Tax II Set I* Estate Tax Cases*Page 1 of 15
THIRD DIVISION G.R. No. 123206 March 22, 2000
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.
COURT OF APPEALS, COURT OF TAX APPEALS and JOSEFINA P. PAJONAR, as Administratrix of the Estate of
Pedro P. Pajonar, respondents.
RES OLUTIO N
GONZAGA-REYES, J.:
Assailed in this petition for review on certiorari is the December 21, 1995 Decision1 of the Court of Appeals2 in CA-G.R. Sp.
No. 34399 affirming the June 7, 1994 Resolution of the Court of Tax Appeals in CTA Case No. 4381 granting private respondent
Josefina P. Pajonar, as administratrix of the estate of Pedro P. Pajonar, a tax refund in the amount of P76,502.42, representing
erroneously paid estate taxes for the year 1988.
Pedro Pajonar, a member of the Philippine Scout, Bataan Contingent, during the second World War, was a part of the infamous
Death March by reason of which he suffered shock and became insane. His sister Josefina Pajonar became the guardian over his
person, while his property was placed under the guardianship of the Philippine National Bank (PNB) by the Regional Trial Court
of Dumaguete City, Branch 31, in Special Proceedings No. 1254. He died on January 10, 1988. He was survived by his two
brothers Isidro P. Pajonar and Gregorio Pajonar, his sister Josefina Pajonar, nephews Concordio Jandog and Mario Jandog and
niece Conchita Jandog.
On May 11, 1988, the PNB filed an accounting of the decedent's property under guardianship valued at P3,037,672.09 in Special
Proceedings No. 1254. However, the PNB did not file an estate tax return, instead it advised Pedro Pajonar's heirs to execute an
extrajudicial settlement and to pay the taxes on his estate. On April 5, 1988, pursuant to the assessment by the Bureau of Internal
Revenue (BIR), the estate of Pedro Pajonar paid taxes in the amount of P2,557.
On May 19, 1988, Josefina Pajonar filed a petition with the Regional Trial Court of Dumaguete City for the issuance in her favor
of letters of administration of the estate of her brother. The case was docketed as Special Proceedings No. 2399. On July 18,
1988, the trial court appointed Josefina Pajonar as the regular administratrix of Pedro Pajonar's estate.
On December 19, 1988, pursuant to a second assessment by the BIR for deficiency estate tax, the estate of Pedro Pajonar paid
estate tax in the amount of P1,527,790.98. Josefina Pajonar, in her capacity as administratrix and heir of Pedro Pajonar's estate,
filed a protest on January 11, 1989 with the BIR praying that the estate tax payment in the amount of P1,527,790.98, or at least
some portion of it, be returned to the heirs. 3
However, on August 15, 1989, without waiting for her protest to be resolved by the BIR, Josefina Pajonar filed a petition for
review with the Court of Tax Appeals (CTA), praying for the refund of P1,527,790.98, or in the alternative, P840,202.06, as
erroneously paid estate tax. 4 The case was docketed as CTA Case No. 4381.
On May 6, 1993, the CTA ordered the Commissioner of Internal Revenue to refund Josefina Pajonar the amount of P252,585.59,
representing erroneously paid estate tax for the year 1988.5 Among the deductions from the gross estate allowed by the CTA
were the amounts of P60,753 representing the notarial fee for the Extrajudicial Settlement and the amount of P50,000 as the
attorney's fees in Special Proceedings No. 1254 for guardianship.6
On June 15, 1993, the Commissioner of Internal Revenue filed a motion for reconsideration7 of the CTA's May 6, 1993 decision
asserting, among others, that the notarial fee for the Extrajudicial Settlement and the attorney's fees in the guardianship
proceedings are not deductible expenses.
On June 7, 1994, the CTA issued the assailed Resolution8 ordering the Commissioner of Internal Revenue to refund Josefina
Pajonar, as administratrix of the estate of Pedro Pajonar, the amount of P76,502.42 representing erroneously paid estate tax for
the year 1988. Also, the CTA upheld the validity of the deduction of the notarial fee for the Extrajudicial Settlement and the
attorney's fees in the guardianship proceedings.
On July 5, 1994, the Commissioner of Internal Revenue filed with the Court of Appeals a petition for review of the CTA's May
6, 1993 Decision and its June 7, 1994 Resolution, questioning the validity of the abovementioned deductions. On December 21,
1995, the Court of Appeals denied the Commissioner's petition.9
Hence, the present appeal by the Commissioner of Internal Revenue.
The sole issue in this case involves the construction of section 79 10 of the National Internal Revenue Code 11 (Tax Code) which
provides for the allowable deductions from the gross estate of the decedent. More particularly, the question is whether the
notarial fee paid for the extrajudicial settlement in the amount of P60,753 and the attorney's fees in the guardianship proceedings
in the amount of P50,000 may be allowed as deductions from the gross estate of decedent in order to arrive at the value of the net
estate.
We answer this question in the affirmative, thereby upholding the decisions of the appellate courts.
In its May 6, 1993 Decision, the Court of Tax Appeals ruled thus:
Respondent maintains that only judicial expenses of the testamentary or intestate proceedings are allowed as a deduction to the
gross estate. The amount of P60,753.00 is quite extraordinary for a mere notarial fee.
This Court adopts 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 toward the settlement of the case." [ 34 Am. Jur. 2d, p. 765; Nolledo, Bar Reviewer in
Taxation, 10th Ed. (1990), p. 481]
xxx xxx xxx
The attorney's fees of P50,000.00, which were already incurred but not yet paid, refers to the guardianship proceeding filed by
PNB, as guardian over the ward of Pedro Pajonar, docketed as Special Proceeding No. 1254 in the RTC (Branch XXXI) of
Dumaguete City. . . .
xxx xxx xxx
The guardianship proceeding had been terminated upon delivery of the residuary estate to the heirs entitled thereto. Thereafter,
PNB was discharged of any further responsibility.
Attorney's fees 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. [34 Am. Jur. 2d 767.] In this case, the guardianship proceeding was necessary for the distribution of the
property of the late Pedro Pajonar to his rightful heirs.
xxx xxx xxx
PNB was appointed as guardian over the assets of the late Pedro Pajonar, who, even at the time of his death, was incompetent by
reason of insanity. The expenses incurred in the guardianship proceeding was but a necessary expense in the settlement of the
decedent's estate. Therefore, the attorney's fee incurred in the guardianship proceedings amounting to P50,000.00 is a reasonable
and necessary business expense deductible from the gross estate of the decedent. 12
Upon a motion for reconsideration filed by the Commissioner of Internal Revenue, the Court of Tax Appeals modified its
previous ruling by reducing the refundable amount to P76,502.43 since it found that a deficiency interest should be imposed and
the compromise penalty excluded. 13 However, the tax court upheld its previous ruling regarding the legality of the deductions
It is significant to note that the inclusion of the estate tax law in the codification of all our national internal revenue laws with the
enactment of the National Internal Revenue Code in 1939 were copied from the Federal Law of the United States. [ UMALI,
Reviewer in Taxation (1985), p. 285 ] The 1977 Tax Code, promulgated by Presidential Decree No. 1158, effective June 3, 1977,
reenacted substantially all the provisions of the old law on estate and gift taxes, except the sections relating to the meaning of
gross estate and gift. [ Ibid, p. 286. ]
In the United States, [a]dministrative expenses, executor's commissions and attorney's fees are considered allowable deductions
from the Gross Estate. Administrative expenses are limited to such expenses as are actually and necessarily incurred in the
administration of a decedent's estate. [PRENTICE-HALL, Federal Taxes Estate and Gift Taxes (1936), p. 120, 533.] Necessary

expenses of administration are such expenses as are entailed for the preservation and productivity of the estate and for its
management for purposes of liquidation, payment of debts and distribution of the residue among the persons entitled thereto.
[Lizarraga Hermanos vs. Abada, 40 Phil. 124.] They must be incurred for the settlement of the estate as a whole. [34 Am. Jur. 2d,
p. 765.] Thus, where there were no substantial community debts and it was unnecessary to convert community property to cash,
the only practical purpose of administration being the payment of estate taxes, full deduction was allowed for attorney's fees and
miscellaneous expenses charged wholly to decedent's estate. [Ibid., citing Estate of Helis, 26 T.C. 143 (A).]
Petitioner stated in her protest filed with the BIR that "upon the death of the ward, the PNB, which was still the guardian of the
estate, (Annex "Z"), did not file an estate tax return; however, it advised the heirs to execute an extrajudicial settlement, to pay
taxes and to post a bond equal to the value of the estate, for which the state paid P59,341.40 for the premiums. (See Annex
"K")." [p. 17, CTA record.] Therefore, it would appear from the records of the case that the only practical purpose of settling the
estate by means of an extrajudicial settlement pursuant to Section 1 of Rule 74 of the Rules of Court was for the payment of
taxes and the distribution of the estate to the heirs. A fortiori, since our estate tax laws are of American origin, the interpretation
adopted by American Courts has some persuasive effect on the interpretation of our own estate tax laws on the subject.
Anent the contention of respondent that the attorney's fees of P50,000.00 incurred in the guardianship proceeding should not be
deducted from the Gross Estate, We consider the same unmeritorious. Attorneys' and guardians' fees incurred in a trustee's
accounting of a taxable inter vivos trust attributable to the usual issues involved in such an accounting was held to be proper
deductions because these are expenses incurred in terminating an inter vivos trust that was includible in the decedent's estate.
[Prentice Hall, Federal Taxes on Estate and Gift, p. 120, 861] Attorney's fees are allowable deductions if incurred for the
settlement of the estate. It is noteworthy to point that PNB was appointed the guardian over the assets of the deceased.
Necessarily the assets of the deceased formed part of his gross estate. Accordingly, all expenses incurred in relation to the estate
of the deceased will be deductible for estate tax purposes provided these are necessary and ordinary expenses for administration
of the settlement of the estate. 14
In upholding the June 7, 1994 Resolution of the Court of Tax Appeals, the Court of Appeals held that:
2. Although the Tax Code specifies "judicial expenses of the testamentary or intestate proceedings," there is no reason why
expenses incurred in the administration and settlement of an estate in extrajudicial proceedings should not be allowed. However,
deduction is limited to such administration expenses as are actually and necessarily incurred in the collection of the assets of the
estate, payment of the debts, and distribution of the remainder among those entitled thereto. Such expenses may include
executor's or administrator's fees, attorney's fees, court fees and charges, appraiser's fees, clerk hire, costs of preserving and
distributing the estate and storing or maintaining it, brokerage fees or commissions for selling or disposing of the estate, and the
like. Deductible attorney's fees are those incurred by the executor or administrator in the settlement of the estate or in defending
or prosecuting claims against or due the estate. (Estate and Gift Taxation in the Philippines, T. P. Matic, Jr., 1981 Edition, p.
176).
xxx xxx xxx
It is clear then that the extrajudicial settlement was for the purpose of payment of taxes and the distribution of the estate to the
heirs. The execution of the extrajudicial settlement necessitated the notarization of the same. Hence the Contract of Legal
Services of March 28, 1988 entered into between respondent Josefina Pajonar and counsel was presented in evidence for the
purpose of showing that the amount of P60,753.00 was for the notarization of the Extrajudicial Settlement. It follows then that
the notarial fee of P60,753.00 was incurred primarily to settle the estate of the deceased Pedro Pajonar. Said amount should then
be considered an administration expenses actually and necessarily incurred in the collection of the assets of the estate, payment
of debts and distribution of the remainder among those entitled thereto. Thus, the notarial fee of P60,753 incurred for the
Extrajudicial Settlement should be allowed as a deduction from the gross estate.
3. Attorney's fees, on the other hand, in order to be deductible from the gross estate must be essential to the settlement of the
estate.
The amount of P50,000.00 was incurred as attorney's fees in the guardianship proceedings in Spec. Proc. No. 1254. Petitioner
contends that said amount are not expenses of the testamentary or intestate proceedings as the guardianship proceeding was
instituted during the lifetime of the decedent when there was yet no estate to be settled.
Tax II Set I* Estate Tax Cases*Page 2 of 15
Again, this contention must fail.
The guardianship proceeding in this case was necessary for the distribution of the property of the deceased Pedro Pajonar. As
correctly pointed out by respondent CTA, the PNB was appointed guardian over the assets of the deceased, and that necessarily
the assets of the deceased formed part of his gross estate. . . .
xxx xxx xxx
It is clear therefore that the attorney's fees incurred in the guardianship proceeding in Spec. Proc. No. 1254 were essential to the
distribution of the property to the persons entitled thereto. Hence, the attorney's fees incurred in the guardianship proceedings in
the amount of P50,000.00 should be allowed as a deduction from the gross estate of the decedent. 15
The deductions from the gross estate permitted under section 79 of the Tax Code basically reproduced the deductions allowed
under Commonwealth Act No. 466 (CA 466), otherwise known as the National Internal Revenue Code of 1939, 16 and which
was the first codification of Philippine tax laws. Section 89 (a) (1) (B) of CA 466 also provided for the deduction of the "judicial
expenses of the testamentary or intestate proceedings" for purposes of determining the value of the net estate. Philippine tax laws
were, in turn, based on the federal tax laws of the United States. 17 In accord with 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. 18
Judicial expenses are expenses of administration. 19 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 federal and state courts of the
United States 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." 20 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. 21 This distinction has been
carried over to our jurisdiction. Thus, in Lorenzo v. Posadas 22 the Court construed the phrase "judicial expenses of the
testamentary or intestate proceedings" as not including the compensation paid to a trustee of the decedent's estate when it
appeared that such trustee was appointed for the purpose of managing the decedent's real estate for the benefit of the
testamentary heir. In another case, the Court disallowed the premiums paid on the bond filed by the administrator 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. 23 Neither may attorney's fees incident to litigation incurred by the heirs in asserting their respective rights be claimed
as a deduction from the gross estate. 241wphi1
Coming to the case at bar, the notarial fee paid for the extrajudicial settlement is clearly a deductible expense since such
settlement effected a distribution of Pedro Pajonar's estate to his lawful heirs. Similarly, the attorney's fees paid to PNB for
acting as the guardian of Pedro Pajonar's property during his lifetime should also be considered as a deductible administration
expense. PNB provided a detailed accounting of decedent's property and gave advice as to the proper settlement of the latter's
estate, acts which contributed towards the collection of decedent's assets and the subsequent settlement of the estate.
We find that the Court of Appeals did not commit reversible error in affirming the questioned resolution of the Court of Tax
Appeals.
WHEREFORE, the December 21, 1995 Decision of the Court of Appeals is AFFIRMED. The notarial fee for the extrajudicial
settlement and the attorney's fees in the guardianship proceedings are allowable deductions from the gross estate of Pedro
Pajonar.1wphi1.ntSO ORDERED.
G.R. No. 120880 June 5, 1997
FERDINAND R. MARCOS II, petitioner, vs.
COURT OF APPEALS, THE COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE and HERMINIA D.
DE GUZMAN, respondents.
TORRES, JR., J.:
In this Petition for Review on Certiorari, Government action is once again assailed as precipitate and unfair, suffering the basic
and oftly implored requisites of due process of law. Specifically, the petition assails the Decision 1 of the Court of Appeals dated
November 29, 1994 in CA-G.R. SP No. 31363, where the said court held:

