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COMMISSIONER OF INTERNAL REVENUE 421 SCRA 266 (2004) FACTS During the lifetime of the decedent, Juliana Vda. De Gabriel, her business affairs were managed by the Philippine Trust Company (Philtrust . The decedent died on !pril ", #$%$. Two days after her death, Philtrust, through its Trust &fficer, !tty. !ntonio '. (uyles, filed her )ncome Ta* +eturn for #$%,. The return did not indicate that the decedent had died. &n 'ay --, #$%$, Philtrust also filed a .erified petition for appointment as /pecial !dministrator with the +egional Trial Court of 'anila, 0ranch 111V))), doc2eted as /p. Proc. (o. +3,-34$$5. The court a 6uo appointed one of the heirs as /pecial !dministrator. Philtrusts motion for reconsideration was denied by the probate court. )n the meantime, the 0ureau of )nternal +e.enue conducted an administrati.e in.estigation on the decedent s ta* liability and found a deficiency income ta* for the year #$%% in the amount of P"#,,-"".$". Thus, on (o.ember #,, #$,-, the 0)+ sent by registered mail a demand letter and !ssessment (otice (o. (!+D3%,3,-37787# addressed to the decedent 9c:o Philippine Trust Company, /ta. Cru;, 'anila9 which was the address stated in her #$%, )ncome Ta* +eturn. (o response was made by Philtrust. The 0)+ was not informed that the decedent had actually passed away. &n June #,, #$,5, respondent Commissioner of )nternal +e.enue issued warrants of distraint and le.y to enforce collection of the decedent s deficiency income ta* liability, which were ser.ed upon her heir, <rancisco Gabriel. &n (o.ember --, #$,5, respondent filed a 9'otion for !llowance of Claim and for an &rder of Payment of Ta*es9 with the court a 6uo. &n January %, #$,8, 'r. !mbrosio filed a letter of protest with the =itigation Di.ision of the 0)+, which was not acted upon because the assessment notice had allegedly become final, e*ecutory and incontestable. ISSUES >hether or not the Court of !ppeals erred in holding that the ser.ice of deficiency ta* assessment against Juliana Die; Vda. de Gabriel through the Philippine Trust Company was a .alid ser.ice in order to bind the ?state@ and >hether or not the Court of !ppeals erred in holding that the deficiency ta* assessment and final demand was already final, e*ecutory and incontestable. HELD

The first point to be considered is that the relationship between the decedent and Philtrust was one of agency, which is a personal relationship between agent and principal. Ander !rticle #$#$ (" of the Ci.il Code, death of the agent or principal automatically terminates the agency. )n this instance, the death of the decedent on !pril ", #$%$ automatically se.ered the legal relationship between her and Philtrust, and such could not be re.i.ed by the mere fact that Philtrust continued to act as her agent when, on !pril 8, #$%$, it filed her )ncome Ta* +eturn for the year #$%,. /ince the relationship between Philtrust and the decedent was automatically se.ered at the moment of the Ta*payer s death, none of Philtrusts acts or omissions could bind the estate of the Ta*payer. /er.ice on Philtrust of the demand letter and !ssessment (otice (o. (!+D3%,3,-37787# was improperly done. )t must be noted that Philtrust was ne.er appointed as the administrator of the ?state of the decedent, and, indeed, that the court a 6uo twice reBected Philtrusts motion to be thus appointed. !s of (o.ember #,, #$,-, the date of the demand letter and !ssessment (otice, the legal relationship between the decedent and Philtrust had already been non3e*istent for three years. /ince there was ne.er any .alid notice of this assessment, it could not ha.e become final, e*ecutory and incontestable, and, for failure to ma2e the assessment within the fi.e3year period pro.ided in /ection "#, of the (ational )nternal +e.enue Code of #$%%, respondents claim against the petitioner ?state is barred. /aid /ection "#, readsC /?C. "#,. Period of limitation upon assessment and collection. ?*cept as pro.ided in the succeeding section, internal re.enue ta*es shall be assessed within fi.e years after the return was filed, and no proceeding in court without assessment for the collection of such ta*es shall be begun after the e*piration of such period. <or the purpose of this section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last dayC Pro.ided, That this limitation shall not apply to cases already in.estigated prior to the appro.al of this Code.

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