not necessary. In fact, the use of these two words is not conclusive on the question that a
trust is created (69 C. J., p. 714). "To create a trust by will the testator must indicate in the will his intention
so to do by using language sufficient to separate the legal from the equitable estate, and with sufficient
certainly designate the beneficiaries, their interest in the trust, the purpose or object of the trust, and the
property or subject matter thereof, Stated otherwise, to constitute a valid testamentary trust there must
be a concurrence of three circumstances: (1) Sufficient words to raise a trust; (2) a definite subject; (3) a
certain or ascertained object; statutes in some jurisdictions expressly or in effect so providing." (69 C. J., pp.
705, 706.) There is no doubt that the testator intended to create a trust. He ordered in his will that certain
of his properties be kept together undisposed during a fixed period, for a stated purpose. The probate
court certainly exercised sound judgment in appointing a trustee to carry into effect the provisions of the
will (see sec. 582, Code of Civil Procedure).
P. J. M. Moore became trustee on March 10, 1924. On that date the trust estate vested in him (sec.
582 in relation to sec. 590, Code of Civil Procedure). The mere fact that the estate of the deceased was
placed in trust did not remove it from the operation of our inheritance tax laws or exempt it from the
payment of the inheritance tax. The corresponding inheritance tax should have been paid on or before
March 10, 1924, to escape the penalties of the law. This is so for the reason already stated that the delivery
of the estate to the trustee was in esse delivery of the same estate to the cestui que trust, the beneficiary in
this case. A trustee is but an instrument or agent for the cestui que trust (Shelton vs. King, 299 U. S., 90; 33
Sup. Ct. Rep., 689; 57 Law. ed., 1086). When Moore accepted the trust and took possession of the trust
estate he thereby admitted that the estate belonged not to him but to his cestui que trust (Tolentino vs.
Vitug, 39 Phil., 126, cited in 65 C. J., p. 692, n. 63). He did not acquire any beneficial interest in the estate.
He took such legal estate only as the proper execution of the trust required (65 C. J., p. 528) and, his estate
ceased upon the fulfillment of the testator's wishes. The estate then vested absolutely in the beneficiary
(65 C. J., p. 542).
The highest considerations of public policy also justify the conclusion we have reached. Were we to
hold that the payment of the tax could be postponed or delayed by the creation of a trust of the type at
hand, the result would be plainly disastrous. Testators may provide, as Thomas Hanley has provided, that
their estates be not delivered to their beneficiaries until afer the lapse of a certain period of time. In the
case at bar, the period is ten years. In other cases, the trust may last for fify years, or for a longer period
which does not offend the rule against perpetuities. The collection of the tax would then be lef to the will
of a private individual. The mere suggestion of this result is a sufficient warning against the acceptance of
the contention of the plaintiff in the case at bar. Taxes are essential to the very existence of government.
(Dobbins vs. Erie County, 16 Pet., 435; 10 Law. ed., 1022; Kirkland vs. Hotchkiss, 100 U. S., 491; 25 Law. ed.,
558; Lane County vs. Oregon, 7 Wall, 71; 19 Law. ed., 101; Union Refrigerator Transit Co., vs. Kentucky, 199
U. S., 194; 26 Sup. Ct., Rep., 36; 50 Law. ed., 150; Charles River Bridge vs. Warren Bridge, 11 Pet., 420; 9
Law. ed., 773.) The obligation to pay taxes rests not upon the privileges enjoyed by, or the protection
afforded to, a citizen by the government, but upon the necessity of money for the support of the state
(Dobbins vs. Erie County, supra). For this reason, no one is allowed to object to or resist the payment of
taxes solely because no personal benefit to him can be pointed out. (Thomas vs. Gay, 169 U. S., 264; 18
Sup. Ct. Rep., 340; 43 Law. ed., 740.) While courts will not enlarge, by construction, the government's
power of taxation (Bromley vs. McCaughn, 280 U. S., 124; 74 Law. ed., 226; 50 Sup. Ct. Rep., 46) they also
will not place upon tax laws so loose a construction as to permit evasions on merely fanciful and
insubstantial distinctions. (U. S. vs. Watts, 1 Bond, 580; Fed. Cas. No. 16,653; U. S. vs. Wigglesworth, 2
Story, 369; Fed. Cas. No. 16,690, followed in Froelich & Kuttner vs. Collector of Customs, 18 Phil., 461, 481;
Castle Bros., Wolf & Sons vs. McCoy, 21 Phil., 300; Muñoz & Co. vs. Hord, 12 Phil., 624; Hongkong &
Shanghai Banking Corporation vs. Rafferty, 39 Phil., 145; Luzon Stevedoring Co. vs. Trinidad, 43 Phil., 803.)
When proper, a tax statute should be construed to avoid the possibilities of tax evasion. Construed this
way, the statute, without resulting in injustice to the taxpayer, becomes fair to the government.
That taxes must be collected promptly is a policy deeply intrenched in our tax system. Thus, no
court is allowed to grant injunction to restrain the collection of any internal revenue tax (sec. 1578, Revised
Administrative Code; Sarasola vs. Trinidad, 40 Phil., 252). In the case of Lim Co Chui vs. Posadas (47 Phil.,
461), this court had occasion to demonstrate trenchant adherence to this policy of the law. It held that "the
fact that on account of riots directed against the Chinese on October 18, 19, and 20, 1924, they were
prevented from paying their internal revenue taxes on time and by mutual agreement closed their homes
and stores and remained therein, does not authorize the Collector of Internal Revenue to extend the time
prescribed for the payment of the taxes or to accept them without the additional penalty of twenty five per
cent." (Syllabus, No. 3.) ". . . It is of the utmost importance," said the Supreme Court of the United Stated.
". . . that the modes adopted to enforce the taxes levied should be interfered with as little as possible. Any
delay in the proceedings of the officers, upon whom the duty is devolved of collecting the taxes, may
derange the operations of government, and thereby cause serious detriment to the public." (Dows vs.
Chicago, 11 Wall., 108; 20 Law. ed., 65.66; Churchill and Tait vs. Rafferty, 32 Phil., 580.)
It results that the estate which plaintiff represents has been delinquent in the payment of
inheritance tax and, therefore, liable for the payment of interest and surcharge provided by law in such
cases.
The delinquency in payment occurred on March 10, 1924, the date when Moore became trustee.
The interest due should be computed from that date and it is error on the part of the defendant to
compute it one month later. The provision of law requiring the payment of interest in appropriate cases is
mandatory (see and cf. Lim Co Chui vs. Posadas, supra), and neither the Collector of Internal Revenue nor
this court may remit or decrease such interest, no matter how heavily it may burden the taxpayer.
To the tax and interest due and unpaid within ten days afer the date of notice and demand thereof
by the Collector of Internal Revenue, a surcharge of twenty-five per centum should be added (sec. 1544,
subsec. (b), par. 2 Revised Administrative Code). Demand was made by the Deputy Collector of Internal
Revenue upon Moore in a communication dated October 16, 1931 (Exhibit 29). The date fixed for the
payment of the tax and interest was November 30, 1931. November 30 being an official holiday, the tenth
day fell on December 1, 1931. As the tax and interest due were not paid on that date, the estate became
liable for the payment of the surcharge.
In view of the foregoing, it becomes unnecessary for us to discuss the fifh error assigned by the
plaintiff in his brief.
We shall now compute the tax, together with the interest and surcharge, due from the estate of
Thomas Hanley in accordance with the conclusion we have reached.
At the time of his death, the deceased lef real properties valued at P27,920 and personal
properties worth P1,465, or a total of P29,385. Deducting from this amount the sum of P480.81,
representing allowable deductions under section 1539 of the Revised Administrative Code, we have
P28,904.19 as the net value of the estate subject to inheritance tax.
The primary tax, according to section 1536, subsection (c), of the Revised Administrative Code,
should be imposed at the rate of one per centum upon the first ten thousand pesos and two per centum
upon the amount by which the share of the beneficiary exceeds ten thousand pesos but does not exceed
thirty thousand pesos, plus an additional two hundred per centum. One per centum of ten thousand pesos
is P100. Two per centum of P18,904.19 is P378.08. Adding to these two sums an additional two hundred
per centum, or P956.16, we have as primary tax, correctly computed by the defendant, the sum of
P1,434.24.

To the primary tax thus computed should be added the sums collectible under section 1544 of the
Revised Administrative Code. First should be added P1,465.31 which stands for interest at the rate of
twelve per centum per annum from March 10, 1924, the date of delinquency, to September 15, 1932, the
date of payment under protest, a period covering 8 years, 6 months and 5 days. To the tax and interest thus
computed should be added the sum of P724.88, representing a surcharge of 25 per cent on both the tax
and interest, and also P10, the compromise sum fixed by the defendant (Exh. 29), giving a grand total of
P3,634.43.
As the plaintiff has already paid the sum of P2,052.74, only the sum of P1,581.69 is legally due from
the estate. This last sum is P390.42 more than the amount demanded by the defendant in his
 counterclaim. But, as we cannot give the defendant more than what he claims, we must hold that the
plaintiff is liable only in the sum of P1,191.27, the amount stated in the counterclaim.
The judgment of the lower court is accordingly modified, with costs against the plaintiff in both
instances. So ordered.
Avanceña, C. J. Abad Santos, Imperial, Diaz and Concepcion, JJ., concur.
||| (Lorenzo v. Posadas, Jr., G.R. No. 43082, [June 18, 1937], 64 PHIL 353-374)

FIRST DIVISION

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

ILDEFONSO O. ELEGADO, as Ancillary Administrator of the Testate Estate of the late

WARREN Taylor GRAHAM, petitioner, vs. HON. COURT OF TAX APPEALS and
COMMISSIONER OF INTERNAL REVENUE,respondents.

Agrava, Lucero & Gineta for petitioner.

The Office of the Solicitor General for public respondents.

SYLLABUS

1. TAXATION; NATIONAL INTERNAL REVENUE CODE; ESTATE TAX; SECOND ASSESSMENT OF LESSER AMOUNT
DOES NOT CANCEL PREVIOUS ASSESSMENT WHICH HAS BECOME FINAL AND EXECUTORY. — It is noted that in
the letter of July 3, 1980, imposing the second assessment of P72,948.87, the Commissioner made it clear that
"the aforesaid amount is considered provisional only based on the estate tax return filed subject to
investigation by this Office for final determination of the correct estate tax due from the estate. Any amount
that may be found due afer said investigation will be assessed and collected later." It is illogical to suggest that
a provisional second assessment of P72,948.87 can supersede an earlier assessment of P96,509.35 which had
clearly become final and executory for failure to contest the assessment for six (6) years.
2. CIVIL LAW; EFFECT AND APPLICATION OF LAWS; IGNORANCE OF THE LAW EXCUSES NO ONE FROM
COMPLIANCE THEREWITH; APPLICABLE WITH EQUAL FORCE AND EFFECT ON TAX CASES; CASE AT BAR. — The
petitioner cannot be serious when he argues that the first assessment was invalid because the foreign lawyers
who filed the return on which it was based were not familiar with our tax laws and procedure. Is the petitioner
suggesting that they are excused from compliance therewith because of their ignorance? If our own lawyers
and taxpayers cannot claim a similar preference because they are not allowed to claim a like ignorance, it
stands to reason that foreigners cannot be any less bound by our own laws in our own country. A more obvious
and shallow discrimination than that suggested by the petitioner is indeed difficult to find.
3. REMEDIAL LAW; SPECIAL CIVIL ACTION; CERTIORARI; ISSUES WHICH HAD ATTAINED FINALITY CAN NO
LONGER BE RAISED ANEW ON APPEAL; CASE AT BAR. — In view of the finality of the first assessment, the
petitioner cannot now raise the question of its validity before this Court any more than he could have done so
before the Court of Tax Appeals. What the estate of the decedent should have done earlier, following the
denial of its protest on July 7, 1978, was to appeal to theCourt of Tax Appeals within the reglementary
period of 30 days afer it received notice of said denial. It was in such appeal that the petitioner could then
have raised the first two issues he now raises without basis in the present petition.

DECISION

CRUZ, J p:

What the petitioner presents as a rather complicated problem is in reality a very simple question from the
viewpoint of the Solicitor General. We agree with the latter. There is actually only one issue to be resolved in
this action. That issue is whether or not the respondent Court of Tax Appeals erred in dismissing the
petitioner's appeal on grounds of jurisdiction and lack of a cause of action.
Appeal from what? That indeed is the question.
But first the facts.
On March 14, 1976, Warren Taylor Graham, an American national formerly resident in the Philippines, died in
Oregon, U.S.A. 1 As he lef certain shares of stock in the Philippines, his son, Ward Graham, filed an
estate tax return on September 16, 1976, with the Philippine Revenue Representative in San Francisco, U.S.A. 2
On the basis of this return, the respondent Commissioner of Internal Revenue assessed the decedent's estate
an estate taxin the amount of P96,509.35 on February 9, 1978. 3 This assessment was protested on March 7,
1978, by the law firm ofBump, Young and Walker on behalf of the estate. 4 The protest was denied by the
Commissioner on July 7, 1978. 5 No further action was taken by the estate in pursuit of that protest. cdll
Meanwhile, on January 18, 1977, the decedent's will had been admitted to probate in the
Circuit Court of Oregon. 6 Ward Graham, the designated executor, then appointed Ildefonso Elegado, the
herein petitioner, as his attorney-in-fact for the allowance of the will in the Philippines. 7
Pursuant to such authority, the petitioner commenced probate proceedings in the Court of First
Instance of Rizal. 8 The will was allowed on December 18, 1978, with the petitioner as ancillary
administrator. 1 0
On the basis of this second return, the Commissioner imposed an assessment on the estate in the
amount of P72,948.87. 11 This was protested on behalf of the estate by the Agrava, Lucero and Gineta Law
Office on August 13, 1980. 12
While this protest was pending, the Commissioner filed in the probate proceedings a motion for the
allowance of the basic estate tax of P96,509.35 as assessed on February 9, 1978. 13 He said that this liability
had not yet been paid although the assessment had long become final and executory.
The petitioner regarded this motion as an implied denial of the protest filed on August 13, 1980, against the
second assessment of P72,948.87. 14 On this understanding, he filed on September 15, 1981, a petition for
review with the Courtof Tax Appeals challenging the said assessment. 15
The Commissioner did not immediately answer (in fact, as the petitioner stressed, no answer was filed during a
delay of195 days) and in the end instead cancelled the protested assessment in a letter to the decedent's
estate dated March 31, 1982. 16 This cancellation was notified to the Court of Tax Appeals in a motion to
dismiss on the ground that the protest had become moot and academic. 17
The motion was granted and the petition dismissed on April 25, 1984. 18 The petitioner then came to
this Court oncertiorari under Rule 45 of the Rules of Court.
The petitioner raises three basic questions, to wit, (1) whether the shares of stocks lef by the decedent should
be treated as his exclusive, and not conjugal, property; (2) whether the said stocks should be assessed as of the
time of the owner's death or six months thereafer; and (3) whether the appeal filed with the
respondent court should be considered moot and academic.
We deal first with the third issue as it is decisive of this case.
In the letter to the decedent's estate dated March 31,1982, the Commissioner of Internal Revenue wrote as
follows:
Estate of WARREN T. GRAHAM c/o
Mr. ILDEFONSO O. ELEGADO
Ancillary Administrator
Philex Building cor. Brixton &
Fairlane Sts.
Pasig, Metro Manila
Sir:
This is with regard to the estate of the late WARREN TAYLOR GRAHAM, who died a
resident of Oregon, U.S.A. on March 14, 1976. It appears that two (2) letters of demand were
issued by this Bureau. One is for the amount of P96,509.35 based on the first return filed, and
the other in the amount of P72,948.87, based on the second return filed.
It appears that the first assessment of P96,509.35 was issued on February 9, 1978 on the
basis of the estate tax return filed on September 16, 1976. The said assessment was, however,
protested in a letter dated March 7, 1978 but was denied on July 7, 1978. Since no appeal was
made within the regulatory period, the same has become final.
In view thereof, it is requested that you settle the aforesaid assessment for P96,509.35 within
fifeen (15) days upon receipt thereof to the Receivable Accounts Division, this Bureau, BIR
National Office Building, Diliman, Quezon City. The assessment for P72,949.57 dated July 3,
1980, referred to above is hereby cancelled.
Very truly yours,
(SGD.) RUBEN B. ANCHETA
Acting Commissioner 19
It is obvious from the express cancellation of the second assessment for P72,948.87 that the petitioner had
been deprivedof a cause of action as it was precisely from this assessment that he was appealing.
In its decision, the Court of Tax Appeals said that the petition questioning the assessment of July 3, 1980, was
"premature" since the protest to the assessment had not yet been resolved. 20 As a matter of fact it had: the
said assessment had been cancelled by virtue of the above-quoted letter. The respondent court was on surer
ground, however, when it followed with the finding that the said cancellation had rendered the petition moot
and academic. There was really no more assessment to review. cdphil
The petitioner argues that the issuance of the second assessment on July 3, 1980, had the effect of canceling
the first assessment of February 9, 1978, and that the subsequent cancellation of the second assessment did
not have the effect ofautomatically reviving the first. Moreover, the first assessment is not binding on him
because it was based on a return filed by foreign lawyers who had no knowledge of our tax laws or access to
the Court of Tax Appeals.
The petitioner is clutching at straws.
It is noted that in the letter of July 3, 1980, imposing the second assessment of P72,948.87, the Commissioner
made it clear that "the aforesaid amount is considered provisional only based on the estate tax return filed
subject to investigation by this Office for final determination of the correct estate tax due from the estate. Any
amount that may be found due afer said investigation will be assessed and collected later. 21 It is illogical to
suggest that a provisional assessment can supersede an earlier assessment which had clearly become final and
executory.
The second contention is no less flimsy. The petitioner cannot be serious when he argues that the first
assessment was invalid because the foreign lawyers who filed the return on which it was based were not
familiar with our tax laws and procedure. Is the petitioner suggesting that they are excused from compliance
therewith because of their ignorance?
If our own lawyers and taxpayers cannot claim a similar preference because they are not allowed to claim a like
ignorance, it stands to reason that foreigners cannot be any less bound by our own laws in our own country. A
more obvious and shallow discrimination than that suggested by the petitioner is indeed difficult to find.

