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G.R. No. 188497 February 19, 2014 consumption or any other disposition.

—The production, manufacture or


importation of the goods belonging to any of the categories enumerated in Title VI
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
of the NIRC (i.e., alcohol products, tobacco products, petroleum products,
vs. automobiles and nonessential goods, mineral products) are not the sole
PILIPINAS SHELL PETROLEUM CORPORATION, Respondent.
determinants for the proper levy of the excise tax. It is further required that the
SEPARATE OPINION goods be manufactured, produced or imported for domestic sale, consumption or
any other disposition. The accrual of the tax liability is, therefore, contingent on the
Taxation; Excise Taxes; Tax Exemptions; Petroleum Products; View that the production, manufacture or importation of the taxable goods andthe intention of
excise tax exemption under Section 135(a) of the National Internal Revenue Code the manufacturer, producer or importer to have the goods locally sold or
(NIRC), is conferred on the petroleum products on which the excise tax is levied in consumed or disposed in any other manner. This is the reason why the accrual
the first place in view of its nature as a tax on property, the liability for the payment and liability for the payment of the excise tax are imposed directly on the
of which is statutorily imposed on the domestic petroleum manufacturer.—I write manufacturer or producer of the taxable goods, and arise before the removal of
this separate opinion only to explain that I hold a different view on the proper the goods from the place of their production.
interpretation of the excise tax exemption under Section 135(a) of the NIRC. I hold
that the excise tax exemption under Section 135(a) of the NIRC is conferred on Same; Same; View that the accrual and payment of the excise tax under
the petroleum products on which the excise tax is levied in the first place in view Title VI of the National Internal Revenue Code (NIRC) materially rest on the fact of
of its nature as a tax on property, the liability for the payment of which is statutorily actual production, manufacture or importation of the taxable goods in the
imposed on the domestic petroleum manufacturer. Philippines and on their presumed or intended domestic sale, consumption or
disposition.—Simply stated, the accrual and payment of the excise tax under Title
Same; Same; Same; Same; View that Section 135(a) of the National VI of the NIRC materially rest on the fact of actual production, manufacture or
Internal Revenue Code (NIRC), must be construed only as a prohibition for the importation of the taxable goods in the Philippines and on
manufacturer-seller of the petroleum products from shifting the tax burden to the their presumed or intended domestic sale, consumption or disposition.
international carriers by incorporating the previously-paid excise tax in the selling Considering that the excise tax attaches to the goods upon the accrual of the
price.—We thereby agreed with the position of the Solicitor General that Section manufacturer’s direct liability for its payment, the subsequent sale, consumption or
135(a) of the NIRC must be construed only as a prohibition for the manufacturer- other disposition of the goods becomes relevant only to determine whether any
seller of the petroleum products from shifting the tax burden to the international exemption or tax relief may be granted thereafter.
carriers by incorporating the previously-paid excise tax in the selling price. As a
consequence, the manufacturer-seller could not invoke the exemption from the Same; Same; View that it is the actual sale, consumption or disposition of
excise tax granted to international carriers. the taxable goods that confirms the proper tax treatment of goods previously
subjected to the excise tax.—The accrual and payment of the excise tax on the
Same; View that taxes are classified, according to subject matter or object, into goods enumerated under Title VI of the NIRC prior to their removal from the place
three groups, to wit: (1) personal, capitation or poll taxes; (2) property taxes; and of production are absolute and admit of no exception. As earlier mentioned, even
(3) excise or license taxes.—Taxes are classified, according to subject matter or locally manufactured goods intended for export cannot escape the imposition and
object, into three groups, to wit: (1) personal, capitation or poll taxes; (2) property payment of the excise tax, subject to a future claim for tax credit or refund once
taxes; and (3) excise or license taxes. Personal, capitation or poll taxes are fixed proof of actual exportation has been submitted to the Commissioner of Internal
amounts imposed upon residents or persons of a certain class without regard to Revenue (CIR). Verily, it is the actual sale, consumption or disposition of the
their property or business, an example of which is the basic community tax. taxable goods that confirms the proper tax treatment of goods previously
Property taxes are assessed on property or things of a certain class, whether real subjected to the excise tax. If any of the goods enumerated under Title VI of the
or personal, in proportion to their value or other reasonable method of NIRC are manufactured or produced in the Philippines and eventually sold,
apportionment, such as the real estate tax. Excise or license taxes are imposed consumed, or disposed of in any other manner domestically, therefore, there can
upon the performance of an act, the enjoyment of a privilege, or the engaging in be no claim for any tax relief inasmuch as the excise tax was properly levied and
an occupation, profession or business. Income tax, value-added tax, estate and collected from the manufacturer-seller.
donor’s tax fall under the third group.
Same; Same; View that the excise taxes are of the nature of indirect taxes,
Same; Excise Taxes; View that the production, manufacture or importation the liability for the payment of which may fall on a person other than whoever
of the goods belonging to any of the categories enumerated in Title VI of the actually bears the burden of the tax.—The excise taxes are of the nature of
National Internal Revenue Code (NIRC), (i.e., alcohol products, tobacco products, indirect taxes, the liability for the payment of which may fall on a person other than
petroleum products, automobiles and nonessential goods, mineral products) are whoever actually bears the burden of the tax. In Commissioner of Internal
not the sole determinants for the proper levy of the excise tax. It is further required Revenue v. Philippine Long Distance Telephone Company, 478 SCRA 61 (2005),
that the goods be manufactured, produced or imported for domestic sale, the Court has discussed the nature of indirect taxes in the following manner:

1
[I]ndirect taxes are those that are demanded, in the first instance, from, or are paid excise tax is imposed on the petroleum products, the liability for the payment of
by, one person in the expectation and intention that he can shift the burden to which is further statutorily imposed on the domestic petroleum manufacturer.
someone else. Stated elsewise, indirect taxes are taxes wherein the liability for Accordingly, the exemption must be allowed to the petroleum products because it
the payment of the tax falls on one person but the burden thereof can be shifted or is on them that the tax is imposed. The tax status of an international carrier to
passed on to another person, such as when the tax is imposed upon goods before whom the petroleum products are sold is not based on exemption; rather, it
reaching the consumer who ultimately pays for it. When the seller passes on the is based on the absence of a law imposing the excise tax on it. This further
tax to his buyer, he, in effect, shifts the tax burden, not the liability to pay it, supports the position that the burden passed on by the domestic petroleum
to the purchaser, as part of the price of goods sold or services rendered. manufacturer is not anymore in the nature of a tax — although resulting from the
previously-paid excise tax — but as an additional cost component in the selling
Same; Same; View that the option of shifting the burden to pay the excise price. Consequently, the purchaser of the petroleum products to whom the burden
tax rests on the statutory taxpayer, which is the manufacturer or producer in the of the excise tax has been shifted, not being the statutory taxpayer, cannot claim a
case of the excise taxes imposed on the petroleum products.—Accordingly, the
refund of the excise tax paid by the manufacturer or producer.
option of shifting the burden to pay the excise tax rests on the statutory taxpayer,
which is the manufacturer or producer in the case of the excise taxes imposed on BERSAMIN, J.:
the petroleum products. Regardless of who shoulders the burden of tax payment,
however, the Court has ruled as early as in the 1960s that the proper party to In essence, the Resolution written for the Court by my esteemed colleague,
question or to seek a refund of an indirect tax is the statutory taxpayer, the person Justice Martin S. Villarama, Jr., maintains that the exemption from payment of the
on whom the tax is imposed by law and who paid the same, even if he shifts the excise tax under Section 135(a) of the National Internal Revenue Code (NIRC) is
burden thereof to another. conferred on the international carriers; and that, accordingly, and in fulfillment of
international agreement and practice to exempt aviation fuel from the excise tax
Same; Same; View that the Silkair rulings involving the excise taxes on the and other impositions, Section 135(a) of the NIRC prohibits the passing of the
petroleum products sold to international carriers firmly hold that the proper party to excise tax to international carriers purchasing petroleum products from local
claim the refund of excise taxes paid is the manufacturer-seller.— manufacturers/sellers. Hence, he finds merit in the Motion for Reconsideration
The Silkair rulings involving the excise taxes on the petroleum products sold to filed by Pilipinas Shell Petroleum Corporation (Pilipinas Shell), and rules that
international carriers firmly hold that the proper party to claim the refund of excise Pilipinas Shell, as the statutory taxpayer directly liable to pay the excise tax on its
taxes paid is the manufacturer-seller. petroleum products, is entitled to the refund or credit of the excise taxes it paid on
the petroleum products sold to international carriers, the latter having been
Same; Same; View that the shifting of the tax burden by manufacturers- granted exemption from the payment of such taxes under Section 135(a) of the
sellers is a business prerogative resulting from the collective impact of market NIRC.
forces. Such forces include government impositions like the excise tax.—The
shifting of the tax burden by manufacturers-sellers is a business prerogative I CONCUR in the result.
resulting from the collective impact of market forces. Such forces include
government impositions like the excise tax. Hence, the additional amount billed to I write this separate opinion only to explain that I hold a different view on the
the purchaser as part of the price the purchaser pays for the goods acquired proper interpretation of the excise tax exemption under Section 135(a) of the
cannot be solely attributed to the effect of the tax liability imposed on the NIRC. I hold that the excise tax exemption under Section 135(a) of the NIRC is
manufacture-seller. It is erroneous to construe Section 135(a) only as a prohibition conferred on the petroleum products on which the excise tax is levied in the first
against the shifting by the manufacturers-sellers of petroleum products of the tax place in view of its nature as a tax on property, the liability for the payment of
burden to international carriers, for such construction will deprive the which is statutorily imposed on the domestic petroleum manufacturer.
manufacturers-sellers of their business prerogative to determine the prices at I submit the following disquisition in support of this separate opinion.
which they can sell their products.
The issue raised here was whether the manufacturer was entitled to claim the
Same; Same; View that Section 135(a) of the National Internal Revenue refund of the excise taxes paid on the petroleum products sold to international
Code (NIRC) cannot be further construed as granting the excise tax exemption to carriers exempt under Section 135(a) of the NIRC.
the international carrier to whom the petroleum products are sold considering that
the international carrier has not been subjected to excise tax at the outset.— We ruled in the negative, and held that the exemption from the excise tax under
Section 135(a) of the NIRC cannot be further construed as granting the excise tax Section 135(a) of the NIRC was conferred on the international carriers to whom
exemption to the international carrier to whom the petroleum products are sold the petroleum products were sold. In the decision promulgated onn April 25,
considering that the international carrier has not been subjected to excise tax at 2012,1 the Court granted the petition for review on certiorari filed by the
the outset. To reiterate, the excise tax is levied on the petroleum products Commissioner of Internal Revenue (CIR), and disposed thusly:
because it is a tax on property. Levy is the act of imposition by the Legislature
such as by its enactment of a law. The law enacted here is the NIRC whereby the

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WHEREFORE, the petition for review on certiorari is GRANTED. The Decision In its Motion for Reconsideration filed on May 23, 2012, Pilipinas Shell principally
dated March 25, 2009 and Resolution dated June 24, 2009 of the Court of Tax contends that the Court has erred in its interpretation of Section 135(a) of the
Appeals En Banc in CTA EB No. 415 are hereby REVERSED and SET ASIDE. 1997 NIRC; that Section 135(a) of the NIRC categorically exempts from the excise
The claims for tax refund or credit filed by respondent Pilipinas Shell Petroleum tax the petroleum products sold to international carriers of Philippine or foreign
Corporation are DENIED for lack of basis. registry for their use or consumption outside the Philippines;5 that no excise tax
should be imposed on the petroleum products, whether in the hands of the
No pronouncement as to costs. qualified international carriers or in the hands of the manufacturer-seller;6 that
SO ORDERED.2 although it is the manufacturer, producer or importer who is generally liable for the
excise tax when the goods or articles are subject to the excise tax, no tax should
We thereby agreed with the position of the Solicitor General that Section 135(a) of accordingly be collected from the manufacturer, producer or importer in instances
the NIRC must be construed only as a prohibition for the manufacturer-seller of when the goods or articles themselves are not subject to the excise tax; 7 and that
the petroleum products from shifting the tax burden to the international carriers by as a consequence any excise tax paid in advance on products that are exempt
incorporating the previously-paid excise tax in the selling price. As a under the law should be considered erroneously paid and subject of refund. 8
consequence, the manufacturer-seller could not invoke the exemption from the
excise tax granted to international carriers. Concluding, we said: – Pilipinas Shell further contends that the Court’s decision, which effectively
prohibits petroleum manufacturers from passing on the burden of the excise tax,
Respondent’s locally manufactured petroleum products are clearly subject to defeats the rationale behind the grant of the exemption;9 and that without the
excise tax under Sec. 148. Hence, its claim for tax refund may not be predicated benefit of a refund or the ability to pass on the burden of the excise tax to the
on Sec. 229 of the NIRC allowing a refund of erroneous or excess payment of tax. international carriers, the excise tax will constitute an additional production cost
Respondent’s claim is premised on what it determined as a tax exemption that ultimately increases the selling price of the petroleum products. 10
"attaching to the goods themselves," which must be based on a statute granting
tax exemption, or "the result of legislative grace." Such a claim is to be construed The CIR counters that the decision has clearly set forth that the excise tax
strictissimi juris against the taxpayer, meaning that the claim cannot be made to exemption under Section 135(a) of the NIRC does not attach to the products; that
rest on vague inference. Where the rule of strict interpretation against the Pilipinas Shell’s reliance on the Silkair rulings is misplaced considering that the
taxpayer is applicable as the claim for refund partakes of the nature of an Court made no pronouncement therein that the manufacturers selling petroleum
exemption, the claimant must show that he clearly falls under the exempting products to international carriers were exempt from paying the taxes; that the
statute. rulings that are more appropriate are those in Philippine Acetylene Co., Inc. v.
Commissioner of Internal Revenue11 and Maceda v. Macaraig, Jr.,12 whereby the
The exemption from excise tax payment on petroleum products under Sec. 135 Court confirmed the obvious intent of Section 135 of the NIRC to grant the excise
(a) is conferred on international carriers who purchased the same for their use or tax exemption to the international carriers or agencies as the buyers of petroleum
consumption outside the Philippines. The only condition set by law is for these products; and that this intention is further supported by the requirement that the
petroleum products to be stored in a bonded storage tank and may be disposed of petroleum manufacturer must pay the excise tax in advance without regard to
only in accordance with the rules and regulations to be prescribed by the whether or not the petroleum purchaser is qualified for exemption under Section
Secretary of Finance, upon recommendation of the Commissioner.3 135 of the NIRC.
xxxx In its Supplemental Motion for Reconsideration, Pilipinas Shell reiterates that what
Because an excise tax is a tax on the manufacturer and not on the purchaser, and is being exempted under Section 135 of the NIRC is the petroleum product that is
there being no express grant under the NIRC of exemption from payment of sold to international carriers; that the exemption is not given to the producer or the
excise tax to local manufacturers of petroleum products sold to international buyer but to the product itself considering that the excise taxes, according to the
carriers, and absent any provision in the Code authorizing the refund or crediting NIRC, are taxes applicable to certain specific goods or articles for domestic sale
of such excise taxes paid, the Court holds that Sec. 135 (a) should be construed or consumption or for any other disposition, whether manufactured in or imported
as prohibiting the shifting of the burden of the excise tax to the international into the Philippines; that the excise tax that is passed on to the buyer is no longer
carriers who buys petroleum products from the local manufacturers. Said in the nature of a tax but of an added cost to the purchase price of the product
provision thus merely allows the international carriers to purchase petroleum sold; that what is contemplated under Section 135 of the NIRC is an exemption
products without the excise tax component as an added cost in the price fixed by from the excise tax, not an exemption from the burden to shoulder the tax; and
the manufacturers or distributors/sellers. Consequently, the oil companies which that inasmuch as the exemption can refer only to the imposition of the tax on the
sold such petroleum products to international carriers are not entitled to a refund statutory seller, like Pilipinas Shell, a contrary interpretation renders Section 135
of excise taxes previously paid on the goods.4 of the NIRC nugatory because the NIRC does not impose the excise tax on
subsequent holders of the product like the international carriers.
As I earlier said, I agree to GRANT Pilipinas Shell’s motions for reconsideration.

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Excise tax is essentially a tax (D) Credit for Excise Tax on Goods Actually Exported. - When goods locally
on goods, products or articles produced or manufactured are removed and actually exported without returning to
the Philippines, whether so exported in their original state or as ingredients or
Taxes are classified, according to subject matter or object, into three groups, to parts of any manufactured goods or products, any excise tax paid thereon shall be
wit: (1) personal, capitation or poll taxes; (2) property taxes; and (3) excise or credited or refunded upon submission of the proof of actual exportation and upon
license taxes. Personal, capitation or poll taxes are fixed amounts imposed upon receipt of the corresponding foreign exchange payment: Provided, That the excise
residents or persons of a certain class without regard to their property or business, tax on mineral products, except coal and coke, imposed under Section 151 shall
an example of which is the basic community tax. 13 Property taxes are assessed not be creditable or refundable even if the mineral products are actually exported.
on property or things of a certain class, whether real or personal, in proportion to (Emphasis supplied.)
their value or other reasonable method of apportionment, such as the real estate
tax.14 Excise or license taxes are imposed upon the performance of an act, the Simply stated, the accrual and payment of the excise tax under Title VI of the
enjoyment of a privilege, or the engaging in an occupation, profession or NIRC materially rest on the fact of actual production, manufacture or importation
business.15 Income tax, value-added tax, estate and donor’s tax fall under the of the taxable goods in the Philippines and on their presumed or intended
third group. domestic sale, consumption or disposition. Considering that the excise tax
attaches to the goods upon the accrual of the manufacturer’s direct liability for its
Excise tax, as a classification of tax according to object, must not be confused payment, the subsequent sale, consumption or other disposition of the goods
with the excise tax under Title VI of the NIRC. The term "excise tax" under Title VI becomes relevant only to determine whether any exemption or tax relief may be
of the 1997 NIRC derives its definition from the 1986 NIRC, 16 and relates to taxes granted thereafter.
applied to goods manufactured or produced in the Philippines for domestic sale or
consumption or for any other disposition and to things imported. 17 In contrast, an The actual sale, consumption or disposition
excise tax that is imposed directly on certain specified goods – goods of the taxable goods confirms the proper tax
manufactured or produced in the Philippines, or things imported – is undoubtedly treatment of goods previously subjected
a tax on property.18 to the excise tax
The payment of excise taxes is the direct Conformably with the foregoing discussion, the accrual and payment of the excise
liability of the manufacturer or producer tax on the goods enumerated under Title VI of the NIRC prior to their removal
from the place of production are absolute and admit of no exception. As earlier
The production, manufacture or importation of the goods belonging to any of the mentioned, even locally manufactured goods intended for export cannot escape
categories enumerated in Title VI of the NIRC (i.e., alcohol products, tobacco the imposition and payment of the excise tax, subject to a future claim for tax
products, petroleum products, automobiles and non-essential goods, mineral credit or refund once proof of actual exportation has been submitted to the
products) are not the sole determinants for the proper levy of the excise tax. It is Commissioner of Internal Revenue (CIR).22 Verily, it is the actual sale,
further required that the goods be manufactured, produced or imported for consumption or disposition of the taxable goods that confirms the proper tax
domestic sale, consumption or any other disposition. 19 The accrual of the tax treatment of goods previously subjected to the excise tax. If any of the goods
liability is, therefore, contingent on the production, manufacture or importation of enumerated under Title VI of the NIRC are manufactured or produced in the
the taxable goods and the intention of the manufacturer, producer or importer to Philippines and eventually sold, consumed, or disposed of in any other manner
have the goods locally sold or consumed or disposed in any other manner. This is domestically, therefore, there can be no claim for any tax relief inasmuch as the
the reason why the accrual and liability for the payment of the excise tax are excise tax was properly levied and collected from the manufacturer-seller.
imposed directly on the manufacturer or producer of the taxable goods, 20 and
arise before the removal of the goods from the place of their production.21 Here, the point of interest is the proper tax treatment of the petroleum products
sold by Pilipinas Shell to various international carriers. An international carrier is
The manufacturer’s or producer’s direct liability to pay the excise taxes similarly engaged in international transportation or contract of carriage between places in
operates although the goods produced or manufactured within the country are different territorial jurisdictions.23
intended for export and are "actually exported without returning to the Philippines,
whether so exported in their original state or as ingredients or parts of any Pertinent is Section 135(a) of the NIRC, which provides:
manufactured goods or products." This is implied from the grant of a tax credit or
refund to the manufacturer or producer by Section 130(4)(D) of the NIRC, thereby SEC. 135. Petroleum Products Sold to International Carriers and Exempt Entities
presupposing that the excise tax corresponding to the goods exported were or Agencies. - Petroleum products sold to the following are exempt from excise
previously paid. Section 130(4)(D) reads: tax:

xxxx (a) International carriers of Philippine or foreign registry on their use or


consumption outside the Philippines: Provided, That the petroleum products sold
to these international carriers shall be stored in a bonded storage tank and may

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be disposed of only in accordance with the rules and regulations to be prescribed The excise taxes are of the nature of indirect taxes, the liability for the payment of
by the Secretary of Finance, upon recommendation of the Commissioner; x x x which may fall on a person other than whoever actually bears the burden of the
tax.25
xxxx
In Commissioner of Internal Revenue v. Philippine Long Distance Telephone
As the taxpayer statutorily and directly liable for the accrual and payment of the Company,26 the Court has discussed the nature of indirect taxes in the following
excise tax on the petroleum products it manufactured and it intended for future manner:
domestic sale or consumption, Pilipinas Shell paid the corresponding excise taxes
prior to the removal of the goods from the place of production. However, upon the [I]ndirect taxes are those that are demanded, in the first instance, from, or are paid
sale of the petroleum products to the international carriers, the goods became by, one person in the expectation and intention that he can shift the burden to
exempt from the excise tax by the express provision of Section 135(a) of the someone else. Stated elsewise, indirect taxes are taxes wherein the liability for
NIRC. In the latter instance, the fact of sale to the international carriers of the the payment of the tax falls on one person but the burden thereof can be shifted or
petroleum products previously subjected to the excise tax confirms the proper tax passed on to another person, such as when the tax is imposed upon goods before
treatment of the goods as exempt from the excise tax. reaching the consumer who ultimately pays for it. When the seller passes on the
tax to his buyer, he, in effect, shifts the tax burden, not the liability to pay it, to the
It is worthy to note that Section 135(a) of the NIRC is a product of the 1944 purchaser, as part of the price of goods sold or services rendered. 27
Convention of International Civil Aviation, otherwise known as the Chicago
Convention, of which the Philippines is a Member State. Article 24(a) of the In another ruling, the Court has observed:
Chicago Convention provides –
Accordingly, the party liable for the tax can shift the burden to another, as part of
Article 24 Customs duty the purchase price of the goods or services. Although the manufacturer/seller is
the one who is statutorily liable for the tax, it is the buyer who actually shoulders or
(a) Aircraft on a flight to, from, or across the territory of another contracting State bears the burden of the tax, albeit not in the nature of a tax, but part of the
shall be admitted temporarily free of duty, subject to the customs regulations of purchase price or the cost of the goods or services sold.28
the State. Fuel, lubricating oils, spare parts, regular equipment and aircraft stores
on board an aircraft of a contracting State, on arrival in the territory of another Accordingly, the option of shifting the burden to pay the excise tax rests on the
contracting State and retained on board on leaving the territory of that State shall statutory taxpayer, which is the manufacturer or producer in the case of the excise
be exempt from customs duty, inspection fees or similar national or local duties taxes imposed on the petroleum products. Regardless of who shoulders the
and charges. This exemption shall not apply to any quantities or articles unloaded, burden of tax payment, however, the Court has ruled as early as in the 1960s that
except in accordance with the customs regulations of the State, which may require the proper party to question or to seek a refund of an indirect tax is the statutory
that they shall be kept under customs supervision. x x x (Bold emphasis supplied.) taxpayer, the person on whom the tax is imposed by law and who paid the same,
even if he shifts the burden thereof to another.29 The Court has explained:
This provision was extended by the ICAO Council in its 1999 Resolution, which
stated that "fuel … taken on board for consumption" by an aircraft from a In Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue, the Court
contracting state in the territory of another contracting State departing for the held that the sales tax is imposed on the manufacturer or producer and not on the
territory of any other State must be exempt from all customs or other duties. The purchaser, "except probably in a very remote and inconsequential sense."
Resolution broadly interpreted the scope of the Article 24 prohibition to include Discussing the "passing on" of the sales tax to the purchaser, the Court therein
"import, export, excise, sales, consumption and internal duties and taxes of all cited Justice Oliver Wendell Holmes’ opinion in Lash’s Products v. United States
kinds levied upon . . . fuel."24 wherein he said:
Given the nature of the excise tax on petroleum products as a tax on property, the "The phrase ‘passed the tax on’ is inaccurate, as obviously the tax is laid and
tax exemption espoused by Article 24(a) of the Chicago Convention, as now remains on the manufacturer and on him alone. The purchaser does not really pay
embodied in Section 135(a) of the NIRC, is clearly conferred on the aviation fuel the tax. He pays or may pay
or petroleum product on-board international carriers. Consequently, the
manufacturer’s or producer’s sale of the petroleum products to international the seller more for the goods because of the seller’s obligation, but that is all. x x x
carriers for their use or consumption outside the Philippines operates to bring the The price is the sum total paid for the goods. The amount added because of the
tax exemption of the petroleum products into full force and effect. tax is paid to get the goods and for nothing else. Therefore it is part of the price x
x x."
Pilipinas Shell, the statutory taxpayer, is
the proper party to claim the refund of Proceeding from this discussion, the Court went on to state:
the excise taxes paid on petroleum It may indeed be that the economic burden of the tax finally falls on the purchaser;
products sold to international carriers when it does the tax becomes a part of the price which the purchaser must pay. It

