001 LORENZO v. POSADAS (VICENCIO) 2.
2. On June 14, 1922, proceedings for the probate of his will and the settlement
June 18, 1937 | Laurel, J. | General Principles & Definition of the Estate Tax
PETITIONER: Pablo Lorenzo, as trustee of the estte of Thomas Hanley (deceased)
RESPONDENTS: Juan Posadas, Jr. Collector of Internal Revenue
SUMMARY: Thomas Hanley died in Zamboanga. His will states, among others,
that “I direct that all real estate owned by me at the time of my death be not sold or
otherwise disposed of for a period of ten (10) years after my death, and that the same
be handled and managed by the executors, and proceeds thereof to be given to my
nephew, Matthew Hanley.” The CFI appointed P. J. M. Moore as executor and upon
the latter’s resignation, plaintiff Pablo Lorenzeo followed.
Defendant CIR alleged that at the time of death of Hanley, the estate left realty
valued at P27,920, and personalty valyed at P1,465, and allowing a deduction of
P480.81, assessed against the estate an inheritance tax in the amount of P1,434.24,
which, together with penalties for delinquency of 1% monthly interest in payment
and a surcharge of 25%, amounted to P2,052. Hence, defendant CIR filed a motion
in the testamentary proceedings praying that the trustee, Lorenzo, be ordered to pay
the government such sum. Lorenzpo paid in protest but asked for a refund. The CIR
overruled the protest, refused the refund, filed a counterclaim.. Hence, Lorenzo
appealed contending that the basis of the inheritance tax should not be based on the
value of the estate upon the death of the testator, but upon the value upon expiration
of ten years, which, according to the will, the property was to be delivered to the
instituted heir.
WoN inheritance tax accrues upon death or upon receipt of the property by the
instituted heir – Upon death. (Read Doctrine). A transmission by inheritance is
taxable at the time of the predecessor's death, notwithstanding the postponement of
the actual possession or enjoyment of the estate by the beneficiary, and the tax
measured by the value of the property transmitted at that time regardless of its
appreciation or depreciation. With addtitional surcharge and penalties, the total
inheritance due Lorenzo was P3,634. Since he already paid P2,052 in protest, only
P1,581.69 is legally due. But since the claim of CIR was only for P1,191.27 in his
counterclaim, Lorenzo can only be liable for such amount.
DOCTRINE: The right to transmit estate tax accrues at the time of death of the
decedent. The accrual of the tax is distinct from the obligation to pay the same. Upon
the death of the decedent, succession takes place and the right of the State to tax the
privilege to transmit the estate vests instantly upon death.
FACTS:
1. On May 27, 1922, one Thomas Hanley died in Zamboanga, leaving a will
and considerable amount of real and personal properties.
and distribution of his estate were begun in the CFI of Zamboanga. Said
will provides, among other things, as follows:
(1) I direct that any money left by me be given to my nephew Matthey
Hanley
(2) I direct that all real estate owned by me at the time of my death be
not sold or otherwise disposed of for a period of ten (10) years
after my death, and that the same be handled and managed by the
executors, and proceeds thereof to be given to my nephew,
Matthew Hanley, at Castlemore, Ballaghaderine, County of
Rosecommon, Ireland, and that he be directed that the same be
used only for the education of my brother's children and their
descendants.
(3) I direct that 10 years after my death my property be given to the
above mentioned Matthey Hanley to be disposed of in the way he
thinks most advantageous
(4) I state at this time I have one brother living, named Malachi
Hanley, and that my nephew, Matthew Hanley, is a son of my said
brother, Malachi Hanley.
3. The CFI appointed P. J. M. Moore as the trustee of the estate of Thomas
Hanley, to administer the real properties which, under the will, were to pass
to Matthew Hanley 10 years after the two executors named in the will was
appointed trustee. Moore however resigned and plaintiff Pablo Lorenzo
herein was appointed in his stead.
4. During the incumbency of Lorenzo as trustee, the defendant Collector of
Internal Revenue, alleging that the estate left by the deceased at the time of
his death consisted of realty valued at P27,920 and personalty valued at
P1,465, and allowing a deduction of P480.81, assessed against the estate
an inheritance tax in the amount of P1,434.24 which, together with the
penalties for deliquency in payment consisting of a 1% monthly interest
from July 1, 1931 to the date of payment and a surcharge of 25% on the tax,
amounted to P2,052.74.
5. On March 15, 1932, the defendant CIR filed a motion in the testamentary
proceedings pending before the CFI of Zamboanga (Special proceedings
No. 302) praying that the trustee, Lorenzo herein, be ordered to pay to the
Government the said sum of P2,052.74.
6. Lorenzo paid said amount under protest, notifying the defendant CIR at the
same time that unless the amount was promptly refunded suit would be
brought for its recovery.
7. The CIR overruled the Lorenzo’s protest and refused to refund the said
amount hausted. The CIR instead set up a counterclaim for P1,191.27
alleged to be interest due on the tax in question and which was not included
in the original assessment. Lorenzo appealed.
8. In his appeal, Lorenzo contends that the lower court erred:
(1) In holding that the real property of Thomas Hanley, deceased,
passed to his instituted heir, Matthew Hanley, from the moment of
 the death of the former, and that from the time, the latter became
the owner thereof.
(2) In holding, in effect, that there was deliquency in the payment of
inheritance tax due on the estate of said deceased.
(3) In holding that the inheritance tax in question be based upon the
value of the estate upon the death of the testator, and not, as it
should have been held, upon the value thereof at the expiration of
the period of ten years after which, according to the testator's will,
the property could be and was to be delivered to the instituted heir.
(4) In not allowing as lawful deductions, in the determination of the
net amount of the estate subject to said tax, the amounts allowed
by the court as compensation to the "trustees" and paid to them
from the decedent's estate.
ISSUE/s:
1. When does inheritance tax accrue and when must it be satisfied? - The tax is
upon transmission or the transfer or devolution of property of a decedent,
made effective by his death
2. Should the inheritance tax be computed on the basis of the value of the
estate at the time of the testator’s death or its value ten years later? - A
transmission by inheritance is taxable at the time of the predecessor's death,
notwithstanding the postponement of the actual possession or enjoyment of
the estate by the beneficiary, and the tax measured by the value of the
property transmitted at that time regardless of its appreciation or
depreciation
RULING: The judgment of the lower court is accordingly modified, with costs
against the plaintiff Lorenzo in both instances. So ordered.
RATIO:
The following are the principal questions to be decided by this Court:
(a) When does the inheritance tax accrue and when must it be satisfied?
1. The accrual of the inheritance tax is distinct from the obligation to pay the
same. Section 1536 as amended, of the Administrative Code, imposes the
tax upon "every transmission by virtue of inheritance, devise, bequest, gift
mortis causa, or advance in anticipation of inheritance, devise, or bequest."
2. The tax therefore is upon transmission or the transfer or devolution of
property of a decedent, made effective by his death. It is in reality an
excise or privilege tax imposed on the right to succeed to, receive, or take
property by or under a will or the intestacy law, or deed, grant, or gift to
become operative at or after death.
3. Acording to article 657 of the Civil Code, "the rights to the succession
of a person are transmitted from the moment of his death."
4. In other words, said Arellano, C. J., "... the heirs succeed immediately to all
of the property of the deceased ancestor. The property belongs to the heirs
at the moment of the death of the ancestor as completely as if the ancestor
had executed and delivered to them a deed for the same before his death."
5. Lorenzo, however, asserts that while article 657 of the Civil Code is
applicable to testate as well as intestate succession, it operates only in so far
as forced heirs are concerned. But the language of article 657 of the Civil
Code is broad and makes no distinction between different classes of heirs.
That article does not speak of forced heirs; it does not even use the word
"heir".
6. Whatever may be the time when actual transmission of the inheritance takes
place, succession takes place in any event at the moment of the decedent's
death. The time when the heirs legally succeed to the inheritance may
differ from the time when the heirs actually receive such inheritance.
7. Thomas Hanley having died on May 27, 1922, the inheritance tax accrued
as of the date.
8. From the fact, however, that Thomas Hanley died on May 27, 1922, it
does not follow that the obligation to pay the tax arose as of the date.
The time for the payment on inheritance tax is clearly fixed by section
1544 of the Revised Administrative Code as amended by Act No. 3031,
in relation to section 1543 of the same Code. The two sections follow:
SEC. 1543. Exemption of certain acquisitions and transmissions. —
The following shall not be taxed:
(a) The merger of the usufruct in the owner of the naked title.
(b) The transmission or delivery of the inheritance or legacy by the
fiduciary heir or legatee to the trustees.
(c) The transmission from the first heir, legatee, or donee in favor
of another beneficiary, in accordance with the desire of the
predecessor.
In the last two cases, if the scale of taxation appropriate to the new
beneficiary is greater than that paid by the first, the former must pay the
difference.
SEC. 1544. When tax to be paid. — The tax fixed in this article shall be
paid:
(a) In the second and third cases of the next preceding section,
before entrance into possession of the property.
(b) In other cases, within the six months subsequent to the
death of the predecessor; but if judicial testamentary or
intestate proceedings shall be instituted prior to the expiration
of said period, the payment shall be made by the executor or
administrator before delivering to each beneficiary his share.
If the tax is not paid within the time hereinbefore prescribed, interest at
the rate of twelve per centum per annum shall be added as part of the
tax; and to the tax and interest due and unpaid within ten days after the
date of notice and demand thereof by the collector, there shall be
further added a surcharge of twenty-five per centum.
 A certified of all letters testamentary or of admisitration shall be
furnished the Collector of Internal Revenue by the Clerk of Court
within thirty days after their issuance.
9. The instant case does not fall under subsection (a), but under subsection
(b), of Section 1544 above-quoted, as there is here no fiduciary heirs,
first heirs, legatee or donee. Under the subsection, the tax should have
been paid before the delivery of the properties in question to P. J. M.
Moore as trustee on March 10, 1924.
(b) Should the inheritance tax be computed on the basis of the value of the estate
at the time of the testator's death, or on its value ten years later?
1. Lorenzo contends that the estate of Thomas Hanley, in so far as the real
properties are concerned, did not and could not legally pass to the instituted
heir, Matthew Hanley, until after the expiration of ten years from the death
of the testator on May 27, 1922 and, that the inheritance tax should be based
on the value of the estate in 1932, or ten years after the testator's death.
2. Lorenzo introduced evidence tending to show that in 1932 the real
properties in question had a reasonable value of only P5,787. This amount
added to the value of the personal property left by the deceased, which the
plaintiff admits is P1,465, would generate an inheritance tax which,
excluding deductions, interest and surcharge, would amount only to about
P169.52.
3. SC: If death is the generating source from which the power of the estate to
impose inheritance taxes takes its being and if, upon the death of the
decedent, succession takes place and the right of the estate to tax vests
instantly, the tax should be measured by the vlaue of the estate as it stood at
the time of the decedent's death, regardless of any subsequent contingency
value of any subsequent increase or decrease in value.
4. We hold that a transmission by inheritance is taxable at the time of the
predecessor's death, notwithstanding the postponement of the actual
possession or enjoyment of the estate by the beneficiary, and the tax
measured by the value of the property transmitted at that time
regardless of its appreciation or depreciation.
(c) In determining the net value of the estate subject to tax, is it proper to deduct the
compensation due to trustees?
1. Certain items are required by law to be deducted from the appraised gross in
arriving at the net value of the estate on which the inheritance tax is to be
computed (Sec. 1539, Revised Administrative Code)
2. A trustee, no doubt, is entitled to receive a fair compensation for his
services But from this it does not follow that the compensation due him
may lawfully be deducted in arriving at the net value of the estate
subject to tax.
3. There is no statute in the Philippines which requires trustees'
commissions to be deducted in determining the net value of the estate
subject to inheritance tax. Furthermore, though a testamentary trust
has been created, it does not appear that the testator intended that the
duties of his executors and trustees should be separated.
4. On the contrary, in paragraph 5 of his will, the testator expressed the desire
that his real estate be handled and managed by his executors until the
expiration of the period of ten years therein provided. Judicial expenses are
expenses of administration.
(d) What law governs the case at bar? Should the provisions of Act No. 3606
favorable to the tax-payer be given retroactive effect?
1. The defendant CIR levied and assessed the inheritance tax due from
the estate of Thomas Hanley under the provisions of section 1544 of the
Revised Administrative Code, as amended by section 3 of Act No. 3606.
2. But Act No. 3606 went into effect on January 1, 1930. It, therefore, was
not the law in force when the testator died on May 27, 1922. The law at
the time was section 1544 above-mentioned, as amended by Act No.
3031, which took effect on March 9, 1922.
3. It is well-settled that inheritance taxation is governed by the statute in force
at the time of the death of the decedent. The taxpayer can not foresee and
ought not to be required to guess the outcome of pending measures. Of
course, a tax statute may be made retroactive in its operation. Liability for
taxes under retroactive legislation has been "one of the incidents of social
life." But legislative intent that a tax statute should operate
retroactively should be perfectly clear.
4. Though the last paragraph of section 5 of Regulations No. 65 of the
Department of Finance makes section 3 of Act No. 3606, amending section
1544 of the Revised Administrative Code, applicable to all estates the
inheritance taxes due from which have not been paid, Act No. 3606 itself
contains no provisions indicating legislative intent to give it retroactive
effect. No such effect can begiven the statute by this court.
5. The defendant CIR maintains, however, that certain provisions of Act No.
3606 are more favorable to the taxpayer than those of Act No. 3031, that
said provisions are penal in nature and, therefore, should operate
retroactively in conformity with the provisions of article 22 of the Revised
Penal Code. This is the reason why he applied Act No. 3606 instead of Act
No. 3031.
6. Indeed, under Act No. 3606, (1) the surcharge of 25% is based on the tax
only, instead of on both the tax and the interest, as provided for in Act No.
3031, and (2) the taxpayer is allowed twenty days from notice and demand
by the Collector of Internal Revenue within which to pay the tax, instead of
ten days only as required by the old law.
7. Revenue laws, generally, which impose taxes collected by the means
ordinarily resorted to for the collection of taxes are not classed as penal
laws, although there are authorities to the contrary. Article 22 of the
Revised Penal Code is not applicable to the case at bar, and in the
absence of clear legislative intent, we cannot give Act No. 3606 a
retroactive effect.

(e) Has there been deliquency in the payment of the inheritance tax? If so, should the
additional interest claimed by the defendant in his appeal be paid by the estate?
1. P. J. M. Moore became trustee on March 10, 1924. On that date trust estate
vested in him (Sec. 582 in relation to 590, Code of Civil Procedure).
2. The mere fact that the estate of the deceased was placed in trust did not
remove it from the operation of our inheritance tax laws or exempt it
from the payment of the inheritance tax.
3. The corresponding inheritance tax should have been paid on or before
March 10, 1924, to escape the penalties of the laws.
4. This is so for the reason already stated that the delivery of the estate to the
trustee was in esse delivery of the same estate to the cestui que trust, the
beneficiary in this case.
5. A trustee is but an instrument or agent for the cestui que trust. When
Moore accepted the trust and took possesson of the trust estate he
thereby admitted that the estate belonged not to him but to his cestui
que trust. He did not acquire any beneficial interest in the estate.
6. He took such legal estate only as the proper execution of the trust
required and, his estate ceased upon the fulfillment of the testator's
wishes. The estate then vested absolutely in the beneficiary.
7. The highest considerations of public policy also justify the conclusion
we have reached. Were we to hold that the payment of the tax could be
postponed or delayed by the creation of a trust of the type at hand, the result
would be plainly disastrous.
8. Testators may provide, as Thomas Hanley has provided, that their estates be
not delivered to their beneficiaries until after the lapse of a certain period of
time. In the case at bar, the period is ten years. In other cases, the trust may
last for fifty years, or for a longer period which does not offend the rule
against petuities. The collection of the tax would then be left to the will of a
private individual.
9. The mere suggestion of this result is a sufficient warning against the
accpetance of the essential to the very existence of government.
10. The obligation to pay taxes rests not upon the privileges enjoyed by, or the
protection afforded to, a citizen by the government but upon the necessity of
money for the support of the state.
11. For this reason, no one is allowed to object to or resist the payment of taxes
solely because no personal benefit to him can be pointed out. While courts
will not enlarge, by construction, the government's power of taxation they
will also not place upon tax laws so loose a constsruction as to permit
evasions on merely fanciful and insubstantial distinctions.
12. That taxes must be collected promptly is a policy deeply intrenched in our
tax system. Thus, no court is allowed to grant injunction to restrain the
collection of any internal revenue tax (Sec. 1578, Revised Administrative
Code; Sarasola vs. Trinidad, 40 Phil., 252).
13. It results that the estate which plaintiff represents has been delinquent
in the payment of inheritance tax and, therefore, liable for the payment
of interest and surcharge provided by law in such cases.
14. The delinquency in payment occurred on March 10, 1924, the date
when Moore became trustee. The interest due should be computed
from that date and it is error on the part of the defendant to compute it
one month later. The provisions cases is mandatory, and neither the
Collector of Internal Revenuen or this court may remit or decrease
such interest, no matter how heavily it may burden the taxpayer.
15. To the tax and interest due and unpaid within ten days after the date of
notice and demand thereof by the Collector of Internal Revenue, a
surcharge of 25% should be added (Sec. 1544, subsec. (b), par. 2,
Revised Administrative Code).
16. Demand was made by the Deputy Collector of Internal Revenue upon
Moore in a communiction dated October 16, 1931 (Exhibit 29). The
date fixed for the payment of the tax and interest was November 30,
1931. November 30 being an official holiday, the tenth day fell on
December 1, 1931. As the tax and interest due were not paid on that
date, the estate became liable for the payment of the surcharge.
Computation of the Tax
1. At the time of his death, the deceased left real properties valued at P27,920
and personal properties worth P1,465, or a total of P29,385. Deducting from
this amount the sum of P480.81, representing allowable deductions under
secftion 1539 of the Revised Administrative Code, we have P28,904.19 as
the net value of the estate subject to inheritance tax.
2. The primary tax, according to section 1536, subsection (c), of the Revised
Administrative Code, should be imposed at the rate of one per centum upon
the first ten thousand pesos and two per centum upon the amount by which
the share exceed thirty thousand pesos, plus an additional two hundred per
centum. One per centum of ten thousand pesos is P100. Two per centum of
P18,904.19 is P378.08. Adding to these two sums an additional two
hundred per centum, or P965.16, we have as primary tax, correctly
computed by the defendant, the sum of P1,434.24.
3. To the primary tax thus computed should be added the sums collectible
under section 1544 of the Revised Administrative Code. First should be
added P1,465.31 which stands for interest at the rate of twelve per
centum per annum from March 10, 1924, the date of delinquency, to
September 15, 1932, the date of payment under protest, a period
covering 8 years, 6 months and 5 days. To the tax and interest thus
computed should be added the sum of P724.88, representing a
surhcarge of 25% on both the tax and interest, and also P10, the
compromise sum fixed by the defendant, giving a grand total of
P3,634.43.
4. As the Lorenzo has already paid the sum of P2,052.74, only the sums of
P1,581.69 is legally due from the estate. This last sum is P390.42 more
than the amount demanded by the defendant CIR in his counterclaim.
But, as we cannot give the defendant more than what he claims, we
must hold that the Lorenzo is liable only in the sum of P1,191.27 the
amount stated in the counterclaim.
 002 CIR v. Fisher (Valle)
28 Jan 1961 | Barrera, J. | Gross Estate
GR NO L-11622
PETITIONER: CIR
RESPONDENTS: Douglas Fisher and Bettina Fisher and the CTA
GR NO L-11668
PETITIONER: Douglas Fisher and Bettina FIsher
RESPONDENTS: CIR and the CTA
SUMMARY:
Walter Stevenson was born in the Philippine sand when he died, he left 210 000
shares in the Mindanao Mines. The administrator, Statt, filed the preliminary
estate and inheritance tax return with the reservation of having the properties
declared finally appraised at their value six months after the death of Walter.
At this time the value of the stock was at P.0325 but the CIR and the CTA
valued it at P.38 which means that the estate would be taxed more.
The issue in this case is whether or not the CTA made a correct appraisal of the
shaers of stock at P.38 despite the reservation of Statt. The SC held that the CTA
was in correct. It should be pointed out, however, that in accordance with said
proviso the properties are required to be appraised at their fair market value and
the assessed value thereof shall be considered as the fair market value only when
evidence to the contrary has not been shown. But here, there was evidence in the
way of Atty. Gibbs. The Court also said that it should be P.325 since Statt,
ancillary administrator, had reserved and availed of his legal right to have the
properties of the estate declared at their fair market value as of six months from
the time the decedent died.
DOCTRINE:
It should be pointed out, however, that in accordance with said proviso the
properties are required to be appraised at their fair market value and the assessed
value thereof shall be considered as the fair market value only when evidence to
the contrary has not been shown.
FACTS:
1. Walter Stevenson was born in the Philippines of British parents an dmarried
in Manila to Beatrice Stevenson, also British. Walter died on Feb 22, 1951
in San Francisco, California where he and his wife moved and established
their permanent reside since May 10 1945.
2. In Walter’s will which was executed in San Francisco and duly probated in
the Superior Court of California, Walter instituted his wife as his sole
heirees to his properties acquired by them while residing in the Philippines.1
The total gross assets of the estate is 130, 792.85 (see footnote for
breakdown).
3. Proceedings were instituted in the CFI of Manila for the settlement of the
estate in the Philippines. Walter’s will was also duly admitted and Ian
Murray Statt was appointed as ancillary administrator of the estate. Statt
filed a preliminary estate and inheritance tax return with the reservation of
having the properties declared finally appraised at their values six months
after the death of Walter.
4. Preliminary return was made by the ancillary administrator in order to
secure the waiver of the CIR on the inheritance tax due on the 210,000
shares of stock in the Mindanao Mother Lode Mines, Inc. which the estate
then desired to dispose in the United States.
5. Acting upon said return, CIR accepted the valuation of the personal
properties declared, but increased the appraisal of the two parcels of land
located in Baguio City by fixing their fair market value in the amount of
P52,200.00, instead of P43,500.00.
6. After allowing the deductions claimed by the ancillary administrator for
funeral expenses in the amount of P2,000.00 and for judicial and
administration expenses in the sum of P5,500.00, the Collector assessed the
estate the amount of P5,147.98 for estate tax and P10,875.25 for
inheritance tax, or a total of P16,023.23. Both of these assessments were
paid by the estate on June 6, 1952.
7. Statt filed an amended estate and inheritance tax return in pursuance to his
reservation and for the purpose of availing of the right granted by sec 91 of
the National Internal Revenue Code (NIRC).
8. In the amended return the valuation of the 210K shares of stock in
Mindanao Mines, it was reduced from 0.38 per share to 0.20 per share. Or
from a total of 79 800 to 42 000. This change of price was based on the
market quotation by Statt of the stock obtaining at the San Francisco Stock
Exchange six months from the death of Walter.
9. Statt also made claim to the ff deductions:
a. Funeral expense of 2, 086. 52
b. Judicial expense – administrator’s fee 1204.34
c. Atty fee 6000
d. Judicial and administration expense 1, 400.95
e. Real estate tax 652.50
f. Claims against the esatate – 10 000
g. Plus 4% interest per annum 10 022.47
h. Sub total 21, 365.88
10. Beatrice assigned all her rights and interests to the spouses Fisher.
1
2 parcels of land in Baguio (43, 500), 177 shares of stock in Canacao (1, 770), 210
000 shares of stock of Mindandao Mother Lode Mines Inc (79800), cash credit with
Canacao (4870.88), Cash with the chartered bank of india, austtalia, and china
(851.97)
 11. Statt filed a second amended estate and inheritance tax return. This declared
the same Assets except that it contained new claims for additional
exemption and deduction:
12. (1) deduction in the amount of P4,000.00 from the gross estate of the
decedent as provided for in Section 861 (4) of the U.S. Federal Internal
Revenue Code which the ancillary 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 Appeals in case No. 71
entitled "Housman vs. Collector," August 14, 1952; and
13. (2) exemption from the imposition of estate and inheritance taxes on the
210,000 shares of stock in the Mindanao Mother Lode Mines, Inc. also
pursuant to the reciprocity proviso of Section 122 of the National Internal
Revenue Code
14. The estate claimed that it was liable only for 525.34 for estate tax and
238.06 for inheritance tax. Thus, it overpaid. The collector denied the claim.
For this reason, the action was commenced in the CFI of manila by
respondents. The case was forwarded to the CTA.
15. Fisher raised these arguments to the SC: see issues

