LUTZ v. ARANETA 98 PHIL.

145 December 22, 1955

(CASE DIGEST)
CONSTITUTIONAL LAW II
FUNDAMENTAL POWERS OF THE STATE
POLICE POWER
WALTER LUTZ, as Judicial Administrator of
the Intestate of the deceased Antonio Jayme
Ledesma, plaintiff-appellant v. J. ANTONIO
ARANETA, as collector of Internal Revenue,
defendant-apppelle
G.R No. L-7856. December 22, 1955
REYES, J.B L., J.:
FACTS:
Appelant in this case Walter Lutz in his capacity as the Judicial
Administrator of the intestate of the deceased Antonio Jayme
Ledesma, seeks to recover from the Collector of the Internal
Revenue the total sum of fourteen thousand six hundred sixty six
and forty cents (P 14, 666.40) paid by the estate as taxes, under
section 3 of Commonwealth Act No. 567, also known as the Sugar
Adjustment Act, for the crop years 1948-1949 and 1949-1950.
Commonwealth Act. 567 Section 2 provides for an increase of the
existing tax on the manufacture of sugar on a graduated basis, on
each picul of sugar manufacturer; while section 3 levies on the
owners or persons in control of the land devoted tot he cultivation
of sugarcane and ceded to others for consideration, on lease or
otherwise - "a tax equivalent to the difference between the money
value of the rental or consideration collected and the amount
representing 12 per centum of the assessed value of such land. It
was alleged that such tax is unconstitutional and void, being
levied for the aid and support of the sugar industry exclusively,
which in plaintiff's opinion is not a public purpose for which a
tax may be constitutionally levied. The action was dismissed by the
CFI thus the plaintiff appealed directly to the Supreme Court.

FACTS:
The Philippine Sugar Estate Development Company had earlier appointed Algue as its
agent, authorizing it to sell its land, factories and oil manufacturing process. Pursuant to such
authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo
Sanchez, worked for the formation of the Vegetable Oil Investment Corporation, inducing other
persons to invest in it. Ultimately, after its incorporation largely through the promotion of the
said persons, this new corporation purchased the PSEDC properties. For this sale, Algue received
as agent a commission of P126,000.00, and it was from this commission that the P75,000.00
promotional fees were paid to the aforenamed individuals.
The petitioner contends that the claimed deduction of P75,000.00 was properly
disallowed because it was not an ordinary reasonable or necessary business expense. The Court
of Tax Appeals had seen it differently. Agreeing with Algue, it held that the said amount had been
legitimately paid by the private respondent for actual services rendered. The payment was in the
form of promotional fees.
ISSUE:
Whether or not the Collector of Internal Revenue correctly disallowed the P75,000.00
deduction claimed by private respondent Algue as legitimate business expenses in its income tax
returns.
RULING:
The Supreme Court agrees with the respondent court that the amount of the promotional
fees was not excessive. The amount of P75,000.00 was 60% of the total commission. This was a
reasonable proportion, considering that it was the payees who did practically everything, from
the formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the
Sugar Estate properties.
It is said that taxes are what we pay for civilization society. Without taxes, the
government would be paralyzed for lack of the motive power to activate and operate it. Hence,
despite the natural reluctance to surrender part of one's hard earned income to the taxing
authorities, every person who is able to must contribute his share in the running of the
government.
Lorenzo vs. Posadas Jr. [June 18, 1937]
<3 Fluffy Peaches <3
Facts:

Thomas Hanley died, leaving a will and a considerable amount of real and personal properties. Proceedings for the
probate of his will and the settlement and distribution of his estate were begun in the CFI of Zamboanga. The will was
admitted to probate.

The CFI considered it proper for the best interests of the estate to appoint a trustee to administer the real properties
which, under the will, were to pass to nephew Matthew ten years after the two executors named in the will was
appointed trustee. Moore acted as trustee until he resigned and the plaintiff Lorenzo herein was appointed in his
stead.

During the incumbency of the plaintiff as trustee, the defendant Collector of Internal Revenue (Posadas) assessed
against the estate an inheritance tax, together with the penalties for deliquency in payment. Lorenzo paid said
amount under protest, notifying Posadas at the same time that unless the amount was promptly refunded suit would
be brought for its recovery. Posadas overruled Lorenzos protest and refused to refund the said amount. Plaintiff went
to court. The CFI dismissed Lorenzos complaint and Posadas counterclaim. Both parties appealed to this court.
Issues and Ruling:
1. When does the inheritance tax accrue and when must it be satisfied?

The accrual of the inheritance tax is distinct from the obligation to pay the same.

NCC 657: the rights to the succession of a person are transmitted from the moment of his death. In other words...
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.

Whatever may be the time when actual transmission of the inheritance takes place, succession takes place in any
event at the moment of the decedents death. The time when the heirs legally succeed to the inheritance may
differ from the time when the heirs actually receive such inheritance. Thomas Hanley having died on May 27,
1922, the inheritance tax accrued as of the date.

<3 Fluffy Peaches <3

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: x x x
(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. xx
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.

The instant case fall under subsection (b), of section 1544, 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
Moore as trustee.
2. Should the inheritance tax be computed on the basis of the value of the estate at the time of the testators death,
or on its value ten years later?

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 value of the estate as it stood at the time of the decedents death , regardless of
any subsequent contingency value of any subsequent increase or decrease in value

LORENZO vs. POSADAS JR.