5
does not matter that an additional amount is billed as tax to the purchaser. x x x manufacturer or producer, is the person liable for the payment of the excise tax as
The effect is still the same, namely, that the purchaser does not pay the tax. He shown in the Excise Tax Returns filed with the BIR. Stated otherwise, Petron is
pays or may pay the seller more for the goods because of the seller’s obligation, the taxpayer that is primarily, directly and legally liable for the payment of the
but that is all and the amount added because of the tax is paid to get the goods excise taxes. However, since an excise tax is an indirect tax, Petron can transfer
and for nothing else. to its customers the amount of the excise tax paid by treating it as part of the cost
of the goods and tacking it on to the selling price.
But the tax burden may not even be shifted to the purchaser at all. A decision to
absorb the burden of the tax is largely a matter of economics. Then it can no As correctly observed by the CTA, this Court held in Philippine Acetylene Co., Inc.
longer be contended that a sales tax is a tax on the purchaser.30 v. Commissioner of Internal Revenue:
The Silkair rulings involving the excise taxes on the petroleum products sold to It may indeed be that the economic burden of the tax finally falls on the purchaser;
international carriers firmly hold that the proper party to claim the refund of excise when it does the tax becomes part of the price which the purchaser must pay.
taxes paid is the manufacturer-seller.
Even if the consumers or purchasers ultimately pay for the tax, they are not
In the February 2008 Silkair ruling,31 the Court declared: considered the taxpayers. The fact that Petron, on whom the excise tax is
imposed, can shift the tax burden to its purchasers does not make the latter the
The proper party to question, or seek a refund of, an indirect tax is the statutory taxpayers and the former the withholding agent.
taxpayer, the person on whom the tax is imposed by law and who paid the same
even if he shifts the burden thereof to another. Section 130 (A) (2) of the NIRC Petitioner, as the purchaser and end-consumer, ultimately bears the tax burden,
provides that "[u]nless otherwise specifically allowed, the return shall be filed and but this does not transform petitioner's status into a statutory taxpayer.
the excise tax paid by the manufacturer or producer before removal of domestic
products from place of production." Thus, Petron Corporation, not Silkair, is the In the refund of indirect taxes, the statutory taxpayer is the proper party who can
statutory taxpayer which is entitled to claim a refund based on Section 135 of the claim the refund.
NIRC of 1997 and Article 4(2) of the Air Transport Agreement between RP and Section 204(c) of the NIRC provides:
Singapore.
Sec. 204. Authority of the Commissioner to Compromise, Abate, and Refund or
Even if Petron Corporation passed on to Silkair the burden of the tax, the Credit Taxes. The Commissioner may –
additional amount billed to Silkair for jet fuel is not a tax but part of the price which
Silkair had to pay as a purchaser xxxx

In the November 2008 Silkair ruling,32 the Court reiterated: (b) Credit or refund taxes erroneously or illegally received or penalties imposed
without authority, refund the value of internal revenue stamps when they are
Section 129 of the NIRC provides that excise taxes refer to taxes imposed on returned in good condition by the purchaser, and, in his discretion, redeem or
specified goods manufactured or produced in the Philippines for domestic sale or change unused stamps that have been rendered unfit for use and refund their
consumption or for any other disposition and to things imported. The excise taxes value upon proof of destruction. No credit or refund of taxes or penalties shall be
are collected from manufacturers or producers before removal of the domestic allowed unless the taxpayer files in writing with the Commissioner a claim for
products from the place of production. Although excise taxes can be considered credit or refund within two (2) years after the payment of the tax or penalty:
as taxes on production, they are really taxes on property as they are imposed on Provided, however, That a return filed showing an overpayment shall be
certain specified goods. considered as a written claim for credit or refund. (Emphasis and underscoring
Section 148(g) of the NIRC provides that there shall be collected on aviation jet supplied)
fuel an excise tax of ₱3.67 per liter of volume capacity. Since the tax imposed is The person entitled to claim a tax refund is the statutory taxpayer. Section 22(N)
based on volume capacity, the tax is referred to as "specific tax." However, excise of the NIRC defines a taxpayer as "any person subject to tax." In Commissioner of
tax, whether classified as specific or ad valorem tax, is basically an indirect tax Internal Revenue v. Procter and Gamble Phil. Mfg. Corp., the Court ruled that:
imposed on the consumption of a specified list of goods or products. The tax is
directly levied on the manufacturer upon removal of the taxable goods from the A "person liable for tax" has been held to be a "person subject to tax" and properly
place of production but in reality, the tax is passed on to the end consumer as part considered a "taxpayer." The terms "liable for tax" and "subject to tax" both
of the selling price of the goods sold connote a legal obligation or duty to pay a tax.

xxxx The excise tax is due from the manufacturers of the petroleum products and is
paid upon removal of the products from their refineries. Even before the aviation
When Petron removes its petroleum products from its refinery in Limay, Bataan, it jet fuel is purchased from Petron, the excise tax is already paid by Petron. Petron,
pays the excise tax due on the petroleum products thus removed. Petron, as being the manufacturer, is the "person subject to tax." In this case, Petron, which

6
paid the excise tax upon removal of the products from its Bataan refinery, is the into existence, and Pilipinas Shell accordingly paid its excise tax liability prior to its
"person liable for tax." Petitioner is neither a "person liable for tax" nor "a person sale or disposition of the taxable goods to third parties, a fact not disputed by the
subject to tax." There is also no legal duty on the part of petitioner to pay the CIR; and (3) Pilipinas Shell’s sale of the petroleum products to international
excise tax; hence, petitioner cannot be considered the taxpayer. carriers for their use or consumption outside the Philippines confirmed the proper
tax treatment of the subject goods as exempt from the excise tax.1âwphi1
Even if the tax is shifted by Petron to its customers and even if the tax is billed as
a separate item in the aviation delivery receipts and invoices issued to its Under the circumstances, therefore, Pilipinas Shell erroneously paid the excise
customers, Petron remains the taxpayer because the excise tax is imposed taxes on its petroleum products sold to international carriers, and was entitled to
directly on Petron as the manufacturer. Hence, Petron, as the statutory taxpayer, claim the refund of the excise taxes paid in accordance with prevailing
is the proper party that can claim the refund of the excise taxes paid to the BIR. 33 jurisprudence and Section 204(C) of the NIRC, viz:
It is noteworthy that the foregoing pronouncements were applied in two more Section 204. Authority of the Commissioner to Compromise, Abate and Refund or
Silkair cases34 involving the same parties and the same cause of action but Credit Taxes. – The Commissioner may – x x x
pertaining to different periods of taxation.
xxxx
The shifting of the tax burden by manufacturers-sellers is a business prerogative
resulting from the collective impact of market forces. Such forces include (C) Credit or refund taxes erroneously or illegally received or penalties imposed
government impositions like the excise tax. Hence, the additional amount billed to without authority, refund the value of internal revenue stamps when they are
the purchaser as part of the price the purchaser pays for the goods acquired returned in good condition by the purchaser, and, in his discretion, redeem or
cannot be solely attributed to the effect of the tax liability imposed on the change unused stamps that have been rendered unfit for use and refund their
manufacture-seller. It is erroneous to construe Section 135(a) only as a prohibition value upon proof of destruction. No credit or refund of taxes or penalties shall be
against the shifting by the manufacturers-sellers of petroleum products of the tax allowed unless the taxpayer files in writing with the Commissioner a claim for
burden to international carriers, for such construction will deprive the credit or refund within two (2) years after payment of the tax or penalty: Provided,
manufacturers-sellers of their business prerogative to determine the prices at however, That a return filed showing an overpayment shall be considered as a
which they can sell their products. written claim for credit or refund.

Section 135(a) of the NIRC cannot be further construed as granting the excise tax IN VIEW OF THE FOREGOING, I VOTE TO GRANT the Motion for
exemption to the international carrier to whom the petroleum products are sold Reconsideration and Supplemental Motion for Reconsideration of Pilipinas Shell
considering that the international carrier has not been subjected to excise tax at Petroleum Corporation and, accordingly:
the outset. To reiterate, the excise tax is levied on the petroleum products (a) TO AFFIRM the decision dated March 25, 2009 and resolution dated
because it is a tax on property. Levy is the act of imposition by the Legislature June 24, 2009 of the Court of Tax Appeals En Banc in CTA EB No. 415;
such as by its enactment of a law.35 The law enacted here is the NIRC whereby and
the excise tax is imposed on the petroleum products, the liability for the payment
of which is further statutorily imposed on the domestic petroleum manufacturer. (b) TO DIRECT petitioner Commissioner of Internal Revenue to refund or
Accordingly, the exemption must be allowed to the petroleum products because it to issue a tax credit certificate to Pilipinas Shell Petroleum Corporation in
is on them that the tax is imposed. The tax status of an international carrier to the amount of ₱95,014,283.00 representing the excise taxes it paid on
whom the petroleum products are sold is not based on exemption; rather, it is the petroleum products sold to international carriers in the period from
based on the absence of a law imposing the excise tax on it. This further supports October 2001 to June 2002.
the position that the burden passed on by the domestic petroleum manufacturer is LUCAS P. BERSAMIN
not anymore in the nature of a tax – although resulting from the previously-paid Associate Justice
excise tax – but as an additional cost component in the selling price.
Consequently, the purchaser of the petroleum products to whom the burden of the
excise tax has been shifted, not being the statutory taxpayer, cannot claim a
refund of the excise tax paid by the manufacturer or producer.
Applying the foregoing, the Court concludes that: (1) the exemption under Section
135(a) of the NIRC is conferred on the petroleum products on which the excise tax
was levied in the first place; (2) Pilipinas Shell, being the manufacturer or
producer of petroleum products, was the statutory taxpayer of the excise tax
imposed on the petroleum products; (3) as the statutory taxpayer, Pilipinas Shell’s
liability to pay the excise tax accrued as soon as the petroleum products came

7
G.R. No. L-13250 October 29, 1971 Spanish national, by reason of her marriage to a Spanish citizen and was a
resident of Tangier, Morocco from 1931 up to her death on January 2, 1955. At
THE COLLECTOR OF INTERNAL REVENUE, petitioner,
the time of her demise she left, among others, intangible personal properties in
vs. the Philippines."3 Then came this portion: "On September 29, 1955, petitioner filed
ANTONIO CAMPOS RUEDA, respondent..
a provisional estate and inheritance tax return on all the properties of the late
Taxation; Estate and inheritance taxes; Reciprocity in exemption does not require Maria Cerdeira. On the same date, respondent, pending investigation, issued an
the “foreign country” to possess international personality.—–The fact that the laws assessment for state and inheritance taxes in the respective amounts of
of Tangier, Morocco, do not impose transfer or death taxes upon intangible P111,592.48 and P157,791.48, or a total of P369,383.96 which tax liabilities were
personal properties of our citizens not residing therein, entitles to a reciprocal paid by petitioner ... . On November 17, 1955, an amended return was filed ...
exemption similar properties belonging to the decedent who at the time of his wherein intangible personal properties with the value of P396,308.90 were
death resides in Tangiers, no matter that the latter country does not possess claimed as exempted from taxes. On November 23, 1955, respondent, pending
international personality in the traditional sense. investigation, issued another assessment for estate and inheritance taxes in the
amounts of P202,262.40 and P267,402.84, respectively, or a total of P469,665.24
... . In a letter dated January 11, 1956, respondent denied the request for
FERNANDO, J.: exemption on the ground that the law of Tangier is not reciprocal to Section 122 of
The basic issue posed by petitioner Collector of Internal Revenue in this appeal the National Internal Revenue Code. Hence, respondent demanded the payment
from a decision of the Court of Tax Appeals as to whether or not the requisites of of the sums of P239,439.49 representing deficiency estate and inheritance taxes
statehood, or at least so much thereof as may be necessary for the acquisition of including ad valorem penalties, surcharges, interests and compromise penalties ...
an international personality, must be satisfied for a "foreign country" to fall within . In a letter dated February 8, 1956, and received by respondent on the following
the exemption of Section 122 of the National Internal Revenue Code 1 is now ripe day, petitioner requested for the reconsideration of the decision denying the claim
for adjudication. The Court of Tax Appeals answered the question in the negative, for tax exemption of the intangible personal properties and the imposition of the
and thus reversed the action taken by petitioner Collector, who would hold 25% and 5% ad valorem penalties ... . However, respondent denied request, in his
respondent Antonio Campos Rueda, as administrator of the estate of the late letter dated May 5, 1956 ... and received by petitioner on May 21, 1956.
Estrella Soriano Vda. de Cerdeira, liable for the sum of P161,874.95 as deficiency Respondent premised the denial on the grounds that there was no reciprocity
estate and inheritance taxes for the transfer of intangible personal properties in [with Tangier, which was moreover] a mere principality, not a foreign country.
the Philippines, the deceased, a Spanish national having been a resident of Consequently, respondent demanded the payment of the sums of P73,851.21 and
Tangier, Morocco from 1931 up to the time of her death in 1955. In an earlier P88,023.74 respectively, or a total of P161,874.95 as deficiency estate and
resolution promulgated May 30, 1962, this Court on the assumption that the need inheritance taxes including surcharges, interests and compromise penalties." 4
for resolving the principal question would be obviated, referred the matter back to The matter was then elevated to the Court of Tax Appeals. As there was no
the Court of Tax Appeals to determine whether the alleged law of Tangier did dispute between the parties regarding the values of the properties and the
grant the reciprocal tax exemption required by the aforesaid Section 122. Then mathematical correctness of the deficiency assessments, the principal question as
came an order from the Court of Tax Appeals submitting copies of legislation of noted dealt with the reciprocity aspect as well as the insisting by the Collector of
Tangier that would manifest that the element of reciprocity was not lacking. It was Internal Revenue that Tangier was not a foreign country within the meaning of
not until July 29, 1969 that the case was deemed submitted for decision. When Section 122. In ruling against the contention of the Collector of Internal Revenue,
the petition for review was filed on January 2, 1958, the basic issue raised was the appealed decision states: "In fine, we believe, and so hold, that the expression
impressed with an element of novelty. Four days thereafter, however, on January "foreign country", used in the last proviso of Section 122 of the National Internal
6, 1958, it was held by this Court that the aforesaid provision does not require that Revenue Code, refers to a government of that foreign power which, although not
the "foreign country" possess an international personality to come within its an international person in the sense of international law, does not impose transfer
terms.2 Accordingly, we have to affirm. or death upon intangible person properties of our citizens not residing therein, or
The decision of the Court of Tax Appeals, now under review, sets forth the whose law allows a similar exemption from such taxes. It is, therefore, not
background facts as follows: "This is an appeal interposed by petitioner Antonio necessary that Tangier should have been recognized by our Government order to
Campos Rueda as administrator of the estate of the deceased Doña Maria de la entitle the petitioner to the exemption benefits of the proviso of Section 122 of our
Estrella Soriano Vda. de Cerdeira, from the decision of the respondent Collector Tax. Code."5
of Internal Revenue, assessing against and demanding from the former the sum Hence appeal to this court by petitioner. The respective briefs of the parties duly
P161,874.95 as deficiency estate and inheritance taxes, including interest and submitted, but as above indicated, instead of ruling definitely on the question, this
penalties, on the transfer of intangible personal properties situated in the Court, on May 30, 1962, resolve to inquire further into the question of reciprocity
Philippines and belonging to said Maria de la Estrella Soriano Vda. de Cerdeira. and sent back the case to the Court of Tax Appeals for the motion of evidence
Maria de la Estrella Soriano Vda. de Cerdeira (Maria Cerdeira for short) is a thereon. The dispositive portion of such resolution reads as follows: "While section

8
122 of the Philippine Tax Code aforequoted speaks of 'intangible personal will over the individuals within it and maintaining its separate international
property' in both subdivisions (a) and (b); the alleged laws of Tangier refer to personality. Laski could speak of it then as a territorial society divided into
'bienes muebles situados en Tanger', 'bienes muebles radicantes en Tanger', government and subjects, claiming within its allotted area a supremacy over all
'movables' and 'movable property'. In order that this Court may be able to other institutions.13 McIver similarly would point to the power entrusted to its
determine whether the alleged laws of Tangier grant the reciprocal tax exemptions government to maintain within its territory the conditions of a legal order and to
required by Section 122 of the Tax Code, and without, for the time being, going enter into international relations. 14 With the latter requisite satisfied, international
into the merits of the issues raised by the petitioner-appellant, the case is law do not exact independence as a condition of statehood. So Hyde did opine. 15
[remanded] to the Court of Tax Appeals for the reception of evidence or proof on
whether or not the words `bienes muebles', 'movables' and 'movable properties as Even on the assumption then that Tangier is bereft of international personality,
used in the Tangier laws, include or embrace 'intangible person property', as used petitioner has not successfully made out a case. It bears repeating that four days
in the Tax Code."6 In line with the above resolution, the Court of Tax Appeals after the filing of this petition on January 6, 1958 in Collector of Internal Revenue
v. De Lara, 16 it was specifically held by us: "Considering the State of California as
admitted evidence submitted by the administrator petitioner Antonio Campos
Rueda, consisting of exhibits of laws of Tangier to the effect that "the transfers by a foreign country in relation to section 122 of our Tax Code we believe and hold,
reason of death of movable properties, corporeal or incorporeal, including furniture as did the Tax Court, that the Ancilliary Administrator is entitled the exemption
and personal effects as well as of securities, bonds, shares, ..., were not subject, from the inheritance tax on the intangible personal property found in the
on that date and in said zone, to the payment of any death tax, whatever might Philippines." 17 There can be no doubt that California as a state in the American
have been the nationality of the deceased or his heirs and legatees." It was further Union was in the alleged requisite of international personality. Nonetheless, it was
noted in an order of such Court referring the matter back to us that such were duly held to be a foreign country within the meaning of Section 122 of the National
admitted in evidence during the hearing of the case on September 9, 1963. Internal Revenue Code. 18
Respondent presented no evidence."7 What is undeniable is that even prior to the De Lara ruling, this Court did commit
The controlling legal provision as noted is a proviso in Section 122 of the National itself to the doctrine that even a tiny principality, that of Liechtenstein, hardly an
Internal Revenue Code. It reads thus: "That no tax shall be collected under this international personality in the sense, did fall under this exempt category. So it
Title in respect of intangible personal property (a) if the decedent at the time of his appears in an opinion of the Court by the then Acting Chief Justicem Bengson
who thereafter assumed that position in a permanent capacity, in Kiene v.
death was a resident of a foreign country which at the time of his death did not
impose a transfer tax or death tax of any character in respect of intangible person Collector of Internal Revenue. 19 As was therein noted: 'The Board found from the
property of the Philippines not residing in that foreign country, or (b) if the laws of documents submitted to it — proof of the laws of Liechtenstein — that said
the foreign country of which the decedent was a resident at the time of his death country does not impose estate, inheritance and gift taxes on intangible property
allow a similar exemption from transfer taxes or death taxes of every character in of Filipino citizens not residing in that country. Wherefore, the Board declared that
respect of intangible personal property owned by citizens of the Philippines not pursuant to the exemption above established, no estate or inheritance taxes were
residing in that foreign country."8 The only obstacle therefore to a definitive ruling collectible, Ludwig Kiene being a resident of Liechtestein when he passed
is whether or not as vigorously insisted upon by petitioner the acquisition of away." 20 Then came this definitive ruling: "The Collector — hereafter named the
internal personality is a condition sine qua non to Tangier being considered a respondent — cites decisions of the United States Supreme Court and of this
"foreign country". Deference to the De Lara ruling, as was made clear in the Court, holding that intangible personal property in the Philippines belonging to a
opening paragraph of this opinion, calls for an affirmance of the decision of the non-resident foreigner, who died outside of this country is subject to the estate
Court of Tax Appeals. tax, in disregard of the principle 'mobilia sequuntur personam'. Such property is
admittedly taxable here. Without the proviso above quoted, the shares of stock
It does not admit of doubt that if a foreign country is to be identified with a state, it owned here by the Ludwig Kiene would be concededly subject to estate and
is required in line with Pound's formulation that it be a politically organized inheritance taxes. Nevertheless our Congress chose to make an exemption where
sovereign community independent of outside control bound by penalties of conditions are such that demand reciprocity — as in this case. And the exemption
nationhood, legally supreme within its territory, acting through a government must be honored." 21
functioning under a regime of
law.9 It is thus a sovereign person with the people composing it viewed as an WHEREFORE, the decision of the respondent Court of Tax Appeals of October
organized corporate society under a government with the legal competence to 30, 1957 is affirmed. Without pronouncement as to costs.
exact obedience to its commands. 10 It has been referred to as a body-politic Concepcion, C.J., Makalintal, Zaldivar, Castro, Villamor and Makasiar, JJ., concur.
organized by common consent for mutual defense and mutual safety and to
promote the general welfare.11Correctly has it been described by Esmein as "the Reyes, J.B.L., J., concurs in the result.
juridical personification of the nation." 12 This is to view it in the light of its historical Teehankee and Barredo, JJ., took no part.
development. The stress is on its being a nation, its people occupying a definite
territory, politically organized, exercising by means of its government its sovereign

9
10
G.R. No. L-11622 January 28, 1961 adopted the system of conjugal partnership in the absence of an ante-nuptial
agreement.
THE COLLECTOR OF INTERNAL REVENUE, petitioner,
vs. Evidence; Proof of foreign laws.—Foreign laws do not prove themselves in
DOUGLAS FISHER AND BETTINA FISHER, and the COURT OF TAX our courts. They are not a matter of judicial notice. Like any other fact, they must
APPEALS, respondents. be alleged and proven.
x---------------------------------------------------------x Same.—The provisions of the Rules of Court on proof of foreign laws do not
exclude the presentation of other competent evidence to prove the existence of a
G.R. No. L-11668 January 28, 1961.
foreign law. The testimony of a lawyer, practising in California, together with a
DOUGLAS FISHER AND BETTINA FISHER, petitioner, quotation from a publication of Bancroft-Whitney, is sufficient to prove the certain
vs. provisions of the California Internal Revenue Code.
THE COLLECTOR OF INTERNAL REVENUE, and the COURT OF TAX Taxation; Estate and inheritance taxes; Reciprocity in exemption.—Under
APPEALS, respondents.
section 122 of the Tax Code and section 13851 of the California Inheritance Tax
Husband and wife; Conjugal partnership.—In the absence of any ante- Law, the reciprocity must be total, that is, with respect to transfer or death taxes of
nuptial agreement, the husband and wife are presumed to have adopted the any and every character, in the case of the Philippine law, and to legacy,
system of conjugal partnership. succession, or death taxes of any and every character, in the case of the
California law. Therefore, if any of the two states collects or imposes and does not
Civil Code of the Philippines; Husband and wife; Marriage.—The property exempt any transfer, death, legacy, or succession tax of any character, the
relations of husband and wife who were married in 1909 are governed by article reciprocity does not work. The shares of stock in the Philippines, left by a
1325 of the Spanish Civil Code and not by article 124 of the New Civil Code. deceased resident of California, are subject to the Philippine inheritance tax. The
Same; Private International Law (Conflict of laws).—Artide 1325 of the Old reciprocity provisions of section 122 of the Tax Code are not applicable because
Civil Code and article 124 of the New Civil Code both adhere to the so-called there is no total reciprocity under the two laws.
nationality theory of determining the property relations of spouses where one of Same; Deduction under Federal Estate Tax Law.—The amount allowed
them is a foreigner and they have made no prior agreement as to the under the Federal Estate Tax Law is in the nature of a deduction and not of an
administration, disposition and ownership of their conjugal properties. In such a exemption, regarding which reciprocity cannot be claimed under section 122 of
case, the national law of the husband becomes the dominant law in determining the Philippine Tax Code. Nor is reciprocity allowed under the Federal Law.
the property relations of the spouses. However, there is a difference between two
articles. Article 124 expressly provides that it applies regardless of where the Taxation; Estate and inheritance taxes; Assessed value is not the controlling
marriage was celebrated, while article 1325 is limited to marriages contracted market value.—For purposes of the estate and inheritance taxes, the assessed
abroad. Both articles apply only to mixed marriages between a Filipino and a value of real estate is considered as the fair market value only when evidence to
foreigner. the contrary has not been submitted. If there is such contrary evidence, the
assessed value will not be considered the fair market value.
Same; Old law; Property relations of British citizens who were, married in
Manila in 1909.—English law governs the property relations of a man and woman, Same; Market value of shares of stock.—Shares of stock of a Philippine
both British citizens, who were married in Manila 1909. (domestic) corporation have a situs here for purposes of taxation. Their situs is not
California where the certificates were located and in whose stock exchange the
Evidence; Foreign laws; Processual presumption.—In the absence of proof shares were registered. Their fair market value should be based on the price
of a foreign law, the processual presumption is that it is the same as the law of the prevailing in this country where they are sought to be taxed.
forum.
Same; Deductibility of expenses allowed by the probate court.—The
Private International Law; Article 10 of the old Civil Code;Husband and Supreme Court will not disturb the ruling of the Tax Court, allowing the
wife.—Article 10 of the old Civil Code does not govern the property relations of administrator's fee, lawyer's fee and judicial and administration expenses as
husband and wife. It refers to successional rights, which are distinct from the liabilities of the estate, it appearing the said items were likewise allowed by the
property relations of the spouses. probate court. The ruling of the Tax Court, disallowing an additional amount for
Taxation; Estate and inheritance taxes; Share of surviving spouse is funeral expenses, for lack of evidence, should be upheld. The Supreme Court will
deductible.—In determining- the net taxable estate of a deceased British subject, set aside the factual findings of the Tax Court only in case they are not supported
for purposes of the estate and inheritance taxes, where said deceased was by any evidence.
married to another British citizen in Manila in 1909, the one-half conjugal share of
the surviving wife should be deducted inasmuch as they are presumed to have