ISSUE/s: In Bold are the relevant issues to the topic. The other issues are long
and I didn’t discuss in the ratio but added them in the issues just in case.
(1) Whether or not, in determining the taxable net estate of the decedent, one-half
(½) of the net estate should be deducted therefrom as the share of the surviving
spouse in accordance with our law on conjugal partnership and in relation to section
89 (c) of the National Internal revenue Code; - YES. the court applied that in the
absence of any ante-nuptial agreement, the parties will adopt a conjugal partnership
as to the properties acquired during the marriage.

(2) Whether or not the estate can avail itself of the reciprocity proviso embodied in
Section 122 of the National Internal Revenue Code granting exemption from the
payment of estate and inheritance taxes on the 210,000 shares of stock in the
Mindanao Mother Lode Mines Inc.; - NO. There is no recirprocity. For this to
happen, reciprocity must be total. The Filipino will be at a disadvantage if this were
applied. A filipino with tangible property in California will be entitled to the
exception but the California will not be exempt from the estate tax. There is no total
reciprocit.

(3) Whether or not the estate is entitled to the deduction of P4,000.00 allowed by
Section 861, U.S. Internal Revenue Code in relation to section 122 of the National
Internal Revenue Code; - NO. the amount of $2,000.00 allowed under the Federal
Estate Tax Law is in the nature of 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
(4) Whether or not the real estate properties of the decedent located in Baguio
City and the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc.,
were correctly appraised by the lower court;
RULING: 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.
The CIR and the tax court valued each share at P.38 on the basis of the
preliminary return made by the estate.
8. This should not have been the case in view of the fact that the ancillary
administrator had reserved and availed of his legal right to have the
properties of the estate declared at their fair market value as of six
months from the time the decedent died..

RATIO:
The question of deduction:
1. On the issue of the correctness of the appraisal of the two parcels of land
situated in Baguio City, it is contended that their assessed values, as
appearing in the tax rolls 6 months after the death of Stevenson, ought to
have been considered by the CIR as their fair market value, pursuant to
section 91 of the National Internal Revenue Code.
2. It should be pointed out, however, that in accordance with said proviso
the properties are required to be appraised at their fair market value
and the assessed value thereof shall be considered as the fair market
value only when evidence to the contrary has not been shown.
3. After all review of the record, the Court was satisfied that such evidence
exists to justify the valuation made by petitioner which was sustained by the
tax court.
4. The two parcels of land containing 36,264 square meters were valued by the
administrator of the estate in the Estate and Inheritance tax returns filed by
him at P43,500.00 which is the assessed value of said properties. On the
other hand, defendant appraised the same at 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 much lower than the true and fair
market value of the properties at a given time and place.
5. As to the shares of stock in the Mindanao Mines, n respect to the valuation
of the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc., (a
domestic corporation), the FIshers contend that their value should be fixed
on the basis of the market quotation obtaining at the San Francisco
(California) Stock Exchange, on the theory that the certificates of stocks
were then held in that place and registered with the said stock exchange
6. The court does NOT agree with this argument. The situs of the shares of
stock, for purposes of taxation, being located here in the Philippines, as
respondents themselves concede and considering that they are sought to
be taxed in this jurisdiction, consistent with the exercise of our
government's taxing authority, their fair market value should be taxed
on the basis of the price prevailing in our country.
7. The court find merit in Fisher’s other contention that the said shares of
stock commanded a lesser value at the Manila Stock Exchange six months
after the death of Stevenson. Through Atty. Allison Gibbs, respondents
have shown that at that time a share of said stock was bid for at only P.325.
 003 ZAPANTA v. POSADAS (CHIQUI)
December 29, 1928 | Avanceña, J. | Tax on Donation Mortias Causa
PETITIONER: Rufina Zapanta et al., Rosario Pineda, et al., Olimpio Guanzon, et
al., Leoncia Pineda, et al., Emigdio David, et al., Geronima Pineda, et al.
RESPONDENTS: Juan Posadas, Jr. et al.
SUMMARY: Before Father Pineda died, he donated some of his properties to six
of his relatives with the condition that some would pay a certain amount of rice
and others money every year, and failure to do so would revoke the donations. The
six relatives filed a case against the collector of Internal Revenue because of the
imposition of inheritance tax. RTC ruled that the donations are inter vivos and not
subject to the inheritance tax. W/N the donations made by Father Pineda are
subject to inheritance tax – NO, the donation was inter vivos. They were made in
consideration of the donor's affection for the donees, and of the services they had
rendered him, but he has charged them with the obligation to pay him a certain
amount of rice and money, respectively, each year during his lifetime, the
donations to become effective upon acceptance. Neither can these donations be
considered as an advance on inheritance or legacy, according to the terms of
section 1536 of the Administrative Code, because they are neither an inheritance
nor a legacy. And it cannot be said that the plaintiffs received such advance on
inheritance or legacy, since they were not heirs or legatees of their predecessor in
interest upon his death
DOCTRINE: The principal characteristics of a donation mortis causa, which
distinguish it essentially from a donation inter vivos, are that in the former it is the
donor's death that determines the acquisition of, or the right to, the property, and
that it is revocable at the will of the donor. In the donations in question, their
effect, that is, the acquisition of, or the right to, the property, was produced while
the donor was still alive, for, according to their expressed terms they were to have
this effect upon acceptance, and this took place during the donor's lifetime.
FACTS:
1. Father Braulio Pineda died in January 1925 without any ascendants or
descendants, leaving a will in which he instituted his sister Irene Pineda as
his sole heiress. During his lifetime Father Braulio donated some of his
property by public instruments to the six plaintiffs, severally, with the
condition that some of them would pay him a certain amount of rice, and
others of money every year, and with the express provision that failure to
fulfill this condition would revoke the donations ipso facto.
2. These six plaintiff-donees are relatives, and some of them brothers of Father
Braulio Pineda. The donations contained another clause that they would
take effect upon acceptance. They were accepted during Father Braulio's
lifetime by every one of the donees.
3. Every one of the six plaintiffs filed a separate action against the Collector of
Internal Revenue and his deputy (for the sums of which each of them paid,
under protest, as inheritance tax on the property donated to them. 2
4. RTC held that the donations to the six plaintiffs made by the deceased
Father Braulio Pineda are donations inter vivos, and therefore, not subject to
the inheritance tax, and ordered the collectors to return to each of the
plaintiffs the sums paid by the latter.
ISSUE/s:
1. W/N the donations made by Father Pineda are subject to inheritance tax –
NO, the donation was inter vivos.
RULING: For these reasons the judgment appealed from is affirmed, without
special pronouncement as to costs. So ordered.
RATIO:
1. SC said donations are inter vivos, It is so expressly stated in the instruments
in which they appear. They were made in consideration of the donor's
affection for the donees, and of the services they had rendered him, but he
has charged them with the obligation to pay him a certain amount of rice
and money, respectively, each year during his lifetime, the donations to
become effective upon acceptance. They are therefore not in the nature of
donations mortis causa but inter vivos.
2. The principal characteristics of a donation mortis causa, which distinguish it
essentially from a donation inter vivos, are that in the former it is the
donor's death that determines the acquisition of, or the right to, the property,
and that it is revocable at the will of the donor. In the donations in question,
their effect, that is, the acquisition of, or the right to, the property, was
produced while the donor was still alive, for, according to their expressed
terms they were to have this effect upon acceptance, and this took place
during the donor's lifetime.
3. The nature of these donations is not affected by the fact that they were
subject to a condition, since it was imposed as a resolutory condition, and in
this sense, it necessarily implies that the right came into existence first as
well as its effect, because otherwise there would be nothing to resolve upon
2 Section 1536 of the Administration Code: Every transmission by virtue of inheritance, devise, bequest,
gift mortis causa, or advance in anticipation of inheritance, devise, or bequest of real property located in
the Philippine Islands and real rights in such property; * * *
 the nonfulfillment of the condition imposed. Neither does the fact that these
donations are revocable, give them the character of donations mortis causa,
inasmuch as the revocation is not made to depend on the donor's exclusive
will, but on the failure to fulfill the condition imposed.
4. On the other hand, this condition, in so far as it renders the donation
onerous, takes it further away from the dispositions mortis causa and brings
it nearer to contract.
5. And in the part in which it is strictly a donation, it is a donation inter vivos,
because its effect was produced by the donees' acceptance during the
donor's lifetime and was not determined by the donor's death. Upon being
accepted they had full effect. If the donor's life is mentioned in connection
with this condition, it is only to fix the donor's death as the end of the term
within which the condition must be fulfilled, and not because such death of
the donor is the cause which determines the birth of the right to the
donation.
a. The property donated passed to the ownership of the donees from
the acceptance of the donations, and these could not be revoked
except upon the nonfulfillment of the condition imposed; or for
other causes prescribed by the law, but not by the mere will of the
donor.
6. Neither can these donations be considered as an advance on inheritance or
legacy, according to the terms of section 1536 of the Administrative Code,
because they are neither an inheritance nor a legacy. And it cannot be said
that the plaintiffs received such advance on inheritance or legacy, since they
were not heirs or legatees of their predecessor in interest upon his death.
Neither can it be said that they obtained this inheritance or legacy by virtue
of a document which does not contain the requisites of a will.
7. Besides, if the donations made by Pineda are, as the Posadas contends,
mortis causa, then they must be governed by the law on testate succession
(art. 620 of the Civil Code). In such a case, the documents in which these
donations appear, being instruments which do not contain the requisites of a
will, are not valid to transmit the property to the donees. Then the
defendants are not justified in collecting from the donees the inheritance tax
on property which has not been legally transferred to them, and in which
they acquired no right.
 004 TUASON v. POSADAS (TIMBOL)
January 23, 1930 | Avancena, J. | Gross Estate
PETITIONER: Alfonso Tuason and Mariano Tuason
RESPONDENTS: Juan Posadas, Jr., Collector of Internal Revenue
SUMMARY: Esperanza Tuason made donations inter vivos to both Mariano
and Alfonso Tuason. When she passed away, she left a will bequeathing P5,025
to Mariano. Prescribed inheritance tax on both bequests were also paid. The
Collector collected inheritance tax from both Alfonso and Mariano upon the
gifts inter vivos made upon them. Both paid under protest, and the court ordered
the Collector to return the payments made. Hence this petition.
The issue before the Court is whether or not the donations inter vivos are subject
to the inheritance tax.
The SC held that YES, the donations made to both Mariano and Alfonso are
subject to inheritance tax. The interpretation of the law without a doubt refers to
gifts inter vivos, and any other interpretation would vitiate its language.
DOCTRINE: When the law says all gifts, it doubtless refers to gifts inter vivos,
and not mortis causa. Both the letter and the spirit of the law leave no room for
any other interpretation. Such, clearly, is the tenor of the language which refers
to donation that took effect before the donor’s death, and not to mortis causa
donations, which can only be made with the formalities of a will, and can only
take effect after the donor’s death
FACTS:
1. Esperanza Tuason made a donation inter vivos of certain property to
Mariano Tuason
2. Esperanza made another donation inter vivos to Alfonso Tuason
3. She died of senile weakness at the age of 73, leaving a will bequeathing of
P5,025 to Mariano Tuason
4. Her judicial administratrix paid the prescribed inheritance tax on these two
bequests
5. Juan Posadas, the Collector of Internal Revenue collected the sums of
P3,809.76 and P6,653.64 from both Mariano and Alfonso against their
opposition and over their protest as inheritance tax upon the gifts inter vivos
made to them
6. Both Mariano and Alfonso brought this action against the Collector for the
recovery of the amounts collected from them as inheritance tax
7. The judgment appealed from ordered the Collector to return the amounts
claimed against Mariano and Alfonso
8. Hence this petition
ISSUE/s:
1. WoN the collection of inheritance tax is authorized by the law – YES
RULING: The judgment appealed from is reversed, and the defendant is absolved
from the complaint, without special pronouncement of costs. So ordered.
RATIO:
1. Section 1536 of the Administrative Code: Conditions and rate of taxation –
Every transmission by virtue of inheritance, devise, bequest, gift morts
causa, or advance in anticipation of inheritance, devise, or bequest shall be
subject to the following tax;
2. Section 1539 enumerates the deductions to be made in determining the net
sum which must bear the tax
3. Section 1540. Additions of gifts and advances – After the aforementioned
deductions have been made, there shall be added to the resulting amount the
value of all gifts or advances made by the predecessor to any of those who,
after his death, shall prove to be his heirs, devisees, legatees, or donees
mortis causa
4. When the law says all gifts, it doubtless refers to gifts inter vivos, and
not mortis causa. Both the letter and the spirit of the law leave no room
for any other interpretation. Such, clearly, is the tenor of the language
which refers to donation that took effect before the donor’s death, and
not to mortis causa donations, which can only be made with the
formalities of a will, and can only take effect after the donor’s death
a. Any other construction would virtually change this provision into:
“. . . there shall be added to the resulting amount the value of all
gifts mortis causa . . . made by the predecessor to those who, after
his death, shall prove to be his . . . donees mortis causa." We
cannot give to the law an interpretation that would so vitiate its
language. The truth of the matter is that in this section (1540) the
law presumes that such gifts have been made in anticipation of
inheritance, devise, bequest, or gift mortis causa, when the donee,
after the death of the donor proves to be his heir, devisee or donee
mortis causa, for the purpose of evading the tax, and it is to prevent
this that it provides that they shall be added to the resulting
amount.
5. This being so, and it appearing that the appellees after the death of
Esperanza Tuason y Chuajap, were found to be legatees under her will, the
donation inter vivos she had made to them in 1922 and 1923, must be added
to the net amount that is to be taxed.
6. Street, dissenting: It will be noted that we do not here question the
proposition that section 1540 of the Administrative Code might lawfully
 operate upon a donee who at the time of receiving the gift inter vivos
belongs to the class who could take by intestate succession, in the absence
of a will, for in this case the donation may be made in anticipation of
inheritance (sec. 1536, Adm. Code).
7. It was for this very reason that the undersigned sustained the position in
Zapanta vs. Posadas (52 Phil., 557), that the gifts there made were taxable.
But section 1540 of the Administrative Code cannot, in my opinion,
properly be interpreted to extend to gifts inter vivos made to a person not in
a position to take as heir of the donor dying intestate.
8. In closing I wish to point out that the vital difference between this case and
that under consideration in Zapanta vs. Posadas, supra, is that in the latter
case the donees were persons who would have been heirs of the donor if the
latter had died intestate, while in this case the donees are not in such
position.
 005 DISON v. POSADAS (Sarmiento)
November 4, 1932 | Butte, J. | Inheritance Tax
PETITIONER: Luis W. Dison
RESPONDENTS: Juan Posadas Jr, Collector of Internal Revenue
SUMMARY: Don Felix Dison made a donation of all his properties 5 days
before his death to his only son Luis Dison. Inheritance tax was levied by the
Collector of Internal Revenue for the said donation. Dison opposed the said tax
arguing that he received and holds the property mentioned by a consummated
gift and that Act No. 2601 chapter 40 of the Administrative Code) being the
inheritance tax statute, does not tax gifts. The Court said that the argument
advanced by the appellant that he is not an heir of his deceased father within the
meaning of section 1540 of the Administrative Code because his father in his
lifetime had given the appellant all his property and left no property to be
inherited, is so fallacious that the urging of it here casts a suspicion upon the
appellant's reason for completing the legal formalities of the transfer on the eve
of the latter's death. We construe the expression in section 1540 "any of those
who, after his death, shall prove to be his heirs", to include those who, by our
law, are given the status and rights of heirs, regardless of the quantity of property
they may receive as such heirs. That the appellant Dison in this case occupies the
status of heir to his deceased father cannot be questioned. Construing the
conveyance here in question, under the facts presented, as an advance made by
Felix Dison to his only child, we hold section 1540 to be applicable and the tax
to have been properly assessed by the Collector of Internal Revenue.
DOCTRINE: Donation inter vivos given to an heir is subject to an inheritance
tax, as these property donations are considered advances to the inheritance.
1. The petitioner Luis Dison alleged in his complaint that the inheritance tax in
the sum of P2, 808.73 is illegal because he received the property, which is
the basis of the tax, from his father before his death by a deed of gift inter
vivos which was duly accepted and registered before the death of his father.
2. The only evidence introduced at the trial of this cause was the proof of
payment of the tax under protest, as stated, and the deed of gift executed by
Felix Dison on April 9, 1928, in favor of his son Luis W. Dison, the
plaintiff-appellant.
a. This deed of gift transferred twenty-two tracts of land to the donee,
reserving to the donor for his life the usufruct of three tracts.
b. This deed was acknowledged by the donor before a notary public,
Luis W. Dison formally accepted said gift by an instrument in
writing which he acknowledged before a notary public.
3. At the trial the parties agreed to and filed the following ingenious
stipulation of fact:
a. That Don Felix Dison died on April 21, 1928;
b. That Don Felix Dison, 5 days before his death, made a gift inter
vivos in favor of the plaintiff Luis W. Dison of all his property
according to a deed of gift which includes all the property of Don
Felix Dison;
c. That the plaintiff did not receive property of any kind of Don Felix
Dison upon the death of the latter;
d. That Don Luis W. Dison was the legitimate and only child of Don
Felix Dison.
e. It is inferred from the deed that Felix Dison was a widower at the
time of his death.
4. The theory of the plaintiff-appellant is that he received and holds the
property mentioned by a consummated gift and that Act No. 2601 (chapter
40 of the Administrative Code) being the inheritance tax statute, does not
tax gifts.
a. The provision directly here involved is section 1540 of the
Administrative Code which reads as follows:
"Additions of Gifts and Advances.—After the aforementioned deductions
have been made, there shall be added to the resulting amount the value of
all gifts or advances made by the predecessor to any of those who, after his
death, shall prove to be his heirs, devisees, legatees, or donees mortis
causa."
ISSUE: Whether or not section 1540 of the Administrative Code subject the
plaintiff-appellant to the payment of an inheritance tax?
RULING: The judgment below is affirmed with costs in this instance against the
appellant.
RATIO:
1. The appellant Dison argues that there is no evidence in this case to support
a finding that the gift was simulated and that it was an artifice for evading
the payment of the inheritance tax.
2. The court see no reason why the court may not go behind the language in
Which the transaction is masked in order to ascertain its true character and
purpose.
a. In this case the scanty facts before us may not warrant the
inference that the conveyance, acknowledged by the donor five
days before his death and accepted by the donee one day before the
 donor's death, was fraudulently made for the purpose of evading tax, and it is to prevent this that it provides that they shall be added
the inheritance tax. to the resulting amount.
b. The inference that the transfer was an advancement upon the
inheritance which the donee, as the sole and forced heir of the 6. However much appellant's argument on this point may fit his preconceived
donor, would be entitled to receive upon the death of the donor. notion that the transaction between him and his father was a consummated
gift with no relation to the inheritance, we hold that there is no merit.
3. The argument advanced by the appellant that he is not an heir of his
deceased father within the meaning of section 1540 of the Administrative
Code because his father in his lifetime had given the appellant all his
property and left no property to be inherited, is so fallacious that the urging
of it here casts a suspicion upon the appellant's reason for completing the
legal formalities of the transfer on the eve of the latter's death.
a. We do not know whether or not the father in this case left a will; in
any event, this appellant could not be deprived of his share of the
inheritance because the Civil Code confers upon him the status of a
forced heir.
b. We construe the expression in section 1540 "any of those who,
after his death, shall prove to be his heirs", to include those who,
by our law, are given the status and rights of heirs, regardless of
the quantity of property they may receive as such heirs.
c. That the appellant in this case occupies the status of heir to his
deceased father cannot be questioned.
d. Construing the conveyance here in question, under the facts
presented, as an advance made by Felix Dison to his only child, we
hold section 1540 to be applicable and the tax to have been
properly assessed by the Collector of Internal Revenue.

