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G.R. No.

L-19865 July 31, 1965

MARIA CARLA PIROVANO, etc., et al., petitioners-appellants, vs.THE


COMMISSIONER OF INTERNAL REVENUE, respondent-appellee.

Angel S. Gamboa for petitioners-appellants.Office of the Solicitor General for


respondent-appellee.

REYES, J.B.L., J.:

This case is a sequel to the case of Pirovano vs. De la Rama Steamship Co., 96
Phil. 335.

Briefly, the facts of the aforestated case may be stated as follows:

Enrico Pirovano was the father of the herein petitioners-appellants. Sometime in


the early part of 1941, De la Rama Steamship Co. insured the life of said Enrico
Pirovano, who was then its President and General Manager until the time of his
death, with various Philippine and American insurance companies for a total sum
of one million pesos, designating itself as the beneficiary of the policies, obtained
by it. Due to the Japanese occupation of the Philippines during the second World
War, the Company was unable to pay the premiums on the policies issued by its
Philippine insurers and these policies lapsed, while the policies issued by its
American insurers were kept effective and subsisting, the New York office of the
Company having continued paying its premiums from year to year.

During the Japanese occupation , or more particularly in the latter part of 1944,
said Enrico Pirovano died.

After the liberation of the Philippines from the Japanese forces, the Board of
Directors of De la Rama Steamship Co. adopted a resolution dated July 10, 1946
granting and setting aside, out of the proceeds expected to be collected on the
insurance policies taken on the life of said Enrico Pirovano, 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 4,000 shares of stock of the
Company, at par, or 1,000 shares for each child. Shortly thereafter, the Company
received the total sum of P643,000.00 as proceeds of the said life insurance
policies obtained from American insurers.

Upon receipt of the last stated sum of money, the Board of Directors of the
Company modified, on January 6, 1947, the above-mentioned resolution by
renouncing all its rights title, and interest to the said amount of P643,000.00 in
favor of the minor children of the deceased, subject to the express 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. This latter resolution was carried out in a Memorandum
Agreement on January 10, 1947 and June 17, 1947., respectively, executed by
the Company and Mrs. Estefania R. Pirovano, the latter acting in her capacity as
guardian of her children (petitioners-appellants herein) find pursuant to an
express authority granted her by the court.

On June 24, 1947, the Board of Directors of the Company further modified the
last mentioned resolution providing therein that the Company shall pay the
proceeds of said life insurance policies to the heirs of the said Enrico Pirovano
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 said Enrico Pirovano, or their duly appointed
representative, whenever the Company is in a position to meet said obligation.

On February 26, 1948, Mrs. Estefania R. Pirovano, in behalf of her children,


executed a public document formally accepting the donation; and, on the same
date, the Company through its Board of Directors, took official notice of this
formal acceptance.

On September 13, 1949, the stockholders of the Company formally ratified the
various resolutions hereinabove mentioned with certain clarifying modifications
that the payment of the donation shall not be effected until such time as the
Company shall have first duly liquidated its present bonded indebtedness in the
amount of P3,260,855.77 with the National Development Company, or fully
redeemed the preferred shares of stock in the amount which shall be issued to
the National Development Company in lieu thereof; and that any and all taxes,
legal fees, and expenses in any way connected with the above transaction shall
be chargeable and deducted from the proceeds of the life insurance policies
mentioned in the resolutions of the Board of Directors.

On March 8, 1951, however, the majority stockholders of the Company voted to


revoke the resolution approving the donation in favor of the Pirovano children.

As a consequence of this revocation and refusal of the Company to pay the


balance of the donation amounting to P564,980.90 despite demands therefor, the
herein petitioners-appellants represented by their natural guardian, Mrs.
Estefania R. Pirovano, brought an action for the recovery of said amount, plus
interest and damages against De la Rama Steamship Co., in the Court of First
Instance of Rizal, which case ultimately culminated to an appeal to this Court. On
December 29, 1954, this court rendered its decision in the appealed case (96
Phil. 335) holding that the donation was valid and remunerative in nature, the
dispositive part of which reads:

Wherefore, the decision appealed from should be modified as follows: (a) that the
donation in favor of the children of the late Enrico Pirovano of the proceeds of the
insurance policies taken on his life is valid and binding on the defendant
corporation; (b) that said donation, which amounts to a total of P583,813.59,
including interest, as it appears in the books of the corporation as of August 31,
1951, plus interest thereon at the rate of 5 per cent per annum from the filing of
the complaint, should be paid to the plaintiffs after the defendant corporation
shall have fully redeemed the preferred shares issued to the National
Development Company under the terms and conditions stared in the resolutions
of the Board of Directors of January 6, 1947 and June 24, 1947, as amended by
the resolution of the stockholders adopted on September 13, 1949; and (c)
defendant shall pay to plaintiffs an additional amount equivalent to 10 per cent of
said amount of P583,813.59 as damages by way of attorney's fees, and to pay
the costs of action. (Pirovano et al. vs. De la Rama Steamship Co., 96 Phil. 367-
368)

The above decision became final and executory. In compliance therewith, De la


Rama Steamship Co. made, on April 6, 1955, a partial payment on the amount of
the judgment and paid the balance thereof on May 12, 1955.

On March 6, 1955, respondent Commissioner of Internal Revenue assessed the


amount of P60,869.67 as donees' gift tax, inclusive of surcharges, interests and
other penalties, against each of the petitioners-appellants, or for the total sum of
P243,478.68; and, on April 23, 1955, a donor's gift tax in the total amount of
P34,371.76 was also assessed against De la Rama Steamship Co., which the
latter paid.

Petitioners-appellants herein contested respondent Commissioner's assessment


and imposition of the donees' gift taxes and donor's gift tax and also made a
claim for refund of the donor's gift tax so collected. Respondent Commissioner
overruled petitioners' claims; hence, the latter presented two (2) petitions for
review against respondent's rulings before the Court of Tax Appeals, said
petitions having been docketed as CTA Cases Nos. 347 and 375. CTA Case No.
347 relates to the petition disputing the legality of the assessment of donees' gift
taxes and donor's gift tax while CTA Case No. 375 refers to the claim for refund
of the donor's gift tax already paid.

After the filing of respondent's usual answers to the petitions, the two cases,
being interrelated to each other, were tried jointly and terminated.

On January 31, 1962, the Court of Tax Appeals rendered its decision in the two
cases, the dispositive part of which reads:

In resume, we are of the opinion, that (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;
(3) the imposition of the surcharge of 25% is not proper; (4) the surcharge of 5%
is legally due; and (5) the interest of 1% per month on the deficiency donees' gift
taxes is due from petitioners from March 8, 1955 until the taxes are paid.