But the most compelling consideration in this case is the fact that the first assessment is already final and
executory and can no longer be questioned at this late hour. The assessment was made on February 9, 1978. It
was protested on March 7, 1978. The protest was denied on July 7, 1978. As no further action was taken
thereon by the decedent's estate, there is no question that the assessment has become final and executory.
In fact, the law firm that had lodged the protest appears to have accepted its denial. In his motion with the
probate court, the respondent Commissioner stressed that "in a letter dated January 29, 1980, the
Estate of Warren Taylor Graham thru the aforesaid foreign law firm informed claimant that they have paid
said tax liability thru the Agrava, Velarde, Lucero and Puno, Philippine law firm of 313 Buendia Avenue Ext.,
Makati, Metro Manila that initiated the instant ancillary proceedings" although he added that such payment
had not yet been received. 22 This letter was an acknowledgment by the estate ofhe validity and
finality of the first assessment. Significantly, it has not been denied by the petitioner. llcd
In view of the finality of the first assessment, the petitioner cannot now raise the question of its validity before
this Courtany more than he could have done so before the Court of Tax Appeals. What the estate of the
decedent should have done earlier, following the denial of its protest on July 7, 1978, was to appeal to
the Court of Tax Appeals within the reglementary period of 30 days afer it received notice of said denial. It
was in such appeal that the petitioner could then have raised the first two issues he now raises without basis in
the present petition.
The question of whether or not the shares of stock lef by the decedent should be considered conjugal
property or belonging to him alone is immaterial in these proceedings. So too is the time at which the
assessment of these shares ofstock should have been made by the BIR. These questions were not resolved by
the Court of Tax Appeals because it had no jurisdiction to act on the petitioner's appeal from an assessment
that had already been cancelled. The assessment being no longer controversial or renewable, there was no
justification for the respondent court to rule on the petition except to dismiss it.
If indeed the Commissioner of Internal Revenue committed an error in the computation of the estate tax, as
the petitioner insists, that error can no longer be rectified because the original assessment has long become
final and executory. If that assessment was not challenged on time and in accordance with the prescribed
procedure, that error — for error it was — was committed not by the respondents but by the decedent's
estate itself which the petitioner represents. So how can he now complain?
WHEREFORE, the petition is DENIED, with costs against the petitioner. It is so ordered.
Narvasa, Griño-Aquino and Medialdea, JJ ., concur.
Gancayco, J ., on leave.
||| (Elegado v. Court of Tax Appeals, G.R. No. L-68385, [May 12, 1989], 255 PHIL 271-279)

THIRD DIVISION

[G.R. No. 140944. April 30, 2008.]

 RAFAEL ARSENIO S. DIZON, in his capacity as the Judicial Administrator of the Estate of the
deceased JOSE P. FERNANDEZ, petitioner, vs. COURT OF TAX APPEALS and
COMMISSIONER OF INTERNAL REVENUE,respondents.

DECISION

NACHURA, J p:

Before this Court is a Petition for Review on Certiorari 1 under Rule 45 of the Rules of Civil Procedure seeking
the reversalof the Court of Appeals (CA) Decision 2 dated April 30, 1999 which affirmed the
Decision 3 of the Court of Tax Appeals (CTA) dated June 17, 1997. 4 THaDAE
The Facts
On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafer, a petition for the probate of his will 5 was
filed with Branch 51 of the Regional Trial Court (RTC) of Manila (probate court). 6 The probate court then
appointed retired Supreme CourtJustice Arsenio P. Dizon (Justice Dizon) and petitioner, Atty. Rafael Arsenio
P. Dizon (petitioner) as Special and Assistant Special Administrator, respectively, of the Estate of Jose (Estate).
In a letter 7 dated October 13, 1988, Justice Dizoninformed respondent Commissioner of the
Bureau of Internal Revenue (BIR) of the special proceedings for the Estate.
Petitioner alleged that several requests for extension of the period to file the required estate tax return were
granted by the BIR since the assets of the estate, as well as the claims against it, had yet to be collated,
determined and identified. Thus, in a letter 8 dated March 14, 1990, Justice Dizon authorized Atty. Jesus M.
Gonzales (Atty. Gonzales) to sign and file on behalf of the Estate the required estate tax return and to
represent the same in securing a Certificate of Tax Clearance. Eventually, on April 17, 1990, Atty. Gonzales
wrote a letter 9 addressed to the BIR Regional Director for San Pablo City and filed the
estate tax return 10 with the same BIR Regional Office, showing therein a NIL estate tax liability, computed as
follows: aAcDSC
COMPUTATION OF TAX
Conjugal Real Property (Sch. 1) P10,855,020.00
Conjugal Personal Property (Sch. 2) 3,460,591.34
Taxable Transfer (Sch. 3)
Gross Conjugal Estate 14,315,611.34
Less: Deductions (Sch. 4) 187,822,576.06
Net Conjugal Estate NIL
Less: Share of Surviving Spouse NIL
———————.
Net Share in Conjugal Estate NIL

xxx xxx xxx

Net Taxable Estate NIL

 ———————.
Estate Tax Due NIL. 11
———————.
On April 27, 1990, BIR Regional Director for San Pablo City, Osmundo G. Umali issued Certification Nos.
2052 12 and 2053 13stating that the taxes due on the transfer of real and personal properties 14 of Jose had
been fully paid and said properties may be transferred to his heirs. Sometime in August 1990,
Justice Dizon passed away. Thus, on October 22, 1990, the probate court appointed petitioner as the
administrator of the Estate. 15 EIAScH
Petitioner requested the probate court's authority to sell several properties forming part of the Estate, for the
purpose ofpaying its creditors, namely: Equitable Banking Corporation (P19,756,428.31), Banque de
L'Indochine et de Suez (US$4,828,905.90 as of January 31, 1988), Manila Banking Corporation (P84,199,160.46
as of February 28, 1989) and State Investment House, Inc. (P6,280,006.21). Petitioner manifested that Manila
Bank, a major creditor of the Estate was not included, as it did not file a claim with the probate court since it
had security over several real estate properties forming part of the Estate. 16
However, on November 26, 1991, the Assistant Commissioner for Collection of the BIR, Themistocles
Montalban, issued Estate Tax Assessment Notice No. FAS-E-87-91-003269, 17 demanding the
payment of P66,973,985.40 as deficiency estatetax, itemized as follows: HCSEcI
Deficiency Estate Tax — 1987
Estate tax P31,868,414.48
25% surcharge - late filing 7,967,103.62
late payment 7,967,103.62
Interest 19,121,048.68
Compromise - non filing 25,000.00
non payment 25,000.00
no notice of death 15.00
no CPA Certificate 300.00
————————
Total amount due & collectible P66,973,985.40 18
===============
In his letter 19 dated December 12, 1991, Atty. Gonzales moved for the reconsideration of the said
estate tax assessment. However, in her letter 20 dated April 12, 1994, the BIR Commissioner denied the
request and reiterated that the estate is liable for the payment of P66,973,985.40 as deficiency estate tax. On
May 3, 1994, petitioner received the letter of denial. On June 2, 1994, petitioner filed a petition for
review 21 before respondent CTA. Trial on the merits ensued.
As found by the CTA, the respective parties presented the following pieces of evidence, to wit: STaHIC
In the hearings conducted, petitioner did not present testimonial evidence but merely
documentary evidence consisting of the following:
 Nature of Document (sic)
Exhibits
1. Letter dated October 13, 1988 from
Arsenio P. Dizon addressed to the
Commissioner of Internal Revenue
informing the latter of the special
proceedings for the settlement of
the estate (p. 126, BIR records); "A"
2. Petition for the probate of the will
and issuance of letter of administration
filed with the Regional Trial Court
(RTC) of Manila, docketed as Sp.
Proc. No. 87-42980 (pp. 107-108,
BIR records); "B" & "B-1" aAHDIc
3. Pleading entitled "Compliance"
filed with the probate Court
submitting the final inventory
of all the properties of the
deceased (p. 106, BIR records); "C"
4. Attachment to Exh. "C" which
is the detailed and complete
listing of the properties of
the deceased (pp. 89-105, BIR rec.); "C-1" to "C-17"
5. Claims against the estate filed
by Equitable Banking Corp. with
the probate Court in the amount
of P19,756,428.31 as of March 31,
1988, together with the Annexes
to the claim (pp. 64-88, BIR records); "D" to "D-24"
6. Claim filed by Banque de L'
Indochine et de Suez with the
probate Court in the amount of
US $4,828,905.90 as of January
31, 1988 (pp. 262-265, BIR records); "E" to "E-3"
7. Claim of the Manila Banking
Corporation (MBC) which as of
November 7, 1987 amounts to
P65,158,023.54, but recomputed
as of February 28, 1989 at a
total amount of P84,199,160.46;
together with the demand letter
from MBC's lawyer (pp. 194-197,
BIR records); "F" to "F-3"
8. Demand letter of Manila Banking
Corporation prepared by Asedillo,
 Ramos and Associates Law Offices
addressed to Fernandez Hermanos,
Inc., represented by Jose P.
Fernandez, as mortgagors, in the
total amount of P240,479,693.17
as of February 28, 1989
(pp. 186-187, BIR records); "G" & "G-1"
9. Claim of State Investment
House, Inc. filed with the
RTC, Branch VII of Manila,
docketed as Civil Case No.
86-38599 entitled "State
Investment House, Inc.,
Plaintiff, versus Maritime
Company Overseas, Inc. and/or
Jose P. Fernandez, Defendants",
(pp. 200-215, BIR records); "H" to "H-16"
10. Letter dated March 14, 1990
of Arsenio P. Dizon addressed
to Atty. Jesus M. Gonzales,
(p. 184, BIR records); "I"
11. Letter dated April 17, 1990
from J.M. Gonzales addressed
to the Regional Director of
BIR in San Pablo City
(p. 183, BIR records); "J"
12. Estate Tax Return filed by
the estate of the late Jose P.
Fernandez through its authorized
representative, Atty. Jesus M.
Gonzales, for Arsenio P. Dizon,
with attachments (pp. 177-182,
BIR records); "K" to "K-5"
13. Certified true copy of the
Letter of Administration
issued by RTC Manila, Branch
51, in Sp. Proc. No. 87-42980
appointing Atty. Rafael S.
Dizon as Judicial Administrator
of the estate of Jose P.
Fernandez; (p. 102, CTA records)
and "L"
14. Certification of Payment of
estate taxes Nos. 2052 and
2053, both dated April 27, 1990,
issued by the Office of the
 Regional Director, Revenue
Region No. 4-C, San Pablo
City, with attachments
(pp. 103-104, CTA records.). "M" to "M-5"
Respondent's [BIR] counsel presented on June 26, 1995 one witness in the person of Alberto
Enriquez, who was one of the revenue examiners who conducted the investigation on the
estate tax case of the late Jose P. Fernandez. In the course of the direct examination of the
witness, he identified the following:
Documents/
Signatures BIR Record
1. Estate Tax Return prepared by
the BIR; p. 138
2. Signatures of Ma. Anabella
Abuloc and Alberto Enriquez,
Jr. appearing at the lower
Portion of Exh. "1"; -do-
3. Memorandum for the Commissioner,
dated July 19, 1991, prepared by
revenue examiners, Ma. Anabella A.
Abuloc, Alberto S. Enriquez and
Raymund S. Gallardo; Reviewed by
Maximino V. Tagle pp. 143-144
4. Signature of Alberto S.
Enriquez appearing at the
lower portion on p. 2 of Exh. "2"; -do-
5. Signature of Ma. Anabella A.
Abuloc appearing at the
lower portion on p. 2 of Exh. "2"; -do-
6. Signature of Raymund S.
Gallardo appearing at the
Lower portion on p. 2 of Exh. "2"; -do-
7. Signature of Maximino V.
Tagle also appearing on
p. 2 of Exh. "2"; -do-
8. Summary of revenue
Enforcement Officers Audit
Report, dated July 19, 1991; p. 139
9. Signature of Alberto
Enriquez at the lower
portion of Exh. "3"; -do-
10. Signature of Ma. Anabella A.
Abuloc at the lower
portion of Exh. "3"; -do-
 11. Signature of Raymond S.
Gallardo at the lower
portion of Exh. "3"; -do-
12. Signature of Maximino
V. Tagle at the lower
portion of Exh. "3"; -do-
13. Demand letter (FAS-E-87-91-00),
signed by the Asst. Commissioner
for Collection for the Commissioner
of Internal Revenue, demanding
payment of the amount of
P66,973,985.40; and p. 169
14. Assessment Notice FAS-E-87-91-00 pp. 169-170 22
The CTA's Ruling
On June 17, 1997, the CTA denied the said petition for review. Citing this Court's ruling in Vda. de
Oñate v. Court of Appeals,23 the CTA opined that the aforementioned pieces of evidence introduced by the BIR
were admissible in evidence. The CTAratiocinated: HSCATc
Although the above-mentioned documents were not formally offered as evidence for
respondent, considering that respondent has been declared to have waived the presentation
thereof during the hearing on March 20, 1996, still they could be considered as evidence for
respondent since they were properly identified during the presentation ofrespondent's
witness, whose testimony was duly recorded as part of the records of this case. Besides, the
documents marked as respondent's exhibits formed part of the BIR records of the case. 24

Nevertheless, the CTA did not fully adopt the assessment made by the BIR and it came up with its own
computation ofhe deficiency estate tax, to wit: DaCTcA
Conjugal Real Property P5,062,016.00
Conjugal Personal Prop. 33,021,999.93
——————
Gross Conjugal Estate 38,084,015.93
Less: Deductions 26,250,000.00
–——————
Net Conjugal Estate P11,834,015.93
Less: Share of Surviving Spouse 5,917,007.96
——————
Net Share in Conjugal Estate P5,917,007.96
Add: Capital/Paraphernal
Properties — P44,652,813.66
 Less: Capital/Paraphernal
Deductions 44,652,813.66
———————
Net Taxable Estate P50,569,821.62
============
Estate Tax Due P29,935,342.97
Add: 25% Surcharge for Late Filing 7,483,835.74
Add: Penalties for-No notice of death 15.00
No CPA certificate 300.00
———————
Total deficiency estate tax P37,419,493.71
============
exclusive of 20% interest from due date of its payment until full payment thereof
[Sec. 283 (b), Tax Code of 1987]. 25
Thus, the CTA disposed of the case in this wise:
WHEREFORE, viewed from all the foregoing, the Court finds the petition unmeritorious and
denies the same. Petitioner and/or the heirs of Jose P. Fernandez are hereby ordered to pay to
respondent the amount ofP37,419,493.71 plus 20% interest from the due date of its payment
until full payment thereof as estate tax liability ofhe estate of Jose P. Fernandez who died on
November 7, 1987. IaAHCE
SO ORDERED. 26
Aggrieved, petitioner, on March 2, 1998, went to the CA via a petition for review. 27
The CA's Ruling
On April 30, 1999, the CA affirmed the CTA's ruling. Adopting in full the CTA's findings, the CA ruled that the
petitioner's actof filing an estate tax return with the BIR and the issuance of BIR Certification Nos. 2052 and
2053 did not deprive the BIR Commissioner of her authority to re-examine or re-assess the said return filed on
behalf of the Estate. 28
On May 31, 1999, petitioner filed a Motion for Reconsideration 29 which the CA denied in its
Resolution 30 dated November 3, 1999.
Hence, the instant Petition raising the following issues:
1. Whether or not the admission of evidence which were not formally offered by the
respondent BIR by the Courtof Tax Appeals which was subsequently upheld by
the Court of Appeals is contrary to the Rules of Court and rulings of this
Honorable Court; aDCIHE
2. Whether or not the Court of Tax Appeals and the Court of Appeals erred in
recognizing/considering the estatetax return prepared and filed by respondent BIR
knowing that the probate court appointed administrator of the estate of Jose P.
 Fernandez had previously filed one as in fact, BIR Certification Clearance Nos. 2052
and 2053 had been issued in the estate's favor;
3. Whether or not the Court of Tax Appeals and the Court of Appeals erred in disallowing the
valid and enforceable claims of creditors against the estate, as lawful deductions
despite clear and convincing evidence thereof; and
4. Whether or not the Court of Tax Appeals and the Court of Appeals erred in validating
erroneous double imputation of values on the very same estate properties in the
estate tax return it prepared and filed which effectively bloated the estate's assets. 31
The petitioner claims that in as much as the valid claims of creditors against the Estate are in excess of the
gross estate, no estate tax was due; that the lack of a formal offer of evidence is fatal to BIR's cause; that the
doctrine laid down in Vda. de Oñate has already been abandoned in a long line of cases in which
the Court held that evidence not formally offered is without any weight or value; that Section 34 of Rule
132 of the Rules on Evidence requiring a formal offer of evidence is mandatory in character; that, while BIR's
witness Alberto Enriquez (Alberto) in his testimony before the CTA identified the pieces of evidence
aforementioned such that the same were marked, BIR's failure to formally offer said pieces of evidence and
depriving petitioner the opportunity to cross-examine Alberto, render the same inadmissible in evidence; that
assuming arguendo that the ruling in Vda. de Oñate is still applicable, BIR failed to comply with the doctrine's
requisites because the documents herein remained simply part of the BIR records and were not duly
incorporated in the courtrecords; that the BIR failed to consider that although the actual payments made to
the Estate creditors were lower than their respective claims, such were compromise agreements reached long
afer the Estate's liability had been settled by the filing of its estate tax return and the issuance of BIR
Certification Nos. 2052 and 2053; and that the reckoning date of the claims against the Estate and the
settlement of the estate tax due should be at the time the estate tax return was filed by the judicial
administrator and the issuance of said BIR Certifications and not at the time the aforementioned Compromise
Agreements were entered into with the Estate's creditors. 32 EcDATH
On the other hand, respondent counters that the documents, being part of the records of the case and duly
identified in a duly recorded testimony are considered evidence even if the same were not formally offered;
that the filing of the estatetax return by the Estate and the issuance of BIR Certification Nos. 2052 and 2053 did
not deprive the BIR of its authority to examine the return and assess the estate tax; and that the factual
findings of the CTA as affirmed by the CA may no longer be reviewed by this Court via a petition for review. 33
The Issues
There are two ultimate issues which require resolution in this case:
First. Whether or not the CTA and the CA gravely erred in allowing the admission of the pieces of evidence
which were not formally offered by the BIR; and
Second. Whether or not the CA erred in affirming the CTA in the latter's determination of the deficiency
estate tax imposed against the Estate.
The Court's Ruling
The Petition is impressed with merit.
Under Section 8 of RA 1125, the CTA is categorically described as a court of record. As cases filed before it are
litigated de novo, party-litigants shall prove every minute aspect of their cases. Indubitably, no evidentiary
value can be given the pieces of evidence submitted by the BIR, as the rules on documentary evidence require
that these documents must be formally offered before the CTA. 34 Pertinent is Section 34, Rule 132 of the
Revised Rules on Evidence which reads: HSTAcI
 SEC. 34. Offer of evidence. — The court shall consider no evidence which has not been
formally offered. The purpose for which the evidence is offered must be specified.
The CTA and the CA rely solely on the case of Vda. de Oñate, which reiterated this Court's previous rulings
in People v. Napat-a 35 and People v. Mate 36 on the admission and consideration of exhibits which were not
formally offered during the trial. Although in a long line of cases many of which were decided afer Vda. de
Oñate, we held that courts cannot consider evidence which has not been formally offered, 37 nevertheless,
petitioner cannot validly assume that the doctrine laid down in Vda. de Oñate has already been abandoned.
Recently, in Ramos v. Dizon, 38 this Court, applying the said doctrine, ruled that the trial court judge therein
committed no error when he admitted and considered the respondents' exhibits in the resolution of the case,
notwithstanding the fact that the same were not formally offered. Likewise, in Far East Bank & Trust
Company v. Commissioner of Internal Revenue, 39 the Court made reference to said doctrine in resolving the
issues therein. Indubitably, the doctrine laid down in Vda. De Oñate still subsists in this jurisdiction. In Vda. de
Oñate,we held that: cIEHAC
From the foregoing provision, it is clear that for evidence to be considered, the same must be
formally offered. Corollarily, the mere fact that a particular document is identified and marked
as an exhibit does not mean that it has already been offered as part of the evidence of a party.
In Interpacific Transit, Inc. v. Aviles [186 SCRA 385], we had the occasion to make a distinction
between identification of documentary evidence and its formal offer as an exhibit. We said
that the first is done in the course of the trial and is accompanied by the marking of the
evidence as an exhibit while the second is done only when the party rests its case and not
before. A party, therefore, may opt to formally offer his evidence if he believes that it will
advance his cause or not to do so at all. In the event he chooses to do the latter, the
trial court is not authorized by the Rules to consider the same.
However, in People v. Napat-a [179 SCRA 403] citing People v. Mate [103 SCRA 484], we
relaxed the foregoing rule and allowed evidence not formally offered to be admitted and
considered by the trial court provided the following requirements are present, viz.: first, the
same must have been duly identified by testimony duly recorded and, second, the same
must have been incorporated in the records of the case. 40 CITSAc
From the foregoing declaration, however, it is clear that Vda. de Oñate is merely an exception to the general
rule. Being an exception, it may be applied only when there is strict compliance with the requisites mentioned
therein; otherwise, the general rule in Section 34 of Rule 132 of the Rules of Court should prevail.
In this case, we find that these requirements have not been satisfied. The assailed pieces of evidence were
presented and marked during the trial particularly when Alberto took the witness stand. Alberto identified
these pieces of evidence in his direct testimony. 41 He was also subjected to cross-examination and re-cross
examination by petitioner. 42 But Alberto's account and the exchanges between Alberto and petitioner did not
sufficiently describe the contents of the said pieces ofevidence presented by the BIR. In fact, petitioner sought
that the lead examiner, one Ma. Anabella A. Abuloc, be summoned to testify, inasmuch as Alberto was
incompetent to answer questions relative to the working papers. 43 The lead examiner never testified.
Moreover, while Alberto's testimony identifying the BIR's evidence was duly recorded, the BIR documents
themselves were not incorporated in the records of the case. AIECSD