4. Neither the title of Act No. 2601 nor chapter 40 of the Administrative Code
makes any reference to a tax on gifts. Perhaps it is enough to say of this
contention that section 1540 plainly does not tax gifts per se but only when
those gifts are made to those who shall prove to be the heirs, devisees,
legatees or donees mortis causa of the donor.

5. This court said in the case of Tuason and Tuason vs. Posadas (54 Phil.,
289):
a. When the law says all gifts, it doubtless refers to gifts inter vivos,
and not mortis causa.
b. Such, clearly, is the tenor of the language which refers to donations
that took effect before the donor's death, and not to mortis causa
donations, which can only be made with the formalities of a will,
and can only take effect after the donor's death.
c. in this section (1540) the law presumes that such gifts have been
made in anticipation of inheritance, devise, bequest, or gift mortis
causa, when the donee, after the death of the donor proves to be his
heir, devisee or donee mortis causa, for the purpose of evading the
 006 VIDAL DE ROCES V. POSADAS (EMAR)
Mar 13, 1933 | Imperial | Sec. 1540
PLAINTIFF-APPELLANTS: Concepcion Vidal De Roces (Concepcion) and her
husband, Marcos Roces, and Elvira Vidal De Richards (Elvira)
DEFENDANT-APPELLEE: Collector of Internal Revenue Juan Posadas, Jr.
(Collector Posadas)
SUMMARY: Esperanza donated to Concepcion and Elvira parcels of land. When
Esperanza died, Collector Posadas, ruled that Concepcion and Elvira, as donees and
legatees, should pay inheritance tax (P16k and P14k, respectively) in accordance
with Sec. 1540, Admin Code (Fact #9) which the donees paid under protest. The
donees filed a complaint against Collector Posadas which the Trial Court dismissed
for lack of cause of action. The donees, in this case, allege that Sec. 1540 does not
make taxable donations inter vivos, and that if it does, it is unconstitutional because
(1) it violates the doctrine that no law should embrace more than one subject and that
subject should be expresses in the title of the law; (2) the legislature has no authority
to impose inheritance tax on donations inter vivos and (3) it does not follow the rule
of uniformity of taxation. ISSUE: WON Sec. 1540 is unconstitutional. SC: NO. Its
provisions are perfectly summarized in the heading, “Tax on inheritance, etc”. The
law considers the transmissions in the form of gifts inter vivos, as advances on
inheritance and nothing therein violates any constitutional provision, inasmuch as said
legislation is within the power of the Legislature and it equally subjects to the same
tax all of those donees who later become heirs, legatees or donees mortis causa by the
will of the donor.
DOCTRINE: “Gifts” in Sec. 1540 are those donations inter vivos that take effect
immediately or during the lifetime of the donor but are made in consideration or
in contemplation of death.
FACTS:
1. Mar 10 and 12, 1925: Esperanza Tuazon, by means of public documents,
donated certain parcels of land in Manila to Concepcion and Elvira (plaintiffs),
who, with their respective husbands, accepted them in the same public
documents, which were recorded in the registry of deeds.
2. Concepcion and Elvira took possession of the donated lands, received the fruits
and obtained the corresponding TCTs.
3. Jan 5, 1926: Donor Esperanza died without leaving any forced heir and her will
admitted to probate bequeathed to each of the donees P5k.
4. After the estate had been distributed among the instituted legatees and before
delivery of their respective shares, Collector Posadas, ruled that the Concepcion
and Elvira, as donees and legatees, should pay P16,673 and P13,951.45,
(respectively) inheritance tax.
5. P15,191.48 was levied as tax on the donation to Concepcion and P1,481.52 on
her legacy, and P12,388.95 was imposed upon the donation made to Elvira and
P1,462.50 on her legacy.
6. The donees refused to pay but later on paid under protest because of Collector
Posadas’ insistence and in order not to delay the adjudication of the legacies.
7. Collector Posadas filed a demurrer to the complaint 3 on the ground that the facts
alleged therein were not sufficient to constitute a cause of action. After the
legal questions raised therein had been discussed, the court sustained the
demurrer and ordered the amendment of the complaint which the
appellants failed to do, whereupon the TC dismissed the action on the ground
that Concepcion and Elvira did not really have a right of action.
8. Concepcion and Elvira allege that the demurrer was sustained without
sufficient ground.
9. The donees, Concepcion and Elvira brought this action to recover from
Collector Posadas, certain sums of money paid by them under protest as
inheritance tax. They appealed from the judgment rendered by Manila CFI
dismissing the action based on Sec 1540, Admin. Code:
SEC. 1540. Additions of gifts and advances. — After the aforementioned deductions
have been made, there shall be added to the resulting amount the value of all
gifts or advances made by the predecessor to any those who, after his death,
shall prove to be his heirs, devisees, legatees, or donees mortis causa.
10. Concepcion and Elvira’s contentions: Sec. 1540 does not include donations
inter vivos and if it does, it is unconstitutional, null and void for:
a. Violating Sec. 3, Jones Law: No law should embrace more than one subject,
and that subject should be expressed in the title thereof;
b. Legislature has no authority to impose inheritance tax on donations inter vivos;
c. Contravening the fundamental rule of uniformity of taxation.
11. Collector Posadas contends that the words "all gifts" refer to donations inter
vivos (based on Tuason and Tuason vs. Posadas).
ISSUES: WON Sec. 1540 is null and void because:
1. It violates the doctrine that no law should embrace more than one subject and
the subject should be expressed in the title of the law – NO. Its provisions are
perfectly summarized in the heading, “Tax on inheritance, etc”
2. The legislature has no authority to impose inheritance tax on donations inter
vivos – NO. - The law considers the transmissions in the form of gifts inter
vivos, as advances on inheritance and nothing therein violates any
constitutional provision, inasmuch as said legislation is within the power of the
Legislature.
3. It violates the rule on uniformity of taxation – NO. It equally subjects to the
same tax all of those donees who later become heirs, legatees or donees mortis
causa by the will of the donor.
RULING: Judgment appealed from is affirmed, with costs against the appellants.
RATIO:
1. Neither theory reflects the true spirit of Sec. 1540.
3
In the original case, the nature of the original action was not stated but I guess the donees were
questioning the propriety of the collection of the inheritance tax.
2. “Gifts” in Sec. 1540 are those donations inter vivos that take effect
immediately or during the lifetime of the donor but are made in
consideration or in contemplation of death.
3. Gifts inter vivos, the transmission of which is not made in contemplation of the
donor's death should not be understood as included within the said legal
provision for the reason that it would amount to imposing a direct tax on
property and not on the transmission thereof, which act does not come within the
scope of the provisions contained in Art. XI, Chap 40, Admin Code dealing
expressly with the tax on inheritances, legacies and other acquisitions mortis
causa.
4. "All gifts" refers to gifts inter vivos inasmuch as the law considers them as
advances on inheritance, in the sense that they are gifts inter vivos made in
contemplation or in consideration of death. It was not held that that kind of gifts
consisted in those made completely independent of death or without regard to it.
On the Donees’ contention that Sec. 1540 is null and void on the ground that the
subject matter is not embraced in the title of the section under which it is enumerated
5. Its provisions are perfectly summarized in the heading, "Tax on Inheritance,
etc." which is the title of Art. XI.
6. The constitutional provision cited should not be strictly construed as to make
it necessary that the title contain a full index to all the contents of the law. It is
sufficient if the language used therein is expressed in such a way that in case
of doubt it would afford a means of determining the legislators intention.
7. The circumstance that the Admin Code was prepared and compiled strictly in
accordance with the provisions of the Jones Law on that matter should not be
overlooked and that, in a compilation of laws such as the Admin Code, it is but
natural and proper that provisions referring to diverse matters should be found.
(Ayson vs. Provincial Board of Rizal)
On the power of the Legislature to impose taxes on the transmission of real estate
8. Donees question the power of the Legislature to impose taxes on the
transmission of real estate that takes effect immediately and during the lifetime
of the donor, and allege as their reason that such tax partakes of the nature of the
land tax which the law has already created in another part of the Admin Code.
9. Such is not the case in these instance. Tax collected by Collector Posadas on the
properties donated in 1925 constitutes an inheritance tax imposed on the
transmission of said properties in contemplation or in consideration of the
donor's death and under the circumstance that the donees were later
instituted as the former's legatees. For this reason, the law considers such
transmissions in the form of gifts inter vivos, as advances on inheritance and
nothing therein violates any constitutional provision, inasmuch as said
legislation is within the power of the Legislature.
Property Subject to Inheritance Tax. — The inheritance tax ordinarily applies to all
property within the power of the state to reach passing by will or the laws regulating
intestate succession or by gift inter vivos in the manner designated by statute,
whether such property be real or personal, tangible or intangible, corporeal or
incorporeal. (26 R.C.L., p. 208, par. 177.)
On Uniformity of Taxation
10. Tuason and, Tuason vs. Posadas: Sec. 1540 did not violate the constitutional
provision regarding uniformity of taxation. It equally subjects to the same tax all
of those donees who later become heirs, legatees or donees mortis causa by the
will of the donor. There would be a repugnant and arbitrary exception if the
provisions of the law were not applicable to all donees of the same kind.
11. The argument on the lack of Uniformity is not well-founded. It was said that
under such an interpretation, while a donee inter vivos who, after the
predecessor's death proved to be an heir, a legatee, or a donee mortis causa,
would have to pay the tax, another donee inter vivos who did not prove to be an
heir, a legatee, or a donee mortis causa of the predecessor, would be exempt
from such a tax. But as these are 2 different cases, the principle of uniformity is
inapplicable to them."
On WON the case can be decided on the merits or should be remanded to the court a
quo for further proceedings [procedural]
12. If the gifts received by the appellants were not given mortis causa, the same
would not be subject to the payment of an inheritance tax and said appellants
would have the right to recover the sums of money claimed by them.
13. It be may be inferred from the allegations in paras 2 and 7 that said donations
inter vivos were made in consideration of the donor's death.
14. It is from these allegations, especially the last, that we infer a presumption juris
tantum that said donations were made mortis causa and, as such, are subject to
the payment of inheritance tax:
a. The transmissions were effected in March 1925;
b. Donor died in January, 1926, and
c. Donees were instituted legatees in the donor's will admitted to probate.
15. Wherefore, the demurrer of Collector Posadas was well-founded because the
complaint did not allege fact sufficient to constitute a cause of action.
16. When the appellants refused to amend the same, spite of the court's order to that
effect, they voluntarily waived the opportunity offered them and they are not
now entitled to have the case remanded for further proceedings, which would
serve no purpose altogether in view of the insufficiency of the complaint.
VILLA-REAL, J., dissenting: The order appealed from should be reversed and the
demurrer overruled, and the defendant ordered to file his answer to the complaint.
17. Villareal sustained his concurrence in Justice Street's dissenting opinion in
Tuason and Tuason vs. Posadas.
18. The majority opinion to distinguish this case from Tuason and Tuason vs.
Posadas, by interpreting sec. 1540, Admin Code in the sense that it establishes
the legal presumption juris tantum that all gifts inter vivos made to persons
who are not forced heirs but who are instituted legatees in the donor's will,
have been made in contemplation of the donor's death.
19. There are 2 kinds of presumption:
a. Determined by law (presumption of law/of right)
b. Formed by the judge from circumstances antecedent to, coincident
with/subsequent to the principal fact under investigation, which is also
called presumption of man (presuncion de hombre).
20. Civil Code and CivPro Code establishes presumptions juris et de jure and juris
tantum which the courts should take into account in deciding questions of law
submitted to them for decision. The presumption which majority opinion wishes
to draw from said sec. 1540, Admin Code can neither be found in this Code,
Civil Code and Code of CivPro.
21. The presumption in this case are neither of the 2 kinds inasmuch as the majority
opinion did not infer it from circumstances antecedent to, coincident with or
subsequent to the principal fact with is the donation itself.
22. In view of the nature, mode of making and effects of donations inter vivos,
the contrary presumption would be more reasonable and logical.
Ddonations inter vivos made to persons who are not forced heirs, but who
are instituted legatees in the donor's will, should be presumed as not made
mortis causa, unless the contrary is proven. In the case under consideration,
the burden of the proof rests with the person who contends that the donation
inter vivos has been made mortis causa.
 007 CIR v. CA (PELIÑO)
March 22, 2000 | Gonzaga-Reyes, J. | Net Estate and Deductions
PETITIONER: Commissioner of Internal Revenue
RESPONDENTS: Court of Appeals, Court of Tax Appeals, and Josefina P.
Pajonar as Administratrix of the Estate of Pedro P. Pajonar
SUMMARY: Pedro, by reason of the events of WWII suffered shock and
became insane. Josefina became his guardian while his property was placed
under PNB’s guardianship in special proceedings. Pedro died and was survived
by his siblings and nephews and nieces. PNB filed an accounting of Pedro’s
property under guardianship, but didn’t file an estate tax return. So PNB advised
Pedro’s heirs to execute an extrajudicial settlement and to pay the taxes on the
estate. Pursuant to a BIR assessment, the estate paid the taxes. Josefina filed a
petition to be an administrator of the estate, which was granted. A second
assessment for estae tax was done since there was a deficiency in the first, and
the estate paid it, but Josefina protested, paying that the estate tax payment be
assessed or returned to the heirs. Without waiting for the results of the protest,
Josefina filed a petition for review with the CTA praying for refund of the 2 nd
paid estate tax as erroneously paid tax. CTA ordered CIR to refund--among the
deductions were: P60,573 for notarial fee for the EJS and P50,000 atty’s fees for
guardianship. CIR filed a MR claiming that the above fees are not deductible
expenses. CTA issued a resolution ordering CIR to refund (the only modification
here was as to the amount). CTA upheld the validity of the deductions, so CIR
filed with the CA a petition for review of the CTA’s decision and resolution,
questioning the validity of the deductions, but the CA denied. Hence, this
petition. The issue in this case is whether or not the notarial fee paid for in the
EJS in the amount of Php 60,753 and the atty’s fees in the guardianship
proceedings in the amount of Php 50,000 may be allowed as deductions from the
gross estate of the decedent in order to arrive at the value of the net estate. The
SC held in the affirmative. Judicial expenses are expenses of administration.
Administration expenses, as an allowable deduction from the gross estate of the
decedent for purposes of arriving at the value of the net estate, have been
construed by the the federal and state courts of the US to include all expenses
“essential to the collection of the assets, payment of debts or the distribution of
the property to the persons entitled to it.” In other words, the expenses must be
essential to the proper settlement of the estate. Expenditures incurred for the
individual benefit of the heirs, devisees or legatees are not deductible. In this
case, the notarial fee paid for in the extrajudicial settlement is clearly a
deductible expense since the settlement effected a distribution of Pedro’s estate
to his heirs. The atty’s fees paid to PNB for acting as the guardian of Pedro’s
property during his lifetime should also be considered as a deductible admin
expense.
DOCTRINE: Administration expenses, as an allowable deduction from the
gross estate of the decedent for purposes of arriving at the value of the net estate,
have been construed by the the federal and state courts of the US to include all
expenses “essential to the collection of the assets, payment of debts or the
distribution of the property to the persons entitled to it.” In other words, the
expenses must be essential to the proper settlement of the estate.
FACTS:
16. Pedro Pajonar (Pedro), was a member of the Phil. Scout, Bataan Contingent
durin WWII, and was part of the Death March, by reason of which he
suffered shock and became insane.
a. Josefina Pajonar (Josefina) became his guardian, while his property was
placed under guardianship of PNB by the RTC of Dumaguete in
Special Proceedings No. 1254 (SP 1254).
b. Pedro died and was survived by 2 brothers, Josefina, 2 nephews, and a
niece (heirs).
17. On May 11, 1988, PNB filed an accounting of Pedro’s property under
guardianship valued at Php 3,037,672.09 in SP 1254. But, PNB didn’t file
an estate tax return, so it advised Pedro’s heirs to execute an extrajudicial
settlement and to pay the taxes on his estate.
18. On April 5, 1988, pursuant to BIR assessment, Pedro’s estate paid taxes in
the amount of Php 2,557.
19. On May 19, 1988, Josefina filed a petition in the RTC of Dumaguete for the
issuance in her favor of letters of admin of the estate of Pedro (SP 2399).
a. The trial court appointed her as regular administratrix.
20. On December 19,1988, because of a second assessment by the BIR for
deficiency estate tax, Pedro’s estate paid estate tax in the amount of Php
1,527,790.98.
a. Josefina filed a protest on January 11, 1989, praying that the estate tax
payment assessed, or at least some portion of it, be returned to the heirs.
21. August 15, 1989: without waiting for the result of the protest, Josefina filed
a petition for review with the CTA, praying for the refund of the 2 nd paid
estate tax, or in the alternative, Php 840,202.06, as erroneously paid estate
tax.
a. May 6, 1993: CTA ordered the CIR to refund Josefina Php 252,585.59,
representing the erroneously paid estate tax for 1988. 4
4
The CTA adopted the view under American jurisprudence that expenses incurred in the extrajudicial settlement of the
estate should be allowed as a deduction from the gross estate. There is no requirement of formal administration. It is
sufficient that the expense be a necessary contribution towards the settlement of the case. As for the atty’s fees in the
guardianship proceeding, in order to be deductible from the gross estate, must be essential to the collection of assets,
payment of debts or the distribution of the property to the persons entitled to it. The services for which the fees are
charged must relate to the proper settlement of the estate. In this case, the guardianship proceeding was necessary for the
distribution of the property of the late Pedro Pajonar to his rightful heirs. PNB was appointed the guardian over Pedro’s
assets (who was insane even at time of death). The expenses in the guardianship proceeding were a necessary expense in
the settlement of his estate, thus, the atty’s fees were a reasonable and necessary business expense deductible from the
gross estate of the decedent.
 b. Among the deductions were:
i. Php 60,753 - notarial fee for the extrajudicial settlement
ii. Php 50,000 - atty’s fees in SP 1254 for guardianship
22. June 15, 1993: CIR filed a MR of CTA’s decision, asserting that the notarial
fee for the EJS and the atty’s fees are not deductible expenses.5
a. June 7, 1994: CTA issued a Resolution ordering CIR to refund Josefina
Php 76,502.42 representing erroneously paid estate tax for 1988.
b. CTA also upheld the validity of the deduction of the notarial fee for the
EJS and atty’s fees in SP 1254.
23. July 5, 1994: CIR filed with the CA a petition for review of CTA’s decision
and resolution, questioning the validity of the deductions, but the CA
denied.6
24. Hence, this petition.
ISSUE/s:
1. WON the notarial fee paid for in the EJS in the amount of Php 60,753 and
the atty’s fees in the guardianship proceedings in the amount of Php 50,000
may be allowed as deductions from the gross estate of the decedent in order
to arrive at the value of the net estate. - YES, the notarial fee paid for in the
extrajudicial settlement is clearly a deductible expense since the settlement
effected a distribution of Pedro’s estate to his heirs. The atty’s fees paid to
PNB for acting as the guardian of Pedro’s property during his lifetime
should also be considered as a deductible admin expense.
RULING: WHEREFORE, the Decision of the CA is AFFIRMED. The notarial fee
for the extrajudicial settlement and the atty’s fees in the guardianship proceedings
are allowable deductions from the gross estate of Pedro Pajonar.
RATIO:
On whether the notarial fee and atty’s fees in the guardianship proceedings may be
allowed as deductions
1. The deductions from the gross estate permitted under Section 79 of the Tax
Code basically reproduced the deductions allowed under Commonwealth
Act No. 466 or the NIRC of 1939, which was the first codification of PH
tax laws.
a. Sec. 89(a)(1)(B) of CA 466 also provided for the deduction of the
5
In the MR, the CTA modified the previous ruling by reducing the refundable amount to P76,402.43 since there was a
deficiency interest that should be imposed and compromise penalty included. But, CTA maintained the legality of the
deductions. They reiterated that admin expenses, executor’s commissions, and atty’s fees are considered allowable
deductions from the Gross Estate. Admin expenses are limited to expenses as are actually and necessarily incurred in the
admin of a decedent’s estate. Necessary expenses of admin are such expenses as are entailed for the preservation and
productivity of the esate and for its management for purposes of liquidation, payment of debts and distribution of the
residue among the persons entitled thereto. They must be incurred for the settlement of the estate as a whole.
6
CA, in its resolution, also reasoned out that although the Tax Code specifies “judicial expenses of the testamentary or
intestate proceedings”, there is no reason why expenses incurred in the admin and settlement of an estae in extrajudicial
proceedings should not be allowed. However, deduction is limited to such admin expenses as are actually and necessarily
incurred in the collection of the assets of the estate, payment of debts, distribution of the remainder. Such expenses may
include: executor’s or administrator’s fees, atty’s fees, court fees and charges, appraiser’s fees, clerk hire, costs of
preserving and distributing the estae and storing or maintaining it, brokerage fee or commissions for selling or disposing
of the estate, and the like.
“judicial expenses of the testamentary or intestate proceedings” for
purposes of determining the value of the net estate.
b. PH tax laws were based on the federal tax laws of the US; in accord
with statcon rules, the decisions of American courts construing the
federal tax code are entitled to great weight in interpreting our own tax
laws.
2. Judicial expenses are expenses of administration.
a. Administration expenses, as an allowable deduction from the gross
estate of the decedent for purposes of arriving at the value of the net
estate, have been construed by the the federal and state courts of the US
to include all expenses “essential to the collection of the assets,
payment of debts or the distribution of the property to the persons
entitled to it.” In other words, the expenses must be essential to the
proper settlement of the estate.
b. Expenditures incurred for the individual benefit of the heirs,
devisees or legatees are not deductible.
c. Lorenzo v. Posadas: Court construed “judicial expenses of the
testamentary or intestate proceedings” as not including the
compensation paid to a trustee of the decedent’s estate where it
appeared that the trustee was appointed for the purpose of managing the
decedent’s real estate for the benefit of the testamentary heir.
d. In another case, the Court also disallowed the premiums paid on the
bond filed by the admin as an expense of administration since the
giving of a bond is in the nature of a qualification for the office, and not
necessary in the settlement of the estate.