IN LINE WITH THE FOREGOING OPINION, petitioners are hereby ordered to


pay the donees' gift taxes as assessed by respondent, plus 5% surcharge and
interest at the rate of 1% per month from March 8, 1955 to the date of payment of
said donees' gift taxes. Respondent is ordered to apply the sum of P34,371.76
which is refundable to petitioners, against the amount due from petitioners. With
costs against petitioners in Case No. 347.

Petitioners-appellants herein filed a motion to reconsider the above decision,


which the lower court denied. Hence, this appeal before us.

In the instant appeal, petitioners-appellants herein question only that portion of


the decision of the lower court ordering the payment of donees' gift taxes as
assessed by respondent as well as the imposition of surcharge and interest on
the amount of donees' gift taxes.

In their brief and memorandum, they dispute the factual finding of the lower court
that De la Rama Steamship 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." Petitioners now contend that the lower court's finding 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 remuneratory donation. Petitioners further contend that
the same was made not for an insufficient or inadequate consideration but rather
it a was made for a full and adequate compensation for the valuable services
rendered by the late Enrico Pirovano to the De la Rama Steamship Co.; hence,
the donation does not constitute a taxable gift under the provisions of Section
108 of the National Internal Revenue Code.

The argument for petitioners-appellants fails to take into account the fact that
neither in Spanish nor in 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 in the future, constituted cause 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 of the Philippines):

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. ... .

There is nothing on record to show that when the late Enrico Pirovano rendered
services as President and General Manager of the De la Rama Steamship Co.
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" (Res. of July 10, 1946). Pirovano expected or was
promised further compensation over and in addition to his regular emoluments as
President and General Manager. 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 directors' Resolution of January 6, 1947,
that "out of gratitude" the company decided to renounce in favor of Pirovano's
heirs the proceeds of the life insurance policies in question. The true
consideration for the donation was, therefore, the company's gratitude for his
services, and not the services themselves.

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 an
innocuous error; whether remuneratory or simple, the conveyance remained a
gift, taxable under Chapter 2, Title III of the Internal Revenue Code.

But then appellants 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 111
of the Tax Code which provides that —

Where property is transferred for less, than an 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 a gift, ... .

The flaw in this argument lies in the fact that, as copied from American law, 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 promisee in exchange for
the promise" (Also, Corbin on Contracts, Vol. I, p. 359). But, as we have seen,
Pirovano's successful activities as officer of the De la Rama Steamship Co.
cannot 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 and services were not the result of one bargain or of a mutual
exchange of promises.

And the Anglo-American law treats a subsequent promise to pay for past
services (like one to pay for improvements already made without prior request
from the promisor) to be a nudum pactum (Roscorla vs. Thomas, 3 Q.B. 234;
Peters vs. Poro, 25 ALR 615; Carson vs. Clark, 25 Am. Dec. 79; Boston vs.
Dodge, 12 Am. Dec. 206), i.e., one that is unenforceable in view of the common
law rule that consideration must consist in a legal benefit to the promisee or
some legal detriment to the promisor.

What is more, the actual consideration for the cession of the policies, as
previously shown, was the Company's gratitude to Pirovano; so that under
section 111 of the 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.

As stated by Chief Justice Griffith of the Supreme Court of Mississippi in his well-
known book, "Outlines of the Law" (p. 204) —

Love and affection are not considerations of value — they are not estimable in
terms of value. Nor are sentiments of gratitude for gratuitous part 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 impose, the moral
obligation to perform it."

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 Tax 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 111 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. .

Petitioners finally contend that, even assuming that the donation in question is
subject to donees' gift taxes, the imposition of the surcharge of 5% and interest of
1% per month from March 8, 1955 was not justified because the proceeds of the
life insurance policies were actually received on April 6, 1955 and May 12, 1955
only and in accordance with Section 115(c) of the Tax Code; the filing of the
returns of such tax became due on March 1, 1956 and the tax became payable
on May 15, 1956, as provided for in Section 116(a) of the same Code. In other
words, petitioners maintain that the assessment and demand for donees' gift
taxes was prematurely made and of no legal effect; hence, they should not be
held liable for such surcharge and interest.

It is well to note, and it is not disputed, that petitioners-donees have failed to file
any gift tax return and that they also failed to pay the amount of the assessment
made against them by respondent in 1955. This situation is covered by Section
119(b) (1) and (c) and Section 120 of the Tax Code:

(b) Deficiency.

(1) Payment not extended. — Where a deficiency, or any interest assessed in


connection therewith, or any addition to the taxes provided for in section one
hundred twenty is not paid in full within thirty days from the date of the notice and
demand from the Commissioner, there shall be collected as a part of the taxes,
interest upon the unpaid amount at the rate of one per centum a month from the
date of such notice and demand until it is paid. (section 119)

(c) Surcharge. — If any amount of the taxes included in the notice and demand
from the Commissioner of Internal Revenue is not paid in full within thirty days
after such notice and demand, there shall be collected in addition to the interest
prescribed above as a part of the taxes a surcharge of five per centum of the
unpaid amount. (sec. 119)

The failure to file a return was found by the lower court to be due to reasonable
cause and not to willful neglect. On this score, the elimination by the lower court
of the 25% surcharge is ad valorem penalty which respondent Commissioner had
imposed pursuant to Section 120 of the Tax Code was proper, since said Section
120 vests in the Commissioner of Internal Revenue or in the tax court power and
authority to impose or not to impose such penalty depending upon whether or not
reasonable cause has been shown in the non-filing of such return.

On the other hand, unlike said Section 120, Section 119, paragraphs (b) (1) and
(c) of the Tax Code, does not confer on the Commissioner of Internal Revenue or
on the courts any power and discretion not to impose such interest and
surcharge. It is likewise provided for by law that an appeal to the Court of Tax
Appeals from a decision of the Commissioner of Internal Revenue shall not
suspend the payment or collection of the tax liability of the taxpayer unless a
motion to that effect shall have been presented to the court and granted by it on
the ground that such collection will jeopardize the interest of the taxpayer (Sec.
11, Republic Act No. 1125; Rule 12, Rules of the Court of Tax Appeals). It should
further be noted that —

It has been the uniform holding of this Court that no suit for enjoining the
collection of a tax, disputed or undisputed, can be brought, the remedy being to
pay the tax first, formerly under protest and now without need of protect, file the
claim with the Collector, and if he denies it, bring an action for recovery against
him. (David v. Ramos, et al., 90 Phil. 351)

Section 306 of the National Internal Revenue Code ... lays down the procedure to
be followed in those cases wherein a taxpayer entertains some doubt about the
correctness of a tax sought to be collected. Said section provides that the tax,
should first be paid and the taxpayer should sue for its recovery afterwards. The
purpose of the law obviously is to prevent delay in the collection of taxes, upon
which the Government depends for its existence. To allow a taxpayer to first
secure a ruling as regards the validity of the tax before paying it would be to
defeat this purpose. (National Dental Supply Co. vs. Meer, 90 Phil. 265)

Petitioners did not file in the lower court any motion for the suspension of
payment or collection of the amount of assessment made against them.