A common fact threads through Vda. de Oñate and Ramos that does not exist at all in the instant case. In the
aforementioned cases, the exhibits were marked at the pre-trial proceedings to warrant the pronouncement
that the same were duly incorporated in the records of the case. Thus, we held in Ramos:
 In this case, we find and so rule that these requirements have been satisfied. The exhibits in
question were presented and marked during the pre-trial of the case thus, they have been
incorporated into the records. Further, Elpidio himself explained the contents of these
exhibits when he was interrogated by respondents' counsel. . .
xxx xxx xxx
But what further defeats petitioner's cause on this issue is that respondents' exhibits were
marked and admitted during the pre-trial stage as shown by the Pre-Trial Order quoted
earlier. 44
While the CTA is not governed strictly by technical rules of evidence, 45 as rules of procedure are not ends in
themselves and are primarily intended as tools in the administration of justice, the presentation of the BIR's
evidence is not a mere procedural technicality which may be disregarded considering that it is the only means
by which the CTA may ascertain and verify the truth of BIR's claims against the Estate. 46 The BIR's failure to
formally offer these pieces of evidence, despiteCTA's directives, is fatal to its cause. 47 Such failure is
aggravated by the fact that not even a single reason was advanced by the BIR to justify such fatal omission.
This, we take against the BIR. HEDaTA
Per the records of this case, the BIR was directed to present its evidence 48 in the hearing of February 21,
1996, but BIR's counsel failed to appear. 49 The CTA denied petitioner's motion to consider BIR's
presentation of evidence as waived, with a warning to BIR that such presentation would be considered waived
if BIR's evidence would not be presented at the next hearing. Again, in the hearing of March 20, 1996, BIR's
counsel failed to appear. 50 Thus, in its Resolution 51 dated March 21, 1996, the CTA considered the BIR to
have waived presentation of its evidence. In the same Resolution, the parties were directed to file their
respective memorandum. Petitioner complied but BIR failed to do so. 52 In all of these proceedings, BIR was
duly notified. Hence, in this case, we are constrained to apply our ruling in Heirs of Pedro Pasag v.
Parocha: 53 TaDCEc
A formal offer is necessary because judges are mandated to rest their findings of facts and
their judgment only and strictly upon the evidence offered by the parties at the trial. Its
function is to enable the trial judge to know the purpose or purposes for which the proponent
is presenting the evidence. On the other hand, this allows opposing parties to examine the
evidence and object to its admissibility. Moreover, it facilitates review as the
appellate court will not be required to review documents not previously scrutinized by the
trial court.
Strict adherence to the said rule is not a trivial matter.
The Court in Constantino v. Court of Appeals ruled that the formal offer of one's evidence is
deemed waived after failing to submit it within a considerable period of time. It explained
that the court cannot admit an offer of evidence made after a lapse of three (3) months
because to do so would "condone an inexcusable laxity if not non-compliance with
a court order which, in effect, would encourage needless delays and derail the speedy
administration of justice."
Applying the aforementioned principle in this case, we find that the trial court had reasonable
ground to consider that petitioners had waived their right to make a formal
offer of documentary or object evidence. Despite several extensions of time to make their
formal offer, petitioners failed to comply with their commitment and allowed almost five
months to lapse before finally submitting it. Petitioners' failure to comply with the rule on
admissibility ofevidence is anathema to the efficient, effective, and expeditious
dispensation of justice. caHIAS
Having disposed of the foregoing procedural issue, we proceed to discuss the merits of the case.
Ordinarily, the CTA's findings, as affirmed by the CA, are entitled to the highest respect and will not be
disturbed on appeal unless it is shown that the lower courts committed gross error in the
appreciation of facts. 54 In this case, however, we find the decision of the CA affirming that of the CTA tainted
with palpable error.
It is admitted that the claims of the Estate's aforementioned creditors have been condoned. As a
mode of extinguishing an obligation, 55 condonation or remission of debt 56 is defined as: AHSEaD
an act of liberality, by virtue of which, without receiving any equivalent, the creditor
renounces the enforcement of the obligation, which is extinguished in its entirety or in that
part or aspect of the same to which the remission refers. It is an essential
characteristic of remission that it be gratuitous, that there is no equivalent received for the
benefit given; once such equivalent exists, the nature of the act changes. It may become
dation in payment when the creditor receives a thing different from that stipulated; or
novation, when the object or principal conditions of the obligation should be changed; or
compromise, when the matter renounced is in litigation or dispute and in exchange of some
concession which the creditor receives. 57
Verily, the second issue in this case involves the construction of Section 79 58 of the National Internal Revenue
Code 59 (TaxCode) which provides for the allowable deductions from the gross estate of the decedent. The
specific question is whether the actual claims of the aforementioned creditors may be fully allowed as
deductions from the gross estate of Jose despite the fact that the said claims were reduced or condoned
through compromise agreements entered into by the Estate with its creditors. aESTAI
"Claims against the estate", as allowable deductions from the gross estate under Section 79 of the Tax Code,
are basically a reproduction of the deductions allowed under Section 89 (a) (1) (C) and (E) of Commonwealth
Act No. 466 (CA 466), otherwise known as the National Internal Revenue Code of 1939, and which was the first
codification of Philippine tax laws. Philippine tax laws were, in turn, based on the federal tax laws of the United
States. Thus, pursuant to established rules ofstatutory construction, the decisions of American courts
construing the federal tax code are entitled to great weight in the interpretation of our own tax laws. 60
It is noteworthy that even in the United States, there is some dispute as to whether the deductible amount for
a claim against the estate is fixed as of the decedent's death which is the general rule, or the same should be
adjusted to reflect post-death developments, such as where a settlement between the parties results in the
reduction of the amount actually paid. 61 On one hand, the U.S. court ruled that the appropriate deduction is
the "value" that the claim had at the date of the decedent's death. 62 Also, as held in Propstra v.
U.S., 63 where a lien claimed against the estate was certain and enforceable on the date of the decedent's
death, the fact that the claimant subsequently settled for lesser amount did not preclude the estate from
deducting the entire amount of the claim for estate tax purposes. These pronouncements essentially confirm
the general principle that post-death developments are not material in determining the amount of the
deduction. ISTCHE
On the other hand, the Internal Revenue Service (Service) opines that post-death settlement should be taken
into consideration and the claim should be allowed as a deduction only to the extent of the amount actually
paid. 64Recognizing the dispute, the Service released Proposed Regulations in 2007 mandating that the
deduction would be limited to the actual amount paid. 65
In announcing its agreement with Propstra, 66 the U.S. 5th Circuit Court of Appeals held:
We are persuaded that the Ninth Circuit's decision . . . in Propstra correctly apply the Ithaca
Trust date-of-death valuation principle to enforceable claims against the estate. As we
 interpret Ithaca Trust, when the Supreme Courtannounced the date-of-death valuation
principle, it was making a judgment about the nature of the federal estate taxspecifically, that
it is a tax imposed on the act of transferring property by will or intestacy and, because the act
on which the tax is levied occurs at a discrete time, i.e., the instance of death, the net
value of the property transferred should be ascertained, as nearly as possible, as of that time.
This analysis supports broad application of the date-of-death valuation rule. 67 TCIHSa
We express our agreement with the date-of-death valuation rule, made pursuant to the ruling of the U.S.
Supreme Court inIthaca Trust Co. v. United States. 68 First. There is no law, nor do we discern any legislative
intent in our tax laws, which disregards the date-of-death valuation principle and particularly provides that
post-death developments must be considered in determining the net value of the estate. It bears emphasis
that tax burdens are not to be imposed, nor presumed to be imposed, beyond what the statute expressly and
clearly imports, tax statutes being construed strictissimi juris against the government. 69 Any doubt on
whether a person, article or activity is taxable is generally resolved against taxation. 70 Second. Such
construction finds relevance and consistency in our Rules on Special Proceedings wherein the term "claims"
required to be presented against a decedent's estate is generally construed to mean debts or demands of a
pecuniary nature which could have been enforced against the deceased in his lifetime, or liability contracted
by the deceased before his death. 71 Therefore, the claims existing at the time of death are significant to, and
should be made the basis of, the determination of allowable deductions. EHACcT

WHEREFORE, the instant Petition is GRANTED. Accordingly, the assailed Decision dated April 30, 1999 and the
Resolution dated November 3, 1999 of the Court of Appeals in CA-G.R. S.P. No. 46947 are REVERSED and SET
ASIDE. The Bureau ofInternal Revenue's deficiency estate tax assessment against the Estate of Jose P.
Fernandez is hereby NULLIFIED. No costs.
SO ORDERED.
||| (Dizon v. Court of Tax Appeals, G.R. No. 140944, [April 30, 2008], 576 PHIL 110-138)

THIRD DIVISION

[G.R. No. 138485. September 10, 2001.]

 DR. FELISA L. VDA. DE SAN AGUSTIN, in substitution of JOSE Y. FERIA, in his capacity as
Executor of the Estate of JOSE SAN AGUSTIN, petitioner, vs. COMMISSIONER OF INTERNAL
REVENUE, respondent.

Feria Feria Lugtu La O' Noche for petitioner.

The Solicitor General for respondent.

SYNOPSIS

Petitioner Felisa L. Vda. De San Agustin, widow of the late Jose San Agustin, received on 23
September 1991 a pre-assessment Notice from the Bureau of Internal Revenue showing a deficiency estate
tax of P538,509.50, which, including surcharge, interest and penalties, amounted to P976,540.00.
Petitioner expressed readiness to pay the basic deficiency estate tax but requested for the waiver of the
amount of P438,040.38 representing the interest, surcharge and compromise penalty. On October 04,
1991, petitioner received a notice from the Commissioner of Internal Revenue denying her request and
insisted payment of the tax due on or before the lapse of thirty (30) days from receipt thereof. Petitioner
paid the basic deficiency estate tax on 19 December 1991. Petitioner also paid the amount of P438,040.38
under protest and then filed a petition for review before the Court of Tax Appeals praying for the refund of
the said amount. The Commissioner opposed the said petition on ground of lack of jurisdiction considering
that no claim for tax refund of the deficiency tax collected was filed with the Bureau of Internal Revenue
before the petition was filed, in violation of Sections 204 and 230 of the National Internal Revenue Code.
The Court of Tax Appeals, however, upheld its jurisdiction and rendered a decision modifying the deficiency
assessment of the Commissioner of Internal Revenue for surcharge, interest and other penalties imposed
against the estate of the late Jose San Agustin. It ordered the refund to the estate the amount which it
overpaid. On appeal, the Court of Appeals granted the petition of the Commissioner of Internal Revenue
and held that the decision of the Court of Tax Appeals was null and void for lack of jurisdiction. Petitioner
elevated the case before the Supreme Court. ADHcTE
The Court ruled that the tax court had aptly acted in taking cognizance of the taxpayer's appeal to
it. The Court found no cogent reason to abandon the dictum in the case of Roman Catholic Archbishop of
Cebu vs. Collector of Internal Revenue (4 SCRA 279) which allows an appeal from a decision of the Collector
of Internal Revenue in cases involving disputed assessments. The Court in the said case held that ". . . To
hold that the taxpayer has now lost the right to appeal from the ruling on the disputed assessment but
must prosecute his appeal under Section 306 of the Tax Code, which requires a taxpayer to file a claim for
refund of the taxes paid as a condition precedent to his right to appeal, would in effect require of him to go
through a useless and needless ceremony that would only delay the disposition of the case, for the
Collector (now Commissioner) would certainly disallow the claim for refund in the same way as he
disallowed the protest against the assessment. The law should not be interpreted as to result in
absurdities."
The Court, therefore, granted the petition, but it modified the deficiency assessment for surcharge,
interest and penalties and the amount to be refunded to the estate of the late Jose San Agustin.

SYLLABUS

1. TAXATION; COURT OF TAX APPEALS; APPEALS FROM DECISION OF THE COLLECTOR OF INTERNAL REVENUE
INVOLVING DISPUTED ASSESSMENTS; RULING IN CASE OF CATHOLIC ARCHBISHOP OF CEBU VS. COLLECTOR OF
INTERNAL REVENUE (4 SCRA 279), APPLIED TO CASE AT BAR. — The case has a striking resemblance to the
controversy in Roman Catholic Archbishop of Cebu vs. Collector of Internal Revenue. The petitioner in that case
paid under protest the sum of P5,201.52 by way of income tax, surcharge and interest and, forthwith, filed a
petition for review before the Court of Tax Appeals. Then, respondent Collector (now Commissioner) of
Internal Revenue set up several defenses, one of which was that petitioner had failed to first file a written
claim for refund, pursuant to Section 306 of the Tax Code, of the amounts paid. Convinced that the lack of a
written claim for refund was fatal to petitioner's recourse to it, the Court of Tax Appeals dismissed the petition
for lack of jurisdiction. On appeal to this Court, the tax court's ruling was reversed; the Court held: "We agree
with petitioner that Section 7 of Republic Act No. 1125, creating the Court of Tax Appeals, in providing for
appeals from — '(1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments,
refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other
matters arising under the National Internal Revenue Code or other law or part of the law administered by the
Bureau of Internal Revenue — allows an appeal from a decision of the Collector in cases involving 'disputed
assessments' as distinguished from cases involving 'refunds of internal revenue taxes, fees or other
charges, . . .'; that the present action involves a. disputed assessment'; because from the time petitioner
received assessments Nos. 17-EC-00301-55 and 17-AC-600107-56 disallowing certain deductions claimed by
him in his income tax returns for the years 1955 and 1956, he already protested and refused to pay the same,
questioning the correctness and legality of such assessments; and that the petitioner paid the disputed
assessments under protest before filing his petition for review with the Court a quo, only to forestall the sale of
his properties that had been placed under distraint by the respondent Collector since December 4, 1957. To
hold that the taxpayer has now lost the right to appeal from the ruling on the disputed assessment but must
prosecute his appeal under Section 306 of the Tax Code, which requires a taxpayer to file a claim for refund of
the taxes paid as a condition precedent to his right to appeal, would in effect require of him to go through a
useless and needless ceremony that would only delay the disposition of the case, for the Collector (now
Commissioner) would certainly disallow the claim for refund in the same way as he disallowed the protest
against the assessment. The law, should not be interpreted as to result in absurdities." The Court sees no
cogent reason to abandon the above dictum and to require a useless formality that can serve the interest of
neither the government nor the taxpayer. The tax court has aptly acted in taking cognizance of the taxpayer's
appeal to it. cEHSIC
2. ID.; DEFICIENCY ESTATE TAX; PENALTIES; SURCHARGES AND INTEREST; DELAY IN PAYMENT OF DEFICIENCY
TAX JUSTIFIES IMPOSITION OF 25% SURCHARGE; DEFICIENCY IN TAX DUE IS SUBJECT TO 20% INTEREST PER
ANNUM; COMPUTATION OF INTEREST; CASE AT BAR. — The delay in the payment of the deficiency tax within
the time prescribed for its payment in the notice of assessment justifies the imposition of a 25% surcharge in
consonance with Section 248A(3) of the Tax Code. The basic deficiency tax in this case being P538,509.50, the
twenty-five percent thereof comes to P134,627.37. Section 249 of the Tax Code states that any deficiency in
the tax due would be subject to interest at the rate of twenty percent (20%) per annum, which interest shall be
assessed and collected from the date prescribed for its payment until full payment is made. The computation
of interest by the Court of Tax Appeals —
"Deficiency estate tax x Interest Rate x Terms
P538,509.50 20% per annum 11/2 mo./12 mos.
(11/04/91 to 12/19/91)
= P13,462.74" conforms with the law, i.e., computed on the deficiency tax from the date prescribed
for its payment until it is paid.
3. ID.; ID.; ID.; COMPROMISE PENALTY; IMPOSITION THEREOF NOT PROPER IN CASE AT BAR. — The Court of Tax
Appeals correctly held that the compromise penalty of P20,000.00 could not be imposed on petitioner, a
compromise being, by its nature, mutual in essence. The payment made under protest by petitioner could only
signify that there was no agreement that had effectively been reached between the parties.
4. ID.; TAXES; LIFEBLOOD OF THE GOVERNMENT AND MUST BE PAID WITHOUT DELAY. — Regrettably for
petitioner, the need for an authority from the probate court in the payment of the deficiency estate tax, over
which respondent Commissioner has hardly any control, is not one that can negate the application of the Tax
Code provisions aforequoted. Taxes, the lifeblood of the government, are meant to be paid without delay and
ofen oblivious to contingencies or conditions.

DECISION

VITUG, J p:

Before the Court is a petition for review seeking to set aside the decision of 24 February 1999 of the Court of
Appeals, as well as its resolution of 27 April 1999, in CA-G.R. SP No. 34156, which has reversed that of the
Court of Tax Appeals in CTA Case No. 4956, entitled "Jose Y. Feria, in his capacity as Executor of the Estate of
Jose San Agustin versus Commissioner of Internal Revenue." The tax court's decision has modified the
deficiency assessment of the Commission of Internal Revenue for surcharge, interests and other penalties
imposed against the estate of the late Jose San Agustin.
The facts of the case narrated by the appellate court would appear, by and large, to be uncontroverted;
thus viz:
"Atty. Jose San Agustin of 2904 Kakarong St., Olympia, Makati died on June 27, 1990 leaving
his wife Dra. Felisa L. SanAgustin as sole heir. He lef a holographic will executed on April 21,
1980 giving all his estate to his widow, and naming retired Justice Jose Y. Feria as Executor
thereof.
"Probate proceedings were instituted on August 22, 1990, in the Regional Trial Court (RTC) of
Makati, Branch 139, docketed as Sp. Proc. No. M-2554. Pursuantly, notice of decedent's death
was sent to the Commissioner of Internal Revenue on August 30, 1990.
"On September 3, 1990, an estate tax return reporting an estate tax due of P1,676,432.00 was
filed on behalf of the estate, with a request for an extension of two years for the payment of
the tax, inasmuch as the decedent's widow (did) not personally have sufficient funds, and that
the payment (would) have to come from the estate.