e. Neither may atty’s fees incident to litigation incurred by the heirs in
asserting their rights be claimed as a deduction from the gross estate.
f. In this case, the notarial fee paid for in the extrajudicial settlement
is clearly a deductible expense since the settlement effected a
distribution of Pedro’s estate to his heirs. The atty’s fees paid to
PNB for acting as the guardian of Pedro’s property during his
lifetime should also be considered as a deductible admin expense.
i. PNB provided a detailed acctg. of Pedro’s property and gave
advice as to the proper settlement of Pedro’s estate, acts which
contributed toward the collection of Pedro’s assets and the
subsequent settlement of the estate.
 008 TESTATE ESTATE OF FELIX DE GUZMAN v. DE GUZMAN-
CARILLO (MERILLES)
May 18, 1978 | Aquino, J. | Net Estate and Deductions
PETITIONER: Testate Estate of Felix de Guzman, Victoriano G. de Guzman,
administrator
RESPONDENTS: Crispina de Guzman-Carillo, Arsenio de Guzman, Honorata
Guzman-Mendiola
SUMMARY: Felix de Guzman was succeeded by his children. During the
probate of his will, Victoriano was appointed as administrator. In the will, the
house and lot was to be divided among the eight children equally. Victoriano
submitted accounting reports to the court as is his legal obligation as
administrator of the testate estate. Among the expenses were for the renovation
and improvement of the co-owned house and lot. Such were allowed by the
court as deductible expenses. de Guzman-Carillo et al. opposed the allowance.
The issue before the SC is whether the expenses for renovation should be
allowed as deductible expense from the estate of the deceased? The SC held that
YES, such are reasonable and necessary for the preservation of the property to
which an administration has the duty of fulfilling. The expenses redounded to
the benefit of all co-owners.
DOCTRINE: The probate court allowed those expenses because an
administrator has the duty to "maintain in tenantable repair the houses and other
structures and fences belonging to the estate, and deliver the same in such repair
to the heirs or devisees" when directed to do so by the court
FACTS:
1. Felix de Guzman was survived by eight children named Victorino, Librada,
Severino, Margarita, Josefina, Honorata, Arsenio and Crispina.
2. His will was duly probated. Letters of administration were issued to his son,
Doctor Victorino G. de Guzman, pursuant to the order dated September 17,
1964 of the CFI of Nueva Ecija
3. One of the properties left by the decedent was a residential house located in
the poblacion.
a. In conformity with his last will, that house and the lot on which it
stands were adjudicated to his eight children, each one being given
a one-eighth pro in-diviso share in the project of partition dated
March 19, 1966, which was signed by the eight heirs and which
was approved in the lower court’s order
4. Victoriano, as administrator, submitted four accounting reports for the
period from June 16, 1964 to September, 1967.
5. Three heirs named Crispina de Guzman-Carillo, Honorata de Guzman-
Mendiola and Arsenio de Guzman (hereinafter de Guzman-Carillo et al),
interposed objections to the administrator’s disbursements in the total sum
of P13,610.48
6. It should be noted that the probate court in its order of August 29, 1966
directed the administrator "to refrain from spending the assets of the estate
for reconstructing and remodelling the house of the deceased and to stop
spending any asset of the estate without first securing authority of the court
to do so”
7. The lower court in its order of April 29, 1968 allowed the items as
legitimate expenses of administration, among them are expenses for the
renovation and improvement of the co-owned house and lot.
8. Hence, this appeal to the SC.
9. Their contention is that the probate court erred in approving the utilization
of the income of the estate (from rice harvests) to defray those expenditures
which allegedly are not allowable under the Rules of Court.
ISSUE/s:
1. WON the expenses for renovation should be allowed as deductible expense
from the estate of the deceased - YES, such are reasonable and necessary
for the preservation of the property to which an administration has the duty
of fulfilling.
RULING: WHEREFORE, the lower court’s order of April 29, 1968 is affirmed with
the modifications that the sum of (a) P1,603.11 as the living expenses of Librada de
Guzman, (b) P100 for stenographic notes, (c) P26.25 as representation expenses, and
(d) P263.65 as expenses for the celebration of the first anniversary of the decedent’s
death are disallowed in the administrator’s accounts. No costs.c
RATIO:
1. An executor or administrator is allowed the necessary expenses in the care,
management, and settlement of the estate.
a. He is entitled to possess and manage the decedent’s real and
personal estate as long as it is necessary for the payment of the
debts and the expenses of administration.
b. He is accountable for the whole decedent’s estate which has come
into his possession, with all the interest, profit, and income thereof,
and with the proceeds of so much of such estate as is sold by him,
at the price at which it was sold.
2. One of the conditions of the administrator’s bond is that he should render a
true and just account of his administration to the court.
a. The court may examine him upon oath with respect to every matter
relating to his accounting
b. A hearing is usually held before an administrator’s account is
approved, especially if an interested party raises objections to
certain items in the accounting report
3. The connection of de Guzman-Carillo et al. is the P10,399.59 worth of
expenses for the renovation and improvement of the family residence
a. The probate court allowed those expenses because an
 administrator has the duty to "maintain in tenantable repair
the houses and other structures and fences belonging to the
estate, and deliver the same in such repair to the heirs or
devisees" when directed to do so by the court
4. de Guzman-Carillo contends that the trial court erred in allowing those
because the same did not come within he category of necessary expenses of
administration which are understood to be the reasonable and necessary
expenses of caring for the property and managing it until the debts are paid
and the estate is partitioned and distributed among the heirs
5. As clarified in the Lizarraga case, administration expenses should be
those which are necessary for the management of the estate, for
protecting it against destruction or deterioration, and, possibly, for the
production of fruits.
6. They are expenses entailed for the preservation and productivity of the
estate and its management for purposes of liquidation, payment of
debts, and distribution of the residue among the persons entitled
thereto.
7. It is obvious that the expenses in question were incurred to preserve the
family home and to maintain the family’s social standing in the community.
a. Those expenses redounded to the benefit of all the co-owners.
b. They were necessary for the preservation and use of the family
residence.
c. As a result of those expenses, the co-owners, including the three
oppositors, would be able to use the family home in comfort,
convenience and security.
 009 DIZON V CIR (ARMAND)
April 30, 2008 | Nachura, J. | Estate Taxation
PETITIONER: Rafael Dizon, Judicial Administrator of the Estate
RESPONDENTS: Court of Tax Appeals, Commissioner of Internal Revenue
SUMMARY: Jose P. Fernandez died in November 7, 1987. Thereafter, a petition for
the probate of his will was filed. The probate court appointed Atty. Rafael Arsenio P.
Dizon as administrator of the Estate of Jose Fernandez.
An estate tax return was filed later on which showed ZERO estate tax liability. BIR
thereafter issued a deficiency estate tax assessment, demanding payment of Php 66.97
million as deficiency estate tax. This was subsequently reduced by CTA to Php 37.42
million. The CA affirmed the CTA’s ruling, hence, the instant petition.
The petitioner claims that in as much as the valid claims of creditors against the
Estate are in excess of the gross estate, no estate tax was due. On the other hand,
respondents argue that since the claims of the Estate’s creditors have been condoned,
such claims may no longer be deducted from the gross estate of the decedent.
The issue is WoN the compromise amounts be considered as deductions to the gross
estate? – NO. Following the US Supreme Court’s ruling in Ithaca Trust Co. v. United
States, the Court held that post-death developments are not material in determining
the amount of deduction. This is because estate tax is a tax imposed on the act of
transferring property by will or intestacy and, because the act on which the tax is
levied occurs at a discrete time, i.e., the instance of death, the net value of the
property transferred should be ascertained, as nearly as possible, as of the that time.
This is the date-of-death valuation rule.
DOCTRINE: The deductions allowable are the amounts determined at the time of
death. Post-death developments are not material in determining the amount of
deduction. This is the death of date valuation rule.
FACTS:
9. Jose P. Fernandez died. Thereafter, a petition for the probate of his will was
filed with the RTC of Manila. The probate court appointed retired SC
justice Arsenio Dizon and Atty Dizon as Special and Assistant Special
Administrator of the estate of the deceased. Justice Dizon eventually died
leaving Atty Dizon as the sole administrator.
10. Atty Dizon requested the probate court's authority to sell several properties
forming part of the Estate, for the purpose of paying its creditors, namely:
Equitable Banking Corporation (P19,756,428.31), Banque de L'Indochine
et. de Suez (US$4,828,905.90 as of January 31, 1988), Manila Banking
Corporation (P84,199,160.46 as of February 28, 1989) and State Investment
House, Inc. (P6,280,006.21). Petitioner manifested that Manila Bank, a
major creditor of the Estate was not included, as it did not file a claim with
the probate court since it had security over several real estate properties
forming part of the Estate.
11. Howeverm the BIR issued Estate Tax Assessment Notice demanding
payment of P66,973,985 as deficiency tax estate. Thus, Atty Dizon filed a
petition for review before the CTA.
12. CTA denied said petition and opined that the aforementioned pieces of
evidence introduced by the BIR were admissible in evidence. The parties
presented documents consisting of letters to the CIR, inventories of the
properties subject of the probate, claims by various creditors, demand letters
while the BIR presented documents such as estate tax returns, summary of
revenue enforcement officers audit, and demand letters from the CIR, and
an assessment notice.
13. The CIR also came up with its own computation of the deficiency tax at
P37,.419,493.
14. CA affirmed CTA ruling.
ISSUE/s:
1. WoN the actual claims of the creditors might be fully allowed as deductions
from the gross estate of the decedent, despite the fact that said claims were
reduced or condoned through compromise agreements entered into by the
estate with its creditors. - NO. The deductions allowable are the amounts
determined at the time of death. Post-death developments are not material in
determining the amount of deduction. Thus, the Court applied the “date-of-death
valuation rule” which is the US rule on deductions and which is applicable also in
the Philippines. The amount deductible is the debt which could have been enforced
against the deceased in his lifetime.
RULING: Petition granted. Assailed Decision of the CA is reversed and set aside.
BIR’s deficiency estate tax is hereby NULLIFIED.
RATIO:
1. Ordinarily, the CTA's findings, as affirmed by the CA, are entitled to the
highest respect and will not be disturbed on appeal unless it is shown that
the lower courts committed gross error in the appreciation of facts. In this
case, however, we find the decision of the CA affirming that of the CTA
tainted with palpable error.
2. Claims against the estate as allowable deductions under Sec 79 of the Taxx
Code are basically a reproduction of the deduction allowed under Sec 89 (a)
(1) (C) and (E) of Commonwealth Act No. 466 otherwise known as the
NIRC of 1939 which was based on the federal tax laws of the United States.
Thus, pursuant to established rules of statutory construction, the decisions
of American courts construing the federal tax code are entitled to great
weight in the interpretation of our own tax laws.
3. d 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. 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. Any doubt on whether a person, article or
activity is taxable is generally resolved against taxation. 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.
Therefore, the claims existing at the time of death are significant to, and
should be made the basis of, the determination of allowable deductions.
 010 COMMISSIONER OF INTERNAL REVENUE v. GONZALES
(MARCOS)
Nov. 24, 1996 | Bengzon, J. | Administrative Provisions: Prescription
PETITIONER: Commissioner of Internal Revenue
RESPONDENTS: Lilia Yusay Gonzales and the Court Of Tax Appeals
SUMMARY: Matias Yusay died intestate leaving 2 heirs. Jose Yusay was appointed
as administrator. Jose filed with the BIR an estate and inheritance tax return.
However, upon investigation, the return was incomplete because huge amounts of
parcels of land were not included. Based on the findings, the BIR assessed estate and
inheritance taxes. 2 years after, the BIR increased the assessment. Jose requested for
an extension and posted a surety bond to guarantee payment of the taxes. The CIR
however denied the request. Internal Revenue Commissioner caused the estate of
Matias Yusay to be reinvestigated for estate and inheritance tax liability.
Accordingly, on February 13, 1958, a new assessment was made. Despite repeated
demands, no payment has been made. The CIR filed a proof of claim for the estate
and inheritance taxes due and a motion for its allowance with the settlement court
invoking priority of lien. Lilia Yusay, filed an answer to the proof of claim alleging
non-receipt of the assessment on the year of 1958. Lilia Yusay then disputed the
legality of the assessment of 1958. She claimed that the right to make the same had
prescribed, inasmuch as more than five years had elapsed since the filing of the
estate and inheritance tax return on May 11, 1949. She therefore requested that it be
declared invalid and without force and effect. The CIR denied this request. Lilia
Yusay filed a petition for review in the CTA assailing the legality of the assessment
dated in 1958. After the hearing, the court declared that the right to assess the estate
and inheritance taxes has prescribed. The CIR appealed to the CA. The issue is WoN
the right of the CIR to assess the estate and inheritance taxes in question has
prescribed. – NO. Because there was in fact no valid return made by Jose Yusay in
order to start the running of the prescriptive period. The estate and inheritance tax
return filed by Jose S. Yusay was substantially defective. First, it was incomplete. It
declared only ninety-three parcels of land representing about 400 hectares and left
out ninety-two parcels covering 503 hectares. Said huge under declaration could not
have been the result of an oversight or mistake. Second, the return mentioned no
heir. Thus, no inheritance tax could be assessed.
DOCTRINE: A return need not be complete in all particulars as long as it complies
substantially with the law.
There is substantial compliance when:
(1) when the return is made in good faith and is not false or fraudulent;
(2) when it covers the entire period involved; and
(3) when it contains information as to the various items of income, deduction and
credit with such definiteness as to permit the computation and assessment of the tax.
FACTS:
15. Matias Yusay died intestate leaving 2 heirs, namely Jose Yusay, a
legitimate child, and Lilia Yusay Gonzales, an acknowledged natural child.
16. Intestate proceedings for the settlement of his estate were instituted in the
CFI of Iloilo and Jose Yusay was appointed as administrator.
17. Jose filed with the BIR an estate and inheritance tax return declaring the
following properties:
Personal Properties: Palay, Carabaos
Real Properties: Capital (74 parcels) and Conjugal (19 parcels)
18. Total gross estate is P187,204.
19. The return mentioned no heir.
20. Upon investigation however, the BIR found the following properties:
Personal: Palay, Carabaos, Packard Automobile, and 2 Aparadors.
Real: Capital 25 parcels, ½ of Conjugal 130 parcels.
21. Total gross is P219.584.32
22. Based on the findings, the BIR assessed estate and inheritance taxes in the
sums of P6,849.78 and P16,970.63, respectively.
23. 2 years after, the BIR increased the assessment to P8,225.89 as estate tax
and P22,117.10 as inheritance tax plus delinquency interest and demanded
payment thereof on or before February 28, 1955. Meanwhile, on February
16, 1955, the Court of First Instance of Iloilo required Jose S. Yusay to
show proof of payment of said estate and inheritance taxes.
24. Jose requested an extension of time within which to pay the tax. He posted a
surety bond to guarantee payment of the taxes in question within one year.
25. The CIR however denied the request. He then issued a warrant of distraint
and levy, which he transmitted to the Municipal Treasurer of Pototan for
execution.
26. This warrant was not enforced because all the personal properties subject to
distraint were located in Iloilo City.
27. The Provincial Treasurer of Iloilo requested the BIR to furnish him copies
of the assessment notices to support a motion for payment of taxs which the
Provincial Fiscal would file in Special Proceedings.
28. The papers requested were sent by the CIR but the records do not show
whether the Provincial Fiscal filed a claim with the CFI for the taxes due.
29. The Internal Revenue Commissioner caused the estate of Matias Yusay to
be reinvestigated for estate and inheritance tax liability.
30. Accordingly, on February 13, 1958 he issued the following assessment:
Estate tax P16,246.04
5% surcharge 411.29
Delinquency interest 11,868.90
Compromise
No notice of death P15.00
Late payment 40.00 55.00
Total P28,581.23
 ————
Inheritance Tax P38,178.12
5% surcharge 1,105.86
Delinquency interest 28,808.75
Compromise for late payment 50.00
Total P69,142.73
————
Total estate and inheritance taxes P97,723.96
31. Jose Yusay however died therefore the said assessment was sent to his
widow, Mrs. Florencia Piccio Vda. de Yusay, who succeeded him in the
administration of the estate of Matias Yusay.
32. Despite repeated demands, no payment has been made. The CIR filed a
proof of claim for the estate and inheritance taxes due and a motion for its
allowance with the settlement court invoking priority of lien.
33. Lilia Yusay, filed an answer to the proof of claim alleging non-receipt of
the assessment on the year of 1958, the existence of two administrators,
namely, Florencia Piccio Vda. de Yusay who administered two-thirds of the
estate, and Lilia Yusay, who administered the remaining one-third, and her
willingness to pay the taxes corresponding to her share, and praying for
deferment of the resolution on the motion for the payment of taxes until
after a new assessment corresponding to her share was issued.
34. Lilia Yusay then disputed the legality of the assessment of 1958. She
claimed that the right to make the same had prescribed, inasmuch as more
than five years had elapsed since the filing of the estate and inheritance tax
return on May 11, 1949.
35. She therefore requested that it be declared invalid and without force and
effect.
36. The CIR denied this request for the following reasons:
(1) That the right to assess the taxes in question has not been lost by
prescription since the return which did not name the heirs cannot
be considered a true and complete return sufficient to start the
running of the period of limitations
(2) that the estate’s administrator waived the defense of prescription
when he filed a surety bond on March 3, 1955 to guarantee
payment of the taxes in question and when he requested
postponement of the payment of the taxes pending determination
of who the heirs are by the settlement court.
37. Lilia Yusay filed a petition for review in the CTA assailing the legality of
the assessment dated in 1958.
38. After the hearing, the court declared that the right to assess the estate and
inheritance taxes has prescribed.
39. The CIR appealed to the CA.
ISSUE/s: WoN the right of the CIR to assess the estate and inheritance taxes in
question has prescribed. – NO. Because there was in fact no valid return made by
Jose Yusay in order to start the running of the prescriptive period.
RULING: WHEREFORE, the judgment appealed from is set aside and another
entered affirming the assessment of the Commissioner of Internal Revenue dated
February 13, 1958.
RATIO:
4. Lilia Yusay claims that since the latest assessment was issued only on
February 13, 1958 or eight years, nine months and two days from the filing
of the estate and inheritance tax return, the Commissioner’s right to make it
has expired. She would rest her stand on Section 331 of the Tax Code which
limits the right of the Commissioner to assess the tax within five years from
the filing of the return.
5. The Commissioner on the other hand claims that fraud attended the filing of
the return.
6. However, it ay be noted that the assessment letter itself did not impute fraud
in the return with intent to evade the payment of the tax. No surcharge for
fraud was imposed.
7. Fraud is a question of fact. The circumstances constituting it must be
alleged and proved in the court below. As the court a quo found that no
fraud was alleged and proved therein, we see no reason to entertain the
Commissioner’s assertion that the return was fraudulent.
8. The conclusion however that the return filed by Jose Yusay was sufficient
to commence the running of the prescriptive period rests no solid ground.
9. In order for the running of the prescriptive period to commence, there
must be a valid return.
10. Paragraph (a) of Section 93 of the Tax Code lists the requirements of a valid
return. It states:
"(a) Requirements. — In all cases of inheritance or transfers subject to
either the estate tax or the inheritance tax, or both, or where, though exempt
from both taxes, the gross value of the estate exceeds three thousand pesos,
the executor, administrator, or anyone of the heirs, as the case may be, shall
file a return under oath in duplicate, setting forth (1) the value of the gross
estate of the decedent at the time of his death, or, in case of a nonresident
not a citizen of the Philippines, or that part of his gross estate situated in the
Philippines; (2) the deductions allowed from gross estate in determining net
estate as defined in section eighty-nine; (3) such part of such information as
may at the time be ascertainable and such supplemental data as may be
necessary to establish the correct taxes."
11. A return need not be complete in all particulars as long as it complies 19. From the latter date, Section 94 of the Tax Code obligated him to make a
substantially with the law. return or amend one already filed based on his own knowledge and
12. There is substantial compliance when: information obtained through testimony or otherwise, and subsequently to
(1) when the return is made in good faith and is not false or fraudulent; assess thereon the taxes due.
(2) when it covers the entire period involved; and 20. The running of the period of limitations under Section 332(a) of the Tax
(3) when it contains information as to the various items of income, Code should therefore be reckoned from said date for, as aforesaid, it is
deduction and credit with such definiteness as to permit the from that time that the Commissioner was expected by law to make his
computation and assessment of the tax. return and assess the tax due thereon. From July 12, 1957 to February 13,
1958, the date of the assessment now in dispute, less than ten years have
13. The estate and inheritance tax return filed by Jose S. Yusay was elapsed. Hence, prescription did not abate the Commissioner’s right to issue
substantially defective. said assessment.
14. First, it was incomplete. It declared only ninety-three parcels of land
representing about 400 hectares and left out ninety-two parcels covering
503 hectares. Said huge under declaration could not have been the result of
an oversight or mistake. Jose S. Yusay very well knew of the existence of
the omitted properties. Perhaps his motive in under declaring the inventory
of properties attached to the return was to deprive Lilia Yusay from
inheriting her legal share in the hereditary estate, but certainly not because
he honestly believed that they did not form part of the gross estate
15. Second, the return mentioned no heir. Thus, no inheritance tax could be
assessed. As a matter of law, on the basis of the return, there would be no
occasion for the imposition of estate and inheritance taxes. When there is no
heir — the return showed none — the intestate estate is escheated to the
State. The State taxes not itself.
16. The return filed in this case was so deficient that it prevented the
Commissioner from computing the taxes due on the estate. It was as though
no return was made. The Commissioner had to determine and assess the
taxes on data obtained, not from the return, but from other sources. We
therefore hold the view that the return in question was no return at all as
required in Section 93 of the Tax Code.

