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LAUREL, J.: 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
On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as trustee of which, under the will, were to pass to Matthew Hanley ten years after the two
the estate of Thomas Hanley, deceased, brought this action in the Court of executors named in the will, was, on March 8, 1924, appointed trustee.
First Instance of Zamboanga against the defendant, Juan Posadas, Jr., then Moore took his oath of office and gave bond on March 10, 1924. He acted as
the Collector of Internal Revenue, for the refund of the amount of P2,052.74, trustee until February 29, 1932, when he resigned and the plaintiff herein
paid by the plaintiff as inheritance tax on the estate of the deceased, and for was appointed in his stead.
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 During the incumbency of the plaintiff as trustee, the defendant Collector of
[paid under protest. The defendant set up a counterclaim for P1,191.27 Internal Revenue, alleging that the estate left by the deceased at the time of
alleged to be interest due on the tax in question and which was not included his death consisted of realty valued at P27,920 and personalty valued at
in the original assessment. From the decision of the Court of First Instance of P1,465, and allowing a deduction of P480.81, assessed against the estate an
Zamboanga dismissing both the plaintiff's complaint and the defendant's inheritance tax in the amount of P1,434.24 which, together with the penalties
counterclaim, both parties appealed to this court. 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
It appears that on May 27, 1922, one Thomas Hanley died in Zamboanga, tax, amounted to P2,052.74. On March 15, 1932, the defendant filed a
Zamboanga, leaving a will (Exhibit 5) and considerable amount of real and motion in the testamentary proceedings pending before the Court of First
personal properties. On june 14, 1922, proceedings for the probate of his will Instance of Zamboanga (Special proceedings No. 302) praying that the
and the settlement and distribution of his estate were begun in the Court of trustee, plaintiff herein, be ordered to pay to the Government the said sum of
First Instance of Zamboanga. The will was admitted to probate. Said will P2,052.74. The motion was granted. On September 15, 1932, the plaintiff
provides, among other things, as follows: 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
4. I direct that any money left by me be given to my nephew Matthew recovery. The defendant overruled the plaintiff's protest and refused to refund
Hanley. the said amount hausted, plaintiff went to court with the result herein above
indicated.
5. I direct that all real estate owned by me at the time of my death be
In his appeal, plaintiff contends that the lower court erred:
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 I. In holding that the real property of Thomas Hanley, deceased,
Hanley, at Castlemore, Ballaghaderine, County of Rosecommon, passed to his instituted heir, Matthew Hanley, from the moment of
Ireland, and that he be directed that the same be used only for the the death of the former, and that from the time, the latter became the
education of my brother's children and their descendants. owner thereof.
(a) The accrual of the inheritance tax is distinct from the obligation to pay the From the fact, however, that Thomas Hanley died on May 27, 1922, it does
same. Section 1536 as amended, of the Administrative Code, imposes the not follow that the obligation to pay the tax arose as of the date. The time for
tax upon "every transmission by virtue of inheritance, devise, bequest, the payment on inheritance tax is clearly fixed by section 1544 of the Revised
gift mortis causa, or advance in anticipation of inheritance,devise, or Administrative Code as amended by Act No. 3031, in relation to section 1543
bequest." The tax therefore is upon transmission or the transfer or devolution of the same Code. The two sections follow:
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, SEC. 1543. Exemption of certain acquisitions and transmissions. —
receive, or take property by or under a will or the intestacy law, or deed, The following shall not be taxed:
grant, or gift to become operative at or after death. Acording to article 657 of
(a) The merger of the usufruct in the owner of the naked title. before the delivery of the properties in question to P. J. M. Moore as trustee
on March 10, 1924.
(b) The transmission or delivery of the inheritance or legacy
by the fiduciary heir or legatee to the trustees. (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
(c) The transmission from the first heir, legatee, or donee in instituted heir, Matthew Hanley, until after the expiration of ten years from the
favor of another beneficiary, in accordance with the desire of death of the testator on May 27, 1922 and, that the inheritance tax should be
the predecessor. 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
In the last two cases, if the scale of taxation appropriate to the new
added to the value of the personal property left by the deceased, which the
beneficiary is greater than that paid by the first, the former must pay
plaintiff admits is P1,465, would generate an inheritance tax which, excluding
the difference.
deductions, interest and surcharge, would amount only to about P169.52.
SEC. 1544. When tax to be paid. — The tax fixed in this article shall
If death is the generating source from which the power of the estate to
be paid:
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
(a) In the second and third cases of the next preceding instantly, the tax should be measured by the vlaue of the estate as it stood at
section, before entrance into possession of the property. 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,
(b) In other cases, within the six months subsequent to the 1693; 26 R. C. L., p. 232; Blakemore and Bancroft, Inheritance Taxes, p.
death of the predecessor; but if judicial testamentary or 137. See also Knowlton vs. Moore, 178 U.S., 41; 20 Sup. Ct. Rep., 747; 44
intestate proceedings shall be instituted prior to the Law. ed., 969.) "The right of the state to an inheritance tax accrues at the
expiration of said period, the payment shall be made by the moment of death, and hence is ordinarily measured as to any beneficiary by
executor or administrator before delivering to each the value at that time of such property as passes to him. Subsequent
beneficiary his share. appreciation or depriciation is immaterial." (Ross, Inheritance Taxation, p.
72.)
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 Our attention is directed to the statement of the rule in Cyclopedia of Law of
the tax; and to the tax and interest due and unpaid within ten days and Procedure (vol. 37, pp. 1574, 1575) that, in the case of contingent
after the date of notice and demand thereof by the collector, there remainders, taxation is postponed until the estate vests in possession or the
shall be further added a surcharge of twenty-five per centum. contingency is settled. This rule was formerly followed in New York and has
been adopted in Illinois, Minnesota, Massachusetts, Ohio, Pennsylvania and
A certified of all letters testamentary or of admisitration shall be Wisconsin. This rule, horever, is by no means entirely satisfactory either to
furnished the Collector of Internal Revenue by the Clerk of Court the estate or to those interested in the property (26 R. C. L., p. 231.).
within thirty days after their issuance. Realizing, perhaps, the defects of its anterior system, we find upon
examination of cases and authorities that New York has varied and now
It should be observed in passing that the word "trustee", appearing in requires the immediate appraisal of the postponed estate at its clear market
subsection (b) of section 1543, should read "fideicommissary" or "cestui que value and the payment forthwith of the tax on its out of the corpus of the
trust". There was an obvious mistake in translation from the Spanish to the estate transferred. (In re Vanderbilt, 172 N. Y., 69; 69 N. E., 782; In re Huber,
English version. 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
The instant case does fall under subsection (a), but under subsection (b), of
Advocate, 1 Peter. Sc. App., 970; 3 Macq. H. L., 659; 23 Eng. Rul. Cas.,
section 1544 above-quoted, as there is here no fiduciary heirs, first heirs,
888.) California adheres to this new rule (Stats. 1905, sec. 5, p. 343).
legatee or donee. Under the subsection, the tax should have been paid
But whatever may be the rule in other jurisdictions, we hold that a be taken into consideration in fixing the value of the estate for the purpose of
transmission by inheritance is taxable at the time of the predecessor's death, this tax."
notwithstanding the postponement of the actual possession or enjoyment of
the estate by the beneficiary, and the tax measured by the value of the (d) The defendant levied and assessed the inheritance tax due from the
property transmitted at that time regardless of its appreciation or estate of Thomas Hanley under the provisions of section 1544 of the Revised
depreciation. 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
(c) Certain items are required by law to be deducted from the appraised force when the testator died on May 27, 1922. The law at the time was
gross in arriving at the net value of the estate on which the inheritance tax is section 1544 above-mentioned, as amended by Act No. 3031, which took
to be computed (sec. 1539, Revised Administrative Code). In the case at bar, effect on March 9, 1922.
the defendant and the trial court allowed a deduction of only P480.81. This
sum represents the expenses and disbursements of the executors until It is well-settled that inheritance taxation is governed by the statute in force at
March 10, 1924, among which were their fees and the proven debts of the the time of the death of the decedent (26 R. C. L., p. 206; 4 Cooley on
deceased. The plaintiff contends that the compensation and fees of the Taxation, 4th ed., p. 3461). The taxpayer can not foresee and ought not to be
trustees, which aggregate P1,187.28 (Exhibits C, AA, EE, PP, HH, JJ, LL, required to guess the outcome of pending measures. Of course, a tax statute
NN, OO), should also be deducted under section 1539 of the Revised may be made retroactive in its operation. Liability for taxes under retroactive
Administrative Code which provides, in part, as follows: "In order to legislation has been "one of the incidents of social life." (Seattle vs. Kelleher,
determine the net sum which must bear the tax, when an inheritance is 195 U. S., 360; 49 Law. ed., 232 Sup. Ct. Rep., 44.) But legislative intent that
concerned, there shall be deducted, in case of a resident, . . . the judicial a tax statute should operate retroactively should be perfectly clear. (Scwab
expenses of the testamentary or intestate proceedings, . . . ." 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.
A trustee, no doubt, is entitled to receive a fair compensation for his services Turrish, 247 U. S., 221.) "A statute should be considered as prospective in its
(Barney vs. Saunders, 16 How., 535; 14 Law. ed., 1047). But from this it operation, whether it enacts, amends, or repeals an inheritance tax, unless
does not follow that the compensation due him may lawfully be deducted in the language of the statute clearly demands or expresses that it shall have a
arriving at the net value of the estate subject to tax. There is no statute in the retroactive effect, . . . ." (61 C. J., P. 1602.) Though the last paragraph of
Philippines which requires trustees' commissions to be deducted in section 5 of Regulations No. 65 of the Department of Finance makes section
determining the net value of the estate subject to inheritance tax (61 C. J., p. 3 of Act No. 3606, amending section 1544 of the Revised Administrative
1705). Furthermore, though a testamentary trust has been created, it does Code, applicable to all estates the inheritance taxes due from which have not
not appear that the testator intended that the duties of his executors and been paid, Act No. 3606 itself contains no provisions indicating legislative
trustees should be separated. (Ibid.; In re Vanneck's Estate, 161 N. Y. Supp., intent to give it retroactive effect. No such effect can begiven the statute by
893; 175 App. Div., 363; In re Collard's Estate, 161 N. Y. Supp., 455.) On the this court.
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 defendant Collector of Internal Revenue maintains, however, that certain
the period of ten years therein provided. Judicial expenses are expenses of provisions of Act No. 3606 are more favorable to the taxpayer than those of
administration (61 C. J., p. 1705) but, in State vs. Hennepin County Probate Act No. 3031, that said provisions are penal in nature and, therefore, should
Court (112 N. W., 878; 101 Minn., 485), it was said: ". . . The compensation operate retroactively in conformity with the provisions of article 22 of the
of a trustee, earned, not in the administration of the estate, but in the Revised Penal Code. This is the reason why he applied Act No. 3606 instead
management thereof for the benefit of the legatees or devises, does not of Act No. 3031. Indeed, under Act No. 3606, (1) the surcharge of 25 per
come properly within the class or reason for exempting administration cent is based on the tax only, instead of on both the tax and the interest, as
expenses. . . . Service rendered in that behalf have no reference to closing provided for in Act No. 3031, and (2) the taxpayer is allowed twenty days
the estate for the purpose of a distribution thereof to those entitled to it, and from notice and demand by rthe Collector of Internal Revenue within which to
are not required or essential to the perfection of the rights of the heirs or pay the tax, instead of ten days only as required by the old law.