"In his letter/answer, dated September 4, 1990, BIR Deputy Commissioner Victor A. Deoferio,
Jr., granted the heirs an extension of only six (6) months, subject to the imposition of penalties
and interests under Sections 248 and 249 of the National Internal Revenue Code, as amended.
"In the probate proceedings, on October 11, 1990, the RTC allowed the will and appointed
Jose Feria as Executor of the estate. On December 5, 1990, the executor submitted to the
probate court an inventory of the estate with a motion for authority to withdraw funds for the
payment of the estate tax. Such authority was granted by the probate court on March 5, 1991.
Thereafer, on March 8, 1991, the executor paid the estate tax in the amount of P1,676,432 as
reported in the Tax Return filed with the BIR. This was well within the six (6) months extension
period granted by the BIR.
"On September 23, 1991, the widow of the deceased, Felisa L. San Agustin, received a Pre-
Assessment Notice from the BIR, dated August 29, 1991, showing a deficiency estate tax of
P538,509.50, which, including surcharge, interest and penalties, amounted to P976,540.00.
"On October 1, 1991, within the ten-day period given in the pre-assessment notice, the
executor filed a letter with the petitioner Commissioner expressing readiness to pay the basic
deficiency estate tax of P538,509.50 as soon as the Regional Trial Court approves withdrawal
thereof, but, requesting that the surcharge, interest, and other penalties, amounting to
P438,040.38 be waived, considering that the assessed deficiency arose only on account of the
difference in zonal valuation used by the Estate and the BIR, and that the estate tax due per
return of P1,676,432.00 was already paid in due time within the extension period.
"On October 4, 1991, the Commissioner issued an Assessment Notice reiterating the demand
in the pre- assessment notice and requesting payment on or before thirty (30) days upon
receipt thereof.
"In a letter, dated October 31, 1991, the executor requested the Commissioner a
reconsideration of the assessment of P976,549.00 and waiver of the surcharge, interest, etc.
"On December 18, 1991, the Commissioner accepted payment of the basic deficiency tax in
the amount of P538,509.50 through its Receivable Accounts Billing Division.
"The request for reconsideration was not acted upon until January 21, 1993, when the
executor received a letter, dated September 21, 1992, signed by the Commissioner, stating
that there is no legal justification for the waiver of the interests, surcharge and compromise
penalty in this case, and requiring full payment of P438,040.38 representing such charges
within ten (10) days from receipt thereof.
"In view thereof, the respondent estate paid the amount of P438,040.38 under protest on
January 25, 1993.
"On February 18, 1993, a Petition for Review was filed by the executor with the CTA with the
prayer that the Commissioner's letter/decision, dated September 21, 1992 be reversed and
that a refund of the amount of P438,040.38 be ordered.
"The Commissioner opposed the said petition, alleging that the CTA's jurisdiction was not
properly invoked inasmuch as no claim for a tax refund of the deficiency tax collected was
filed with the Bureau of Internal Revenue before the petition was filed, in violation of Sections
204 and 230 of the National Internal Revenue Code. Moreover, there is no statutory basis for
the refund of the deficiency surcharges, interests and penalties charged by the Commissioner
upon the estate of the decedent.
"Upholding its jurisdiction over the dispute, the CTA rendered its Decision, dated
April 21, 1994, modifying the CIR's assessment for surcharge, interests and other penalties
from P438,040.38 to P13,462.74, representing interest on the deficiency estate tax, for
which reason the CTA ordered the reimbursement to the respondent estate the balance of
P423,577.64, to wit:
"WHEREFORE, respondent's deficiency assessment for surcharge,
interests, and other penalties is hereby modified and since petitioner has
clearly paid the full amount of P438,040.38, respondent is hereby ordered to
refund to the Estate of Jose San Agustin the overpayment amounting to
P423,577.64."1
On 30 May 1994, the decision of the Court of Tax Appeals was appealed by the Commissioner of Internal
Revenue to the Court of Appeals. There, the petition for review raised the following issues:
"1. Whether respondent Tax Court has jurisdiction to take cognizance of the case considering
the failure of private respondent to comply with the mandatory requirements of Sections 204 and
230 of the National Internal Revenue Code.
"2. Whether or not respondent Tax Court was correct in ordering the refund to the Estate of
Jose San Agustin the reduced amount of P423,577.64 as alleged overpaid surcharge, interests and
compromise penalty imposed on the basic deficiency estate tax of P538,509.50 due on the
transmission of the said Estate to the sole heir in 1990." 2
In its decision of 24 February 1999, the Court of Appeals granted the petition of the Commissioner of Internal
Revenue and held that the Court of Tax Appeals did not acquire jurisdiction over the subject matter and that,
accordingly, its decision was null and void.
Hence, the instant petition where petitioner submits that —
"1. The filing of a claim for refund [is] not essential before the filing of the petition for review.
"2. The imposition by the respondent of surcharge, interest and penalties on the deficiency
estate tax is not in accord with the law and therefore illegal." 3
The Court finds the petition partly meritorious.
The case has a striking resemblance to the controversy in Roman Catholic Archbishop of Cebu vs. Collector of
Internal Revenue. 4
The petitioner in that case paid under protest the sum of P5,201.52 by way of income tax, surcharge and
interest and, forthwith, filed a petition for review before the Court of Tax Appeals. Then respondent Collector
(now Commissioner) of Internal Revenue set up several defenses, one of which was that petitioner had failed
to first file a written claim for refund, pursuant to Section 306 of the Tax Code, of the amounts paid. Convinced
that the lack of a written claim for refund was fatal to petitioner's recourse to it, the Court of Tax Appeals
dismissed the petition for lack of jurisdiction. On appeal to this Court, the tax court's ruling was reversed; the
Court held:
"We agree with petitioner that Section 7 of Republic Act No. 1125, creating the Court of Tax
Appeals, in providing for appeals from —
'(1) Decisions of the Collector of Internal Revenue in cases involving
disputed assessments, refunds of internal revenue taxes, fees or other charges,
penalties imposed in relation thereto, or other matters arising under the
National Internal Revenue Code or other law or part of the law administered by
the Bureau of Internal Revenue —
allows an appeal from a decision of the Collector in cases involving 'disputed assessments' as
distinguished from cases involving 'refunds of internal revenue taxes, fees or other
charges, . . .'; that the present action involves a disputed assessment'; because from the time
petitioner received assessments Nos. 17-EC-00301-55 and 17-AC 600107-56 disallowing
certain deductions claimed by him in his income tax returns for the years 1955 and 1956, he
already protested and refused to pay the same, questioning the correctness and legality of
such assessments; and that the petitioner paid the disputed assessments under protest before
filing his petition for review with the Court a quo, only to forestall the sale of his properties
that had been placed under distraint by the respondent Collector since December 4, 1957. To
hold that the taxpayer has now lost the right to appeal from the ruling on the disputed
 assessment but must prosecute his appeal under Section 306 of the Tax Code, which requires
a taxpayer to file a claim for refund of the taxes paid as a condition precedent to his right to
appeal, would in effect require of him to go through a useless and needless ceremony that
would only delay the disposition of the case, for the Collector (now Commissioner) would
certainly disallow the claim for refund in the same way as he disallowed the protest against
the assessment. The law, should not be interpreted as to result in absurdities." 5
The Court sees no cogent reason to abandon the above dictum and to require a useless formality that can
serve the interest of neither the government nor the taxpayer. The tax court has aptly acted in taking
cognizance of the taxpayer's appeal to it.
On the second issue, the National Internal Revenue Code, relative to the imposition of surcharges, interests,
and penalties, provides thusly:
"SECTION 248. Civil Penalties. —
"(a) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to
twenty-five percent (25%) of the amount due, in the following cases:
"(1) Failure to file any return and pay the tax due thereon as required under the
provisions of this Code or rules and regulations on the date prescribed; or
"(2) Unless otherwise authorized by the Commissioner, filing a return with an internal
revenue officer other than those with whom the return is required to be filed; or
"(3) Failure to pay the deficiency tax within the time prescribed for its payment in the
notice of assessment; or
"(4) Failure to pay the full or part of the amount of tax shown on any return required
to be filed under the provisions of this Code or rules and regulations, or the full
amount of tax due for which no return is required to be filed, on or before the date
prescribed for its payment."
"SECTION 249. Interest. —
"(A) In General. — There shall be assessed and collected on any unpaid amount of tax, interest
at the rate of twenty percent (20%) per annum, or such higher rate as may be prescribed by
rules and regulations, from the date prescribed for payment until the amount is fully paid.

"(B) Deficiency Interest. — Any deficiency in the tax due, as the term is defined in this Code,
shall be subject to the interest prescribed in Subsection (A) hereof, which interest shall be
assessed and collected from the date prescribed for its payment until the full payment
thereof.
"(C) Delinquency Interest. — In case of failure to pay:
"(1) The amount of the tax due on any return to be filed, or
"(2) The amount of the tax due for which no return is required, or
"(3) A deficiency tax, or any surcharge or interest thereon on the due date appearing in the
notice and demand of the Commissioner, there shall be assessed and collected on the unpaid
amount, interest at the rate prescribed in Subsection (A) hereof until the amount is fully paid,
which interest shall form part of the tax.
 "(D) Interest on Extended Payment. — If any person required to pay the tax is qualified and
elects to pay the tax on installment under the provisions of this Code, but fails to pay the tax
or any installment hereof, or any part of such amount or installment on or before the date
prescribed for its payment, or where the Commissioner has authorized an extension of time
within which to pay a tax or a deficiency tax or any part thereof, there shall be assessed and
collected interest at the rate hereinabove prescribed on the tax or deficiency tax or any part
thereof unpaid from the date of notice and demand until it is paid."
It would appear that, as early as 23 September 1991, the estate already received a pre-assessment notice
indicating a deficiency estate tax of P538,509.50. Within the ten-day period given in the pre-assessment
notice, respondent Commissioner received a letter from petitioner expressing the latter's readiness to pay the
basic deficiency estate tax of P538,509.50 as soon as the trial court would have approved the withdrawal of
that sum from the estate but requesting that the surcharge, interests and penalties be waived. On 04 October
1991, however, petitioner received from the Commissioner notice insisting payment of the tax due on or
before the lapse of thirty (30) days from receipt thereof. The deficiency estate tax of P538,509.50 was not paid
until 19 December 1991. 6
The delay in the payment of the deficiency tax within the time prescribed for its payment in the notice of
assessment justifies the imposition of a 25% surcharge in consonance with Section 248A(3) of the Tax Code.
The basic deficiency tax in this case being P538,509.50, the twenty-five percent thereof comes to P134,627.37.
Section 249 of the Tax Code states that any deficiency in the tax due would be subject to interest at the rate of
twenty percent (20%) per annum, which interest shall be assessed and collected from the date prescribed for
its payment until full payment is made. The computation of interest by the Court of Tax Appeals —
"Deficiency estate tax x Interest Rate x Terms
P538,509.50 20% per annum 11/2 mo./12 mos.
(11/04/91 to 12/19/91)
=P13,462.74" 7
conforms with the law, i.e., computed on the deficiency tax from the date prescribed for its payment until it
is paid.
The Court of Tax Appeals correctly held that the compromise penalty of P20,000.00 could not be imposed on
petitioner, a compromise being, by its nature, mutual in essence. The payment made under protest by
petitioner could only signify that there was no agreement that had effectively been reached between the
parties.
Regrettably for petitioner, the need for an authority from the probate court in the payment of the deficiency
estate tax, over which respondent Commissioner has hardly any control, is not one that can negate the
application of the Tax Code provisions aforequoted. Taxes, the lifeblood of the government, are meant to be
paid without delay and ofen oblivious to contingencies or conditions.
In sum, the tax liability of the estate includes a surcharge of P134,627.37 and interest of P13,462.74 or a total
of P148,090.00. HTcDEa
WHEREFORE, the instant petition is partly GRANTED. The deficiency assessment for surcharge, interest and
penalties is modified and recomputed to be in the amount of P148,090.00 surcharge of P134,627.37 and
interest of P13,462.74. Petitioner estate having since paid the sum of P438,040.38, respondent Commissioner
is hereby ordered to refund to the Estate of Jose San Agustin the overpaid amount of P289,950.38. No costs.
SO ORDERED.
||| (Vda. de San Agustin v. Commissioner of Internal Revenue, G.R. No. 138485, [September 10, 2001], 417
PHIL 292-303)

FIRST DIVISION

[G.R. No. 159694. January 27, 2006.]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. AZUCENA T. REYES, respondent.

[G.R. No. 163581. January 27, 2006.]

AZUCENA T. REYES, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondent.

DECISION

PANGANIBAN, C.J p:

Under the present provisions of the Tax Code and pursuant to elementary due process, taxpayers must be
informed in writing of the law and the facts upon which a tax assessment is based; otherwise, the assessment
is void. Being invalid, the assessment cannot in turn be used as a basis for the perfection of a tax compromise.
The Case
Before us are two consolidated 1 Petitions for Review 2 filed under Rule 45 of the Rules of Court, assailing the
August 8, 2003 Decision 3 of the Court of Appeals (CA) in CA-G.R. SP No. 71392. The dispositive portion of the
assailed Decision reads as follows:
"WHEREFORE, the petition is GRANTED. The assailed decision of the Court of Tax Appeals
is ANNULLED and SET ASIDE without prejudice to the action of the National Evaluation Board
on the proposed compromise settlement of the Maria C. Tancinco estate's tax liability." 4
 The Facts
The CA narrated the facts as follows:
"On July 8, 1993, Maria C. Tancinco (or 'decedent') died, leaving a 1,292 square-meter
residential lot and an old house thereon (or 'subject property') located at 4931 Pasay Road,
Dasmariñas Village, Makati City.
"On the basis of a sworn information-for-reward filed on February 17, 1997 by a certain
Raymond Abad (or 'Abad'), Revenue District Office No. 50 (South Makati) conducted an
investigation on the decedent's estate (or 'estate'). Subsequently, it issued a Return
Verification Order. But without the required preliminary findings being submitted, it issued
Letter of Authority No. 132963 for the regular investigation of the estate tax case. Azucena T.
Reyes (or '[Reyes]'), one of the decedent's heirs, received the Letter of Authority on March 14,
1997. HIaAED
"On February 12, 1998, the Chief, Assessment Division, Bureau of Internal Revenue (or 'BIR'),
issued a preliminary assessment notice against the estate in the amount of P14,580,618.67.
On May 10, 1998, the heirs of the decedent (or 'heirs') received a final estate tax assessment
notice and a demand letter, both dated April 22, 1998, for the amount of P14,912,205.47,
inclusive of surcharge and interest.
"On June 1, 1998, a certain Felix M. Sumbillo (or 'Sumbillo') protested the assessment [o]n
behalf of the heirs on the ground that the subject property had already been sold by the
decedent sometime in 1990.
"On November 12, 1998, the Commissioner of Internal Revenue (or '[CIR]') issued a
preliminary collection letter to [Reyes], followed by a Final Notice Before Seizure dated
December 4, 1998.
"On January 5, 1999, a Warrant of Distraint and/or Levy was served upon the estate, followed
on February 11, 1999 by Notices of Levy on Real Property and Tax Lien against it.
"On March 2, 1999, [Reyes] protested the notice of levy. However, on March 11, 1999, the
heirs proposed a compromise settlement of P1,000,000.00.
"In a letter to [the CIR] dated January 27, 2000, [Reyes] proposed to pay 50% of the basic tax
due, citing the heirs' inability to pay the tax assessment. On March 20, 2000, [the CIR] rejected
[Reyes's] offer, pointing out that since the estate tax is a charge on the estate and not on the
heirs, the latter's financial incapacity is immaterial as, in fact, the gross value of the estate
amounting to P32,420,360.00 is more than sufficient to settle the tax liability. Thus, [the CIR]
demanded payment of the amount of P18,034,382.13 on or before April 15, 2000[;]
otherwise, the notice of sale of the subject property would be published.
"On April 11, 2000, [Reyes] again wrote to [the CIR], this time proposing to pay 100% of the
basic tax due in the amount of P5,313,891.00. She reiterated the proposal in a letter dated
May 18, 2000.
"As the estate failed to pay its tax liability within the April 15, 2000 deadline, the Chief,
Collection Enforcement Division, BIR, notified [Reyes] on June 6, 2000 that the subject
property would be sold at public auction on August 8, 2000.
"On June 13, 2000, [Reyes] filed a protest with the BIR Appellate Division. Assailing the
scheduled auction sale, she asserted that . . . the assessment, letter of demand[,] and the
whole tax proceedings against the estate are void ab initio. She offered to file the
corresponding estate tax return and pay the correct amount of tax without surcharge [or]
interest.
"Without acting on [Reyes's] protest and offer, [the CIR] instructed the Collection Enforcement
Division to proceed with the August 8, 2000 auction sale. Consequently, on June 28, 2000,
[Reyes] filed a [P]etition for [R]eview with the Court of Tax Appeals (or 'CTA'), docketed as CTA
Case No. 6124.
"On July 17, 2000, [Reyes] filed a Motion for the Issuance of a Writ of Preliminary Injunction
or Status Quo Order, which was granted by the CTA on July 26, 2000. Upon [Reyes's] filing of a
surety bond in the amount of P27,000,000.00, the CTA issued a [R]esolution dated August 16,
2000 ordering [the CIR] to desist and refrain from proceeding with the auction sale of the
subject property or from issuing a [W]arrant of [D]istraint or [G]arnishment of [B]ank
[A]ccount[,] pending determination of the case and/or unless a contrary order is issued.
"[The CIR] filed a [M]otion to [D]ismiss the petition on the grounds (i) that the CTA no longer
has jurisdiction over the case[,] because the assessment against the estate is already final and
executory; and (ii) that the petition was filed out of time. In a [R]esolution dated November
23, 2000, the CTA denied [the CIR's] motion.
"During the pendency of the [P]etition for [R]eview with the CTA, however, the BIR issued
Revenue Regulation (or 'RR') No. 6-2000 and Revenue Memorandum Order (or 'RMO') No. 42-
2000 offering certain taxpayers with delinquent accounts and disputed assessments an
opportunity to compromise their tax liability.
"On November 25, 2000, [Reyes] filed an application with the BIR for the compromise
settlement (or 'compromise') of the assessment against the estate pursuant to Sec. 204(A) of
the Tax Code,as implemented by RR No. 6-2000 and RMO No. 42-2000.
"On December 26, 2000, [Reyes] filed an Ex-Parte Motion for Postponement of the hearing
before the CTA scheduled on January 9, 2001, citing her pending application for compromise
with the BIR. The motion was granted and the hearing was reset to February 6, 2001.
"On January 29, 2001, [Reyes] moved for postponement of the hearing set on February 6,
2001, this time on the ground that she had already paid the compromise amount of
P1,062,778.20 but was still awaiting approval of the National Evaluation Board (or 'NEB'). The
CTA granted the motion and reset the hearing to February 27, 2001.
"On February 19, 2001, [Reyes] filed a Motion to Declare Application for the Settlement of
Disputed Assessment as a Perfected Compromise. In said motion, she alleged that [the CIR]
had not yet signed the compromise[,] because of procedural red tape requiring the initials of
four Deputy Commissioners on relevant documents before the compromise is signed by the
[CIR]. [Reyes] posited that the absence of the requisite initials and signature[s] on said
documents does not vitiate the perfected compromise. ICAcHE
"Commenting on the motion, [the CIR] countered that[,] without the approval of the NEB,
[Reyes's] application for compromise with the BIR cannot be considered a perfected or
consummated compromise.
"On March 9, 2001, the CTA denied [Reyes's] motion, prompting her to file a Motion for
Reconsideration Ad Cautelam. In a [R]esolution dated April 10, 2001, the CTA denied the
[M]otion for [R]econsideration with the suggestion that[,] for an orderly presentation of her
case and to prevent piecemeal resolutions of different issues, [Reyes] should file a
 [S]upplemental [P]etition for [R]eview[,] setting forth the new issue of whether there was
already a perfected compromise.
"On May 2, 2001, [Reyes] filed a Supplemental Petition for Review with the CTA, followed on
June 4, 2001 by its Amplificatory Arguments (for the Supplemental Petition for Review), raising
the following issues:
'1. Whether or not an offer to compromise by the [CIR], with the acquiescence by the
Secretary of Finance, of a tax liability pending in court, that was accepted and paid by
the taxpayer, is a perfected and consummated compromise.
'2. Whether this compromise is covered by the provisions of Section 204 of the Tax
Code (CTRP) that requires approval by the BIR [NEB].'
"Answering the Supplemental Petition, [the CIR] averred that an application for compromise
of a tax liability under RR No. 6-2000 and RMO No. 42-2000 requires the evaluation and
approval of either the NEB or the Regional Evaluation Board (or 'REB'), as the case may be.
"On June 14, 2001, [Reyes] filed a Motion for Judgment on the Pleadings; the motion was
granted on July 11, 2001. Afer submission of memoranda, the case was submitted for
[D]ecision.
"On June 19, 2002, the CTA rendered a [D]ecision, the decretal portion of which pertinently
reads:
'WHEREFORE, in view of all the foregoing, the instant [P]etition for [R]eview is hereby
DENIED. Accordingly, [Reyes] is hereby ORDERED to PAY deficiency estate tax in the
amount of Nineteen Million Five Hundred Twenty Four Thousand Nine Hundred Nine
and 78/100 (P19,524,909.78), computed as follows:
xxx xxx xxx
'[Reyes] is likewise ORDERED to PAY 20% delinquency interest on deficiency estate tax
due of P17,934,382.13 from January 11, 2001 until full payment thereof pursuant to
Section 249(c) of the Tax Code,as amended.'
"In arriving at its decision, the CTA ratiocinated that there can only be a perfected and
consummated compromise of the estate's tax liability[,] if the NEB has approved [Reye's]
application for compromise in accordance with RR No. 6-2000, as implemented by RMO No.
42-2000.