11
Executors and administrators; Settlement of decedent's estates; Ancillary Real Property — 2 parcels of land in Baguio, covered
and domiciliary adminintration.—The distinction between a domiciliary and an by T.C.T. Nos. 378 and 379 P43,500.00
ancillary administration serves only to distinguish one administration from the
other, for the two proceedings are separate and independent. The reason for the
Personal Property
ancillary administration is that a grant of administration does not, ex proprio
vigore, have any effect beyond the limits of the country in which it was granted. In
other words, there is a regular administration under the control of the court, where (1) 177 shares of stock of Canacao Estate at P10.00
claims must be presented and approved and expenses of administration allowed each 1,770.00
before the deductions from the estate can be authorized.
(2) 210,000 shares of stock of Mindanao Mother Lode
Same; California debt of decedent should be presented to Philippine court Mines, Inc. at P0.38 per share 79,800.00
for allo-icance.--A debt of the decedent, which was incurred in California and
which was allowed by the California court, having jurisdiction over the domiciliary (3) Cash credit with Canacao Estate Inc. 4,870.88
administration, should, nevertheless, be presented to the Philippine probate court
for allowance in order that it may constitute a valid claim against the Philippine
(4) Cash, with the Chartered Bank of India, Australia &
estate under ancillary administration.
China 851.97
Same; Deductions allowed the estate of nonresident aliens.—No deduction
from the estate of a nonresident alien is allowed unless the value of his gross Total Gross Assets P130,792.85
estate not situated in the Philippines is stated in the return. This requirement is
intended to enable the revenue officer to determine how much of the debt may be
deducted pursuant to section 89(b)(l) of the Tax Code. The deduction is allowed
On May 22, 1951, ancillary administration proceedings were instituted in the Court
only to the extent of that portion of the debt, which is equivalent to the proportion
of First Instance of Manila for the settlement of the estate in the Philippines. In due
that the Philippine estate bears to the total estate wherever situated. If the
time Stevenson's will was duly admitted to probate by our court and Ian Murray
Philippine estate constitutes but 1/5 of the entire estate, wherever situated, then
Statt was appointed ancillary administrator of the estate, who on July 11, 1951,
only 1/5 of the debt may be deducted. If no statement of the estate situated
filed a preliminary estate and inheritance tax return with the reservation of having
outside the Philippines is attached to the return, then no part of the debt may be
the properties declared therein finally appraised at their values six months after
deducted from the decedents' estate.
the death of Stevenson. Preliminary return was made by the ancillary
Taxation; Interest on amount overpaid.—In the absence of any statutory administrator in order to secure the waiver of the Collector of Internal Revenue on
provision clearly or expressly directing or authorizing the payment of interest on the inheritance tax due on the 210,000 shares of stock in the Mindanao Mother
taxes overpaid, the National Government cannot be required to pay interest. Lode Mines Inc. which the estate then desired to dispose in the United States.
Acting upon said return, the Collector of Internal Revenue accepted the valuation
BARRERA, J.: of the personal properties declared therein, but increased the appraisal of the two
This case relates to the determination and settlement of the hereditary estate left parcels of land located in Baguio City by fixing their fair market value in the
by the deceased Walter G. Stevenson, and the laws applicable thereto. Walter G. amount of P52.200.00, instead of P43,500.00. After allowing the deductions
Stevenson (born in the Philippines on August 9, 1874 of British parents and claimed by the ancillary administrator for funeral expenses in the amount of
married in the City of Manila on January 23, 1909 to Beatrice Mauricia Stevenson P2,000.00 and for judicial and administration expenses in the sum of P5,500.00,
another British subject) died on February 22, 1951 in San Francisco, California, the Collector assessed the state the amount of P5,147.98 for estate tax and
U.S.A. whereto he and his wife moved and established their permanent residence P10,875,26 or inheritance tax, or a total of P16,023.23. Both of these
since May 10, 1945. In his will executed in San Francisco on May 22, 1947, and assessments were paid by the estate on June 6, 1952.
which was duly probated in the Superior Court of California on April 11, 1951, On September 27, 1952, the ancillary administrator filed in amended estate and
Stevenson instituted his wife Beatrice as his sole heiress to the following real and inheritance tax return in pursuance f his reservation made at the time of filing of
personal properties acquired by the spouses while residing in the Philippines, the preliminary return and for the purpose of availing of the right granted by
described and preliminary assessed as follows: section 91 of the National Internal Revenue Code.
In this amended return the valuation of the 210,000 shares of stock in the
Mindanao Mother Lode Mines, Inc. was reduced from 0.38 per share, as originally
Gross Estate
declared, to P0.20 per share, or from a total valuation of P79,800.00 to
P42,000.00. This change in price per share of stock was based by the ancillary

12
administrator on the market notation of the stock obtaining at the San Francisco last return, the estate claimed that it was liable only for the amount of P525.34 for
California) Stock Exchange six months from the death of Stevenson, that is, As of estate tax and P238.06 for inheritance tax and that, as a consequence, it had
August 22, 1931. In addition, the ancillary administrator made claim for the overpaid the government. The refund of the amount of P15,259.83, allegedly
following deductions: overpaid, was accordingly requested by the estate. The Collector denied the
claim. For this reason, action was commenced in the Court of First Instance of
Manila by respondents, as assignees of Beatrice Mauricia Stevenson, for the
recovery of said amount. Pursuant to Republic Act No. 1125, the case was
Funeral expenses ($1,04326) P2,086.52
forwarded to the Court of Tax Appeals which court, after hearing, rendered
decision the dispositive portion of which reads as follows:
Judicial Expenses:
In fine, we are of the opinion and so hold that: (a) the one-half (½) share
(a) Administrator's Fee P1,204.34 of the surviving spouse in the conjugal partnership property as
diminished by the obligations properly chargeable to such property
(b) Attorney's Fee 6.000.00 should be deducted from the net estate of the deceased Walter G.
Stevenson, pursuant to Section 89-C of the National Internal Revenue
Code; (b) the intangible personal property belonging to the estate of said
(c) Judicial and Administration
Stevenson is exempt from inheritance tax, pursuant to the provision of
expenses as of August 9, 1952 1,400.05
section 122 of the National Internal Revenue Code in relation to the
California Inheritance Tax Law but decedent's estate is not entitled to an
8,604.39 exemption of P4,000.00 in the computation of the estate tax; (c) for
purposes of estate and inheritance taxation the Baguio real estate of the
Real Estate Tax for 1951 on Baguio spouses should be valued at P52,200.00, and 210,000 shares of stock in
real properties (O.R. No. B-1 686836) 652.50 the Mindanao Mother Lode Mines, Inc. should be appraised at P0.38 per
share; and (d) the estate shall be entitled to a deduction of P2,000.00 for
Claims against the estate: funeral expenses and judicial expenses of P8,604.39.
($5,000.00) P10,000.00 P10,000.00
From this decision, both parties appealed.
Plus: 4% int. p.a. from Feb. 2 to 22, The Collector of Internal Revenue, hereinafter called petitioner assigned four
1951 22.47 10,022.47 errors allegedly committed by the trial court, while the assignees, Douglas and
Bettina Fisher hereinafter called respondents, made six assignments of error.
Sub-Total P21,365.88 Together, the assigned errors raise the following main issues for resolution by this
Court:
(1) Whether or not, in determining the taxable net estate of the decedent, one-half
In the meantime, on December 1, 1952, Beatrice Mauricia Stevenson assigned all (½) of the net estate should be deducted therefrom as the share of tile surviving
her rights and interests in the estate to the spouses, Douglas and Bettina Fisher, spouse in accordance with our law on conjugal partnership and in relation to
respondents herein. section 89 (c) of the National Internal revenue Code;
On September 7, 1953, the ancillary administrator filed a second amended estate (2) Whether or not the estate can avail itself of the reciprocity proviso embodied in
and inheritance tax return (Exh. "M-N"). This return declared the same assets of Section 122 of the National Internal Revenue Code granting exemption from the
the estate stated in the amended return of September 22, 1952, except that it payment of estate and inheritance taxes on the 210,000 shares of stock in the
contained new claims for additional exemption and deduction to wit: (1) deduction Mindanao Mother Lode Mines Inc.;
in the amount of P4,000.00 from the gross estate of the decedent as provided for
(3) Whether or not the estate is entitled to the deduction of P4,000.00 allowed by
in Section 861 (4) of the U.S. Federal Internal Revenue Code which the ancillary
Section 861, U.S. Internal Revenue Code in relation to section 122 of the National
administrator averred was allowable by way of the reciprocity granted by Section
122 of the National Internal Revenue Code, as then held by the Board of Tax Internal Revenue Code;
Appeals in case No. 71 entitled "Housman vs. Collector," August 14, 1952; and (2) (4) Whether or not the real estate properties of the decedent located in Baguio
exemption from the imposition of estate and inheritance taxes on the 210,000 City and the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc.,
shares of stock in the Mindanao Mother Lode Mines, Inc. also pursuant to the were correctly appraised by the lower court;
reciprocity proviso of Section 122 of the National Internal Revenue Code. In this

13
(5) Whether or not the estate is entitled to the following deductions: P8,604.39 for If we adopt the view of Manresa, the law determinative of the property relation of
judicial and administration expenses; P2,086.52 for funeral expenses; P652.50 for the Stevensons, married in 1909, would be the English law even if the marriage
real estate taxes; and P10,0,22.47 representing the amount of indebtedness was celebrated in the Philippines, both of them being foreigners. But, as correctly
allegedly incurred by the decedent during his lifetime; and observed by the Tax Court, the pertinent English law that allegedly vests in the
decedent husband full ownership of the properties acquired during the marriage
(6) Whether or not the estate is entitled to the payment of interest on the amount it has not been proven by petitioner. Except for a mere allegation in his answer,
claims to have overpaid the government and to be refundable to it. which is not sufficient, the record is bereft of any evidence as to what English law
In deciding the first issue, the lower court applied a well-known doctrine in our civil says on the matter. In the absence of proof, the Court is justified, therefore, in
law that in the absence of any ante-nuptial agreement, the contracting parties are indulging in what Wharton calls "processual presumption," in presuming that the
presumed to have adopted the system of conjugal partnership as to the properties law of England on this matter is the same as our law.4
acquired during their marriage. The application of this doctrine to the instant case Nor do we believe petitioner can make use of Article 16 of the New Civil Code (art.
is being disputed, however, by petitioner Collector of Internal Revenue, who 10, old Civil Code) to bolster his stand. A reading of Article 10 of the old Civil
contends that pursuant to Article 124 of the New Civil Code, the property relation Code, which incidentally is the one applicable, shows that it does not encompass
of the spouses Stevensons ought not to be determined by the Philippine law, but or contemplate to govern the question of property relation between spouses. Said
by the national law of the decedent husband, in this case, the law of England. It is article distinctly speaks of amount of successional rights and this term, in speaks
alleged by petitioner that English laws do not recognize legal partnership between in our opinion, properly refers to the extent or amount of property that each heir is
spouses, and that what obtains in that jurisdiction is another regime of property legally entitled to inherit from the estate available for distribution. It needs to be
relation, wherein all properties acquired during the marriage pertain and belong pointed out that the property relation of spouses, as distinguished from their
Exclusively to the husband. In further support of his stand, petitioner cites Article successional rights, is governed differently by the specific and express provisions
16 of the New Civil Code (Art. 10 of the old) to the effect that in testate and of Title VI, Chapter I of our new Civil Code (Title III, Chapter I of the old Civil
intestate proceedings, the amount of successional rights, among others, is to be Code.) We, therefore, find that the lower court correctly deducted the half of the
determined by the national law of the decedent. conjugal property in determining the hereditary estate left by the deceased
In this connection, let it be noted that since the mariage of the Stevensons in the Stevenson.
Philippines took place in 1909, the applicable law is Article 1325 of the old Civil On the second issue, petitioner disputes the action of the Tax Court in the
Code and not Article 124 of the New Civil Code which became effective only in exempting the respondents from paying inheritance tax on the 210,000 shares of
1950. It is true that both articles adhere to the so-called nationality theory of stock in the Mindanao Mother Lode Mines, Inc. in virtue of the reciprocity proviso
determining the property relation of spouses where one of them is a foreigner and of Section 122 of the National Internal Revenue Code, in relation to Section 13851
they have made no prior agreement as to the administration disposition, and of the California Revenue and Taxation Code, on the ground that: (1) the said
ownership of their conjugal properties. In such a case, the national law of the proviso of the California Revenue and Taxation Code has not been duly proven by
husband becomes the dominant law in determining the property relation of the the respondents; (2) the reciprocity exemptions granted by section 122 of the
spouses. There is, however, a difference between the two articles in that Article National Internal Revenue Code can only be availed of by residents of foreign
1241 of the new Civil Code expressly provides that it shall be applicable countries and not of residents of a state in the United States; and (3) there is no
regardless of whether the marriage was celebrated in the Philippines or abroad "total" reciprocity between the Philippines and the state of California in that while
while Article 13252 of the old Civil Code is limited to marriages contracted in a the former exempts payment of both estate and inheritance taxes on intangible
foreign land. personal properties, the latter only exempts the payment of inheritance tax..
It must be noted, however, that what has just been said refers to mixed marriages To prove the pertinent California law, Attorney Allison Gibbs, counsel for herein
between a Filipino citizen and a foreigner. In the instant case, both spouses are respondents, testified that as an active member of the California Bar since 1931,
foreigners who married in the Philippines. Manresa, 3 in his Commentaries, has he is familiar with the revenue and taxation laws of the State of California. When
this to say on this point: asked by the lower court to state the pertinent California law as regards exemption
La regla establecida en el art. 1.315, se refiere a las capitulaciones of intangible personal properties, the witness cited article 4, section 13851 (a) and
otorgadas en Espana y entre espanoles. El 1.325, a las celebradas en el (b) of the California Internal and Revenue Code as published in Derring's
extranjero cuando alguno de los conyuges es espanol. En cuanto a la California Code, a publication of the Bancroft-Whitney Company inc. And as part
regla procedente cuando dos extranjeros se casan en Espana, o dos of his testimony, a full quotation of the cited section was offered in evidence as
espanoles en el extranjero hay que atender en el primer caso a la Exhibits "V-2" by the respondents.
legislacion de pais a que aquellos pertenezean, y en el segundo, a las It is well-settled that foreign laws do not prove themselves in our jurisdiction and
reglas generales consignadas en los articulos 9 y 10 de nuestro Codigo. our courts are not authorized to take judicial notice of them.5 Like any other fact,
(Emphasis supplied.) they must be alleged and proved.6

14
Section 41, Rule 123 of our Rules of Court prescribes the manner of proving It is clear from both these quoted provisions that the reciprocity must be total, that
foreign laws before our tribunals. However, although we believe it desirable that is, with respect to transfer or death taxes of any and every character, in the case
these laws be proved in accordance with said rule, we held in the case of the Philippine law, and to legacy, succession, or death taxes of any and every
of Willamette Iron and Steel Works v. Muzzal, 61 Phil. 471, that "a reading of character, in the case of the California law. Therefore, if any of the two states
sections 300 and 301 of our Code of Civil Procedure (now section 41, Rule 123) collects or imposes and does not exempt any transfer, death, legacy, or
will convince one that these sections do not exclude the presentation of other succession tax of any character, the reciprocity does not work. This is the
competent evidence to prove the existence of a foreign law." In that case, we underlying principle of the reciprocity clauses in both laws.
considered the testimony of an attorney-at-law of San Francisco, California who
quoted verbatim a section of California Civil Code and who stated that the same In the Philippines, upon the death of any citizen or resident, or non-resident with
was in force at the time the obligations were contracted, as sufficient evidence to properties therein, there are imposed upon his estate and its settlement, both an
establish the existence of said law. In line with this view, we find no error, estate and an inheritance tax. Under the laws of California, only inheritance tax is
therefore, on the part of the Tax Court in considering the pertinent California law imposed. On the other hand, the Federal Internal Revenue Code imposes an
as proved by respondents' witness. estate tax on non-residents not citizens of the United States,7 but does not provide
for any exemption on the basis of reciprocity. Applying these laws in the manner
We now take up the question of reciprocity in exemption from transfer or death the Court of Tax Appeals did in the instant case, we will have a situation where a
taxes, between the State of California and the Philippines.F Californian, who is non-resident in the Philippines but has intangible personal
properties here, will the subject to the payment of an estate tax, although exempt
Section 122 of our National Internal Revenue Code, in pertinent part, provides: from the payment of the inheritance tax. This being the case, will a Filipino, non-
... And, provided, further, That no tax shall be collected under this Title in resident of California, but with intangible personal properties there, be entitled to
respect of intangible personal property (a) if the decedent at the time of the exemption clause of the California law, since the Californian has not been
his death was a resident of a foreign country which at the time of his exempted from every character of legacy, succession, or death tax because he is,
death did not impose a transfer of tax or death tax of any character in under our law, under obligation to pay an estate tax? Upon the other hand, if we
respect of intangible personal property of citizens of the Philippines not exempt the Californian from paying the estate tax, we do not thereby entitle a
residing in that foreign country, or (b) if the laws of the foreign country of Filipino to be exempt from a similar estate tax in California because under the
which the decedent was a resident at the time of his death allow a similar Federal Law, which is equally enforceable in California he is bound to pay the
exemption from transfer taxes or death taxes of every character in same, there being no reciprocity recognized in respect thereto. In both instances,
respect of intangible personal property owned by citizens of the the Filipino citizen is always at a disadvantage. We do not believe that our
Philippines not residing in that foreign country." (Emphasis supplied). legislature has intended such an unfair situation to the detriment of our own
government and people. We, therefore, find and declare that the lower court erred
On the other hand, Section 13851 of the California Inheritance Tax Law, insofar in exempting the estate in question from payment of the inheritance tax.
as pertinent, reads:.
We are not unaware of our ruling in the case of Collector of Internal Revenue vs.
"SEC. 13851, Intangibles of nonresident: Conditions. Intangible personal Lara (G.R. Nos. L-9456 & L-9481, prom. January 6, 1958, 54 O.G. 2881)
property is exempt from the tax imposed by this part if the decedent at exempting the estate of the deceased Hugo H. Miller from payment of the
the time of his death was a resident of a territory or another State of the inheritance tax imposed by the Collector of Internal Revenue. It will be noted,
United States or of a foreign state or country which then imposed a however, that the issue of reciprocity between the pertinent provisions of our tax
legacy, succession, or death tax in respect to intangible personal law and that of the State of California was not there squarely raised, and the ruling
property of its own residents, but either:. therein cannot control the determination of the case at bar. Be that as it may, we
(a) Did not impose a legacy, succession, or death tax of any character in now declare that in view of the express provisions of both the Philippine and
respect to intangible personal property of residents of this State, or California laws that the exemption would apply only if the law of the other grants
an exemption from legacy, succession, or death taxes of every character, there
(b) Had in its laws a reciprocal provision under which intangible personal could not be partial reciprocity. It would have to be total or none at all.
property of a non-resident was exempt from legacy, succession, or death
taxes of every character if the Territory or other State of the United With respect to the question of deduction or reduction in the amount of P4,000.00
States or foreign state or country in which the nonresident resided based on the U.S. Federal Estate Tax Law which is also being claimed by
allowed a similar exemption in respect to intangible personal property of respondents, we uphold and adhere to our ruling in the Lara case (supra) that the
residents of the Territory or State of the United States or foreign state or amount of $2,000.00 allowed under the Federal Estate Tax Law is in the nature of
country of residence of the decedent." (Id.) a deduction and not of an exemption regarding which reciprocity cannot be
claimed under the provision of Section 122 of our National Internal Revenue
Code. Nor is reciprocity authorized under the Federal Law. .

15
On the issue of the correctness of the appraisal of the two parcels of land situated said mining company on August 22, 1951 in the Philippine market was P.325 as
in Baguio City, it is contended that their assessed values, as appearing in the tax claimed by respondents..
rolls 6 months after the death of Stevenson, ought to have been considered by
petitioner as their fair market value, pursuant to section 91 of the National Internal It should be noted that the petitioner and the Tax Court valued each share of stock
Revenue Code. It should be pointed out, however, that in accordance with said of P.38 on the basis of the declaration made by the estate in its preliminary return.
proviso the properties are required to be appraised at their fair market value and Patently, this should not have been the case, in view of the fact that the ancillary
the assessed value thereof shall be considered as the fair market value only when administrator had reserved and availed of his legal right to have the properties of
evidence to the contrary has not been shown. After all review of the record, we the estate declared at their fair market value as of six months from the time the
are satisfied that such evidence exists to justify the valuation made by petitioner decedent died..
which was sustained by the tax court, for as the tax court aptly observed: On the fifth issue, we shall consider the various deductions, from the allowance or
"The two parcels of land containing 36,264 square meters were valued disallowance of which by the Tax Court, both petitioner and respondents have
by the administrator of the estate in the Estate and Inheritance tax appealed..
returns filed by him at P43,500.00 which is the assessed value of said Petitioner, in this regard, contends that no evidence of record exists to support the
properties. On the other hand, defendant appraised the same at allowance of the sum of P8,604.39 for the following expenses:.
P52,200.00. It is of common knowledge, and this Court can take judicial
notice of it, that assessments for real estate taxation purposes are very 1) Administrator's fee P1,204.34
much lower than the true and fair market value of the properties at a
given time and place. In fact one year after decedent's death or in 1952 2) Attorney's fee 6,000.00
the said properties were sold for a price of P72,000.00 and there is no
showing that special or extraordinary circumstances caused the sudden 3) Judicial and Administrative expenses 2,052.55
increase from the price of P43,500.00, if we were to accept this value as
a fair and reasonable one as of 1951. Even more, the counsel for
Total Deductions P8,604.39
plaintiffs himself admitted in open court that he was willing to purchase
the said properties at P2.00 per square meter. In the light of these facts An examination of the record discloses, however, that the foregoing items were
we believe and therefore hold that the valuation of P52,200.00 of the real considered deductible by the Tax Court on the basis of their approval by the
estate in Baguio made by defendant is fair, reasonable and justified in probate court to which said expenses, we may presume, had also been presented
the premises." (Decision, p. 19). for consideration. It is to be supposed that the probate court would not have
In respect to the valuation of the 210,000 shares of stock in the Mindanao Mother approved said items were they not supported by evidence presented by the
Lode Mines, Inc., (a domestic corporation), respondents contend that their value estate. In allowing the items in question, the Tax Court had before it the pertinent
should be fixed on the basis of the market quotation obtaining at the San order of the probate court which was submitted in evidence by respondents. (Exh.
Francisco (California) Stock Exchange, on the theory that the certificates of stocks "AA-2", p. 100, record). As the Tax Court said, it found no basis for departing from
were then held in that place and registered with the said stock exchange. We the findings of the probate court, as it must have been satisfied that those
cannot agree with respondents' argument. The situs of the shares of stock, for expenses were actually incurred. Under the circumstances, we see no ground to
purposes of taxation, being located here in the Philippines, as respondents reverse this finding of fact which, under Republic Act of California National
themselves concede and considering that they are sought to be taxed in this Association, which it would appear, that while still living, Walter G. Stevenson
jurisdiction, consistent with the exercise of our government's taxing authority, their obtained we are not inclined to pass upon the claim of respondents in respect to
fair market value should be taxed on the basis of the price prevailing in our the additional amount of P86.52 for funeral expenses which was disapproved by
country. the court a quo for lack of evidence.