In view of all the foregoing, we rule that the deficiency income tax assessments and estate tax assessment, are already final and
(u)nappealable-and-the subsequent levy of real properties is a tax remedy resorted to by the government, sanctioned by Section
213 and 218 of the National Internal Revenue Code. This summary tax remedy is distinct and separate from the other tax
remedies (such as Judicial Civil actions and Criminal actions), and is not affected or precluded by the pendency of any other tax
remedies instituted by the government.
WHEREFORE, premises considered, judgment is hereby rendered DISMISSING the petition for certiorari with prayer for
Restraining Order and Injunction.
No pronouncements as to costs.SO ORDERED.
More than seven years since the demise of the late Ferdinand E. Marcos, the former President of the Republic of the Philippines,
the matter of the settlement of his estate, and its dues to the government in estate taxes, are still unresolved, the latter issue being
now before this Court for resolution. Specifically, petitioner Ferdinand R. Marcos II, the eldest son of the decedent, questions the
actuations of the respondent Commissioner of Internal Revenue in assessing, and collecting through the summary remedy of
Levy on Real Properties, estate and income tax delinquencies upon the estate and properties of his father, despite the pendency
of the proceedings on probate of the will of the late president, which is docketed as Sp. Proc. No. 10279 in the Regional Trial
Court of Pasig, Branch 156.
Petitioner had filed with the respondent Court of Appeals a Petition for Certiorari and Prohibition with an application for writ of
preliminary injunction and/or temporary restraining order on June 28, 1993, seeking to
I. Annul and set aside the Notices of Levy on real property dated February 22, 1993 and May 20, 1993, issued by
respondent Commissioner of Internal Revenue;
II. Annul and set aside the Notices of Sale dated May 26, 1993;
III. Enjoin the Head Revenue Executive Assistant Director II (Collection Service), from proceeding with the Auction of
the real properties covered by Notices of Sale.
After the parties had pleaded their case, the Court of Appeals rendered its Decision 2 on November 29, 1994, ruling that the
deficiency assessments for estate and income tax made upon the petitioner and the estate of the deceased President Marcos have
already become final and unappealable, and may thus be enforced by the summary remedy of levying upon the properties of the
late President, as was done by the respondent Commissioner of Internal Revenue.
WHEREFORE, premises considered judgment is hereby rendered DISMISSING the petition for Certiorari with prayer for
Restraining Order and Injunction.
No pronouncements as to cost.
SO ORDERED.
Unperturbed, petitioner is now before us assailing the validity of the appellate court's decision, assigning the following as errors:
A. RESPONDENT COURT MANIFESTLY ERRED IN RULING THAT THE SUMMARY TAX REMEDIES
RESORTED TO BY THE GOVERNMENT ARE NOT AFFECTED AND PRECLUDED BY THE PENDENCY OF THE
SPECIAL PROCEEDING FOR THE ALLOWANCE OF THE LATE PRESIDENT'S ALLEGED WILL. TO THE CONTRARY,
THIS PROBATE PROCEEDING PRECISELY PLACED ALL PROPERTIES WHICH FORM PART OF THE LATE
PRESIDENT'S ESTATE IN CUSTODIA LEGIS OF THE PROBATE COURT TO THE EXCLUSION OF ALL OTHER
COURTS AND ADMINISTRATIVE AGENCIES.
B. RESPONDENT COURT ARBITRARILY ERRED IN SWEEPINGLY DECIDING THAT SINCE THE TAX
ASSESSMENTS OF PETITIONER AND HIS PARENTS HAD ALREADY BECOME FINAL AND UNAPPEALABLE,
THERE WAS NO NEED TO GO INTO THE MERITS OF THE GROUNDS CITED IN THE PETITION. INDEPENDENT OF
Tax II Set I* Estate Tax Cases*Page 3 of 15
WHETHER THE TAX ASSESSMENTS HAD ALREADY BECOME FINAL, HOWEVER, PETITIONER HAS THE RIGHT
TO QUESTION THE UNLAWFUL MANNER AND METHOD IN WHICH TAX COLLECTION IS SOUGHT TO BE
ENFORCED BY RESPONDENTS COMMISSIONER AND DE GUZMAN. THUS, RESPONDENT COURT SHOULD HAVE
FAVORABLY CONSIDERED THE MERITS OF THE FOLLOWING GROUNDS IN THE PETITION:
(1) The Notices of Levy on Real Property were issued beyond the period provided in the Revenue Memorandum Circular
No. 38-68.
(2) [a] The numerous pending court cases questioning the late President's ownership or interests in several properties (both
personal and real) make the total value of his estate, and the consequent estate tax due, incapable of exact pecuniary
determination at this time. Thus, respondents' assessment of the estate tax and their issuance of the Notices of Levy and Sale are
premature, confiscatory and oppressive.
[b] Petitioner, as one of the late President's compulsory heirs, was never notified, much less served with copies of the
Notices of Levy, contrary to the mandate of Section 213 of the NIRC. As such, petitioner was never given an opportunity to
contest the Notices in violation of his right to due process of law.
C. ON ACCOUNT OF THE CLEAR MERIT OF THE PETITION, RESPONDENT COURT MANIFESTLY ERRED
IN RULING THAT IT HAD NO POWER TO GRANT INJUNCTIVE RELIEF TO PETITIONER. SECTION 219 OF THE
NIRC NOTWITHSTANDING, COURTS POSSESS THE POWER TO ISSUE A WRIT OF PRELIMINARY INJUNCTION TO
RESTRAIN RESPONDENTS COMMISSIONER'S AND DE GUZMAN'S ARBITRARY METHOD OF COLLECTING THE
ALLEGED DEFICIENCY ESTATE AND INCOME TAXES BY MEANS OF LEVY.
The facts as found by the appellate court are undisputed, and are hereby adopted:
On September 29, 1989, former President Ferdinand Marcos died in Honolulu, Hawaii, USA.
On June 27, 1990, a Special Tax Audit Team was created to conduct investigations and examinations of the tax liabilities and
obligations of the late president, as well as that of his family, associates and "cronies". Said audit team concluded its
investigation with a Memorandum dated July 26, 1991. The investigation disclosed that the Marcoses failed to file a written
notice of the death of the decedent, an estate tax returns [sic], as well as several income tax returns covering the years 1982 to
1986, all in violation of the National Internal Revenue Code (NIRC).
Subsequently, criminal charges were filed against Mrs. Imelda R. Marcos before the Regional Trial of Quezon City for violations
of Sections 82, 83 and 84 (has penalized under Sections 253 and 254 in relation to Section 252 a & b) of the National Internal
Revenue Code (NIRC).
The Commissioner of Internal Revenue thereby caused the preparation and filing of the Estate Tax Return for the estate of the
late president, the Income Tax Returns of the Spouses Marcos for the years 1985 to 1986, and the Income Tax Returns of
petitioner Ferdinand "Bongbong" Marcos II for the years 1982 to 1985.
On July 26, 1991, the BIR issued the following: (1) Deficiency estate tax assessment no. FAC-2-89-91-002464 (against the
estate of the late president Ferdinand Marcos in the amount of P23,293,607,638.00 Pesos); (2) Deficiency income tax assessment
no. FAC-1-85-91-002452 and Deficiency income tax assessment no. FAC-1-86-91-002451 (against the Spouses Ferdinand and
Imelda Marcos in the amounts of P149,551.70 and P184,009,737.40 representing deficiency income tax for the years 1985 and
1986); (3) Deficiency income tax assessment nos. FAC-1-82-91-002460 to FAC-1-85-91-002463 (against petitioner Ferdinand
"Bongbong" Marcos II in the amounts of P258.70 pesos; P9,386.40 Pesos; P4,388.30 Pesos; and P6,376.60 Pesos representing
his deficiency income taxes for the years 1982 to 1985).
The Commissioner of Internal Revenue avers that copies of the deficiency estate and income tax assessments were all personally
and constructively served on August 26, 1991 and September 12, 1991 upon Mrs. Imelda Marcos (through her caretaker Mr.
Martinez) at her last known address at No. 204 Ortega St., San Juan, M.M. (Annexes "D" and "E" of the Petition). Likewise,
copies of the deficiency tax assessments issued against petitioner Ferdinand "Bongbong" Marcos II were also personally and
constructively served upon him (through his caretaker) on September 12, 1991, at his last known address at Don Mariano
Marcos St. corner P. Guevarra St., San Juan, M.M. (Annexes "J" and "J-1" of the Petition). Thereafter, Formal Assessment