"Anent the validity of the assessment notice and letter of demand against the estate, the CTA
stated that 'at the time the questioned assessment notice and letter of demand were issued,
the heirs knew very well the law and the facts on which the same were based.' It also
observed that the petition was not filed within the 30-day reglementary period provided
under Sec. 11 of Rep. Act No. 1125 and Sec. 228 of the Tax Code." 5
Ruling of the Court of Appeals
In partly granting the Petition, the CA said that Section 228 of the Tax Code and RR 12-99 were mandatory and
unequivocal in their requirement. The assessment notice and the demand letter should have stated the facts
and the law on which they were based; otherwise, they were deemed void. 6 The appellate court held that
while administrative agencies, like the BIR, were not bound by procedural requirements, they were still
required by law and equity to observe substantive due process. The reason behind this requirement, said the
CA, was to ensure that taxpayers would be duly apprised of — and could effectively protest — the basis of tax
assessments against them. 7 Since the assessment and the demand were void, the proceedings emanating
from them were likewise void, and any order emanating from them could never attain finality.AECcTS
The appellate court added, however, that it was premature to declare as perfected and consummated the
compromise of the estate's tax liability. It explained that, where the basic tax assessed exceeded P1 million, or
where the settlement offer was less than the prescribed minimum rates, the National Evaluation Board's (NEB)
prior evaluation and approval were theconditio sine qua non to the perfection and consummation of any
compromise. 8 Besides, the CA pointed out, Section 204(A) of the Tax Code applied to all compromises,
whether government-initiated or not. 9 Where the law did not distinguish, courts too should not distinguish.
Hence, this Petition. 10
The Issues
In G.R. No. 159694, petitioner raises the following issues for the Court's consideration:
"I.
Whether petitioner's assessment against the estate is valid.
"II.
Whether respondent can validly argue that she, as well as the other heirs, was not aware of
the facts and the law on which the assessment in question is based, afer she had opted to
propose several compromises on the estate tax due, and even prematurely acting on such
proposal by paying 20% of the basic estate tax due." 11
The foregoing issues can be simplified as follows: first, whether the assessment against the estate is valid;
and, second, whether the compromise entered into is also valid.
The Court's Ruling
The Petition is unmeritorious.
First Issue:
Validity of the Assessment Against the Estate
The second paragraph of Section 228 of the Tax Code 12 is clear and mandatory. It provides as follows:
"Sec. 228. Protesting of Assessment. —
xxx xxx xxx
"The taxpayers shall be informed in writing of the law and the facts on which the assessment
is made: otherwise, the assessment shall be void."
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 13 prior to its amendment by Republic Act (RA) No. 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's findings 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. aEcTDI
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 effect. The notice required under the old law was no longer sufficient under the new law.
To be simply informed in writing of the investigation being conducted and of the recommendation for the
assessment of the estate taxes due is nothing but a perfunctory discharge of the tax function of correctly
assessing a taxpayer. The act cannot be taken to mean that Reyes already knew the law and the facts on which
the assessment was based. It does not at all conform to the compulsory requirement under Section 228.
Moreover, the Letter of Authority received by respondent on March 14, 1997 was for the sheer purpose of
investigation and was not even the requisite notice under the law.
The procedure for protesting an assessment under the Tax Code is found in Chapter III of Title VIII, which deals
with remedies. Being procedural in nature, can its provision then be applied retroactively? The answer is yes.
The general rule is that statutes are prospective. However, statutes that are remedial, or that do not create
new or take away vested rights, do not fall under the general rule against the retroactive operation of
statutes. 14 Clearly, Section 228 provides for the procedure in case an assessment is protested. The provision
does not create new or take away vested rights. In both instances, it can surely be applied retroactively.
Moreover, RA 8424 does not state, either expressly or by necessary implication, that pending actions are
excepted from the operation of Section 228, or that applying it to pending proceedings would impair vested
rights.
Second, the non-retroactive application of Revenue Regulation (RR) No. 12-99 is of no moment, considering
that it merely implements the law.
A tax regulation is promulgated by the finance secretary to implement the provisions of the Tax Code.15 While
it is desirable for the government authority or administrative agency to have one immediately issued afer a
law is passed, the absence of the regulation does not automatically mean that the law itself would become
inoperative.
At the time the pre-assessment notice was issued to Reyes, RA 8424 already stated that the taxpayer must be
informed of both the law and facts on which the assessment was based. Thus, the CIR should have required
the assessment officers of the Bureau of Internal Revenue (BIR) to follow the clear mandate of the new law.
The old regulation governing the issuance of estate tax assessment notices ran afoul of the rule that tax
regulations — old as they were — should be in harmony with, and not supplant or modify, the law. 16
It may be argued that the Tax Code provisions are not self-executory. It would be too wide a stretch of the
imagination, though, to still issue a regulation that would simply require tax officials to inform the taxpayer, in
any manner, of the law and the facts on which an assessment was based. That requirement is neither difficult
to make nor its desired results hard to achieve.
Moreover, an administrative rule interpretive of a statute, and not declarative of certain rights and
corresponding obligations, is given retroactive effect as of the date of the effectivity of the statute. 17 RR 12-99
is one such rule. Being interpretive of the provisions of the Tax Code,even if it was issued only on September 6,
1999, this regulation was to retroact to January 1, 1998 — a date prior to the issuance of the preliminary
assessment notice and demand letter.
Third, neither Section 229 nor RR 12-85 can prevail over Section 228 of the Tax Code.
No doubt, Section 228 has replaced Section 229. The provision on protesting an assessment has been
amended. Furthermore, in case of discrepancy between the law as amended and its implementing but old
regulation, the former necessarily prevails. 18 Thus, between Section 228 of the Tax Code and the pertinent
provisions of RR 12-85, the latter cannot stand because it cannot go beyond the provision of the law. The law
must still be followed, even though the existing tax regulation at that time provided for a different procedure.
The regulation then simply provided that notice be sent to the respondent in the form prescribed, and that no
consequence would ensue for failure to comply with that form.
Fourth, petitioner violated the cardinal rule in administrative law that the taxpayer be accorded due process.
Not only was the law here disregarded, but no valid notice was sent, either. A void assessment bears no valid
fruit.
The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax collection
without first establishing a valid assessment is evidently violative of the cardinal principle in administrative
investigations: that taxpayers should be able to present their case and adduce supporting evidence. 19 In the
instant case, respondent has not been informed of the basis of the estate tax liability. Without complying with
the unequivocal mandate of first informing the taxpayer of the government's claim, there can be no
deprivation of property, because no effective protest can be made. 20 The haphazard shot at slapping an
assessment, supposedly based on estate taxation's general provisions that are expected to be known by the
taxpayer, is utter chicanery.
Even a cursory review of the preliminary assessment notice, as well as the demand letter sent, reveals the lack
of basis for — not to mention the insufficiency of — the gross figures and details of the itemized deductions
indicated in the notice and the letter. This Court cannot countenance an assessment based on estimates that
appear to have been arbitrarily or capriciously arrived at. Although taxes are the lifeblood of the government,
their assessment and collection "should be made in accordance with law as any arbitrariness will negate the
very reason for government itself." 21
Fifth, the rule against estoppel does not apply. Although the government cannot be estopped by the
negligence or omission of its agents, the obligatory provision on protesting a tax assessment cannot be
rendered nugatory by a mere act of the CIR.

Tax laws are civil in nature. 22 Under our Civil Code,acts executed against the mandatory provisions of law are
void, except when the law itself authorizes the validity of those acts. 23 Failure to comply with Section 228
does not only render the assessment void, but also finds no validation in any provision in the Tax Code.We
cannot condone errant or enterprising tax officials, as they are expected to be vigilant and law-abiding. IDaCcS
Second Issue:
Validity of Compromise
It would be premature for this Court to declare that the compromise on the estate tax liability has been
perfected and consummated, considering the earlier determination that the assessment against the estate was
void. Nothing has been settled or finalized. Under Section 204(A) of the Tax Code,where the basic tax involved
exceeds one million pesos or the settlement offered is less than the prescribed minimum rates, the
compromise shall be subject to the approval of the NEB composed of the petitioner and four deputy
commissioners.
Finally, as correctly held by the appellate court, this provision applies to all compromises, whether
government-initiated or not. Ubi lex non distinguit, nec nos distinguere debemos. Where the law does not
distinguish, we should not distinguish.
WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. No pronouncement as to
costs.
SO ORDERED.
||| (Commissioner of Internal Revenue v. Reyes, G.R. No. 159694, 163581, [January 27, 2006], 516 PHIL 176-
191)
 SECOND DIVISION

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

FERDINAND R. MARCOS II, petitioner, vs. COURT OF APPEALS, THE COMMISSIONER OF THE
BUREAU OFINTERNAL REVENUE and HERMINIA D. DE GUZMAN, respondents.

Ata Habawel Lagmay for petitioner.

Royas, Sales, De Leon & Tecson co-counsel for petitioner.

SYLLABUS

1. TAXATION; NATIONAL INTERNAL REVENUE CODE; ENFORCEMENT OF TAX LAWS AND

COLLECTION OF TAXES, OFPARAMOUNT IMPORTANCE; CONFLICTING INTEREST OF AUTHORITIES AND
TAXPAYERS MUST BE RECONCILED TO ACHIEVE REAL PURPOSE OF TAXATION. — The enforcement of tax laws
and the collection of taxes, is of paramount importance for the sustenance of government. Taxes are the
lifeblood of the government and should be collected without unnecessary hindrance. However, such collection
should be made in accordance with law as any arbitrariness will negate the very reason for government itself.
It is, therefore, necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers
so that the real purpose of taxation, which is the promotion of the common good, may be achieved. IEAacT
2. REMEDIAL LAW; PROBATE COURT; JURISDICTION. — The authority of the Regional Trial Court, sitting, albeit
with limited jurisdiction, as a probate court over estate of deceased individual, is not a trifling thing.
The court's jurisdiction, once invoked, and made effective, cannot be treated with indifference nor should it be
ignored with impunity by the very parties invoking its authority. It is within the jurisdiction of the
probate court to approve the sale of properties of a deceased person by his prospective heirs before final
adjudication; to determine who are the heirs of the decedent; the recognition of a natural child; the status of a
woman claiming to be the legal wife of the decedent; the legality ofdisinheritance of an heir by the testator;
and to pass upon the validity of a waiver of hereditary rights.
3. TAXATION; NATIONAL INTERNAL REVENUE CODE; ESTATE TAX; NATURE OF PROCESS OF COLLECTION. — The
natureof the process of estate tax collection has been described as follows: "Strictly speaking, the
assessment of a inheritance tax does not directly involve the administration of a decedent's estate, although it
may be viewed as an incident to the complete settlement of an estate, and, under some statutes, it is made
the duty of the probate court to make the amountof the inheritance tax a part of the final
decree of distribution of the estate. It is not against the property of decedent, nor is it a claim against the
estate as such, but it is against the interest or property right which the heir, legatee, devisee, etc., has in the
property formerly held by decedent. Further, under some statutes, it has been held that it is not a suit or
controversy between the parties, nor it is an adversary proceeding between the state and the person who
owes the tax on the inheritance. However, under other statutes it has been held that the hearing and
determination of the cash value ofhe assets and the determination of the tax are adversary proceedings. The
proceeding has been held to be necessary a proceeding in rem. In the Philippine experience, the enforcement
and collection of estate tax, is executive in character, as the legislature has seen it fit to ascribe this task to the
Bureau of Internal Revenue. (Section 3 of the National Internal Revenue Code) ASICDH
4. ID.; ID.; ID.; LIBERAL TREATMENT OF CLAIMS. — Thus, it was in Vera vs. Fernandez that the court recognized
the liberal treatment of claims for taxes charged against the estate of the decedent. Such taxes, we said, were
exempted from the application of the state of non-claims, and this is justified by the necessity of government
funding, immortalized in the maxim that taxes are the lifeblood of the government. Vectigalia nervi sunt rei
publicae — taxes are the sinews of the state. Such liberal treatment of internal revenue taxes in the probate
proceedings extends so far, even to allowing the enforcement of tax obligations against the heirs of the
decedent, even afer distribution of the estate's properties.
5. ID.; ID.; ID.; COLLECTION THEREOF DOES NOT REQUIRE APPROVAL OF PROBATE COURT. — The
approval of thecourt, sitting in probate, or as a settlement tribunal over the deceased is not a mandatory
requirement in the collection ofestate taxes. It cannot therefore be argued that the Tax Bureau erred in
proceeding with the levying and sale of the properties allegedly owned by the late President, on the ground
that it was required to seek first the probate court's sanction. There is nothing in the Tax Code,and in the
pertinent remedial laws that implies the necessity of the probate or estate settlement court's approval of the
state's claim for estate taxes, before the same can be enforced and collected. On the contrary, under Section
87 of the NIRC,it is the probate or settlement court which is bidden not to authorize the executor or judicial
administrator of the decedent's estate to deliver any distributive share to any party interested in the estate,
unless it is shown a Certification by the Commissioner of Internal Revenue that the estate taxes have been
paid. This provision disproves the petitioner's contention that it is the probate court which approves the
assessment and collection of the estate tax. CSTcEI
6. ID.; ID.; DISTRAINT OR LEVY; REQUIRES FINAL, EXECUTORY AND DEMANDABLE DEFICIENCY TAX
ASSESSMENT; CASE AT BAR. — Apart from failing to file the required estate tax return within the time required
for the filing of the same, petitioner, and the other heirs never questioned the assessments served upon them,
allowing the same to lapse into finality, and prompting the BIR to collect the said taxes by levying upon the
properties lef by President Marcos. The Notices of Levy upon real property were issued within the prescriptive
period and in accordance with the provisions of the present Tax Code.The deficiency tax assessment, having
already become final executory and demandable, the same can now be collected through the summary
remedy for distraint or levy pursuant to Section 205 of the NIRC.
7. ID.; ID.; ESTATE TAX; 10-YEAR PRESCRIPTIVE PERIOD FOR ASSESSMENT AND COLLECTION OF TAX DEFICIENCY;
CASE AT BAR. — The applicable provision in regard to the prescriptive period for the assessment and
collection of tax deficiency in this instance is Section 223 of the NIRC,which pertinently provides that the
case of a false or fraudulent return with intent to evade tax or of a failure to file a return, the tax may be
assessed, or a proceeding in court for the collection ofsuch tax may be begun without assessment, at any time
within ten (10) years afer the discovery of the falsity, fraud, or omission. The omission to file an estate tax
return, and the subsequent failure to contest or appeal the assessment made by the BIR is fatal to the
petitioner's cause, as under the above-cited provision, in case of failure to file a return, the tax may be
assessed at any time within ten years afer the omission, and any tax so assessed may be collected by levy
upon real property within three years following the assessment of the tax. Since the estate tax assessment had
become final and unappealable by the petitioner's default as regards protesting the validity of the said
assessment, there is now no reason why the BIR cannot continue with the collection of the said tax. Any
objection against the assessment should have been pursued following the avenue paved in Section
229 of the NIRC on protests on assessments of internal revenue taxes.
8. REMEDIAL LAW; EVIDENCE; PRESUMPTION THAT OFFICIAL DUTIES ARE REGULARLY PERFORMED; APPLIED IN
CASE AT BAR. — It is not the Department of Justice which is the government agency tasked to determine the
amount of taxes due upon the subject estate, but the Bureau of Internal Revenue, whose determinations and
assessments are presumed correct and made in good faith. The taxpayer has the duty of proving otherwise. In
the absence of proof of any irregularities in the performance of official duties, an assessment will not be
disturbed. Even an assessment based on estimates is prima facie valid and lawful where it does not appear to
have been arrived at arbitrarily or capriciously. The burden of proof is upon the complaining party to show
clearly that the assessment is erroneous. Failure to present proofof error in the assessment will justify the
judicial affirmance of said assessment. In this instance, petitioner has not pointed out one single provision in
the Memorandum of the Special Audit Team which gave rise to the questioned assessment, which bears a
trace of falsity. Indeed the petitioner's attack on the assessment bears mainly on the alleged improbable and
unconscionable amount of the taxes charged. But mere rhetoric cannot supply the basis for the
charge of impropriety ofhe assessment made. cDACST
9. ID.; SPECIAL CIVIL ACTION; CERTIORARI; NOT A SUBSTITUTE FOR LOST APPEAL OF TAX ASSESSMENT. —
These objections to the assessments should have been raised, considering the ample remedies afforded the
taxpayer by the Tax Code,with the Bureau of Internal Revenue and the Court of Tax Appeals, as described
earlier, and cannot be raised now via Petition for Certiorari, under the pretext of grave abuse of discretion. The
course of action taken by the petitioner reflects his disregard or even repugnance of the established
institutions for governance in the scheme of a well-ordered society. The subject tax assessments having
become final executory and enforceable, the same can no longer be contested by means of a disguised
protest. In the main, Certiorari may not be used as a substitute for a lost appeal or remedy. This judicial policy
becomes more pronounced in view of the absence of sufficient attack against the actuations of government.
10. TAXATION; NATIONAL INTERNAL REVENUE CODE; DISTRAINT OR LEVY; ESTATE OF THE DECEDENT, NOT THE
HEIRS, IS THE DELINQUENT TAXPAYER; NOTICES TO HEIRS, NOT REQUIRED BY LAW. — In the
case of notices of levy issued to satisfy the delinquent estate tax the delinquent taxpayer is the Estate of the
decedent, and not necessarily, and exclusively, the petitioner as heir of the deceased. In the same vein, in the
matter of income tax delinquency of the late president and his spouse, petitioner is not the taxpayer liable.
Thus, it follows that service of notices of levy in satisfaction of these tax delinquencies upon the petitioner is
not required by law, as under Section 213 of the NIRC.