Upon the other hand, we find merit in respondents' other contention that the said In connection with the deduction of P652.50 representing the amount of realty
shares of stock commanded a lesser value at the Manila Stock Exchange six taxes paid in 1951 on the decedent's two parcels of land in Baguio City, which
months after the death of Stevenson. Through Atty. Allison Gibbs, respondents respondents claim was disallowed by the Tax Court, we find that this claim has in
have shown that at that time a share of said stock was bid for at only P.325 (p. fact been allowed. What happened here, which a careful review of the record will
103, t.s.n.). Significantly, the testimony of Atty. Gibbs in this respect has never reveal, was that the Tax Court, in itemizing the liabilities of the estate, viz:
been questioned nor refuted by petitioner either before this court or in the court
below. In the absence of evidence to the contrary, we are, therefore, constrained 1) Administrator's fee P1,204.34
to reverse the Tax Court on this point and to hold that the value of a share in the

16
2) Attorney's fee 6,000.00 expenses of administration.10 In other words, there is a regular administration
under the control of the court, where claims must be presented and approved, and
expenses of administration allowed before deductions from the estate can be
3) Judicial and Administration expenses as of August 9,
authorized. Otherwise, we would have the actuations of our own probate court, in
1952 2,052.55
the settlement and distribution of the estate situated here, subject to the
proceedings before the foreign court over which our courts have no control. We do
Total P9,256.89 not believe such a procedure is countenanced or contemplated in the Rules of
Court.
added the P652.50 for realty taxes as a liability of the estate, to the P1,400.05 for
judicial and administration expenses approved by the court, making a total of Another reason for the disallowance of this indebtedness as a deduction, springs
P2,052.55, exactly the same figure which was arrived at by the Tax Court for from the provisions of Section 89, letter (d), number (1), of the National Internal
judicial and administration expenses. Hence, the difference between the total of Revenue Code which reads:
P9,256.98 allowed by the Tax Court as deductions, and the P8,604.39 as found
by the probate court, which is P652.50, the same amount allowed for realty taxes. (d) Miscellaneous provisions — (1) No deductions shall be allowed in the
An evident oversight has involuntarily been made in omitting the P2,000.00 for case of a non-resident not a citizen of the Philippines unless the
funeral expenses in the final computation. This amount has been expressly executor, administrator or anyone of the heirs, as the case may be,
allowed by the lower court and there is no reason why it should not be. . includes in the return required to be filed under section ninety-three the
value at the time of his death of that part of the gross estate of the non-
We come now to the other claim of respondents that pursuant to section 89(b) (1) resident not situated in the Philippines."
in relation to section 89(a) (1) (E) and section 89(d), National Internal Revenue
Code, the amount of P10,022.47 should have been allowed the estate as a In the case at bar, no such statement of the gross estate of the non-resident
deduction, because it represented an indebtedness of the decedent incurred Stevenson not situated in the Philippines appears in the three returns submitted to
during his lifetime. In support thereof, they offered in evidence a duly certified the court or to the office of the petitioner Collector of Internal Revenue. The
claim, presented to the probate court in California by the Bank of California purpose of this requirement is to enable the revenue officer to determine how
National Association, which it would appear, that while still living, Walter G. much of the indebtedness may be allowed to be deducted, pursuant to (b),
Stevenson obtained a loan of $5,000.00 secured by pledge on 140,000 of his number (1) of the same section 89 of the Internal Revenue Code which provides:
shares of stock in the Mindanao Mother Lode Mines, Inc. (Exhs. "Q-Q4", pp. 53- (b) Deductions allowed to non-resident estates. — In the case of a non-
59, record). The Tax Court disallowed this item on the ground that the local resident not a citizen of the Philippines, by deducting from the value of
probate court had not approved the same as a valid claim against the estate and that part of his gross estate which at the time of his death is situated in
because it constituted an indebtedness in respect to intangible personal property the Philippines —
which the Tax Court held to be exempt from inheritance tax.
(1) Expenses, losses, indebtedness, and taxes. — That proportion of the
For two reasons, we uphold the action of the lower court in disallowing the deductions specified in paragraph (1) of subjection (a) of this
deduction. section11 which the value of such part bears the value of his entire gross
Firstly, we believe that the approval of the Philippine probate court of this estate wherever situated;"
particular indebtedness of the decedent is necessary. This is so although the In other words, the allowable deduction is only to the extent of the portion of the
same, it is averred has been already admitted and approved by the corresponding indebtedness which is equivalent to the proportion that the estate in the
probate court in California, situs of the principal or domiciliary administration. It is Philippines bears to the total estate wherever situated. Stated differently, if the
true that we have here in the Philippines only an ancillary administration in this properties in the Philippines constitute but 1/5 of the entire assets wherever
case, but, it has been held, the distinction between domiciliary or principal situated, then only 1/5 of the indebtedness may be deducted. But since, as
administration and ancillary administration serves only to distinguish one heretofore adverted to, there is no statement of the value of the estate situated
administration from the other, for the two proceedings are separate and outside the Philippines, no part of the indebtedness can be allowed to be
independent.8 The reason for the ancillary administration is that, a grant of deducted, pursuant to Section 89, letter (d), number (1) of the Internal Revenue
administration does not ex proprio vigore, have any effect beyond the limits of the Code.
country in which it was granted. Hence, we have the requirement that before a will
duly probated outside of the Philippines can have effect here, it must first be For the reasons thus stated, we affirm the ruling of the lower court disallowing the
proved and allowed before our courts, in much the same manner as wills originally deduction of the alleged indebtedness in the sum of P10,022.47.
presented for allowance therein.9 And the estate shall be administered under In recapitulation, we hold and declare that:
letters testamentary, or letters of administration granted by the court, and
disposed of according to the will as probated, after payment of just debts and

17
(a) only the one-half (1/2) share of the decedent Stevenson in the
conjugal partnership property constitutes his hereditary estate subject to
the estate and inheritance taxes;
(b) the intangible personal property is not exempt from inheritance tax,
there existing no complete total reciprocity as required in section 122 of
the National Internal Revenue Code, nor is the decedent's estate entitled
to an exemption of P4,000.00 in the computation of the estate tax;
(c) for the purpose of the estate and inheritance taxes, the 210,000
shares of stock in the Mindanao Mother Lode Mines, Inc. are to be
appraised at P0.325 per share; and
(d) the P2,000.00 for funeral expenses should be deducted in the
determination of the net asset of the deceased Stevenson.
In all other respects, the decision of the Court of Tax Appeals is affirmed.
Respondent's claim for interest on the amount allegedly overpaid, if any actually
results after a recomputation on the basis of this decision is hereby denied in line
with our recent decision in Collector of Internal Revenue v. St. Paul's
Hospital (G.R. No. L-12127, May 29, 1959) wherein we held that, "in the absence
of a statutory provision clearly or expressly directing or authorizing such payment,
and none has been cited by respondents, the National Government cannot be
required to pay interest."
WHEREFORE, as modified in the manner heretofore indicated, the judgment of
the lower court is hereby affirmed in all other respects not inconsistent herewith.
No costs. So ordered.
Paras, C.J., Bengzon, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L.,
Gutierrez David, Paredes and Dizon, JJ., concur.

18
G.R. No. 140944 April 30, 2008 compliance with the requisites mentioned therein; otherwise, the general rule in
Section 34 of Rule 132 of the Rules of Court should prevail.
RAFAEL ARSENIO S. DIZON, in his capacity as the Judicial Administrator of
the Estate of the deceased JOSE P. FERNANDEZ, petitioner, Same; Same; The presentation of the Bureau of Internal Revenue’s (BIR’s)
vs. evidence is not a mere procedural technicality which may be disregarded
COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL considering that it is the only means by which the Court of Tax Appeals (CTA)
REVENUE, respondents. may ascertain and verify the truth of BIR’s claims against the Estate.—While the
CTA is not governed strictly by technical rules of evidence, as rules of procedure
DECISION
are not ends in themselves and are primarily intended as tools in the
Remedial Law; Evidence; No evidentiary value can be given the pieces of administration of justice, the presentation of the BIR’s evidence is not a mere
evidence submitted by the Bureau of Internal Revenue (BIR), as the rules on procedural technicality which may be disregarded considering that it is the only
documentary evidence require that these documents must be formally offered means by which the CTA may ascertain and verify the truth of BIR’s claims
before the Court of Tax Appeals (CTA).—Under Section 8 of RA 1125, the CTA is against the Estate. The BIR’s failure to formally offer these pieces of evidence,
categorically described as a court of record. As cases filed before it are despite CTA’s directives, is fatal to its cause. Such failure is aggravated by the
litigated de novo, party-litigants shall prove every minute aspect of their cases. fact that not even a single reason was advanced by the BIR to justify such fatal
Indubitably, no evidentiary value can be given the pieces of evidence submitted by omission. This, we take against the BIR.
the BIR, as the rules on documentary evidence require that these documents Civil Law; Obligations; Condonation or Remission of Debt; Words and
must be formally offered before the CTA. Pertinent is Section 34, Rule 132 of the Phrases; Definition of condonation or remission of debt.—It is admitted that the
Revised Rules on Evidence which reads: SEC. 34. Offer of evidence.—The claims of the Estate’s aforementioned creditors have been condoned. As a mode
court shall consider no evidence which has not been formally offered. The of extinguishing an obligation, condonation or remission of debt is defined as: an
purpose for which the evidence is offered must be specified. act of liberality, by virtue of which, without receiving any equivalent, the creditor
Same; Same; Courts cannot consider evidence which has not been formally renounces the enforcement of the obligation, which is extinguished in its entirety
offered; Doctrine laid down in Vda. de Oñate still subsists in this jurisdiction; Vda. or in that part or aspect of the same to which the remission refers. It is an
de Oñate is merely an exception to the general rule; Being an exception, it may be essential characteristic of remission that it be gratuitous, that there is no
applied only when there is strict compliance with the requisites mentioned equivalent received for the benefit given; once such equivalent exists, the nature
therein.—The CTA and the CA rely solely on the case of Vda. de Oñate, 250 of the act changes. It may become dation in payment when the creditor receives a
SCRA 283 (1995), which reiterated this Court’s previous rulings in People v. thing different from that stipulated; or novation, when the object or principal
Napat-a, 179 SCRA 403 (1989), and People v. Mate, 103 SCRA 484 (1981), on conditions of the obligation should be changed; or compromise, when the matter
the admission and consideration of exhibits which were not formally offered during renounced is in litigation or dispute and in exchange of some concession which
the trial. Although in a long line of cases many of which were decided after Vda. the creditor receives.
de Oñate, we held that courts cannot consider evidence which has not been Taxation; Statutory Construction; Court agrees with the date-of-death
formally offered, nevertheless, petitioner cannot validly assume that the doctrine valuation rule; Tax burdens are not to be imposed nor presumed to be imposed
laid down in Vda. de Oñate has already been abandoned. Recently, in Ramos v. beyond what the statute expressly and clearly imports, tax statutes being
Dizon, 498 SCRA 17 (2006), this Court, applying the said doctrine, ruled that the construed strictissimi juris against the government.—We express our agreement
trial court judge therein committed no error when he admitted and considered the with the date-of-death valuation rule, made pursuant to the ruling of the U.S.
respondents’ exhibits in the resolution of the case, notwithstanding the fact that Supreme Court in Ithaca Trust Co. v. United States, 279 U.S. 151, 49 S. Ct. 291,
the same were not formally offered. Likewise, in Far East Bank & Trust Company 73 L.Ed. 647 (1929). First. There is no law, nor do we discern any legislative intent
v. Commissioner of Internal Revenue, 502 SCRA 87 (2006), the Court made
in our tax laws, which disregards the date-of-death valuation principle and
reference to said doctrine in resolving the issues therein. Indubitably, the doctrine particularly provides that post-death developments must be considered in
laid down in Vda. De Oñate still subsists in this jurisdiction. In Vda. de Oñate, we determining the net value of the estate. It bears emphasis that tax burdens are not
held that: x x x However, in People v. Napat-a [179 SCRA 403] citing People v. to be imposed, nor presumed to be imposed, beyond what the statute expressly
Mate [103 SCRA 484], we relaxed the foregoing rule and allowed evidence
and clearly imports, tax statutes being construed strictissimi juris against the
not formally offered to be admitted and considered by the trial court
government. Any doubt on whether a person, article or activity is taxable is
provided the following requirements are present, viz.: first, the same must generally resolved against taxation. Second. Such construction finds relevance
have been duly identified by testimony duly recorded and, second, the same
and consistency in our Rules on Special Proceedings wherein the term “claims”
must have been incorporated in the records of the case.” From the foregoing
required to be presented against a decedent’s estate is generally construed to
declaration, however, it is clear that Vda. de Oñate is merely an exception to the mean debts or demands of a pecuniary nature which could have been enforced
general rule. Being an exception, it may be applied only when there is strict against the deceased in his lifetime, or liability contracted by the deceased before

19
his death. Therefore, the claims existing at the time of death are significant to, and Net Share in Conjugal Estate NIL
should be made the basis of, the determination of allowable deductions.
NACHURA, J.: xxx
1
Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules
Net Taxable Estate NIL.
of Civil Procedure seeking the reversal of the Court of Appeals (CA)
Decision2 dated April 30, 1999 which affirmed the Decision3 of the Court of Tax
Appeals (CTA) dated June 17, 1997.4 Estate Tax Due NIL.11

The Facts
On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition for On April 27, 1990, BIR Regional Director for San Pablo City, Osmundo G. Umali
the probate of his will5 was filed with Branch 51 of the Regional Trial Court (RTC) issued Certification Nos. 2052[12]and 2053[13] stating that the taxes due on the
of Manila (probate court).[6] The probate court then appointed retired Supreme transfer of real and personal properties[14] of Jose had been fully paid and said
Court Justice Arsenio P. Dizon (Justice Dizon) and petitioner, Atty. Rafael Arsenio properties may be transferred to his heirs. Sometime in August 1990, Justice
P. Dizon (petitioner) as Special and Assistant Special Administrator, respectively, Dizon passed away. Thus, on October 22, 1990, the probate court appointed
of the Estate of Jose (Estate). In a letter7dated October 13, 1988, Justice Dizon petitioner as the administrator of the Estate.15
informed respondent Commissioner of the Bureau of Internal Revenue (BIR) of
Petitioner requested the probate court's authority to sell several properties forming
the special proceedings for the Estate.
part of the Estate, for the purpose of paying its creditors, namely: Equitable
Petitioner alleged that several requests for extension of the period to file the Banking Corporation (P19,756,428.31), Banque de L'Indochine et. de Suez
required estate tax return were granted by the BIR since the assets of the estate, (US$4,828,905.90 as of January 31, 1988), Manila Banking Corporation
as well as the claims against it, had yet to be collated, determined and identified. (P84,199,160.46 as of February 28, 1989) and State Investment House, Inc.
Thus, in a letter8 dated March 14, 1990, Justice Dizon authorized Atty. Jesus M. (P6,280,006.21). Petitioner manifested that Manila Bank, a major creditor of the
Gonzales (Atty. Gonzales) to sign and file on behalf of the Estate the required Estate was not included, as it did not file a claim with the probate court since it
estate tax return and to represent the same in securing a Certificate of Tax had security over several real estate properties forming part of the Estate.16
Clearance. Eventually, on April 17, 1990, Atty. Gonzales wrote a letter 9 addressed
However, on November 26, 1991, the Assistant Commissioner for Collection of
to the BIR Regional Director for San Pablo City and filed the estate tax
the BIR, Themistocles Montalban, issued Estate Tax Assessment Notice No.
return10 with the same BIR Regional Office, showing therein a NIL estate tax
FAS-E-87-91-003269,17 demanding the payment of P66,973,985.40 as deficiency
liability, computed as follows:
estate tax, itemized as follows:

Deficiency Estate Tax- 1987


COMPUTATION OF TAX
Estate tax P31,868,414.48
Conjugal Real Property (Sch. 1) P10,855,020.00
25% surcharge- late filing 7,967,103.62
Conjugal Personal Property (Sch.2) 3,460,591.34
late payment 7,967,103.62
Taxable Transfer (Sch. 3)
Interest 19,121,048.68
Gross Conjugal Estate 14,315,611.34
Compromise-non filing 25,000.00
Less: Deductions (Sch. 4) 187,822,576.06
non payment 25,000.00
Net Conjugal Estate NIL
no notice of death 15.00
Less: Share of Surviving Spouse NIL.
no CPA Certificate 300.00

20
Total amount due & collectible P66,973,985.4018 letter from MBC's lawyer (pp. 194-197, BIR records);

In his letter19 dated December 12, 1991, Atty. Gonzales moved for the
8. Demand letter of Manila Banking Corporation prepared "G" & "G-1"
reconsideration of the said estate tax assessment. However, in her letter 20 dated
by Asedillo, Ramos and Associates Law Offices
April 12, 1994, the BIR Commissioner denied the request and reiterated that the
addressed to Fernandez Hermanos, Inc., represented
estate is liable for the payment of P66,973,985.40 as deficiency estate tax. On
by Jose P. Fernandez, as mortgagors, in the total
May 3, 1994, petitioner received the letter of denial. On June 2, 1994, petitioner
amount of P240,479,693.17 as of February 28, 1989
filed a petition for review21 before respondent CTA. Trial on the merits ensued.
(pp. 186-187, BIR records);
As found by the CTA, the respective parties presented the following pieces of
evidence, to wit: 9. Claim of State Investment House, Inc. filed with the "H" to "H-16"
RTC, Branch VII of Manila, docketed as Civil Case No.
In the hearings conducted, petitioner did not present testimonial evidence
86-38599 entitled "State Investment House, Inc.,
but merely documentary evidence consisting of the following:
Plaintiff, versus Maritime Company Overseas, Inc.
Nature of Document (sic) Exhibits and/or Jose P. Fernandez, Defendants," (pp. 200-215,
BIR records);

1. Letter dated October 13, 1988 from Arsenio P. Dizon "A" 10. Letter dated March 14, 1990 of Arsenio P. Dizon "I"
addressed to the Commissioner of Internal Revenue addressed to Atty. Jesus M. Gonzales, (p. 184, BIR
informing the latter of the special proceedings for the records);
settlement of the estate (p. 126, BIR records);
11. Letter dated April 17, 1990 from J.M. Gonzales "J"
2. Petition for the probate of the will and issuance of letter "B" & "B-1" addressed to the Regional Director of BIR in San Pablo
of administration filed with the Regional Trial Court City (p. 183, BIR records);
(RTC) of Manila, docketed as Sp. Proc. No. 87-42980
(pp. 107-108, BIR records);
12. Estate Tax Return filed by the estate of the late Jose P. "K" to "K-5"
Fernandez through its authorized representative, Atty.
3. Pleading entitled "Compliance" filed with the probate "C" Jesus M. Gonzales, for Arsenio P. Dizon, with
Court submitting the final inventory of all the properties attachments (pp. 177-182, BIR records);
of the deceased (p. 106, BIR records);
13. Certified true copy of the Letter of Administration "L"
4. Attachment to Exh. "C" which is the detailed and "C-1" to "C- issued by RTC Manila, Branch 51, in Sp. Proc. No. 87-
complete listing of the properties of the deceased (pp. 17" 42980 appointing Atty. Rafael S. Dizon as Judicial
89-105, BIR rec.); Administrator of the estate of Jose P. Fernandez; (p.
102, CTA records) and
5. Claims against the estate filed by Equitable Banking "D" to "D-24"
Corp. with the probate Court in the amount 14. Certification of Payment of estate taxes Nos. 2052 and "M" to "M-5"
of P19,756,428.31 as of March 31, 1988, together with 2053, both dated April 27, 1990, issued by the Office of
the Annexes to the claim (pp. 64-88, BIR records); the Regional Director, Revenue Region No. 4-C, San
Pablo City, with attachments (pp. 103-104, CTA
6. Claim filed by Banque de L' Indochine et de Suez with "E" to "E-3" records.).
the probate Court in the amount of US $4,828,905.90
as of January 31, 1988 (pp. 262-265, BIR records); Respondent's [BIR] counsel presented on June 26, 1995 one
witness in the person of Alberto Enriquez, who was one of the
7. Claim of the Manila Banking Corporation (MBC) which "F" to "F-3" revenue examiners who conducted the investigation on the estate
as of November 7, 1987 amounts to P65,158,023.54, tax case of the late Jose P. Fernandez. In the course of the direct
but recomputed as of February 28, 1989 at a total examination of the witness, he identified the following:
amount of P84,199,160.46; together with the demand

21
Documents/Signatures BIR Record The CTA's Ruling
On June 17, 1997, the CTA denied the said petition for review. Citing this Court's
1. Estate Tax Return prepared by the BIR; p. 138 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
2. Signatures of Ma. Anabella Abuloc and Alberto -do- evidence. The CTA ratiocinated:
Enriquez, Jr. appearing at the lower Portion of Exh. "1"; Although the above-mentioned documents were not formally offered as evidence
for respondent, considering that respondent has been declared to have waived
3. Memorandum for the Commissioner, dated July 19, pp. 143-144 the presentation thereof during the hearing on March 20, 1996, still they could be
1991, prepared by revenue examiners, Ma. Anabella A. considered as evidence for respondent since they were properly identified during
Abuloc, Alberto S. Enriquez and Raymund S. Gallardo; the presentation of respondent's witness, whose testimony was duly recorded as
Reviewed by Maximino V. Tagle 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
4. Signature of Alberto S. Enriquez appearing at the lower -do-
Nevertheless, the CTA did not fully adopt the assessment made by the BIR and it
portion on p. 2 of Exh. "2";
came up with its own computation of the deficiency estate tax, to wit:
5. Signature of Ma. Anabella A. Abuloc appearing at the -do- Conjugal Real Property P 5,062,016.00
lower portion on p. 2 of Exh. "2";
Conjugal Personal Prop. 33,021,999.93
6. Signature of Raymund S. Gallardo appearing at the -do-
Lower portion on p. 2 of Exh. "2"; Gross Conjugal Estate 38,084,015.93

7. Signature of Maximino V. Tagle also appearing on p. 2 -do- Less: Deductions 26,250,000.00


of Exh. "2";
Net Conjugal Estate P 11,834,015.93
8. Summary of revenue Enforcement Officers Audit p. 139
Report, dated July 19, 1991;
Less: Share of Surviving Spouse 5,917,007.96
9. Signature of Alberto Enriquez at the lower portion of -do-
Net Share in Conjugal Estate P 5,917,007.96
Exh. "3";
Add: Capital/Paraphernal
10. Signature of Ma. Anabella A. Abuloc at the lower -do-
portion of Exh. "3";
Properties – P44,652,813.66
11. Signature of Raymond S. Gallardo at the lower portion -do-
of Exh. "3"; Less: Capital/Paraphernal Deductions 44,652,813.66

12. Signature of Maximino V. Tagle at the lower portion of -do- Net Taxable Estate P 50,569,821.62
Exh. "3"; ============

13. Demand letter (FAS-E-87-91-00), signed by the Asst. p. 169


Commissioner for Collection for the Commissioner of Estate Tax Due P 29,935,342.97
Internal Revenue, demanding payment of the amount
of P66,973,985.40; and
Add: 25% Surcharge for Late Filing 7,483,835.74
14. Assessment Notice FAS-E-87-91-00 pp. 169-17022
Add: Penalties for-No notice of death 15.00

22
No CPA certificate 300.00 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
Total deficiency estate tax P 37,419,493.71
effectively bloated the estate's assets.31
============
The petitioner claims that in as much as the valid claims of creditors against the
exclusive of 20% interest from due date of its payment until full payment Estate are in excess of the gross estate, no estate tax was due; that the lack of a
thereof formal offer of evidence is fatal to BIR's cause; that the doctrine laid down in Vda.
[Sec. 283 (b), Tax Code of 1987].25 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
Thus, the CTA disposed of the case in this wise: 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
WHEREFORE, viewed from all the foregoing, the Court finds the petition
testimony before the CTA identified the pieces of evidence aforementioned such
unmeritorious and denies the same. Petitioner and/or the heirs of Jose P.
that the same were marked, BIR's failure to formally offer said pieces of evidence
Fernandez are hereby ordered to pay to respondent the amount
and depriving petitioner the opportunity to cross-examine Alberto, render the
of P37,419,493.71 plus 20% interest from the due date of its payment
same inadmissible in evidence; that assuming arguendo that the ruling in Vda. de
until full payment thereof as estate tax liability of the estate of Jose P.
Oñate is still applicable, BIR failed to comply with the doctrine's requisites
Fernandez who died on November 7, 1987.
because the documents herein remained simply part of the BIR records and were
SO ORDERED.26 not duly incorporated in the court records; that the BIR failed to consider that
although the actual payments made to the Estate creditors were lower than their
Aggrieved, petitioner, on March 2, 1998, went to the CA via a petition for review. 27 respective claims, such were compromise agreements reached long after the
The CA's Ruling 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
On April 30, 1999, the CA affirmed the CTA's ruling. Adopting in full the CTA's the claims against the Estate and the settlement of the estate tax due should be at
findings, the CA ruled that the petitioner's act of filing an estate tax return with the the time the estate tax return was filed by the judicial administrator and the
BIR and the issuance of BIR Certification Nos. 2052 and 2053 did not deprive the issuance of said BIR Certifications and not at the time the aforementioned
BIR Commissioner of her authority to re-examine or re-assess the said return filed Compromise Agreements were entered into with the Estate's creditors. 32
on behalf of the Estate.28
On the other hand, respondent counters that the documents, being part of the
On May 31, 1999, petitioner filed a Motion for Reconsideration29 which the CA records of the case and duly identified in a duly recorded testimony are
denied in its Resolution30 dated November 3, 1999. considered evidence even if the same were not formally offered; that the filing of
Hence, the instant Petition raising the following issues: the estate tax return by the Estate and the issuance of BIR Certification Nos. 2052
and 2053 did not deprive the BIR of its authority to examine the return and assess
1. Whether or not the admission of evidence which were not formally the estate tax; and that the factual findings of the CTA as affirmed by the CA may
offered by the respondent BIR by the Court of Tax Appeals which was no longer be reviewed by this Court via a petition for review. 33
subsequently upheld by the Court of Appeals is contrary to the Rules of
Court and rulings of this Honorable Court; The Issues

2. Whether or not the Court of Tax Appeals and the Court of Appeals There are two ultimate issues which require resolution in this case:
erred in recognizing/considering the estate tax return prepared and filed First. Whether or not the CTA and the CA gravely erred in allowing the admission
by respondent BIR knowing that the probate court appointed of the pieces of evidence which were not formally offered by the BIR; and
administrator of the estate of Jose P. Fernandez had previously filed one
as in fact, BIR Certification Clearance Nos. 2052 and 2053 had been Second. Whether or not the CA erred in affirming the CTA in the latter's
issued in the estate's favor; determination of the deficiency estate tax imposed against the Estate.