17. Accordingly, for purposes of determining whether or not the

Commissioner’s assessment of February 13, 1958 is barred by prescription,
Section 332 (a) which is an exception to Section 331 of the Tax Code finds
application.

"SEC. 332. Exception as to period of limitations of assessment and

collection of taxes. — (a) In the case of a false or fraudulent return with
intent to evade tax or of a failure to file a return, the tax may be assessed, or
a proceeding in court for the collection of such tax may be begun without
assessment, at any time within ten years after the discovery of the falsity,
fraud or omission."

18. As stated, the Commissioner came to know of the identity of the heirs on
September 24, 1953 and the huge under declaration in the gross estates on
July 12, 1957.
 011 Government of the Philippine Islands v. Pamintuan (Hilario)
October 11, 1930 | Villareal, J. | Tax Claims on the Estate
PETITIONER: Government of the Philiippine Islands
RESPONDENTS: Jose Ma. Pamintuan, heirs of Florentino Pamintuan
SUMMARY: Florentino Pamintuan filed his income tax return for the year 1919 and
paid his income tax accordingly. A year later, he passed away and intestate
proceedings were instituted in the CFI of Manila. Accordingly, commissioners of
appraisal of the property were appointed by the court. Claims were submitted to the
commissioners after publications of notices, and 5 years later the committee rendered
its report which was approved by the court. The claims were paid off, and the
judicial administrator of the estate caused the partition of the decedent’s estate, and
the court ordered delivery to Jose Ma. Pamintuan and the other co-heirs. Inheritance
taxes were also paid. However, after the distribution of the estate, the Government
discovered that deceased Florentino failed to pay P462 as additional income tax and
surcharge for 1919 on account of the sale he made of his house and lot in Manila,
from which sale he realized a net profit of P11 000, which was not included in his
income tax return filed for that year. Demand was made on the heirs but they refused
to pay, saying that the claim should have been presented to the committee. The lower
court ruled against the Government, saying that the failure of the government to file
its claim with the committee on claims and appraisals barred it from collecting the
tax. The government appealed to the SC.
Issue: WoN the claim was presented too late? – NO, the claim of the government for
taxes need not be presented to the committee. Each heir is liable with his or her
inheritance in proportion to the amount that each inherited, and each heir cannot be
held liable beyond the value each of them inherited.
DOCTRINE: Claims for taxes and assessments, whether assessed before or after the
death of the decedent, are not required to be presented to the committee, and may be
claimed by the government from the heirs according to the proportion each heir has
inherited.
FACTS:
40. Florentino Pamintuan filed his income tax return for the year 1919 and paid
his income tax accordingly.
41. A year later, he passed away and intestate proceedings were instituted in the
CFI of Manila.
42. Accordingly, commissioners of appraisal of the property were appointed by
the court.
43. Claims were submitted to the commissioners after publications of notices,
and 5 years later the committee rendered its report which was approved by
the court.
44. The claims were paid off, and the judicial administrator of the estate caused
the partition of the decedent’s estate, and the court ordered delivery to Jose
Ma. Pamintuan and the other co-heirs.
45. Inheritance taxes were also paid.
46. However, after the distribution of the estate, the Government discovered
that deceased Florentino failed to pay P462 as additional income tax and
surcharge for 1919 on account of the sale he made of his house and lot in
Manila, from which sale he realized a net profit of P11 000, which was not
included in his income tax return filed for that year.
47. Demand was made on the heirs but they refused to pay, saying that the
claim should have been presented to the committee.
48. The lower court ruled against the Government, saying that the failure of the
government to file its claim with the committee on claims and appraisals
barred it from collecting the tax.
49. The government appealed to the SC.
ISSUE/s:
3. WoN the claim was presented too late? – NO, the claim of the government
for taxes need not be presented to the committee. Each heir is liable with his
or her inheritance in proportion to the amount that each inherited, and each
heir cannot be held liable beyond the value each of them inherited.
RULING: SC reversed the lower court’s decision.
RATIO:
21. In previously decided cases the SC has consistently ruled that claims for
taxes and assessments, whether assessed before or after the death of the
decedent, are not required to be presented to the committee.
22. The administration proceedings of the late Florentino Pamintuan having
been closed, and his estate distributed among his heirs, the defendants
herein, the latter are responsible for the payment of the income tax here in
question in proportion to the share of each in said estate.
23. Heirs are not required to respond with their own property for the debts of
their deceased ancestors. But even after the partition of an estate, heirs and
distributees are liable individually for the payment of all lawful outstanding
claims against the estate in proportion to the amount or value of the
property they have respectively received from the estate. The hereditary
property consists only of that part which remains after the settlement of all
lawful claims against the estate, for the settlement of which the entire estate
is first liable.
24. Claims for income taxes need not be filed with the committee on claims and
appraisals appointed in the course of testate proceedings and may be
collected even after the distribution of the decedent's estate among his heirs,
who shall be liable therefor in proportion to their share in the inheritance.