notices were served on October 20, 1992, upon Mrs. Marcos c/o petitioner, at his office, House of Representatives, Batasan
Pambansa, Quezon City. Moreover, a notice to Taxpayer inviting Mrs. Marcos (or her duly authorized representative or counsel),
to a conference, was furnished the counsel of Mrs. Marcos, Dean Antonio Coronel but to no avail.
The deficiency tax assessments were not protested administratively, by Mrs. Marcos and the other heirs of the late president,
within 30 days from service of said assessments.
On February 22, 1993, the BIR Commissioner issued twenty-two notices of levy on real property against certain parcels of land
owned by the Marcoses to satisfy the alleged estate tax and deficiency income taxes of Spouses Marcos.
On May 20, 1993, four more Notices of Levy on real property were issued for the purpose of satisfying the deficiency income
taxes.
On May 26, 1993, additional four (4) notices of Levy on real property were again issued. The foregoing tax remedies were
resorted to pursuant to Sections 205 and 213 of the National Internal Revenue Code (NIRC).
In response to a letter dated March 12, 1993 sent by Atty. Loreto Ata (counsel of herein petitioner) calling the attention of the
BIR and requesting that they be duly notified of any action taken by the BIR affecting the interest of their client Ferdinand
"Bongbong" Marcos II, as well as the interest of the late president copies of the aforesaid notices were, served on April 7,
1993 and on June 10, 1993, upon Mrs. Imelda Marcos, the petitioner, and their counsel of record, "De Borja, Medialdea, Ata,
Bello, Guevarra and Serapio Law Office".
Notices of sale at public auction were posted on May 26, 1993, at the lobby of the City Hall of Tacloban City. The public auction
for the sale of the eleven (11) parcels of land took place on July 5, 1993. There being no bidder, the lots were declared forfeited
in favor of the government.
On June 25, 1993, petitioner Ferdinand "Bongbong" Marcos II filed the instant petition for certiorari and prohibition under Rule
65 of the Rules of Court, with prayer for temporary restraining order and/or writ of preliminary injunction.
It has been repeatedly observed, and not without merit, that the enforcement of tax laws and the collection of taxes, is of
paramount importance for the sustenance of government. Taxes are the lifeblood of the government and should be collected
without unnecessary hindrance. However, such collection should be made in accordance with law as any arbitrariness will negate
the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities
and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved. 3
Whether or not the proper avenues of assessment and collection of the said tax obligations were taken by the respondent Bureau
is now the subject of the Court's inquiry.
Petitioner posits that notices of levy, notices of sale, and subsequent sale of properties of the late President Marcos effected by
the BIR are null and void for disregarding the established procedure for the enforcement of taxes due upon the estate of the
deceased. The case of Domingo vs. Garlitos 4 is specifically cited to bolster the argument that "the ordinary procedure by which
to settle claims of indebtedness against the estate of a deceased, person, as in an inheritance (estate) tax, is for the claimant to
present a claim before the probate court so that said court may order the administrator to pay the amount therefor." This remedy
is allegedly, exclusive, and cannot be effected through any other means.
Petitioner goes further, submitting that the probate court is not precluded from denying a request by the government for the
immediate payment of taxes, and should order the payment of the same only within the period fixed by the probate court for the
payment of all the debts of the decedent. In this regard, petitioner cites the case of Collector of Internal Revenue vs. The
Administratrix of the Estate of Echarri (67 Phil 502), where it was held that:
The case of Pineda vs. Court of First Instance of Tayabas and Collector of Internal Revenue (52 Phil 803), relied upon by the
petitioner-appellant is good authority on the proposition that the court having control over the administration proceedings has
jurisdiction to entertain the claim presented by the government for taxes due and to order the administrator to pay the tax should
it find that the assessment was proper, and that the tax was legal, due and collectible. And the rule laid down in that case must be
understood in relation to the case of Collector of Customs vs. Haygood, supra., as to the procedure to be followed in a given case
Tax II Set I* Estate Tax Cases*Page 4 of 15
by the government to effectuate the collection of the tax. Categorically stated, where during the pendency of judicial
administration over the estate of a deceased person a claim for taxes is presented by the government, the court has the authority
to order payment by the administrator; but, in the same way that it has authority to order payment or satisfaction, it also has the
negative authority to deny the same. While there are cases where courts are required to perform certain duties mandatory and
ministerial in character, the function of the court in a case of the present character is not one of them; and here, the court cannot
be an organism endowed with latitude of judgment in one direction, and converted into a mere mechanical contrivance in another
direction.
On the other hand, it is argued by the BIR, that the state's authority to collect internal revenue taxes is paramount. Thus, the
pendency of probate proceedings over the estate of the deceased does not preclude the assessment and collection, through
summary remedies, of estate taxes over the same. According to the respondent, claims for payment of estate and income taxes
due and assessed after the death of the decedent need not be presented in the form of a claim against the estate. These can and
should be paid immediately. The probate court is not the government agency to decide whether an estate is liable for payment of
estate of income taxes. Well-settled is the rule that the probate court is a court with special and limited jurisdiction.
Concededly, the authority of the Regional Trial Court, sitting, albeit with limited jurisdiction, as a probate court over estate of
deceased individual, is not a trifling thing. The court's jurisdiction, once invoked, and made effective, cannot be treated with
indifference nor should it be ignored with impunity by the very parties invoking its authority.
In testament to this, it has been held that it is within the jurisdiction of the probate court to approve the sale of properties of a
deceased person by his prospective heirs before final adjudication; 5 to determine who are the heirs of the decedent; 6 the
recognition of a natural child; 7 the status of a woman claiming to be the legal wife of the decedent; 8 the legality of
disinheritance of an heir by the testator; 9 and to pass upon the validity of a waiver of hereditary rights. 10
The pivotal question the court is tasked to resolve refers to the authority of the Bureau of Internal Revenue to collect by the
summary remedy of levying upon, and sale of real properties of the decedent, estate tax deficiencies, without the cognition and
authority of the court sitting in probate over the supposed will of the deceased.
The nature of the process of estate tax collection has been described as follows:
Strictly speaking, the assessment of an inheritance tax does not directly involve the administration of a decedent's estate,
although it may be viewed as an incident to the complete settlement of an estate, and, under some statutes, it is made the duty of
the probate court to make the amount of the inheritance tax a part of the final decree of distribution of the estate. It is not against
the property of decedent, nor is it a claim against the estate as such, but it is against the interest or property right which the heir,
legatee, devisee, etc., has in the property formerly held by decedent. Further, under some statutes, it has been held that it is not a
suit or controversy between the parties, nor is it an adversary proceeding between the state and the person who owes the tax on
the inheritance. However, under other statutes it has been held that the hearing and determination of the cash value of the assets
and the determination of the tax are adversary proceedings. The proceeding has been held to be necessarily a proceeding in rem.
11
In the Philippine experience, the enforcement and collection of estate tax, is executive in character, as the legislature has seen it
fit to ascribe this task to the Bureau of Internal Revenue. Section 3 of the National Internal Revenue Code attests to this:
Sec. 3. Powers and duties of the Bureau. The powers and duties of the Bureau of Internal Revenue shall comprehend the
assessment and collection of all national internal revenue taxes, fees, and charges, and the enforcement of all forfeitures,
penalties, and fines connected therewith, including the execution of judgments in all cases decided in its favor by the Court of
Tax Appeals and the ordinary courts. Said Bureau shall also give effect to and administer the supervisory and police power
conferred to it by this Code or other laws.
Thus, it was in Vera vs. Fernandez 12 that the court recognized the liberal treatment of claims for taxes charged against the estate
of the decedent. Such taxes, we said, were exempted from the application of the statute of non-claims, and this is justified by the
necessity of government funding, immortalized in the maxim that taxes are the lifeblood of the government. Vectigalia nervi sunt
rei publicae taxes are the sinews of the state.

Taxes assessed against the estate of a deceased person, after administration is opened, need not be submitted to the committee on
claims in the ordinary course of administration. In the exercise of its control over the administrator, the court may direct the
payment of such taxes upon motion showing that the taxes have been assessed against the estate.
Such liberal treatment of internal revenue taxes in the probate proceedings extends so far, even to allowing the enforcement of
tax obligations against the heirs of the decedent, even after distribution of the estate's properties.
Claims for taxes, whether assessed before or after the death of the deceased, can be collected from the heirs even after the
distribution of the properties of the decedent. They are exempted from the application of the statute of non-claims. The heirs
shall be liable therefor, in proportion to their share in the inheritance. 13
Thus, the Government has two ways of collecting the taxes in question. One, by going 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 belong to the taxpayer for unpaid income tax, is by
subjecting said property of the estate which is in the hands of an heir or transferee to the payment of the tax due the estate.
(Commissioner of Internal Revenue vs. Pineda, 21 SCRA 105, September 15, 1967.)
From the foregoing, it is discernible that the approval of the court, sitting in probate, or as a settlement tribunal over the deceased
is not a mandatory requirement in the collection of estate taxes. It cannot therefore be argued that the Tax Bureau erred in
proceeding with the levying and sale of the properties allegedly owned by the late President, on the ground that it was required to
seek first the probate court's sanction. There is nothing in the Tax Code, and in the pertinent remedial laws that implies the
necessity of the probate or estate settlement court's approval of the state's claim for estate taxes, before the same can be enforced
and collected.
On the contrary, under Section 87 of the NIRC, it is the probate or settlement court which is bidden not to authorize the executor
or judicial administrator of the decedent's estate to deliver any distributive share to any party interested in the estate, unless it is
shown a Certification by the Commissioner of Internal Revenue that the estate taxes have been paid. This provision disproves
the petitioner's contention that it is the probate court which approves the assessment and collection of the estate tax.
If there is any issue as to the validity of the BIR's decision to assess the estate taxes, this should have been pursued through the
proper administrative and judicial avenues provided for by law.
Section 229 of the NIRC tells us how:
Sec. 229. Protesting of assessment. When the Commissioner of Internal Revenue or his duly authorized representative finds
that proper taxes should be assessed, he shall first notify the taxpayer of his findings. Within a period to be prescribed by
implementing regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the
Commissioner shall issue an assessment based on his findings.
Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation in such form and
manner as may be prescribed by implementing regulations within (30) days from receipt of the assessment; otherwise, the
assessment shall become final and unappealable.
If the protest is denied in whole or in part, the individual, association or corporation adversely affected by the decision on the
protest may appeal to the Court of Tax Appeals within thirty (30) days from receipt of said decision; otherwise, the decision shall
become final, executory and demandable. (As inserted by P.D. 1773)
Apart from failing to file the required estate tax return within the time required for the filing of the same, petitioner, and the other
heirs never questioned the assessments served upon them, allowing the same to lapse into finality, and prompting the BIR to
collect the said taxes by levying upon the properties left by President Marcos.
Petitioner submits, however, that "while the assessment of taxes may have been validly undertaken by the Government,
collection thereof may have been done in violation of the law. Thus, the manner and method in which the latter is enforced may
be questioned separately, and irrespective of the finality of the former, because the Government does not have the unbridled
discretion to enforce collection without regard to the clear provision of law." 14
Tax II Set I* Estate Tax Cases*Page 5 of 15
Petitioner specifically points out that applying Memorandum Circular No. 38-68, implementing Sections 318 and 324 of the old
tax code (Republic Act 5203), the BIR's Notices of Levy on the Marcos properties, were issued beyond the allowed period, and
are therefore null and void:
. . . the Notices of Levy on Real Property (Annexes O to NN of Annex C of this Petition) in satisfaction of said assessments were
still issued by respondents well beyond the period mandated in Revenue Memorandum Circular No. 38-68. These Notices of
Levy were issued only on 22 February 1993 and 20 May 1993 when at least seventeen (17) months had already lapsed from the
last service of tax assessment on 12 September 1991. As no notices of distraint of personal property were first issued by
respondents, the latter should have complied with Revenue Memorandum Circular No. 38-68 and issued these Notices of Levy
not earlier than three (3) months nor later than six (6) months from 12 September 1991. In accordance with the Circular,
respondents only had until 12 March 1992 (the last day of the sixth month) within which to issue these Notices of Levy. The
Notices of Levy, having been issued beyond the period allowed by law, are thus void and of no effect. 15
We hold otherwise. The Notices of Levy upon real property were issued within the prescriptive period and in accordance with
the provisions of the present Tax Code. The deficiency tax assessment, having already become final, executory, and demandable,
the same can now be collected through the summary remedy of distraint or levy pursuant to Section 205 of the NIRC.
The applicable provision in regard to the prescriptive period for the assessment and collection of tax deficiency in this instance is
Article 223 of the NIRC, which pertinently provides:
Sec. 223. Exceptions as to a period of limitation of assessment and collection of taxes. (a) In the case of a false or fraudulent
return with intent to evade tax or of a failure to file a return, the tax may be assessed, or a proceeding in court for the collection
of such tax may be begun without assessment, at any time within ten (10) years after the discovery of the falsity, fraud, or
omission: Provided, That, in a fraud assessment which has become final and executory, the fact of fraud shall be judicially taken
cognizance of in the civil or criminal action for the collection thereof.
xxx xxx xxx
(c) Any internal revenue tax which has been assessed within the period of limitation above prescribed, may be collected
by distraint or levy or by a proceeding in court within three years following the assessment of the tax.
xxx xxx xxx
The omission to file an estate tax return, and the subsequent failure to contest or appeal the assessment made by the BIR is fatal
to the petitioner's cause, as under the above-cited provision, in case of failure to file a return, the tax may be assessed at any time
within ten years after the omission, and any tax so assessed may be collected by levy upon real property within three years
following the assessment of the tax. Since the estate tax assessment had become final and unappealable by the petitioner's default
as regards protesting the validity of the said assessment, there is now no reason why the BIR cannot continue with the collection
of the said tax. Any objection against the assessment should have been pursued following the avenue paved in Section 229 of the
NIRC on protests on assessments of internal revenue taxes.
Petitioner further argues that "the numerous pending court cases questioning the late president's ownership or interests in several
properties (both real and personal) make the total value of his estate, and the consequent estate tax due, incapable of exact
pecuniary determination at this time. Thus, respondents' assessment of the estate tax and their issuance of the Notices of Levy
and sale are premature and oppressive." He points out the pendency of Sandiganbayan Civil Case Nos. 0001-0034 and 0141,
which were filed by the government to question the ownership and interests of the late President in real and personal properties
located within and outside the Philippines. Petitioner, however, omits to allege whether the properties levied upon by the BIR in
the collection of estate taxes upon the decedent's estate were among those involved in the said cases pending in the
Sandiganbayan. Indeed, the court is at a loss as to how these cases are relevant to the matter at issue. The mere fact that the
decedent has pending cases involving ill-gotten wealth does not affect the enforcement of tax assessments over the properties
indubitably included in his estate.
Petitioner also expresses his reservation as to the propriety of the BIR's total assessment of P23,292,607,638.00, stating that this
amount deviates from the findings of the Department of Justice's Panel of Prosecutors as per its resolution of 20 September
 Tax II Set I* Estate Tax Cases*Page 6 of 15

1991. Allegedly, this is clear evidence of the uncertainty on the part of the Government as to the total value of the estate of the
late President.
This is, to our mind, the petitioner's last ditch effort to assail the assessment of estate tax which had already become final and
unappealable.
We do not agree. In the case of notices of levy issued to satisfy the delinquent estate tax, the delinquent taxpayer is the Estate of
the decedent, and not necessarily, and exclusively, the petitioner as heir of the deceased. In the same vein, in the matter of
income tax delinquency of the late president and his spouse, petitioner is not the taxpayer liable. Thus, it follows that service of
notices of levy in satisfaction of these tax delinquencies upon the petitioner is not required by law, as under Section 213 of the
NIRC, which pertinently states:

It is not the Department of Justice which is the government agency tasked to determine the amount of taxes due upon the subject xxx xxx xxx
estate, but the Bureau of Internal Revenue, 16 whose determinations and assessments are presumed correct and made in good
faith. 17 The taxpayer has the duty of proving otherwise. In the absence of proof of any irregularities in the performance of . . . Levy shall be effected by writing upon said certificate a description of the property upon which levy is made. At the same
official duties, an assessment will not be disturbed. Even an assessment based on estimates is prima facie valid and lawful where time, written notice of the levy shall be mailed to or served upon the Register of Deeds of the province or city where the property
it does not appear to have been arrived at arbitrarily or capriciously. The burden of proof is upon the complaining party to show is located and upon the delinquent taxpayer, or if he be absent from the Philippines, to his agent or the manager of the business in
clearly that the assessment is erroneous. Failure to present proof of error in the assessment will justify the judicial affirmance of respect to which the liability arose, or if there be none, to the occupant of the property in question.
said assessment. 18 In this instance, petitioner has not pointed out one single provision in the Memorandum of the Special Audit
Team which gave rise to the questioned assessment, which bears a trace of falsity. Indeed, the petitioner's attack on the xxx xxx xxx
assessment bears mainly on the alleged improbable and unconscionable amount of the taxes charged. But mere rhetoric cannot
supply the basis for the charge of impropriety of the assessments made. The foregoing notwithstanding, the record shows that notices of warrants of distraint and levy of sale were furnished the counsel
of petitioner on April 7, 1993, and June 10, 1993, and the petitioner himself on April 12, 1993 at his office at the Batasang
Moreover, these objections to the assessments should have been raised, considering the ample remedies afforded the taxpayer by Pambansa. 21 We cannot therefore, countenance petitioner's insistence that he was denied due process. Where there was an
the Tax Code, with the Bureau of Internal Revenue and the Court of Tax Appeals, as described earlier, and cannot be raised now opportunity to raise objections to government action, and such opportunity was disregarded, for no justifiable reason, the party
via Petition for Certiorari, under the pretext of grave abuse of discretion. The course of action taken by the petitioner reflects his claiming oppression then becomes the oppressor of the orderly functions of government. He who comes to court must come with
disregard or even repugnance of the established institutions for governance in the scheme of a well-ordered society. The subject clean hands. Otherwise, he not only taints his name, but ridicules the very structure of established authority.
tax assessments having become final, executory and enforceable, the same can no longer be contested by means of a disguised
protest. In the main, Certiorari may not be used as a substitute for a lost appeal or remedy. 19 This judicial policy becomes more IN VIEW WHEREOF, the Court RESOLVED to DENY the present petition. The Decision of the Court of Appeals dated
pronounced in view of the absence of sufficient attack against the actuations of government. November 29, 1994 is hereby AFFIRMED in all respects.
G.R. No. L-22734 September 15, 1967
On the matter of sufficiency of service of Notices of Assessment to the petitioner, we find the respondent appellate court's
pronouncements sound and resilient to petitioner's attacks. COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. MANUEL B. PINEDA, as one of the heirs of deceased
ATANASIO PINEDA, respondent.
Anent grounds 3(b) and (B) both alleging/claiming lack of notice We find, after considering the facts and circumstances, BENGZON, J.P., J.:
as well as evidences, that there was sufficient, constructive and/or actual notice of assessments, levy and sale, sent to herein
petitioner Ferdinand "Bongbong" Marcos as well as to his mother Mrs. Imelda Marcos. On May 23, 1945 Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15 children, the eldest of whom is Manuel
B. Pineda, a lawyer. Estate proceedings were had in the Court of First Instance of Manila (Case No. 71129) wherein the
Even if we are to rule out the notices of assessments personally given to the caretaker of Mrs. Marcos at the latter's last known surviving widow was appointed administratrix. The estate was divided among and awarded to the heirs and the proceedings
address, on August 26, 1991 and September 12, 1991, as well as the notices of assessment personally given to the caretaker of terminated on June 8, 1948. Manuel B. Pineda's share amounted to about P2,500.00.
petitioner also at his last known address on September 12, 1991 the subsequent notices given thereafter could no longer be
ignored as they were sent at a time when petitioner was already here in the Philippines, and at a place where said notices would After the estate proceedings were closed, the Bureau of Internal Revenue investigated the income tax liability of the estate for
surely be called to petitioner's attention, and received by responsible persons of sufficient age and discretion. the years 1945, 1946, 1947 and 1948 and it found that the corresponding income tax returns were not filed. Thereupon, the
representative of the Collector of Internal Revenue filed said returns for the estate on the basis of information and data obtained
Thus, on October 20, 1992, formal assessment notices were served upon Mrs. Marcos c/o the petitioner, at his office, House of from the aforesaid estate proceedings and issued an assessment for the following:
Representatives, Batasan Pambansa, Q.C. (Annexes "A", "A-1", "A-2", "A-3"; pp. 207-210, Comment/Memorandum of OSG).
Moreover, a notice to taxpayer dated October 8, 1992 inviting Mrs. Marcos to a conference relative to her tax liabilities, was 1. Deficiency income tax
furnished the counsel of Mrs. Marcos Dean Antonio Coronel (Annex "B", p. 211, ibid). Thereafter, copies of Notices were 1945 P135.83
also served upon Mrs. Imelda Marcos, the petitioner and their counsel "De Borja, Medialdea, Ata, Bello, Guevarra and Serapio 1946 436.95
Law Office", on April 7, 1993 and June 10, 1993. Despite all of these Notices, petitioner never lifted a finger to protest the 1947 1,206.91 P1,779.69
assessments, (upon which the Levy and sale of properties were based), nor appealed the same to the Court of Tax Appeals. Add: 5% surcharge 88.98
1% monthly interest from November 30, 1953 to April 15, 1957 720.77
There being sufficient service of Notices to herein petitioner (and his mother) and it appearing that petitioner continuously Compromise for late filing 80.00
ignored said Notices despite several opportunities given him to file a protest and to thereafter appeal to the Court of Tax Appeals, Compromise for late payment 40.00
the tax assessments subject of this case, upon which the levy and sale of properties were based, could no longer be contested Total amount due
(directly or indirectly) via this instant petition for certiorari. 20 P2,707.44
===========
Petitioner argues that all the questioned Notices of Levy, however, must be nullified for having been issued without validly 2. Additional residence tax for 1945P14.50
serving copies thereof to the petitioner. As a mandatory heir of the decedent, petitioner avers that he has an interest in the subject ===========
estate, and notices of levy upon its properties should have been served upon him. 3. Real Estate dealer's tax for the fourth quarter of 1946 and the whole year of 1947 P207.50
===========

Manuel B. Pineda, who received the assessment, contested the same. Subsequently, he appealed to the Court of Tax Appeals
alleging that he was appealing "only that proportionate part or portion pertaining to him as one of the heirs."
After hearing the parties, the Court of Tax Appeals 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. 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.1
In the Tax Court, the parties submitted the case for decision without additional evidence.
On November 29, 1963 the Court of Tax Appeals rendered judgment holding Manuel B. 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
The Commissioner of Internal Revenue has appealed to Us and has proposed to hold Manuel B. 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.1awphl.nt
Manuel B. 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. Pamintuan2
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."
We hold that the Government can require Manuel B. Pineda to pay the full amount of the taxes assessed.
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.3 His liability,
however, cannot exceed the amount of his share.4
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 taxes4a 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: . . .
By virtue of such lien, the Government has the right to subject the property in Pineda's possession, i.e., the P2,500.00, to satisfy
the income tax assessment in the sum of P760.28. After such payment, Pineda will have a right of contribution from his co-
heirs,5 to achieve an adjustment of the proper share of each heir in the distributable estate.
All told, the Government has two ways of collecting the tax in question. One, by going after all the heirs and collecting from
each one of them the amount of the tax proportionate to the inheritance received. This remedy was adopted in Government of the
Philippine Islands v. Pamintuan, supra. In said case, the Government filed an action against all the heirs for the collection of the
Tax II Set I* Estate Tax Cases*Page 7 of 15
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.6 The reason why in case suit is filed
against all the heirs the tax due from the estate is levied proportionately against them is to achieve thereby two results: first,
payment of the tax; and second, adjustment of the shares of each heir in the distributed estate as lessened by the tax.
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.7 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.
WHEREFORE, the decision appealed from is modified. Manuel B. Pineda is hereby ordered to pay to the Commissioner of
Internal Revenue the sum of P760.28 as deficiency income tax for 1945 and 1946, and real estate dealer's fixed tax for the fourth
quarter of 1946 and for the whole year 1947, without prejudice to his right of contribution for his co-heirs. No costs. So ordered.
G.R. No. L-43082 June 18, 1937
PABLO LORENZO, as trustee of the estate of Thomas Hanley, deceased, plaintiff-appellant, vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.
LAUREL, J.:
On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as trustee of the estate of Thomas Hanley, deceased, brought this
action in the Court of First Instance of Zamboanga against the defendant, Juan Posadas, Jr., then the Collector of Internal
Revenue, for the refund of the amount of P2,052.74, paid by the plaintiff as inheritance tax on the estate of the deceased, and for
the collection of interst thereon at the rate of 6 per cent per annum, computed from September 15, 1932, the date when the
aforesaid tax was [paid under protest. The defendant set up a counterclaim for P1,191.27 alleged to be interest due on the tax in
question and which was not included in the original assessment. From the decision of the Court of First Instance of Zamboanga
dismissing both the plaintiff's complaint and the defendant's counterclaim, both parties appealed to this court.
It appears that on May 27, 1922, one Thomas Hanley died in Zamboanga, Zamboanga, leaving a will (Exhibit 5) and
considerable amount of real and personal properties. On june 14, 1922, proceedings for the probate of his will and the settlement
and distribution of his estate were begun in the Court of First Instance of Zamboanga. The will was admitted to probate. Said
will provides, among other things, as follows:
4. I direct that any money left by me be given to my nephew Matthew Hanley.
5. I direct that all real estate owned by me at the time of my death be not sold or otherwise disposed of for a period of ten (10)
years 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.
6. I direct that ten (10) years after my death my property be given to the above mentioned Matthew Hanley to be disposed of in
the way he thinks most advantageous.
xxx xxx xxx
8. I state 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.
The Court of First Instance of Zamboanga considered it proper for the best interests of ther estate to appoint a trustee to
administer the real properties which, under the will, were to pass to Matthew Hanley ten years after the two executors named in