On the basis of the above-stated provisions of law and applicable authorities, it is


evident that the imposition of 1% interest monthly and 5% surcharge is justified
and legal. As succinctly stated by the court below, said imposition is "mandatory
and may not be waived by the Commissioner of Internal Revenue or by the
courts" (Resolution on petitioners' motion for reconsideration, Annex XIV,
petition). Hence, said imposition of interest and surcharge by the lower court
should be upheld.

WHEREFORE, the decision of the Court of Tax Appeals is affirmed. Costs


against petitioners Pirovano.

Bengzon, C.J., Bautista Angelo, Paredes, Dizon, Regala, Makalintal, Bengzon,


J.P., and Zaldivar, JJ., concur.Concepcion, J., took no part.Barrera, J., is on
leave.
G.R. No. 155541 January 27, 2004

ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL, petitioner, vs.


COMMISSIONER OF INTERNAL REVENUE, respondent.

DECISION

YNARES-SANTIAGO, J.:

This petition for review on certiorari assails the decision of the Court of Appeals
in CA-G.R. CV No. 09107, dated September 30, 2002,1 which reversed the
November 19, 1995 Order of Regional Trial Court of Manila, Branch XXXVIII, in
Sp. Proc. No. R-82-6994, entitled "Testate Estate of Juliana Diez Vda. De
Gabriel". The petition was filed by the Estate of the Late Juliana Diez Vda. De
Gabriel, represented by Prudential Bank as its duly appointed and qualified
Administrator.

As correctly summarized by the Court of Appeals, the relevant facts are as


follows:

During the lifetime of the decedent, Juliana Vda. De Gabriel, her business affairs
were managed by the Philippine Trust Company (Philtrust). The decedent died
on April 3, 1979. Two days after her death, Philtrust, through its Trust Officer,
Atty. Antonio M. Nuyles, filed her Income Tax Return for 1978. The return did not
indicate that the decedent had died.

On May 22, 1979, Philtrust also filed a verified petition for appointment as
Special Administrator with the Regional Trial Court of Manila, Branch XXXVIII,
docketed as Sp. Proc. No. R-82-6994. The court a quo appointed one of the
heirs as Special Administrator. Philtrust’s motion for reconsideration was denied
by the probate court.

On January 26, 1981, the court a quo issued an Order relieving Mr. Diez of his
appointment, and appointed Antonio Lantin to take over as Special Administrator.
Subsequently, on July 30, 1981, Mr. Lantin was also relieved of his appointment,
and Atty. Vicente Onosa was appointed in his stead.

In the meantime, the Bureau of Internal Revenue conducted an administrative


investigation on the decedent’s tax liability and found a deficiency income tax for
the year 1977 in the amount of P318,233.93. Thus, on November 18, 1982, the
BIR sent by registered mail a demand letter and Assessment Notice No. NARD-
78-82-00501 addressed to the decedent "c/o Philippine Trust Company, Sta.
Cruz, Manila" which was the address stated in her 1978 Income Tax Return. No
response was made by Philtrust. The BIR was not informed that the decedent
had actually passed away.
In an Order dated September 5, 1983, the court a quo appointed Antonio
Ambrosio as the Commissioner and Auditor Tax Consultant of the Estate of the
decedent.

On June 18, 1984, respondent Commissioner of Internal Revenue issued


warrants of distraint and levy to enforce collection of the decedent’s deficiency
income tax liability, which were served upon her heir, Francisco Gabriel. On
November 22, 1984, respondent filed a "Motion for Allowance of Claim and for an
Order of Payment of Taxes" with the court a quo. On January 7, 1985, Mr.
Ambrosio filed a letter of protest with the Litigation Division of the BIR, which was
not acted upon because the assessment notice had allegedly become final,
executory and incontestable.

On May 16, 1985, petitioner, the Estate of the decedent, through Mr. Ambrosio,
filed a formal opposition to the BIR’s Motion for Allowance of Claim based on the
ground that there was no proper service of the assessment and that the filing of
the aforesaid claim had already prescribed. The BIR filed its Reply, contending
that service to Philippine Trust Company was sufficient service, and that the filing
of the claim against the Estate on November 22, 1984 was within the five-year
prescriptive period for assessment and collection of taxes under Section 318 of
the 1977 National Internal Revenue Code (NIRC).

On November 19, 1985, the court a quo issued an Order denying respondent’s
claim against the Estate,2 after finding that there was no notice of its tax
assessment on the proper party.3

On July 2, 1986, respondent filed an appeal with the Court of Appeals, docketed
as CA-G.R. CV No. 09107,4 assailing the Order of the probate court dated
November 19, 1985. It was claimed that Philtrust, in filing the decedent’s 1978
income tax return on April 5, 1979, two days after the taxpayer’s death, had
"constituted itself as the administrator of the estate of the deceased at least
insofar as said return is concerned."5 Citing Basilan Estate Inc. v. Commissioner
of Internal Revenue,6 respondent argued that the legal requirement of notice with
respect to tax assessments7 requires merely that the Commissioner of Internal
Revenue release, mail and send the notice of the assessment to the taxpayer at
the address stated in the return filed, but not that the taxpayer actually receive
said assessment within the five-year prescriptive period.8 Claiming that Philtrust
had been remiss in not notifying respondent of the decedent’s death, respondent
therefore argued that the deficiency tax assessment had already become final,
executory and incontestable, and that petitioner Estate was liable therefor.

On September 30, 2002, the Court of Appeals rendered a decision in favor of the
respondent. Although acknowledging that the bond of agency between Philtrust
and the decedent was severed upon the latter’s death, it was ruled that the
administrator of the Estate had failed in its legal duty to inform respondent of the
decedent’s death, pursuant to Section 104 of the National Internal Revenue
Code of 1977. Consequently, the BIR’s service to Philtrust of the demand letter
and Notice of Assessment was binding upon the Estate, and, upon the lapse of
the statutory thirty-day period to question this claim, the assessment became
final, executory and incontestable. The dispositive portion of said decision reads:

WHEREFORE, finding merit in the appeal, the appealed decision is REVERSED


AND SET ASIDE. Another one is entered ordering the Administrator of the Estate
to pay the Commissioner of Internal Revenue the following:

a. The amount of P318,223.93, representing the deficiency income tax liability for
the year 1978, plus 20% interest per annum from November 2, 1982 up to
November 2, 1985 and in addition thereto 10% surcharge on the basic tax of
P169,155.34 pursuant to Section 51(e)(2) and (3) of the Tax Code as amended
by PD 69 and 1705; and

b. The costs of the suit.