012 CIR v. Pineda (Gustilo)
September 15, 1967 | Bengzon, J.P.,J.. | Share in Taxes
PETITIONER:Commissioner of Internal Revenue
RESPONDENTS: Manuel Pineda, as one of the heirs of the deceased Atanasio
Pineda
SUMMARY: Atanasio Pineda died survived by his wife, Felicisima Bagtas
(Bagtas), and 15 children, the eldest of whom is Manuel B. Pineda (M.Pineda),
a lawyer. Estate proceedings wherein Bagtas was appointed administratrix. The
estate was divided among and awarded to the heirs and the proceedings
terminated on June 8, 1948. M. Pineda's share amounted to about P2,500.00.
After the estate proceedings were closed, the BIR investigated the income tax
liability of the estate for the years 1945, 1946, 1947 and 1948 and it found that
the corresponding income tax returns were not filed. Thereupon, the
representative of the CIR filed said returns for the estate on the basis of
information and data obtained from the aforesaid estate proceedings and issued
an assessment. M. Pineda, who received the assessment, contested the same.
Subsequently, he appealed to the CTA alleging that he was appealing "only that
proportionate part or portion pertaining to him as one of the heirs.” The CIR has
appealed to Us and has proposed to hold M. Pineda liable for the payment of all
the taxes found by the Tax Court to be due from the estate in the total amount of
P760.28 instead of only for the amount of taxes corresponding to his share in
the estate.
The issue is WoN M. Pineda should pay taxes due from the estate or only up to
this proportionate share?- Only up to proportionate share.
The Court held that M. Pineda is liable for the assessment as an heir and as a
holder-transferee of property belonging to the estate/taxpayer. As an heir he is
individually answerable for the part of the tax proportionate to the share he
received from the inheritance. His liability, however, cannot exceed the amount
of his share.As a holder of property belonging to the estate, Pineda is liable for
he tax up to the amount of the property in his possession. The reason is that the
Government has a lien on the P2,500.00 received by him from the estate as his
share in the inheritance, for unpaid income taxes for which said estate is liable,
pursuant to the last paragraph of Section 315 of the Tax Code.
DOCTRINE: 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. Another remedy,
pursuant to the lien created by Section 315 of the Tax Code upon all property
and rights to property belonging to the taxpayer for unpaid income tax, is by
subjecting said property of the estate which is in the hands of an heir or
transferee to the payment of the tax due, the estate.
ISSUE/s:
FACTS:
1. Atanasio Pineda (A. Pineda) died, survived by his wife, Felicisima Bagtas
(Bagtas), and 15 children, the eldest of whom is Manuel B. Pineda
(M.Pineda), a lawyer. Estate proceedings were held in the CFI of Manila
wherein Bagtas was appointed administratrix. The estate was divided
among and awarded to the heirs and the proceedings terminated on June 8,
1948. M. Pineda's share amounted to about P2,500.00.
2. After the estate proceedings were closed, the BIR investigated the income
tax liability of the estate for the years 1945, 1946, 1947 and 1948 and it
found that the corresponding income tax returns were not filed. Thereupon,
the representative of the CIR filed said returns for the estate on the basis of
information and data obtained from the aforesaid estate proceedings and
issued an assessment
3. M. Pineda, who received the assessment, contested the same. Subsequently,
he appealed to the CTA alleging that he was appealing "only that
proportionate part or portion pertaining to him as one of the heirs.”
4. After hearing the parties, the CTA rendered judgment reversing the decision
of the Commissioner on the ground that his right to assess and collect the
tax has prescribed. The Commissioner appealed and this Court affirmed the
findings of the Tax Court in respect to the assessment for income tax for the
year 1947 but held that the right to assess and collect the taxes for 1945 and
1946 has not prescribed. For 1945 and 1946 the returns were filed on
August 24, 1953; assessments for both taxable years were made within five
years therefrom or on October 19, 1953; and the action to collect the tax
was filed within five years from the latter date, on August 7, 1957.
5. For taxable year 1947, however, the return was filed on March 1, 1948; the
assessment was made on October 19, 1953, more than five years from the
date the return was filed; hence, the right to assess income tax for 1947 had
prescribed. Accordingly, We remanded the case to the Tax Court for further
appropriate proceedings.
6. On November 29, 1963 the CTA rendered judgment holding M. Pineda
liable for the payment corresponding to his share of the following taxes:
Deficiency income tax 1945- P135.83; 1946-436.95; Real estate dealer's
fixed tax 4th quarter of 1946 and whole year of 1947- P187.50.
7. The CIR has appealed to Us and has proposed to hold M. Pineda liable for
the payment of all the taxes found by the Tax Court to be due from the
estate in the total amount of P760.28 instead of only for the amount of taxes
corresponding to his share in the estate.
8. M. Pineda opposes the proposition on the ground that as an heir he is liable
for unpaid income tax due the estate only up to the extent of and in
proportion to any share he received. He relies on Government of the
Philippine Islands v. Pamintuan where We held that "after the partition of
an estate, heirs and distributees are liable individually for the payment of all
lawful outstanding claims against the estate in proportion to the amount or
value of the property they have respectively received from the estate.
 1. WoN M. Pineda should pay taxes due from the estate or only up to this to achieve thereby two results: first, payment of the tax; and second,
proportionate share?- Only up to proportionate share. As an heir he is adjustment of the shares of each heir in the distributed estate as lessened by
individually answerable for the part of the tax proportionate to the share he the tax.
received from the inheritance. His liability, however, cannot exceed the 6. Another remedy, pursuant to the lien created by Section 315 of the Tax
amount of his share. Code upon all property and rights to property belonging to the
taxpayer for unpaid income tax, is by subjecting said property of the
RULING: WHEREFORE, the decision appealed from is modified. Manuel B. estate which is in the hands of an heir or transferee to the payment of
Pineda is hereby ordered to pay to the CIR the sum of P760.28 as deficiency income the tax due, the estate. This second remedy is the very avenue the
tax for 1945 and 1946, and real estate dealer's fixed tax for the fourth quarter of 1946 Government took in this case to collect the tax. The Bureau of Internal
and for the whole year 1947, without prejudice to his right of contribution for his co- Revenue should be given, in instances like the case at bar, the necessary
heirs. No costs. discretion to avail itself of the most expeditious way to collect the tax as
may be envisioned in the particular provision of the Tax Code above
RATIO: quoted, because taxes are the lifeblood of government and their prompt and
2. M. Pineda is liable for the assessment as an heir and as a holder-transferee certain availability is an imperious need.
of property belonging to the estate/taxpayer. As an heir he is individually 7. And as afore-stated in this case the suit seeks to achieve only one objective:
answerable for the part of the tax proportionate to the share he payment of the tax. The adjustment of the respective shares due to the heirs
received from the inheritance. His liability, however, cannot exceed the from the inheritance, as lessened by the tax, is left to await the suit for
amount of his share. contribution by the heir from whom the Government recovered said tax.
3. As a holder of property belonging to the estate, Pineda is liable for he tax up
to the amount of the property in his possession. The reason is that the
Government has a lien on the P2,500.00 received by him from the estate as
his share in the inheritance, for unpaid income taxes for which said estate is
liable, pursuant to the last paragraph of Section 315 of the Tax Code, which
we quote hereunder: “If any person, corporation, partnership, joint-
account (cuenta en participacion), association, or insurance company
liable to pay the income tax, neglects or refuses to pay the same after
demand, the amount shall be a lien in favor of the Government of the
Philippines from the time when the assessment was made by the
Commissioner of Internal Revenue until paid with interest, penalties,
and costs that may accrue in addition thereto upon all property and
rights to property belonging to the taxpayer.”
4. 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 to achieve an adjustment
of the proper share of each heir in the distributable estate.
5. All told, the Government has two ways of collecting the tax in question.
One, by going after all the heirs and collecting from each one of them
the amount of the tax proportionate to the inheritance received. This
remedy was adopted in Government of the Philippine Islands v.
Pamintuan, supra. In said case, the Government filed an action against all
the heirs for the collection of the tax. This action rests on the concept that
hereditary property consists only of that part which remains after the
settlement of all lawful claims against the estate, for the settlement of which
the entire estate is first liable The reason why in case suit is filed against all
the heirs the tax due from the estate is levied proportionately against them is
8. adjustment of the shares of each heir in the distributed estate as lessened by
the tax.
9. Another remedy, pursuant to the lien created by Section 315 of the Tax
Code upon all property and rights to property belonging to the
taxpayer for unpaid income tax, is by subjecting said property of the
estate which is in the hands of an heir or transferee to the payment of
the tax due, the estate. This second remedy is the very avenue the
Government took in this case to collect the tax. The Bureau of Internal
Revenue should be given, in instances like the case at bar, the necessary
discretion to avail itself of the most expeditious way to collect the tax as
may be envisioned in the particular provision of the Tax Code above
quoted, because taxes are the lifeblood of government and their prompt and
certain availability is an imperious need.
10. And as afore-stated in this case the suit seeks to achieve only one objective:
payment of the tax. The adjustment of the respective shares due to the heirs
from the inheritance, as lessened by the tax, is left to await the suit for
contribution by the heir from whom the Government recovered said tax.
 013 PIROVANO v. CIR (Gonzales)
July 31, 1965 | Reyes, J.B.L., J. | Donor’s Tax
PETITIONER: Maria Carla Pirovano et al. (children of Enrico)
RESPONDENT: CIR
SUMMARY: Enrico Pirovano was the President and General Manager of Dela
Rama Steamship. The company insured Enrico’s life, designating itself as the
beneficiary. Enrico died. The company issued a resolution renouncing all its rights,
title, and interest to the proceeds in favor of the minor children (petitioners).
However, the company revoked the donation so petitioners sought the recovery of
the balance. SC ruled in favor of petitioners and the company paid the balance. CIR
then assessed donee’s gift tax against petitioners. Petitioners argue that they are not
liable because the donation was made in consideration of the services rendered by
the deceased. The issue is WoN the petitioners are liable to pay donor’s tax – YES.
The true consideration for the donation was the company's gratitude for his services,
and not the services themselves. There is nothing on record to show that when Enrico
rendered services as President and General Manager he was not fully compensated
for such services, or that, because they were "largely responsible for the rapid and
very successful development of the activities of the company", Pirovano expected or
was promised further compensation.
DOCTRINE: Love and affection are not considerations of value — they are not
estimable in terms of value. Haha jk
When a person gives to another a thing ... on account of the latter's merits or of the
services rendered by him to the donor, provided they do not constitute a demandable
debt, ... , there is also a donation ...
FACTS:
1. Enrico Pirovano was the father of petitioners and was the President and
General Manager of Dela Rama Steamship Co (company)
2. The company insured the life of Enrico with Philippine and American
insurance companies for a total sum of one million pesos, designating itself
as the beneficiary of the policies. Due to the Japanese occupation, the
Company was unable to pay its premiums to the Philippine insurers, while
the policies issued by American insurers were kept effective and subsisting.
3. Enrico died.
4. The Board of Directors adopted a resolution granting and setting aside,
out of the proceeds expected to be collected on the insurance policies taken
on the life of Enrico, the sum of P400,000.00 for equal division among the
four (4) minor children of the deceased, said sum of money to be convertible
into 4 1,000 shares for each child. The Company received the
sum of P643,000.00 as proceeds of the said life insurance policies.
5. The Board of Directors modified the resolution by renouncing all its rights,
title, and interest to the said amount of P643,000.00 in favor of the minor
children, subject to the condition that said amount should be retained by the
Company in the nature of a loan to it, drawing interest at the rate of five per
centum (5%) per annum, and payable to the Pirovano children after the
Company shall have first settled in full the balance of its present remaining
bonded indebtedness in the sum of approximately P5,000,000.00.
6. The Board of Directors further modified the resolution providing therein that
the Company shall pay the proceeds of said life insurance policies to the
heirs of Enrico after the Company shall have settled in full the balance of its
present remaining bonded indebtedness, but the annual interests accruing on
the principal shall be paid to the heirs of the Enrico.
7. Mrs. Estefania Pirovano, in behalf of her children, executed a public
document formally accepting the donation; and, on the same date, the
Board of Directors, took official notice of this formal acceptance.
8. However, the majority stockholders of the Company voted to revoke the
resolution approving the donation in favor of the Pirovano children.
9. As a consequence of this revocation and refusal of the Company to pay the
balance of the donation, the petitioners brought an action for the
recovery of said amount. The SC held that the donation was valid and
remunerative in nature.
10. The company paid said amount.
11. CIR assessed the amount of P60,869.67 as donee's gift tax,
inclusive of surcharges, interests and other penalties, against each of the
petitioners, or for the total sum of P243,478.68; and a donor's gift tax in the
total amount of P34,371.76 was also assessed against the Company, which
the latter paid.
12. Petitioners contested CIR’s assessment and imposition of the donee's gift
taxes and donor's gift tax and also made a claim for refund of the donor's gift
tax so collected.
13. CTA ruled that
a. (1) the donor's gift tax in the sum of P34,371.76 was erroneously
assessed and collected hence, petitioners are entitled to the refund
thereof; (2) the donees' gift taxes were correctly assessed;
b. Petitioners are hereby ordered to pay the donees' gift taxes
c. Respondent is ordered to apply the sum of P34,371.76 which is
refundable to petitioners
14. Petitioners filed a motion to reconsider the decision which the lower court
denied. Hence this appeal before us.
15. Petitioners question that portion of the decision of the lower court ordering
the payment of donees' gift taxes.
a. They dispute the factual finding of the lower court that the
company’s renunciation of its rights, title, and interest over the
proceeds of said life insurance policies in
favor of the Pirovano children "was motivated solely and
exclusively by its sense of gratitude, an act of pure liberality, and
not to pay additional compensation for services inadequately paid
for". This was erroneous in seemingly considering the disputed
 grant as a simple donation, since our previous decision (96 Phil.
335) had already declared that the transfer to the Pirovano children
was a remuneration donation.
b. The same was not for an insufficient or inadequate consideration but
rather it was made for a full and adequate compensation for the
valuable services rendered by Enrico to the company; hence, the
donation does not constitute a taxable gift under the
provisions of Section 108 of the National Internal Revenue Code.
ISSUE:
1. WoN the petitioners are liable to pay donor’s tax – YES. The true
consideration for the donation was the company's gratitude for his services,
and not the services themselves.
RULING: WHEREFORE, the decision of the Court of Tax Appeals is affirmed.
RATIO:
1. The argument for petitioners fails to take into account the fact that neither in
Spanish nor Anglo-American law was it considered that past services,
rendered without relying on a coetaneous promise, express or implied, that
such services would be paid for the future, constituted causa or consideration
that would make a conveyance of property anything else but a gift or
donation. This conclusion flows from the text of Article 619 of the
Code of 1889 (identical with Article 726 of the present Civil Code): "When a
person gives to another a thing ... on account of the latter's merits
or of the services rendered by him to the donor, provided they do not
constitute a demandable debt, ... , there is also a donation ..."
2. There is nothing on record to show that when Enrico rendered services as
President and General Manager he was not fully compensated for such
services, or that, because they were "largely responsible for the rapid and
very successful development of the activities of the
company", Pirovano expected or was promised further compensation.
3. The fact that his services contributed in a large measure to the success of the
company did not give rise to a recoverable debt, and the conveyances made
by the company to his heirs remain a gift or donation. This is emphasized by
the director's Resolution, that "out of gratitude" the company decided to
renounce in favor of Pirovano's heirs the proceeds of the life insurance
policies in question.
4. The true consideration for the donation was, therefore, the company's
gratitude for his services, and not the services themselves.
5. That the tax court regarded the conveyance as a simple donation, instead of a
remuneratory one as it was declared to be in our previous decision, is but
innocuous error; whether remuneratory or simple, the conveyance remained a
gift, taxable under Chapter 2, Title III, of the Internal Revenue Code.
6. Petitioners contend, the entire property or right donated should not be
considered as a gift for taxation purposes; only that portion of the value of the
property or right transferred, if any, which is in excess of the value of the
services rendered should be considered as a taxable gift. They cite in support
Section III of the Tax Code which provides that —"Where property is
transferred for less than the adequate and full consideration in money or
money's worth, then the amount by which the value of the property exceeded
the value of the consideration shall, for the purpose of the tax imposed by this
chapter, be deemed as a gift, ... "
7. The flaw in this argument lies in the fact that the term consideration used in
this section refers to the technical "consideration" defined by the American
Law Institute (Restatement of Contracts) as "anything that is bargained for by
the promisor and given by the promise in exchange for the promise".
8. But, as we have seen, Pirovano's successful activities as officer of the
company can not be deemed such consideration for the gift to his heirs, since
the services were rendered long before the Company ceded the value of the
life policies to said heirs; cession. services were not the result of one bargain
or of a mutual exchange of promises.
9. What is more, the actual consideration for the cession of the policies was
the Company's gratitude to Pirovano; so that under section III of the
Tax Code there is no consideration the value of which can be deducted
from that of the property transferred as a gift. Like "love and affection",
gratitude has no economic value and is not "consideration" in the sense that
the word is used in this section of the Tax Code.
10. As stated by Chief Justice Griffith of the Supreme Court of Mississippi in his
well-known book, "Outline of the Law' (p. 204) —
a. "Love and affection are not considerations of value — they are not
estimable in terms of value. Nor are sentiments of gratitude for
gratuitous past favors or kindnesses; nor are obligations which are
merely moral. It has been well said that if a moral obligation were
alone sufficient it would remove the necessity for any consideration
at all, since the fact of making a promise imposes the moral
obligation to perform it."
11. It is of course perfectly possible that a donation or gift should at the same
time impose a burden or condition on the donee involving some economic
liability for him. A, for example, may donate a parcel of land to B on
condition that the latter assume a mortgage existing on the donated land. In
this case the donee may rightfully insist that the gift tax be computed only on
the value of the land less the value of the mortgage. This, in fact, is
contemplated by Article 619 of the Civil Code of 1889 (Art. 726) of the New
Code) when it provides that there is also a donation "when the gift imposes
upon the donee a burden which is less than the value of the thing given".
Section III of the Tax Code has in view situations of this kind, since it also
prescribes that "the amount by which the value of the property exceeded the
value of the consideration" shall be deemed a gift for the purpose of the tax.
 014 SPS. GESTOPA v. CA (GALINDEZ)
5 October 2000 | Quisumbing, J. | Donor’s Tax
PETITIONER: Sps. Agripino Gestopa and Isabel Gestopa
RESPONDENTS: Court of Appeals and Mercedes Danlag y Pilapil
SUMMARY: Sps. Diego and Catalina Danlag executed donations mortis causa
and later donations inter vivos over a total of six parcels of land in favor of
Mercedes. However, Sps. Danlag later sold two parcels covered by the donation
inter vivos to Sps. Gestopa. Sps. Danlag also revoked all donations in favor of
Mercedes.
Mercedes then filed an action for quieting of title with the RTC, but the RTC
ruled that all donations were validly revoked, and Diego Danlag is the exclusive
owner of said parcels. The CA however reversed this. The CA reversed the trial
court and declared Mercedes as the absolute and exclusive owner of the six (6)
parcels of land specified in the above-cited deed of donation inter vivos.
ISSUE: WON the CA gravely erred in reversing the TC’s decision – NO,
because there is proof that the donation was inter vivos and not mortis causa
(acceptance was made by Mercedes).
DOCTRINE: An acceptance clause is a mark that the donation is inter vivos.
Acceptance is a requirement for donations inter vivos. Donations mortis causa,
being in the form of a will, are not required to be accepted by the donees during
the donors' lifetime.
The Gestopas aver that Mercedes' tax declarations in her name can not be a
basis in determining the donor's intent. They claim that it is easy to get tax
declarations from the government offices such that tax declarations are not
considered proofs of ownership. However, unless proven otherwise, there is a
presumption of regularity in the performance of official duties. Moreover, Court
of Appeals did not refer to the tax declarations as proofs of ownership but only
as evidence of the intent by the donor to transfer ownership.
FACTS:
1. Sps. Diego and Catalina Danlag were the owners of six parcels of
unregistered land and executed 3 deeds of donation mortis causa, two of
which are dated March 4, 1965 and another, October 13, 1966 in favor of
private respondent Mercedes.
2. First deed pertained to parcels 1&2, second deed pertained to parcel 3. Last
deed pertained to parcel 4. All deeds contained the reservation of the rights
of the donors (1) to amend, cancel or revoke the donation during their
lifetime, and (2) to sell, mortgage, or encumber the properties donated
during the donors' lifetime, if deemed necessary.
3. On January 1973, Diego with Catalina’s consent executed a deed of
donation inter vivos covering the same parcels of land + 2 other parcels,
again in favor of private respondent Mercedes.
4. This contained 2 conditions, that (1) the Danlag spouses shall continue to
enjoy the fruits of the land during their lifetime, and that (2) the donee can
not sell or dispose of the land during the lifetime of the said spouses,
without their prior consent and approval. Mercedes caused the transfer of
the parcels' tax declaration to her name and paid the taxes on them.
5. On June and August 1979, Sps. Danlag sold parcels 3 and 4 to herein
petitioners Sps. Gestopa. On September 1979, Sps. Danlag executed a deed
of revocation recovering all parcels of land they donated to Mercedes.
6. On March 1983, Mercedes filed a petition with the RTC against the
Gestopas and Danlags for quieting of title over all parcels.
7. She alleged she was Diego’s illegitimate daughter, and performed services
to Diego and his mother.
8. In recognition of such, Diego executed the deeds of donation. She accepted
these donations in the same instrument, and caused the transfer of tax
declarations to her name.
9. Through machination, intimidation and undue influence, Diego persuaded
the husband of Mercedes, Eulalio Pilapil, to buy two of the six parcels
covered by the deed of donation. Said donation inter vivos was coupled
with conditions and, according to Mercedes, since its perfection, she had
complied with all of them; that she had not been guilty of any act of
ingratitude; and that respondent Diego had no legal basis in revoking the
subject donation and then in selling the two parcels of land to the Gestopas.
10. Gestopas and Danlags averred that the donations were null and void for
being obtained by Mercedes through machinations and undue influence, and
though validly executed, intention was for it to take effect upon the donor’s
death.
11. Moreover, the donation was void for it left the donor, Diego Danlag,
without any property at all.
12. The trial court declared the donations as revoked, and Diego as the
exclusive owner of the parcels. Moreover, it ordered all tax declarations
issued in Mercedes’ name cancelled.
13. The CA reversed the trial court and declared Mercedes as the absolute and
exclusive owner of the six (6) parcels of land specified in the above-cited
deed of donation inter vivos.
ISSUE/s:
1. WoN the CA gravely erred in reversing the TC’s decision – NO, because
there is proof that the donation was inter vivos and not mortis causa
(acceptance was made by Mercedes)
RULING: WHEREFORE, the instant petition for review is DENIED. The assailed
decision of the Court of Appeals dated August 31, 1993, is AFFIRMED.
RATIO:
1. The deed of donation stated:
a. That for and in consideration of the love and affection which the
Donor inspires in the Donee and as an act of liberality and
generosity, the Donor hereby gives, donates, transfer and conveys
by way of donation unto the herein Donee, her heirs, assigns and
successors, the above-described parcels of land;
b. That it is the condition of this donation that the Donor shall
continue to enjoy all the fruits of the land during his lifetime and
that of his spouse and that the donee cannot sell or otherwise,
dispose of the lands without the prior consent and approval by the
Donor and her spouse during their lifetime.
c. That for the same purpose as hereinbefore stated, the Donor further
states that he has reserved for himself sufficient properties in full
ownership or in usufruct enough for his maintenance of a decent
livelihood in consonance with his standing in society.
d. That the Donee hereby accepts the donation and expresses her
thanks and gratitude for the kindness and generosity of the Donor
2. The granting clause shows that Diego donated the properties out of love and
affection for the donee. This is a mark of a donation inter vivos.
3. Second, the reservation of lifetime usufruct indicates that the donor
intended to transfer the naked ownership over the properties.
4. Third, the donor reserved sufficient properties for his maintenance in
accordance with his standing in society, indicating that the donor intended
to part with the six parcels of land.
5. Lastly, the donee accepted the donation.
6. An acceptance clause is a mark that the donation is inter vivos. Acceptance
is a requirement for donations inter vivos. Donations mortis causa, being in
the form of a will, are not required to be accepted by the donees during the
donors' lifetime.
7. The Gestopas aver that Mercedes' tax declarations in her name can not be a
basis in determining the donor's intent. They claim that it is easy to get tax
declarations from the government offices such that tax declarations are not
considered proofs of ownership. However, unless proven otherwise, there is
a presumption of regularity in the performance of official duties.
8. The Gestopas did not overcome this presumption of regularity in the
issuance of the tax declarations. We also note that the Court of Appeals did
not refer to the tax declarations as proofs of ownership but only as evidence
of the intent by the donor to transfer ownership.
9. They also assert that since Mercedes purchased two of the six parcels of
land from the donor, she herself did not believe the donation was inter
vivos. As aptly noted by the Court of Appeals, however, it was private
respondent's husband who purchased the two parcels of land.
 015 PHILAMLIFE v. CIR (Fordan)
Nov. 24, 2014 | Velasco, Jr., J. | Donor’s tax on sale of shares of stock
PETITIONER: The Philippine American Life and General Insurance Company
(PhilamLife)
RESPONDENTS: The Secretary of Finance and the Commissioner of Internal
Revenue (CIR)
SUMMARY: Philamlife sold its 498,590 Class A shares of PhilamCare for
P104,259,330 to STI Investments, Inc. After the sale and the necessary documentary
stamp and capital gains taxes were paid, Philamlife filed an application for a
certificate authorizing registration/tax clearance with the BIR Large Taxpayers
Service Division to facilitate the transfer of the shares. But it was informed that it
needed to secure a BIR ruling due to potential donor’s tax liability. It complied with
the application explicitly stating that it cannot be subjected to donor’s tax since there
was no donative intent but the CIR denied Philamlife's request. As determined by the
CIR, the selling price of the shares thus sold was lower than their book value based
on the financial statements of PhilamCare as of the end of 2008. As such, the CIR
held, donor's tax became imposable on the price difference pursuant to Sec. 100 7 of
the NIRC and as implemented by RR No. 8-2008. In view of the foregoing, the CIR
ruled that the difference between the book value and the selling price in the sales
transaction is taxable donation subject to a 30% donor's tax under Sec. 99(B) of the
NIRC. CIR likewise held that BIR Ruling [DA-(DT-065) 715-09], on which
Philamlife anchored its claim, has already been revoked by RMC No. 25-2011.
Aggrieved, Philamlife requested Secretary to review CIR’s ruling but the latter
affirmed the ruling. On appeal, the CA dismissed the petition for lack of jurisdiction.
Hence, the current petition.
The issue is whether or not the price difference in Philamlife's adverted sale of shares
in PhilamCare attracts donor's tax. YES. *doctrine* Moreover, Sec. 7(c.2.2) of RR
06-08 does not alter Sec. 100 of the NIRC but merely sets the parameters for
determining the "fair market value" of a sale of stocks. Such issuance was made
pursuant to the Commissioner's power to interpret tax laws and to promulgate rules
and regulations for their implementation. Lastly, Philamlife is mistaken in stating
that RMC 25-11, having been issued after the sale, was being applied retroactively in
contravention to Sec. 246 of the NIRC. Instead, it merely called for the strict
application of Sec. 100, which was already in force the moment the NIRC was
enacted.
DOCTRINE: The absence of donative intent if that be the case, does not exempt the
sales of stock transaction from donor's tax since Sec. 100 of the NIRC categorically
7
SEC. 100. Transfer for Less Than Adequate and full Consideration. — Where property, other than real
property referred to in Section 24(D), is transferred for less than an adequate and full consideration in
money or money's worth, then the amount by which the fair market value of the property exceeded the
value of the consideration shall, for the purpose of the tax imposed by this Chapter, be deemed a gift, and
shall be included in computing the amount of gifts made during the calendar year.
states that the amount by which the fair market value of the property exceeded the
value of the consideration shall be deemed a gift. Thus, even if there is no actual
donation, the difference in price is considered a donation by fiction of law.
FACTS:
50. Philamlife used to own 498,590 Class A shares in Philam Care Health Systems,
Inc. (PhilamCare), representing 49.89% of the latter's outstanding capital stock.
51. In 2009, Philamlife, in a bid to divest itself of its interests in the health
maintenance organization industry, offered to sell its shareholdings in
PhilamCare through competitive bidding. Thus, on Sept. 24, 2009, its Class A
shares were sold for P104,259,330 to STI Investments, Inc., who emerged as
the highest bidder.
52. After the sale and the necessary documentary stamp and capital gains taxes
were paid, Philamlife filed an application for a certificate authorizing
registration/tax clearance with the BIR Large Taxpayers Service Division to
facilitate the transfer of the shares.
53. Philamlife was then informed that it needed to secure a BIR ruling in
connection with its application due to potential donor's tax liability. In
compliance, on Jan. 4, 2012, it requested a ruling 4 to confirm that the sale was
not subject to donor's tax, pointing out, the following: that the transaction
cannot attract donor's tax liability since there was no donative intent and, ergo,
no taxable donation, citing BIR Ruling [DA-(DT- 065) 715-09] dated Nov. 27,
2009; that the shares were sold at their actual fair market value and at arm's
length; that as long as the transaction conducted is at arm's length — such that a
bona fide business arrangement of the dealings is done in the ordinary course of
business — a sale for less than an adequate consideration is not subject to
donor's tax; and that donor's tax does not apply to sale of shares sold in an open
bidding process.
54. However, the CIR denied Philamlife's request through BIR Ruling No. 015-12.
As determined by the CIR, the selling price of the shares thus sold was lower
than their book value based on the financial statements of PhilamCare as of the
end of 2008. As such, the CIR held, donor's tax became imposable on the price
difference pursuant to Sec. 100 8 of the NIRC and as implemented by Revenue
Regulations (RR) No. 8-20089.
55. In view of the foregoing, the CIR ruled that the difference between the book
value and the selling price in the sales transaction is taxable donation subject to
a 30% donor's tax under Sec. 99(B) of the NIRC. CIR likewise held that BIR
Ruling [DA-(DT-065) 715-09], on which Philamlife anchored its claim, has
already been revoked by Revenue Memorandum Circular (RMC) No. 25-2011.
8
SEC. 100. Transfer for Less Than Adequate and full Consideration. — Where property, other than real
property referred to in Section 24(D), is transferred for less than an adequate and full consideration in
money or money's worth, then the amount by which the fair market value of the property exceeded the
value of the consideration shall, for the purpose of the tax imposed by this Chapter, be deemed a gift, and
shall be included in computing the amount of gifts made during the calendar year.
9
See end of digest for the details.
 56. Aggrieved, Philamlife requested Secretary of Finance (Secretary) to review
BIR Ruling No. 015-12, but to no avail since the latter affirmed the CIR’s
ruling.
57. Philamlife then elevated the case to the CA but the latter also dismissed due to
lack of jurisdiction. The CA ratiocinated that it is the CTA, pursuant to Sec.
7(a)(1) of Republic Act No. 1125 (RA 1125), as amended, which has
jurisdiction over the issues raised. The outright dismissal is predicated on the
postulate that BIR Ruling No. 015-12 was issued in the exercise of the CIR's
power to interpret the NIRC and other tax laws. Consequently, requesting for
its review can be categorized as "other matters arising under the NIRC or other
laws administered by the BIR," which is under the jurisdiction of the CTA, not
the CA.
ISSUES:
25. Whether or not the price difference in Philamlife's adverted sale of shares in
PhilamCare attracts donor's tax. -YES, since the difference in price is
considered a donation by fiction of law.
26. Whether or not the CA erred in dismissing the CA Petition for lack of
jurisdiction. -NO, since in the case of City of Manila v. Grecia-Cuerdo, the
Court en banc has ruled that the CTA now has the power of certiorari in cases
within its appellate jurisdiction.
RULING: The petition is hereby dismissed. The Resolutions of the CA are hereby
AFFIRMED.
RATIO:
On donor’s tax: (IMPORTANT)
1. Philamlife’s arguments are unavailing. The absence of donative intent if that
be the case, does not exempt the sales of stock transaction from donor's tax
since Sec. 100 of the NIRC categorically states that the amount by which
the fair market value of the property exceeded the value of the
consideration shall be deemed a gift. Thus, even if there is no actual
donation, the difference in price is considered a donation by fiction of law.
2. Moreover, Sec. 7(c.2.2) of RR 06-08 does not alter Sec. 100 of the NIRC but
merely sets the parameters for determining the "fair market value" of a sale of
stocks. Such issuance was made pursuant to the Commissioner's power to
interpret tax laws and to promulgate rules and regulations for their
implementation.
3. Lastly, Philamlife is mistaken in stating that RMC 25-11, having been issued
after the sale, was being applied retroactively in contravention to Sec. 246 of
the NIRC. Instead, it merely called for the strict application of Sec. 100, which
was already in force the moment the NIRC was enacted.
On jurisdiction of the CA:
4. Philamlife claimed that the ruling of the CIR is subject to review by the
Secretary under Sec. 4 of the NIRC, and that of the Secretary to the CA via
Rule 43. The Secretary and the CIR claimed that the ruling of the CIR is subject
to review by the Secretary under Sec. 4 of the NIRC, and that of the Secretary
to the Office of the President before appealing to the CA via a Rule 43 petition.
On the other hand, the CA ruled that CIR’s ruling is subject to review by the
CTA.
5. The SC held that there is no dispute that what is involved herein is the CIR's
exercise of power under the 1st paragraph of Sec. 4 of the NIRC — the power to
interpret tax laws. This, in fact, was recognized by the CA itself, but
erroneously held that her action in the exercise of such power is appealable
directly to the CTA. As correctly pointed out by Philamlife, Sec. 4 of the NIRC
readily provides that the CIR's power to interpret the provisions of this Code
and other tax laws is subject to review by the Secretary. The issue that now
arises is this —where does one seek immediate recourse from the adverse
ruling of the Secretary in its exercise of its power of review under Sec. 4?
6. Admittedly, there is no provision in law that expressly provides where exactly
the ruling of the Secretary of Finance under the adverted NIRC provision is
appealable to.
7. However, we find that Sec. 7(a)(1) 10 of RA 1125, as amended, addresses the
seeming gap in the law as it vests the CTA, albeit impliedly, with jurisdiction
over the CA petition as "other matters" arising under the NIRC or other laws
administered by the BIR. Even though the provision suggests that it only covers
rulings of the CIR, we hold that it is, nonetheless, sufficient enough to include
appeals from the Secretary's review under Sec. 4 of the NIRC.
8. It is axiomatic that laws should be given a reasonable interpretation which does
not defeat the very purpose for which they were passed. Courts should not
follow the letter of a statute when to do so would depart from the true intent of
the legislature or would otherwise yield conclusions inconsistent with the
purpose of the act.
9. Indeed, to leave undetermined the mode of appeal from the Secretary would be
an injustice to taxpayers prejudiced by his adverse rulings. To remedy this
situation, we imply from the purpose of RA 1125 and its amendatory laws that
the CTA is the proper forum with which to institute the appeal. This is not, and
should not, in any way, be taken as a derogation of the power of the Office of
President but merely as recognition that matters calling for technical knowledge
should be handled by the agency or quasi-judicial body with specialization over
the controversy. As the specialized quasi-judicial agency mandated to
adjudicate tax, customs, and assessment cases, there can be no other court of
appellate jurisdiction that can decide the issues raised in the CA petition, which
involves the tax treatment of the shares of stocks sold.
10
Sec. 7. Jurisdiction. — The CTA shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments,
refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, orother matters
arising under the National Internal Revenue or other laws administered by the Bureau of Internal
Revenue. (emphasis supplied)
 10. Furthermore, Philamlife claimed that the grounds raised in its CA petition (c.2.2) In the case of shares of stock not listed and traded in the local stock
included the nullity of Section 7(c.2.2) of RR 06-08 and RMC 25-11. In an exchanges, the book value of the shares of stock as shown in the financial statements
attempt to divest the CTA jurisdiction over the controversy, Philamlife duly certified by an independent certified public accountant nearest to the date of
petitioner then cites British American Tobacco11, wherein this Court has sale shall be the fair market value.
expounded on the limited jurisdiction of the CTA.
11. However, in the recent case of City of Manila v. Grecia-Cuerdo, the Court en
banc has ruled that the CTA now has the power of certiorari in cases within its
appellate jurisdiction. This case diametrically opposes British American
Tobacco to the effect that it is now within the power of the CTA, through its
power of certiorari, to rule on the validity of a particular administrative rule or
regulation so long as it is within its appellate jurisdiction. Hence, it can now
rule not only on the propriety of an assessment or tax treatment of a certain
transaction, but also on the validity of the revenue regulation or revenue
memorandum circular on which the said assessment is based.
12. Guided by the doctrinal teaching in resolving the case at bar, the fact that the
CA petition not only contested the applicability of Sec. 100 of the NIRC over
the sales transaction but likewise questioned the validity of Sec 7(c.2.2) of RR
06-08 and RMC 25-11 does not divest the CTA of its jurisdiction over the
controversy, contrary to Philamlife’s arguments.