the will, was, on March 8, 1924, appointed trustee. Moore took his oath of office and gave bond on March 10, 1924. He acted as
trustee until February 29, 1932, when he resigned and the plaintiff herein was appointed in his stead.
During the incumbency of the plaintiff as trustee, the defendant Collector of Internal Revenue, alleging that the estate 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 per cent monthly interest from July 1, 1931 to the date of payment and a surcharge of 25
per cent on the tax, amounted to P2,052.74. On March 15, 1932, the defendant filed a motion in the testamentary proceedings
pending before the Court of First Instance of Zamboanga (Special proceedings No. 302) praying that the trustee, plaintiff herein,
be ordered to pay to the Government the said sum of P2,052.74. The motion was granted. On September 15, 1932, the plaintiff
paid said amount under protest, notifying the defendant at the same time that unless the amount was promptly refunded suit
would be brought for its recovery. The defendant overruled the plaintiff's protest and refused to refund the said amount hausted,
plaintiff went to court with the result herein above indicated.
In his appeal, plaintiff contends that the lower court erred:
I. In holding that the real property of Thomas Hanley, deceased, passed to his instituted heir, Matthew Hanley, from the moment
of the death of the former, and that from the time, the latter became the owner thereof.
II. In holding, in effect, that there was deliquency in the payment of inheritance tax due on the estate of said deceased.
III. In holding that the inheritance tax in question be based upon the value of the estate upon the death of the testator, and not, as
it should have been held, upon the value thereof at the expiration of the period of ten years after which, according to the testator's
will, the property could be and was to be delivered to the instituted heir.
IV. In not allowing as lawful deductions, in the determination of the net amount of the estate subject to said tax, the amounts
allowed by the court as compensation to the "trustees" and paid to them from the decedent's estate.
V. In not rendering judgment in favor of the plaintiff and in denying his motion for new trial.
The defendant-appellant contradicts the theories of the plaintiff and assigns the following error besides:
The lower court erred in not ordering the plaintiff to pay to the defendant the sum of P1,191.27, representing part of the interest
at the rate of 1 per cent per month from April 10, 1924, to June 30, 1931, which the plaintiff had failed to pay on the inheritance
tax assessed by the defendant against the estate of Thomas Hanley.
The following are the principal questions to be decided by this court in this appeal: (a) When does the inheritance tax accrue and
when must it be satisfied? (b) Should the inheritance tax be computed on the basis of the value of the estate at the time of the
testator's death, or on its value ten years later? (c) In determining the net value of the estate subject to tax, is it proper to deduct
the compensation due to trustees? (d) What law governs the case at bar? Should the provisions of Act No. 3606 favorable to the
tax-payer be given 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? Other points of incidental importance, raised by
the parties in their briefs, will be touched upon in the course of this opinion.
(a) The accrual of the inheritance tax is distinct from the obligation to pay the same. Section 1536 as amended, of the
Administrative Code, imposes the tax upon "every transmission by virtue of inheritance, devise, bequest, gift mortis causa, or
advance in anticipation of inheritance,devise, or bequest." The tax therefore is upon transmission or the transfer or devolution of
property of a decedent, made effective by his death. (61 C. J., p. 1592.) It is in reality an excise or privilege tax imposed on the
right to succeed to, receive, or take property by or under a will or the intestacy law, or deed, grant, or gift to become operative at
or after death. Acording to article 657 of the Civil Code, "the rights to the succession of a person are transmitted from the
moment of his death." "In other words", said Arellano, C. J., ". . . the heirs succeed immediately to all of the property of the
deceased ancestor. The property belongs to the heirs at the moment of the death of the ancestor as completely as if the ancestor
had executed and delivered to them a deed for the same before his death." (Bondad vs. Bondad, 34 Phil., 232. See also, Mijares
vs. Nery, 3 Phil., 195; Suilong & Co., vs. Chio-Taysan, 12 Phil., 13; Lubrico vs. Arbado, 12 Phil., 391; Innocencio vs. Gat-
Pandan, 14 Phil., 491; Aliasas vs.Alcantara, 16 Phil., 489; Ilustre vs. Alaras Frondosa, 17 Phil., 321; Malahacan vs. Ignacio, 19
Tax II Set I* Estate Tax Cases*Page 8 of 15
Phil., 434; Bowa vs. Briones, 38 Phil., 27; Osario vs. Osario & Yuchausti Steamship Co., 41 Phil., 531; Fule vs. Fule, 46 Phil.,
317; Dais vs. Court of First Instance of Capiz, 51 Phil., 396; Baun vs. Heirs of Baun, 53 Phil., 654.) Plaintiff, however, asserts
that while article 657 of the Civil Code is applicable to testate as well as intestate succession, it operates only in so far as forced
heirs are concerned. But the language of article 657 of the Civil Code is broad and makes no distinction between different
classes of heirs. That article does not speak of forced heirs; it does not even use the word "heir". It speaks of the rights of
succession and the transmission thereof from the moment of death. The provision of section 625 of the Code of Civil Procedure
regarding the authentication and probate of a will as a necessary condition to effect transmission of property does not affect the
general rule laid down in article 657 of the Civil Code. The authentication of a will implies its due execution but once probated
and allowed the transmission is effective as of the death of the testator in accordance with article 657 of the Civil Code.
Whatever may be the time when actual transmission of the inheritance takes place, succession takes place in any event at the
moment of the decedent's death. The time when the heirs legally succeed to the inheritance may differ from the time when the
heirs actually receive such inheritance. "Poco importa", says Manresa commenting on article 657 of the Civil Code, "que desde
el falleimiento del causante, hasta que el heredero o legatario entre en posesion de los bienes de la herencia o del legado,
transcurra mucho o poco tiempo, pues la adquisicion ha de retrotraerse al momento de la muerte, y asi lo ordena el articulo 989,
que debe considerarse como complemento del presente." (5 Manresa, 305; see also, art. 440, par. 1, Civil Code.) Thomas Hanley
having died on May 27, 1922, the inheritance tax accrued as of the date.
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.
It should be observed in passing that the word "trustee", appearing in subsection (b) of section 1543, should read
"fideicommissary" or "cestui que trust". There was an obvious mistake in translation from the Spanish to the English version.
The instant case does 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) The plaintiff contends that the estate of Thomas Hanley, in so far as the real properties are concerned, did not and could not
legally pass to the instituted heir, Matthew Hanley, until 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.
The plaintiff introduced evidence tending to show that in 1932 the real properties in question had a reasonable value of only
P5,787. This amount added to the value of the personal property 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.
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. (61 C. J., pp. 1692, 1693; 26 R. C. L., p. 232; Blakemore and Bancroft, Inheritance
Taxes, p. 137. See also Knowlton vs. Moore, 178 U.S., 41; 20 Sup. Ct. Rep., 747; 44 Law. ed., 969.) "The right of the state to an
inheritance tax accrues at the moment of death, and hence is ordinarily measured as to any beneficiary by the value at that time
of such property as passes to him. Subsequent appreciation or depriciation is immaterial." (Ross, Inheritance Taxation, p. 72.)
Our attention is directed to the statement of the rule in Cyclopedia of Law of and Procedure (vol. 37, pp. 1574, 1575) that, in the
case of contingent remainders, taxation is postponed until the estate vests in possession or the contingency is settled. This rule
was formerly followed in New York and has been adopted in Illinois, Minnesota, Massachusetts, Ohio, Pennsylvania and
Wisconsin. This rule, horever, is by no means entirely satisfactory either to the estate or to those interested in the property (26 R.
C. L., p. 231.). Realizing, perhaps, the defects of its anterior system, we find upon examination of cases and authorities that New
York has varied and now requires the immediate appraisal of the postponed estate at its clear market value and the payment
forthwith of the tax on its out of the corpus of the estate transferred. (In re Vanderbilt, 172 N. Y., 69; 69 N. E., 782; In re Huber,
86 N. Y. App. Div., 458; 83 N. Y. Supp., 769; Estate of Tracy, 179 N. Y., 501; 72 N. Y., 519; Estate of Brez, 172 N. Y., 609; 64 N.
E., 958; Estate of Post, 85 App. Div., 611; 82 N. Y. Supp., 1079. Vide also, Saltoun vs. Lord Advocate, 1 Peter. Sc. App., 970; 3
Macq. H. L., 659; 23 Eng. Rul. Cas., 888.) California adheres to this new rule (Stats. 1905, sec. 5, p. 343).
But whatever may be the rule in other jurisdictions, we hold that a transmission by inheritance is taxable at the time of the
predecessor's death, notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary, and
the tax measured by the value of the property transmitted at that time regardless of its appreciation or depreciation.
(c) Certain items are required by law to be deducted from the appraised gross in arriving at the net value of the estate on which
the inheritance tax is to be computed (sec. 1539, Revised Administrative Code). In the case at bar, the defendant and the trial
court allowed a deduction of only P480.81. This sum represents the expenses and disbursements of the executors until March 10,
1924, among which were their fees and the proven debts of the deceased. The plaintiff contends that the compensation and fees
of the trustees, which aggregate P1,187.28 (Exhibits C, AA, EE, PP, HH, JJ, LL, NN, OO), should also be deducted under
section 1539 of the Revised Administrative Code which provides, in part, as follows: "In order to determine the net sum which
must bear the tax, when an inheritance is concerned, there shall be deducted, in case of a resident, . . . the judicial expenses of the
testamentary or intestate proceedings, . . . ."
A trustee, no doubt, is entitled to receive a fair compensation for his services (Barney vs. Saunders, 16 How., 535; 14 Law. ed.,
1047). But from this it does not follow that the compensation due him may lawfully be deducted in arriving at the net value of
the estate subject to tax. There is no statute in the Philippines which requires trustees' commissions to be deducted in determining
the net value of the estate subject to inheritance tax (61 C. J., p. 1705). Furthermore, though a testamentary trust has been
created, it does not appear that the testator intended that the duties of his executors and trustees should be separated. (Ibid.; In re
Vanneck's Estate, 161 N. Y. Supp., 893; 175 App. Div., 363; In re Collard's Estate, 161 N. Y. Supp., 455.) On the contrary, in
paragraph 5 of his will, the testator expressed the desire that his real estate be handled and managed by his executors until the
expiration of the period of ten years therein provided. Judicial expenses are expenses of administration (61 C. J., p. 1705) but, in
State vs. Hennepin County Probate Court (112 N. W., 878; 101 Minn., 485), it was said: ". . . The compensation of a trustee,
earned, not in the administration of the estate, but in the management thereof for the benefit of the legatees or devises, does not
come properly within the class or reason for exempting administration expenses. . . . Service rendered in that behalf have no
reference to closing the estate for the purpose of a distribution thereof to those entitled to it, and are not required or essential to
the perfection of the rights of the heirs or legatees. . . . Trusts . . . of the character of that here before the court, are created for the
the benefit of those to whom the property ultimately passes, are of voluntary creation, and intended for the preservation of the
estate. No sound reason is given to support the contention that such expenses should be taken into consideration in fixing the
value of the estate for the purpose of this tax."
Tax II Set I* Estate Tax Cases*Page 9 of 15
(d) The defendant levied and assessed the inheritance tax due from the estate of Thomas Hanley under the provisions of section
1544 of the Revised Administrative Code, as amended by section 3 of Act No. 3606. But Act No. 3606 went into effect on
January 1, 1930. It, therefore, was not the law in force when the testator died on May 27, 1922. The law at the time was section
1544 above-mentioned, as amended by Act No. 3031, which took effect on March 9, 1922.
It is well-settled that inheritance taxation is governed by the statute in force at the time of the death of the decedent (26 R. C. L.,
p. 206; 4 Cooley on Taxation, 4th ed., p. 3461). The taxpayer can not foresee and ought not to be required to guess the outcome
of pending measures. Of course, a tax statute may be made retroactive in its operation. Liability for taxes under retroactive
legislation has been "one of the incidents of social life." (Seattle vs. Kelleher, 195 U. S., 360; 49 Law. ed., 232 Sup. Ct. Rep.,
44.) But legislative intent that a tax statute should operate retroactively should be perfectly clear. (Scwab vs. Doyle, 42 Sup. Ct.
Rep., 491; Smietanka vs. First Trust & Savings Bank, 257 U. S., 602; Stockdale vs. Insurance Co., 20 Wall., 323; Lunch vs.
Turrish, 247 U. S., 221.) "A statute should be considered as prospective in its operation, whether it enacts, amends, or repeals an
inheritance tax, unless the language of the statute clearly demands or expresses that it shall have a retroactive effect, . . . ." (61 C.
J., P. 1602.) 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.
The defendant Collector of Internal Revenue maintains, however, that certain provisions of Act No. 3606 are more favorable to
the taxpayer than those of Act No. 3031, that said provisions are penal in nature and, therefore, should operate retroactively in
conformity with the provisions of article 22 of the Revised Penal Code. This is the reason why he applied Act No. 3606 instead
of Act No. 3031. Indeed, under Act No. 3606, (1) the surcharge of 25 per cent is based on the tax only, instead of on both the tax
and the interest, as provided for in Act No. 3031, and (2) the taxpayer is allowed twenty days from notice and demand by rthe
Collector of Internal Revenue within which to pay the tax, instead of ten days only as required by the old law.
Properly speaking, a statute is penal when it imposes punishment for an offense committed against the state which, under the
Constitution, the Executive has the power to pardon. In common use, however, this sense has been enlarged to include within the
term "penal statutes" all status which command or prohibit certain acts, and establish penalties for their violation, and even those
which, without expressly prohibiting certain acts, impose a penalty upon their commission (59 C. J., p. 1110). Revenue laws,
generally, which impose taxes collected by the means ordinarily resorted to for the collection of taxes are not classed as penal
laws, although there are authorities to the contrary. (See Sutherland, Statutory Construction, 361; Twine Co. vs. Worthington,
141 U. S., 468; 12 Sup. Ct., 55; Rice vs. U. S., 4 C. C. A., 104; 53 Fed., 910; Com. vs. Standard Oil Co., 101 Pa. St., 150; State
vs. Wheeler, 44 P., 430; 25 Nev. 143.) Article 22 of the Revised Penal Code is not applicable to the case at bar, and in the
absence of clear legislative intent, we cannot give Act No. 3606 a retroactive effect.
(e) The plaintiff correctly states that the liability to pay a tax may arise at a certain time and the tax may be paid within another
given time. As stated by this court, "the mere failure to pay one's tax does not render one delinqent until and unless the entire
period has eplased within which the taxpayer is authorized by law to make such payment without being subjected to the payment
of penalties for fasilure to pay his taxes within the prescribed period." (U. S. vs. Labadan, 26 Phil., 239.)
The defendant maintains that it was the duty of the executor to pay the inheritance tax before the delivery of the decedent's
property to the trustee. Stated otherwise, the defendant contends that delivery to the trustee was delivery to the cestui que trust,
the beneficiery in this case, within the meaning of the first paragraph of subsection (b) of section 1544 of the Revised
Administrative Code. This contention is well taken and is sustained. The appointment of P. J. M. Moore as trustee was made by
the trial court in conformity with the wishes of the testator as expressed in his will. It is true that the word "trust" is not
mentioned or used in the will but the intention to create one is clear. No particular or technical words are required to create a
testamentary trust (69 C. J., p. 711). The words "trust" and "trustee", though apt for the purpose, are not necessary. In fact, the
use of these two words is not conclusive on the question that a trust is created (69 C. J., p. 714). "To create a trust by will the
testator must indicate in the will his intention so to do by using language sufficient to separate the legal from the equitable estate,
and with sufficient certainty designate the beneficiaries, their interest in the ttrust, the purpose or object of the trust, and the
property or subject matter thereof. Stated otherwise, to constitute a valid testamentary trust there must be a concurrence of three
circumstances: (1) Sufficient words to raise a trust; (2) a definite subject; (3) a certain or ascertain object; statutes in some
jurisdictions expressly or in effect so providing." (69 C. J., pp. 705,706.) There is no doubt that the testator intended to create a
trust. He ordered in his will that certain of his properties be kept together undisposed during a fixed period, for a stated purpose.