11. CONSTITUTIONAL LAW; BILL OF RIGHTS; DUE PROCESS; NOT DENIED WHERE PARTY WAS DULY NOTIFIED
BUT DISREGARDED OPPORTUNITY TO RAISE OBJECTIONS ON TAX ASSESSMENT. — The record shows that
notices of warrants ofdistraint and levy of sale were furnished the counsel of petitioner on April 7, 1993, and
June 10 1993, and the petitioner himself on April 12, 1993 at his office at the Batasang Pambansa. We cannot,
therefore, countenance petitioner's insistence that he was denied due process. Where there was an
opportunity to raise objections to government action, and such opportunity was disregarded, for no justifiable
reason, the party claiming oppression then becomes the oppressor of the orderly functions of government. He
who comes to court must come with clean hands. Otherwise, he not only taints his name, but ridicules the
very structure of established authority. TIDHCc

DECISION
TORRES, JR., J p:

In this Petition for Review on Certiorari, Government action is once again assailed as precipitate and unfair,
suffering the basic and ofly implored requisites of due process of law. Specifically, the petition assails the
Decision 1 of the Court ofAppeals dated November 29, 1994 in CA-G.R. SP No. 31363, where the
said court held:
"In view of all the foregoing, we rule that the deficiency income tax assessments and estate
tax assessment, are already final and (u)nappealable and the subsequent levy of real
properties is a tax remedy resorted to by the government, sanctioned by Section 213 and
218 of the National Internal Revenue Code. This summary tax remedy is distinct and separate
from the other tax remedies (such as Judicial Civil actions and Criminal actions), and is not
affected or precluded by the pendency of any other tax remedies instituted by the
government.
WHEREFORE, premises considered, judgment is hereby rendered DISMISSING the petition for
certiorari with prayer for Restraining Order and Injunction.
No pronouncements as to costs.
SO ORDERED."
More than seven years since the demise of the later Ferdinand E. Marcos, the former President of the
Republic of the Philippines, the matter of the settlement of his estate, and its dues to the government in estate
taxes, are still unresolved, the latter issue being now before this Court for resolution. Specifically, petitioner
Ferdinand R. Marcos II, the eldest son ofhe decedent, questions the actuation of the respondent
Commissioner of Internal Revenue in assessing, and collecting through the summary remedy of Levy on Real
Properties, estate and income tax delinquencies upon the estate and properties of his father, despite the
pendency of the proceedings on probate of the will of the late president, which is docketed as Sp. Proc. No.
10279 in the Regional Trial Court of Pasig, Branch 156.
Petitioner had filed with the respondent Court of Appeals a Petition for Certiorari and Prohibition with an
application for writ of preliminary injunction and/or temporary restraining order on June 28, 1993, seeking to
—
I. Annul and set aside the Notices of Levy on real property dated February 22, 1993 and May
20, 1993, issued by respondent Commissioner of Internal Revenue;
II. Annul and set aside the Notices of Sale dated May 26, 1993;
III. Enjoin the Head Revenue Executive Assistant Director II (Collection Service), from
proceeding with the Auctionof the real properties covered by Notices of Sale.
Afer the parties had pleaded their case, the Court of Appeals rendered its Decision 2 on November 29, 1994,
ruling that the deficiency assessments for estate and income tax made upon the petitioner and the
estate of the deceased PresidentMarcos have already become final and unappealable, and may thus be
enforced by the summary remedy of levying upon the properties of the late President, as was done by the
respondent Commissioner of Internal Revenue.
"WHEREFORE, premises considered judgment is hereby rendered DISMISSING the petition for
Certiorari with prayer for Restraining Order and Injunction.
No pronouncements as to cost.
SO ORDERED."
Unperturbed, petitioner is now before us assailing the validity of the appellate court's decision, assigning the
following as errors:
A. RESPONDENT COURT MANIFESTLY ERRED IN RULING THAT THE SUMMARY TAX REMEDIES
RESORTED TO BY THE GOVERNMENT ARE NOT AFFECTED AND PRECLUDED BY THE
PENDENCY OF THE SPECIAL PROCEEDING FOR THE ALLOWANCE OF THE LATE PRESIDENT'S
ALLEGED WILL. TO THE CONTRARY, THIS PROBATE PROCEEDING PRECISELY PLACED ALL
PROPERTIES WHICH FORM PART OF THE LATE PRESIDENT'S ESTATE IN CUSTODIA LEGIS OF THE
PROBATECOURT TO THE EXCLUSION OF ALL OTHER COURTS AND ADMINISTRATIVE AGENCIES.
B. RESPONDENT COURT ARBITRARILY ERRED IN SWEEPINGLY DECIDING THAT SINCE THE TAX
ASSESSMENTS OFPETITIONER AND HIS PARENTS HAD ALREADY BECOME FINAL AND
UNAPPEALABLE, THERE WAS NO NEED TO GO INTO THE MERITS OF THE GROUNDS CITED IN
THE PETITION. INDEPENDENT OF WHETHER THE TAX ASSESSMENTS HAD ALREADY BECOME
FINAL, HOWEVER, PETITIONER HAS THE RIGHT TO QUESTION THE UNLAWFUL MANNER AND
METHOD IN WHICH TAX COLLECTION IS SOUGHT TO BE ENFORCED BY RESPONDENTS
COMMISSIONER AND DE GUZMAN. THUS, RESPONDENT COURT SHOULD HAVE FAVORABLY
CONSIDERED THE MERITS OF THE FOLLOWING GROUNDS IN THE PETITION:
(1) The Notices of Levy on Real Property were issued beyond the period provided in
the Revenue Memorandum Circular No. 38-68.
(2) [a] The numerous pending court cases questioning the late President's ownership
or interests in several properties (both personal and real) make the total value of his
estate, and the consequent estate tax due, incapable of exact pecuniary determination
at this time. Thus, respondents' assessment of the estate tax and their issuance of the
Notices of Levy and Sale are premature, confiscatory and oppressive.
[b] Petitioner, as one of the late President's compulsory heirs, was never notified,
much less served with copies of the Notices of Levy, contrary to the
mandate of Section 213 of the NIRC. As such, petitioner was never given an
opportunity to contest the Notices in violation of his right to due process of law.
C. ON ACCOUNT OF THE CLEAR MERIT OF THE PETITION, RESPONDENT COURT MANIFESTLY
ERRED IN RULING THAT IT HAD NO POWER TO GRANT INJUNCTIVE RELIEF TO PETITIONER.
SECTION 219 OF THE NIRCNOTWITHSTANDING, COURTS POSSESS THE POWER TO ISSUE A
WRIT OF PRELIMINARY INJUNCTION TO RESTRAIN RESPONDENTS COMMISSIONER'S AND DE
GUZMAN'S ARBITRARY METHOD OF COLLECTING THE ALLEGED DEFICIENCY ESTATE AND
INCOME TAXES BY MEANS OF LEVY.
The facts as found by the appellate court are undisputed, and are hereby adopted:
"On September 29, 1989, former President Ferdinand Marcos died in Honolulu, Hawaii, USA.
On June 27, 1990, a Special Tax Audit Team was created to conduct investigations and
examinations of the tax liabilities and obligations of the late president, as well as that of his
family, associates and "cronies". Said audit team concluded its investigation with a
Memorandum dated July 26, 1991. The investigation disclosed that the Marcoses failed to file
a written notice of the death of the decedent, an estate tax returns [sic], as well as several
income tax returns covering the years 1982 to 1986, — all in violation of the National Internal
Revenue Code (NIRC).
Subsequently, criminal charges were filed against Mrs. Imelda R. Marcos before the Regional
Trial of Quezon City for violations of Sections 82, 83 and 84 (as penalized under Sections 253
and 254 in relation to Section 252-a & b) of theNational Internal Revenue Code (NIRC).
The Commissioner of Internal Revenue thereby caused the preparation and filing of the Estate
Tax Return for the estate of the late president, the Income Tax Returns of the
Spouses Marcos for the years 1985 to 1986, and the Income Tax Returns of petitioner
Ferdinand 'Bongbong' Marcos II for the years 1982 to 1985.
On July 26, 1991, the BIR issued the following: (1) Deficiency estate tax assessment no. FAC-2-
89-91-002464 (against the estate of the late president Ferdinand Marcos in the
amount of P23,293,607,638.00 Pesos); (2) Deficiency income tax assessment no. FAC-1-85-91-
002452 and Deficiency income tax assessment no. FAC-1-86-91-002451 (against the Spouses
Ferdinand and Imelda Marcos in the amounts of P149,551.70 and P184,009,737.40
representing deficiency income tax for the years 1985 and 1986); (3) Deficiency income tax
assessment nos. FAC-1-82-91-002460 to FAC-1-85-91-002463 (against petitioner Ferdinand
'Bongbong' Marcos II in the amounts of P258.70 pesos; P9,386.40 Pesos; P4,388.30 Pesos; and
P6,376.60 Pesos representing his deficiency income taxes for the years 1982 to 1985).
The Commissioner of Internal Revenue avers that copies of the deficiency estate and income
tax assessments were all personally and constructively served on August 26, 1991 and
September 12, 1991 upon Mrs. Imelda Marcos (through her caretaker Mr. Martinez) at her
last known address at No. 204 Ortega St., San Juan, M.M. (Annexes 'D' and 'E' of the Petition).
Likewise, copies of the deficiency tax assessments issued against petitioner Ferdinand
'Bongbong' Marcos II were also personally and constructively served upon him (through his
caretaker) on September 12, 1991, at his last known address at Don Mariano Marcos St.
corner P. Guevarra St., San Juan, M.M. (Annexes 'J' and 'J-1' of the Petition). Thereafer, Formal
Assessment notices were served on October 20, 1992, upon Mrs. Marcos c/o petitioner, at his
office, House of Representatives, Batasan Pambansa, Quezon City. Moreover, a notice to
Taxpayer inviting Mrs. Marcos(or her duly authorized representative to counsel), to a
conference, was furnished the counsel of Mrs. Marcos, Dean Antonio Coronel — but to no
avail.
The deficiency tax assessments were not protested administratively, by Mrs. Marcos and the
other heirs of the late president, within 30 days from service of said assessments.
On February 22, 1993, the BIR Commissioner issued twenty-two notices of levy on real
property against certain parcelsof land owned by the Marcoses — to satisfy the alleged estate
tax and deficiency income taxes of Spouses Marcos.

On May 20, 1993, four more Notices of Levy on real property were issued for the
purpose of satisfying the deficiency income taxes.
On May 26, 1993, additional four (4) notices of Levy on real property were again issued. The
foregoing tax remedies were resorted to pursuant to Sections 205 and 213 of the National
Internal Revenue Code (NIRC).
In response to a letter dated March 12, 1993 sent by Atty. Loreto Ata (counsel of herein
petitioner) calling the attentionof the BIR and requesting that they be duly notified of any
action taken by the BIR affecting the interest of their client Ferdinand 'Bongbong' Marcos II, as
well as the interest of the late president — copies of the aforesaid notices were served on
 April 7, 1993 and on June 10, 1993, upon Mrs. Imelda Marcos, the petitioner, and their
counsel of record, 'De Borja, Medialdea, Ata, Bello, Guevarra and Serapio Law Office'.
Notices of sale at public auction were posted on May 26, 1993, at the lobby of the City
Hall of Tacloban City. The public auction for the sale of the eleven (11) parcels of land took
place on July 5, 1993. There being no bidder, the lots were declared forfeited in favor of the
government.
On June 25, 1993, petitioner Ferdinand 'Bongbong' Marcos II filed the instant petition for
certiorari and prohibition under Rule 65 of the Rules of Court, with prayer for temporary
restraining order and/or writ of preliminary injunction."
It has been repeatedly observed, and not without merit, that the enforcement of tax laws and the
collection of taxes, is ofparamount importance for the sustenance of government. Taxes are the
lifeblood of the government and should be collected without unnecessary hindrance. However, such collection
should be made in accordance with law as any arbitrariness will negate the very reason for government itself.
It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so
that the real purpose of taxation, which is the promotion of the common good, may be achieved. 3
Whether or not the proper avenues of assessment and collection of the said tax obligations were taken by the
respondent Bureau is now the subject of the Court's inquiry.
Petitioner posits that notices of levy, notices of sale, and subsequent sale of properties of the late
President Marcoseffected by the BIR are null and void for disregarding the established procedure for the
enforcement of taxes due upon the estate of the deceased. The case of Domingo vs. Garlitos 4 is specifically
cited to bolster the argument that "the ordinary procedure by which to settle claims of indebtedness against
the estate of a deceased, person, as in an inheritance (estate) tax, is for the claimant to present a claim before
the probate court so that said court may order the administrator to pay the amount therefor." This remedy is
allegedly, exclusive, and cannot be effected through any other means.
Petitioner goes further, submitting that the probate court is not precluded from denying a request by the
government for the immediate payment of taxes, and should order the payment of the same only within the
period fixed by the probatecourt for the payment of all the debts of the decedent. In this regard, petitioner
cites the case of Collector of Internal Revenue vs. The Administratrix of the Estate of Echarri (67 Phil 502),
where it was held that:
"The case of Pineda vs. Court of First Instance of Tayabas and Collector of Internal Revenue (52
Phil 803), relied upon by the petitioner-appellant is good authority on the proposition that
the court having control over the administration proceedings has jurisdiction to entertain the
claim presented by the government for taxes due and to order the administrator to pay the
tax should it find that the assessment was proper, and that the tax was legal, due and
collectible. And the rule laid down in that case must be understood in relation to the
case of Collector of Customs vs. Haygood, supra., as to the procedure to be followed in a given
case by the government to effectuate the collection ofhe tax. Categorically stated, where
during the pendency of judicial administration over the estate of a deceased person a claim
for taxes is presented by the government, the court has the authority to order payment by the
administrator; but, in the same way that it has authority to order payment or satisfaction, it
also has the negative authority to deny the same. While there are cases where courts are
required to perform certain duties mandatory and ministerial in character, the
function of the court in a case of the present character is not one of them; and here,
thecourt cannot be an organism endowed with latitude of judgment in one direction, and
converted into a mere mechanical contrivance in another direction."
On the other hand, it is argued by the BIR, that the state's authority to collect internal revenue taxes is
paramount. Thus, the pendency of probate proceedings over the estate of the deceased does not preclude the
assessment and collection, through summary remedies, of estate taxes over the same. According to the
respondent, claims for payment of estate and income taxes due and assessed afer the death of the decedent
need not be presented in the form of a claim against the estate. These can and should be paid immediately.
The probate court is not the government agency to decide whether an estate is liable for
payment of estate of income taxes. Well-settled is the rule that the probate court is a court with special and
limited jurisdiction.
Concededly, the authority of the Regional Trial Court, sitting, albeit with limited jurisdiction, as a
probate court over estateof deceased individual, is not a trifling thing. The court's jurisdiction, once invoked,
and made effective, cannot be treated with indifference nor should it be ignored with impunity by the very
parties invoking its authority.
In testament to this, it has been held that it is within the jurisdiction of the probate court to approved (sic) the
sale ofproperties of a deceased person by his prospective heirs before final adjudication; 5 to determine who
are the heirs of the decedent; 6 the recognition of a natural child; 7 the status of a woman claiming to be the
legal wife of the decedent; 8 the legality of disinheritance of an heir by the testator; 9 and to pass upon the
validity of a waiver of hereditary rights. 10
The pivotal question the court is tasked to resolve refers to the authority of the Bureau of Internal Revenue to
collect by the summary remedy of levying upon, and sale of real properties of the decedent, estate tax
deficiencies, without the cognition and authority of the court sitting in probate over the supposed will of the
deceased.
The nature of the process of estate tax collection has been described as follows:
"Strictly speaking, the assessment of an inheritance tax does not directly involve the
administration of a decedent's estate, although it may be viewed as an incident to the
complete settlement of an estate, and, under some statutes, it is made the duty of the
probate court to make the amount of the inheritance tax a part of the final
decree ofdistribution of the estate. It is not against the property of decedent, nor is it a claim
against the estate as such, but it is against the interest or property right which the heir,
legatee, devisee, etc., has in the property formerly held by decedent. Further, under some
statutes, it has been held that it is not a suit or controversy between the parties, nor is it an
adversary proceeding between the state and the person who owes the tax on the inheritance.
However, under other statutes it has been held that the hearing and determination of the
cash value of the assets and the determination of the tax are adversary proceedings. The
proceeding has been held to be necessarily a proceeding in rem." 11
In the Philippine experience, the enforcement and collection of estate tax, is executive in character, as the
legislature has seen it fit to ascribe this task to the Bureau of Internal Revenue. Section 3 of the National
Internal Revenue Code attests to this:
"Sec. 3. Powers and duties of the Bureau. — The powers and duties of the Bureau of Internal
Revenue shall comprehend the assessment and collection of all national internal revenue
taxes, fees, and charges, and the enforcement of all forfeitures, penalties, and fines connected
therewith, including the execution of judgments in all cases decided in its favor by
the Court of Tax Appeals and the ordinary courts. Said Bureau shall also give effect to and
administer the supervisory and police power conferred to it by this Code or other laws."
Thus, it was in Vera vs. Fernandez 12 that the court recognized the liberal treatment of claims for taxes charged
against the estate of the decedent. Such taxes, we said, were exempted from the application of the
statute of non-claims, and this is justified by the necessity of government funding, immortalized in the maxim
that taxes are the lifeblood of the government. Vectigalia nervi sunt rei publicae — taxes are the sinews of the
state.
"Taxes assessed against the estate of a deceased person, afer administration is opened, need
not be submitted to the committee on claims in the ordinary course of administration. In the
exercise of its control over the administrator, thecourt may direct the payment of such taxes
upon motion showing that the taxes have been assessed against the estate."
Such liberal treatment of internal revenue taxes in the probate proceedings extends so far, even to allowing the
enforcement of tax obligations against the heirs of the decedent, even afer distribution of the estate's
properties.
"Claims for taxes, whether assessed before or afer the death of the deceased, can be
collected from the heirs even afer the distribution of the properties of the decedent. They are
exempted from the application of the statute of non-claims. The heirs shall be liable therefor,
in proportion to their share in the inheritance." 13