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,
Properly speaking, a statute is penal when it imposes punishment for an
are of voluntary creation, and intended for the preservation of the estate. No
offense committed against the state which, under the Constitution, the
sound reason is given to support the contention that such expenses should 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 sound judgment in appointment a trustee to carry into effect the provisions of
command or prohibit certain acts, and establish penalties for their violation, the will (see sec. 582, Code of Civil Procedure).
and even those which, without expressly prohibiting certain acts, impose a
penalty upon their commission (59 C. J., p. 1110). Revenue laws, generally, P. J. M. Moore became trustee on March 10, 1924. On that date trust estate
which impose taxes collected by the means ordinarily resorted to for the vested in him (sec. 582 in relation to sec. 590, Code of Civil Procedure). The
collection of taxes are not classed as penal laws, although there are mere fact that the estate of the deceased was placed in trust did not remove
authorities to the contrary. (See Sutherland, Statutory Construction, 361; it from the operation of our inheritance tax laws or exempt it from the
Twine Co. vs. Worthington, 141 U. S., 468; 12 Sup. Ct., 55; Rice vs. U. S., 4 payment of the inheritance tax. The corresponding inheritance tax should
C. C. A., 104; 53 Fed., 910; Com. vs. Standard Oil Co., 101 Pa. St., 150; have been paid on or before March 10, 1924, to escape the penalties of the
State vs. Wheeler, 44 P., 430; 25 Nev. 143.) Article 22 of the Revised Penal laws. This is so for the reason already stated that the delivery of the estate to
Code is not applicable to the case at bar, and in the absence of clear the trustee was in esse delivery of the same estate to the cestui que trust,
legislative intent, we cannot give Act No. 3606 a retroactive effect. 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;
(e) The plaintiff correctly states that the liability to pay a tax may arise at a 57 Law. ed., 1086). When Moore accepted the trust and took possesson of
certain time and the tax may be paid within another given time. As stated by the trust estate he thereby admitted that the estate belonged not to him but to
this court, "the mere failure to pay one's tax does not render one delinqent his cestui que trust (Tolentino vs. Vitug, 39 Phil.,126, cited in 65 C. J., p. 692,
until and unless the entire period has eplased within which the taxpayer is n. 63). He did not acquire any beneficial interest in the estate. He took such
authorized by law to make such payment without being subjected to the legal estate only as the proper execution of the trust required (65 C. J., p.
payment of penalties for fasilure to pay his taxes within the prescribed 528) and, his estate ceased upon the fulfillment of the testator's wishes. The
period." (U. S. vs. Labadan, 26 Phil., 239.) estate then vested absolutely in the beneficiary (65 C. J., p. 542).
The defendant maintains that it was the duty of the executor to pay the The highest considerations of public policy also justify the conclusion we
inheritance tax before the delivery of the decedent's property to the trustee. have reached. Were we to hold that the payment of the tax could be
Stated otherwise, the defendant contends that delivery to the trustee was postponed or delayed by the creation of a trust of the type at hand, the result
delivery to the cestui que trust, the beneficiery in this case, within the would be plainly disastrous. Testators may provide, as Thomas Hanley has
meaning of the first paragraph of subsection (b) of section 1544 of the provided, that their estates be not delivered to their beneficiaries until after
Revised Administrative Code. This contention is well taken and is sustained. the lapse of a certain period of time. In the case at bar, the period is ten
The appointment of P. J. M. Moore as trustee was made by the trial court in years. In other cases, the trust may last for fifty years, or for a longer period
conformity with the wishes of the testator as expressed in his will. It is true which does not offend the rule against petuities. The collection of the tax
that the word "trust" is not mentioned or used in the will but the intention to would then be left to the will of a private individual. The mere suggestion of
create one is clear. No particular or technical words are required to create a this result is a sufficient warning against the accpetance of the essential to
testamentary trust (69 C. J., p. 711). The words "trust" and "trustee", though the very exeistence of government. (Dobbins vs. Erie Country, 16 Pet., 435;
apt for the purpose, are not necessary. In fact, the use of these two words is 10 Law. ed., 1022; Kirkland vs. Hotchkiss, 100 U. S., 491; 25 Law. ed., 558;
not conclusive on the question that a trust is created (69 C. J., p. 714). "To Lane County vs. Oregon, 7 Wall., 71; 19 Law. ed., 101; Union Refrigerator
create a trust by will the testator must indicate in the will his intention so to do Transit Co. vs. Kentucky, 199 U. S., 194; 26 Sup. Ct. Rep., 36; 50 Law. ed.,
by using language sufficient to separate the legal from the equitable estate, 150; Charles River Bridge vs. Warren Bridge, 11 Pet., 420; 9 Law. ed., 773.)
and with sufficient certainty designate the beneficiaries, their interest in the The obligation to pay taxes rests not upon the privileges enjoyed by, or the
ttrust, the purpose or object of the trust, and the property or subject matter protection afforded to, a citizen by the government but upon the necessity of
thereof. Stated otherwise, to constitute a valid testamentary trust there must money for the support of the state (Dobbins vs. Erie Country, supra). For this
be a concurrence of three circumstances: (1) Sufficient words to raise a trust; reason, no one is allowed to object to or resist the payment of taxes solely
(2) a definite subject; (3) a certain or ascertain object; statutes in some because no personal benefit to him can be pointed out. (Thomas vs. Gay,
jurisdictions expressly or in effect so providing." (69 C. J., pp. 705,706.) 169 U. S., 264; 18 Sup. Ct. Rep., 340; 43 Law. ed., 740.) While courts will
There is no doubt that the testator intended to create a trust. He ordered in not enlarge, by construction, the government's power of taxation (Bromley vs.
his will that certain of his properties be kept together undisposed during a McCaughn, 280 U. S., 124; 74 Law. ed., 226; 50 Sup. Ct. Rep., 46) they also
fixed period, for a stated purpose. The probate court certainly exercised 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. Internal Revenue upon Moore in a communiction dated October 16, 1931
16,690, followed in Froelich & Kuttner vs. Collector of Customs, 18 Phil., 461, (Exhibit 29). The date fixed for the payment of the tax and interest was
481; Castle Bros., Wolf & Sons vs. McCoy, 21 Phil., 300; Muñoz & Co. vs. November 30, 1931. November 30 being an official holiday, the tenth day fell
Hord, 12 Phil., 624; Hongkong & Shanghai Banking Corporation vs. Rafferty, on December 1, 1931. As the tax and interest due were not paid on that date,
39 Phil., 145; Luzon Stevedoring Co. vs. Trinidad, 43 Phil., 803.) When the estate became liable for the payment of the surcharge.
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 In view of the foregoing, it becomes unnecessary for us to discuss the fifth
taxpayer, becomes fair to the government. error assigned by the plaintiff in his brief.
That taxes must be collected promptly is a policy deeply intrenched in our tax We shall now compute the tax, together with the interest and surcharge due
system. Thus, no court is allowed to grant injunction to restrain the collection from the estate of Thomas Hanley inaccordance with the conclusions we
of any internal revenue tax ( sec. 1578, Revised Administrative Code; have reached.
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 At the time of his death, the deceased left real properties valued at P27,920
adherence to this policy of the law. It held that "the fact that on account of
and personal properties worth P1,465, or a total of P29,385. Deducting from
riots directed against the Chinese on October 18, 19, and 20, 1924, they
this amount the sum of P480.81, representing allowable deductions under
were prevented from praying their internal revenue taxes on time and by
secftion 1539 of the Revised Administrative Code, we have P28,904.19 as
mutual agreement closed their homes and stores and remained therein, does
the net value of the estate subject to inheritance tax.
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.) 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
". . . It is of the utmost importance," said the Supreme Court of the United
the share exceed thirty thousand pesos, plus an additional two hundred per
States, ". . . that the modes adopted to enforce the taxes levied should be centum. One per centum of ten thousand pesos is P100. Two per centum of
interfered with as little as possible. Any delay in the proceedings of the
P18,904.19 is P378.08. Adding to these two sums an additional two hundred
officers, upon whom the duty is developed of collecting the taxes, may
per centum, or P965.16, we have as primary tax, correctly computed by the
derange the operations of government, and thereby, cause serious detriment
defendant, the sum of P1,434.24.
to the public." (Dows vs. Chicago, 11 Wall., 108; 20 Law. ed., 65, 66;
Churchill and Tait vs. Rafferty, 32 Phil., 580.)
To the primary tax thus computed should be added the sums collectible
under section 1544 of the Revised Administrative Code. First should be
It results that the estate which plaintiff represents has been delinquent in the
added P1,465.31 which stands for interest at the rate of twelve per centum
payment of inheritance tax and, therefore, liable for the payment of interest
per annum from March 10, 1924, the date of delinquency, to September 15,
and surcharge provided by law in such cases.
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 delinquency in payment occurred on March 10, 1924, the date when the sum of P724.88, representing a surhcarge of 25 per cent on both the tax
Moore became trustee. The interest due should be computed from that date and interest, and also P10, the compromise sum fixed by the defendant (Exh.
and it is error on the part of the defendant to compute it one month later. The 29), giving a grand total of P3,634.43.
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 As the plaintiff has already paid the sum of P2,052.74, only the sums of
decrease such interest, no matter how heavily it may burden the taxpayer. 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
To the tax and interest due and unpaid within ten days after the date of cannot give the defendant more than what he claims, we must hold that the
notice and demand thereof by the Collector of Internal Revenue, a surcharge plaintiff is liable only in the sum of P1,191.27 the amount stated in the
of twenty-five per centum should be added (sec. 1544, subsec. (b), par. 2, counterclaim.
Revised Administrative Code). Demand was made by the Deputy Collector of
The judgment of the lower court is accordingly modified, with costs against
the plaintiff in both instances. So ordered.
Republic of the Philippines
P21,052
SUPREME COURT
Manila
Subsequently, on November 10, 1956, the petitioner filed an amended
EN BANC return for the calendar year 1955, claiming therein an additional
deduction in the amount of P47,868.70 representing interest paid on
G.R. No. L-16626 October 29, 1966 the donee's gift tax, thereby reporting a taxable net income of
P18,113.42 and a tax due thereon in the sum of P3,167.00. The claim
for deduction was based on the provisions of Section 30(b) (1) of the
COMMISSIONER OF INTERNAL REVENUE, petitioner,
Tax Code, which authorizes the deduction from gross income of
vs.
interest paid within the taxable year on indebtedness. A claim for the
CARLOS PALANCA, JR., respondent.
refund of alleged overpaid income taxes for the year 1955 amounting
to P17,885.01, which is the difference between the amount of
Office of the Solicitor General for petitioner. P21,052.01 he paid as income taxes under his original return and of
Manuel B. San Jose for respondent. P3,167.00, was filed together with this amended return. In a
communication dated June 20, 1957, the respondent (BIR) denied the
REGALA, J.: claim for refund.
This is an appeal by the Government from the decision of the Court of Tax On August 27, 1957, the petitioner reiterated his claim for refund, and
Appeals in CTA Case No. 571 ordering the petitioner to refund to the at the same time requested that the case be elevated to the Appellate
respondent the amount of P20,624.01 representing alleged over-payment of Division of the Bureau of Internal Revenue for decision. The reiterated
income taxes for the calendar year 1955. The facts are: claim was denied on October 14, 1957.
Sometime in July, 1950, the late Don Carlos Palanca, Sr. donated in On November 2, 1957, the petitioner requested that the case be
favor of his son, the petitioner, herein shares of stock in La Tondeña, referred to the Conference Staff of the Bureau of Internal Revenue for
Inc. amounting to 12,500 shares. For failure to file a return on the review. Later, on November 6, 1957, he requested the respondent to
donation within the statutory period, the petitioner was assessed the hold his action on the case in abeyance until after the Court of Tax
sums of P97,691.23, P24,442.81 and P47,868.70 as gift tax, 25% Appeals renders its division on a similar case. And on November 7,
surcharge and interest, respectively, which he paid on June 22, 1955. 1957, the respondent denied the claim for the refund of the sum of
P17,885.01.
On March 1, 1956, the petitioner filed with the Bureau of Internal
Revenue his income tax return for the calendar year 1955, claiming, Meanwhile, the Bureau of Internal Revenue considered the transfer of
among others, a deduction for interest amounting to P9,706.45 and 12,500 shares of stock of La Tondeña Inc. to be a transfer in
reporting a taxable income of P65,982.12. On the basis of this return, contemplation of death pursuant to Section 88(b) of the National
he was assessed the sum of P21,052.91, as income tax, which he Internal Revenue Code. Consequently, the respondent assessed
paid, as follows: against the petitioner the sum of P191,591.62 as estate and
inheritance taxes on the transfer of said 12,500 shares of stock. The
amount of P17,002.74 paid on June 22, 1955 by the petitioner as gift
Taxes withheld by La Tondeña Inc. from Mr. Palanca's tax, including interest and surcharge, under Official Receipt No. 2855
wages P13,172.41 was applied to his estate and inheritance tax liability. On the tax liability
of P191,591.62, the petitioner paid the amount of P60,581.80 as
Payment under Income Tax Receipt No. 677395 dated
interest for delinquency as follows:
May 11, 1956 3,939.80
Payment under Income Tax Receipt dated August 14, 1% monthly interest on P76,724.38 P22,633.69
1956 3,939.80 September 2, 1952 to February 16, 1955
to the government in its sovereign capacity. A debt is a sum of money due
1% monthly interest on P71,264.77 1,068.97
upon contract express or implied or one which is evidenced by a judgment.