The probate court certainly exercised sound judgment in appointment a trustee to carry into effect the provisions of the will (see
sec. 582, Code of Civil Procedure).
P. J. M. Moore became trustee on March 10, 1924. On that date trust estate vested in him (sec. 582 in relation to sec. 590, Code
of Civil Procedure). The mere fact that the estate of the deceased was placed in trust did not remove it from the operation of our
inheritance tax laws or exempt it from the payment of the inheritance tax. The corresponding inheritance tax should have been
paid on or before March 10, 1924, to escape the penalties of the laws. This is so for the reason already stated that the delivery of
the estate to the trustee was in esse delivery of the same estate to the cestui que trust, the beneficiary in this case. A trustee is but
an instrument or agent for the cestui que trust (Shelton vs. King, 299 U. S., 90; 33 Sup. Ct. Rep., 689; 57 Law. ed., 1086). When
Moore accepted the trust and took possesson of the trust estate he thereby admitted that the estate belonged not to him but to his
cestui que trust (Tolentino vs. Vitug, 39 Phil.,126, cited in 65 C. J., p. 692, n. 63). He did not acquire any beneficial interest in
the estate. He took such legal estate only as the proper execution of the trust required (65 C. J., p. 528) and, his estate ceased
upon the fulfillment of the testator's wishes. The estate then vested absolutely in the beneficiary (65 C. J., p. 542).
The highest considerations of public policy also justify the conclusion we have reached. Were we to hold that the payment of the
tax could be postponed or delayed by the creation of a trust of the type at hand, the result would be plainly disastrous. Testators
may provide, as Thomas Hanley has provided, that their estates be not delivered to their beneficiaries until 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. The mere suggestion of this result is a sufficient warning against the accpetance of the essential to the very exeistence
of government. (Dobbins vs. Erie Country, 16 Pet., 435; 10 Law. ed., 1022; Kirkland vs. Hotchkiss, 100 U. S., 491; 25 Law. ed.,
558; Lane County vs. Oregon, 7 Wall., 71; 19 Law. ed., 101; Union Refrigerator Transit Co. vs. Kentucky, 199 U. S., 194; 26
Sup. Ct. Rep., 36; 50 Law. ed., 150; Charles River Bridge vs. Warren Bridge, 11 Pet., 420; 9 Law. ed., 773.) The obligation to
pay taxes rests not upon the privileges enjoyed by, or the protection afforded to, a citizen by the government but upon the
necessity of money for the support of the state (Dobbins vs. Erie Country, supra). For this reason, no one is allowed to object to
or resist the payment of taxes solely because no personal benefit to him can be pointed out. (Thomas vs. Gay, 169 U. S., 264; 18
Sup. Ct. Rep., 340; 43 Law. ed., 740.) While courts will not enlarge, by construction, the government's power of taxation
(Bromley vs. McCaughn, 280 U. S., 124; 74 Law. ed., 226; 50 Sup. Ct. Rep., 46) they also will not place upon tax laws so loose
a construction as to permit evasions on merely fanciful and insubstantial distictions. (U. S. vs. Watts, 1 Bond., 580; Fed. Cas. No.
16,653; U. S. vs. Wigglesirth, 2 Story, 369; Fed. Cas. No. 16,690, followed in Froelich & Kuttner vs. Collector of Customs, 18
Phil., 461, 481; Castle Bros., Wolf & Sons vs. McCoy, 21 Phil., 300; Muoz & Co. vs. Hord, 12 Phil., 624; Hongkong &
Shanghai Banking Corporation vs. Rafferty, 39 Phil., 145; Luzon Stevedoring Co. vs. Trinidad, 43 Phil., 803.) When proper, a
tax statute should be construed to avoid the possibilities of tax evasion. Construed this way, the statute, without resulting in
injustice to the taxpayer, becomes fair to the government.
That taxes must be collected promptly is a policy deeply intrenched in our tax system. Thus, no court is allowed to grant
injunction to restrain the collection of any internal revenue tax ( sec. 1578, Revised Administrative Code; Sarasola vs. Trinidad,
40 Phil., 252). In the case of Lim Co Chui vs. Posadas (47 Phil., 461), this court had occassion to demonstrate trenchment
adherence to this policy of the law. It held that "the fact that on account of riots directed against the Chinese on October 18, 19,
and 20, 1924, they were prevented from praying their internal revenue taxes on time and by mutual agreement closed their
homes and stores and remained therein, does not authorize the Collector of Internal Revenue to extend the time prescribed for
the payment of the taxes or to accept them without the additional penalty of twenty five per cent." (Syllabus, No. 3.)
". . . It is of the utmost importance," said the Supreme Court of the United States, ". . . that the modes adopted to enforce the
taxes levied should be interfered with as little as possible. Any delay in the proceedings of the officers, upon whom the duty is
developed of collecting the taxes, may derange the operations of government, and thereby, cause serious detriment to the public."
(Dows vs. Chicago, 11 Wall., 108; 20 Law. ed., 65, 66; Churchill and Tait vs. Rafferty, 32 Phil., 580.)
It results that the estate which plaintiff represents has been delinquent in the payment of inheritance tax and, therefore, liable for
the payment of interest and surcharge provided by law in such cases.
The delinquency in payment occurred on March 10, 1924, the date when Moore became trustee. The interest due should be
computed from that date and it is error on the part of the defendant to compute it one month later. The provisions cases is
mandatory (see and cf. Lim Co Chui vs. Posadas, supra), 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.
Tax II Set I* Estate Tax Cases*Page 10 of 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 twenty-five per centum should be added (sec. 1544, subsec. (b), par. 2, Revised Administrative Code).
Demand was made by the Deputy Collector of Internal Revenue upon Moore in a 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.
In view of the foregoing, it becomes unnecessary for us to discuss the fifth error assigned by the plaintiff in his brief.
We shall now compute the tax, together with the interest and surcharge due from the estate of Thomas Hanley inaccordance with
the conclusions we have reached.
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.
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.
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 per cent on both the
tax and interest, and also P10, the compromise sum fixed by the defendant (Exh. 29), giving a grand total of P3,634.43.
As the plaintiff has already paid the sum of P2,052.74, only the 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 in his counterclaim. But, as we cannot give the defendant more than
what he claims, we must hold that the plaintiff is liable only in the sum of P1,191.27 the amount stated in the counterclaim.
The judgment of the lower court is accordingly modified, with costs against the plaintiff in both instances. So ordered.
G.R. No. 140944 April 30, 2008
RAFAEL ARSENIO S. DIZON, in his capacity as the Judicial Administrator of the Estate of the deceased JOSE P.
FERNANDEZ, petitioner, vs.
COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents.
DECISION
NACHURA, J.:
Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Civil Procedure seeking the reversal of
the Court of Appeals (CA) Decision2 dated April 30, 1999 which affirmed the Decision3 of the Court of Tax Appeals (CTA)
dated June 17, 1997.4
The Facts
On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition for the probate of his will5 was filed with Branch 51
of the Regional Trial Court (RTC) of Manila (probate court).[6] The probate court then appointed retired Supreme Court Justice
Arsenio P. Dizon (Justice Dizon) and petitioner, Atty. Rafael Arsenio P. Dizon (petitioner) as Special and Assistant Special
Administrator, respectively, of the Estate of Jose (Estate). In a letter7 dated October 13, 1988, Justice Dizon informed respondent
Commissioner of the Bureau of Internal Revenue (BIR) of the special proceedings for the Estate.
 Tax II Set I* Estate Tax Cases*Page 11 of 15

Petitioner alleged that several requests for extension of the period to file the required estate tax return were granted by the BIR
since the assets of the estate, as well as the claims against it, had yet to be collated, determined and identified. Thus, in a letter8
dated March 14, 1990, Justice Dizon authorized Atty. Jesus M. Gonzales (Atty. Gonzales) to sign and file on behalf of the Estate
the required estate tax return and to represent the same in securing a Certificate of Tax Clearance. Eventually, on April 17, 1990,
Atty. Gonzales wrote a letter9 addressed to the BIR Regional Director for San Pablo City and filed the estate tax return10 with
the same BIR Regional Office, showing therein a NIL estate tax liability, computed as follows:
COMPUTATION OF TAX
Conjugal Real Property (Sch. 1) P10,855,020.00
In his letter19 dated December 12, 1991, Atty. Gonzales moved for the reconsideration of the said estate tax assessment.
However, in her letter20 dated April 12, 1994, the BIR Commissioner denied the request and reiterated that the estate is liable for
the payment of P66,973,985.40 as deficiency estate tax. On May 3, 1994, petitioner received the letter of denial. On June 2,
1994, petitioner filed a petition for review21 before respondent CTA. Trial on the merits ensued.
As found by the CTA, the respective parties presented the following pieces of evidence, to wit:
In the hearings conducted, petitioner did not present testimonial evidence but merely documentary evidence consisting of the
following:

Conjugal Personal Property (Sch.2) 3,460,591.34 Nature of Document (sic)

Taxable Transfer (Sch. 3)
Gross Conjugal Estate 14,315,611.34 Exhibits
Less: Deductions (Sch. 4) 187,822,576.06
Net Conjugal Estate 1.Letter dated October 13, 1988 from Arsenio P. Dizon addressed to the Commissioner of Internal Revenue informing the latter
NIL of the special proceedings for the settlement of the estate (p. 126, BIR records); "A"
Less: Share of Surviving Spouse
NIL. 2.Petition for the probate of the will and issuance of letter of administration filed with the Regional Trial Court (RTC) of Manila,
Net Share in Conjugal Estate docketed as Sp. Proc. No. 87-42980 (pp. 107-108, BIR records); "B" & "B-1"
NIL
3.Pleading entitled "Compliance" filed with the probate Court submitting the final inventory of all the properties of the deceased
xxx (p. 106, BIR records); "C"

Net Taxable Estate
NIL.
Estate Tax Due
NIL.11
On April 27, 1990, BIR Regional Director for San Pablo City, Osmundo G. Umali issued Certification Nos. 2052[12] and
2053[13] stating that the taxes due on the transfer of real and personal properties[14] of Jose had been fully paid and said
properties may be transferred to his heirs. Sometime in August 1990, Justice Dizon passed away. Thus, on October 22, 1990, the
probate court appointed petitioner as the administrator of the Estate.15
Petitioner 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.16
However, on November 26, 1991, the Assistant Commissioner for Collection of the BIR, Themistocles Montalban, issued Estate
Tax Assessment Notice No. FAS-E-87-91-003269,17 demanding the payment of P66,973,985.40 as deficiency estate tax,
itemized as follows:
Deficiency Estate Tax- 1987
4.Attachment to Exh. "C" which is the detailed and complete listing of the properties of the deceased (pp. 89-105, BIR rec.);
"C-1" to "C-17"
5.Claims against the estate filed by Equitable Banking Corp. with the probate Court in the amount of P19,756,428.31 as of
March 31, 1988, together with the Annexes to the claim (pp. 64-88, BIR records); "D" to "D-24"
6.Claim filed by Banque de L' Indochine et de Suez with the probate Court in the amount of US $4,828,905.90 as of January 31,
1988 (pp. 262-265, BIR records); "E" to "E-3"
7.Claim of the Manila Banking Corporation (MBC) which as of November 7, 1987 amounts to P65,158,023.54, but recomputed
as of February 28, 1989 at a total amount of P84,199,160.46; together with the demand letter from MBC's lawyer (pp. 194-197,
BIR records); "F" to "F-3"
8.Demand letter of Manila Banking Corporation prepared by Asedillo, Ramos and Associates Law Offices addressed to
Fernandez Hermanos, Inc., represented by Jose P. Fernandez, as mortgagors, in the total amount of P240,479,693.17 as of
February 28, 1989 (pp. 186-187, BIR records); "G" & "G-1"
9.Claim of State Investment House, Inc. filed with the RTC, Branch VII of Manila, docketed as Civil Case No. 86-38599 entitled
"State Investment House, Inc., Plaintiff, versus Maritime Company Overseas, Inc. and/or Jose P. Fernandez, Defendants," (pp.
200-215, BIR records); "H" to "H-16"

Estate tax P31,868,414.48 10.Letter dated March 14, 1990 of Arsenio P. Dizon addressed to Atty. Jesus M. Gonzales, (p. 184, BIR records);
25% surcharge- late filing 7,967,103.6 "I"
late payment 7,967,103.62
Intrest 19,121,048.68 11.Letter dated April 17, 1990 from J.M. Gonzales addressed to the Regional Director of BIR in San Pablo City (p. 183, BIR
Compromise-non filing 25,000.00 records); "J"
non payment 25,000.00
no notice of death 15.00 12.Estate Tax Return filed by the estate of the late Jose P. Fernandez through its authorized representative, Atty. Jesus M.
no CPA Certificate 300.00 Gonzales, for Arsenio P. Dizon, with attachments (pp. 177-182, BIR records); "K" to "K-5"

Total amount due & collectible P66,973,985.4018

 Tax II Set I* Estate Tax Cases*Page 12 of 15

13.Certified true copy of the Letter of Administration issued by RTC Manila, Branch 51, in Sp. Proc. No. 87-42980 appointing
Atty. Rafael S. Dizon as Judicial Administrator of the estate of Jose P. Fernandez; (p. 102, CTA records) and "L" Nevertheless, the CTA did not fully adopt the assessment made by the BIR and it came up with its own computation of the
deficiency estate tax, to wit:
14.Certification of Payment of estate taxes Nos. 2052 and 2053, both dated April 27, 1990, issued by the Office of the Regional
Director, Revenue Region No. 4-C, San Pablo City, with attachments (pp. 103-104, CTA records.). "M" to "M-5"
Conjugal Real Property P 5,062,016.00
Respondent's [BIR] counsel presented on June 26, 1995 one witness in the person of Alberto Enriquez, who was one of the
revenue examiners who conducted the investigation on the estate tax case of the late Jose P. Fernandez. In the course of the Conjugal Personal Prop. 33,021,999.93
direct examination of the witness, he identified the following: Gross Conjugal Estate 38,084,015.93