"Thus, the Government has two ways of collecting the taxes in question. One, by going afer
all the heirs and collecting from each one of them the amount of the tax proportionate to the
inheritance received. Another remedy, pursuant to the lien created by Section 315 of the Tax
Code upon all property and rights to property belong to the taxpayer for unpaid income tax, is
by subjecting said property of the estate which is in the hands of an heir or transferee to the
payment of the tax due the estate. (Commissioner of Internal Revenue vs. Pineda, 21 SCRA
105, September 15, 1967.)
From the foregoing, it is discernible that the approval of the court, sitting in probate, or as a settlement
tribunal over the deceased is not a mandatory requirement in the collection of estate taxes. It cannot
therefore be argued that the Tax Bureau erred in proceeding with the levying and sale of the properties
allegedly owned by the late President, on the ground that it was required to seek first the probate court's
sanction. There is nothing in the Tax Code,and in the pertinent remedial laws that implies the necessity of the
probate or estate settlement court's approval of the state's claim for estate taxes, before the same can be
enforced and collected.
On the contrary, under Section 87 of the NIRC,it is the probate or settlement court which is bidden not to
authorize the executor or judicial administrator of the decedent's estate to deliver any distributive share to any
party interested in the estate, unless it is shown a Certification by the Commissioner of Internal Revenue that
the estate taxes have been paid. This provision disproves the petitioner's contention that it is the
probate court which approves the assessment and collection of the estate tax.
If there is any issue as to the validity of the BIR's decision to assess the estate taxes, this should have been
pursued through the proper administrative and judicial avenues provided for by law.
Section 229 of the NIRC tells us how:
"Sec. 229. Protesting of assessment. — When the Commissioner of Internal Revenue or his
duly authorized representative finds that proper taxes should be assessed, he shall first notify
the taxpayer of his findings. Within a period to be prescribed by implementing regulations, the
taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the
Commissioner shall issue an assessment based on his findings.
 Such assessment may be protested administratively by filing a request for reconsideration or
reinvestigation in such form and manner as may be prescribed by implementing regulations
within (30) days from receipt of the assessment; otherwise, the assessment shall become final
and unappealable.
If the protest is denied in whole or in part, the individual, association or corporation adversely
affected by the decision on the protest may appeal to the Court of Tax Appeals within thirty
(30) days from receipt of said decision; otherwise, the decision shall become final, executory
and demandable. (As inserted by P.D. 1773)"
Apart from failing to file the required estate tax return within the time required for the filing of the same,
petitioner, and the other heirs never questioned the assessments served upon them, allowing the same to
lapse into finality, and prompting the BIR to collect the said taxes by levying upon the properties lef by
President Marcos.
Petitioner submits, however, that "while the assessment of taxes may have been validly undertaken by the
Government, collection thereof may have been done in violation of the law. Thus, the manner and method in
which the latter is enforced may be questioned separately, and irrespective of the finality of the former,
because the Government does not have the unbridled discretion to enforce collection without regard to the
clear provision of law." 14
Petitioner specifically points out that applying Memorandum Circular No. 38-68, implementing Sections 318
and 324 of the old tax code (Republic Act 5203), the BIR's Notices of Levy on the Marcos properties, were
issued beyond the allowed period, and are therefore null and void:
". . . the Notices of Levy on Real Property (Annexes O to NN of Annex C of this Petition) in
satisfaction of said assessments were still issued by respondents well beyond the period
mandated in Revenue Memorandum Circular No. 38-68. These Notices of Levy were issued on
22 February 1993 and 20 May 1993 when at least seventeen (17) months had already lapsed
from the last service of tax assessment on 12 September 1991. As no
notices of distraint ofpersonal property were first issued by respondents, the latter should
have complied with Revenue Memorandum Circular No. 38-68 and issued these
Notices of Levy not earlier than three (3) months nor later than six (6) months from 12
September 1991. In accordance with the Circular, respondents only had until 12 March 1992
(the last day ofhe sixth month) within which to issue these Notices of Levy. The
Notices of Levy, having been issued beyond the period allowed by law, are thus void and of no
effect." 15
We hold otherwise. The Notices of Levy upon real property were issued within the prescriptive period and in
accordance with the provisions of the present Tax Code.The deficiency tax assessment, having already become
final, executory, and demandable, the same can now be collected through the summary remedy of distraint or
levy pursuant to Section 205 ofhe NIRC.
The applicable provision in regard to the prescriptive period for the assessment and collection of tax deficiency
in this instance is Section 223 of the NIRC,which pertinently provides:
"Sec. 223. Exceptions as to a period of limitation of assessment and collection of taxes. — (a)
In the case of a false or fraudulent return with intent to evade tax or of a failure to file a
return, the tax may be assessed, or a proceeding incourt for the collection of such tax may be
begun without assessment, at any time within ten (10) years afer the discovery of the falsity,
fraud, or omission: Provided, That, in fraud assessment which has become final and executory,
the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for the
collection thereof. cdphil
 xxx xxx xxx
(c) Any internal revenue tax which has been assessed within the period of limitation above
prescribed, may be collected by distraint or levy or by a proceeding in court within three years
following the assessment of the tax.
xxx xxx xxx
The omission to file an estate tax return, and the subsequent failure to contest or appeal the assessment made
by the BIR is fatal to the petitioner's cause, as under the above-cited provision, in case of failure to file a return,
the tax may be assessed at any time within ten years afer the omission, and any tax so assessed may be
collected by levy upon real property within three years following the assessment of the tax. Since the estate
tax assessment had become final and unappealable by the petitioner's default as regards protesting the
validity of the said assessment, there is now no reason why the BIR cannot continue with the collection of the
said tax. Any objection against the assessment should have been pursued following the avenue paved in
Section 229 of the NIRC on protests on assessments of internal revenue taxes.
Petitioner further argues that "the numerous pending court cases questioning the late president's ownership
or interests in several properties (both real and personal) make the total value of his estate, and the
consequent estate tax due, incapable of exact pecuniary determination at this time. Thus, respondents'
assessment of the estate tax and their issuance of the Notices of Levy and sale are premature and oppressive."
He points out the pendency of Sandiganbayan Civil Case Nos. 0001-0034 and 0141, which were filed by the
government to question the ownership and interests of the late President in real, and personal properties
located within and outside the Philippines. Petitioner, however, omits to allege whether the properties levied
upon the BIR in the collection of estate taxes upon the decedent's estate were among those involved in the
said cases pending in the Sandiganbayan. Indeed, the court is at a loss as to how these cases are relevant to
the matter at issue. The mere fact that the decedent has pending cases involving ill-gotten wealth does not
affect the enforcement of tax assessments over the properties indubitably included in his estate.
Petitioner also expresses his reservation as to the propriety of the BIR's total
assessment of P23,292,607,638.00, stating that this amount deviates from the findings of the
Department of Justice's Panel of Prosecutors as per its resolution of 20 September 1991. Allegedly, this is clear
evidence of the uncertainty on the part of the Government as to the total value ofhe estate of the late
President.
This is, to our mind, the petitioner's last ditch effort to assail the assessment of estate tax which had already
become final and unappealable.
It is not the Department of Justice which is the government agency tasked to determine the amount of taxes
due upon the subject estate, but the Bureau of Internal Revenue, 16 whose determinations and assessments
are presumed correct and made in good faith. 17 The taxpayer has the duty of proving otherwise. In the
absence of proof of any irregularities in the performance of official duties, an assessment will not be disturbed.
Even an assessment based on estimates is prima facie valid and lawful where it does not appear to have been
arrived at arbitrarily or capriciously. The burden of proof is upon the complaining party to show clearly that the
assessment is erroneous. Failure to present proof of error in the assessment will justify the judicial
affirmance of said assessment. 18 In this instance, petitioner has not pointed out one single provision in the
Memorandum of the Special Audit Team which gave rise to the questioned assessment, which bears a
trace of falsity. Indeed, the petitioner's attack on the assessment bears mainly on the alleged improbable and
unconscionable amount of the taxes charged. But mere rhetoric cannot supply the basis for the
charge of impropriety ofhe assessments made.
Moreover, these objections to the assessments should have been raised, considering the ample remedies
afforded the taxpayer by the Tax Code,with the Bureau of Internal Revenue and the Court of Tax Appeals, as
described earlier, and cannot be raised now via Petition for Certiorari, under the pretext of grave
abuse of discretion. The course of action taken by the petitioner reflects his disregard or even
repugnance of the established institutions for governance in the scheme ofa well-ordered society. The subject
tax assessments having become final, executory and enforceable, the same can no longer be contested by
means of a disguised protest. In the main, Certiorari may not be used as a substitute for a lost appeal or
remedy. 19 This judicial policy becomes more pronounced in view of the absence of sufficient attack against
the actuation of government.
On the matter of sufficiency of service of Notices of Assessment to the petitioner, we find the respondent
appellate court's pronouncements sound and resilient to petitioner's attacks.
"Anent grounds 3(b) and (B) — both alleging/claiming lack of notice — We find, afer
considering the facts and circumstances, as well as evidences, that there was sufficient,
constructive and/or actual notice of assessments, levy and sale, sent to herein petitioner
Ferdinand "Bongbong" Marcos as well as to his mother Mrs. Imelda Marcos.
Even if we are to rule out the notices of assessments personally given to the
caretaker of Mrs. Marcos at the latter's last known address, on August 26, 1991 and
September 12, 1991, as well as the notices of assessment personally given to the
caretaker of petitioner also at his last known address on September 12, 1991 — the
subsequent notices given thereafer could no longer be ignored as they were sent at a time
when petitioner was already here in the Philippines, and at a place where said notices would
surely be called to petitioner's attention, and received by responsible personsof sufficient age
and discretion.
Thus, on October 20, 1992, formal assessment notices were served upon Mrs. Marcos c/o the
petitioner, at his office, House of Representatives, Batasan Pambansa, Q.C. (Annexes "A", "A-
1", "A-2", "A-3"; pp. 207-210, Comment/Memorandum of OSG). Moreover, a notice to
taxpayer dated October 8, 1992 inviting Mrs. Marcos to a conference relative to her tax
liabilities, was furnished the counsel of Mrs. Marcos — Dean Antonio Coronel (Annex "B", p.
211, ibid). Thereafer, copies of Notices were also served upon Mrs. Imelda Marcos, the
petitioner and their counsel "De Borja, Medialdea, Ata, Bello, Guevarra and Serapio Law
Office", on April 7, 1993. Despite all of these Notices, petitioner never lifed a finger to protest
the assessments, (upon which the Levy and sale of properties were based), nor appealed the
same to the Court of Tax Appeals.
Their being sufficient service of Notices to herein petitioner (and his mother) and it appearing
that petitioner continuously ignored said Notices despite several opportunities given him to
file a protest and to thereafer appeal to the Court of Tax Appeals, — the tax assessments
subject of this case, upon which the levy and sale of properties were based, could no longer
be contested (directly or indirectly) via this instant petition for certiorari." 20
Petitioner argues that all the questioned Notices of Levy, however, must be nullified for having been issued
without validly serving copies thereof to the petitioner. As a mandatory heir of the decedent, petitioner avers
that he has an interest in the subject estate, and notices of levy upon its properties should have been served
upon him.
We do not agree. In the case of notices of levy issued to satisfy the delinquent estate tax, the delinquent
taxpayer is the Estate of the decedent, and not necessarily and exclusively, the petitioner as heir of the
deceased. In the same vein, in the matter of income tax delinquency of the late president and his spouse,
petitioner is not the taxpayer liable. Thus, it follows that service of notices of levy in satisfaction of these tax
delinquencies upon the petitioner is not required by law, as underSection 213 of the NIRC,which pertinently
states:
"xxx xxx xxx
Levy shall be effected by writing upon said certificate a description of the property upon
which levy is made. At the same time, written notice of the levy shall be mailed to or served
upon the Register of Deeds of the province or city where the property is located and upon the
delinquent taxpayer, or if he be absent from the Philippines, to his agent or the
manager of the business in respect to which the liability arose, or if there be none, to the
occupant of the property in question.
xxx xxx xxx"
The foregoing notwithstanding, the record shows that notices of warrants of distraint and levy of sale were
furnished the counsel of petitioner on April 7, 1993, and June 10, 1993, and the petitioner himself on April 12,
1993 at his office at the Batasang Pambansa. 21 We cannot therefore, countenance petitioner's insistence that
he was denied due process. Where there was an opportunity to raise objections to government action, and
such opportunity was disregarded, for no justifiable reason, the party claiming oppression then becomes the
oppressor of the orderly functions of government. He who comes to court must come with clean hands.
Otherwise, he not only taints his name, but ridicules the very structureof established authority.
IN VIEW WHEREOF, the Court RESOLVED to DENY the present petition. The
Decision of the Court of Appeals dated November 29, 1994 is hereby AFFIRMED in all respects.

SECOND DIVISION

[G.R. No. 208293. December 10, 2014]

PHILIPPINE NATIONAL BANK, petitioner, vs. CARMELITA S. SANTOS, REYME L. SANTOS,

ANGEL L. SANTOS, NONENG S. DIANCO, ET AL., respondents.

[G.R. No. 208295. December 10, 2014]

LINA B. AGUILAR, petitioner, vs. CARMELITA S. SANTOS, REYME L. SANTOS, ANGEL L.

SANTOS, BUENVENIDO L. SANTOS, ET AL., respondents.