SO ORDERED.9

Hence, the instant petition, raising the following issues:

1. Whether or not the Court of Appeals erred in holding that the service of
deficiency tax assessment against Juliana Diez Vda. de Gabriel through the
Philippine Trust Company was a valid service in order to bind the Estate;

2. Whether or not the Court of Appeals erred in holding that the deficiency tax
assessment and final demand was already final, executory and incontestable.

Petitioner Estate denies that Philtrust had any legal personality to represent the
decedent after her death. As such, petitioner argues that there was no proper
notice of the assessment which, therefore, never became final, executory and
incontestable.10 Petitioner further contends that respondent’s failure to file its
claim against the Estate within the proper period prescribed by the Rules of Court
is a fatal error, which forever bars its claim against the Estate.11

Respondent, on the other hand, claims that because Philtrust filed the decedent’s
income tax return subsequent to her death, Philtrust was the de facto
administrator of her Estate.12 Consequently, when the Assessment Notice and
demand letter dated November 18, 1982 were sent to Philtrust, there was proper
service on the Estate.13 Respondent further asserts that Philtrust had the legal
obligation to inform petitioner of the decedent’s death, which requirement is
found in Section 104 of the NIRC of 1977.14 Since Philtrust did not, respondent
contends that petitioner Estate should not be allowed to profit from this
omission.15 Respondent further argues that Philtrust’s failure to protest the
aforementioned assessment within the 30-day period provided in Section 319-A
of the NIRC of 1977 meant that the assessment had already become final,
executory and incontestable.16

The resolution of this case hinges on the legal relationship between Philtrust and
the decedent, and, by extension, between Philtrust and petitioner Estate.
Subsumed under this primary issue is the sub-issue of whether or not service on
Philtrust of the demand letter and Assessment Notice No. NARD-78-82-00501
was valid service on petitioner, and the issue of whether Philtrust’s inaction
thereon could bind petitioner. If both sub-issues are answered in the affirmative,
respondent’s contention as to the finality of Assessment Notice No. NARD-78-82-
00501 must be answered in the affirmative. This is because Section 319-A of the
NIRC of 1977 provides a clear 30-day period within which to protest an
assessment. Failure to file such a protest within said period means that the
assessment ipso jure becomes final and unappealable, as a consequence of
which legal proceedings may then be initiated for collection thereof.

We find in favor of the petitioner.

The first point to be considered is that the relationship between the decedent and
Philtrust was one of agency, which is a personal relationship between agent and
principal. Under Article 1919 (3) of the Civil Code, death of the agent or principal
automatically terminates the agency. In this instance, the death of the decedent
on April 3, 1979 automatically severed the legal relationship between her and
Philtrust, and such could not be revived by the mere fact that Philtrust continued
to act as her agent when, on April 5, 1979, it filed her Income Tax Return for the
year 1978.

Since the relationship between Philtrust and the decedent was automatically
severed at the moment of the Taxpayer’s death, none of Philtrust’s acts or
omissions could bind the estate of the Taxpayer. Service on Philtrust of the
demand letter and Assessment Notice No. NARD-78-82-00501 was improperly
done.

It must be noted that Philtrust was never appointed as the administrator of the
Estate of the decedent, and, indeed, that the court a quo twice rejected Philtrust’s
motion to be thus appointed. As of November 18, 1982, the date of the demand
letter and Assessment Notice, the legal relationship between the decedent and
Philtrust had already been non-existent for three years.

Respondent claims that Section 104 of the National Internal Revenue Code of
1977 imposed the legal obligation on Philtrust to inform respondent of the
decedent’s death. The said Section reads:

SEC. 104. Notice of death to be filed. – In all cases of transfers subject to tax or
where, though exempt from tax, the gross value of the estate exceeds three
thousand pesos, the executor, administrator, or any of the legal heirs, as the
case may be, within two months after the decedent’s death, or within a like period
after qualifying as such executor or administrator, shall give written notice thereof
to the Commissioner of Internal Revenue.

The foregoing provision falls in Title III, Chapter I of the National Internal
Revenue Code of 1977, or the chapter on Estate Tax, and pertains to "all cases
of transfers subject to tax" or where the "gross value of the estate exceeds three
thousand pesos". It has absolutely no applicability to a case for deficiency
income tax, such as the case at bar. It further lacks applicability since Philtrust
was never the executor, administrator of the decedent’s estate, and, as such,
never had the legal obligation, based on the above provision, to inform
respondent of her death.

Although the administrator of the estate may have been remiss in his legal
obligation to inform respondent of the decedent’s death, the consequences
thereof, as provided in Section 119 of the National Internal Revenue Code of
1977, merely refer to the imposition of certain penal sanctions on the
administrator. These do not include the indefinite tolling of the prescriptive period
for making deficiency tax assessments, or the waiver of the notice requirement
for such assessments.

Thus, as of November 18, 1982, the date of the demand letter and Assessment
Notice No. NARD-78-82-00501, there was absolutely no legal obligation on the
part of Philtrust to either (1) respond to the demand letter and assessment notice,
(2) inform respondent of the decedent’s death, or (3) inform petitioner that it had
received said demand letter and assessment notice. This lack of legal obligation
was implicitly recognized by the Court of Appeals, which, in fact, rendered its
assailed decision on grounds of "equity".17

Since there was never any valid notice of this assessment, it could not have
become final, executory and incontestable, and, for failure to make the
assessment within the five-year period provided in Section 318 of the National
Internal Revenue Code of 1977, respondent’s claim against the petitioner Estate
is barred. Said Section 18 reads:

SEC. 318. Period of limitation upon assessment and collection. – Except as


provided in the succeeding section, internal revenue taxes shall be assessed
within five years after the return was filed, and no proceeding in court without
assessment for the collection of such taxes shall be begun after the expiration of
such period. For the purpose of this section, a return filed before the last day
prescribed by law for the filing thereof shall be considered as filed on such last
day: Provided, That this limitation shall not apply to cases already investigated
prior to the approval of this Code.