Documents/Signatures Less: Deductions 26,250,000.00

Net Conjugal Estate P 11,834,015.93
BIR Record Less: Share of Surviving Spouse 5,917,007.96
Net Share in Conjugal Estate P 5,917,007.96
1.Estate Tax Return prepared by the BIR;p. 138
Add: Capital/Paraphernal
2.Signatures of Ma. Anabella Abuloc and Alberto Enriquez, Jr. appearing at the lower Portion of Exh. "1";-do- Properties P44,652,813.66
Less: Capital/Paraphernal Deductions 44,652,813.66
3.Memorandum for the Commissioner, dated July 19, 1991, prepared by revenue examiners, Ma. Anabella A. Abuloc, Alberto S. Net Taxable Estate P 50,569,821.62
Enriquez and Raymund S. Gallardo; Reviewed by Maximino V. Tagle pp. 143-144 ============
Estate Tax Due P 29,935,342.97
4.Signature of Alberto S. Enriquez appearing at the lower portion on p. 2 of Exh. "2"; -do-
Add: 25% Surcharge for Late Filing 7,483,835.74
5.Signature of Ma. Anabella A. Abuloc appearing at the lower portion on p. 2 of Exh. "2"; -do- Add: Penalties for-No notice of death 15.00
No CPA certificate 300.00
6.Signature of Raymund S. Gallardo appearing at the Lower portion on p. 2 of Exh. "2"; -do-
Total deficiency estate tax P 37,419,493.71
7.Signature of Maximino V. Tagle also appearing on p. 2 of Exh. "2"; -do- ============
exclusive of 20% interest from due date of its payment until full payment thereof
8.Summary of revenue Enforcement Officers Audit Report, dated July 19, 1991; p. 139
[Sec. 283 (b), Tax Code of 1987].25
9Signature of Alberto Enriquez at the lower portion of Exh. "3"; -do-
Thus, the CTA disposed of the case in this wise:
10.Signature of Ma. Anabella A. Abuloc at the lower portion of Exh. "3"; -do-
WHEREFORE, viewed from all the foregoing, the Court finds the petition unmeritorious and denies the same. Petitioner and/or
11.Signature of Raymond S. Gallardo at the lower portion of Exh. "3"; -do- the heirs of Jose P. Fernandez are hereby ordered to pay to respondent the amount of P37,419,493.71 plus 20% interest from the
due date of its payment until full payment thereof as estate tax liability of the estate of Jose P. Fernandez who died on November
12.Signature of Maximino V. Tagle at the lower portion of Exh. "3";-do- 7, 1987.
SO ORDERED.26
13.Demand letter (FAS-E-87-91-00), signed by the Asst. Commissioner for Collection for the Commissioner of Internal
Revenue, demanding payment of the amount of P66,973,985.40; and p. 169 Aggrieved, petitioner, on March 2, 1998, went to the CA via a petition for review.27

14Assessment Notice FAS-E-87-91-00 pp. 169-17022 The CA's Ruling

The CTA's Ruling
On June 17, 1997, the CTA denied the said petition for review. Citing this Court's ruling in Vda. de Oate v. Court of Appeals,23
the CTA opined that the aforementioned pieces of evidence introduced by the BIR were admissible in evidence. The CTA
ratiocinated:
Although the above-mentioned documents were not formally offered as evidence for respondent, considering that respondent has
been declared to have waived the presentation thereof during the hearing on March 20, 1996, still they could be considered as
evidence for respondent since they were properly identified during the presentation of respondent's witness, whose testimony
was duly recorded as part of the records of this case. Besides, the documents marked as respondent's exhibits formed part of the
BIR records of the case.24
On April 30, 1999, the CA affirmed the CTA's ruling. Adopting in full the CTA's findings, the CA ruled that the petitioner's act of
filing an estate tax return with the BIR and the issuance of BIR Certification Nos. 2052 and 2053 did not deprive the BIR
Commissioner of her authority to re-examine or re-assess the said return filed on behalf of the Estate.28
On May 31, 1999, petitioner filed a Motion for Reconsideration29 which the CA denied in its Resolution30 dated November 3,
1999.
Hence, the instant Petition raising the following issues:
1. Whether or not the admission of evidence which were not formally offered by the respondent BIR by the Court of Tax Appeals
which was subsequently upheld by the Court of Appeals is contrary to the Rules of Court and rulings of this Honorable Court;

2. Whether or not the Court of Tax Appeals and the Court of Appeals erred in recognizing/considering the estate tax return
prepared and filed by respondent BIR knowing that the probate court appointed administrator of the estate of Jose P. Fernandez
had previously filed one as in fact, BIR Certification Clearance Nos. 2052 and 2053 had been issued in the estate's favor;
3. Whether or not the Court of Tax Appeals and the Court of Appeals erred in disallowing the valid and enforceable claims of
creditors against the estate, as lawful deductions despite clear and convincing evidence thereof; and
4. Whether or not the Court of Tax Appeals and the Court of Appeals erred in validating erroneous double imputation of values
on the very same estate properties in the estate tax return it prepared and filed which effectively bloated the estate's assets.31
The petitioner claims that in as much as the valid claims of creditors against the Estate are in excess of the gross estate, no estate
tax was due; that the lack of a formal offer of evidence is fatal to BIR's cause; that the doctrine laid down in Vda. de Oate has
already been abandoned in a long line of cases in which the Court held that evidence not formally offered is without any weight
or value; that Section 34 of Rule 132 of the Rules on Evidence requiring a formal offer of evidence is mandatory in character;
that, while BIR's witness Alberto Enriquez (Alberto) in his testimony before the CTA identified the pieces of evidence
aforementioned such that the same were marked, BIR's failure to formally offer said pieces of evidence and depriving petitioner
the opportunity to cross-examine Alberto, render the same inadmissible in evidence; that assuming arguendo that the ruling in
Vda. de Oate is still applicable, BIR failed to comply with the doctrine's requisites because the documents herein remained
simply part of the BIR records and were not duly incorporated in the court records; that the BIR failed to consider that although
the actual payments made to the Estate creditors were lower than their respective claims, such were compromise agreements
reached long after the Estate's liability had been settled by the filing of its estate tax return and the issuance of BIR Certification
Nos. 2052 and 2053; and that the reckoning date of the claims against the Estate and the settlement of the estate tax due should
be at the time the estate tax return was filed by the judicial administrator and the issuance of said BIR Certifications and not at
the time the aforementioned Compromise Agreements were entered into with the Estate's creditors.32
On the other hand, respondent counters that the documents, being part of the records of the case and duly identified in a duly
recorded testimony are considered evidence even if the same were not formally offered; that the filing of the estate tax return by
the Estate and the issuance of BIR Certification Nos. 2052 and 2053 did not deprive the BIR of its authority to examine the
return and assess the estate tax; and that the factual findings of the CTA as affirmed by the CA may no longer be reviewed by
this Court via a petition for review.33
The Issues
There are two ultimate issues which require resolution in this case:
First. Whether or not the CTA and the CA gravely erred in allowing the admission of the pieces of evidence which were not
formally offered by the BIR; and
Second. Whether or not the CA erred in affirming the CTA in the latter's determination of the deficiency estate tax imposed
against the Estate.
The Courts Ruling
The Petition is impressed with merit.
Under Section 8 of RA 1125, the CTA is categorically described as a court of record. As cases filed before it are litigated de
novo, party-litigants shall prove every minute aspect of their cases. Indubitably, no evidentiary value can be given the pieces of
evidence submitted by the BIR, as the rules on documentary evidence require that these documents must be formally offered
before the CTA.34 Pertinent is Section 34, Rule 132 of the Revised Rules on Evidence which reads:
SEC. 34. Offer of evidence. The court shall consider no evidence which has not been formally offered. The purpose for which
the evidence is offered must be specified.
Tax II Set I* Estate Tax Cases*Page 13 of 15
The CTA and the CA rely solely on the case of Vda. de Oate, which reiterated this Court's previous rulings in People v. Napat-
a35 and People v. Mate36 on the admission and consideration of exhibits which were not formally offered during the trial.
Although in a long line of cases many of which were decided after Vda. de Oate, we held that courts cannot consider evidence
which has not been formally offered,37 nevertheless, petitioner cannot validly assume that the doctrine laid down in Vda. de
Oate has already been abandoned. Recently, in Ramos v. Dizon,38 this Court, applying the said doctrine, ruled that the trial
court judge therein committed no error when he admitted and considered the respondents' exhibits in the resolution of the case,
notwithstanding the fact that the same were not formally offered. Likewise, in Far East Bank & Trust Company v. Commissioner
of Internal Revenue,39 the Court made reference to said doctrine in resolving the issues therein. Indubitably, the doctrine laid
down in Vda. De Oate still subsists in this jurisdiction. In Vda. de Oate, we held that:
From the foregoing provision, it is clear that for evidence to be considered, the same must be formally offered. Corollarily, the
mere fact that a particular document is identified and marked as an exhibit does not mean that it has already been offered as part
of the evidence of a party. In Interpacific Transit, Inc. v. Aviles [186 SCRA 385], we had the occasion to make a distinction
between identification of documentary evidence and its formal offer as an exhibit. We said that the first is done in the course of
the trial and is accompanied by the marking of the evidence as an exhibit while the second is done only when the party rests its
case and not before. A party, therefore, may opt to formally offer his evidence if he believes that it will advance his cause or not
to do so at all. In the event he chooses to do the latter, the trial court is not authorized by the Rules to consider the same.
However, in People v. Napat-a [179 SCRA 403] citing People v. Mate [103 SCRA 484], we relaxed the foregoing rule and
allowed evidence not formally offered to be admitted and considered by the trial court provided the following requirements are
present, viz.: first, the same must have been duly identified by testimony duly recorded and, second, the same must have been
incorporated in the records of the case.40
From the foregoing declaration, however, it is clear that Vda. de Oate is merely an exception to the general rule. Being an
exception, it may be applied only when there is strict compliance with the requisites mentioned therein; otherwise, the general
rule in Section 34 of Rule 132 of the Rules of Court should prevail.
In this case, we find that these requirements have not been satisfied. The assailed pieces of evidence were presented and marked
during the trial particularly when Alberto took the witness stand. Alberto identified these pieces of evidence in his direct
testimony.41 He was also subjected to cross-examination and re-cross examination by petitioner.42 But Albertos account and
the exchanges between Alberto and petitioner did not sufficiently describe the contents of the said pieces of evidence presented
by the BIR. In fact, petitioner sought that the lead examiner, one Ma. Anabella A. Abuloc, be summoned to testify, inasmuch as
Alberto was incompetent to answer questions relative to the working papers.43 The lead examiner never testified. Moreover,
while Alberto's testimony identifying the BIR's evidence was duly recorded, the BIR documents themselves were not
incorporated in the records of the case.
A common fact threads through Vda. de Oate and Ramos that does not exist at all in the instant case. In the aforementioned
cases, the exhibits were marked at the pre-trial proceedings to warrant the pronouncement that the same were duly incorporated
in the records of the case. Thus, we held in Ramos:
In this case, we find and so rule that these requirements have been satisfied. The exhibits in question were presented and marked
during the pre-trial of the case thus, they have been incorporated into the records. Further, Elpidio himself explained the contents
of these exhibits when he was interrogated by respondents' counsel...
xxxx
But what further defeats petitioner's cause on this issue is that respondents' exhibits were marked and admitted during the pre-
trial stage as shown by the Pre-Trial Order quoted earlier.44
While the CTA is not governed strictly by technical rules of evidence,45 as rules of procedure are not ends in themselves and are
primarily intended as tools in the administration of justice, the presentation of the BIR's evidence is not a mere procedural
technicality which may be disregarded considering that it is the only means by which the CTA may ascertain and verify the truth
of BIR's claims against the Estate.46 The BIR's failure to formally offer these pieces of evidence, despite CTA's directives, is
fatal to its cause.47 Such failure is aggravated by the fact that not even a single reason was advanced by the BIR to justify such
fatal omission. This, we take against the BIR.