DECISION

LEONEN, J p:
The standard of diligence required of banks is higher than the degree of diligence of a good father
of a family.
Respondents are children of Angel C. Santos who died on March 21, 1991. 1
Sometime in May 1996, respondents discovered that their father maintained a premium savings
account with Philippine National Bank (PNB), Sta. Elena-Marikina City Branch. 2 As of July 14, 1996, the
deposit amounted to P1,759,082.63. 3 Later; respondents would discover that their father also had a time
deposit of P1,000,000.00 with PNB.4
Respondents went to PNB to withdraw their father's deposit. 5
Lina B. Aguilar, the Branch Manager of PNB-Sta. Elena-Marikina City Branch, required them to
submit the following: "(1) original or certified true copy of the Death Certificate of Angel C. Santos; (2)
certificate of payment of, or exemption from, estate tax issued by the Bureau of Internal Revenue (BIR); (3)
Deed of Extrajudicial Settlement; (4) Publisher's Affidavit of publication of the Deed of Extrajudicial
Settlement; and (5) Surety bond effective for two (2) years and in an amount equal to the balance of the
deposit to be withdrawn." 6
By April 26, 1998, respondents had already obtained the necessary documents. 7 They tried to
withdraw the deposit. 8 However, Aguilar informed them that the deposit had already "been released to a
certain Bernardito Manimbo (Manimbo) on April 1, 1997." 9 An amount of P1,882,002.05 was released
upon presentation of: (a) an affidavit of self-adjudication purportedly executed by one of the respondents,
Reyme L. Santos; (b) a certificate of time deposit dated December 14, 1989 amounting to P1,000,000.00;
and (c) the death certificate of Angel C. Santos, among others. 10A special power of attorney was
purportedly executed by Reyme L. Santos in favor of Manimbo and a certain Angel P. Santos for purposes of
withdrawing and receiving the proceeds of the certificate of time deposit. 11
On May 20, 1998, respondents filed before the Regional Trial Court of Marikina City a complaint for
sum of money and damages against PNB, Lina B. Aguilar, and a John Doe. 12 Respondents questioned the
release of the deposit amount to Manimbo who had no authority from them to withdraw their father's
deposit and who failed to present to PNB all the requirements for such withdrawal. 13 Respondents prayed
that they be paid: (a) the premium deposit amount; (b) the certificate of time deposit amount; and (c)
moral and exemplary damages, attorney's fees, and costs of suit. 14 CAIHTE
PNB and Aguilar denied that Angel C. Santos had two separate accounts (premium deposit account
and time deposit account) with PNB. 15 They alleged that Angel C. Santos' deposit account was originally a
time deposit account that was subsequently converted into a premium savings account. 16 They also
alleged that Aguilar did not know about Angel C. Santos' death in 1991 because she only assumed office in
1996. 17 Manimbo was able to submit an affidavit of self-adjudication and the required surety bond. 18 He
also submitted a certificate of payment of estate tax dated March 31, 1997. 19 All documents he submitted
appeared to be regular. 20
PNB and Aguilar filed a third-party complaint against Manimbo, Angel P. Santos, and Capital
Insurance and Surety Co., Inc. 21
Angel P. Santos denied having anything to do with the special power of attorney and affidavit of
self-adjudication presented by Manimbo. 22 He also alleged that Manimbo presented the certificate of
time deposit without his knowledge and consent. 23
Capital Insurance and Surety Co., Inc. alleged that its undertaking was to pay claims only when
persons who were unduly deprived of their lawful participation in the estate filed an action in court for
their claims. 24 It did not undertake to pay claims resulting from PNB's negligence. 25
In the decision 26 dated February 22, 2011, the trial court held that PNB and Aguilar were jointly
and severally liable to pay respondents the amount of P1,882,002.05 with an interest rate of 6% starting
May 20, 1998. 27 PNB and Aguilar were also declared jointly and severally liable for moral and exemplary
damages, attorney's fees, and costs of suit. 28 Manimbo, Angel P. Santos, and Capital Insurance and Surety
Co., Inc. were held jointly and severally liable to pay PNB P1,877,438.83 pursuant to the heir's bond and
P50,000.00 as attorney's fees and the costs of suit. 29 The dispositive portion of the trial court's decision
reads:
 WHEREFORE, foregoing premises considered, judgment is hereby rendered as
follows:
1. ordering the defendants PNB and LINA B. AGUILAR jointly and severally liable to pay
the plaintiffs the amount of P1,882,002.05, representing the face value of PNB
Manager's Check No. AF-974686B as balance of the total deposits of decedent
Angel C. Santos at the time of its issue, with interest thereon at the rate of 6%
starting on May 20, 1998, the date when the complaint was filed, until fully
paid;
2. ordering both defendants jointly and severally liable to pay plaintiffs the amount of
Php100,000.00 as moral damages, another Php100,000.00 as exemplary
damages and Php50,000.00 as attorney's fees and the costs of suit;
On the Third party complaint:
3. Ordering the third party defendants Bernardito P. Manimbo, Angel P. Santos and
Capital Insurance & Surety Co., Inc., jointly and severally liable to pay third
party plaintiff PNB, the amount of Php1,877,438.83 pursuant to the Heir's Bond
and the amount of Php50,000.00 as attorney's fees and the costs of suit.
SO ORDERED. 30
The trial court found that Angel C. Santos had only one account with PNB. 31 The account was
originally a time deposit, which was converted into a premium savings account when it was not renewed
on maturity. 32 The trial court took judicial notice that in 1989, automatic rollover of time deposit was not
yet prevailing. 33
On the liability of PNB and Aguilar, the trial court held that they were both negligent in releasing
the deposit to Manimbo. 34 The trial court noted PNB's failure to notify the depositor about the maturity
of the time deposit and the conversion of the time deposit into a premium savings account. 35 The trial
court also noted PNB's failure to cancel the certificate of time deposit despite conversion. 36 PNB and
Aguilar also failed to require the production of birth certificates to prove claimants' relationship to the
depositor. 37 Further, they relied on the affidavit of self-adjudication when several persons claiming to be
heirs had already approached them previously. 38
Aguilar filed a motion for reconsideration 39 of the February 22, 2011 Regional Trial Court decision.
This was denied in the June 21, 2011 Regional Trial Court order. 40
PNB and Aguilar appealed before the Court of Appeals. 41
Aguilar contended that she was not negligent and should not have been made jointly and severally
liable with PNB. 42 She merely implemented PNB's Legal Department's directive to release the deposit to
Manimbo. 43
PNB argued that it was not negligent. 44 The release of the deposit to Manimbo was pursuant to an
existing policy.45 Moreover, the documents submitted by Manimbo were more substantial than those
submitted by respondents. 46Respondents could have avoided the incident "had they accomplished the
required documents immediately." 47
In the decision 48 promulgated on July 25, 2013, the Court of Appeals sustained the trial court's
finding that there was only one account. 49 Angel C. Santos could not have possibly opened the premium
savings account in 1994 since he already died in 1991. 50 The Court of Appeals also held that PNB and
Aguilar were negligent in handling the deposit. 51The deposit amount was released to Manimbo who did
not present all the requirements, particularly the Bureau of Internal Revenue (BIR) certification that estate
taxes had already been paid. 52 They should also not have honored the affidavit of self-
adjudication. 53 HEITAD
The Court of Appeals ruled that Aguilar could not escape liability by pointing her finger at PNB's
Legal Department. 54 As the Bank Manager, she should have given the Legal Department all the necessary
information that must be known in order to protect both the depositors' and the bank's interests. 55
The Court of Appeals removed the award of exemplary damages, upon finding that there was no
malice or bad faith. 56
The Court of Appeals considered the deposit as an ordinary loan by the bank from Angel C. Santos
or his heirs. 57Therefore, the deposit was a forbearance which should earn an interest of 12% per
annum. 58 The dispositive portion of the Court of Appeals' decision reads:
WHEREFORE, premises considered, the assailed decision of the court a quo dated
February 22, 2011 isAFFIRMED with the MODIFICATIONS in that the rate of interest shall be
twelve percent (12%) per annum computed from the filing of the case until fully satisfied.
The interest due shall further earn an interest of 12% per annum to be computed from the
date of the filing of the complaint until fully paid. Meanwhile, the award of exemplary
damages isDELETED.
SO ORDERED. 59
PNB and Aguilar filed their separate petitions for review of the Court of Appeals' July 25, 2013
decision. 60
We resolve the following issues:
I. Whether Philippine National Bank was negligent in releasing the deposit to Bernardito Manimbo;
II. Whether Lina B. Aguilar is jointly and severally liable with Philippine National Bank for the release
of the deposit to Bernardito Manimbo; and
III. Whether respondents were properly awarded damages.
Petitioner Aguilar argued that the Court of Appeals had already found no malice or bad faith on her
part. 61Moreover, as a mere officer of the bank, she cannot be made personally liable for acts that she was
authorized to do. 62These acts were mere directives to her by her superiors. 63 Hence, she should not be
held solidarily liable with PNB. 64
Petitioner PNB argued that it was the presumptuousness and cavalier attitude of respondents that
gave rise to the controversy and not its judgment call. 65 Respondents were lacking in sufficient
documentation. 66 Petitioner PNB also argued that respondents failed to show any justification for the
award of moral damages. 67 No bad faith can be attributed to Aguilar. 68
In their separate comments to the petitions, respondents argued that the trial court and the Court
of Appeals did not err in finding that petitioners PNB and Aguilar were negligent in handling their father's
deposit. 69 The acceptance of invalid and incomplete documents to support the deposit's release to
Manimbo was a violation of the bank's fiduciary duty to its clients. 70 These acts constituted gross
negligence on the part of petitioners PNB and Aguilar. 71
However, according to respondents, the Court of Appeals erred in deleting the award for exemplary
damages because the acts in violation of the bank's fiduciary were done in bad faith. 72 ATICcS
We rule for the respondents.
The trial court and the Court of Appeals correctly found that petitioners PNB and Aguilar were
negligent in handling the deposit of Angel C. Santos.
 The contractual relationship between banks and their depositors is governed by the Civil
Code provisions on simple loan. 73 Once a person makes a deposit of his or her money to the bank, he or
she is considered to have lent the bank that money. 74 The bank becomes his or her debtor, and he or she
becomes the creditor of the bank, which is obligated to pay him or her on demand. 75
The default standard of diligence in the performance of obligations is "diligence of a good father of
a family." Thus, the Civil Code provides:
ART. 1163. Every person obliged to give something is also obliged to take care of it with the
proper diligence of a good father of a family, unless the law or the stipulation of the parties
requires another standard of care.
xxx xxx xxx
ART. 1173. The fault or negligence of the obligor consists in the omission of that diligence
which is required by the nature of the obligation and corresponds with the circumstances of
the persons, of the time and of the place. When negligence shows bad faith, the provisions
of articles 1171 and 2201, paragraph 2; shall apply.
If the law or contract does not state the diligence which is to be observed in the
performance, that which is expected of a good father of a family shall be required.
(Emphasis supplied)
"Diligence of a good father of a family" is the standard of diligence expected of, among others,
usufructuaries, 76passengers of common carriers, 77 agents, 78 depositaries, 79 pledgees, 80 officious
managers, 81 and persons deemed by law as responsible for the acts of others. 82 "The diligence of a good
father of a family requires only that diligence which an ordinary prudent man would exercise with regard to
his own property." 83
Other industries, because of their nature, are bound by law to observe higher standards of
diligence. Common carriers, for example, must observe "extraordinary diligence in the vigilance over the
goods and for the safety of [their] passengers" 84 because it is considered a business affected with public
interest. "Extraordinary diligence" with respect to passenger safety is further qualified as "carry[ing] the
passengers safely as far as human care and foresight can provide, using the utmost diligence of very
cautious persons, with a due regard for all the circumstances." 85
Similar to common carriers, banking is a business that is impressed with public interest. It affects
economies and plays a significant role in businesses and commerce. 86 The public reposes its faith and
confidence upon banks, such that "even the humble wage-earner has not hesitated to entrust his life's
savings to the bank of his choice, knowing that they will be safe in its custody and will even earn some
interest for him." 87 This is why we have recognized the fiduciary nature of the banks' functions, and
attached a special standard of diligence for the exercise of their functions.
In Simex International (Manila), Inc. v. Court of Appeals, 88 this court described the nature of banks'
functions and the attitude expected of banks in handling their depositors' accounts, thus:
In every case, the depositor expects the bank to treat his account with the utmost
fidelity, whether such account consists only of a few hundred pesos or of millions. . . .
The point is that as a business affected with public interest and because of the
nature of its functions, the bank is under obligation to treat the accounts of its
depositors with meticulous care, always having in mind the fiduciary nature of their
relationship. 89 (Emphasis supplied)
The fiduciary nature of banking is affirmed in Republic Act No. 8791 or The General Banking Law,
thus:
 SEC. 2. Declaration of Policy. — The State recognizes the vital role of banks in providing an
environment conducive to the sustained development of the national economy and the
fiduciary nature of banking that requires high standards of integrity and performance. In
furtherance thereof, the State shall promote and maintain a stable and efficient banking and
financial system that is globally competitive, dynamic and responsive to the demands of a
developing economy. (Emphasis supplied)
In The Consolidated Bank and Trust Corporation v. Court of Appeals, 90 this court explained the
meaning of fiduciary relationship and the standard of diligence assumed by banks: TIADCc
This fiduciary relationship means that the bank's obligation to observe "high
standards of integrity and performance" is deemed written into every deposit agreement
between a bank and its depositor. The fiduciary nature of banking requires banks to assume
a degree of diligence higher than that of a good father of a family. Article 1172 of the Civil
Code states that the degree of diligence required of an obligor is that prescribed by law or
contract, and absent such stipulation then the diligence of a good father of a
family. 91 (Emphasis supplied, citation omitted)
Petitioners PNB and Aguilar's treatment of Angel C. Santos' account is inconsistent with the high
standard of diligence required of banks. They accepted Manimbo's representations despite knowledge of
the existence of circumstances that should have raised doubts on such representations. As a result, Angel
C. Santos' deposit was given to a person stranger to him.
Petitioner PNB pointed out that since petitioner Aguilar assumed office as PNB-Sta. Elena-Marikina
City Branch Manager only five (5) years from Angel C. Santos' death, she was not in the position to know
that respondents were the heirs of Angel C. Santos. 92 She could not have accepted the unsigned and
unnotarized extrajudicial settlement deed that respondents had first showed her. 93 She was not
competent to make a conclusion whether that deed was genuine.94 Neither could petitioners PNB and
Aguilar pass judgment on a letter from respondents' lawyer stating that respondents were the nine heirs of
Angel C. Santos. 95
Petitioners PNB and Aguilar's negligence is not based on their failure to accept respondents'
documents as evidence of their right to claim Angel C. Santos' deposit. Rather, it is based on their failure to
exercise the diligence required of banks when they accepted the fraudulent representations of Manimbo.
Petitioners PNB and Aguilar disregarded their own requirements for the release of the deposit to
persons claiming to be heirs of a deceased depositor. When respondents asked for the release of Angel C.
Santos' deposit, they were required to present the following: "(1) original or certified true copy of the
Death Certificate of Angel C. Santos; (2) certificate of payment of, or exemption from, estate tax issued by
the Bureau of Internal Revenue (BIR); (3) Deed of Extrajudicial Settlement; (4) Publisher's Affidavit of
publication of the Deed of Extrajudicial Settlement; and (5) Surety bond effective for two (2) years and in
an amount equal to the balance of the deposit to be withdrawn." 96
Petitioners PNB and Aguilar, however, accepted Manimbo's representations, and they released
Angel C. Santos' deposit based on only the following documents:
1. Death certificate of Angel C. Santos;
2. Birth certificate of Reyme L. Santos;
3. Affidavit of self-adjudication of Reyme L. Santos;
4. Affidavit of publication;
5. Special power of attorney that Reyme L. Santos executed in favor of Bernardito Manimbo and
Angel P. Santos;
 6. Personal items of Angel C. Santos, such as photocopies or originals of passport, residence
certificate for year 1990, SSS I.D., etc.;
7. Surety good for two (2) years; and
8. Certificate of Time Deposit No. 341306. 97
Based on these enumerations, petitioners PNB and Aguilar either have no fixed standards for the
release of their deceased clients' deposits or they have standards that they disregard for convenience,
favor, or upon exercise of discretion. Both are inconsistent with the required diligence of banks. These
threaten the safety of the depositors' accounts as they provide avenues for fraudulent practices by third
persons or by bank officers themselves.
In this case, petitioners PNB and Aguilar released Angel C. Santos' deposit to Manimbo without
having been presented the BIR-issued certificate of payment of, or exception from, estate tax. This is a legal
requirement before the deposit of a decedent is released. Presidential Decree No. 1158, 98 the tax
code applicable when Angel C. Santos died in 1991, provides:
SEC. 118. Payment of tax antecedent to the transfer of shares, bonds, or rights. — There
shall not be transferred to any new owner in the books of any corporation, sociedad
anonima, partnership, business, or industry organized or established in the Philippines, any
shares, obligations, bonds or rights by way of gif inter vivos or mortis causa, legacy, or
inheritance unless a certification from the Commissioner that the taxes fixed in this Title and
due thereon have been paid is shown.
If a bank has knowledge of the death of a person who maintained a bank deposit account
alone, or jointly with another, it shall not allow any withdrawal from the said deposit
account, unless the Commissioner has certified that the taxes imposed thereon by this Title
have been paid; Provided, however, That the administrator of the estate or any one of the
heirs of the decedent may upon authorization by the Commissioner of Internal Revenue,
withdraw an amount not exceeding P10,000 without the said certification. For this purpose,
all withdrawal slips shall contain a statement to the effect that all of the joint depositors are
still living at the time of withdrawal by any one of the joint depositors and such statement
shall be under oath by the said depositors. 99 (Emphasis supplied)
This provision was reproduced in Section 97 of the 1997 National Internal Revenue Code,thus:
SEC. 97. Payment of Tax Antecedent to the Transfer of Shares, Bonds or Rights. — There
shall not be transferred to any new owner in the books of any corporation, sociedad
anonima, partnership, business, or industry organized or established in the Philippines any
share, obligation, bond or right by way of gif inter vivos or mortis causa, legacy or
inheritance, unless a certification from the Commissioner that the taxes fixed in this Title
and due thereon have been paid is shown.
If a bank has knowledge of the death of a person, who maintained a bank deposit account
alone, or jointly with another, it shall not allow any withdrawal from the said deposit
account, unless the Commissioner has certified that the taxes imposed thereon by this Title
have been paid: Provided, however, That the administrator of the estate or any one (1) of
the heirs of the decedent may, upon authorization by the Commissioner, withdraw an
amount not exceeding Twenty thousand pesos (P20,000) without the said certification. For
this purpose, all withdrawal slips shall contain a statement to the effect that all of the joint
depositors are still living at the time of withdrawal by any one of the joint depositors and
such statement shall be under oath by the said depositors. (Emphasis supplied)
 Taxes are created primarily to generate revenues for the maintenance of the government. However,
this particular tax may also serve as guard against the release of deposits to persons who have no sufficient
and valid claim over the deposits. Based on the assumption that only those with sufficient and valid claim
to the deposit will pay the taxes for it, requiring the certificate from the BIR increases the chance that the
deposit will be released only to them. AIDSTE
In their compulsory counterclaim, 100 petitioners PNB and Aguilar claimed that Manimbo
presented a certificate of payment of estate tax. 101 During trial, however, it turned out that this certificate
was instead an authority to accept payment, which is not the certificate required for the release of bank
deposits. 102 It appears that Manimbo was not even required to submit the BIR certificate. 103 He, thus,
failed to present such certificate. Petitioners PNB and Aguilar provided no satisfactory explanation why
Angel C. Santos' deposit was released without it.
Petitioners PNB and Aguilar's negligence is also clear when they accepted as bases for the release of
the deposit to Manimbo: (a) a mere photocopy of Angel C. Santos' death certificate; 104 (b) the falsified
affidavit of self-adjudication and special power of attorney purportedly executed by Reyme L.
Santos; 105 and (c) the certificate of time deposit. 106
Petitioner Aguilar was aware that there were other claimants to Angel C. Santos' deposit.
Respondents had already communicated with petitioner Aguilar regarding Angel C. Santos' account before
Manimbo appeared. Petitioner Aguilar even gave respondents the updated passbook of Angel C. Santos'
account. 107 Yet, petitioners PNB and Aguilar did not think twice before they released the deposit to
Manimbo. They did not doubt why no original death certificate could be submitted. They did not doubt
why Reyme L. Santos would execute an affidavit of self-adjudication when he, together with others, had
previously asked for the release of Angel C. Santos' deposit. They also relied on the certificate of time
deposit and on Manimbo's representation that the passbook was lost when the passbook had just been
previously presented to Aguilar for updating. 108
During the trial, petitioner PNB's counsel only reasoned that the photocopy of the death certificate
was also submitted with other documents, which led him to no other conclusion than that Angel C. Santos
was already dead. 109On petitioners PNB and Aguilar's reliance special power of attorney allegedly
executed by Reyme L. Santos, Aguilar admitted that she did not contact Reyme L. Santos for verification.
Her reason was that Reyme L. Santos was not their client. Therefore, they had no obligation to do so. 110
Given the circumstances, "diligence of a good father of a family" would have required petitioners
PNB and Aguilar to verify. A prudent man would have inquired why Reyme L. Santos would issue an
affidavit of self-adjudication when others had also claimed to be heirs of Angel C. Santos. Contrary to
petitioner Aguilar's reasoning, the fact that Reyme L. Santos was not petitioner PNB's client should have
moved her to take measures to ensure the veracity of Manimbo's documents and representations. This is
because she had no previous knowledge of Reyme L. Santos his representatives, and his signature.
Petitioner PNB is a bank from which a degree of diligence higher than that of a good father of a
family is expected. Petitioner PNB and its manager, petitioner Aguilar, failed to meet even the standard of
diligence of a good father of a family. Their actions and inactions constitute gross negligence. It is for this
reason that we sustain the trial court's and the Court of Appeals' rulings that petitioners PNB and Aguilar
are solidarily liable with each other. 111
For the same reason, we sustain the award for moral damages. Petitioners PNB and Aguilar's gross
negligence deprived Angel C. Santos' heirs what is rightfully theirs. Respondents also testified that they
experienced anger and embarrassment when petitioners PNB and Aguilar refused to release Angel C.
Santos' deposit. 112 "The bank's negligence was the result of lack of due care and caution required of
managers and employees of a firm engaged in so sensitive and demanding business as banking." 113
 Exemplary damages should also be awarded. "The law allows the grant of exemplary damages by
way of example for the public good. The public relies on the banks' sworn profession of diligence and
meticulousness in giving irreproachable service. The level of meticulousness must be maintained at all
times by the banking sector." 114
Since exemplary damages are awarded and since respondents were compelled to litigate to protect
their interests, 115 the award of attorney's fees is also proper.
The Court of Appeals' award of interest should be modified to 12% from demand on April 26, 1998
until June 30, 2013, and 6% from July 1, 2013 until fully paid. In Nacar v. Gallery Frames: 116 SDAaTC
Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest
that would govern the parties, the rate of legal interest for loans or forbearance of any
money. . . shall no longer be twelve percent (12%) per annum. . . but will now be six percent
(6%) per annum effective July 1, 2013. It should be noted, nonetheless, that. . . the twelve
percent (12%) per annum legal interest shall apply only until June 30, 2013. Come July 1,
2013 the new rate of six percent (6%) per annum shall be the prevailing rate of interest
when applicable.
xxx xxx xxx
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from
the time it is judicially demanded. In the absence of stipulation, the rate of interest
shall be 6% per annum to be computed from default, i.e., from judicial or extrajudicial
demand. . .
xxx xxx xxx
3. When the judgment of the court awarding a sum of money becomes final and executory,
the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2,
above, shall be 6% per annum from such finality until its satisfaction, this interim
period being deemed to be by then an equivalent to a forbearance of credit. 117
WHEREFORE, the Court of Appeals' decision dated July 25, 2013 is AFFIRMED with
the MODIFICATIONS in that petitioners Philippine National Bank and Lina B. Aguilar are ordered solidarily
liable to pay respondents P100,000.00 as exemplary damages. Further, the interest rate for the amount of
P1,882,002.05, representing the face value of PNB Manager's Check No. AF-974686B is modified to 12%
from April 26, 1998 until June 30, 2013, and 6% from July 1, 2013 until satisfaction. All monetary awards
shall then earn interest at the rate of 6% per annum from finality of the decision until full satisfaction.
SO ORDERED.
||| (Philippine National Bank v. Santos, G.R. No. 208293 & 208295, [December 10, 2014])