Respondent argues that an assessment is deemed made for the purpose of


giving effect to such assessment when the notice is released, mailed or sent to
the taxpayer to effectuate the assessment, and there is no legal requirement that
the taxpayer actually receive said notice within the five-year period.18 It must be
noted, however, that the foregoing rule requires that the notice be sent to the
taxpayer, and not merely to a disinterested party. Although there is no specific
requirement that the taxpayer should receive the notice within the said period,
due process requires at the very least that such notice actually be received. In
Commissioner of Internal Revenue v. Pascor Realty and Development
Corporation,19 we had occasion to say:

An assessment contains not only a computation of tax liabilities, but also a


demand for payment within a prescribed period. It also signals the time when
penalties and interests begin to accrue against the taxpayer. To enable the
taxpayer to determine his remedies thereon, due process requires that it must be
served on and received by the taxpayer.

In Republic v. De le Rama,20 we clarified that, when an estate is under


administration, notice must be sent to the administrator of the estate, since it is
the said administrator, as representative of the estate, who has the legal
obligation to pay and discharge all debts of the estate and to perform all orders of
the court. In that case, legal notice of the assessment was sent to two heirs,
neither one of whom had any authority to represent the estate. We said:

The notice was not sent to the taxpayer for the purpose of giving effect to the
assessment, and said notice could not produce any effect. In the case of Bautista
and Corrales Tan v. Collector of Internal Revenue … this Court had occasion to
state that "the assessment is deemed made when the notice to this effect is
released, mailed or sent to the taxpayer for the purpose of giving effect to said
assessment." It appearing that the person liable for the payment of the tax did not
receive the assessment, the assessment could not become final and executory.
(Citations omitted, emphasis supplied.)

In this case, the assessment was served not even on an heir of the Estate, but
on a completely disinterested third party. This improper service was clearly not
binding on the petitioner.

By arguing that (1) the demand letter and assessment notice were served on
Philtrust, (2) Philtrust was remiss in its obligation to respond to the demand letter
and assessment notice, (3) Philtrust was remiss in its obligation to inform
respondent of the decedent’s death, and (4) the assessment notice is therefore
binding on the Estate, respondent is arguing in circles. The most crucial point to
be remembered is that Philtrust had absolutely no legal relationship to the
deceased, or to her Estate. There was therefore no assessment served on the
Estate as to the alleged underpayment of tax. Absent this assessment, no
proceedings could be initiated in court for the collection of said tax, 21 and
respondent’s claim for collection, filed with the probate court only on November
22, 1984, was barred for having been made beyond the five-year prescriptive
period set by law.
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals
in CA-G.R. CV No. 09107, dated September 30, 2002, is REVERSED and SET
ASIDE. The Order of the Regional Trial Court of Manila, Branch XXXVIII, in Sp.
Proc. No. R-82-6994, dated November 19, 1985, which denied the claim of the
Bureau of Internal Revenue against the Estate of Juliana Diez Vda. De Gabriel
for the deficiency income tax of the decedent for the year 1977 in the amount of
P318,223.93, is AFFIRMED.

No pronouncement as to costs.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Panganiban, and Carpio, JJ., concur.Azcuna, J.,
on official leave.
G.R. No. 156894 December 2, 2005

GUILLERMO A. CRUZ - versus - Hon. COURT OF APPEALS (Former


Fifteenth Division); REGIONAL TRIAL COURT, Third Judicial Region,
Branch 38, Lingayen, Pangasinan; SALVADOR C. VALLE and
CARMENCITA S. VALLE

DECISION
QUISUMBING, J.:

This petition for review on certiorari seeks to annul the resolutions dated

September 9, 2002[1] and January 15, 2003[2] of the Court of Appeals in CA-

G.R. CV No. 72600. The first resolution dismissed petitioner's appeal, while the

second denied his motion for reconsideration.

The antecedent facts, as borne by the records, are as follows:

Spouses Salvador and Carmencita Valle filed an action for Annulment of Affidavit

of Self-adjudication, Cancellation of Tax Declaration and Quieting of Title,

docketed as Civil Case No. 17720 against the petitioner. The case was

consolidated with Civil Case No. 17785. The latter case was an appeal by the

petitioner from the judgment of the Municipal Trial Court (MTC) in an ejectment

case filed by the respondent spouses against him.

On July 31, 2001, the Regional Trial Court (RTC) rendered a Decision[3] which

affirmed the judgment of the MTC, annulled the Affidavit of Self-Adjudication,

ordered the cancellation of Tax Declaration No. 5752, and declared Spouses

Salvador and Carmencita Valle as the absolute owner of the land in dispute. The

RTC ruled that the deed of donation, on which the respondents based their claim,

was a donation inter vivos because, other than the title and the phrase 'to take
effect after her death', the deed, as it was worded, clearly disposed of the

property with finality and without reservation. It cited the landmark case of

Laureta v. Mata and Magno[4] stating that one who donates with a term, such as

the donation effecting at one's death, but without reservation, already disposes of

the thing donated and cannot again dispose of the thing in favor of another.

Petitioner appealed said decision of the trial court to the Court of Appeals. On

March 19, 2002, he received notice to file a brief within 45 days from receipt of

said notice. Within the period, petitioner filed a motion for extension of at least 90

days from May 3, 2002 or until August 1, 2002 to file the Appellant's Brief. The

appellate court granted the motion. However, petitioner filed the required

Appellant's Brief only on August 21, 2002, with an explanation that his

collaborating counsel was sick with acute periodontosis.

On September 9, 2002, the appellate court dismissed the appeal for failure to file

the required brief within the prescribed period. Petitioner sought reconsideration

but it was denied.

Petitioner now comes before us raising the sole issue that:


THE HONORABLE COURT OF APPEALS GRAVELY
ABUSED ITS DISCRETION IN DISMISSING THE APPEAL IN
CA-G.R. CV No. 72600 DESPITE THE ATTENDANT
JUSTIFYING REASON(S) IN THE BELATED SUBMISSION
OF APPELLANT'S BRIEF WITH APPROPRIATE MOTION TO
ADMIT AND IN GROSS DISREGARD TO THE MERITS
FAVORING APPELLANT THEREIN.[5]

Simply, the only issue for our resolution is whether the Court of Appeals erred in

dismissing the appeal.


Petitioner explains that he sought the services of a collaborating counsel when,

in the middle of July 2002, he discovered that his counsel of record had not yet

started the preparation of his brief. He said that by then, there was only a short

time left before the deadline. The lack of time was compounded by the illness

(acute periodontosis) of his collaborating counsel.

Petitioner contends that the failure of an appellant to file his brief within the

prescribed time does not result in the automatic dismissal of the appeal since the

appellate court has discretion to dismiss it or not. He suggests that procedural

rules may be relaxed in the interest of justice. He invokes the case of Baylon v.