3. Whether or not the Court of Tax Appeals and the Court of Appeals The Court’s Ruling
erred in disallowing the valid and enforceable claims of creditors against The Petition is impressed with merit.
the estate, as lawful deductions despite clear and convincing evidence
thereof; and 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

23
the pieces of evidence submitted by the BIR, as the rules on documentary In this case, we find that these requirements have not been satisfied. The assailed
evidence require that these documents must be formally offered before the pieces of evidence were presented and marked during the trial particularly when
CTA.34 Pertinent is Section 34, Rule 132 of the Revised Rules on Evidence which Alberto took the witness stand. Alberto identified these pieces of evidence in his
reads: 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
SEC. 34. Offer of evidence. — The court shall consider no evidence
Alberto and petitioner did not sufficiently describe the contents of the said pieces
which has not been formally offered. The purpose for which the evidence of evidence presented by the BIR. In fact, petitioner sought that the lead
is offered must be specified. examiner, one Ma. Anabella A. Abuloc, be summoned to testify, inasmuch as
The CTA and the CA rely solely on the case of Vda. de Oñate, which reiterated Alberto was incompetent to answer questions relative to the working
this Court's previous rulings in People v. Napat-a35 and People v. Mate36 on the papers.43 The lead examiner never testified. Moreover, while Alberto's testimony
admission and consideration of exhibits which were not formally offered during the identifying the BIR's evidence was duly recorded, the BIR documents themselves
trial. Although in a long line of cases many of which were decided after Vda. de were not incorporated in the records of the case.
Oñate, we held that courts cannot consider evidence which has not been formally A common fact threads through Vda. de Oñate and Ramos that does not exist at
offered,37 nevertheless, petitioner cannot validly assume that the doctrine laid all in the instant case. In the aforementioned cases, the exhibits were marked at
down in Vda. de Oñate has already been abandoned. Recently, in Ramos v. the pre-trial proceedings to warrant the pronouncement that the same were duly
Dizon,38this Court, applying the said doctrine, ruled that the trial court judge incorporated in the records of the case. Thus, we held in Ramos:
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 In this case, we find and so rule that these requirements have been
not formally offered. Likewise, in Far East Bank & Trust Company v. satisfied. The exhibits in question were presented and marked
Commissioner of Internal Revenue,39 the Court made reference to said doctrine in during the pre-trial of the case thus, they have been incorporated
resolving the issues therein. Indubitably, the doctrine laid down in Vda. De into the records. Further, Elpidio himself explained the contents of
Oñate still subsists in this jurisdiction. In Vda. de Oñate, we held that: these exhibits when he was interrogated by respondents' counsel...
From the foregoing provision, it is clear that for evidence to be xxxx
considered, the same must be formally offered. Corollarily, the mere fact
that a particular document is identified and marked as an exhibit does not But what further defeats petitioner's cause on this issue is that
mean that it has already been offered as part of the evidence of a party. respondents' exhibits were marked and admitted during the pre-trial
In Interpacific Transit, Inc. v. Aviles [186 SCRA 385], we had the stage as shown by the Pre-Trial Order quoted earlier.44
occasion to make a distinction between identification of documentary While the CTA is not governed strictly by technical rules of evidence, 45 as rules of
evidence and its formal offer as an exhibit. We said that the first is done procedure are not ends in themselves and are primarily intended as tools in the
in the course of the trial and is accompanied by the marking of the administration of justice, the presentation of the BIR's evidence is not a mere
evidence as an exhibit while the second is done only when the party procedural technicality which may be disregarded considering that it is the only
rests its case and not before. A party, therefore, may opt to formally offer means by which the CTA may ascertain and verify the truth of BIR's claims
his evidence if he believes that it will advance his cause or not to do so at against the Estate.46 The BIR's failure to formally offer these pieces of evidence,
all. In the event he chooses to do the latter, the trial court is not despite CTA's directives, is fatal to its cause.47 Such failure is aggravated by the
authorized by the Rules to consider the same. fact that not even a single reason was advanced by the BIR to justify such fatal
However, in People v. Napat-a [179 SCRA 403] citing People v. omission. This, we take against the BIR.
Mate [103 SCRA 484], we relaxed the foregoing rule and allowed Per the records of this case, the BIR was directed to present its evidence 48 in the
evidence not formally offered to be admitted and considered by the hearing of February 21, 1996, but BIR's counsel failed to appear. 49 The CTA
trial court provided the following requirements are present, viz.: denied petitioner's motion to consider BIR's presentation of evidence as waived,
first, the same must have been duly identified by testimony duly with a warning to BIR that such presentation would be considered waived if BIR's
recorded and, second, the same must have been incorporated in evidence would not be presented at the next hearing. Again, in the hearing of
the records of the case.40 March 20, 1996, BIR's counsel failed to appear. 50 Thus, in its Resolution51 dated
From the foregoing declaration, however, it is clear that Vda. de Oñate is merely March 21, 1996, the CTA considered the BIR to have waived presentation of its
an exception to the general rule. Being an exception, it may be applied only when evidence. In the same Resolution, the parties were directed to file their respective
there is strict compliance with the requisites mentioned therein; otherwise, the memorandum. Petitioner complied but BIR failed to do so. 52 In all of these
general rule in Section 34 of Rule 132 of the Rules of Court should prevail. proceedings, BIR was duly notified. Hence, in this case, we are constrained to
apply our ruling in Heirs of Pedro Pasag v. Parocha:53

24
A formal offer is necessary because judges are mandated to rest their Verily, the second issue in this case involves the construction of Section 79 58 of
findings of facts and their judgment only and strictly upon the evidence the National Internal Revenue Code59 (Tax Code) which provides for the allowable
offered by the parties at the trial. Its function is to enable the trial judge to deductions from the gross estate of the decedent. The specific question is
know the purpose or purposes for which the proponent is presenting the whether the actual claims of the aforementioned creditors may be fully allowed as
evidence. On the other hand, this allows opposing parties to examine the deductions from the gross estate of Jose despite the fact that the said claims were
evidence and object to its admissibility. Moreover, it facilitates review as reduced or condoned through compromise agreements entered into by the Estate
the appellate court will not be required to review documents not with its creditors.
previously scrutinized by the trial court.
"Claims against the estate," as allowable deductions from the gross estate under
Strict adherence to the said rule is not a trivial matter. The Court Section 79 of the Tax Code, are basically a reproduction of the deductions
in Constantino v. Court of Appeals ruled that the formal offer of one's allowed under Section 89 (a) (1) (C) and (E) of Commonwealth Act No. 466 (CA
evidence is deemed waived after failing to submit it within a 466), otherwise known as the National Internal Revenue Code of 1939, and which
considerable period of time. It explained that the court cannot admit was the first codification of Philippine tax laws. Philippine tax laws were, in turn,
an offer of evidence made after a lapse of three (3) months because based on the federal tax laws of the United States. Thus, pursuant to established
to do so would "condone an inexcusable laxity if not non- rules of statutory construction, the decisions of American courts construing the
compliance with a court order which, in effect, would encourage federal tax code are entitled to great weight in the interpretation of our own tax
needless delays and derail the speedy administration of justice." laws.60
Applying the aforementioned principle in this case, we find that the trial It is noteworthy that even in the United States, there is some dispute as to
court had reasonable ground to consider that petitioners had waived their whether the deductible amount for a claim against the estate is fixed as of the
right to make a formal offer of documentary or object evidence. Despite decedent's death which is the general rule, or the same should be adjusted to
several extensions of time to make their formal offer, petitioners failed to reflect post-death developments, such as where a settlement between the parties
comply with their commitment and allowed almost five months to lapse results in the reduction of the amount actually paid. 61 On one hand, the U.S. court
before finally submitting it. Petitioners' failure to comply with the rule ruled that the appropriate deduction is the "value" that the claim had at the date of
on admissibility of evidence is anathema to the efficient, effective, the decedent's death.62 Also, as held in Propstra v. U.S., 63 where a lien claimed
and expeditious dispensation of justice. 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
Having disposed of the foregoing procedural issue, we proceed to discuss the
preclude the estate from deducting the entire amount of the claim for estate tax
merits of the case. purposes. These pronouncements essentially confirm the general principle that
Ordinarily, the CTA's findings, as affirmed by the CA, are entitled to the highest post-death developments are not material in determining the amount of the
respect and will not be disturbed on appeal unless it is shown that the lower courts deduction.
committed gross error in the appreciation of facts.54 In this case, however, we find On the other hand, the Internal Revenue Service (Service) opines that post-death
the decision of the CA affirming that of the CTA tainted with palpable error. settlement should be taken into consideration and the claim should be allowed as
It is admitted that the claims of the Estate's aforementioned creditors have been a deduction only to the extent of the amount actually paid. 64Recognizing the
condoned. As a mode of extinguishing an obligation, 55 condonation or remission dispute, the Service released Proposed Regulations in 2007 mandating that the
of debt56 is defined as: deduction would be limited to the actual amount paid.65

an act of liberality, by virtue of which, without receiving any equivalent, In announcing its agreement with Propstra,66 the U.S. 5th Circuit Court of Appeals
the creditor renounces the enforcement of the obligation, which is held:
extinguished in its entirety or in that part or aspect of the same to which We are persuaded that the Ninth Circuit's decision...in Propstra correctly
the remission refers. It is an essential characteristic of remission that it apply the Ithaca Trust date-of-death valuation principle to enforceable
be gratuitous, that there is no equivalent received for the benefit given; claims against the estate. As we interpret Ithaca Trust, when the
once such equivalent exists, the nature of the act changes. It may Supreme Court announced the date-of-death valuation principle, it was
become dation in payment when the creditor receives a thing different making a judgment about the nature of the federal estate tax specifically,
from that stipulated; or novation, when the object or principal conditions that it is a tax imposed on the act of transferring property by will or
of the obligation should be changed; or compromise, when the matter intestacy and, because the act on which the tax is levied occurs at a
renounced is in litigation or dispute and in exchange of some concession discrete time, i.e., the instance of death, the net value of the property
which the creditor receives.57 transferred should be ascertained, as nearly as possible, as of that time.

25
This analysis supports broad application of the date-of-death valuation
rule.67
We express our agreement with the date-of-death valuation rule, made pursuant
to the ruling of the U.S. Supreme Court in Ithaca Trust Co. v. United
States.68 First. There is no law, nor do we discern any legislative intent in our tax
laws, which disregards the date-of-death valuation principle and particularly
provides that post-death developments must be considered in determining the net
value of the estate. It bears emphasis that tax burdens are not to be imposed, nor
presumed to be imposed, beyond what the statute expressly and clearly imports,
tax statutes being construed strictissimi juris against the government.69 Any doubt
on whether a person, article or activity is taxable is generally resolved against
taxation.70 Second. Such construction finds relevance and consistency in our
Rules on Special Proceedings wherein the term "claims" required to be presented
against a decedent's estate is generally construed to mean debts or demands of a
pecuniary nature which could have been enforced against the deceased in his
lifetime, or liability contracted by the deceased before his death.71 Therefore, the
claims existing at the time of death are significant to, and should be made the
basis of, the determination of allowable deductions.
WHEREFORE, the instant Petition is GRANTED. Accordingly, the assailed
Decision dated April 30, 1999 and the Resolution dated November 3, 1999 of the
Court of Appeals in CA-G.R. S.P. No. 46947 are REVERSED and SET ASIDE.
The Bureau of Internal Revenue's deficiency estate tax assessment against the
Estate of Jose P. Fernandez is hereby NULLIFIED. No costs.
SO ORDERED.

26
G.R. No. 155541 January 27, 2004 Same; Same; Although the administrator of the estate may have been
remiss in his legal obligation to inform respondent of the decedent’s death, the
ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL, petitioner, consequences thereof, as provided in Section 119 of the National Internal
vs. Revenue Code of 1977, merely refer to the imposition of certain penal sanctions
COMMISSIONER OF INTERNAL REVENUE, respondent. on the administrator.—Although the administrator of the estate may have been
DECISION remiss in his legal obligation to inform respondent of the decedent’s death, the
consequences thereof, as provided in Section 119 of the National Internal
Taxation; Agency; The death of a taxpayer automatically severed the legal Revenue Code of 1977, merely refer to the imposition of certain penal sanctions
relationship between her and her agent, and such could not be revived by the on the administrator. These do not include the indefinite tolling of the prescriptive
mere fact that the agent continued to act as such when, two days after the period for making deficiency tax assessments, or the waiver of the notice
principal’s death, the agent filed the principal’s Income Tax Return.—The first requirement for such assessments.
point to be considered is that the relationship between the decedent and Philtrust
was one of agency, which is a personal relationship between agent and principal. Same; Tax Assessments; Prescription; Where there was never any valid
Under Article 1919 (3) of the Civil Code, death of the agent or principal notice of an assessment, it could not have become final, executory and
automatically terminates the agency. In this instance, the death of the decedent incontestable, and, for failure to make the assessment within the five-year period
on April 3, 1979 automatically severed the legal relationship between her and provided in Section 318 of the National Internal Revenue Code of 1977, the
Philtrust, and such could not be revived by the mere fact that Philtrust continued Commissioner of Internal Revenue’s claim against the taxpayer is barred.—Since
to act as her agent when, on April 5, 1979, it filed her Income Tax Return for the there was never any valid notice of this assessment, it could not have become
year 1978. Since the relationship between Philtrust and the decedent was final, executory and incontestable, and, for failure to make the assessment within
automatically severed at the moment of the Taxpayer’s death, none of Philtrust’s the five-year period provided in Section 318 of the National Internal Revenue
acts or omissions could bind the estate of the Taxpayer. Service on Philtrust of the Code of 1977, respondent’s claim against the petitioner Estate is barred. Said
demand letter and Assessment Notice No. NARD-78-82-00501 was improperly Section 18 reads: SEC. 318. Period of limitation upon assessment and
done. It must be noted that Philtrust was never appointed as the administrator of collection.—Except as provided in the succeeding section, internal revenue taxes
the Estate of the decedent, and, indeed, that the court a quo twice rejected shall be assessed within five years after the return was filed, and no proceeding in
Philtrust’s motion to be thus appointed. As of November 18, 1982, the date of the court without assessment for the collection of such taxes shall be begun after the
demand letter and Assessment Notice, the legal relationship between the expiration of such period. For the purpose of this section, a return filed before the
decedent and Philtrust had already been nonexistent for three years. last day prescribed by law for the filing thereof shall be considered as filed on
such last day: Provided, That this limitation shall not apply to cases already
Same; Estate Tax; Section 104 of the Internal Revenue Code of 1977, investigated prior to the approval of this Code.
requiring notice of death of taxpayer to be filed, falls in Title III, Chapter 1 and
pertains to “all cases of transfers subject to tax” or where the “gross value of the Same; Same; Due Process; The rule that an assessment is deemed made
estate exceeds three thousand pesos” and has absolutely no applicability to a for the purpose of giving effect to such assessment when the notice is released,
case for deficiency income tax.—Respondent claims that Section 104 of the mailed or sent to the taxpayer to effectuate the assessment requires that the
National Internal Revenue Code of 1977 imposed the legal obligation on Philtrust notice be sent to the taxpayer, and not merely to a disinterested party.—
to inform respondent of the decedent’s death. The said Section reads: SEC. Respondent argues that an assessment is deemed made for the purpose of giving
104. Notice of death to be filed.—In all cases of transfers subject to tax or where, effect to such assessment when the notice is released, mailed or sent to the
though exempt from tax, the gross value of the estate exceeds three thousand taxpayer to effectuate the assessment, and there is no legal requirement that the
pesos, the executor, administrator, or any of the legal heirs, as the case may be, taxpayer actually receive said notice within the five-year period. It must be noted,
within two months after the decedent’s death, or within a like period after however, that the foregoing rule requires that the notice be sent to the taxpayer,
qualifying as such executor or administrator, shall give written notice thereof to the and not merely to a disinterested party. Although there is no specific requirement
Commissioner of Internal Revenue. The foregoing provision falls in Title III, that the taxpayer should receive the notice within the said period, due process
Chapter I of the National Internal Revenue Code of 1977, or the chapter on Estate requires at the very least that such notice actually be received. In Commissioner
Tax, and pertains to “all cases of transfers subject to tax” or where the “gross of Internal Revenue v. Pascor Realty and Development Corporation, we had
value of the estate exceeds three thousand pesos.” It has absolutely no occasion to say: An assessment contains not only a computation of tax liabilities,
applicability to a case for deficiency income tax, such as the case at bar. It further but also a demand for payment within a prescribed period. It also signals the time
lacks applicability since Philtrust was never the executor, administrator of the when penalties and interests begin to accrue against the taxpayer. To enable the
decedent’s estate, and, as such, never had the legal obligation, based on the taxpayer to determine his remedies thereon, due process requires that it must be
above provision, to inform respondent of her death. served on and received by the taxpayer.

27
Same; Same; Same; When an estate is under administration, notice must 78-82-00501 addressed to the decedent "c/o Philippine Trust Company, Sta.
be sent to the administrator of the estate.—In Republic v. De le Rama, we clarified Cruz, Manila" which was the address stated in her 1978 Income Tax Return. No
that, when an estate is under administration, notice must be sent to the response was made by Philtrust. The BIR was not informed that the decedent had
administrator of the estate, since it is the said administrator, as representative of actually passed away.
the estate, who has the legal obligation to pay and discharge all debts of the
estate and to perform all orders of the court. In that case, legal notice of the In an Order dated September 5, 1983, the court a quo appointed Antonio
assessment was sent to two heirs, neither one of whom had any authority to Ambrosio as the Commissioner and Auditor Tax Consultant of the Estate of the
represent the estate. We said: The notice was not sent to the taxpayer for the decedent.
purpose of giving effect to the assessment, and said notice could not produce any On June 18, 1984, respondent Commissioner of Internal Revenue issued
effect. In the case of Bautista and Corrales Tan v. Collector of Internal Revenue . . warrants of distraint and levy to enforce collection of the decedent’s deficiency
. this Court had occasion to state that “the assessment is deemed made when the income tax liability, which were served upon her heir, Francisco Gabriel. On
notice to this effect is released, mailed or sent to the taxpayer for the purpose of November 22, 1984, respondent filed a "Motion for Allowance of Claim and for an
giving effect to said assessment.” It appearing that the person liable for the Order of Payment of Taxes" with the court a quo. On January 7, 1985, Mr.
payment of the tax did not receive the assessment, the assessment could not Ambrosio filed a letter of protest with the Litigation Division of the BIR, which was
become final and executory. (Citations omitted, emphasis supplied.) not acted upon because the assessment notice had allegedly become final,
executory and incontestable.
YNARES-SANTIAGO, J.: On May 16, 1985, petitioner, the Estate of the decedent, through Mr. Ambrosio,
This petition for review on certiorari assails the decision of the Court of Appeals in filed a formal opposition to the BIR’s Motion for Allowance of Claim based on the
CA-G.R. CV No. 09107, dated September 30, 2002, 1 which reversed the ground that there was no proper service of the assessment and that the filing of
November 19, 1995 Order of Regional Trial Court of Manila, Branch XXXVIII, in the aforesaid claim had already prescribed. The BIR filed its Reply, contending
Sp. Proc. No. R-82-6994, entitled "Testate Estate of Juliana Diez Vda. De that service to Philippine Trust Company was sufficient service, and that the filing
Gabriel". The petition was filed by the Estate of the Late Juliana Diez Vda. De of the claim against the Estate on November 22, 1984 was within the five-year
Gabriel, represented by Prudential Bank as its duly appointed and qualified prescriptive period for assessment and collection of taxes under Section 318 of
Administrator. the 1977 National Internal Revenue Code (NIRC).

As correctly summarized by the Court of Appeals, the relevant facts are as On November 19, 1985, the court a quo issued an Order denying respondent’s
follows: claim against the Estate,2 after finding that there was no notice of its tax
assessment on the proper party.3
During the lifetime of the decedent, Juliana Vda. De Gabriel, her
business affairs were managed by the Philippine Trust Company On July 2, 1986, respondent filed an appeal with the Court of Appeals, docketed
(Philtrust). The decedent died on April 3, 1979. Two days after her death, as CA-G.R. CV No. 09107,4assailing the Order of the probate court dated
Philtrust, through its Trust Officer, Atty. Antonio M. Nuyles, filed her November 19, 1985. It was claimed that Philtrust, in filing the decedent’s 1978
Income Tax Return for 1978. The return did not indicate that the income tax return on April 5, 1979, two days after the taxpayer’s death, had
decedent had died. "constituted itself as the administrator of the estate of the deceased at least
insofar as said return is concerned."5 Citing Basilan Estate Inc. v. Commissioner
On May 22, 1979, Philtrust also filed a verified petition for appointment as Special of Internal Revenue,6 respondent argued that the legal requirement of notice with
Administrator with the Regional Trial Court of Manila, Branch XXXVIII, docketed respect to tax assessments7 requires merely that the Commissioner of Internal
as Sp. Proc. No. R-82-6994. The court a quo appointed one of the heirs as Revenue release, mail and send the notice of the assessment to the taxpayer at
Special Administrator. Philtrust’s motion for reconsideration was denied by the the address stated in the return filed, but not that the taxpayer actually receive
probate court. said assessment within the five-year prescriptive period.8 Claiming that Philtrust
had been remiss in not notifying respondent of the decedent’s death, respondent
On January 26, 1981, the court a quo issued an Order relieving Mr. Diez of his therefore argued that the deficiency tax assessment had already become final,
appointment, and appointed Antonio Lantin to take over as Special Administrator. executory and incontestable, and that petitioner Estate was liable therefor.
Subsequently, on July 30, 1981, Mr. Lantin was also relieved of his appointment,
and Atty. Vicente Onosa was appointed in his stead. On September 30, 2002, the Court of Appeals rendered a decision in favor of the
respondent. Although acknowledging that the bond of agency between Philtrust
In the meantime, the Bureau of Internal Revenue conducted an administrative and the decedent was severed upon the latter’s death, it was ruled that the
investigation on the decedent’s tax liability and found a deficiency income tax for administrator of the Estate had failed in its legal duty to inform respondent of the
the year 1977 in the amount of P318,233.93. Thus, on November 18, 1982, the decedent’s death, pursuant to Section 104 of the National Internal Revenue Code
BIR sent by registered mail a demand letter and Assessment Notice No. NARD-

28
of 1977. Consequently, the BIR’s service to Philtrust of the demand letter and The resolution of this case hinges on the legal relationship between Philtrust and
Notice of Assessment was binding upon the Estate, and, upon the lapse of the the decedent, and, by extension, between Philtrust and petitioner Estate.
statutory thirty-day period to question this claim, the assessment became final, Subsumed under this primary issue is the sub-issue of whether or not service on
executory and incontestable. The dispositive portion of said decision reads: Philtrust of the demand letter and Assessment Notice No. NARD-78-82-00501
was valid service on petitioner, and the issue of whether Philtrust’s inaction
WHEREFORE, finding merit in the appeal, the appealed decision is thereon could bind petitioner. If both sub-issues are answered in the affirmative,
REVERSED AND SET ASIDE. Another one is entered ordering the respondent’s contention as to the finality of Assessment Notice No. NARD-78-82-
Administrator of the Estate to pay the Commissioner of Internal Revenue 00501 must be answered in the affirmative. This is because Section 319-A of the
the following: NIRC of 1977 provides a clear 30-day period within which to protest an
a. The amount of P318,223.93, representing the deficiency assessment. Failure to file such a protest within said period means that the
income tax liability for the year 1978, plus 20% interest per assessment ipso jure becomes final and unappealable, as a consequence of
annum from November 2, 1982 up to November 2, 1985 and in which legal proceedings may then be initiated for collection thereof.
addition thereto 10% surcharge on the basic tax of P169,155.34 We find in favor of the petitioner.
pursuant to Section 51(e)(2) and (3) of the Tax Code as
amended by PD 69 and 1705; and The first point to be considered is that the relationship between the decedent and
Philtrust was one of agency, which is a personal relationship between agent and
b. The costs of the suit. principal. Under Article 1919 (3) of the Civil Code, death of the agent or principal
SO ORDERED.9 automatically terminates the agency. In this instance, the death of the decedent
on April 3, 1979 automatically severed the legal relationship between her and
Hence, the instant petition, raising the following issues: Philtrust, and such could not be revived by the mere fact that Philtrust continued
1. Whether or not the Court of Appeals erred in holding that the service to act as her agent when, on April 5, 1979, it filed her Income Tax Return for the
of deficiency tax assessment against Juliana Diez Vda. de Gabriel year 1978.
through the Philippine Trust Company was a valid service in order to bind Since the relationship between Philtrust and the decedent was automatically
the Estate; severed at the moment of the Taxpayer’s death, none of Philtrust’s acts or
2. Whether or not the Court of Appeals erred in holding that the omissions could bind the estate of the Taxpayer. Service on Philtrust of the
deficiency tax assessment and final demand was already final, executory demand letter and Assessment Notice No. NARD-78-82-00501 was improperly
and incontestable. done.