RR 6-2008:

SEC. 7. SALE, BARTER OR EXCHANGE OF SHARES OF STOCK NOT

TRADED THROUGH A LOCAL STOCK EXCHANGE PURSUANT TO SECS.
24(C), 25(A)(3), 25(B), 27(D)(2), 28(A)(7)(c), 28(B)(5)(c) OF THE TAX CODE,
AS AMENDED. —
xxx xxx xxx
(c) Determination of Amount and Recognition of Gain or Loss —
(c.1) In the case of cash sale, the selling price shall be the consideration per deed of
sale.
xxx xxx xxx
(c.1.4) In case the fair market value of the shares of stock sold, bartered, or
exchanged is greater than the amount of money and/or fair market value of the
property received, the excess of the fair market value of the shares of stock sold,
bartered or exchanged over the amount of money and the fair market value of the
property, if any, received as consideration shall be deemed a gift subject to the
donor's tax under Section 100 of the Tax Code, as amended.
xxx xxx xxx
(c.2) Definition of 'fair market value' of Shares of Stock. — For purposes of this
Section, 'fair market value' of the share of stock sold shall be:
xxx xxx xxx

11
While the above statute confers on the CTA jurisdiction to resolve tax disputes in general, this does not
include cases where the constitutionality of a law or rule is challenged. Where what is assailed is the
validity or constitutionality of a law, or a rule or regulation issued by the administrative agency in the
performance of its quasi-legislative function, the regular courts have jurisdiction to pass upon the same.
xxx

016 METRO PACIFIC CORPORATION v. CIR (FARCON)
June 11, 2014 | Castañeda, Jr, J. | General Principles & Determination of the Donor’s
Tax
PETITIONER: Metro Pacific Corporation (now Neo Oracle Holdings, Inc.)
RESPONDENT: Commissioner of Internal Revenue (CIR)
SUMMARY: Metro Pacific Corporation (MPC), by a Deed of Absolute Sale,
sold to Columbus Holdings, Inc. (CHI) 2,597,197 common shares in Bonifacio
Land Corporation (BLC) with a par value of P100.00 each, for the amount of
P410,357,126.00, or P158.00 per share. The CIR, through the Assistant
Commissioner for Legal Service, issued BIR Ruling DA (DT-065)715-2009
confirming that the sales transaction is not subject to donor's tax. MPC
subsequently received a Notice from the CIR informing MPC that the subject
transaction is actually subject to donor's tax in the amount of P184,601,490.61,
inclusive of penalties. The CIR also issued RMC No. 25-2011 which declared
BIR Ruling No. DA (DT-065)715-2009 as null and void ab initio. MPC filed
the instant Petition for Review with the CTA.
ISSUE: WoN MPC is liable for the deficiency donor's tax assessment – YES.
Section 100 of the 1997 NIRC as amended is clear that in case where property is
transferred for less than an adequate and full consideration in money or money's
worth, then the amount by which the fair market value (FMV) of the property
exceeded the value of the consideration shall be deemed a gift, and shall be
included in computing the amount of gifts made during the calendar year. In the
determination of the fair market value of shares of stock not listed and traded in
the local stock exchanges, the CIR based it on the definition of the “fair market
value” of the shares of stock as stated in Section 7 (c.2.2) of RR No. 6-2008
which states that “book value of the shares of stock as shown in the financial
statements duly certified by an independent certified public accountant nearest
to the date of sale shall be the fair market value.” Considering that the FMV/BV
of the unlisted shares exceeds the consideration received, the excess is subject to
donor's tax under Sec. 100. MPC alleges that the subject transaction is not
subject to donor’s tax because the said transaction was an ordinary business
transaction negotiated in good faith by unrelated parties for legitimate purposes.
However, a plain reading of Sec. 100 shows that no exemption/exception was
stated therein. MPC failed to prove that the sale of BLC shares of stock is not
subject to donor's tax. Undoubtedly, the FMV of the unlisted shares exceeded
the consideration received, thus, the transaction is subject to donor's tax.
DOCTRINE: Section 100 of the 1997 NIRC, as amended, is clear that in case
where property is transferred for less than an adequate and full consideration in
money or money's worth, then the amount by which the fair market value
(FMV) of the property exceeded the value of the consideration shall be deemed
a gift, and shall be included in computing the amount of gifts made during the
calendar year. It is thus important to determine the fair market value of the
property sold or transferred, and whether it exceeded the value of the
consideration. In the determination of the fair market value of shares of stock
not listed and traded in the local stock exchanges, the book value of the shares
of stock as shown in the financial statements duly certified by an independent
certified public accountant nearest to the date of sale shall be the fair market
value.
FACTS:
1. Metro Pacific Corporation (MPC), by a Deed of Absolute Sale, sold to
Columbus Holdings, Inc. (CHI) 2,597,197 common shares in Bonifacio
Land Corporation (BLC) with a par value of P100.00 each, for the amount
of P410,357,126.00, or P158.00 per share. MPC then requested the
Commissioner of Internal Revenue (CIR) for confirmation that the sale of
BLC shares of stocks owned by MPC to CHI is not subject to donor's tax
[as provided in Section 100 of the Internal Revenue Code] as “it is an
ordinary business transaction negotiated in good faith by unrelated parties
for legitimate business purposes.”
2. MPC, as seller, filed the Capital Gains Tax (CGT) Return with the BIR
Large Taxpayers Service-Regular (BIR LTS-Regular) and the Documentary
Stamp Tax (DST) Return. The said CGT return showed that there was no
tax due or paid for the transaction given that the taxable base (selling price
or fair market value whichever is higher) of P864,295,217.66 was lesser
than the declared cost of P1,142,563,358.91 by P278,268,141.25, a loss,
hence, no capital gains tax due. On the other hand, the DST return showed
that tax due for DST amounted to P973,949.00, computed based on a
taxable base-shares of stock of P259,719,700.00, multiplied by the tax rate
of P0.75/200.
3. The CIR through James H. Roldan (Assistant Commissioner for Legal
Service) issued BIR Ruling DA (DT-065)715-2009 confirming that the
sales transaction over the BLC shares between MPC as seller and CHI as
buyer is not subject to donor's tax because it is an ordinary commercial
transaction negotiated in good faith between unrelated parties and motivated
by legitimate business reasons:
“Although the sale of the BLC shares by MPC to CHI was made at
a price lower than the book value of the shares, this Office is of the
opinion that the instant case is an exception to the rule on deemed
gift provisions: first, the sale was entered into as an ordinary
commercial transaction for legitimate business purposes between
unrelated parties. Second, and more important, the evil sought to
be avoided by the law does not exist in the given set of facts.
Granting that the selling price is lower than the book value, this is
not intended to gain tax advantage due to the fact that the seller
will still be in a loss position even if it disposes off the shares at
book value because the acquisition cost is much higher than the
book value. Hence, there can be no instance where parties can
 avoid the payment of capital gains tax since the transaction does
not yield any gain on the part of the seller.
x x x this Office hereby confirms that the difference between the
book value and the selling price of the BLC shares is not a taxable
donation subject to the 30% donor's tax under Section 99(B) of the
Tax Code, in relation to Section 100 of the same Code because it is
an ordinary commercial transaction negotiated in good faith
between unrelated parties and motivated by legitimate business
reasons. Moreover, it has been ascertained that the transaction was
not intended to avoid the payment of the capital gains tax as the
total acquisition cost of the shares is very much higher than their
book value.”
4. The Tax Clearance Certificate and the Certificate Authorizing Registration
pertaining to the sale of BLC shares subject of this case were issued.
5. MPC received a Notice For Informal Conference from the CIR informing
MPC that the subject transaction is actually subject to donor's tax in the
amount of P184,601,490.61, inclusive of penalties. In response to the
Notice, MPC requested the CIR for the re-evaluation of the factual
information presented by MPC and for the cancellation of the tax
assessment shown in the Notice. The CIR issued a Preliminary Assessment
Notice (PAN), with the corresponding details of discrepancy. MPC filed its
protest on the PAN.
6. MPC received from the CIR a Final Assessment Notice (FAN), details of
discrepancy and Audit Result/ Assessment Notice No. DT-2010-0001,
reiterating its demand for payment of deficiency donor's tax, in the total
amount of P199,736,445.50, inclusive of penalties. MPC filed its Formal
Protest Letter to the FAN.
7. The CIR subsequently issued a Final Decision on Disputed Assessment
(FDDA) denying MPC’s protest to the FAN issued for the deficiency
donor's tax. The CIR also issued Revenue Memorandum Circular No. 25-
2011, dated March 2, 2011, for the information and guidance of all internal
revenue officials, which declared the BIR Ruling No. DA (DT-065)715-
2009 dated November 27, 2009 as null and void ab initio as it
contravenes a direct provision of the NIRC of 1997.
8. MPC filed the instant Petition for Review.
9. The CIR filed her Answer, claiming that the provisions of RR No. 6-2008
specifically Section 7-c.1.4 and 7-c.2.212 clearly provide that when the fair
12SEC. 7. SALE, BARTER OR EXCHANGE OF SHARES OF STOCK NOT TRADED
THROUGH A LOCAL STOCK EXCHANGE PURSUANT TO SECS. 24(C), 25(A)(3),
25(8), 27(D)(2), 28(A)(7)( c), 28(8)(5)( c) OF THE TAX CODE, AS AMENDED.
(c.1.4) In case the fair market value of the shares of stock sold, bartered, or exchanged is
greater than the amount of money and/or fair market value of the property received, the excess
of the fair market value of the shares of stock sold, bartered or exchanged over the amount of
money and the fair market value of
market value of the shares of stock sold, bartered or exchanged is greater
than the amount of money and/or fair market value of the property received,
the excess of the fair market value of the shares of stock sold, bartered or
exchanged over the amount of money and the fair market value of the
property, if any, received as consideration shall be deemed a gift subject to
the donor's tax under Sec. 100 of the Tax Code. In case of shares of stock
not listed and traded in the local stock exchanges, the book value of the
shares of stock as shown in the financial statements duly certified by and
independent certified public accountant nearest to the date of sale shall be
the fair market value.
10. MPC claims that the CIR's assessment results from an erroneous application
of Section 100 of the National Internal Revenue Code, and is therefore not
valid and without factual and legal basis, for the following reasons:
a. The CIR made no prior determination that the consideration paid
by CHI to MPC is "less" than adequate and full nor did she make a
prior determination of the "fair market value" of the shares of stock
transferred. Consequently, there is no basis for concluding that the
"fair market value" exceeded the "value of the consideration" and
that a portion of the selling price may be deemed a gift.
b. Relying on Revenue Regulations No. 6-2008, particularly its
Section 7(C.2.2), the CIR arbitrarily and erroneously considered
the "book value" of the subject shares of stock in BLC as their "fair
market value" for the purpose of applying Section 100. "Fair
market value" and "book value" are entirely two (2) different
concepts, and to consider the "book value" as the "fair market
value" is entirely unwarranted.
c. Absent evidence to the contrary and a determination by the CIR
that the consideration for the transfer by MPC to CHI of BLC
shares for the amount of P410,357,126.00, or P158.00 per share, is
"less" than adequate and full, the consideration of P410,357,126.00
must be deemed "adequate and full" and to be the "fair market
value" of the shares at the time of transfer.
d. There is evidence that the subject transaction is an ordinary
business transaction negotiated in good faith by unrelated parties
for legitimate purposes.
e. The subsequent revocation of the ruling which the CIR had
previously issued is in violation of MPC's due process rights and
on an improper basis and therefore not valid; and assuming that the
property, if any, received as consideration shall be deemed a gift subject to the donor's tax
under Sec. 100 of the Tax Code, as amended.
(c.2.2) In the case of shares of stock not listed and traded in the local stock exchanges, the
book value of the shares of stock as shown in the financial statements duly certified by and
independent certified public accountant nearest to the date of sale shall be the fair market
value.
 revocation is valid, the CIR likewise erred in giving the revocation
a retroactive effect.
ISSUE/s:
1. WoN MPC is liable for the deficiency donor's tax assessment in the
aggregate amount of Php212,241,737.90 inclusive of interest and
penalty – YES.
2. WoN Revenue Memorandum Circular No. 25-2011, which reverses BIR
Ruling No. DA (DT-065) 715-2009, is valid – YES.
3. WoN Revenue Memorandum Circular No. 25-2011 may be given
retroactive effect – YES.
RULING: The instant Petition for Review is hereby DENIED for lack of merit.
Accordingly, petitioner is hereby ORDERED to PAY respondent deficiency donor's
tax in the amount of P170,229,925.14, inclusive of the 25% surcharge imposed under
Section 248(A)(3) of the NIRC of 1997.
RATIO:
On the assessment of donor’s tax: (IMPORTANT)
1. Pertinent to this case is Section 100 of the 1997 NIRC, as amended, which
provides:
SEC. 100. Transfer for Less Than Adequate and Full Consideration. -
Where property, other than real property referred to in Section 24(0), is
transferred for less than an adequate and full consideration in money or
money's worth, then the amount by which the fair market value of the
property exceeded the value of the consideration shall, for the purpose of
the tax imposed by this Chapter, be deemed a gift, and shall be included in
computing the amount of gifts made during the calendar year.
2. Section 100 of the 1997 NIRC, as amended, is clear that in case where
property is transferred for less than an adequate and full consideration in
money or money's worth, then the amount by which the fair market value of
the property exceeded the value of the consideration shall be deemed a gift,
and shall be included in computing the amount of gifts made during the
calendar year. It is thus important to determine the "fair market value" of
the property sold or transferred, and whether it exceeded the value of the
consideration.
3. In this case, the BLC shares were not listed and traded in the local stock
exchange. This situation deprives a clear possibility of determining the
stocks' benchmark fair market value/s as traded in the stock market. In the
determination of the fair market value of shares of stock not listed and
traded in the local stock exchanges, the CIR based it on the definition of the
“fair market value” of the shares of stock as stated in Section 7 (c.2.2) of
RR No. 6-2008 which states that “book value of the shares of stock as
shown in the financial statements duly certified by an independent certified
public accountant nearest to the date of sale shall be the fair market value.”
4. MPC questioned the CIR's treatment of the book value as the FMV of the
unlisted shares based on the above-quoted RR. However, BIR Ruling No.
DA (DT-065) 715-2009, which MPC claims to be determinative of the non-
taxability of the transaction subject of the instant case, applied the assailed
RR 6-2008 in implementing Sec. 100 of the Tax Code. The said BIR Ruling
No. DA (DT-065) 715-2009 provides: “in case the consideration of the sale
of shares of stock not listed and traded through the local stock exchange is
lower than the fair market value (FMV)/book value of the shares, the
difference between the book value and the selling price of the shares is
considered as a gift subject to donor's tax under Section 100 of the Tax
Code. While this is the general rule, it should be borne in mind, however,
that the application of this provision is obtaining only in the situation where
a tax is sought to be avoided by the parties to a sale.”
5. Considering that petitioner invokes the said BIR Ruling No. DA(DT-065)
715-2009, which applies the assailed RR 6-2008 (although opines with
exception), MPC is deemed to have admitted the definition of the fair
market value of the unlisted shares as the "the book value of the shares of
stock as shown in the financial statements duly certified by an independent
certified public accountant nearest to the date of sale shall be the fair market
value." Simply stated, the book value was treated as the FMV in the unlisted
shares.
6. MPC attempts to prove that the prevailing price of BLC shares as of the
date of the sale of the subject shares was P158.00 per share or could be sold
lower than the consideration under the Deed of Absolute Share between
MPC and CHI, with value of P158.00 per share. Thus, MPC presented in
evidence the Deeds of Absolute Sale involved in the transaction. These
pieces of evidence, however, merely proved the consideration received in
the sale of the BLC shares.
7. With respect to the FMV of the BLC shares, MPC itself admitted in its CGT
return that the FMV is P332.78 per share. The CGT Return indicated that
the fair market value was at P332.78 per share and not the P158 per share
selling price. Again, MPC is bound by this declaration under entry 18 of its
CGT Return when it filed the same before the CIR covering the subject
transaction. The Court considers the credibility of the CGT Return because
it was filed with the BIR and it was executed under the pain of perjury, thus,
the figures appearing therein should be taken at face value. The Court is
therefore convinced that book value of the BLC shares is same as the FMV.
Considering that the FMV/BV of the unlisted shares exceeds the
consideration received, the excess is subject to donor's tax under Sec.
100 of the 1997 NIRC, as amended.
8. MPC alleges, on the assumption that the subject shares were sold for less
than their "fair market value", that the subject transaction was an ordinary
business transaction negotiated in good faith by unrelated parties for
legitimate purposes operate to exclude he subject transaction from the
coverage of Section 100 of the NIRC, the same being a transfer which is
bona fide, at arm's length and free from any donative intent.
 9. A plain reading of Sec. 100 of the 1997 NIRC, as amended, shows that
no exemption/exception was stated therein. If the legislature intended an
exception/exemption to Sec. 100 of the 1997 NIRC, as amended, it could
have clearly stated therein such exception/exemption. It has been held that
exemptions are never presumed, the burden is on the claimant to establish
clearly his right to exemption and cannot be made out of inference or
implications but must be laid beyond reasonable doubt. In other words,
since taxation is the rule and exemption the exception, the intention to make
an exemption ought to be expressed in clear and unambiguous terms.
On the validity of RMC No. 25-2011:
10. Revenue memorandum-circulars are considered administrative rulings (in
the sense of more specific and less general interpretations of tax laws)
which are issued from time to time by the Commissioner of Internal
Revenue. A perusal of RMC No. 25-2011, which revoked BIR Ruling No.
DA (DT-065) 715-2009, shows that the CIR is merely exercising her
original and exclusive jurisdiction to interpret provision of the NIRC of
1997, as amended, including the power to revoke and nullify BIR rulings.
The CIR interpreted that Section 100 of the NIRC of 1997, as amended, and
Section 7 (c.l.4) of RR No. 6-2008, do not mention of any exempt
transaction. Thus, the said BIR Ruling DA was revoked by the CIR because
the taxpayer's claim for exemption from donor's tax has no legal basis as
stated in RMC No. 25-2011.
11. Based on the foregoing, it is apparent that RMC No. 25-2011 is merely an
interpretative rule which provides guidelines to the law which the
administrative agency is in charge of enforcing. The assailed RMC does not
increase the burden of those governed. It only ensures the enforcement of
RR 6-2008. Its applicability, therefore, needs nothing further than its bare
issuance. No prior notice or hearing is necessary. RMC No. 25-2011 was
issued and MPC even admitted that it received a copy of the said RMC. In
effect, the CIR’s revocation of BIR Ruling No. DA (DT-065) 715-2009 thru
the issuance of RMC No. 25-2011 was made in accordance with law.
rule on non-retroactivity of rulings in Sec. 246 should apply only when
there is a valid interpretation made by the Commissioner of Internal
Revenue. After a careful scrutiny of the BIR Ruling No. DA (DT-065)715-
2009, We find that the said ruling is a ruling of first impression issued by an
Assistant Commissioner. Pursuant to Section 7 of the 1997 NIRC, as
amended, the power of the Commissioner to issue rulings of first
impression shall not be delegated. Rulings of first impression refer to the
rulings, opinions and interpretations of the Commissioner with respect to
the provisions of the Tax Code and other tax laws without established
precedent, and which are issued in response to a specific request for ruling
filed by a taxpayer with the Bureau of Internal Revenue. Provided however,
that the term shall include reversal, modifications or revocation of any
existing ruling.
13. In this case, the ruling of the Assistant Commissioner is in fact a ruling of
first impression because there is no established precedent on the matter.
Considering that BIR Ruling No. DA (DT-065)715-2009 is invalid because
it was issued in violation of Sec. 7 of the NIRC, as amended, it follows,
therefore, that the provision on the non-retroactivity of rulings of the
Commissioner does not apply.
14. Based on the foregoing discussions, MPC failed to prove that the sale of
BLC shares of stock is not subject to donor's tax. Undoubtedly, the
FMV (book value) of the unlisted shares exceeded the consideration
received, thus, the transaction is subject to donor's tax.