February 16, 1955 to March 31, 1955
Taxes are imposts levied by government for its support or some special
1% monthly interest on P114,867.24 4,287.99 purpose which the government has recognized." In view of the distinction,
September 2, 1952 to April 16, 1953 then, the Commissioner submits that the deductibility of "interest on
indebtedness" from a person's income tax under Section 30(b) (1) cannot
1% monthly interest on P50,832.77 1,372.48 extend to "interest on taxes."
March 31, 1955 to June 22, 1955
We find for the respondent. While "taxes" and "debts" are distinguishable legal
1% monthly interest on P119,155.23 31,218.67 concepts, in certain cases as in the suit at bar, on account of their nature, the
April 16, 1953 to June 22, 1955 distinction becomes inconsequential. This qualification is recognized even in
the United States. Thus,
Total P60,581.80
The term "debt" is properly used in a comprehensive sense as
On August 12, 1958, the petitioner once more filed an amended embracing not merely money due by contract, but whatever one is
income tax return for the calendar year 1955, claiming, in addition to bound to render to another, either for contract or the requirements of
the interest deduction of P9,076.45 appearing in his original return, a the law. (Camden vs. Fink Coule and Coke Co., 61 ALR 584).
deduction in the amount of P60,581.80, representing interest on the
estate and inheritance taxes on the 12,500 shares of stock, thereby Where statutes impose a personal liability for a tax, the tax becomes
reporting a net taxable income for 1955 in the amount of P5,400.32 at least in a broad sense, a debt. (Idem.)
and an income tax due thereon in the sum of P428.00. Attached to this
amended return was a letter of the petitioner, dated August 11, 1958, Some American authorities hold that, especially for remedial
wherein he requested the refund of P20,624.01 which is the difference purposes, Federal taxes are debts. (Tax Commission vs. National
between the amounts of P21,052.01 he paid as income tax under his Malleable Castings Co., 35 ALR 1448)
original return and of P428.00.
In our jurisdiction, the rule is settled that although taxes already due have not,
Without waiting for the respondent's decision on this claim for refund, strictly speaking, the same concept as debts, they are, however obligations
the petitioner filed his petition for review before this Court on August that may be considered as such. (Sambrano vs. Court of Tax Appeals, G.R.
13, 1958. On July 24, 1959, the respondent denied the petitioner's no. L-8652, March 30, 1957). In a more recent case Commissioner of Internal
request for the refund of the sum of P20,624.01. Revenue vs. Prieto, G.R. No. L-13912, September 30, 1960, we explicitly
announced that while the distinction between "taxes" and "debts" was
The Commissioner of Internal Revenue now seeks the reversal of the Court of recognized in this jurisdiction, the variance in their legal conception does not
Tax Appeal's ruling on the aforementioned petition for review. Specifically, he extend to the interests paid on them, at least insofar as Section 30 (b) (1) of
takes issue with the said court's determination that the amount paid by the National Internal Revenue Code is concerned. Thus,
respondent Palanca for interest on his delinquent estate and inheritance tax is
deductible from the gross income for that year under Section 30 (b) (1) of the Under the law, for interest to be deductible, it must be shown that there
Revenue Code, and, that said respondent's claim for refund therefor has not be an indebtedness, that there should be interest upon it, and that
prescribed. what is claimed as an interest deduction should have been paid or
accrued within the year. It is here conceded that the interest paid by
On the first point, the Commissioner urges that a tax is not an indebtedness. respondent was in consequence of the late payment of her donor's
Citing American cases, he argues that there is a material and fundamental tax, and the same was paid within the year it is sought to be deducted.
distinction between a "tax" and a "debt." (Meriwether v. Garrett, 102 U.S. 427; The only question to be determined, as stated by the parties, is
Liberty Mutual Ins. Co. v. Johnson Shipyards Corporation, 5 AFTR pp. 5504, whether or not such interest was paid upon an indebtedness within the
5507; City of Camden v. Allen, 26 N.J. Law, p. 398). He adopts the view that contemplation of Section 30(b) (1) of the Tax Code, the pertinent part
"debts are due to the government in its corporate capacity, while taxes are due of which reads:
Sec. 30. Deductions from gross income — In computing net the estate and inheritance tax assessed by the same Bureau in the amount of
income there shall be allowed as deductions — P20,624.01. Actually, this second assessment by the Bureau was for the same
transaction as that for which they assessed respondent Palanca the above
xxx xxx xxx donee's gift tax. The Bureau, however, on further consideration, decided that
the donation of the stocks in question was made in contemplation of death,
and hence, should be assessed as an inheritance. Thus the second
"Interest:
assessment. The first claim was denied by the petitioner for the first time on
June 20, 1957. Thereafter, the said denial was twice reiterated, on October 14,
(1) In general. — The amount of interest paid within the 1957 and November 7, 1957, upon respondent Palanca's plea for the
taxable year on indebtedness, except on indebtedness reconsideration of the ruling of June 20, 1957. The second claim was filed with
incurred or continued to purchase or carry obligations the the Court of Tax Appeals on August 13, 1958, or even before the same had
interest upon which is exempt from taxation as income under been denied by the petitioner. Respondent Palanca's second claim was denied
this Title. by the latter on July 24, 1959.
The term "indebtedness" as used in the Tax Code of the The petitioner contends that under Section 11 of Republic Act 1124, 1 the
United States containing similar provisions as in the above- herein claimant's claim for refund has prescribed since the same was filed
quoted section has been defined as the unconditional and outside the thirty-day period provided for therein. According to the petitioner,
legally enforceable obligation for the payment of money. the said prescriptive period commenced to run on October 14, 1947 when the
(Federal Taxes Vol. 2, p. 13, 019, Prentice Hall, Inc.; Mertens' denial by the Bureau of Internal Revenue of the respondent Palanca's claim
Law of Federal Income Taxation, Vol. 4, p. 542.) Within the for refund, under his letter of November 10, 1956, became final. Considering
meaning of that definition, it is apparent that a tax may be that the case was filed with the Court of Tax Appeals only on August 13, 1958,
considered an indebtedness. . . . (Emphasis supplied) then it is urged that the same had prescribed.
"It follows that the interest paid by herein respondent for the The petitioner also invokes prescription, at least with respect to the sum of
late payment of her donor's tax is deductible from her gross P17,112.21, under Section 306 of the Tax Code. 2 He claims that for the
income under section 30 (b) of the Tax Code above-quoted." calendar year 1955, respondent Palanca paid his income tax as follows:
We do not see any element in this case which can justify a departure from or
abandonment of the doctrine in the Prieto case above. In both this and the said Taxes withheld by La Tondeña Inc. from Mr. Palanca's
case, the taxpayer sought the allowance as deductible items from the gross wages P13,172
income of the amounts paid by them as interests on delinquent tax liabilities.
Of course, what was involved in the cited case was the donor's tax while the Payment under Income Tax Receipt No. 677395 dated
present suit pertains to interest paid on the estate and inheritance tax. This May 11, 1956 3,939.89
difference, however, submits no appreciable consequence to the rationale of
this Court's previous determination that interests on taxes should be Payment under Income Tax Receipt No. 742334 dated
considered as interests on indebtedness within the meaning of Section 30(b) August 14, 1956 3,939.89
(1) of the Tax Code. The interpretation we have placed upon the said section
P21,952
was predicated on the congressional intent, not on the nature of the tax for
which the interest was paid.
Therefore, the petitioner contends, the amounts paid by claimant Palanca
On the issue of prescription: There were actually two claims for refund filed by under his withheld tax and under Receipt No. 677395 dated May 11, 1956 may
the herein respondent, Carlos Palanca, Jr., anent the case at bar. The first one no longer be refunded since the claim therefor was filed in court only on August
was on November 10, 1956, when he filed a claim for refund on the interest 13, 1958, or beyond two years of their payment.
paid by him on the donee's gift tax of P17,885.10, as originally demanded by
the Bureau of Internal Revenue. The second one was the one filed by him on We find the petitioner's contention on prescription untenable.
August 12, 1958, which was a claim for refund on the interest paid by him on
In the first place, the 30-day period under Section 11 of Republic Act 1125 did
not even commence to run in this incident. It should be recalled that while the
herein petitioner originally assessed the respondent-claimant for alleged gift
tax liabilities, the said assessment was subsequently abandoned and in its lieu,
a new one was prepared and served on the respondent-taxpayer. In this new
assessment, the petitioner charged the said respondent with an entirely new
liability and for a substantially different amount from the first. While initially the
petitioner assessed the respondent for donee's gift tax in the amount of
P170,002.74, in the subsequent assessment the latter was asked to pay
P191,591.62 for delinquent estate and inheritance tax. Considering that it is
the interest paid on this latter-assessed estate and inheritance tax that
respondent Palanca is claiming refund for, then the thirty-day period under the
abovementioned section of Republic Act 1125 should be computed from the
receipt of the final denial by the Bureau of Internal Revenue of the said claim.
As has earlier been recited, respondent Palanca's claim in this incident was
filed with the Court of Tax Appeals even before it had been denied by the
herein petitioner or the Bureau of Internal Revenue. The case was filed with
the said court on August 13, 1958 while the petitioner denied the claim subject
of the said case only on July 24, 1959.
In the second place, the claim at bar refers to the alleged overpayment by
respondent Palanca of his 1955 income tax. Inasmuch as the said account
was paid by him by installment, then the computation of the two-year
prescriptive period, under Section 306 of the National Internal Revenue Code,
should be from the date of the last installment. (Antonio Prieto, et al. vs.
Collector of Internal Revenue, G.R. No. L-11976, August 29, 1961)
Respondent Palanca paid the last installment on his 1955 income tax account
on August 14, 1956. His claim for refund of the alleged overpayment on it was
filed with the court on August 13, 1958. It was, therefore, still timely instituted.
In upholding the June 7, 1994 Resolution of the Court of Tax Appeals, the The amount of P50,000.00 was incurred as attorney's fees in
Court of Appeals held that: Newmiso the guardianship proceedings in Spec. Proc. No. 1254.
Petitioner contends that said amount are not expenses of the
2. Although the Tax Code specifies "judicial expenses of the testamentary or intestate proceedings as the guardianship
testamentary or intestate proceedings," there is no reason proceeding was instituted during the lifetime of the decedent
why expenses incurred in the administration and settlement of when there was yet no estate to be settled.
an estate in extrajudicial proceedings should not be allowed.
However, deduction is limited to such administration
Again , this contention must fail. 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
The guardianship proceeding in this case was necessary for incident to litigation incurred by the heirs in asserting their respective rights be
the distribution of the property of the deceased Pedro Pajonar. claimed as a deduction from the gross estate.[24]
As correctly pointed out by respondent CTA, the PNB was
appointed guardian over the assets of the deceased, and that Coming to the case at bar, the notarial fee paid for the extrajudicial settlement
necessarily the assets of the deceased formed part of his is clearly a deductible expense since such settlement effected a distribution of
gross estate. x x x 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
xxx.....xxx.....xxx 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
It is clear therefore that the attorney's fees incurred in the
guardianship proceeding in Spec. Proc. No. 1254 were collection of decedent's assets and the subsequent settlement of the estate.
essential to the distribution of the property to the persons
entitled thereto. Hence, the attorney's fees incurred in the We find that the Court of Appeals did not commit reversible error in affirming
guardianship proceedings in the amount of P50,000.00 the questioned resolution of the Court of Tax Appeals.
should be allowed as a deduction from the gross estate of the
decedent.[15] WHEREFORE, the December 21, 1995 Decision of the Court of Appeals is
AFFIRMED. The notarial fee for the extrajudicial settlement and the attorney's
The deductions from the gross estate permitted under section 79 of the Tax fees in the guardianship proceedings are allowable deductions from the gross
Code basically reproduced the deductions allowed under Commonwealth Act estate of Pedro Pajonar.
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 SO ORDERED.
(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] Scc-alr
The legal basis for such a procedure is the fact that in the testate or intestate
proceedings to settle the estate of a deceased person, the properties
belonging to the estate are under the jurisdiction of the court and such
jurisdiction continues until said properties have been distributed among the
heirs entitled thereto. During the pendency of the proceedings all the estate is
in custodia legis and the proper procedure is not to allow the sheriff, in case of
the court judgment, to seize the properties but to ask the court for an order to
require the administrator to pay the amount due from the estate and required
to be paid.
Another ground for denying the petition of the provincial fiscal is the fact that
the court having jurisdiction of the estate had found that the claim of the estate
against the Government has been recognized and an amount of P262,200 has
already been appropriated for the purpose by a corresponding law (Rep. Act
No. 2700). Under the above circumstances, both the claim of the Government
for inheritance taxes and the claim of the intestate for services rendered have
already become overdue and demandable is well as fully liquidated.