Petitioner Estate denies that Philtrust had any legal personality to represent the It must be noted that Philtrust was never appointed as the administrator of the
decedent after her death. As such, petitioner argues that there was no proper Estate of the decedent, and, indeed, that the court a quo twice rejected Philtrust’s
notice of the assessment which, therefore, never became final, executory and motion to be thus appointed. As of November 18, 1982, the date of the demand
incontestable.10 Petitioner further contends that respondent’s failure to file its claim letter and Assessment Notice, the legal relationship between the decedent and
against the Estate within the proper period prescribed by the Rules of Court is a Philtrust had already been non-existent for three years.
fatal error, which forever bars its claim against the Estate. 11 Respondent claims that Section 104 of the National Internal Revenue Code of
Respondent, on the other hand, claims that because Philtrust filed the decedent’s 1977 imposed the legal obligation on Philtrust to inform respondent of the
income tax return subsequent to her death, Philtrust was the de facto decedent’s death. The said Section reads:
administrator of her Estate.12 Consequently, when the Assessment Notice and SEC. 104. Notice of death to be filed. – In all cases of transfers subject to
demand letter dated November 18, 1982 were sent to Philtrust, there was proper tax or where, though exempt from tax, the gross value of the estate
service on the Estate.13Respondent further asserts that Philtrust had the legal exceeds three thousand pesos, the executor, administrator, or any of the
obligation to inform petitioner of the decedent’s death, which requirement is found legal heirs, as the case may be, within two months after the decedent’s
in Section 104 of the NIRC of 1977.14 Since Philtrust did not, respondent contends death, or within a like period after qualifying as such executor or
that petitioner Estate should not be allowed to profit from this administrator, shall give written notice thereof to the Commissioner of
omission.15 Respondent further argues that Philtrust’s failure to protest the Internal Revenue.
aforementioned assessment within the 30-day period provided in Section 319-A of
the NIRC of 1977 meant that the assessment had already become final, executory The foregoing provision falls in Title III, Chapter I of the National Internal
and incontestable.16 Revenue Code of 1977, or the chapter on Estate Tax, and pertains to "all
cases of transfers subject to tax" or where the "gross value of the estate
exceeds three thousand pesos". It has absolutely no applicability to a

29
case for deficiency income tax, such as the case at bar. It further lacks when penalties and interests begin to accrue against the taxpayer. To
applicability since Philtrust was never the executor, administrator of the enable the taxpayer to determine his remedies thereon, due process
decedent’s estate, and, as such, never had the legal obligation, based on requires that it must be served on and received by the taxpayer.
the above provision, to inform respondent of her death.
In Republic v. De le Rama,20 we clarified that, when an estate is under
Although the administrator of the estate may have been remiss in his administration, notice must be sent to the administrator of the estate, since it is the
legal obligation to inform respondent of the decedent’s death, the said administrator, as representative of the estate, who has the legal obligation to
consequences thereof, as provided in Section 119 of the National pay and discharge all debts of the estate and to perform all orders of the court. In
Internal Revenue Code of 1977, merely refer to the imposition of certain that case, legal notice of the assessment was sent to two heirs, neither one of
penal sanctions on the administrator. These do not include the indefinite whom had any authority to represent the estate. We said:
tolling of the prescriptive period for making deficiency tax assessments,
or the waiver of the notice requirement for such assessments. The notice was not sent to the taxpayer for the purpose of giving effect to
the assessment, and said notice could not produce any effect. In the
Thus, as of November 18, 1982, the date of the demand letter and case of Bautista and Corrales Tan v. Collector of Internal Revenue …
Assessment Notice No. NARD-78-82-00501, there was absolutely no this Court had occasion to state that "the assessment is deemed made
legal obligation on the part of Philtrust to either (1) respond to the when the notice to this effect is released, mailed or sent to the taxpayer
demand letter and assessment notice, (2) inform respondent of the for the purpose of giving effect to said assessment." It appearing that the
decedent’s death, or (3) inform petitioner that it had received said person liable for the payment of the tax did not receive the assessment,
demand letter and assessment notice. This lack of legal obligation was the assessment could not become final and executory. (Citations
implicitly recognized by the Court of Appeals, which, in fact, rendered its omitted, emphasis supplied.)
assailed decision on grounds of "equity".17
In this case, the assessment was served not even on an heir of the Estate, but on
Since there was never any valid notice of this assessment, it could not have a completely disinterested third party. This improper service was clearly not
become final, executory and incontestable, and, for failure to make the binding on the petitioner.
assessment within the five-year period provided in Section 318 of the National
Internal Revenue Code of 1977, respondent’s claim against the petitioner Estate By arguing that (1) the demand letter and assessment notice were served on
is barred. Said Section 18 reads: Philtrust, (2) Philtrust was remiss in its obligation to respond to the demand letter
and assessment notice, (3) Philtrust was remiss in its obligation to inform
SEC. 318. Period of limitation upon assessment and collection. – Except respondent of the decedent’s death, and (4) the assessment notice is therefore
as provided in the succeeding section, internal revenue taxes shall be binding on the Estate, respondent is arguing in circles. The most crucial point to
assessed within five years after the return was filed, and no proceeding be remembered is that Philtrust had absolutely no legal relationship to the
in court without assessment for the collection of such taxes shall be deceased, or to her Estate. There was therefore no assessment served on the
begun after the expiration of such period. For the purpose of this section, Estate as to the alleged underpayment of tax. Absent this assessment, no
a return filed before the last day prescribed by law for the filing thereof proceedings could be initiated in court for the collection of said tax, 21 and
shall be considered as filed on such last day: Provided, That this respondent’s claim for collection, filed with the probate court only on November
limitation shall not apply to cases already investigated prior to the 22, 1984, was barred for having been made beyond the five-year prescriptive
approval of this Code. period set by law.
Respondent argues that an assessment is deemed made for the purpose of giving WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in
effect to such assessment when the notice is released, mailed or sent to the CA-G.R. CV No. 09107, dated September 30, 2002, is REVERSED and SET
taxpayer to effectuate the assessment, and there is no legal requirement that the ASIDE. The Order of the Regional Trial Court of Manila, Branch XXXVIII, in Sp.
taxpayer actually receive said notice within the five-year period.18 It must be Proc. No. R-82-6994, dated November 19, 1985, which denied the claim of the
noted, however, that the foregoing rule requires that the notice be sent to the Bureau of Internal Revenue against the Estate of Juliana Diez Vda. De Gabriel for
taxpayer, and not merely to a disinterested party. Although there is no specific the deficiency income tax of the decedent for the year 1977 in the amount of
requirement that the taxpayer should receive the notice within the said period, due P318,223.93, is AFFIRMED.
process requires at the very least that such notice actually be received. In
Commissioner of Internal Revenue v. Pascor Realty and Development No pronouncement as to costs.
Corporation,19 we had occasion to say: SO ORDERED.
An assessment contains not only a computation of tax liabilities, but also Davide, Jr., C.J., (Chairman), Panganiban, and Carpio, JJ., concur.
a demand for payment within a prescribed period. It also signals the time Azcuna, J., on official leave.

30
31
G.R. No. L-22734 September 15, 1967 Add: 5% surcharge 88.98
COMMISSIONER OF INTERNAL REVENUE, petitioner,
1% monthly interest from November 30, 1953 to
vs.
April 15, 1957 720.77
MANUEL B. PINEDA, as one of the heirs of deceased ATANASIO
PINEDA, respondent. Compromise for late filing 80.00
Taxation; Income tax; Liability of an heir for tax.—An heir is liable for the
assessment as an heir and as a holder-transferee of property belonging to the Compromise for late payment 40.00
estate/taxpayer. As an heir, he is individually answerable for the part of the tax
proportionate to the share he received from the inheritance. His liability, however,
cannot exceed the amount of his share (Art. 1311, Civil Code). As a holder of the Total amount due P2,707.44
property belonging to the estate, he is liable for the tax up to the amount of the ===========
property in his possession. The reason is that the Government has a lien on such
property. But after payment of such amount, he will have a right to contribution P14.50
2. Additional residence tax for 1945
from his co-heirs. ===========
Same; Ways available to government to collect the tax.—The Government 3. Real Estate dealer's tax for the fourth quarter of 1946 P207.50
has two ways of collecting the taxes in question. One, by going after all the heirs and the whole year of 1947 ===========
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 Manuel B. Pineda, who received the assessment, contested the same.
of the Tax Code upon all property and rights to property belong to the taxpayer for Subsequently, he appealed to the Court of Tax Appeals alleging that he was
unpaid income tax, is by subjecting said property of the estate which is in the appealing "only that proportionate part or portion pertaining to him as one of the
hands of an heir or transferee to the payment of the tax due the estate. heirs."
Same; Taxes are the lifeblood of the government.—Taxes are the lifeblood After hearing the parties, the Court of Tax Appeals rendered judgment reversing
of government and their prompt and certain availability is an imperious need. the decision of the Commissioner on the ground that his right to assess and
collect the tax has prescribed. The Commissioner appealed and this Court
BENGZON, J.P., J.:
affirmed the findings of the Tax Court in respect to the assessment for income tax
On May 23, 1945 Atanasio Pineda died, survived by his wife, Felicisima Bagtas, for the year 1947 but held that the right to assess and collect the taxes for 1945
and 15 children, the eldest of whom is Manuel B. Pineda, a lawyer. Estate and 1946 has not prescribed. For 1945 and 1946 the returns were filed on August
proceedings were had in the Court of First Instance of Manila (Case No. 71129) 24, 1953; assessments for both taxable years were made within five years
wherein the surviving widow was appointed administratrix. The estate was divided therefrom or on October 19, 1953; and the action to collect the tax was filed within
among and awarded to the heirs and the proceedings terminated on June 8, 1948. five years from the latter date, on August 7, 1957. For taxable year 1947,
Manuel B. Pineda's share amounted to about P2,500.00. however, the return was filed on March 1, 1948; the assessment was made on
October 19, 1953, more than five years from the date the return was filed; hence,
After the estate proceedings were closed, the Bureau of Internal Revenue the right to assess income tax for 1947 had prescribed. Accordingly, We
investigated the income tax liability of the estate for the years 1945, 1946, 1947 remanded the case to the Tax Court for further appropriate proceedings. 1
and 1948 and it found that the corresponding income tax returns were not filed.
Thereupon, the representative of the Collector of Internal Revenue filed said In the Tax Court, the parties submitted the case for decision without additional
returns for the estate on the basis of information and data obtained from the evidence.
aforesaid estate proceedings and issued an assessment for the following: On November 29, 1963 the Court of Tax Appeals rendered judgment holding
1. Deficiency income tax Manuel B. Pineda liable for the payment corresponding to his share of the
following taxes:
1945 P135.83 Deficiency income tax
1946 436.95
P135.8
1945
1947 1,206.91 P1,779.69 3

32
1946 436.95 Government filed an action against all the heirs for the collection of the tax. This
action rests on the concept that hereditary property consists only of that part
which remains after the settlement of all lawful claims against the estate, for the
Real estate dealer's fixed tax 4th quarter of
settlement of which the entire estate is first liable. 6 The reason why in case suit is
1946 and whole year of 1947 P187.50 filed against all the heirs the tax due from the estate is levied proportionately
The Commissioner of Internal Revenue has appealed to Us and has proposed to against them is to achieve thereby two results: first, payment of the tax; and
hold Manuel B. Pineda liable for the payment of all the taxes found by the Tax second, adjustment of the shares of each heir in the distributed estate
Court to be due from the estate in the total amount of P760.28 instead of only for as lessened by the tax.
the amount of taxes corresponding to his share in the estate.1awphîl.nèt Another remedy, pursuant to the lien created by Section 315 of the Tax Code
Manuel B. Pineda opposes the proposition on the ground that as an heir he is upon all property and rights to property belonging to the taxpayer for unpaid
liable for unpaid income tax due the estate only up to the extent of and in income tax, is by subjecting said property of the estate which is in the hands of an
proportion to any share he received. He relies on Government of the Philippine heir or transferee to the payment of the tax due, the estate. This second remedy is
Islands v. Pamintuan2 where We held that "after the partition of an estate, heirs the very avenue the Government took in this case to collect the tax. The Bureau of
and distributees are liable individually for the payment of all lawful outstanding Internal Revenue should be given, in instances like the case at bar, the necessary
claims against the estate in proportion to the amount or value of the property they discretion to avail itself of the most expeditious way to collect the tax as may be
have respectively received from the estate." envisioned in the particular provision of the Tax Code above quoted, because
taxes are the lifeblood of government and their prompt and certain availability is
We hold that the Government can require Manuel B. Pineda to pay the full amount an imperious need.7 And as afore-stated in this case the suit seeks to achieve
of the taxes assessed. only one objective: payment of the tax. The adjustment of the respective shares
due to the heirs from the inheritance, as lessened by the tax, is left to await the
Pineda is liable for the assessment as an heir and as a holder-transferee of
suit for contribution by the heir from whom the Government recovered said tax.
property belonging to the estate/taxpayer. As an heir he is individually answerable
for the part of the tax proportionate to the share he received from the WHEREFORE, the decision appealed from is modified. Manuel B. Pineda is
inheritance.3 His liability, however, cannot exceed the amount of his share. 4 hereby ordered to pay to the Commissioner of Internal Revenue the sum of
P760.28 as deficiency income tax for 1945 and 1946, and real estate dealer's
As a holder of property belonging to the estate, Pineda is liable for he tax up to the
fixed tax for the fourth quarter of 1946 and for the whole year 1947, without
amount of the property in his possession. The reason is that the Government has
prejudice to his right of contribution for his co-heirs. No costs. So ordered.
a lien on the P2,500.00 received by him from the estate as his share in the
inheritance, for unpaid income taxes 4a for which said estate is liable, pursuant to Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro,
the last paragraph of Section 315 of the Tax Code, which we quote hereunder: Angeles and Fernando, JJ., concur.
If any person, corporation, partnership, joint-account (cuenta en
participacion), association, or insurance company liable to pay the
income tax, neglects or refuses to pay the same after demand, the
amount shall be a lien in favor of the Government of the Philippines from
the time when the assessment was made by the Commissioner of
Internal Revenue until paid with interest, penalties, and costs that may
accrue in addition thereto upon all property and rights to property
belonging to the taxpayer: . . .
By virtue of such lien, the Government has the right to subject the property in
Pineda's possession, i.e., the P2,500.00, to satisfy the income tax assessment in
the sum of P760.28. After such payment, Pineda will have a right of contribution
from his co-heirs,5 to achieve an adjustment of the proper share of each heir in the
distributable estate.
All told, the Government has two ways of collecting the tax in question. One, by
going after all the heirs and collecting from each one of them the amount of the
tax proportionate to the inheritance received. This remedy was adopted
in Government of the Philippine Islands v. Pamintuan, supra. In said case, the

33
G.R. No. 120880 June 5, 1997 Same; Same; Same; Same; The approval of the court, sitting in probate, or
as a settlement tribunal over the deceased is not a mandatory requirement in the
FERDINAND R. MARCOS II, petitioner, collection of estate taxes.—From the foregoing, it is discernible that the approval
vs. of the court, sitting in probate, or as a settlement tribunal over the deceased is not
COURT OF APPEALS, THE COMMISSIONER OF THE BUREAU OF
a mandatory requirement in the collection of estate taxes. It cannot therefore be
INTERNAL REVENUE and HERMINIA D. DE GUZMAN, respondents.
argued that the Tax Bureau erred in proceeding with the levying and sale of the
Taxation; Due Process; While taxes are the lifeblood of the government and properties allegedly owned by the late President, on the ground that it was
should be collected without unnecessary hindrance, such collection should be required to seek first the probate court’s sanction. There is nothing in the Tax
made in accordance with law as any arbitrariness will negate the very reason for Code, and in the pertinent remedial laws that implies the necessity of the probate
government itself.—It has been repeatedly observed, and not without merit, that or estate settlement court’s approval of the state’s claim for estate taxes, before
the enforcement of tax laws and the collection of taxes, is of paramount the same can be enforced and collected.
importance for the sustenance of government. Taxes are the lifeblood of the Same; The deficiency tax assessment, if it has already become final,
government and should be collected without unnecessary hindrance. However, executory, and demandable, may be collected through the summary remedy of
such collection should be made in accordance with law as any arbitrariness will distraint or levy pursuant to Section 205 of the NIRC.—We hold otherwise. The
negate the very reason for government itself. It is therefore necessary to reconcile Notices of Levy upon real property were issued within the prescriptive period and
the apparently conflicting in terests of the authorities and the taxpayers so that the in accordance with the provisions of the present Tax Code. The deficiency tax
real purpose of taxation, which is the promotion of the common good, may be assessment, having already become final, executory, and demandable, the same
achieved. can now be collected through the summary remedy of distraint or levy pursuant to
Same; Courts; Probate Courts; Jurisdiction; The authority of the Regional Section 205 of the NIRC.
Trial Court, sitting, albeit with limited jurisdiction, as a probate court over the Same; Estates Taxes; The omission to file an estate tax return, and the
estate of a deceased individual, is not a trifling thing, but the court’s jurisdiction, subsequent failure to contest or appeal the assessment made by the BIR is fatal,
once invoked, and made effective, cannot be treated with indifference nor should as under Section 223 of the NIRC, in case of failure to file a return, the tax may be
it be ignored with impunity by the very parties invoking its authority.—Concededly, assessed at any time within ten years after the omission, and any tax so assessed
the authority of the Regional Trial Court, sitting, albeit with limited jurisdiction, as a may be collected by levy upon real property within three years following the
probate court over estate of deceased individual, is not a trifling thing. The court’s assessment of the tax.—The omission to file an estate tax return, and the
jurisdiction, once invoked, and made effective, cannot be treated with indifference subsequent failure to contest or appeal the assessment made by the BIR is fatal
nor should it be ignored with impunity by the very parties invoking its authority. In to the petitioner’s cause, as under the above-cited provision, in case of failure to
testament to this, it has been held that it is within the jurisdiction of the probate file a return, the tax may be assessed at any time within ten years after the
court to approve the sale of properties of a deceased person by his prospective omission, and any tax so assessed may be collected by levy upon real property
heirs before final adjudication; to determine who are the heirs of the decedent; the within three years following the assessment of the tax. Since the estate tax
recognition of a natural child; the status of a woman claiming to be the legal wife assessment had become final and unappealable by the petitioner’s default as
of the decedent; the legality of disinheritance of an heir by the testator; and to regards protesting the validity of the said assessment, there is now no reason why
pass upon the validity of a waiver of hereditary rights. the BIR cannot continue with the collection of the said tax. Any objection against
Same; Same; Same; Same; Separation of Powers; In the Philippine the assessment should have been pursued following the avenue paved in Section
experience, the enforcement and collection of estate tax is executive in nature.— 229 of the NIRC on protests on assessments of internal revenue taxes.
In the Philippine experience, the enforcement and collection of estate tax, is Same; Same; Ill-Gotten Wealth; The mere fact that the decedent has
executive in character, as the legislature has seen it fit to ascribe this task to the pending cases involving ill-gotten wealth does not affect the enforcement of tax
Bureau of Internal Revenue. Section 3 of the National Internal Revenue Code assessments over the properties indubitably included in his estate.—Petitioner
attests to this: “Sec. 3. Powers and duties of the Bureau.—The powers and duties further argues that “the numerous pending court cases questioning the late
of the Bureau of Internal Revenue shall comprehend the assessment and president’s ownership or interests in several properties (both real and personal)
collection of all national internal revenue taxes, fees, and charges, and the make the total value of his estate, and the consequent estate tax due, incapable
enforcement of all forfeitures, penalties, and fines connected therewith, including of exact pecuniary determination at this time. Thus, respondents’ assessment of
the execution of judgments in all cases decided in its favor by the Court of Tax the estate tax and their issuance of the Notices of Levy and sale are premature
Appeals and the ordinary courts. Said Bureau shall also give effect to and and oppressive.” He points out the pendency of Sandiganbayan Civil Case Nos.
administer the supervisory and police power conferred to it by this Code or other 0001-0034 and 0141, which were filed by the government to question the
laws.” ownership and interests of the late President in real and personal properties
located within and outside the Philippines. Petitioner, however, omits to allege

34
whether the properties levied upon by the BIR in the collection of estate taxes the case of notices of levy issued to satisfy the delinquent estate tax, the
upon the decedent’s estate were among those involved in the said cases pending delinquent taxpayer is the Estate of the decedent, and not necessarily, and
in the Sandiganbayan. Indeed, the court is at a loss as to how these cases are exclusively, the petitioner as heir of the deceased. In the same vein, in the matter
relevant to the matter at issue. The mere fact that the decedent has pending of income tax delinquency of the late president and his spouse, petitioner is not
cases involving ill-gotten wealth does not affect the enforcement of tax the taxpayer liable. Thus, it follows that service of notices of levy in satisfaction of
assessments over the properties indubitably included in his estate. these tax delinquencies upon the petitioner is not required by law, as under
Section 213 of the NIRC, which pertinently states: “x x x . . . Levy shall be effected
Same; Same; It is not the Department of Justice which is the government
by writing upon said certificate a description of the property upon which levy is
agency tasked to determine the amount of taxes due upon the estate but the made. At the same time, written notice of the levy shall be mailed to or served
Bureau of Internal Revenue, whose determinations and assessments are upon the Register of Deeds of the province or city where the property is located
presumed correct and made in good faith.—It is not the Department of Justice and upon the delinquent taxpayer, or if he be absent from the Philippines, to his
which is the government agency tasked to determine the amount of taxes due agent or the manager of the business in respect to which the liability arose, or if
upon the subject estate, but the Bureau of Internal Revenue, whose there be none, to the occupant of the property in question. x x x”
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 Due Process; Equity; Where there was an opportunity to raise objections to
irregularities in the performance of official duties, an assessment will not be government action, and such opportunity was disregarded, for no justifiable
disturbed. reason, the party claiming oppression then becomes the oppressor of the orderly
functions of the government; He who comes to court must come with clean hands,
Same; Same; Even an assessment based on estimates is prima facie valid otherwise he not only taints his name, but ridicules the very structure of
and lawful where it does not appear to have been arrived at arbitrarily or established authority.—The foregoing notwithstanding, the record shows that
capriciously.—Even an assessment based on estimates is prima facie valid and
notices of warrants of distraint and levy of sale were furnished the counsel of
lawful where it does not appear to have been arrived at arbitrarily or capriciously. petitioner on April 7, 1993, and June 10, 1993, and the petitioner himself on April
The burden of proof is upon the complaining party to show clearly that the 12, 1993 at his office at the Batasang Pambansa. We cannot therefore,
assessment is erroneous. Failure to present proof of error in the assessment will countenance petitioner’s insistence that he was denied due process. Where there
justify the judicial affirmance of said assessment. In this instance, petitioner has was an opportunity to raise objections to government action, and such opportunity
not pointed out one single provision in the Memorandum of the Special Audit was disregarded, for no justifiable reason, the party claiming oppression then
Team which gave rise to the questioned assessment, which bears a trace of becomes the oppressor of the orderly functions of government. He who comes to
falsity. Indeed, the petitioner’s attack on the assessment bears mainly on the court must come with clean hands. Otherwise, he not only taints his name, but
alleged improbable and unconscionable amount of the taxes charged. But mere ridicules the very structure of established authority.
rhetoric cannot supply the basis for the charge of impropriety of the assessments
made. TORRES, JR., J.:
Same; Same; Actions; Certiorari; Objections to assessments should be In this Petition for Review on Certiorari, Government action is once again assailed
raised by means of the ample remedies afforded the taxpayer by the Tax Code, as precipitate and unfair, suffering the basic and oftly implored requisites of due
with the Bureau of Internal Revenue and the Court of Tax Appeals, and not via a process of law. Specifically, the petition assails the Decision 1of the Court of
Petition for Certiorari, under the pretext of grave abuse of discretion.—Moreover, Appeals dated November 29, 1994 in CA-G.R. SP No. 31363, where the said
these objections to the assessments should have been raised, considering the court held:
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 In view of all the foregoing, we rule that the deficiency income tax
be raised now via Petition for Certiorari, under the pretext of grave abuse of assessments and estate tax assessment, are already final and
discretion. The course of action taken by the petitioner reflects his disregard or (u)nappealable-and-the subsequent levy of real properties is a tax
even repugnance of the established institutions for governance in the scheme of a remedy resorted to by the government, sanctioned by Section 213 and
well-ordered society. The subject tax assessments having become final, executory 218 of the National Internal Revenue Code. This summary tax remedy is
and enforceable, the same can no longer be contested by means of a disguised distinct and separate from the other tax remedies (such as Judicial Civil
protest. In the main, Certiorari may not be used as a substitute for a lost appeal or actions and Criminal actions), and is not affected or precluded by the
remedy. This judicial policy becomes more pronounced in view of the absence of pendency of any other tax remedies instituted by the government.
sufficient attack against the actuations of government. WHEREFORE, premises considered, judgment is hereby rendered
Same; Same; Parties; In the case of notices of levy issued to satisfy the DISMISSING the petition for certiorari with prayer for Restraining Order
delinquent estate tax, the delinquent taxpayer is the Estate of the decedent, and and Injunction.
not necessarily, and exclusively, the heirs of the deceased.—We do not agree. In

35
No pronouncements as to costs. ESTATE IN CUSTODIA LEGIS OF THE PROBATE COURT TO THE
EXCLUSION OF ALL OTHER COURTS AND ADMINISTRATIVE
SO ORDERED. AGENCIES.
More than seven years since the demise of the late Ferdinand E. Marcos, the B. RESPONDENT COURT ARBITRARILY ERRED IN SWEEPINGLY
former President of the Republic of the Philippines, the matter of the settlement of DECIDING THAT SINCE THE TAX ASSESSMENTS OF PETITIONER
his estate, and its dues to the government in estate taxes, are still unresolved, the AND HIS PARENTS HAD ALREADY BECOME FINAL AND
latter issue being now before this Court for resolution. Specifically, petitioner UNAPPEALABLE, THERE WAS NO NEED TO GO INTO THE MERITS
Ferdinand R. Marcos II, the eldest son of the decedent, questions the actuations OF THE GROUNDS CITED IN THE PETITION. INDEPENDENT OF
of the respondent Commissioner of Internal Revenue in assessing, and collecting WHETHER THE TAX ASSESSMENTS HAD ALREADY BECOME
through the summary remedy of Levy on Real Properties, estate and income tax FINAL, HOWEVER, PETITIONER HAS THE RIGHT TO QUESTION
delinquencies upon the estate and properties of his father, despite the pendency THE UNLAWFUL MANNER AND METHOD IN WHICH TAX
of the proceedings on probate of the will of the late president, which is docketed COLLECTION IS SOUGHT TO BE ENFORCED BY RESPONDENTS
as Sp. Proc. No. 10279 in the Regional Trial Court of Pasig, Branch 156. COMMISSIONER AND DE GUZMAN. THUS, RESPONDENT COURT
Petitioner had filed with the respondent Court of Appeals a Petition SHOULD HAVE FAVORABLY CONSIDERED THE MERITS OF THE
for Certiorari and Prohibition with an application for writ of preliminary injunction FOLLOWING GROUNDS IN THE PETITION:
and/or temporary restraining order on June 28, 1993, seeking to — (1) The Notices of Levy on Real Property were issued beyond
I. Annul and set aside the Notices of Levy on real property dated the period provided in the Revenue Memorandum Circular No.
February 22, 1993 and May 20, 1993, issued by respondent 38-68.
Commissioner of Internal Revenue; (2) [a] The numerous pending court cases questioning the late
II. Annul and set aside the Notices of Sale dated May 26, 1993; President's ownership or interests in several properties (both
personal and real) make the total value of his estate, and the
III. Enjoin the Head Revenue Executive Assistant Director II (Collection consequent estate tax due, incapable of exact pecuniary
Service), from proceeding with the Auction of the real properties covered determination at this time. Thus, respondents' assessment of
by Notices of Sale. the estate tax and their issuance of the Notices of Levy and
After the parties had pleaded their case, the Court of Appeals rendered its Sale are premature, confiscatory and oppressive.
Decision 2 on November 29, 1994, ruling that the deficiency assessments for [b] Petitioner, as one of the late President's compulsory heirs,
estate and income tax made upon the petitioner and the estate of the deceased was never notified, much less served with copies of the Notices
President Marcos have already become final and unappealable, and may thus be of Levy, contrary to the mandate of Section 213 of the NIRC. As
enforced by the summary remedy of levying upon the properties of the late such, petitioner was never given an opportunity to contest the
President, as was done by the respondent Commissioner of Internal Revenue. Notices in violation of his right to due process of law.
WHEREFORE, premises considered judgment is hereby rendered C. ON ACCOUNT OF THE CLEAR MERIT OF THE PETITION,
DISMISSING the petition for Certiorari with prayer for Restraining Order RESPONDENT COURT MANIFESTLY ERRED IN RULING THAT IT
and Injunction. HAD NO POWER TO GRANT INJUNCTIVE RELIEF TO PETITIONER.
No pronouncements as to cost. SECTION 219 OF THE NIRC NOTWITHSTANDING, COURTS
POSSESS THE POWER TO ISSUE A WRIT OF PRELIMINARY
SO ORDERED. INJUNCTION TO RESTRAIN RESPONDENTS COMMISSIONER'S AND
DE GUZMAN'S ARBITRARY METHOD OF COLLECTING THE
Unperturbed, petitioner is now before us assailing the validity of the appellate
ALLEGED DEFICIENCY ESTATE AND INCOME TAXES BY MEANS
court's decision, assigning the following as errors:
OF LEVY.
A. RESPONDENT COURT MANIFESTLY ERRED IN RULING THAT
The facts as found by the appellate court are undisputed, and are hereby adopted:
THE SUMMARY TAX REMEDIES RESORTED TO BY THE
GOVERNMENT ARE NOT AFFECTED AND PRECLUDED BY THE On September 29, 1989, former President Ferdinand Marcos died in
PENDENCY OF THE SPECIAL PROCEEDING FOR THE ALLOWANCE Honolulu, Hawaii, USA.
OF THE LATE PRESIDENT'S ALLEGED WILL. TO THE CONTRARY,
THIS PROBATE PROCEEDING PRECISELY PLACED ALL On June 27, 1990, a Special Tax Audit Team was created to conduct
PROPERTIES WHICH FORM PART OF THE LATE PRESIDENT'S investigations and examinations of the tax liabilities and obligations of the