Fact-Finding Intelligence Bureau,[6] where the Court suspended the rules with

the following to serve as guidelines: (1) the case involves life, liberty, honor or

property; (2) counsel's negligence without any participatory negligence on the

part of the client caused the delay; (3) there are compelling circumstances; (4)

there is merit in the case; (5) the cause is not entirely attributable to the fault or

negligence of the party favored by the suspension of the Rules; (6) there is lack

of any showing that the review sought is merely frivolous and dilatory; and (7) the

other party will not be unjustly prejudiced. He argues that since there were

compelling reasons for his delay, substantial rights and interests are at stake,

and there could neither be any injury nor prejudice to appellees, the appellate

court should have allowed his appeal.

Respondents Salvador and Carmencita Valle argue that the right to appeal is
neither a natural right nor a part of due process. As a statutory privilege, it is

exercised only in the manner and in accordance with the provisions of law. They

maintain that petitioner's excuse is unacceptable, considering that he actually

had 135 days within which to file his brief.

Respondents argue that even petitioner's allegation ' that it was only in the

middle of July 2002 when he discovered that his counsel of record had not

started working on his brief ' is unacceptable since a client is bound by the

negligence of his counsel and that a prudent party should constantly be in touch

with his counsel. Respondents also question the claimed appearance of

petitioner's collaborating counsel. They aver that in all prior proceedings there

was only one lawyer representing the petitioner and that the collaborating

counsel had never entered his appearance formally.

We find the instant petition bereft of merit.

Petitioner does not deny the procedural infraction on his part, but he asks for the

relaxation of the rules. Granting his plea, however, would be to fault the appellate

court for acting in faithful compliance with the rules of procedure which the court

has been mandated to observe.[7]

The Rules of Court are designed for the proper and prompt disposition of cases

before the appellate court. We cannot just turn a blind eye and tolerate its

contravention.[8] Section 7,[9] Rule 44 of the Rules of Court provides that it shall

be the duty of the appellant to file his brief within 45 days from receipt of notice.
His failure to comply with this mandate is a ground for the dismissal of his appeal

as provided under Section 1(e), Rule 50[10] of the Rules of Court. Petitioner

actually had 135 days to prepare his brief which is a considerable period of time.

In not a few instances, we relaxed the rigid application of the rules of procedure,

so that the ends of justice may be better served. However, such liberality may not

be invoked if it would result in the wanton disregard of the rules, and cause

needless delay. Save for the most persuasive of reasons, strict compliance with

the rules is enjoined to facilitate the orderly administration of justice.[11]

'Negligence of petitioner's counsel and his own failure to enter the appearance of

his collaborating counsel are, to our mind, unacceptable reasons for relaxing the

observance of the period set for filing briefs.

Further, Baylon cannot be applied in this case. In Baylon, there was no

negligence on the part of the client. Moreover, here we must stress that

negligence of counsel binds the client. This is especially true where the client has

been as negligent as the lawyer.[12]

We note, at this juncture, that petitioner's counsel failed to distinguish between a

petition for review on certiorari under Rule 45 from a petition for certiorari under

Rule 65 of the Rules of Court. Under Rule 45, the court a quo's grave abuse of

discretion is not a proper issue. Under Rule 45, the issue involves reversible

error of law, if any.

In this case, we find that the Court of Appeals committed no reversible error of
law when it dismissed the appeal for petitioner's failure to file the appellant's brief

on time.

WHEREFORE, the instant petition is DENIED. The assailed resolutions dated

September 9, 2002 and January 15, 2003 of the Court of Appeals in CA-G.R. CV

No. 72600 are AFFIRMED. Costs against petitioner.

SO ORDERED.

LEONARDO A. QUISUMBING
Associate Justice
G.R. No. 120721 February 23, 2005

MANUEL G. ABELLO, JOSE C. CONCEPCION, TEODORO D. REGALA,


AVELINO V. CRUZ, petitioners, vs.COMMISSIONER OF INTERNAL REVENUE
and COURT OF APPEALS, respondents.

DECISION

AZCUNA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Civil
Procedure, assailing the decision of the Court of Appeals in CA –G.R. SP No.
27134, entitled "Comissioner of Internal Revenue v. Manuel G. Abello, Jose C.
Concepcion, Teodoro D. Regala, Avelino V. Cruz and Court of Tax Appeals,"
which reversed and set aside the decision of the Court of Tax Appeals (CTA),
ordering the Commissioner of Internal Revenue (Commissioner) to withdraw his
letters dated April 21, 1988 and August 4, 1988 assessing donor’s taxes and to
desist from collecting donor’s taxes from petitioners.

During the 1987 national elections, petitioners, who are partners in the Angara,
Abello, Concepcion, Regala and Cruz (ACCRA) law firm, contributed
P882,661.31 each to the campaign funds of Senator Edgardo Angara, then
running for the Senate. In letters dated April 21, 1988, the Bureau of Internal
Revenue (BIR) assessed each of the petitioners P263,032.66 for their
contributions. On August 2, 1988, petitioners questioned the assessment through
a letter to the BIR. They claimed that political or electoral contributions are not
considered gifts under the National Internal Revenue Code (NIRC), and that,
therefore, they are not liable for donor’s tax. The claim for exemption was denied
by the Commissioner.11ªvvphi1.nét

On September 12, 1988, petitioners filed a petition for review with the CTA,
which was decided on October 7, 1991 in favor of the petitioners. As aforestated,
the CTA ordered the Commissioner to desist from collecting donor’s taxes from
the petitioners.2

On appeal, the Court of Appeals reversed and set aside the CTA decision on
April 20, 1994.3 The appellate Court ordered the petitioners to pay donor’s tax
amounting to P263,032.66 each, reasoning as follows:

The National Internal Revenue Code, as amended, provides:

Sec. 91. Imposition of Tax. (a) There shall be levied, assessed, collected, and
paid upon the transfer by any person, resident, or non-resident, of the property
by gift, a tax, computed as provided in Section 92. (b) The tax shall apply
whether the transfer is in trust or otherwise, whether the gift is direct or indirect,
and whether the property is real or personal, tangible or intangible.
Pursuant to the above-quoted provisions of law, the transfer of property by gift,
whether the transfer is in trust or otherwise, whether the gift is direct or indirect,
and whether the property is real or personal, tangible or intangible, is subject to
donor’s or gift tax.

A gift is generally defined as a voluntary transfer of property by one to another


without any consideration or compensation therefor (28 C.J. 620; Santos vs.
Robledo, 28 Phil. 250).