Compensation, therefore, takes place by operation of law, in accordance with
the provisions of Articles 1279 and 1290 of the Civil Code, and both debts are
extinguished to the concurrent amount, thus:
ART. 1200. When all the requisites mentioned in article 1279 are
present, compensation takes effect by operation of law, and
extinguished both debts to the concurrent amount, eventhough the
creditors and debtors are not aware of the compensation.
It is clear, therefore, that the petitioner has no clear right to execute the
judgment for taxes against the estate of the deceased Walter Scott Price.
Furthermore, the petition for certiorari and mandamus is not the proper
remedy for the petitioner. Appeal is the remedy.
Before this Court is a Petition for Review on Certiorari[1] under Rule 45 of the
Rules of Civil Procedure seeking the reversal of the Court of Appeals (CA) On April 27, 1990, BIR Regional Director for San Pablo City, Osmundo G.
Decision[2] dated April 30, 1999 which affirmed the Decision[3] of the Court of Umali issued Certification Nos. 2052[12] and 2053[13] stating that the taxes due
Tax Appeals (CTA) dated June 17, 1997.[4] 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]
WHEREFORE, viewed from all the foregoing, the Court finds the petition
On June 17, 1997, the CTA denied the said petition for review. Citing this unmeritorious and denies the same. Petitioner and/or the heirs of Jose P.
Court's ruling in Vda. de Oate v. Court of Appeals,[23] the CTA opined that the Fernandez are hereby ordered to pay to respondent the amount
aforementioned pieces of evidence introduced by the BIR were admissible in of P37,419,493.71 plus 20% interest from the due date of its payment until full
evidence. The CTA ratiocinated: payment thereof as estate tax liability of the estate of Jose P. Fernandez who
Although the above-mentioned documents were not formally offered as died on November 7, 1987.
evidence for respondent, considering that respondent has been declared to
have waived the presentation thereof during the hearing on March 20, 1996, SO ORDERED.[26]
still they could be considered as evidence for respondent since they were
properly identified during the presentation of respondent's witness, whose Aggrieved, petitioner, on March 2, 1998, went to the CA via a petition for
testimony was duly recorded as part of the records of this case. Besides, the review.[27]
documents marked as respondent's exhibits formed part of the BIR records of
the case.[24]
The CA's Ruling 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
On April 30, 1999, the CA affirmed the CTA's ruling. Adopting in full the CTA's remained simply part of the BIR records and were not duly incorporated in the
findings, the CA ruled that the petitioner's act of filing an estate tax return with court records; that the BIR failed to consider that although the actual payments
the BIR and the issuance of BIR Certification Nos. 2052 and 2053 did not made to the Estate creditors were lower than their respective claims, such
deprive the BIR Commissioner of her authority to re-examine or re-assess the were compromise agreements reached long after the Estate's liability had
said return filed on behalf of the Estate.[28] 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
On May 31, 1999, petitioner filed a Motion for Reconsideration[29] which the CA at the time the estate tax return was filed by the judicial administrator and the
denied in its Resolution[30] dated November 3, 1999. issuance of said BIR Certifications and not at the time the aforementioned
Compromise Agreements were entered into with the Estate's creditors.[32]
Hence, the instant Petition raising the following issues:
On the other hand, respondent counters that the documents, being part of the
1. Whether or not the admission of evidence which were not formally records of the case and duly identified in a duly recorded testimony are
offered by the respondent BIR by the Court of Tax Appeals which was considered evidence even if the same were not formally offered; that the filing
subsequently upheld by the Court of Appeals is contrary to the Rules of Court of the estate tax return by the Estate and the issuance of BIR Certification Nos.
and rulings of this Honorable Court; 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
2. Whether or not the Court of Tax Appeals and the Court of Appeals erred in by the CA may no longer be reviewed by this Court via a petition for review. [33]
recognizing/considering the estate tax return prepared and filed by respondent
BIR knowing that the probate court appointed administrator of the estate of The Issues
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; There are two ultimate issues which require resolution in this case:
3. Whether or not the Court of Tax Appeals and the Court of Appeals erred in First. Whether or not the CTA and the CA gravely erred in allowing the
disallowing the valid and enforceable claims of creditors against the estate, as admission of the pieces of evidence which were not formally offered by the
lawful deductions despite clear and convincing evidence thereof; and BIR; and
4. Whether or not the Court of Tax Appeals and the Court of Appeals erred in Second. Whether or not the CA erred in affirming the CTA in the latter's
validating erroneous double imputation of values on the very same estate determination of the deficiency estate tax imposed against the Estate.
properties in the estate tax return it prepared and filed which effectively bloated
the estate's assets.[31] The Courts Ruling
However, in People v. Napat-a [179 SCRA 403] citing People v. Mate [103 While the CTA is not governed strictly by technical rules of evidence, [45] as
SCRA 484], we relaxed the foregoing rule and allowed evidence not formally rules of procedure are not ends in themselves and are primarily intended as
offered to be admitted and considered by the trial court provided the following tools in the administration of justice, the presentation of the BIR's evidence is
requirements are present, viz.: first, the same must have been duly identified not a mere procedural technicality which may be disregarded considering that
by testimony duly recorded and, second, the same must have been it is the only means by which the CTA may ascertain and verify the truth of
incorporated in the records of the case.[40] 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
From the foregoing declaration, however, it is clear that Vda. de Oate is merely failure is aggravated by the fact that not even a single reason was advanced
an exception to the general rule. Being an exception, it may be applied only by the BIR to justify such fatal omission. This, we take against the BIR.
when there is strict compliance with the requisites mentioned therein;
Per the records of this case, the BIR was directed to present its evidence[48] in It is admitted that the claims of the Estate's aforementioned creditors have
the hearing of February 21, 1996, but BIR's counsel failed to appear. [49] The been condoned. As a mode of extinguishing an obligation, [55] condonation or
CTA denied petitioner's motion to consider BIR's presentation of evidence as remission of debt[56] is defined 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 an act of liberality, by virtue of which, without receiving any equivalent, the
the hearing of March 20, 1996, BIR's counsel failed to appear. [50] Thus, in its creditor renounces the enforcement of the obligation, which is extinguished in
Resolution[51] dated March 21, 1996, the CTA considered the BIR to have its entirety or in that part or aspect of the same to which the remission refers.
waived presentation of its evidence. In the same Resolution, the parties were It is an essential characteristic of remission that it be gratuitous, that there is
directed to file their respective memorandum. Petitioner complied but BIR no equivalent received for the benefit given; once such equivalent exists, the
failed to do so.[52] In all of these proceedings, BIR was duly notified. Hence, in nature of the act changes. It may become dation in payment when the creditor
this case, we are constrained to apply our ruling in Heirs of Pedro Pasag v. receives a thing different from that stipulated; or novation, when the object or
Parocha:[53] principal conditions of the obligation should be changed; or compromise, when
A formal offer is necessary because judges are mandated to rest their findings the matter renounced is in litigation or dispute and in exchange of some
of facts and their judgment only and strictly upon the evidence offered by the concession which the creditor receives.[57]
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 Verily, the second issue in this case involves the construction of Section
admissibility. Moreover, it facilitates review as the appellate court will not be 79[58] of the National Internal Revenue Code[59] (Tax Code) which provides for
required to review documents not previously scrutinized by the trial court. the allowable deductions from the gross estate of the decedent. The specific
question is whether the actual claims of the aforementioned creditors may be
Strict adherence to the said rule is not a trivial matter. The Court in Constantino fully allowed as deductions from the gross estate of Jose despite the fact that
v. Court of Appeals ruled that the formal offer of one's evidence is deemed the said claims were reduced or condoned through compromise agreements
waived after failing to submit it within a considerable period of time. It explained entered into by the Estate with its creditors.
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- Claims against the estate, as allowable deductions from the gross estate under
compliance with a court order which, in effect, would encourage needless Section 79 of the Tax Code, are basically a reproduction of the deductions
delays and derail the speedy administration of justice." allowed under Section 89 (a) (1) (C) and (E) of Commonwealth Act No. 466
Applying the aforementioned principle in this case, we find that the trial court (CA 466), otherwise known as the National Internal Revenue Code of 1939,
had reasonable ground to consider that petitioners had waived their right to and which was the first codification of Philippine tax laws. Philippine tax laws
make a formal offer of documentary or object evidence. Despite several were, in turn, based on the federal tax laws of the United States. Thus,
extensions of time to make their formal offer, petitioners failed to comply with pursuant to established rules of statutory construction, the decisions of
their commitment and allowed almost five months to lapse before finally American courts construing the federal tax code are entitled to great weight in
submitting it. Petitioners' failure to comply with the rule on admissibility of the interpretation of our own tax laws.[60]
evidence is anathema to the efficient, effective, and expeditious dispensation
of justice. 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
Having disposed of the foregoing procedural issue, we proceed to discuss the decedent's death which is the general rule, or the same should be adjusted to
merits of the case. 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,
Ordinarily, the CTA's findings, as affirmed by the CA, are entitled to the highest the U.S. court ruled that the appropriate deduction is the value that the claim
respect and will not be disturbed on appeal unless it is shown that the lower had at the date of the decedent's death.[62]Also, as held in Propstra v.
courts committed gross error in the appreciation of facts. [54] In this case, U.S., [63] where a lien claimed against the estate was certain and enforceable
however, we find the decision of the CA affirming that of the CTA tainted with on the date of the decedent's death, the fact that the claimant subsequently
palpable error. 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 are REVERSED and SET ASIDE. The Bureau of Internal Revenue's
material in determining the amount of the deduction. deficiency estate tax assessment against the Estate of Jose P. Fernandez is
hereby NULLIFIED. No costs.
On the other hand, the Internal Revenue Service (Service) opines that post- SO ORDERED.
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]
In this Petition for Review on Certiorari, Government action is once again II. Annul and set aside the Notices of Sale dated May 26,
assailed as precipitate and unfair, suffering the basic and oftly implored 1993;
requisites of due process of law. Specifically, the petition assails the
Decision 1of the Court of Appeals dated November 29, 1994 in CA-G.R. SP III. Enjoin the Head Revenue Executive Assistant Director II
No. 31363, where the said court held: (Collection Service), from proceeding with the Auction of the
real properties covered by Notices of Sale.
In view of all the foregoing, we rule that the deficiency
income tax assessments and estate tax assessment, are After the parties had pleaded their case, the Court of Appeals rendered its
already final and (u)nappealable-and-the subsequent levy of Decision 2 on November 29, 1994, ruling that the deficiency assessments for
real properties is a tax remedy resorted to by the estate and income tax made upon the petitioner and the estate of the
government, sanctioned by Section 213 and 218 of the deceased President Marcos have already become final and unappealable,
National Internal Revenue Code. This summary tax remedy and may thus be enforced by the summary remedy of levying upon the
is distinct and separate from the other tax remedies (such as properties of the late President, as was done by the respondent
Judicial Civil actions and Criminal actions), and is not Commissioner of Internal Revenue.
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
WHEREFORE, premises considered, judgment is hereby for Restraining Order and Injunction.
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:
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 A. RESPONDENT COURT MANIFESTLY ERRED IN
settlement of his estate, and its dues to the government in estate taxes, are RULING THAT THE SUMMARY TAX REMEDIES
still unresolved, the latter issue being now before this Court for resolution. RESORTED TO BY THE GOVERNMENT ARE NOT
Specifically, petitioner Ferdinand R. Marcos II, the eldest son of the AFFECTED AND PRECLUDED BY THE PENDENCY OF
decedent, questions the actuations of the respondent Commissioner of THE SPECIAL PROCEEDING FOR THE ALLOWANCE OF
Internal Revenue in assessing, and collecting through the summary remedy THE LATE PRESIDENT'S ALLEGED WILL. TO THE
of Levy on Real Properties, estate and income tax delinquencies upon the CONTRARY, THIS PROBATE PROCEEDING PRECISELY
estate and properties of his father, despite the pendency of the proceedings
PLACED ALL PROPERTIES WHICH FORM PART OF THE C. ON ACCOUNT OF THE CLEAR MERIT OF THE
LATE PRESIDENT'S ESTATE IN CUSTODIA LEGIS OF PETITION, RESPONDENT COURT MANIFESTLY ERRED
THE PROBATE COURT TO THE EXCLUSION OF ALL IN RULING THAT IT HAD NO POWER TO GRANT
OTHER COURTS AND ADMINISTRATIVE AGENCIES. INJUNCTIVE RELIEF TO PETITIONER. SECTION 219 OF
THE NIRC NOTWITHSTANDING, COURTS POSSESS THE
B. RESPONDENT COURT ARBITRARILY ERRED IN POWER TO ISSUE A WRIT OF PRELIMINARY
SWEEPINGLY DECIDING THAT SINCE THE TAX INJUNCTION TO RESTRAIN RESPONDENTS
ASSESSMENTS OF PETITIONER AND HIS PARENTS COMMISSIONER'S AND DE GUZMAN'S ARBITRARY
HAD ALREADY BECOME FINAL AND UNAPPEALABLE, METHOD OF COLLECTING THE ALLEGED DEFICIENCY
THERE WAS NO NEED TO GO INTO THE MERITS OF ESTATE AND INCOME TAXES BY MEANS OF LEVY.