36
late president, as well as that of his family, associates and "cronies". On February 22, 1993, the BIR Commissioner issued twenty-two notices
Said audit team concluded its investigation with a Memorandum dated of levy on real property against certain parcels of land owned by the
July 26, 1991. The investigation disclosed that the Marcoses failed to file Marcoses — to satisfy the alleged estate tax and deficiency income
a written notice of the death of the decedent, an estate tax returns [sic], taxes of Spouses Marcos.
as well as several income tax returns covering the years 1982 to 1986,
— all in violation of the National Internal Revenue Code (NIRC). On May 20, 1993, four more Notices of Levy on real property were
issued for the purpose of satisfying the deficiency income taxes.
Subsequently, criminal charges were filed against Mrs. Imelda R. Marcos
before the Regional Trial of Quezon City for violations of Sections 82, 83 On May 26, 1993, additional four (4) notices of Levy on real property
and 84 (has penalized under Sections 253 and 254 in relation to Section were again issued. The foregoing tax remedies were resorted to
252 — a & b) of the National Internal Revenue Code (NIRC). pursuant to Sections 205 and 213 of the National Internal Revenue Code
(NIRC).
The Commissioner of Internal Revenue thereby caused the preparation
and filing of the Estate Tax Return for the estate of the late president, the In response to a letter dated March 12, 1993 sent by Atty. Loreto Ata
Income Tax Returns of the Spouses Marcos for the years 1985 to 1986, (counsel of herein petitioner) calling the attention of the BIR and
and the Income Tax Returns of petitioner Ferdinand "Bongbong" Marcos requesting that they be duly notified of any action taken by the BIR
II for the years 1982 to 1985. affecting the interest of their client Ferdinand "Bongbong" Marcos II, as
well as the interest of the late president — copies of the aforesaid notices
On July 26, 1991, the BIR issued the following: (1) Deficiency estate tax were, served on April 7, 1993 and on June 10, 1993, upon Mrs. Imelda
assessment no. FAC-2-89-91-002464 (against the estate of the late Marcos, the petitioner, and their counsel of record, "De Borja, Medialdea,
president Ferdinand Marcos in the amount of P23,293,607,638.00 Ata, Bello, Guevarra and Serapio Law Office".
Pesos); (2) Deficiency income tax assessment no. FAC-1-85-91-002452
and Deficiency income tax assessment no. FAC-1-86-91-002451 Notices of sale at public auction were posted on May 26, 1993, at the
(against the Spouses Ferdinand and Imelda Marcos in the amounts of lobby of the City Hall of Tacloban City. The public auction for the sale of
P149,551.70 and P184,009,737.40 representing deficiency income tax the eleven (11) parcels of land took place on July 5, 1993. There being
for the years 1985 and 1986); (3) Deficiency income tax assessment nos. no bidder, the lots were declared forfeited in favor of the government.
FAC-1-82-91-002460 to FAC-1-85-91-002463 (against petitioner On June 25, 1993, petitioner Ferdinand "Bongbong" Marcos II filed the
Ferdinand "Bongbong" Marcos II in the amounts of P258.70 pesos; instant petition for certiorari and prohibition under Rule 65 of the Rules of
P9,386.40 Pesos; P4,388.30 Pesos; and P6,376.60 Pesos representing Court, with prayer for temporary restraining order and/or writ of
his deficiency income taxes for the years 1982 to 1985). preliminary injunction.
The Commissioner of Internal Revenue avers that copies of the It has been repeatedly observed, and not without merit, that the enforcement of
deficiency estate and income tax assessments were all personally and tax laws and the collection of taxes, is of paramount importance for the
constructively served on August 26, 1991 and September 12, 1991 upon sustenance of government. Taxes are the lifeblood of the government and should
Mrs. Imelda Marcos (through her caretaker Mr. Martinez) at her last be collected without unnecessary hindrance. However, such collection should be
known address at No. 204 Ortega St., San Juan, M.M. (Annexes "D" and made in accordance with law as any arbitrariness will negate the very reason for
"E" of the Petition). Likewise, copies of the deficiency tax assessments government itself. It is therefore necessary to reconcile the apparently conflicting
issued against petitioner Ferdinand "Bongbong" Marcos II were also interests of the authorities and the taxpayers so that the real purpose of taxation,
personally and constructively served upon him (through his caretaker) on which is the promotion of the common good, may be achieved. 3
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 Whether or not the proper avenues of assessment and collection of the said tax
Petition). Thereafter, Formal Assessment notices were served on obligations were taken by the respondent Bureau is now the subject of the Court's
October 20, 1992, upon Mrs. Marcos c/o petitioner, at his office, House inquiry.
of Representatives, Batasan Pambansa, Quezon City. Moreover, a Petitioner posits that notices of levy, notices of sale, and subsequent sale of
notice to Taxpayer inviting Mrs. Marcos (or her duly authorized properties of the late President Marcos effected by the BIR are null and void for
representative or counsel), to a conference, was furnished the counsel of disregarding the established procedure for the enforcement of taxes due upon the
Mrs. Marcos, Dean Antonio Coronel — but to no avail. estate of the deceased. The case of Domingo vs. Garlitos 4 is specifically cited to
The deficiency tax assessments were not protested administratively, by bolster the argument that "the ordinary procedure by which to settle claims of
Mrs. Marcos and the other heirs of the late president, within 30 days from indebtedness against the estate of a deceased, person, as in an inheritance
service of said assessments. (estate) tax, is for the claimant to present a claim before the probate court so that

37
said court may order the administrator to pay the amount therefor." This remedy is decedent; 6 the recognition of a natural child; 7 the status of a woman claiming to
allegedly, exclusive, and cannot be effected through any other means. 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
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 The pivotal question the court is tasked to resolve refers to the authority of the
should order the payment of the same only within the period fixed by the probate Bureau of Internal Revenue to collect by the summary remedy of levying upon,
court for the payment of all the debts of the decedent. In this regard, petitioner and sale of real properties of the decedent, estate tax deficiencies, without the
cites the case of Collector of Internal Revenue vs. The Administratrix of the Estate cognition and authority of the court sitting in probate over the supposed will of the
of Echarri (67 Phil 502), where it was held that: deceased.
The case of Pineda vs. Court of First Instance of Tayabas and Collector The nature of the process of estate tax collection has been described as follows:
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 Strictly speaking, the assessment of an inheritance tax does not directly
administration proceedings has jurisdiction to entertain the claim involve the administration of a decedent's estate, although it may be
presented by the government for taxes due and to order the viewed as an incident to the complete settlement of an estate, and, under
administrator to pay the tax should it find that the assessment was some statutes, it is made the duty of the probate court to make the
proper, and that the tax was legal, due and collectible. And the rule laid amount of the inheritance tax a part of the final decree of distribution of
down in that case must be understood in relation to the case of Collector the estate. It is not against the property of decedent, nor is it a claim
of Customs vs. Haygood, supra., as to the procedure to be followed in a against the estate as such, but it is against the interest or property right
given case by the government to effectuate the collection of the tax. which the heir, legatee, devisee, etc., has in the property formerly held by
Categorically stated, where during the pendency of judicial administration decedent. Further, under some statutes, it has been held that it is not a
over the estate of a deceased person a claim for taxes is presented by suit or controversy between the parties, nor is it an adversary proceeding
the government, the court has the authority to order payment by the between the state and the person who owes the tax on the inheritance.
administrator; but, in the same way that it has authority to order payment However, under other statutes it has been held that the hearing and
or satisfaction, it also has the negative authority to deny the same. While determination of the cash value of the assets and the determination of
there are cases where courts are required to perform certain duties the tax are adversary proceedings. The proceeding has been held to be
mandatory and ministerial in character, the function of the court in a case necessarily a proceeding in rem. 11
of the present character is not one of them; and here, the court cannot be In the Philippine experience, the enforcement and collection of estate tax, is
an organism endowed with latitude of judgment in one direction, and executive in character, as the legislature has seen it fit to ascribe this task to the
converted into a mere mechanical contrivance in another direction. Bureau of Internal Revenue. Section 3 of the National Internal Revenue Code
On the other hand, it is argued by the BIR, that the state's authority to collect attests to this:
internal revenue taxes is paramount. Thus, the pendency of probate proceedings Sec. 3. Powers and duties of the Bureau. — The powers and duties of
over the estate of the deceased does not preclude the assessment and collection, the Bureau of Internal Revenue shall comprehend the assessment and
through summary remedies, of estate taxes over the same. According to the collection of all national internal revenue taxes, fees, and charges, and
respondent, claims for payment of estate and income taxes due and assessed the enforcement of all forfeitures, penalties, and fines connected
after the death of the decedent need not be presented in the form of a claim therewith, including the execution of judgments in all cases decided in its
against the estate. These can and should be paid immediately. The probate court favor by the Court of Tax Appeals and the ordinary courts. Said Bureau
is not the government agency to decide whether an estate is liable for payment of shall also give effect to and administer the supervisory and police power
estate of income taxes. Well-settled is the rule that the probate court is a court conferred to it by this Code or other laws.
with special and limited jurisdiction.
Thus, it was in Vera vs. Fernandez 12 that the court recognized the liberal
Concededly, the authority of the Regional Trial Court, sitting, albeit with limited treatment of claims for taxes charged against the estate of the decedent. Such
jurisdiction, as a probate court over estate of deceased individual, is not a trifling taxes, we said, were exempted from the application of the statute of non-claims,
thing. The court's jurisdiction, once invoked, and made effective, cannot be and this is justified by the necessity of government funding, immortalized in the
treated with indifference nor should it be ignored with impunity by the very parties maxim that taxes are the lifeblood of the government. Vectigalia nervi sunt rei
invoking its authority. publicae — taxes are the sinews of the state.
In testament to this, it has been held that it is within the jurisdiction of the probate Taxes assessed against the estate of a deceased person, after
court to approve the sale of properties of a deceased person by his prospective administration is opened, need not be submitted to the committee on
heirs before final adjudication; 5 to determine who are the heirs of the claims in the ordinary course of administration. In the exercise of its

38
control over the administrator, the court may direct the payment of such the taxpayer shall be required to respond to said notice. If the taxpayer
taxes upon motion showing that the taxes have been assessed against fails to respond, the Commissioner shall issue an assessment based on
the estate. his findings.
Such liberal treatment of internal revenue taxes in the probate proceedings Such assessment may be protested administratively by filing a request
extends so far, even to allowing the enforcement of tax obligations against the for reconsideration or reinvestigation in such form and manner as may be
heirs of the decedent, even after distribution of the estate's properties. prescribed by implementing regulations within (30) days from receipt of
the assessment; otherwise, the assessment shall become final and
Claims for taxes, whether assessed before or after the death of the unappealable.
deceased, can be collected from the heirs even after the distribution of
the properties of the decedent. They are exempted from the application If the protest is denied in whole or in part, the individual, association or
of the statute of non-claims. The heirs shall be liable therefor, in corporation adversely affected by the decision on the protest may appeal
proportion to their share in the inheritance. 13 to the Court of Tax Appeals within thirty (30) days from receipt of said
decision; otherwise, the decision shall become final, executory and
Thus, the Government has two ways of collecting the taxes in question. demandable. (As inserted by P.D. 1773)
One, by going after all the heirs and collecting from each one of them the
amount of the tax proportionate to the inheritance received. Another Apart from failing to file the required estate tax return within the time required for
remedy, pursuant to the lien created by Section 315 of the Tax Code the filing of the same, petitioner, and the other heirs never questioned the
upon all property and rights to property belong to the taxpayer for unpaid assessments served upon them, allowing the same to lapse into finality, and
income tax, is by subjecting said property of the estate which is in the prompting the BIR to collect the said taxes by levying upon the properties left by
hands of an heir or transferee to the payment of the tax due the estate. President Marcos.
(Commissioner of Internal Revenue vs. Pineda, 21 SCRA 105,
September 15, 1967.) Petitioner submits, however, that "while the assessment of taxes may have been
validly undertaken by the Government, collection thereof may have been done in
From the foregoing, it is discernible that the approval of the court, sitting in violation of the law. Thus, the manner and method in which the latter is enforced
probate, or as a settlement tribunal over the deceased is not a mandatory may be questioned separately, and irrespective of the finality of the former,
requirement in the collection of estate taxes. It cannot therefore be argued that the because the Government does not have the unbridled discretion to enforce
Tax Bureau erred in proceeding with the levying and sale of the properties collection without regard to the clear provision of law." 14
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 Petitioner specifically points out that applying Memorandum Circular No. 38-68,
pertinent remedial laws that implies the necessity of the probate or estate implementing Sections 318 and 324 of the old tax code (Republic Act 5203), the
settlement court's approval of the state's claim for estate taxes, before the same BIR's Notices of Levy on the Marcos properties, were issued beyond the allowed
can be enforced and collected. period, and are therefore null and void:

On the contrary, under Section 87 of the NIRC, it is the probate or settlement . . . the Notices of Levy on Real Property (Annexes O to NN of Annex C
court which is bidden not to authorize the executor or judicial administrator of the of this Petition) in satisfaction of said assessments were still issued by
decedent's estate to deliver any distributive share to any party interested in the respondents well beyond the period mandated in Revenue Memorandum
estate, unless it is shown a Certification by the Commissioner of Internal Revenue Circular No. 38-68. These Notices of Levy were issued only on 22
that the estate taxes have been paid. This provision disproves the petitioner's February 1993 and 20 May 1993 when at least seventeen (17) months
contention that it is the probate court which approves the assessment and had already lapsed from the last service of tax assessment on 12
collection of the estate tax. September 1991. As no notices of distraint of personal property were first
issued by respondents, the latter should have complied with Revenue
If there is any issue as to the validity of the BIR's decision to assess the estate Memorandum Circular No. 38-68 and issued these Notices of Levy not
taxes, this should have been pursued through the proper administrative and earlier than three (3) months nor later than six (6) months from 12
judicial avenues provided for by law. September 1991. In accordance with the Circular, respondents only had
until 12 March 1992 (the last day of the sixth month) within which to issue
Section 229 of the NIRC tells us how: these Notices of Levy. The Notices of Levy, having been issued beyond
Sec. 229. Protesting of assessment. — When the Commissioner of the period allowed by law, are thus void and of no effect. 15
Internal Revenue or his duly authorized representative finds that proper We hold otherwise. The Notices of Levy upon real property were issued within the
taxes should be assessed, he shall first notify the taxpayer of his prescriptive period and in accordance with the provisions of the present Tax Code.
findings. Within a period to be prescribed by implementing regulations, The deficiency tax assessment, having already become final, executory, and

39
demandable, the same can now be collected through the summary remedy of pending cases involving ill-gotten wealth does not affect the enforcement of tax
distraint or levy pursuant to Section 205 of the NIRC. assessments over the properties indubitably included in his estate.
The applicable provision in regard to the prescriptive period for the assessment Petitioner also expresses his reservation as to the propriety of the BIR's total
and collection of tax deficiency in this instance is Article 223 of the NIRC, which assessment of P23,292,607,638.00, stating that this amount deviates from the
pertinently provides: 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
Sec. 223. Exceptions as to a period of limitation of assessment and part of the Government as to the total value of the estate of the late President.
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 This is, to our mind, the petitioner's last ditch effort to assail the assessment of
assessed, or a proceeding in court for the collection of such tax may be estate tax which had already become final and unappealable.
begun without assessment, at any time within ten (10) years after the
discovery of the falsity, fraud, or omission: Provided, That, in a fraud It is not the Department of Justice which is the government agency tasked to
assessment which has become final and executory, the fact of fraud shall determine the amount of taxes due upon the subject estate, but the Bureau of
be judicially taken cognizance of in the civil or criminal action for the Internal Revenue, 16 whose determinations and assessments are presumed
collection thereof. 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
xxx xxx xxx 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
(c) Any internal revenue tax which has been assessed within the period arbitrarily or capriciously. The burden of proof is upon the complaining party to
of limitation above prescribed, may be collected by distraint or levy or by show clearly that the assessment is erroneous. Failure to present proof of error in
a proceeding in court within three years following the assessment of the the assessment will justify the judicial affirmance of said assessment. 18 In this
tax. instance, petitioner has not pointed out one single provision in the Memorandum
xxx xxx xxx 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
The omission to file an estate tax return, and the subsequent failure to contest or mainly on the alleged improbable and unconscionable amount of the taxes
appeal the assessment made by the BIR is fatal to the petitioner's cause, as charged. But mere rhetoric cannot supply the basis for the charge of impropriety
under the above-cited provision, in case of failure to file a return, the tax may be of the assessments made.
assessed at any time within ten years after the omission, and any tax so assessed
may be collected by levy upon real property within three years following the Moreover, these objections to the assessments should have been raised,
assessment of the tax. Since the estate tax assessment had become final and considering the ample remedies afforded the taxpayer by the Tax Code, with the
unappealable by the petitioner's default as regards protesting the validity of the Bureau of Internal Revenue and the Court of Tax Appeals, as described earlier,
said assessment, there is now no reason why the BIR cannot continue with the and cannot be raised now via Petition for Certiorari, under the pretext of grave
collection of the said tax. Any objection against the assessment should have been abuse of discretion. The course of action taken by the petitioner reflects his
pursued following the avenue paved in Section 229 of the NIRC on protests on disregard or even repugnance of the established institutions for governance in the
assessments of internal revenue taxes. 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
Petitioner further argues that "the numerous pending court cases questioning the of a disguised protest. In the main, Certiorari may not be used as a substitute for a
late president's ownership or interests in several properties (both real and lost appeal or remedy. 19 This judicial policy becomes more pronounced in view of
personal) make the total value of his estate, and the consequent estate tax due, the absence of sufficient attack against the actuations of government.
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 On the matter of sufficiency of service of Notices of Assessment to the petitioner,
are premature and oppressive." He points out the pendency of Sandiganbayan we find the respondent appellate court's pronouncements sound and resilient to
Civil Case Nos. 0001-0034 and 0141, which were filed by the government to petitioner's attacks.
question the ownership and interests of the late President in real and personal Anent grounds 3(b) and (B) — both alleging/claiming lack of notice —
properties located within and outside the Philippines. Petitioner, however, omits to We find, after considering the facts and circumstances, as well as
allege whether the properties levied upon by the BIR in the collection of estate evidences, that there was sufficient, constructive and/or actual notice of
taxes upon the decedent's estate were among those involved in the said cases assessments, levy and sale, sent to herein petitioner Ferdinand
pending in the Sandiganbayan. Indeed, the court is at a loss as to how these "Bongbong" Marcos as well as to his mother Mrs. Imelda Marcos.
cases are relevant to the matter at issue. The mere fact that the decedent has

40
Even if we are to rule out the notices of assessments personally given to province or city where the property is located and upon the delinquent
the caretaker of Mrs. Marcos at the latter's last known address, on taxpayer, or if he be absent from the Philippines, to his agent or the
August 26, 1991 and September 12, 1991, as well as the notices of manager of the business in respect to which the liability arose, or if there
assessment personally given to the caretaker of petitioner also at his last be none, to the occupant of the property in question.
known address on September 12, 1991 — the subsequent notices given
thereafter could no longer be ignored as they were sent at a time when xxx xxx xxx
petitioner was already here in the Philippines, and at a place where said The foregoing notwithstanding, the record shows that notices of warrants of
notices would surely be called to petitioner's attention, and received by distraint and levy of sale were furnished the counsel of petitioner on April 7, 1993,
responsible persons of sufficient age and discretion. and June 10, 1993, and the petitioner himself on April 12, 1993 at his office at the
Thus, on October 20, 1992, formal assessment notices were served Batasang Pambansa. 21 We cannot therefore, countenance petitioner's insistence
upon Mrs. Marcos c/o the petitioner, at his office, House of that he was denied due process. Where there was an opportunity to raise
Representatives, Batasan Pambansa, Q.C. (Annexes "A", "A-1", "A-2", objections to government action, and such opportunity was disregarded, for no
"A-3"; pp. 207-210, Comment/Memorandum of OSG). Moreover, a notice justifiable reason, the party claiming oppression then becomes the oppressor of
to taxpayer dated October 8, 1992 inviting Mrs. Marcos to a conference the orderly functions of government. He who comes to court must come with clean
relative to her tax liabilities, was furnished the counsel of Mrs. Marcos — hands. Otherwise, he not only taints his name, but ridicules the very structure of
Dean Antonio Coronel (Annex "B", p. 211, ibid). Thereafter, copies of established authority.
Notices were also served upon Mrs. Imelda Marcos, the petitioner and IN VIEW WHEREOF, the Court RESOLVED to DENY the present petition. The
their counsel "De Borja, Medialdea, Ata, Bello, Guevarra and Serapio Decision of the Court of Appeals dated November 29, 1994 is hereby AFFIRMED
Law Office", on April 7, 1993 and June 10, 1993. Despite all of these in all respects.
Notices, petitioner never lifted a finger to protest the assessments, (upon
which the Levy and sale of properties were based), nor appealed the SO ORDERED.
same to the Court of Tax Appeals. Regalado, Romero, Puno and Mendoza, JJ., concur.
There being sufficient service of Notices to herein petitioner (and his
mother) and it appearing that petitioner continuously ignored said Notices
despite several opportunities given him to file a protest and to thereafter
appeal to the Court of Tax Appeals, — the tax assessments subject of
this case, upon which the levy and sale of properties were based, could
no longer be contested (directly or indirectly) via this instant petition
for certiorari. 20
Petitioner argues that all the questioned Notices of Levy, however, must be
nullified for having been issued without validly serving copies thereof to the
petitioner. As a mandatory heir of the decedent, petitioner avers that he has an
interest in the subject estate, and notices of levy upon its properties should have
been served upon him.
We do not agree. In the case of notices of levy issued to satisfy the delinquent
estate tax, the delinquent taxpayer is the Estate of the decedent, and not
necessarily, and exclusively, the petitioner as heir of the deceased. In the same
vein, in the matter of income tax delinquency of the late president and his spouse,
petitioner is not the taxpayer liable. Thus, it follows that service of notices of levy
in satisfaction of these tax delinquencies upon the petitioner is not required by
law, as under Section 213 of the NIRC, which pertinently states:
xxx 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