On the retroactive effect given to RMC No. 25-2011:

12. MPC alleges that the retroactive effect given to the revocation is in
violation of Section 246 13 of the NIRC, as amended. We do not agree. The

13 SEC. 246. Non-retroactivity of Rulings. - Any revocation, modification or reversal of any of

the rules and regulations promulgated in accordance with the preceding Sections or any of the
rulings or circulars promulgated by the Commissioner shall not be given retroactive
application if the revocation, modification or reversal will be prejudicial to the taxpayers,
except in the following cases:
(a) Where the taxpayer deliberately misstates or omits material facts from his return or any
document required of him by the Bureau of Internal Revenue;
(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially
different from the facts on which the ruling is based; or
(c) Where the taxpayer acted in bad faith.
 017 GIBBS vs. COLLECTOR OF INTERNAL REVENUE
G.R. No. L-14166 & G.R. No. L-14320 (both parties appealed) | April 28, 1962 |
Concepcion , J. | General principles and determination of the donor’s tax
G.R. No. L-14166 (Appeal by Gibbses)
PETITIONERS: FINLEY J. GIBBS, as Trustee for JOHNSON KELLEY GIBBS,
ALLISON DEFRANCE GIBBS, CANDACE GIBBS, DOUGLAS FLETCHER
GIBBS, and REGINALD KELLEY GIBBS, plaintiff-petitioner; ALLISON J. GIBBS
and ESTHER K. GIBBS, intervenors-petitioners
RESPONDENTS: COLLECTOR OF INTERNAL REVENUE (CIR) and COURT of
TAX APPEALS (CTA)
G.R. No. L-14320 (Appeal by CIR)
PETITIONER: COLLECTOR OF INTERNAL REVENUE
RESPONDENTS: FINLEY J. GIBBS, as Trustee for JOHNSON KELLEY GIBBS,
ALLISON DEFRANCE GIBBS, CANDACE GIBBS, DOUGLAS FLETCHER
GIBBS and REGINALD KELLEY GIBBS, respondent; ALLISON J. GIBBS and
ESTHER K. GIBBS, respondents-intervenors
SUMMARY: In 1950 and 1951, Sps. Allison & Esther Gibbs (Sps. Gibbs), executed
20 separate documents (10 each year, 5 per spouse), transferring their Lepanto shares to
their 5 children, in consideration of a sum of money below the shares’ actual market
value at that time. CIR assessed both donor’s and donee’s gift tax on each of the
parties, respectively. The assessments were based on the difference between the market
value of the shares and the consideration stipulated in the instruments, with the
exception of the donee’s tax assessed on the 1950 trust which was based on the full
market value of the shares of stocks. Holding that assessment should really be indeed
based on the full market value, additional donor’s taxes were assessed for the 1950 &
1951 trust, while additional donee’s taxes were assessed for the 1951 trust. Extension
for the date of payment was given to the tax payers (CIR demanded that payment be
made on or before June 30, 1954; extension given until July 30), on which date they
paid the sums due under protest. CTA ordered CIR to make a refund to the Gibbses,
with legal interest from date of payment. CTA stated that delinquency interest should
be computed only from the time of the extension granted.
The issues in this case are: (Appeal 1) Should the gift taxes be based on the full
market value, or the difference between the market value and the stipulated
consideration in the trust agreements; and (Appeal 2) a) When is the reckoning point
for the charging of interest b) Should government pay interest on the amount
refundable?
In relation to the first issue, the SC held that in this case, the gift taxes should be
based on the full market value as the stipulated considerations were merely simulated.
Sps. Gibbs did not demand payment or collect the consideration. The spouses
introduced in evidence a compromise agreement and promissory notes to show that
they agreed to suspend the payment due from their children, but the SC said that these
were a mere devise to evade the payment of the gift taxes. Moreover, when dividends
were declared from the shares of stocks, the spouses did not bother to collect the
amount of stipulated consideration.
As to the second issue, SC said that interest should be charged only for the period of
the extension secured for the payment of the trust assessments pursuant to Section
118(b) of the Tax Code, which provides: “In case an extension for the payment of a
deficiency is granted, there shall be collected, as a part of the taxes, interest on the part
of the deficiency the time for payment of which is so extended, at the rate of six per
centum per annum for the period of the extensions.”
Finally, the SC said that the Government should not be required to pay interest on
the amount refundable to the trustee and the trustors. The matter of payment of interest
on sums collected by way of taxes, which the Government is subsequently sentenced to
refund to the taxpayer, depends upon whether or not the collection of said sums is
manifestly unwarranted. In the case at bar, it is clearly not so, in the light of the
attending circumstances.
DOCTRINE: The gift taxes on the transfer of the shares of stock should be based on
the full market value of said shares of stock at the time of the respective transfers when
considerations stipulated were merely simulated.
Trustors – Spouses Allison and Esther Gibbs (Sps. Gibbs)
Trustee – Finley Gibbs (brother of Allison)
Beneficiaries – Sps. Gibbs’ 5 children: Johnson, Allison Defrance, Candace,
Douglas & Reginald
FACTS:
1. On September 25, 1950, Sps. Gibbs executed five (5) separate documents
each, entitled "Deed of Sale and Declaration of Trust", whereby they
transferred, sold and assigned, in trust, 53,000 shares of stock of the Lepanto
Consolidated Mining Co., in favor of each one of their five (5) children, in
consideration of the sum of P26,227.70, to be paid "on or before December
23, 1950, by selling, mortgaging, hypothecating or pledging part or all of the
corpus of the trust." The market value of said 53,000 shares on September 25,
1950 was P34,980.00.
2. Finley Gibbs was instituted as the trustee. The trust was to terminate upon the
respective beneficiary reaching the age of 35. If the beneficiary died before
reaching that age, leaving legitimate issue the trust would continue, but for the
benefit of the latter, and the full distribution and termination of the trust with
respect to such issue would be effected not later than 20 years after the death
of said beneficiary. If the beneficiary died before reaching the age of 35
leaving no legitimate issue, the trustee would turn over the trust corpus or the
remainder thereof and any accumulated income, share and share alike, to the
other beneficiaries or children of the trustors.
 3. On December 14, 1950, CIR assessed a donee gift tax of P75.00 on each of
the beneficiaries in said trust agreements, or a total of P750.40, and a donor
gift tax of P774.04 on each of the trustors, or P1,548.08 for both. These
assessments were based upon the difference between said market value of the
shares of stock and the stipulated consideration for transfer thereof.
4. On December 22, 1950, CIR revised his assessment of the donor gift tax by
increasing it from P774.04 to P342.84 for each trustor, or a total of P1,685.68.
The next day, the donee gift taxes were, also, increased, from the
aforementioned total sum of P750.40 to P17,856.90.
5. Within the period fixed by law, or on May 15, 1951, said donor and donee gift
taxes in the sums of P1,685.68 and P17,856.90, respectively, were paid.
Subsequently, the refund of P17,106.50, representing the difference between
the amount if the first assessment (P750.40) for donee gift taxes and that of
the second assessment thereof (P17,856.90), was demanded, but the demand
was, on August 23, 1951, turned down by the CIR.
6. On May 12, 1953, Finley instituted Civil Case No. 19541 of the Court of First
Instance of Manila against the CIR for the recovery of such amount (records
forwarded to CTA).
7. Meanwhile, on December 28, 1951, Sps. Gibbs, by five (5) separate
documents each, had created ten (10) additional trusts, each involving 22,400
shares of stock of the same mining company, in favor of each of the
beneficiaries, for the stipulated consideration of P17,430, to be paid by the
trustees within 120 days after the transfer of said stock has been effected in
the books of the mining company. Admittedly, the market value of said
22,400 shares was then P19,264.00.
8. These additional deeds of trust impelled CIR to assess, on April 8, 1952, a
donor gift tax of P304.42 on each trustor, or a total of P608.84 for both
trustors, and a donee gift tax of P36.69, on each of the beneficiaries, or a total
of P366.90. These amounts were paid on May 15, 1952, within the statutory
period therefor.
9. Holding that gift taxes are available on the full market value of all the shares
of stock thus placed in trust — instead of upon the difference between said
market value and the stipulated considerations — on June 16, 1954, CIR
assessed additional donor gift taxes in the sums of P5,093.71 on each trustor,
or a total of P10,187.42, for the ten (10) trusts created on September 25,
1950, and P8,788.78, on each trustor, or a total of P17,577.56 for the trusts
created on December 28, 1951. Additional donee gift taxes were, likewise,
assessed in the sum of P12,040.30 for the ten (10) additional trusts created on
December 28, 1951. The corresponding assessment notices demanded that
these three (3) sums be paid on or before June 30, 1954. Upon request of the
taxpayers, they were given an extension up to July 31, 1954, on which date
said sums were paid under protest.
10. Spouses Gibbs and Finley prayed for refund.
The Gibbses’ ARGUMENT:
1. Assessments should be based on the difference between the market value
and the stipulated considerations.
2. In relation to the interest, reckoning period should be on the extension
period granted, under Section 118(b) of the Tax Code.
CIR’s ARGUMENT:
1. Assessments should be based on the full market value of all the shares of
stock.
2. The stipulated considerations were simulated.
3. In relation to interest, reckoning period should be May 15 th as provided by
Sec. 116 of the Tax Code.
CTA’s RULING:
1. CIR is ordered to refund to the plaintiff the sum P5,381.88, with interest the
legal rate from date of payment
CTA’s Resolution on Motion for Reconsideration:
1. Decision is modified in the sense that the delinquency interest of one-half
(1/2) of one (1%) percent should be computed on the deficiency taxes only
from July 1, 1954 to July 30, 1954, and CIR is ordered refund to plaintiff
the sum of P9,387.54, with interest at the legal rate from date of payment.
ISSUES:
2. Whether the gift taxes on the transfer of the shares of stock should be based
on the full market value of said shares of stock at the time of the respective
transfers thereof or only upon the difference between said market value and
the consideration stipulated in the trust agreements.
Should be based on the full market value, as the considerations were
simulated
3. (a) Reckoning period for the interest chargeable on the amounts
representing the taxes in question, and (b) the interest on the sum to be
refunded by the Government.
(a) Should be from the period of extension granted
(b) No interest as collections made were not manifestly unwarranted
RULING: Thus modified, said decision should be, as it is hereby affirmed, in all
other respects, without pronouncement as to costs. It is so ordered.
RATIO:
First Issue
1. The Court found no justification for disturbing the conclusion reached by
the CTA. In fact, said conclusion was borne out by the following
circumstances:
a. Allison stated the reason for stipulating the considerations: “had they
been made 100% rather, these transfers had they been made without
any consideration would have been taxable 100% at the market value
on that date. That would have resulted on a tremendous tax both to the
 Philippine government and to the United States government. We could
not afford to pay those taxes, and that is fundamentally one reason for
fixing the price that we did fix which was premised upon our cost.”
b. The deeds of trust state that the purpose thereof is "to establish an
endowment for the support, maintenance, care, health, higher education
and travel of the beneficiary and the launching of his career after he
becomes of age". These purposes would be materially impaired, if not
entirely defeated, if the beneficiaries were to pay the stipulated
consideration.
c. Sps. Gibbs were financially well off. When the first set of deeds of trust
were executed, their assets in the Philippines and United States were
worth P1,500,000.00 and P500,000.00. If they were earnestly
concerned in providing ample funds to assure the support, maintenance,
care, health, higher education and travel of their children and the
launching of their career after they had become of age, they would not
have really meant to require them to pay the consideration stipulated in
the trust agreements.
d. The corpus of the trust was never totally or partially sold, hypothecated
or encumbered. Instead, after December 7, 1950, when the Central
Bank authorized the conversion of the shares of stock covered by the
first set of trust agreements from resident stocks to non-resident stocks,
the corresponding cash dividends and stock dividends declared by the
mining company were sent directly to the trustee in the United States,
thus enabling the trustors to create dollar assets in the United States.
The spouses could have easily collected the stipulated consideration or
part of it from said dividends, yet they did not do so — they even saw
to it that the dividends were sent to the United States.
2. Sps. Gibbs executed on July 15, 1953, another set of deeds, entitled
"Compromise Agreement", stating that Finley Gibbs thereby resold,
retransferred and reassigned to the trustor the 22,400 shares covered by each
of said trust agreements. The compromise agreements affecting the trusts
constituted on December 28, 1951, virtually revoked said trusts, contrary to
the explicit provision in the trust agreements, to the effect that the trusts
therein established are "irrevocable". Moreover, the same were made with
knowledge of the fact that the CIR was already investigating whether the
stipulated consideration was real or fictitious and entertaining the idea of
assessing the corresponding gift taxes on the basis of the full market value
of the stock involved.
3. The Gibbses also maintain that the CTA erred in not deducting the amount
of the donor gift taxes from the value of the property subject to the donee
gift taxes, in view of the provision of the trust agreement to the effect — “In
addition to the foregoing, the TRUSTEE shall pay out of the property
and/or the gross income of the trust estate all income, estate, gift, succession
or inheritance taxes, if any, payable by the VENDOR, TRUSTEE or
BENEFICIARY by reason of this trust.” (side issue)
4. SC’s answer: The questions as to who shall pay any given tax and what
shall be the basis thereof are determined by law, the operation of which
cannot be affected by the provisions of a contract to which the Government
is not a party. This, of course, is without prejudice to the right, if any, of a
party to the trust agreements to demand reimbursement from the other
party. But such right of reimbursement is independent of, and foreign to, the
right and duty of the defendant to collect the taxes in the manner and under
the conditions prescribed by law.
Second Issue
(a)
1. Section 116 of the tax Code provides — “The gift taxes imposed by section
one hundred nine and one hundred ten of this Chapter shall be due and
payable on or before the fifteenth day of May following the close of the
calendar year and shall be paid by the donor or donee, as the case may be, to
the Collector of Internal Revenue or the treasurer of the province city or
municipality of which the donor or the donee is a resident.”
2. Section 118 (b) of the same Code, reads: “In case an extension for the
payment of a deficiency is granted, there shall be collected, as a part of the
taxes, interest on the part of the deficiency the time for payment of which is
so extended, at the rate of six per centum per annum for the period of the
extensions.”
3. It should be noted that the taxes assessed on the basis of the difference
between the market value and the consideration were paid within the
period fixed by law or on May 15, 1951, as regards to trusts created in
1950, and on May 15, 1952, as regards the trusts constituted in 1951. Even
the donor gift taxes, under a revised assessment, and the deficiency donor
gift taxes due on the first set of trusts were paid in due time (May 15,
1951). With respect to the deficiency donor gift taxes on the two sets of
trust agreements and the deficiency donee gifts taxes assessed on the second
set of trust agreements, CIR demanded payment thereof on or before June
30, 1954. Had these assessments been paid on that date, no interest
whatsoever would have been due thereon. It is but fair and just, therefore,
that interest be charged only for the period of the extension secured for
the payment of the trust assessments, pursuant to section 118(b).
(b)
1. The matter of payment of interest on sums collected by way of taxes, which
the Government is subsequently sentenced to refund to the taxpayer,
depends upon whether or not the collection of said sums is manifestly
unwarranted.. In the case at bar, it is clearly not so, in the light of the
attending circumstances. Hence, the amount refundable by the Government,
pursuant to the decision appealed from, should draw no interest, and said
decision should be modified accordingly.