Per the records of this case, the BIR was directed to present its evidence48 in the hearing of February 21, 1996, but BIR's
counsel failed to appear.49 The CTA denied petitioner's motion to consider BIR's presentation of evidence as waived, with a
warning to BIR that such presentation would be considered waived if BIR's evidence would not be presented at the next hearing.
Again, in the hearing of March 20, 1996, BIR's counsel failed to appear.50 Thus, in its Resolution51 dated March 21, 1996, the
CTA considered the BIR to have waived presentation of its evidence. In the same Resolution, the parties were directed to file
their respective memorandum. Petitioner complied but BIR failed to do so.52 In all of these proceedings, BIR was duly notified.
Hence, in this case, we are constrained to apply our ruling in Heirs of Pedro Pasag v. Parocha:53
A formal offer is necessary because judges are mandated to rest their findings of facts and their judgment only and strictly upon
the evidence offered by the parties at the trial. Its function is to enable the trial judge to know the purpose or purposes for which
the proponent is presenting the evidence. On the other hand, this allows opposing parties to examine the evidence and object to
its admissibility. Moreover, it facilitates review as the appellate court will not be required to review documents not previously
scrutinized by the trial court.
Strict adherence to the said rule is not a trivial matter. The Court in Constantino v. Court of Appeals ruled that the formal offer of
one's evidence is deemed waived after failing to submit it within a considerable period of time. It explained that the court cannot
admit an offer of evidence made after a lapse of three (3) months because to do so would "condone an inexcusable laxity if not
non-compliance with a court order which, in effect, would encourage needless delays and derail the speedy administration of
justice."
Applying the aforementioned principle in this case, we find that the trial court had reasonable ground to consider that petitioners
had waived their right to make a formal offer of documentary or object evidence. Despite several extensions of time to make
their formal offer, petitioners failed to comply with their commitment and allowed almost five months to lapse before finally
submitting it. Petitioners' failure to comply with the rule on admissibility of evidence is anathema to the efficient, effective, and
expeditious dispensation of justice.
Having disposed of the foregoing procedural issue, we proceed to discuss the merits of the case.
Ordinarily, the CTA's findings, as affirmed by the CA, are entitled to the highest respect and will not be disturbed on appeal
unless it is shown that the lower courts committed gross error in the appreciation of facts.54 In this case, however, we find the
decision of the CA affirming that of the CTA tainted with palpable error.
It is admitted that the claims of the Estate's aforementioned creditors have been condoned. As a mode of extinguishing an
obligation,55 condonation or remission of debt56 is defined as:
an act of liberality, by virtue of which, without receiving any equivalent, the creditor renounces the enforcement of the
obligation, which is extinguished in its entirety or in that part or aspect of the same to which the remission refers. It is an
essential characteristic of remission that it be gratuitous, that there is no equivalent received for the benefit given; once such
equivalent exists, the nature of the act changes. It may become dation in payment when the creditor receives a thing different
from that stipulated; or novation, when the object or principal conditions of the obligation should be changed; or compromise,
when the matter renounced is in litigation or dispute and in exchange of some concession which the creditor receives.57
Verily, the second issue in this case involves the construction of Section 7958 of the National Internal Revenue Code59 (Tax
Code) which provides for the allowable deductions from the gross estate of the decedent. The specific question is whether the
actual claims of the aforementioned creditors may be fully allowed as deductions from the gross estate of Jose despite the fact
that the said claims were reduced or condoned through compromise agreements entered into by the Estate with its creditors.
"Claims against the estate," as allowable deductions from the gross estate under Section 79 of the Tax Code, are basically a
reproduction of the deductions allowed under Section 89 (a) (1) (C) and (E) of Commonwealth Act No. 466 (CA 466), otherwise
known as the National Internal Revenue Code of 1939, and which was the first codification of Philippine tax laws. Philippine tax
laws were, in turn, based on the federal tax laws of the United States. Thus, pursuant to established rules 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.60
Tax II Set I* Estate Tax Cases*Page 14 of 15
It is noteworthy that even in the United States, there is some dispute as to whether the deductible amount for a claim against the
estate is fixed as of the decedent's death which is the general rule, or the same should be adjusted to reflect post-death
developments, such as where a settlement between the parties results in the reduction of the amount actually paid.61 On one
hand, the U.S. court ruled that the appropriate deduction is the "value" that the claim had at the date of the decedent's death.62
Also, as held in Propstra v. U.S., 63 where a lien claimed against the estate was certain and enforceable on the date of the
decedent's death, the fact that the claimant subsequently settled for lesser amount did not preclude the estate from deducting the
entire amount of the claim for estate tax purposes. These pronouncements essentially confirm the general principle that post-
death developments are not material in determining the amount of the deduction.
On the other hand, the Internal Revenue Service (Service) opines that post-death settlement should be taken into consideration
and the claim should be allowed as a deduction only to the extent of the amount actually paid.64 Recognizing the dispute, the
Service released Proposed Regulations in 2007 mandating that the deduction would be limited to the actual amount paid.65
In announcing its agreement with Propstra,66 the U.S. 5th Circuit Court of Appeals held:
We are persuaded that the Ninth Circuit's decision...in Propstra correctly apply the Ithaca Trust date-of-death valuation principle
to enforceable claims against the estate. As we interpret Ithaca Trust, when the Supreme Court announced the date-of-death
valuation principle, it was making a judgment about the nature of the federal estate tax specifically, that it is a tax imposed on the
act of transferring property by will or intestacy and, because the act on which the tax is levied occurs at a discrete time, i.e., the
instance of death, the net value of the property transferred should be ascertained, as nearly as possible, as of that time. This
analysis supports broad application of the date-of-death valuation rule.67
We express our agreement with the date-of-death valuation rule, made pursuant to the ruling of the U.S. Supreme Court in Ithaca
Trust Co. v. United States.68 First. There is no law, nor do we discern any legislative intent in our tax laws, which disregards the
date-of-death valuation principle and particularly provides that post-death developments must be considered in determining the
net value of the estate. It bears emphasis that tax burdens are not to be imposed, nor presumed to be imposed, beyond what the
statute expressly and clearly imports, tax statutes being construed strictissimi juris against the government.69 Any doubt on
whether a person, article or activity is taxable is generally resolved against taxation.70 Second. Such construction finds
relevance and consistency in our Rules on Special Proceedings wherein the term "claims" required to be presented against a
decedent's estate is generally construed to mean debts or demands of a pecuniary nature which could have been enforced against
the deceased in his lifetime, or liability contracted by the deceased before his death.71 Therefore, the claims existing at the time
of death are significant to, and should be made the basis of, the determination of allowable deductions.
WHEREFORE, the instant Petition is GRANTED. Accordingly, the assailed Decision dated April 30, 1999 and the Resolution
dated November 3, 1999 of the Court of Appeals in CA-G.R. S.P. No. 46947 are REVERSED and SET ASIDE. The Bureau of
Internal Revenue's deficiency estate tax assessment against the Estate of Jose P. Fernandez is hereby NULLIFIED. No costs.
SO ORDERED.
G.R. No. 149909 October 11, 2007
TERESA, MARIA CHRISTINA, GENARO III, MARIA LUISA, CRISPIN JR., VINCENT and RASCHEL, all
surnamed GABRIEL, petitioners, vs.
HON. COURT OF APPEALS, EMMA, CORAZON and RAMONA, all surnamed RONQUILLO, respondents.
DECISION
NACHURA, J.:
Before the Court is a petition for review on certiorari,1 questioning Resolutions2 dated May 25, 2001 and September 11, 2001 of
the Court of Appeals (CA) in CA-G.R. SP No. 64127, entitled "TERESA, MARIA CHRISTINA, GENARO III, MARIA LUISA,
CRISPIN JR., VINCENT and RASCHEL, all surnamed GABRIEL v. HON. REGIONAL TRIAL COURT OF PASIG CITY,
EMMA, CORAZON and RAMONA, all surnamed RONQUILLO."
Petitioners are the heirs of the late Atty. Crispin F. Gabriel (Atty. Gabriel), who was designated as the sole executor of the last
will and testament of the deceased Genaro G. Ronquillo (Ronquillo) whose will was probated in 1978 before the Regional Trial
Court of Pasig City in Sp. Proc. No. 8857.3 On the other hand, respondents are the heirs of the testator Ronquillo.

On July 26, 1993, the probate court issued an Order4 fixing the amount of compensation of Atty. Gabriel as executor in the
amount of Php426,000.00 as of December 1992, plus Php3,000.00 a month thereafter until the final liquidation of the estate. At
the time of the filing of the present petition, there has been no final liquidation of the Ronquillo estate. Upon the death of Atty.
Gabriel on March 19, 1998, his uncollected compensation reached Php648,000.00.5
While still acting as executor, Atty. Gabriel, with prior approval of the probate court, sold three parcels of land situated at
Quiapo, Manila to William Lee for Php18,000,000.00.6 Due to certain disagreements between Atty. Gabriel and the respondents,
a portion of the proceeds in the amount of Php1,422,000.00 was deposited with the probate court. The said sum included the
compensation of Atty. Gabriel. Allegedly, to prevent the release of the compensation, respondents filed a notice with the probate
court that there was a pending tax investigation with the Bureau of Internal Revenue concerning unpaid taxes of the estate from
the sale of the land.7
On April 3, 2001, petitioners filed a Petition for Certiorari, Prohibition and Mandamus with Preliminary Injunction and Prayer
for Temporary Restraining Order in the CA.8 Petitioners questioned the twin orders of the probate court, particularly (1) the
court's refusal to order the release of the amount of Php648,000.00 representing the compensation of Atty. Gabriel as the
executor of the last will and testament; and (2) the court's insistence to hear respondents' allegation of non-payment of taxes
resulting from the sale of the properties located at Quiapo, Manila, for which reason the compensation of Atty. Gabriel should
not be released until resolution by the probate court on this matter.9
In the meantime, the parties came to an agreement to divide the amount deposited in court. Petitioners received Php284,400.00,
and thus, there still remained a balance of Php363,600.00.10
On May 25, 2001, the first questioned Resolution11 was rendered by the CA, the pertinent portion of which reads:
An examination of the instant petition for certiorari, prohibition and mandamus reveals that:
1. The verification and certification of non-forum shopping was signed by only one (Teresa S. Gabriel) of the seven petitioners,
and there is no showing or proof that she was duly authorized to sign on behalf of her co-petitioners; and
2. There is no written explanation why copies of the petition had to be furnished the respondents by way of registered mail rather
than through the preferred personal service.
WHEREFORE, premises considered, for being insufficient in form and substance pursuant to Section 1, 2 & 3, par. 2, Rule 65,
in relation to Section 3 pars. 3 & 5, Rule 46 and Section 11, Rule 13 both of the 1997 Rules of Civil Procedure, the petition for
certiorari, prohibition and mandamus is hereby DENIED DUE COURSE and accordingly DISMISSED.
SO ORDERED.12
On September 11, 2001, the second assailed Resolution13 was issued by the CA, the relevant portion of which reads:
For failure of petitioners to cure the defects that resulted in the dismissal of their petition, per Resolution dated May 25, 2001,
the "Motion for Reconsideration" of the Resolution dated June 6, 2001, is hereby DENIED for lack of merit.SO ORDERED.
Petitioners presented the following issues in their Memorandum: 1) whether there was substantial compliance with the
certification of non-forum shopping before the CA; 2) whether the written explanation of why personal service was not done is a
mandatory requirement in pleadings filed before the CA; 3) whether the remaining balance of compensation of Atty. Gabriel
should be released; and 4) whether the probate court can take cognizance of the tax controversies.14
The petition is devoid of merit. The CA committed no reversible error in issuing the assailed Resolutions.
On the first issue regarding the certification against forum shopping, the Rules of Court provides that the plaintiff or the principal
party shall certify under oath in the complaint or other initiatory pleading the requirements as mandated under Section 5, Rule
Tax II Set I* Estate Tax Cases*Page 15 of 15
7.15 The said requirements are mandatory, and therefore, strict compliance thereof is necessary for the proper administration of
justice.
In the petition filed by the petitioners in the CA, the verification and the certification against forum shopping were signed by
Teresa Gabriel alone, albeit there were seven petitioners therein.16 In their Memorandum,17 petitioners proffer the view that the
signature of Teresa, being the mother of the rest of the petitioners, should be considered as substantial compliance, for she was
willing to take the risk of contempt and perjury should she be found lying. According to petitioners, what is fatal is the utter lack
of signatory in the certification.18
In numerous decisions,19 this Court has been consistent in stringently enforcing the requirement of verification20 and
certification of non-forum shopping. When there is more than one petitioner, a petition signed solely by one of them is defective,
unless he was authorized by his co-parties to represent them and to sign the certification. The attestation contained in the
certification of non-forum shopping requires personal knowledge by the party who executed the same.21
In the instant case, the records are bereft of anything that would show that Teresa was authorized by the other petitioners to file
the petition. In the certification against forum shopping, the principal party is required to certify under oath as to the matters
contained therein and failure to comply with the requirements shall not be curable by amendment but shall be a ground for the
dismissal of the case. Personal knowledge of the party executing the same is important and a similar requirement applies to the
verification. Thus, the verification and certification signed only by Teresa are utterly defective, and it is within the prerogative of
the court to dismiss the petition.
As aptly stated in Ortiz v. CA,22 substantial compliance will not suffice in a matter involving strict observance. The attestation
contained in the certification of non-forum shopping requires personal knowledge by the party who executed the same. To
deserve the Court's consideration, petitioners must show reasonable cause for failure to personally sign the certification. They
must convince the Court that the outright dismissal of the petition would defeat the administration of justice. In this case, the
petitioners did not give any explanation to warrant their exemption from the strict application of the rule. Downright disregard of
the rules cannot justly be rationalized by harking on the policy of liberal construction.23
On the second issue, the written explanation why another mode of service was resorted to is a mandatory and indispensable
requirement in pleadings or papers filed before all the courts of the land. Parties must exert their best to effect personal service.
The Rules of Court24 provides that personal service of petitions and other pleadings is the general rule, while a resort to other
modes of service and filing is the exception.25 Strictest compliance with Section 11 of Rule 13 is mandated by the Court,26 and
noncompliance therewith is a ground for the denial of the petition or the expulsion of the pleading from the records.
This Court will no longer dwell on the third issue because it is a matter that should be ventilated before the probate court.
As to the fourth issue, the probate court can rightfully take cognizance of the unpaid taxes of the estate of the deceased; if the
estate is found liable, the probate court has the discretion to order the payment of the said taxes.27
Finally, petitioners should bear in mind that the right to appeal is not a natural right or a part of due process. It is merely a
statutory privilege, and may be exercised only in the manner and in accordance with the provisions of the law. The party who
seeks to avail of the remedy of appeal must comply with the requirements of the rules; otherwise, the appeal is lost. Rules of
procedure are required to be followed, except only when, for the most persuasive of reasons, they may be relaxed to relieve the
litigant of an injustice not commensurate with the degree of his thoughtlessness in not complying with the procedure
prescribed.28
WHEREFORE, in view of the foregoing, the petition is DENIED for lack of merit. The Resolutions of the Court of Appeals
dated May 25, 2001 and September 11, 2001 are hereby AFFIRMED. Costs against petitioners.