41
[ GR No. 208293, Dec 10, 2014 ] Taxation; Estate Tax; Bank Deposits; Estate tax may also serve as guard
against the release of deposits to persons who have no sufficient and valid claim
PHILIPPINE NATIONAL BANK v. CARMELITA S. SANTOS over the deposits.—Taxes are created primarily to generate revenues for the
DECISION 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
Banks and Banking; Bank Deposits; Loans; The contractual relationship claim over the deposits. Based on the assumption that only those with sufficient
between banks and their depositors is governed by the Civil Code provisions on and valid claim to the deposit will pay the taxes for it, requiring the certificate from
simple loan.—The contractual relationship between banks and their depositors is the BIR increases the chance that the deposit will be released only to them.
governed by the Civil Code provisions on simple loan. Once a person makes a
deposit of his or her money to the bank, he or she is considered to have lent the Banks and Banking; Diligence Required of Banks; Petitioner Philippine
bank that money. The bank becomes his or her debtor, and he or she becomes National Bank (PNB) is a bank from which a degree of diligence higher than that
the creditor of the bank, which is obligated to pay him or her on demand. The of a good father of a family is expected.—Petitioner PNB is a bank from which a
default standard of diligence in the performance of obligations is “diligence of a degree of diligence higher than that of a good father of a family is expected.
good father of a family.” 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
Same; Same; Fiduciary Relationship; The Supreme Court (SC) has constitute gross negligence. It is for this reason that we sustain the trial court’s
recognized the fiduciary nature of the banks’ functions, and attached a special and the Court of Appeals’ rulings that petitioners PNB and Aguilar are solidarily
standard of diligence for the exercise of their functions.—Other industries, liable with each other.
because of their nature, are bound by law to observe higher standards of
diligence. Common carriers, for example, must observe “extraordinary diligence in Same; Damages; Moral Damages; The Supreme Court (SC) sustains the
the vigilance over the goods and for the safety of [their] passengers” because it is award of moral damages; The bank’s negligence was the result of lack of due
considered a business affected with public interest. “Extraordinary diligence” with care and caution required of managers and employees of a firm engaged in so
respect to passenger safety is further qualified as “carry[ing] the passengers sensitive and demanding business as banking.—For the same reason, we sustain
safely as far as human care and foresight can provide, using the utmost diligence the award for moral damages. Petitioners PNB and Aguilar’s gross negligence
of very cautious persons, with a due regard for all the circumstances.” Similar to deprived Angel C. Santos’ heirs what is rightfully theirs. Respondents also testified
common carriers, banking is a business that is impressed with public interest. It that they experienced anger and embarrassment when petitioners PNB and
affects economies and plays a significant role in businesses and commerce. The Aguilar refused to release Angel C. Santos’ deposit. “The bank’s negligence was
public reposes its faith and confidence upon banks, such that “even the humble the result of lack of due care and caution required of managers and employees of
wage-earner has not hesitated to entrust his life’s savings to the bank of his a firm engaged in so sensitive and demanding business as banking.”
choice, knowing that they will be safe in its custody and will even earn some Same; Same; Exemplary Damages; The law allows the grant of exemplary
interest for him.” This is why we have recognized the fiduciary nature of the banks’ damages by way of example for the public good.—Exemplary damages should
functions, and attached a special standard of diligence for the exercise of their also be awarded. “The law allows the grant of exemplary damages by way of
functions. example for the public good. The public relies on the banks’ sworn profession of
Same; Same; Same; This fiduciary relationship means that the bank’s diligence and meticulousness in giving irreproachable service. The level of
obligation to observe “high standards of integrity and performance” is deemed meticulousness must be maintained at all times by the banking sector.”
written into every deposit agreement between a bank and its depositor. The Same; Same; Attorney’s Fees; Since exemplary damages are awarded and
fiduciary nature of banking requires banks to assume a degree of diligence higher since respondents were compelled to litigate to protect their interests, the award
than that of a good father of a family.—In The Consolidated Bank and Trust of attorney’s fees is also proper.—Since exemplary damages are awarded and
Corporation v. Court of Appeals, 410 SCRA 562 (2003), this court explained the
since respondents were compelled to litigate to protect their interests, the award
meaning of fiduciary relationship and the standard of diligence assumed by of attorney’s fees is also proper.
banks: This fiduciary relationship means that the banks obligation to observe “high
standards of integrity and performance” is deemed written into every deposit Same; Same; Interest Rates; The Court of Appeals’ (CA’s) award of interest
agreement between a bank and its depositor. The fiduciary nature of banking should be modified to twelve percent (12%) from demand on April 25, 1998 until
requires banks to assume a degree of diligence higher than that of a good father June 30, 2013, and six percent (6%) from July 1, 2013 until fully paid.—The Court
of a family. Article 1172 of the Civil Code states that the degree of diligence of Appeals’ award of interest should be modified to 12% from demand on April 26,
required of an obligor is that prescribed by law or contract, and absent such 1998 until June 30, 2013, and 6% from July 1, 2013 until fully paid. In Nacar v.
stipulation then the diligence a good father of a family. Gallery Frames, 703 SCRA 439 (2013): 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

42
be twelve percent (12%) per annum . . . but will now be six percent (6%) per On May 20, 1998, respondents filed before the Regional Trial Court of Marikina
annum effective July 1, 2013. It should be noted, nonetheless, that . . . the twelve City a complaint for sum of money and damages against PNB, Lina B. Aguilar,
percent (12%) per annum legal interest shall apply only until June 30, 2013. Come and a John Doe.[12] Respondents questioned the release of the deposit amount to
July 1, 2013 the new rate of six percent (6%) per annum shall be the prevailing Manimbo who had no authority from them to withdraw their father's deposit and
rate of interest when applicable. . . . . 1. When the obligation is breached, and it who failed to present to PNB all the requirements for such
consists in the payment of a sum of money, i.e., a loan or forbearance of money, withdrawal.[13] Respondents prayed that they be paid: (a) the premium deposit
the interest due should be that which may have been stipulated in writing. amount; (b) the certificate of time deposit amount; and (c) moral and exemplary
Furthermore, the interest due shall itself earn legal interest from the time it is damages, attorney's fees, and costs of suit.[14]
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 PNB and Aguilar denied that Angel C. Santos had two separate accounts
demand. . . . . . . 3. When the judgment of the court awarding a sum of money (premium deposit account and time deposit account) with PNB. [15] They alleged
becomes final and executory, the rate of legal interest, whether the case falls that Angel C. Santos' deposit account was originally a time deposit account that
under paragraph 1 or paragraph 2, above, shall be 6% per annum from such was subsequently converted into a premium savings account. [16] They also
finality until its satisfaction, this interim period being deemed to be by then an alleged that Aguilar did not know about Angel C. Santos' death in 1991 because
equivalent to a forbearance of credit. 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
LEONEN, J.: of payment of estate tax dated March 31, 1997. [19] All documents he submitted
appeared to be regular.[20]
The standard of diligence required of banks is higher than the degree of diligence
of a good father of a family. PNB and Aguilar filed a third-party complaint against Manimbo, Angel P. Santos,
and Capital Insurance and Surety Co., Inc.[21]
Respondents are children of Angel C. Santos who died on March 21, 1991.[1]
Angel P. Santos denied having anything to do with the special power of attorney
Sometime in May 1996, respondents discovered that their father maintained a and affidavit of self-adjudication presented by Manimbo.[22] He also alleged that
premium savings account with Philippine National Bank (PNB), Sta. Elena- Manimbo presented the certificate of time deposit without his knowledge and
Marikina City Branch.[2] As of July 14, 1996, the deposit amounted to consent.[23]
P1,759,082.63.[3] Later, respondents would discover that their father also had a Capital Insurance and Surety Co., Inc. alleged that its undertaking was to pay
time deposit of P1,000,000.00 with PNB.[4] claims only when persons who were unduly deprived of their lawful participation in
Respondents went to PNB to withdraw their father's deposit.[5] the estate filed an action in court for their claims.[24] It did not undertake to pay
claims resulting from PNB's negligence.[25]
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 In the decision[26] dated February 22, 2011, the trial court held that PNB and
Death Certificate of Angel C. Santos; (2) certificate of payment of, or exemption Aguilar were jointly and severally liable to pay respondents the amount of
from, estate tax issued by the Bureau of Internal Revenue (BIR); (3) Deed of P1,882,002.05 with an interest rate of 6% starting May 20, 1998.[27]PNB and
Extrajudicial Settlement; (4) Publisher's Affidavit of publication of the Deed of Aguilar were also declared jointly and severally liable for moral and exemplary
Extrajudicial Settlement; and (5) Surety bond effective for two (2) years and in an damages, attorney's fees, and costs of suit. [28] Manimbo, Angel P. Santos, and
amount equal to the balance of the deposit to be withdrawn." [6] 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
By April 26, 1998, respondents had already obtained the necessary and the costs of suit.[29] The dispositive portion of the trial court's decision reads:
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 WHEREFORE, foregoing premises considered, judgment is hereby rendered as
(Manimbo) on April 1, 1997."[9] An amount of PI,882,002.05 was released upon follows:
presentation of: (a) an affidavit of self-adjudication purportedly executed by one of 1. ordering the defendants PNB and LIN A B. AGUILAR jointly and
the respondents, Reyme L. Santos; (b) a certificate of time deposit dated severally liable to pay the plaintiffs the amount of P1,882,002.05,
December 14, 1989 amounting to P1,000,000.00; and (c) the death certificate of representing the face value of PNB Manager's Check No. AF-974686B
Angel C. Santos, among others.[10] A special power of attorney was purportedly as balance of the total deposits of decedent Angel C. Santos at the time
executed by Reyme L. Santos in favor of Manimbo and a certain Angel P. Santos of its issue, with interest thereon at the rate of 6% starting on May 20,
for purposes of withdrawing and receiving the proceeds of the certificate of time 1998, the date when the complaint was filed, until fully paid;
deposit.[11]
2. ordering both defendants jointly and severally liable to pay plaintiffs the
amount of Php 100,000.00 as moral damages, another Php 100,000.00

43
as exemplary damages and Php 50,000.00 as attorney's fees and the The Court of Appeals ruled that Aguilar could not escape liability by pointing her
costs of suit; 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
On the Third party complaint: order to protect both the depositors' and the bank's interests. [55]
3. Ordering the third party defendants Bernardito P. Manimbo, Angel P. The Court of Appeals removed the award of exemplary damages, upon finding
Santos and Capital Insurance & Surety Co., Inc., jointly and severally that there was no malice or bad faith.[56]
liable to pay third party plaintiff PNB, the amount of Php 1,877,438.83
pursuant to the Heir's Bond and the amount of Php 50,000.00 as The Court of Appeals considered the deposit as an ordinary loan by the bank from
attorney's fees and the costs of suit. Angel C. Santos or his heirs.[57] Therefore, the deposit was a forbearance which
should earn an interest of 12% per annum. [58] The dispositive portion of the Court
SO ORDERED.[30] of Appeals' decision reads:
The trial court found that Angel C. Santos had only one account with PNB. [31] The WHEREFORE, premises considered, the assailed decision of the court a quo
account was originally a time deposit, which was converted into a premium dated February 22, 2011 is AFFIRMED with the MODIFICATIONS in that the rate
savings account when it was not renewed on maturity. [32] The trial court took of interest shall be twelve percent (12%) per annum computed from the filing of
judicial notice that in 1989, automatic rollover of time deposit was not yet the case until fully satisfied. The interest due shall further earn an interest of 12%
prevailing.[33] per annum to be computed from the date of the filing of the complaint until fully
On the liability of PNB and Aguilar, the trial court held that they were both paid. Meanwhile, the award of exemplary damages is DELETED.
negligent in releasing the deposit to Manimbo. [34] The trial court noted PNB's SO ORDERED.[59]
failure to notify the depositor about the maturity of the time deposit and the PNB and Aguilar filed their separate petitions for review of the Court of Appeals'
conversion of the time deposit into a premium savings account. [35] The trial court July 25, 2013 decision.[60]
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 We resolve the following issues:
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 I. Whether Philippine National Bank was negligent in releasing the deposit
already approached them previously.[38] to Bernardito Manimbo;

Aguilar filed a motion for reconsideration[39] of the February 22, 2011 Regional II. Whether Lina B. Aguilar is jointly and severally liable with Philippine
Trial Court decision. This was denied in the June 21, 2011 Regional Trial Court National Bank for the release of the deposit to Bernardito Manimbo; and
order.[40] III. Whether respondents were properly awarded damages.
PNB and Aguilar appealed before the Court of Appeals.[41] Petitioner Aguilar argued that the Court of Appeals had already found no malice or
bad faith on her part.[61]Moreover, as a mere officer of the bank, she cannot be
Aguilar contended that she was not negligent and should not have been made made personally liable for acts that she was authorized to do. [62] These acts were
jointly and severally liable with PNB.[42] She merely implemented PNB's Legal mere directives to her by her superiors. [63] Hence, she should not be held
Department's directive to release the deposit to Manimbo.[43] solidarity liable with PNB.[64]
PNB argued that it was not negligent.[44] The release of the deposit to Manimbo Petitioner PNB argued that it was the presumptuousness and cavalier attitude of
was pursuant to an existing policy.[45] Moreover, the documents submitted by respondents that gave rise to the controversy and not its judgment
Manimbo were more substantial than those submitted by call.[65] Respondents were lacking in sufficient documentation. [66] Petitioner PNB
respondents.[46] Respondents could have avoided the incident "had they also argued that respondents failed to show any justification for the award of
accomplished the required documents immediately." [47] moral damages.[67] No bad faith can be attributed to Aguilar.[68]
In the decision[48] promulgated on July 25, 2013, the Court of Appeals sustained In their separate comments to the petitions, respondents argued that the trial court
the trial court's finding that there was only one account. [49] Angel C. Santos could and the Court of Appeals did not err in finding that petitioners PNB and Aguilar
not have possibly opened the premium savings account in 1994 since he already were negligent in handling their father's deposit. [69] The acceptance of invalid and
died in 1991.[50] The Court of Appeals also held that PNB and Aguilar were incomplete documents to support the deposit's release to Manimbo was a
negligent in handling the deposit.[51] The deposit amount was released to violation of the bank's fiduciary duty to its clients.[70] These acts constituted grcss
Manimbo who did not present all the requirements, particularly the Bureau of negligence on the part of petitioners PNB and Aguilar. [71]
Internal Revenue (BIR) certification that estate taxes had already been
paid.[52] They should also not have honored the affidavit of self-adjudication.[53]

44
However, according to respondents, the Court of Appeals erred in deleting the some interest for him."[87] This is why we have recognized the fiduciary nature of
award for exemplary damages because the acts in violation of the bank's fiduciary the banks' functions, and attached a special standard of diligence for the exercise
were done in bad faith.[72] of their functions.
We rule for the respondents. 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
The trial court and the Court of Appeals correctly found that petitioners PNB and depositors' accounts, thus:
Aguilar were negligent in handling the deposit of Angel C. Santos.
In every case, the depositor expects the bank to treat his account with the utmost
The contractual relationship between banks and their depositors is governed by fidelity, whether such account consists only of a few hundred pesos or of millions.
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 The point is that as a business affected with public interest and because of the
creditor of the bank, which is obligated to pay him or her on demand. [75] 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
The default standard of diligence in the performance of obligations is "diligence of their relationship.[89] (Emphasis supplied)
a good father of a family." Thus, the Civil Code provides:
The fiduciary nature of banking is affirmed in Republic Act No. 8791 or The
ART. 1163. Every person obliged to give something is also obliged to take care of General Banking Law, thus:
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. 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
ART. 1173. The fault or negligence of the obligor consists in the omission of that economy and the fiduciary nature of banking that requires high standards of
diligence which is required by the nature of the obligation and corresponds with integrity and performance. In furtherance thereof, the State shall promote and
the circumstances of the persons, of the time and of the place. When negligence maintain a stable and efficient banking and financial system that is globally
shows bad faith, the provisions of articles 1171 and 2201, paragraph 2, shall competitive, dynamic and responsive to the demands of a developing economy.
apply. (Emphasis supplied)
If the law or contract does not state the diligence which is to be observed in the In The Consolidated Bank and Trust Corporation v. Court of Appeals,[90] this court
performance, that which is expected of a good father of a family shall be required.
explained the meaning of fiduciary relationship and the standard of diligence
(Emphasis supplied)" assumed by banks:
Diligence of a good father of a family" is the standard of diligence expected of, This fiduciary relationship means that the bank's obligation to observe "high
among others, usufructuaries,[76] passengers of common carriers, [77] agents, standards of integrity and performance" is deemed written into every deposit
[78] depositaries, [79] pledgees, [80] officious managers, [81] and persons deemed by
agreement between a bank and its depositor. The fiduciary nature of banking
law as responsible for the acts of others.[82] "The diligence of a good father of a requires banks to assume a degree of diligence higher than that of a good father
family requires only that diligence which an ordinary prudent man would exercise of a family. Article 1172 of the Civil Code states that the degree of diligence
with regard to his own property."[83] required of an obligor is that prescribed by law or contract, and absent such
Other industries, because of their nature, are bound by law to observe higher stipulation then the diligence of a good father of a family. [91] (Emphasis supplied,
standards of diligence. Common carriers, for example, must observe citation omitted)
"extraordinary diligence in the vigilance over the goods and for the safety of [their] Petitioners PNB and Aguilar's treatment of Angel C. Santos' account is
passengers"[84] because it is considered a business affected with public interest. inconsistent with the high standard of diligence required of banks. They accepted
"Extraordinary diligence" with respect to passenger safety is further qualified as Manimbo's representations despite knowledge of the existence of circumstances
"carrying the passengers safely as far as human care and foresight can provide, that should have raised doubts on such representations. As a result, Angel C.
using the utmost diligence of very cautious persons, with a due regard for all the Santos' deposit was given to a person stranger to him.
circumstances."[85]
Petitioner PNB pointed out that since petitioner Aguilar assumed office as PNB-
Similar to common carriers, banking is a business that is impressed with public Sta. Elena-Marikina City Branch Manager only five (5) years from Angel C.
interest. It affects economies and plays a significant role in businesses and Santos' death, she was not in the position to know that respondents were the
commerce.[86] The public reposes its faith and confidence upon banks, such that heirs of Angel C. Santos.[92] She could not have accepted the unsigned and
"even the humble wage-earner has not hesitated to entrust his life's savings to the unnotarized extrajudicial settlement deed that respondents had first showed
bank of his choice, knowing that they will be safe in its custody and will even earn her.[93] She was not competent to make a conclusion whether that deed was

45
genuine.[94] Neither could petitioners PNB and Aguilar pass judgment on a letter SEC. 118. Payment of tax antecedent to the transfer of shares, bonds, or rights.
from respondents' lawyer stating that respondents were the nine heirs of Angel C. — There shall not be transferred to any new owner in the books of any
Santos.[95] corporation, sociedad anonima, partnership, business, or industry organized or
established in the Philippines, any shares, obligations, bonds or rights by way of
Petitioners PNB and Aguilar's negligence is not based on their failure to accept gift inter vivos or mortis causa, legacy, or inheritance unless a certification from
respondents' documents as evidence of their right to claim Angel C. Santos' the Commissioner that the taxes fixed in this Title and due thereon have been
deposit. Rather, it is based on their failure to exercise the diligence required of paid is shown.
banks when they accepted the fraudulent representations of Manimbo.
If a bank has knowledge of the death of a person who maintained a hank deposit
Petitioners PNB and Aguilar disregarded their own requirements for the release of account alone, or jointly with another, it shall not allow any withdrawal from the
the deposit to persons claiming to be heirs of a deceased depositor. When said deposit account, unless the Commissioner has certified that the taxes
imposed thereon by this Title have been paid; Provided, however, That the
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 administrator of the estate or any one of the heirs of the decedent may upon
of Angel C. Santos; (2) certificate of payment of, or exemption from, estate tax authorization by the Commissioner of Internal Revenue, withdraw an amount not
issued by the Bureau of Internal Revenue (BIR); (3) Deed of Extrajudicial exceeding P10,000 without the said certification. For this purpose, all withdrawal
Settlement; (4) Publisher's Affidavit of publication of the Deed of Extrajudicial slips shall contain a statement to the effect that all of the joint depositors are still
Settlement; and (5) Surety bond effective for two (2) years and in an amount equal living at the time of withdrawal by any one of the joint depositors and such
to the balance of the deposit to be withdrawn." [96] statement shall be under oath by the said depositors. [99] (Emphasis supplied)

Petitioners PNB and Aguilar, however, accepted Manimbo's representations, and This provision was reproduced in Section 97 of the 1997 National Internal
they released Angel C. Santos' deposit based on only the following documents: Revenue Code, thus:
SEC. 97. Payment of Tax Antecedent to the Transfer of Shares, Bonds or
1. Death certificate of Angel C. Santos;
Rights. — There shall not be transferred to any new owner in the books of any
2. Birth certificate of Reyme L. Santos; corporation, sociedad anonima, partnership, business, or industry organized or
established in the Philippines any share, obligation, bond or right by way of gift
3. Affidavit of self-adjudication of Reyme L. Santos; inter vivos or mortis causa, legacy or inheritance, unless a certification from the
4. Affidavit of publication; Commissioner that the taxes fixed in this Title and due thereon have been paid is
shown.
5. Special power of attorney that Reyme L. Santos executed in favor of
Bernardito Manimbo and Angel P. Santos; If a bank has knowledge of the death of a person, who maintained a bank deposit
6. Personal items of Angel C. Santos, such as photocopies or originals of account alone, or jointly with another, it shall not allow any withdrawal from the
passport, residence certificate for year 1990, SSS I.D., etc.; said deposit account, unless the Commissioner has certified that the taxes
imposed thereon by this Title have been paid: Provided, however, That the
7. Surety good for two (2) years; and 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
8. Certificate of Time Deposit No. 341306.[97]
thousand pesos (P20,000) without the said certification. For this purpose, all
Based on these enumerations, petitioners PNB and Aguilar either have no fixed withdrawal slips shall contain a statement to the effect that all of the joint
standards for the release of their deceased clients' deposits or they have depositors are still living at the time of withdrawal by any one of the joint
standards that they disregard for convenience, favor, or upon exercise of depositors and such statement shall be under oath by the said depositors.
discretion. Both are inconsistent with the required diligence of banks. These (Emphasis supplied)
threaten the safety of the depositors' accounts as they provide avenues for
Taxes are created primarily to generate revenues for the maintenance of the
fraudulent practices by third persons or by bank officers themselves.
government. However, this particular tax may also serve as guard against the
In this case, petitioners PNB and Aguilar released Angel C. Santos' deposit to release of deposits to persons who have no sufficient and valid claim over the
Manimbo without having been presented the BIR-issued certificate of payment of, deposits. Based on the assumption that only those with sufficient and valid claim
or exception from, estate tax. This is a legal requirement before the deposit of a to the deposit will pay the taxes for it, requiring the certificate from the BIR
decedent is released. Presidential Decree No. 1158,[98] the tax code applicable increases the chance that the deposit will be released only to them.
when Angel C. Santos died in 1991, provides:
In their compulsory counterclaim,[100] petitioners PNB and Aguilar claimed that
Manimbo presented a certificate of payment of estate tax. [101] During trial,

46
however, it turned out that this certificate was instead an authority to accept theirs. Respondents also testified that they experienced anger and
payment, which is not the certificate required for the release of bank embarrassment when petitioners PNB and Aguilar refused to release Angel C.
deposits.[102] It appears that Manimbo was not even required to submit the BIR Santos' deposit.[112] "The bank's negligence was the result of lack of due care and
certificate.[103] He, thus, failed to present such certificate. Petitioners PNB and caution required of managers and employees of a firm engaged in so sensitive
Aguilar provided no satisfactory explanation why Angel C. Santos' deposit was and demanding business as banking."[113]
released without it.
Exemplary damages should also be awarded. "The law allows the grant of
Petitioners PNB and Aguilar's negligence is also clear when they accepted as exemplary damages by way of example for the public good. The public relies on
bases for the release of the deposit to Manimbo: (a) a mere photocopy of Angel C. the banks' sworn profession of diligence and meticulousness in giving
Santos' death certificate;[104] (b) the falsified affidavit of self-adjudication and irreproachable service. The level of meticulousness must be maintained at all
special power of attorney purportedly executed by Reyme L. Santos;[105] and (c) times by the banking sector."[114]
the certificate of time deposit.[106]
Since exemplary damages are awarded and since respondents were compelled to
Petitioner Aguilar was aware that there were other claimants to Angel C. Santos' litigate to protect their interests,[115] the award of attorney's fees is also proper.
deposit. Respondents had already communicated with petitioner Aguilar regarding
Angel C. Santos' account before Manimbo appeared. Petitioner Aguilar even gave The Court of Appeals' award of interest should be modified to 12% from demand
respondents the updated passbook of Angel C. Santos' account. [107] Yet, on April 26, 1998 until June 30, 2013, and 6% from July 1, 2013 until fully paid.
In Nacar v. Gallery Frames:[116]
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. Thus, from the foregoing, in the absence of an express stipulation as to the rate of
They did not doubt why Reyme L. Santos would execute an affidavit of self- interest that would govern the parties, the rate of legal interest for loans or
adjudication when he, together with others, had previously asked for the release forbearance of any money. . . shall no longer be twelve percent (12%) per annum.
of Angel C. Santos' deposit. They also relied on the certificate of time deposit and . . but will now be six percent (6%) per annum effective July 1, 2013. It should be
on Manimbo's representation that the passbook was lost when the passbook had noted, nonetheless, that. . . the twelve percent (12%) per annum legal interest
just been previously presented to Aguilar for updating.[108] shall apply only until June 30, 2013. Come July 1, 2013 the new rate of six
During the trial, petitioner PNB's counsel only reasoned that the photocopy of the percent (6%) per annum shall be the prevailing rate of interest when applicable.
death certificate was also submitted with other documents, which led him to no
other conclusion than that Angel C. Santos was already dead. [109] On 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 1. When the obligation is breached, and it consists in the payment of a sum
verification. Her reason was that Reyme L. Santos was not their client. Therefore, of money, i.e., a loan or forbearance of money, the interest due should
they had no obligation to do so.[110] be that which may have been stipulated in writing. Furthermore, the
interest due shall itself earn legal interest from the time it is judicially
Given the circumstances, "diligence of a good father of a family" would have demanded. In the absence of stipulation, the rate of interest shall be
required petitioners PNB and Aguilar to verify. A prudent man would have inquired 6% per annum to be computed from default, i.e., from judicial or
why Reyme L. Santos would issue an affidavit of self-adjudication when others extrajudicial demand. . .
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 3. When the judgment of the court awarding a sum of money becomes final
and representations. This is because she had no previous knowledge of Reyme L. and executory, the rate of legal interest, whether the case falls under
Santos his representatives, and his signature. paragraph 1 or paragraph 2, above, shall be 6% per annum from such
Petitioner PNB is a bank from which a degree of diligence higher than that of a finality until its satisfaction, this interim period being deemed to be by
good father of a family is expected. Petitioner PNB and its manager, petitioner then an equivalent to a forbearance of credit.[117]
Aguilar, failed to meet even the standard of diligence of a good father of a family. WHEREFORE, the Court of Appeals' decision dated July 25, 2013
Their actions and inactions constitute gross negligence. It is for this reason that is AFFIRMED with the MODIFICATIONS in that petitioners Philippine National
we sustain the trial court's and the Court of Appeals' rulings that petitioners PNB Bank and Lina B. Aguilar are ordered solidarity liable to pay respondents
and Aguilar are solidarity liable with each other.[111] P100,000.00 as exemplary damages. Further, the interest rate for the amount of
For the same reason, we sustain the award for moral damages. Petitioners PNB P1,882,002.05, representing the face value of PNB Manager's Check No. AF-
and Aguilar's gross negligence deprived Angel C. Santos' heirs what is rightfully 974686B is modified to 12% from April 26, 1998 until June 30, 2013, and 6% from

47
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. Carpio, (Chairperson), Del Castillo, Villarama, Jr.,* and Mendoza,
JJ., concur.

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