THE GROUNDS CITED IN THE PETITION. INDEPENDENT
OF WHETHER THE TAX ASSESSMENTS HAD ALREADY The facts as found by the appellate court are undisputed, and are hereby
BECOME FINAL, HOWEVER, PETITIONER HAS THE adopted:
RIGHT TO QUESTION THE UNLAWFUL MANNER AND
METHOD IN WHICH TAX COLLECTION IS SOUGHT TO On September 29, 1989, former President Ferdinand Marcos
BE ENFORCED BY RESPONDENTS COMMISSIONER died in Honolulu, Hawaii, USA.
AND DE GUZMAN. THUS, RESPONDENT COURT
SHOULD HAVE FAVORABLY CONSIDERED THE MERITS
On June 27, 1990, a Special Tax Audit Team was created to
OF THE FOLLOWING GROUNDS IN THE PETITION: conduct investigations and examinations of the tax liabilities
and obligations of the late president, as well as that of his
(1) The Notices of Levy on Real Property family, associates and "cronies". Said audit team concluded
were issued beyond the period provided in its investigation with a Memorandum dated July 26, 1991.
the Revenue Memorandum Circular No. 38- The investigation disclosed that the Marcoses failed to file a
68. written notice of the death of the decedent, an estate tax
returns [sic], as well as several income tax returns covering
(2) [a] The numerous pending court cases the years 1982 to 1986, — all in violation of the National
questioning the late President's ownership Internal Revenue Code (NIRC).
or interests in several properties (both
personal and real) make the total value of Subsequently, criminal charges were filed against Mrs.
his estate, and the consequent estate tax Imelda R. Marcos before the Regional Trial of Quezon City
due, incapable of exact pecuniary for violations of Sections 82, 83 and 84 (has penalized under
determination at this time. Thus, Sections 253 and 254 in relation to Section 252 — a & b) of
respondents' assessment of the estate tax the National Internal Revenue Code (NIRC).
and their issuance of the Notices of Levy
and Sale are premature, confiscatory and The Commissioner of Internal Revenue thereby caused the
oppressive.
preparation and filing of the Estate Tax Return for the estate
of the late president, the Income Tax Returns of the Spouses
[b] Petitioner, as one of the late President's Marcos for the years 1985 to 1986, and the Income Tax
compulsory heirs, was never notified, much Returns of petitioner Ferdinand "Bongbong" Marcos II for the
less served with copies of the Notices of years 1982 to 1985.
Levy, contrary to the mandate of Section
213 of the NIRC. As such, petitioner was
On July 26, 1991, the BIR issued the following: (1)
never given an opportunity to contest the
Deficiency estate tax assessment no. FAC-2-89-91-002464
Notices in violation of his right to due
(against the estate of the late president Ferdinand Marcos in
process of law. the amount of P23,293,607,638.00 Pesos); (2) Deficiency
income tax assessment no. FAC-1-85-91-002452 and On May 26, 1993, additional four (4) notices of Levy on real
Deficiency income tax assessment no. FAC-1-86-91-002451 property were again issued. The foregoing tax remedies
(against the Spouses Ferdinand and Imelda Marcos in the were resorted to pursuant to Sections 205 and 213 of the
amounts of P149,551.70 and P184,009,737.40 representing National Internal Revenue Code (NIRC).
deficiency income tax for the years 1985 and 1986); (3)
Deficiency income tax assessment nos. FAC-1-82-91- In response to a letter dated March 12, 1993 sent by Atty.
002460 to FAC-1-85-91-002463 (against petitioner Loreto Ata (counsel of herein petitioner) calling the attention
Ferdinand "Bongbong" Marcos II in the amounts of P258.70 of the BIR and requesting that they be duly notified of any
pesos; P9,386.40 Pesos; P4,388.30 Pesos; and P6,376.60 action taken by the BIR affecting the interest of their client
Pesos representing his deficiency income taxes for the years Ferdinand "Bongbong" Marcos II, as well as the interest of
1982 to 1985). the late president — copies of the aforesaid notices were,
served on April 7, 1993 and on June 10, 1993, upon Mrs.
The Commissioner of Internal Revenue avers that copies of Imelda Marcos, the petitioner, and their counsel of record,
the deficiency estate and income tax assessments were all "De Borja, Medialdea, Ata, Bello, Guevarra and Serapio Law
personally and constructively served on August 26, 1991 and Office".
September 12, 1991 upon Mrs. Imelda Marcos (through her
caretaker Mr. Martinez) at her last known address at No. 204 Notices of sale at public auction were posted on May 26,
Ortega St., San Juan, M.M. (Annexes "D" and "E" of the 1993, at the lobby of the City Hall of Tacloban City. The
Petition). Likewise, copies of the deficiency tax assessments public auction for the sale of the eleven (11) parcels of land
issued against petitioner Ferdinand "Bongbong" Marcos II took place on July 5, 1993. There being no bidder, the lots
were also personally and constructively served upon him were declared forfeited in favor of the government.
(through his caretaker) on September 12, 1991, at his last
known address at Don Mariano Marcos St. corner P.
On June 25, 1993, petitioner Ferdinand "Bongbong" Marcos
Guevarra St., San Juan, M.M. (Annexes "J" and "J-1" of the II filed the instant petition for certiorari and prohibition under
Petition). Thereafter, Formal Assessment notices were Rule 65 of the Rules of Court, with prayer for temporary
served on October 20, 1992, upon Mrs. Marcos c/o
restraining order and/or writ of preliminary injunction.
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 It has been repeatedly observed, and not without merit, that the enforcement
counsel), to a conference, was furnished the counsel of Mrs. of tax laws and the collection of taxes, is of paramount importance for the
Marcos, Dean Antonio Coronel — but to no avail. 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
The deficiency tax assessments were not protested
negate the very reason for government itself. It is therefore necessary to
administratively, by Mrs. Marcos and the other heirs of the
reconcile the apparently conflicting interests of the authorities and the
late president, within 30 days from service of said taxpayers so that the real purpose of taxation, which is the promotion of the
assessments. common good, may be achieved. 3
Petitioner specifically points out that applying Memorandum Circular No. 38- xxx xxx xxx
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 (c) Any internal revenue tax which has been assessed within
beyond the allowed period, and are therefore null and void: the period of limitation above prescribed, may be collected
by distraint or levy or by a proceeding in court within three
. . . the Notices of Levy on Real Property (Annexes O to NN years following the assessment of the tax.
of Annex C of this Petition) in satisfaction of said
assessments were still issued by respondents well beyond xxx xxx xxx
the period mandated in Revenue Memorandum Circular No.
38-68. These Notices of Levy were issued only on 22
The omission to file an estate tax return, and the subsequent failure to
February 1993 and 20 May 1993 when at least seventeen contest or appeal the assessment made by the BIR is fatal to the petitioner's
(17) months had already lapsed from the last service of tax cause, as under the above-cited provision, in case of failure to file a return,
assessment on 12 September 1991. As no notices of
the tax may be assessed at any time within ten years after the omission, and
distraint of personal property were first issued by
any tax so assessed may be collected by levy upon real property within three
respondents, the latter should have complied with Revenue
years following the assessment of the tax. Since the estate tax assessment
Memorandum Circular No. 38-68 and issued these Notices
had become final and unappealable by the petitioner's default as regards
of Levy not earlier than three (3) months nor later than six (6) protesting the validity of the said assessment, there is now no reason why
months from 12 September 1991. In accordance with the the BIR cannot continue with the collection of the said tax. Any objection
against the assessment should have been pursued following the avenue mere rhetoric cannot supply the basis for the charge of impropriety of the
paved in Section 229 of the NIRC on protests on assessments of internal assessments made.
revenue taxes.
Moreover, these objections to the assessments should have been raised,
Petitioner further argues that "the numerous pending court cases questioning considering the ample remedies afforded the taxpayer by the Tax Code, with
the late president's ownership or interests in several properties (both real and the Bureau of Internal Revenue and the Court of Tax Appeals, as described
personal) make the total value of his estate, and the consequent estate tax earlier, and cannot be raised now via Petition for Certiorari, under the pretext
due, incapable of exact pecuniary determination at this time. Thus, of grave abuse of discretion. The course of action taken by the petitioner
respondents' assessment of the estate tax and their issuance of the Notices reflects his disregard or even repugnance of the established institutions for
of Levy and sale are premature and oppressive." He points out the pendency governance in the scheme of a well-ordered society. The subject tax
of Sandiganbayan Civil Case Nos. 0001-0034 and 0141, which were filed by assessments having become final, executory and enforceable, the same can
the government to question the ownership and interests of the late President no longer be contested by means of a disguised protest. In the
in real and personal properties located within and outside the Philippines. main, Certiorari may not be used as a substitute for a lost appeal or
Petitioner, however, omits to allege whether the properties levied upon by the remedy. 19 This judicial policy becomes more pronounced in view of the
BIR in the collection of estate taxes upon the decedent's estate were among absence of sufficient attack against the actuations of government.
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. On the matter of sufficiency of service of Notices of Assessment to the
The mere fact that the decedent has pending cases involving ill-gotten wealth petitioner, we find the respondent appellate court's pronouncements sound
does not affect the enforcement of tax assessments over the properties and resilient to petitioner's attacks.
indubitably included in his estate.
Anent grounds 3(b) and (B) — both alleging/claiming lack of
Petitioner also expresses his reservation as to the propriety of the BIR's total notice — We find, after considering the facts and
assessment of P23,292,607,638.00, stating that this amount deviates from circumstances, as well as evidences, that there was
the findings of the Department of Justice's Panel of Prosecutors as per its sufficient, constructive and/or actual notice of assessments,
resolution of 20 September 1991. Allegedly, this is clear evidence of the levy and sale, sent to herein petitioner Ferdinand
uncertainty on the part of the Government as to the total value of the estate "Bongbong" Marcos as well as to his mother Mrs. Imelda
of the late President. Marcos.
This is, to our mind, the petitioner's last ditch effort to assail the assessment Even if we are to rule out the notices of assessments
of estate tax which had already become final and unappealable. personally given to the caretaker of Mrs. Marcos at the
latter's last known address, on August 26, 1991 and
It is not the Department of Justice which is the government agency tasked to September 12, 1991, as well as the notices of assessment
determine the amount of taxes due upon the subject estate, but the Bureau personally given to the caretaker of petitioner also at his last
of Internal Revenue, 16 whose determinations and assessments are known address on September 12, 1991 — the subsequent
presumed correct and made in good faith. 17 The taxpayer has the duty of notices given thereafter could no longer be ignored as they
proving otherwise. In the absence of proof of any irregularities in the were sent at a time when petitioner was already here in the
performance of official duties, an assessment will not be disturbed. Even an Philippines, and at a place where said notices would surely
assessment based on estimates is prima facie valid and lawful where it does be called to petitioner's attention, and received by
not appear to have been arrived at arbitrarily or capriciously. The burden of responsible persons of sufficient age and discretion.
proof is upon the complaining party to show clearly that the assessment is
erroneous. Failure to present proof of error in the assessment will justify the Thus, on October 20, 1992, formal assessment notices were
judicial affirmance of said assessment. 18 In this instance, petitioner has not served upon Mrs. Marcos c/o the petitioner, at his office,
pointed out one single provision in the Memorandum of the Special Audit House of Representatives, Batasan Pambansa, Q.C.