In the instant case, the contributions are voluntary transfers of property in the
form of money from private respondents to Sen. Angara, without considerations
therefor. Hence, they squarely fall under the definition of donation or gift.

As correctly pointed out by the Solicitor General:

The fact that the contributions were given to be used as campaign funds of Sen.
Angara does not affect the character of the fund transfers as donation or gift.
There was thereby no retention of control over the disposition of the
contributions. There was simply an indication of the purpose for which they were
to be used. For as long as the contributions were used for the purpose for which
they were intended, Sen. Angara had complete and absolute power to dispose of
the contributions. He was fully entitled to the economic benefits of the
contributions.

Section 91 of the Tax Code is very clear. A donor’s or gift tax is imposed on the
transfer of property by gift.1awphi1.nét

The Bureau of Internal Revenue issued Ruling No. 344 on July 20, 1988, which
reads:

Political Contributions. – For internal revenue purposes, political contributions in


the Philippines are considered taxable gift rather than taxable income. This is so,
because a political contribution is indubitably not intended by the giver or
contributor as a return of value or made because of any intent to repay another
what is his due, but bestowed only because of motives of philanthropy or charity.
His purpose is to give and to bolster the morals, the winning chance of the
candidate and/or his party, and not to employ or buy. On the other hand, the
recipient-donee does not regard himself as exchanging his services or his
product for the money contributed. But more importantly he receives financial
advantages gratuitously.

When the U.S. gift tax law was adopted in the Philippines (before May 7, 1974),
the taxability of political contributions was, admittedly, an unsettled issue; hence,
it cannot be presumed that the Philippine Congress then had intended to
consider or treat political contributions as non-taxable gifts when it adopted the
said gift tax law. Moreover, well-settled is the rule that the Philippines need not
necessarily adopt the present rule or construction in the United States on the
matter. Generally, statutes of different states relating to the same class of
persons or things or having the same purposes are not considered to be in pari
materia because it cannot be justifiably presumed that the legislature had them in
mind when enacting the provision being construed. (5206, Sutherland, Statutory
Construction, p. 546.) Accordingly, in the absence of an express exempting
provision of law, political contributions in the Philippines are subject to the
donor’s gift tax. (cited in National Internal Revenue Code Annotated by Hector S.
de Leon, 1991 ed., p. 290).

In the light of the above BIR Ruling, it is clear that the political contributions of the
private respondents to Sen. Edgardo Angara are taxable gifts. The vagueness of
the law as to what comprise the gift subject to tax was made concrete by the
above-quoted BIR ruling. Hence, there is no doubt that political contributions are
taxable gifts.4

Petitioners filed a motion for reconsideration, which the Court of Appeals denied
in its resolution of June 16, 1995.5

Petitioners thereupon filed the instant petition on July 26, 1995. Raised are the
following issues:

1. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT FAILED TO


CONSIDER IN ITS DECISION THE PURPOSE BEHIND THE ENACTMENT OF
OUR GIFT TAX LAW?

2. DID THE HONORABLE COURT OF APPEALS ERR IN NOT CONSIDERING


THE INTENTION OF THE GIVERS IN DETERMINING WHETHER OR NOT THE
PETITIONERS’ POLITICAL CONTRIBUTIONS WERE GIFTS SUBJECT TO
DONORS TAX?

3. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT FAILED TO


CONSIDER THE DEFINITION OF AN "ELECTORAL CONTRIBUTION" UNDER
THE OMNIBUS ELECTION CODE IN DETERMINING WHETHER OR NOT
POLITICAL CONTRIBUTIONS ARE TAXABLE?

4. DID THE HONORABLE COURT OF APPEALS ERR IN NOT CONSIDERING


THE ADMINISTRATIVE PRACTICE OF CLOSE TO HALF A CENTURY OF NOT
SUBJECTING POLITICAL CONTRIBUTIONS TO DONORS TAX?

5. DID THE HONORABLE COURT OF APPEALS ERR IN NOT CONSIDERING


THE AMERICAN JURISPRUDENCE RELIED UPON BY THE COURT OF TAX
APPEALS AND BY THE PETITIONERS TO THE EFFECT THAT POLITICAL
CONTRIBUTIONS ARE NOT TAXABLE GIFTS?

6. DID THE HONORABLE COURT OF APPEALS ERR IN NOT APPLYING


AMERICAN JURISPRUDENCE ON THE GROUND THAT THIS WAS NOT
KNOWN AT THE TIME THE PHILIPPINES GIFT TAX LAW WAS ADOPTED IN
1939?

7. DID THE HONORABLE COURT OF APPEALS ERR IN RESOLVING THE


CASE MAINLY ON THE BASIS OF A RULING ISSUED BY THE RESPONDENT
ONLY AFTER THE ASSESSMENTS HAD ALREADY BEEN MADE?

8. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT DID NOT


CONSTRUE THE GIFT TAX LAW LIBERALLY IN FAVOR OF THE TAXPAYER
AND STRICLTY AGAINST THE GOVERNMENT IN ACCORDANCE WITH
APPLICABLE PRINCIPLES OF STATUTORY CONSTRUCTION?6

First, Fifth and Sixth Issues

Section 91 of the National Internal Revenue Code (NIRC) reads:

(A) There shall be levied, assessed, collected and paid upon the transfer by any
person, resident or nonresident, of the property by gift, a tax, computed as
provided in Section 92

(B) The tax shall apply whether the transfer is in trust or otherwise, whether the
gift is direct or indirect, and whether the property is real or personal, tangible or
intangible.

The NIRC does not define transfer of property by gift. However, Article 18 of the
Civil Code, states:

In matters which are governed by the Code of Commerce and special laws, their
deficiency shall be supplied by the provisions of this Code.

Thus, reference may be made to the definition of a donation in the Civil Code.
Article 725 of said Code defines donation as:

. . . an act of liberality whereby a person disposes gratuitously of a thing or right


in favor of another, who accepts it.

Donation has the following elements: (a) the reduction of the patrimony of the
donor; (b) the increase in the patrimony of the donee; and, (c) the intent to do an
act of liberality or animus donandi.7

The present case falls squarely within the definition of a donation. Petitioners, the
late Manuel G. Abello8 , Jose C. Concepcion, Teodoro D. Regala and Avelino V.
Cruz, each gave P882,661.31 to the campaign funds of Senator Edgardo
Angara, without any material consideration. All three elements of a donation are
present. The patrimony of the four petitioners were reduced by P882,661.31
each. Senator Edgardo Angara’s patrimony correspondingly increased by
P3,530,645.249 . There was intent to do an act of liberality or animus donandi
was present since each of the petitioners gave their contributions without any
consideration.