G.R. No. L-43082

June 18, 1937

FACTS: Thomas Hanley died, leaving a will and a considerable amount of

real and personal properties. Proceedings for the probate of his will and the
settlement and distribution of his estate were begun in the CFI of Zamboanga.
The will was admitted to probate.
The CFI considered it proper for the best interests of the estate to appoint a
trustee to administer the real properties which, under the will, were to pass to
nephew Matthew ten years after the two executors named in the will was
appointed trustee. Moore acted as trustee until he resigned and the plaintiff
Lorenzo herein was appointed in his stead.
During the incumbency of the plaintiff as trustee, the defendant Collector of
Internal Revenue (Posadas) assessed against the estate an inheritance tax,
together with the penalties for deliquency in payment. Lorenzo paid said
amount under protest, notifying Posadas at the same time that unless the
amount was promptly refunded suit would be brought for its recovery.
Posadas overruled Lorenzos protest and refused to refund the said amount.
Plaintiff went to court. The CFI dismissed Lorenzos complaint and Posadas
counterclaim. Both parties appealed to this court.
ISSUE:

(e) Has there been delinquency in the payment of the inheritance tax?

HELD: The judgment of the lower court is accordingly modified, with costs
against the plaintiff in both instances
YES
The defendant maintains that it was the duty of the executor to pay the
inheritance tax before the delivery of the decedents property to the trustee.
Stated otherwise, the defendant contends that delivery to the trustee was
delivery to the cestui que trust, the beneficiary in this case, within the
meaning of the first paragraph of subsection (b) of section 1544 of the Revised
Administrative Code. This contention is well taken and is sustained. A trustee
is but an instrument or agent for the cestui que trust

The appointment of Moore as trustee was made by the trial court in

conformity with the wishes of the testator as expressed in his will. It is true
that the word trust is not mentioned or used in the will but the intention to
create one is clear. No particular or technical words are required to create a
testamentary trust. The words trust and trustee, though apt for the
purpose, are not necessary. In fact, the use of these two words is not
conclusive on the question that a trust is created. To constitute a valid
testamentary trust there must be a concurrence of three circumstances:

(1) Sufficient words to raise a trust;

(2) a definite subject;

(3) a certain or ascertain object; statutes in some jurisdictions expressly or in

effect so providing.

There is no doubt that the testator intended to create a trust. He ordered in his
will that certain of his properties be kept together undisposed during a fixed
period, for a stated purpose. The probate court certainly exercised sound
judgment in appointmening a trustee to carry into effect the provisions of the
will

As the existence of the trust was already proven, it results that the estate which
plaintiff represents has been delinquent in the payment of inheritance tax and,
therefore, liable for the payment of interest and surcharge provided by law in
such cases.
The delinquency in payment occurred on March 10, 1924, the date when
Moore became trustee. On that date trust estate vested in him. The interest
due should be computed from that date.

National Power Corporation vs. City of Cabanatuan

GR. No. 149110
April 9, 2003
FACTS:
NAPOCOR, the petitioner, is a government-owed and controlled
corporation created under Commonwealth Act 120. It is tasked to
undertake the development of hydroelectric generations of power and
the production of electricity from nuclear, geothermal, and other
sources, as well as, the transmission of electric power on a nationwide
basis.

For many years now, NAPOCOR sells electric power to the resident
Cabanatuan City, posting a gross income of P107,814,187.96 in 1992.
Pursuant to Sec. 37 of Ordinance No. 165-92, the respondent assessed
the petitioner a franchise tax amounting to P808,606.41, representing
75% of 1% of the formers gross receipts for the preceding year.
Petitioner, whose capital stock was subscribed and wholly paid by the
Philippine Government, refused to pay the tax assessment. It argued
that the respondent has no authority to impose tax on government
entities. Petitioner also contend that as a non-profit organization, it is
exempted from the payment of all forms of taxes, charges, duties or
fees in accordance with Sec. 13 of RA 6395, as amended.
The respondent filed a collection suit in the RTC of Cabanatuan City,
demanding that petitioner pay the assessed tax, plus surcharge
equivalent to 25% of the amount of tax and 2% monthly interest.
Respondent alleged that petitioners exemption from local taxes has
been repealed by Sec. 193 of RA 7160 (Local Government Code). The
trial court issued an order dismissing the case. On appeal, the Court of
Appeals reversed the decision of the RTC and ordered the petitioner to
pay the city government the tax assessment.
ISSUES:
(1) Is the NAPOCOR excluded from the coverage of the franchise tax
simply because its stocks are wholly owned by the National
Government and its charter characterized is as a non-profit
organization?
(2) Is the NAPOCORs exemption from all forms of taxes repealed by
the provisions of the Local Government Code (LGC)?
HELD:
(1) NO. To stress, a franchise tax is imposed based not on the
ownership but on the exercise by the corporation of a privilege to do
business. The taxable entity is the corporation which exercises the
franchise, and not the individual stockholders. By virtue of its charter,
petitioner was created as a separate and distinct entity from the
National Government. It can sue and be sued under its own name, and
can exercise all the powers of a corporation under the Corporation
Code.

To be sure, the ownership by the National Government of its entire

capital stock does not necessarily imply that petitioner is no engage
din business.
(2) YES. One of the most significant provisions of the LGC is the
removal of the blanket exclusion of instrumentalities and agencies of
the National Government from the coverage of local taxation. Although
as a general rule, LGUs cannot impose taxes, fees, or charges of any
kind on the National Government, its agencies and instrumentalities,
this rule now admits an exception, i.e. when specific provisions of the
LGC authorize the LGUs to impose taxes, fees, or charges on the
aforementioned entities. The legislative purpose to withdraw tax
privileges enjoyed under existing laws or charter is clearly manifested
by the language used on Sec. 137 and 193 categorically withdrawing
such exemption subject only to the exceptions enumerated. Since it
would be tedious and impractical to attempt to enumerate all the
existing statutes providing for special tax exemptions or privileges, the
LGC provided for an express, albeit general, withdrawal of such
exemptions or privileges. No more unequivocal language could have
been used.