Team which gave rise to the questioned assessment, which bears a trace of (Annexes "A", "A-1", "A-2", "A-3"; pp. 207-210,
falsity. Indeed, the petitioner's attack on the assessment bears mainly on the Comment/Memorandum of OSG). Moreover, a notice to
alleged improbable and unconscionable amount of the taxes charged. But
taxpayer dated October 8, 1992 inviting Mrs. Marcos to a liability arose, or if there be none, to the occupant of the
conference relative to her tax liabilities, was furnished the property in question.
counsel of Mrs. Marcos — Dean Antonio Coronel (Annex
"B", p. 211, ibid). Thereafter, copies of Notices were also xxx xxx xxx
served upon Mrs. Imelda Marcos, the petitioner and their
counsel "De Borja, Medialdea, Ata, Bello, Guevarra and
The foregoing notwithstanding, the record shows that notices of warrants of
Serapio Law Office", on April 7, 1993 and June 10, 1993.
distraint and levy of sale were furnished the counsel of petitioner on April 7,
Despite all of these Notices, petitioner never lifted a finger to 1993, and June 10, 1993, and the petitioner himself on April 12, 1993 at his
protest the assessments, (upon which the Levy and sale of office at the Batasang Pambansa. 21 We cannot therefore, countenance
properties were based), nor appealed the same to the Court
petitioner's insistence that he was denied due process. Where there was an
of Tax Appeals.
opportunity to raise objections to government action, and such opportunity
was disregarded, for no justifiable reason, the party claiming oppression then
There being sufficient service of Notices to herein petitioner becomes the oppressor of the orderly functions of government. He who
(and his mother) and it appearing that petitioner continuously comes to court must come with clean hands. Otherwise, he not only taints his
ignored said Notices despite several opportunities given him name, but ridicules the very structure of established authority.
to file a protest and to thereafter appeal to the Court of Tax
Appeals, — the tax assessments subject of this case, upon
IN VIEW WHEREOF, the Court RESOLVED to DENY the present petition.
which the levy and sale of properties were based, could no
The Decision of the Court of Appeals dated November 29, 1994 is hereby
longer be contested (directly or indirectly) via this instant AFFIRMED in all respects.
petition for certiorari. 20
SO ORDERED.
Petitioner argues that all the questioned Notices of Levy, however, must be
nullified for having been issued without validly serving copies thereof to the
petitioner. As a mandatory heir of the decedent, petitioner avers that he has
an interest in the subject estate, and notices of levy upon its properties
should have been served upon him.
After hearing the parties, the Court of Tax Appeals rendered judgment
On May 23, 1945 Atanasio Pineda died, survived by his wife, Felicisima
reversing the decision of the Commissioner on the ground that his right to
Bagtas, and 15 children, the eldest of whom is Manuel B. Pineda, a lawyer.
assess and collect the tax has prescribed. The Commissioner appealed and
Estate proceedings were had in the Court of First Instance of Manila (Case
this Court affirmed the findings of the Tax Court in respect to the assessment
No. 71129) wherein the surviving widow was appointed administratrix. The
for income tax for the year 1947 but held that the right to assess and collect
estate was divided among and awarded to the heirs and the proceedings
the taxes for 1945 and 1946 has not prescribed. For 1945 and 1946 the returns
terminated on June 8, 1948. Manuel B. Pineda's share amounted to about
were filed on August 24, 1953; assessments for both taxable years were made
P2,500.00.
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
After the estate proceedings were closed, the Bureau of Internal Revenue taxable year 1947, however, the return was filed on March 1, 1948; the
investigated the income tax liability of the estate for the years 1945, 1946, 1947 assessment was made on October 19, 1953, more than five years from the
and 1948 and it found that the corresponding income tax returns were not filed. date the return was filed; hence, the right to assess income tax for 1947 had
Thereupon, the representative of the Collector of Internal Revenue filed said prescribed. Accordingly, We remanded the case to the Tax Court for further
returns for the estate on the basis of information and data obtained from the appropriate proceedings.1
aforesaid estate proceedings and issued an assessment for the following:
In the Tax Court, the parties submitted the case for decision without additional
1. Deficiency income tax evidence.
1945 P135.83
1946 436.95 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
1947 1,206.91 P1,779.69
following taxes:
Add: 5% surcharge 88.98
Deficiency income tax
P135.8 may accrue in addition thereto upon all property and rights to property
1945 belonging to the taxpayer: . . .
3
1946 436.95
By virtue of such lien, the Government has the right to subject the property in
Real estate dealer's
Pineda's possession, i.e., the P2,500.00, to satisfy the income tax assessment
fixed tax 4th quarter of
in the sum of P760.28. After such payment, Pineda will have a right of
1946 and whole year of
contribution from his co-heirs,5 to achieve an adjustment of the proper share
1947 P187.50
of each heir in the distributable estate.
The Commissioner of Internal Revenue has appealed to Us and has proposed All told, the Government has two ways of collecting the tax in question. One,
to hold Manuel B. Pineda liable for the payment of all the taxes found by the by going after all the heirs and collecting from each one of them the amount of
Tax Court to be due from the estate in the total amount of P760.28 instead of the tax proportionate to the inheritance received. This remedy was adopted
only for the amount of taxes corresponding to his share in the in Government of the Philippine Islands v. Pamintuan, supra. In said case, the
estate.1awphîl.nèt Government filed an action against all the heirs for the collection of the tax.
This action rests on the concept that hereditary property consists only of that
Manuel B. Pineda opposes the proposition on the ground that as an heir he is part which remains after the settlement of all lawful claims against the estate,
liable for unpaid income tax due the estate only up to the extent of and in for the settlement of which the entire estate is first liable. 6 The reason why in
proportion to any share he received. He relies on Government of the Philippine case suit is filed against all the heirs the tax due from the estate is levied
Islands v. Pamintuan2 where We held that "after the partition of an estate, heirs proportionately against them is to achieve thereby two results: first, payment
and distributees are liable individually for the payment of all lawful outstanding of the tax; and second, adjustment of the shares of each heir in the distributed
claims against the estate in proportion to the amount or value of the property estate as lessened by the tax.
they have respectively received from the estate."
Another remedy, pursuant to the lien created by Section 315 of the Tax Code
We hold that the Government can require Manuel B. Pineda to pay the full upon all property and rights to property belonging to the taxpayer for unpaid
amount of the taxes assessed. 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
Pineda is liable for the assessment as an heir and as a holder-transferee of remedy is the very avenue the Government took in this case to collect the tax.
property belonging to the estate/taxpayer. As an heir he is individually The Bureau of Internal Revenue should be given, in instances like the case at
answerable for the part of the tax proportionate to the share he received from bar, the necessary discretion to avail itself of the most expeditious way to
the inheritance.3 His liability, however, cannot exceed the amount of his collect the tax as may be envisioned in the particular provision of the Tax Code
share.4 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
As a holder of property belonging to the estate, Pineda is liable for he tax up the suit seeks to achieve only one objective: payment of the tax. The
to the amount of the property in his possession. The reason is that the adjustment of the respective shares due to the heirs from the inheritance, as
Government has a lien on the P2,500.00 received by him from the estate as lessened by the tax, is left to await the suit for contribution by the heir from
his share in the inheritance, for unpaid income taxes4a for which said estate is whom the Government recovered said tax.
liable, pursuant to the last paragraph of Section 315 of the Tax Code, which
we quote hereunder: WHEREFORE, the decision appealed from is modified. Manuel B. Pineda is
hereby ordered to pay to the Commissioner of Internal Revenue the sum of
If any person, corporation, partnership, joint-account (cuenta en P760.28 as deficiency income tax for 1945 and 1946, and real estate dealer's
participacion), association, or insurance company liable to pay the fixed tax for the fourth quarter of 1946 and for the whole year 1947, without
income tax, neglects or refuses to pay the same after demand, the prejudice to his right of contribution for his co-heirs. No costs. So ordered.
amount shall be a lien in favor of the Government of the Philippines
from the time when the assessment was made by the Commissioner Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro,
of Internal Revenue until paid with interest, penalties, and costs that Angeles and Fernando, JJ., concur.
G.R. No. 149909 October 11, 2007 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
TERESA, MARIA CHRISTINA, GENARO III, MARIA LUISA, CRISPIN JR., Php648,000.00 representing the compensation of Atty. Gabriel as the executor
VINCENT and RASCHEL, all surnamed GABRIEL, petitioners, of the last will and testament; and (2) the court's insistence to hear
vs. respondents' allegation of non-payment of taxes resulting from the sale of the
HON. COURT OF APPEALS, EMMA, CORAZON and RAMONA, all properties located at Quiapo, Manila, for which reason the compensation of
surnamed RONQUILLO, respondents. Atty. Gabriel should not be released until resolution by the probate court on
this matter.9
DECISION
In the meantime, the parties came to an agreement to divide the amount
NACHURA, J.: deposited in court. Petitioners received Php284,400.00, and thus, there still
remained a balance of Php363,600.00.10
Before the Court is a petition for review on certiorari,1 questioning
On May 25, 2001, the first questioned Resolution11 was rendered by the CA,
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 the pertinent portion of which reads:
CHRISTINA, GENARO III, MARIA LUISA, CRISPIN JR., VINCENT and
RASCHEL, all surnamed GABRIEL v. HON. REGIONAL TRIAL COURT OF An examination of the instant petition for certiorari, prohibition and
PASIG CITY, EMMA, CORAZON and RAMONA, all surnamed RONQUILLO." mandamus reveals that:
Petitioners are the heirs of the late Atty. Crispin F. Gabriel (Atty. Gabriel), who 1. The verification and certification of non-forum shopping was
was designated as the sole executor of the last will and testament of the signed by only one (Teresa S. Gabriel) of the seven
deceased Genaro G. Ronquillo (Ronquillo) whose will was probated in 1978 petitioners, and there is no showing or proof that she was duly
before the Regional Trial Court of Pasig City in Sp. Proc. No. 8857.3 On the authorized to sign on behalf of her co-petitioners; and
other hand, respondents are the heirs of the testator Ronquillo.
2. There is no written explanation why copies of the petition
On July 26, 1993, the probate court issued an Order4 fixing the amount of had to be furnished the respondents by way of registered mail
compensation of Atty. Gabriel as executor in the amount of Php426,000.00 as rather than through the preferred personal service.
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 WHEREFORE, premises considered, for being insufficient in form and
has been no final liquidation of the Ronquillo estate. Upon the death of Atty. substance pursuant to Section 1, 2 & 3, par. 2, Rule 65, in relation to
Gabriel on March 19, 1998, his uncollected compensation reached Section 3 pars. 3 & 5, Rule 46 and Section 11, Rule 13 both of the
Php648,000.00.5 1997 Rules of Civil Procedure, the petition for certiorari, prohibition
and mandamus is hereby DENIED DUE COURSE and
While still acting as executor, Atty. Gabriel, with prior approval of the probate accordingly DISMISSED.
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 SO ORDERED.12
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 On September 11, 2001, the second assailed Resolution13 was issued by the
compensation of Atty. Gabriel. Allegedly, to prevent the release of the CA, the relevant portion of which reads:
compensation, respondents filed a notice with the probate court that there was
a pending tax investigation with the Bureau of Internal Revenue concerning
For failure of petitioners to cure the defects that resulted in the
unpaid taxes of the estate from the sale of the land.7 dismissal of their petition, per Resolution dated May 25, 2001, the
"Motion for Reconsideration" of the Resolution dated June 6, 2001, is
On April 3, 2001, petitioners filed a Petition for Certiorari, Prohibition and hereby DENIED for lack of merit.
Mandamus with Preliminary Injunction and Prayer for Temporary Restraining
SO ORDERED. verification and certification signed only by Teresa are utterly defective, and it
is within the prerogative of the court to dismiss the petition.
Petitioners presented the following issues in their Memorandum: 1) whether
there was substantial compliance with the certification of non-forum shopping As aptly stated in Ortiz v. CA,22 substantial compliance will not suffice in a
before the CA; 2) whether the written explanation of why personal service was matter involving strict observance. The attestation contained in the certification
not done is a mandatory requirement in pleadings filed before the CA; 3) of non-forum shopping requires personal knowledge by the party who
whether the remaining balance of compensation of Atty. Gabriel should be executed the same. To deserve the Court's consideration, petitioners must
released; and 4) whether the probate court can take cognizance of the tax show reasonable cause for failure to personally sign the certification. They
controversies.14 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
The petition is devoid of merit. The CA committed no reversible error in issuing explanation to warrant their exemption from the strict application of the rule.
the assailed Resolutions. Downright disregard of the rules cannot justly be rationalized by harking on the
policy of liberal construction.23
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 On the second issue, the written explanation why another mode of service was
in the complaint or other initiatory pleading the requirements as mandated resorted to is a mandatory and indispensable requirement in pleadings or
under Section 5, Rule 7.15 The said requirements are mandatory, and papers filed before all the courts of the land. Parties must exert their best to
therefore, strict compliance thereof is necessary for the proper administration effect personal service. The Rules of Court24 provides that personal service of
of justice. 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
In the petition filed by the petitioners in the CA, the verification and the
for the denial of the petition or the expulsion of the pleading from the records.