Taken together with the Civil Code definition of donation, Section 91 of the NIRC
is clear and unambiguous, thereby leaving no room for construction. In Rizal
Commercial Banking Corporation v. Intermediate Appellate Court10 the Court
enunciated:

It bears stressing that the first and fundamental duty of the Court is to apply the
law. When the law is clear and free from any doubt or ambiguity, there is no room
for construction or interpretation. As has been our consistent ruling, where the
law speaks in clear and categorical language, there is no occasion for
interpretation; there is only room for application (Cebu Portland Cement Co. v.
Municipality of Naga, 24 SCRA 708 [1968])

Where the law is clear and unambiguous, it must be taken to mean exactly what
it says and the court has no choice but to see to it that its mandate is obeyed
(Chartered Bank Employees Association v. Ople, 138 SCRA 273 [1985]; Luzon
Surety Co., Inc. v. De Garcia, 30 SCRA 111 [1969]; Quijano v. Development
Bank of the Philippines, 35 SCRA 270 [1970]).

Only when the law is ambiguous or of doubtful meaning may the court interpret
or construe its true intent.l^vvphi1.net Ambiguity is a condition of admitting two or
more meanings, of being understood in more than one way, or of referring to two
or more things at the same time. A statute is ambiguous if it is admissible of two
or more possible meanings, in which case, the Court is called upon to exercise
one of its judicial functions, which is to interpret the law according to its true
intent.

Second Issue

Since animus donandi or the intention to do an act of liberality is an essential


element of a donation, petitioners argue that it is important to look into the
intention of the giver to determine if a political contribution is a gift. Petitioners’
argument is not tenable. First of all, donative intent is a creature of the mind. It
cannot be perceived except by the material and tangible acts which manifest its
presence. This being the case, donative intent is presumed present when one
gives a part of ones patrimony to another without consideration. Second,
donative intent is not negated when the person donating has other intentions,
motives or purposes which do not contradict donative intent. This Court is not
convinced that since the purpose of the contribution was to help elect a
candidate, there was no donative intent. Petitioners’ contribution of money
without any material consideration evinces animus donandi. The fact that their
purpose for donating was to aid in the election of the donee does not negate the
presence of donative intent.

Third Issue

Petitioners maintain that the definition of an "electoral contribution" under the


Omnibus Election Code is essential to appreciate how a political contribution
differs from a taxable gift.11 Section 94(a) of the said Code defines electoral
contribution as follows:

The term "contribution" includes a gift, donation, subscription, loan, advance or


deposit of money or anything of value, or a contract, promise or agreement to
contribute, whether or not legally enforceable, made for the purpose of
influencing the results of the elections but shall not include services rendered
without compensation by individuals volunteering a portion or all of their time in
behalf of a candidate or political party. It shall also include the use of facilities
voluntarily donated by other persons, the money value of which can be assessed
based on the rates prevailing in the area.

Since the purpose of an electoral contribution is to influence the results of the


election, petitioners again claim that donative intent is not present. Petitioners
attempt to place the barrier of mutual exclusivity between donative intent and the
purpose of political contributions. This Court reiterates that donative intent is not
negated by the presence of other intentions, motives or purposes which do not
contradict donative intent.

Petitioners would distinguish a gift from a political donation by saying that the
consideration for a gift is the liberality of the donor, while the consideration for a
political contribution is the desire of the giver to influence the result of an election
by supporting candidates who, in the perception of the giver, would influence the
shaping of government policies that would promote the general welfare and
economic well-being of the electorate, including the giver himself.

Petitioners’ attempt is strained. The fact that petitioners will somehow in the
future benefit from the election of the candidate to whom they contribute, in no
way amounts to a valuable material consideration so as to remove political
contributions from the purview of a donation. Senator Angara was under no
obligation to benefit the petitioners. The proper performance of his duties as a
legislator is his obligation as an elected public servant of the Filipino people and
not a consideration for the political contributions he received. In fact, as a public
servant, he may even be called to enact laws that are contrary to the interests of
his benefactors, for the benefit of the greater good.

In fine, the purpose for which the sums of money were given, which was to fund
the campaign of Senator Angara in his bid for a senatorial seat, cannot be
considered as a material consideration so as to negate a donation.
Fourth Issue

Petitioners raise the fact that since 1939 when the first Tax Code was enacted,
up to 1988 the BIR never attempted to subject political contributions to donor’s
tax. They argue that:

. . . It is a familiar principle of law that prolonged practice by the government


agency charged with the execution of a statute, acquiesced in and relied upon by
all concerned over an appreciable period of time, is an authoritative interpretation
thereof, entitled to great weight and the highest respect. . . .12

This Court holds that the BIR is not precluded from making a new interpretation
of the law, especially when the old interpretation was flawed. It is a well-
entrenched rule that

. . . erroneous application and enforcement of the law by public officers do not


block subsequent correct application of the statute (PLDT v. Collector of Internal
Revenue, 90 Phil. 676), and that the Government is never estopped by mistake
or error on the part of its agents (Pineda v. Court of First Instance of Tayabas, 52
Phil. 803, 807; Benguet Consolidated Mining Co. v. Pineda, 98 Phil. 711, 724).13

Seventh Issue

Petitioners question the fact that the Court of Appeals decision is based on a BIR
ruling, namely BIR Ruling No. 88-344, which was issued after the petitioners
were assessed for donor’s tax. This Court does not need to delve into this issue.
It is immaterial whether or not the Court of Appeals based its decision on the BIR
ruling because it is not pivotal in deciding this case. As discussed above, Section
91 (now Section 98) of the NIRC as supplemented by the definition of a donation
found in Article 725 of the Civil Code, is clear and unambiguous, and needs no
further elucidation.

Eighth Issue

Petitioners next contend that tax laws are construed liberally in favor of the
taxpayer and strictly against the government. This rule of construction, however,
does not benefit petitioners because, as stated, there is here no room for
construction since the law is clear and unambiguous.

Finally, this Court takes note of the fact that subsequent to the donations
involved in this case, Congress approved Republic Act No. 7166 on November
25, 1991, providing in Section 13 thereof that political/electoral contributions, duly
reported to the Commission on Elections, are not subject to the payment of any
gift tax. This all the more shows that the political contributions herein made are
subject to the payment of gift taxes, since the same were made prior to the
exempting legislation, and Republic Act No. 7166 provides no retroactive effect
on this point.

WHEREFORE, the petition is DENIED and the assailed Decision and Resolution
of the Court of Appeals are AFFIRMED.

No costs.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Quisumbing, and Carpio, JJ., concur.

Ynares-Santiago, J., no part.