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 This Court will no longer dwell on the third issue because it is a matter that
the mother of the rest of the petitioners, should be considered as substantial should be ventilated before the probate court.
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 As to the fourth issue, the probate court can rightfully take cognizance of the
signatory in the certification.18 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
In numerous decisions,19 this Court has been consistent in stringently
enforcing the requirement of verification20and certification of non-forum Finally, petitioners should bear in mind that the right to appeal is not a natural
shopping. When there is more than one petitioner, a petition signed solely by right or a part of due process. It is merely a statutory privilege, and may be
one of them is defective, unless he was authorized by his co-parties to exercised only in the manner and in accordance with the provisions of the law.
represent them and to sign the certification. The attestation contained in the The party who seeks to avail of the remedy of appeal must comply with the
certification of non-forum shopping requires personal knowledge by the party requirements of the rules; otherwise, the appeal is lost. Rules of procedure are
who executed the same.21 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
In the instant case, the records are bereft of anything that would show that with the degree of his thoughtlessness in not complying with the procedure
Teresa was authorized by the other petitioners to file the petition. In the prescribed.28
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 WHEREFORE, in view of the foregoing, the petition is DENIED for lack of
requirements shall not be curable by amendment but shall be a ground for the merit. The Resolutions of the Court of Appeals dated May 25, 2001 and
dismissal of the case. Personal knowledge of the party executing the same is September 11, 2001 are hereby AFFIRMED. Costs against petitioners.
important and a similar requirement applies to the verification. Thus, the
SO ORDERED.
[G.R. No. 120721. February 23, 2005] apply whether the transfer is in trust or otherwise, whether the gift is direct or
indirect, and whether the property is real or personal, tangible or intangible.
This is a petition for review on certiorari under Rule 45 of the Rules of In the instant case, the contributions are voluntary transfers of property in the
Civil Procedure, assailing the decision of the Court of Appeals in CA G.R. SP form of money from private respondents to Sen. Angara, without
No. 27134, entitled Comissioner of Internal Revenue v. Manuel G. Abello, Jose considerations therefor. Hence, they squarely fall under the definition of
C. Concepcion, Teodoro D. Regala, Avelino V. Cruz and Court of Tax Appeals, donation or gift.
which reversed and set aside the decision of the Court of Tax Appeals (CTA),
ordering the Commissioner of Internal Revenue (Commissioner) to withdraw
his letters dated April 21, 1988 and August 4, 1988 assessing donors taxes As correctly pointed out by the Solicitor General:
and to desist from collecting donors taxes from petitioners.
The fact that the contributions were given to be used as campaign funds of
During the 1987 national elections, petitioners, who are partners in the Sen. Angara does not affect the character of the fund transfers as donation
Angara, Abello, Concepcion, Regala and Cruz (ACCRA) law firm, or gift. There was thereby no retention of control over the disposition of the
contributed P882,661.31 each to the campaign funds of Senator Edgardo contributions. There was simply an indication of the purpose for which they
Angara, then running for the Senate. In letters dated April 21, 1988, the Bureau were to be used. For as long as the contributions were used for the purpose
of Internal Revenue (BIR) assessed each of the petitioners P263,032.66 for for which they were intended, Sen. Angara had complete and absolute power
their contributions. On August 2, 1988, petitioners questioned the assessment to dispose of the contributions. He was fully entitled to the economic benefits
through a letter to the BIR. They claimed that political or electoral contributions of the contributions.
are not considered gifts under the National Internal Revenue Code (NIRC),
and that, therefore, they are not liable for donors tax. The claim for exemption Section 91 of the Tax Code is very clear. A donors or gift tax is imposed on
was denied by the Commissioner.[1] the transfer of property by gift.
On September 12, 1988, petitioners filed a petition for review with the
CTA, which was decided on October 7, 1991 in favor of the petitioners. As The Bureau of Internal Revenue issued Ruling No. 344 on July 20, 1988,
aforestated, the CTA ordered the Commissioner to desist from collecting which reads:
donors taxes from the petitioners.[2]
On appeal, the Court of Appeals reversed and set aside the CTA decision Political Contributions. For internal revenue purposes, political contributions
on April 20, 1994.[3] The appellate Court ordered the petitioners to pay donors in the Philippines are considered taxable gift rather than taxable income. This
tax amounting to P263,032.66 each, reasoning as follows: is so, because a political contribution is indubitably not intended by the giver
or contributor as a return of value or made because of any intent to repay
another what is his due, but bestowed only because of motives of
The National Internal Revenue Code, as amended, provides: philanthropy or charity. His purpose is to give and to bolster the morals, the
winning chance of the candidate and/or his party, and not to employ or buy.
Sec. 91. Imposition of Tax. (a) There shall be levied, assessed, collected, On the other hand, the recipient-donee does not regard himself as
and paid upon the transfer by any person, resident, or non-resident, of the exchanging his services or his product for the money contributed. But more
property by gift, a tax, computed as provided in Section 92. (b) The tax shall importantly he receives financial advantages gratuitously.
When the U.S. gift tax law was adopted in the Philippines (before May 7, 5. DID THE HONORABLE COURT OF APPEALS ERR IN NOT
1974), the taxability of political contributions was, admittedly, an unsettled CONSIDERING THE AMERICAN JURISPRUDENCE RELIED
issue; hence, it cannot be presumed that the Philippine Congress then had UPON BY THE COURT OF TAX APPEALS AND BY THE
intended to consider or treat political contributions as non-taxable gifts when PETITIONERS TO THE EFFECT THAT POLITICAL
it adopted the said gift tax law. Moreover, well-settled is the rule that the CONTRIBUTIONS ARE NOT TAXABLE GIFTS?
Philippines need not necessarily adopt the present rule or construction in the
United States on the matter. Generally, statutes of different states relating to 6. DID THE HONORABLE COURT OF APPEALS ERR IN NOT
the same class of persons or things or having the same purposes are not APPLYING AMERICAN JURISPRUDENCE ON THE
considered to be in pari materia because it cannot be justifiably presumed GROUND THAT THIS WAS NOT KNOWN AT THE TIME THE
that the legislature had them in mind when enacting the provision being PHILIPPINES GIFT TAX LAW WAS ADOPTED IN 1939?
construed. (5206, Sutherland, Statutory Construction, p. 546.) Accordingly, in 7. DID THE HONORABLE COURT OF APPEALS ERR IN
the absence of an express exempting provision of law, political contributions RESOLVING THE CASE MAINLY ON THE BASIS OF A
in the Philippines are subject to the donors gift tax. (cited in National Internal RULING ISSUED BY THE RESPONDENT ONLY AFTER THE
Revenue Code Annotated by Hector S. de Leon, 1991 ed., p. 290). ASSESSMENTS HAD ALREADY BEEN MADE?
In the light of the above BIR Ruling, it is clear that the political contributions 8. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT
of the private respondents to Sen. Edgardo Angara are taxable gifts. The DID NOT CONSTRUE THE GIFT TAX LAW LIBERALLY IN
vagueness of the law as to what comprise the gift subject to tax was made FAVOR OF THE TAXPAYER AND STRICLTY AGAINST THE
concrete by the above-quoted BIR ruling. Hence, there is no doubt that GOVERNMENT IN ACCORDANCE WITH APPLICABLE
political contributions are taxable gifts.[4] PRINCIPLES OF STATUTORY CONSTRUCTION?[6]
Fourth Issue Finally, this Court takes note of the fact that subsequent to the donations
involved in this case, Congress approved Republic Act No. 7166 on November
25, 1991, providing in Section 13 thereof that political/electoral contributions,
Petitioners raise the fact that since 1939 when the first Tax Code was duly reported to the Commission on Elections, are not subject to the payment
enacted, up to 1988 the BIR never attempted to subject political contributions of any gift tax. This all the more shows that the political contributions herein
to donors tax. They argue that: made are subject to the payment of gift taxes, since the same were made prior
to the exempting legislation, and Republic Act No. 7166 provides no retroactive
. . . It is a familiar principle of law that prolonged practice by the government effect on this point.
agency charged with the execution of a statute, acquiesced in and relied WHEREFORE, the petition is DENIED and the assailed Decision and
upon by all concerned over an appreciable period of time, is an authoritative Resolution of the Court of Appeals are AFFIRMED.
interpretation thereof, entitled to great weight and the highest respect. . . .[12]
No costs.
This Court holds that the BIR is not precluded from making a new SO ORDERED.
interpretation of the law, especially when the old interpretation was flawed. It
is a well-entrenched rule that
Seventh Issue
Petitioners question the fact that the Court of Appeals decision is based
on a BIR ruling, namely BIR Ruling No. 88-344, which was issued after the
petitioners were assessed for donors tax. This Court does not need to delve
EN BANC
These four (4) petitions which have been consolidated because of the similarity
[G.R. No. L-81311. June 30, 1988.] of the main issues involved therein, seek to nullify Executive Order No. 273
(EO 273, for short), issued by the President of the Philippines on 25 July 1987,
KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS, to take effect on 1 January 1988, and which amended certain sections of the
INC., HERMINIGILDO C. DUMLAO, GERONIMO Q. QUADRA, and MARIO National Internal Revenue Code and adopted the value-added tax (VAT, for
C. VILLANUEVA, Petitioners, v. HON. BIENVENIDO TAN, as Commissioner short), for being unconstitutional in that its enactment is not allegedly within
of Internal Revenue, Respondent. the powers of the President; that the VAT is oppressive, discriminatory,
regressive, and violates the due process and equal protection clauses and
[G.R. No. L-81820.] other provisions of the 1987 Constitution.
KILUSANG MAYO UNO LABOR CENTER (KMU), its officers and affiliated The Solicitor General prays for the dismissal of the petitions on the ground that
labor federations and alliances, Petitioners, v. THE EXECUTIVE the petitioners have failed to show justification for the exercise of its judicial
SECRETARY, SECRETARY OF FINANCE, THE COMMISSIONER OF powers, viz. (1) the existence of an appropriate case; (2) an interest, personal
INTERNAL REVENUE, and SECRETARY OF BUDGET, Respondents. and substantial, of the party raising the constitutional questions; (3) the
constitutional question should be raised at the earliest opportunity; and (4) the
[G.R. No. L-81921.] question of constitutionality is directly and necessarily involved in a justiciable
controversy and its resolution is essential to the protection of the rights of the
INTEGRATED CUSTOMS BROKERS ASSOCIATION OF THE PHILIPPINES parties. According to the Solicitor General, only the third requisite — that the
and JESUS B. BANAL, Petitioners, v. The HON. COMMISSIONER, BUREAU constitutional question should be raised at the earliest opportunity — has been
OF INTERNAL REVENUE, Respondent. complied with. He also questions the legal standing of the petitioners who, he
contends, are merely asking for an advisory opinion from the Court, there
[G.R. No. L-82152.] being no justiciable controversy for resolution.
RICARDO C. VALMONTE, Petitioner, v. THE EXECUTIVE SECRETARY, Objections to taxpayer’s suit for lack of sufficient personality standing, or
SECRETARY OF FINANCE, COMMISSIONER OF INTERNAL REVENUE interest are, however, in the main procedural matters. Considering the
and SECRETARY OF BUDGET, Respondents. importance to the public of the cases at bar, and in keeping with the Court’s
duty, under the 1987 Constitution, to determine whether or not the other
Franklin S. Farolan for petitioner Kapatiran in G.R. No. 81311. branches of government have kept themselves within the limits of the
Constitution and the laws and that they have not abused the discretion given
Jaime C. Opinion for individual petitioner in G.R. No. 81311. to them, the Court has brushed aside technicalities of procedure and has taken
cognizance of these petitions.chanrobles.com.ph : virtual law library
Banzuela Flores, Miralles, Rañeses, Sy, Taquio and Associates for petitioners
in G.R. No. 81820. But, before resolving the issues raised, a brief look into the tax law in question
is in order.
Union of Lawyers and Advocates for Peoples Right collaborating counsel for
petitioners in G.R. No. 81820. The VAT is a tax levied on a wide range of goods and services. It is a tax on
the value, added by every seller, with aggregate gross annual sales of articles
Jose C. Leabres and Joselito R. Enriquez for petitioners in G.R. No. 81921. and/or services, exceeding P200,000.00, to his purchase of goods and
services, unless exempt. VAT is computed at the rate of 0% or 10% of the
gross selling price of goods or gross receipts realized from the sale of services.
DECISION
The VAT is said to have eliminated privilege taxes, multiple rated sales tax on
manufacturers and producers, advance sales tax, and compensating tax on
PADILLA, J.: importations. The framers of EO 273 claim that it is principally aimed to
rationalize the system of taxing goods and services; simplify tax administration;
and make the tax system more equitable, to enable the country to attain Petitioner Valmonte claims, additionally, that Congress was really convened
economic recovery. on 30 June 1987 (not 27 July 1987). He contends that the word "convene" is
synonymous with "the date when the elected members of Congress assumed
The VAT is not entirely new. It was already in force, in a modified form, before office."cralaw virtua1aw library
EO 273 was issued. As pointed out by the Solicitor General, the Philippine
sales tax system, prior to the issuance of EO 273, was essentially a single The contention is without merit. The word "convene" which has been
stage value added tax system computed under the "cost subtraction method" interpreted to mean "to call together, cause to assemble, or convoke," 1 is
or "cost deduction method" and was imposed only on original sale, barter or clearly different from assumption of office by the individual members of
exchange of articles by manufacturers, producers, or importers. Subsequent Congress or their taking the oath of office. As an example, we call to mind the
sales of such articles were not subject to sales tax. However, with the issuance interim National Assembly created under the 1973 Constitution, which had not
of PD 1991 on 31 October 1985, a 3% tax was imposed on a second sale, been "convened" but some members of the body, more particularly the
which was reduced to 1.5% upon the issuance of PD 2006 on 31 December delegates to the 1971 Constitutional Convention who had opted to serve
1985, to take effect 1 January 1986. Reduced sales taxes were imposed not therein by voting affirmatively for the approval of said Constitution, had taken
only on the second sale, but on every subsequent sale, as well. EO 273 merely their oath of office.chanrobles.com.ph : virtual law library
increased the VAT on every sale to 10%, unless zero-rated or exempt.
To uphold the submission of petitioner Valmonte would stretch the definition
Petitioners first contend that EO 273 is unconstitutional on the ground that the of the word "convene" a bit too far. It would also defeat the purpose of the
President had no authority to issue EO 273 on 25 July 1987. framers of the 1987 Constitution and render meaningless some other
provisions of said Constitution. For example, the provisions of Art. VI, sec. 15,
The contention is without merit. requiring Congress to convene once every year on the fourth Monday of July
for its regular session would be a contrariety, since Congress would already
It should be recalled that under Proclamation No. 3, which decreed a be deemed to be in session after the individual members have taken their oath
Provisional Constitution, sole legislative authority was vested upon the of office. A portion of the provisions of Art. VII, sec. 10, requiring Congress to
President. Art. II, sec. 1 of the Provisional Constitution convene for the purpose of enacting a law calling for a special election to elect
states:jgc:chanrobles.com.ph a President and Vice-President in case a vacancy occurs in said offices, would
also be a surplusage. The portion of Art. VII, sec. 11, third paragraph, requiring
"Sec. 1. Until a legislature is elected and convened under a new Constitution, Congress to convene, if not in session, to decide a conflict between the
the President shall continue to exercise legislative powers."cralaw virtua1aw President and the Cabinet as to whether or not the President can re-assume
library the powers and duties of his office, would also be redundant. The same is true
with that portion of Art. VII, sec. 18, which requires Congress to convene within
On 15 October 1986, the Constitutional Commission of 1986 adopted a new twenty-four (24) hours following the declaration of martial law or the
Constitution for the Republic of the Philippines which was ratified in a plebiscite suspension of the privilege of the writ of habeas corpus.
conducted on 2 February 1987. Article XVIII, sec. 6 of said Constitution,
hereafter referred to as the 1987 Constitution, provides:jgc:chanrobles.com.ph The 1987 Constitution mentions a specific date when the President loses her
power to legislate. If the framers of said Constitution had intended to terminate
"Sec. 6. The incumbent President shall continue to exercise legislative powers the exercise of legislative powers by the President at the beginning of the term
until the first Congress is convened."cralaw virtua1aw library of office of the members of Congress, they should have so stated (but did not)
in clear and unequivocal terms. The Court has no power to re-write the
It should be noted that, under both the Provisional and the 1987 Constitutions, Constitution and give it a meaning different from that intended.
the President is vested with legislative powers until a legislature under a new
Constitution is convened. The first Congress, created and elected under the The Court also finds no merit in the petitioners’ claim that EO 273 was issued
1987 Constitution, was convened on 27 July 1987. Hence, the enactment of by the President in grave abuse of discretion amounting to lack or excess of
EO 273 on 25 July 1987, two (2) days before Congress convened on 27 July jurisdiction. "Grave abuse of discretion" has been defined, as
1987, was within the President’s constitutional power and authority to legislate. follows:jgc:chanrobles.com.ph
"‘Grave abuse of discretion’ implies such capricious and whimsical exercise of and uniformity in taxation means that all taxable articles or kinds of property of
judgment as is equivalent to lack of jurisdiction (Abad Santos v. Province of the same class shall be taxed at the same rate. The taxing power has the
Tarlac, 38 Off Gaz. 834), or, in other words, where the power is exercised in authority to make reasonable and natural classifications for purposes of
an arbitrary or despotic manner by reason of passion or personal hostility, and taxation; . . .’ About two years later, Justice Tuason, speaking for this Court in
it must be so patent and gross as to amount to an evasion of positive duty or Manila Race Horses Trainers Assn. v. de la Fuente (88 Phil. 60, 65)
to a virtual refusal to perform the duty enjoined or to act at all in contemplation incorporated the above excerpt in his opinion and continued; ‘Taking
of law. (Tavera-Luna, Inc. v. Nable, 38 Off. Gaz. 62)." 2 everything into account, the differentiation against which the plaintiffs complain
conforms to the practical dictates of justice and equity and is not discriminatory
Petitioners have failed to show that EO 273 was issued capriciously and within the meaning of the Constitution.’
whimsically or in an arbitrary or despotic manner by reason of passion or
personal hostility. It appears that a comprehensive study of the VAT was made "To satisfy this requirement then, all that is needed as held in another case
before EO 273 was issued. In fact, the merits of the VAT had been extensively decided two years later, (Uy Matias v. City of Cebu, 93 Phil. 300) is that the
discussed by its framers and other government agencies involved in its statute or ordinance in question ‘applies equally to all persons, firms and
implementation, even under the past administration. As the Solicitor General corporations placed in similar situation.’ This Court is on record as accepting
correctly stated. "The signing of E.O. 273 was merely the last stage in the the view in a leading American case (Carmichael v. Southern Coal and Coke
exercise of her legislative powers. The legislative process started long before Co., 301 US 495) that ‘inequalities which result from a singling out of one
the signing when the data were gathered, proposals were weighed and the particular class for taxation or exemption infringe no constitutional limitation.’
final wordings of the measure were drafted, revised and finalized. Certainly, it (Lutz v. Araneta, 98 Phil. 148, 153)."cralaw virtua1aw library
cannot be said that the President made a jump, so to speak, on the Congress,
two days before it convened." 3 The sales tax adopted in EO 273 is applied similarly on all goods and services
sold to the public, which are not exempt, at the constant rate of 0% or
Next, the petitioners claim that EO 273 is oppressive, discriminatory, unjust 10%.chanrobles virtual lawlibrary
and regressive, in violation of the provisions of Art. VI, sec. 28(1) of the 1987
Constitution, which states:jgc:chanrobles.com.ph The disputed sales tax is also equitable. It is imposed only on sales of goods
or services by persons engage in business with an aggregate gross annual
"Sec. 28. (1) The rule of taxation shall be uniform and equitable. The Congress sales exceeding P200,000.00. Small corner sari-sari stores are consequently
shall evolve a progressive system of taxation."cralaw virtua1aw library exempt from its application. Likewise exempt from the tax are sales of farm
and marine products, so that the costs of basic food and other necessities,
The petitioners’ assertions in this regard are not supported by facts and spared as they are from the incidence of the VAT, are expected to be relatively
circumstances to warrant their conclusions. They have failed to adequately lower and within the reach of the general public. 6
show that the VAT is oppressive, discriminatory or unjust. Petitioners merely
rely upon newspaper articles which are actually hearsay and have no The Court likewise finds no merit in the contention of the petitioner Integrated
evidentiary value. To justify the nullification of a law, there must be a clear and Customs Brokers Association of the Philippines that EO 273, more particularly
unequivocal breach of the Constitution, not a doubtful and argumentative the new Sec. 103(r) of the National Internal Revenue Code, unduly
implication. 4 discriminates against customs brokers. The contested provision
states:jgc:chanrobles.com.ph
As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is
uniform. The Court, in City of Baguio v. De Leon, 5 said:jgc:chanrobles.com.ph "Sec. 103. Exempt transactions. — The following shall be exempt from the
value-added tax:chanrob1es virtual 1aw library
". . . In Philippine Trust Company v. Yatco (69 Phil. 420), Justice Laurel, x x x
speaking for the Court, stated: ‘A tax is considered uniform when it operates
with the same force and effect in every place where the subject may be found.’
"(r) Service performed in the exercise of profession or calling (except customs
"There was no occasion in that case to consider the possible effect on such a brokers) subject to the occupation tax under the Local Tax Code, and
constitutional requirement where there is a classification. The opportunity professional services performed by registered general professional
came in Eastern Theatrical Co. v. Alfonso (83 Phil. 852, 862). Thus: ‘Equality partnerships;"
political branches of the government. The Court, following the time-honored
The phrase "except customs brokers" is not meant to discriminate against doctrine of separation of powers, cannot substitute its judgment for that of the
customs brokers. It was inserted in Sec. 103(r) to complement the provisions President as to the wisdom, justice and advisability of the adoption of the VAT.
of Sec. 102 of the Code which makes the services of customs brokers subject The Court can only look into and determine whether or not EO 273 was
to the payment of the VAT and to distinguish customs brokers from other enacted and made effective as law, in the manner required by, and consistent
professionals who are subject to the payment of an occupation tax under the with, the Constitution, and to make sure that it was not issued in grave abuse
Local Tax Code. Pertinent provisions of Sec. 102 read:jgc:chanrobles.com.ph of discretion amounting to lack or excess of jurisdiction; and, in this regard, the
Court finds no reason to impede its application or continued implementation.
"Sec. 102. Value-added tax on sale of services. — There shall be levied,
assessed and collected, a value-added tax equivalent to 10% percent of gross WHEREFORE, the petitions are DISMISSED. Without pronouncement as to
receipts derived by any person engaged in the sale of services. The phrase costs.
sale of services’ means the performance of all kinds of services for others for
a fee, remuneration or consideration, including those performed or rendered SO ORDERED.
by construction and service contractors; stock, real estate, commercial,
customs and immigration brokers; lessors of personal property; lessors or
distributors of cinematographic films; persons engaged in milling, processing,
manufacturing or repacking goods for others; and similar services regardless
of whether or not the performance thereof calls for the exercise or use of the
physical or mental faculties: . . ."cralaw virtua1aw library
With the insertion of the clarificatory phrase "except customs brokers" in Sec.
103(r), a potential conflict between the two sections, (Secs. 102 and 103),
insofar as customs brokers are concerned, is averted.
At any rate, the distinction of the customs brokers from the other professionals
who are subject to occupation tax under the Local Tax Code is based upon
material differences, in that the activities of customs brokers (like those of
stock, real estate and immigration brokers) partake more of a business, rather
than a profession and were thus subjected to the percentage tax under Sec.
174 of the National Internal Revenue Code prior to its amendment by EO 273.
EO 273 abolished the percentage tax and replaced it with the VAT. If the
petitioner Association did not protest the classification of customs brokers
then, the Court sees no reason why it should protest now.
The Court takes note that EO 273 has been in effect for more than five (5)
months now, so that the fears expressed by the petitioners that the adoption
of the VAT will trigger skyrocketing of prices of basic commodities and
services, as well as mass actions and demonstrations against the VAT should
by now be evident. The fact that nothing of the sort has happened shows that
the fears and apprehensions of the petitioners appear to be more imagined
than real. It would seem that the VAT is not as bad as we are made to
believe.chanrobles.com:cralaw:red
In any event, if petitioners seriously believe that the adoption and continued
application of the VAT are prejudicial to the general welfare or the interests of
the majority of the people, they should seek recourse and relief from the