Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-46720
June 28, 1940
WELLS FARGO BANK & UNION TRUST COMPANY, petitioner-appellant,
vs.
THE COLLECTOR OF INTERNAL REVENUE, respondent-appellee.
De Witt, Perkins and Ponce Enrile for appellant.Office of the Solicitor-General Ozaeta and Assistant
Solicitor-General Concepcion for appellee.Ross, Lawrence, Selph and Carrascoso, James Madison
Ross and Federico Agrava as amici curi.
MORAN, J.:
An appeal from a declaratory judgment rendered by the Court of First Instance of Manila.
Birdie Lillian Eye, wife of Clyde Milton Eye, died on September 16, 1932, at Los Angeles, California,
the place of her alleged last residence and domicile. Among the properties she left her one-half
conjugal share in 70,000 shares of stock in the Benguet Consolidated Mining Company, an anonymous
partnership (sociedad anonima), organized and existing under the laws of the Philippines, with is
principal office in the City of Manila. She left a will, which was duly admitted to probate in California
where her estate was administered and settled. Petitioner-appellant, Wells Fargo Bank & Union Trust
Company, was duly appointed trustee of the created by the said will. The Federal and State of
California's inheritance taxes due on said shares have been duly paid. Respondent Collector of
Internal Revenue sought to subject anew the aforesaid shares of stock to the Philippine inheritance
tax, to which petitioner-appellant objected. Wherefore, a petition for a declaratory judgment was filed
in the lower court, with the statement that, "if it should be held by a final declaratory judgment that
the transfer of the aforesaid shares of stock is legally subject to the Philippine inheritance tax, the
petitioner will pay such tax, interest and penalties (saving error in computation) without protest and
will not file to recover the same; and the petitioner believes and t therefore alleges that it should be
held that such transfer is not subject to said tax, the respondent will not proceed to assess and collect
the same." The Court of First Instance of Manila rendered judgment, holding that the transmission by
will of the said 35,000 shares of stock is subject to Philippine inheritance tax. Hence, this appeal by
the petitioner.
Petitioner concedes (1) that the Philippine inheritance tax is not a tax property, but upon transmission
by inheritance (Lorenzo vs. Posadas, 35 Off. Gaz., 2393, 2395), and (2) that as to real and tangible
personal property of a non-resident decedent, located in the Philippines, the Philippine inheritance tax
may be imposed upon their transmission by death, for the self-evident reason that, being a property
situated in this country, its transfer is, in some way, defendant, for its effectiveness, upon Philippine
laws. It is contended, however, that, as to intangibles, like the shares of stock in question, their situs is
in the domicile of the owner thereof, and, therefore, their transmission by death necessarily takes
place under his domiciliary laws.
Section 1536 of the Administrative Code, as amended, provides that every transmission by virtue of
inheritance of any share issued by any corporation of sociedad anonima organized or constituted in
the Philippines, is subject to the tax therein provided. This provision has already been applied to
shares of stock in a domestic corporation, which were owned by a British subject residing and
domiciled in Great Britain. (Knowles vs. Yatco, G. R. No. 42967. See also Gibbs vs. Government of P. I.,
G. R. No. 35694.) Petitioner, however, invokes the rule laid down by the United States Supreme Court
in four cases (Farmers Loan & Trust Company vs. Minnesota, 280 U.S. 204; 74 Law. ed., 371; Baldwin
vs. Missouri, 281 U.S., 586; 74 Law. ed., 1056, Beidler vs. South Carolina Tax Commission 282 U. S., 1;
75 Law. ed., 131; First National Bank of Boston vs. Maine, 284 U. S., 312; 52 S. Ct., 174, 76 Law. ed.,
313; 77 A. L. R., 1401), to the effect that an inheritance tax can be imposed with respect to intangibles
only by the State where the decedent was domiciled at the time of his death, and that, under the dueprocess clause, the State in which a corporation has been incorporated has no power to impose such
tax if the shares of stock in such corporation are owned by a non-resident decedent. It is to be
observed, however, that in a later case (Burnet vs. Brooks, 288 U. S., 378; 77 Law. ed., 844), the
United States Supreme Court upheld the authority of the Federal Government to impose an
inheritance tax on the transmission, by death of a non-resident, of stock in a domestic (America)
corporation, irrespective of the situs of the corresponding certificates of stock. But it is contended
that the doctrine in the foregoing case is not applicable, because the due-process clause is directed at
the State and not at the Federal Government, and that the federal or national power of the United
States is to be determined in relation to other countries and their subjects by applying the principles
of jurisdiction recognized in international relations. Be that as it may, the truth is that the due-process
clause is "directed at the protection of the individual and he is entitled to its immunity as much
against the state as against the national government." (Curry vs. McCanless, 307 U. S., 357, 370; 83
Law. ed., 1339, 1349.) Indeed, the rule laid down in the four cases relied upon by the appellant was
predicated on a proper regard for the relation of the states of the American Union, which requires
that property should be taxed in only one state and that jurisdiction to tax is restricted accordingly. In

other words, the application to the states of the due-process rule springs from a proper distribution of
their powers and spheres of activity as ordained by the United States Constitution, and such
distribution is enforced and protected by not allowing one state to reach out and tax property in
another. And these considerations do not apply to the Philippines. Our status rests upon a wholly
distinct basis and no analogy, however remote, cam be suggested in the relation of one state of the
Union with another or with the United States. The status of the Philippines has been aptly defined as
one which, though a part of the United States in the international sense, is, nevertheless, foreign
thereto in a domestic sense. (Downes vs. Bidwell, 182 U. S., 244, 341.)
At any rate, we see nothing of consequence in drawing any distinct between the operation and effect
of the due-process clause as it applies to the individual states and to the national government of the
United States. The question here involved is essentially not one of due process, but of the power of the
Philippine Government to tax. If that power be conceded, the guaranty of due process cannot certainly
be invoked to frustrate it, unless the law involved is challenged, which is not, on considerations
repugnant to such guaranty of due process of that of the equal protection of the laws, as, when the
law is alleged to be arbitrary, oppressive or discriminatory.
Originally, the settled law in the United States is that intangibles have only one situs for the purpose
of inheritance tax, and that such situs is in the domicile of the decedent at the time of his death. But
this rule has, of late, been relaxed. The maxim mobilia sequuntur personam, upon which the rule
rests, has been described as a mere "fiction of law having its origin in consideration of general
convenience and public policy, and cannot be applied to limit or control the right of the state to tax
property within its jurisdiction" (State Board of Assessors vs. Comptoir National D'Escompte, 191 U.
S., 388, 403, 404), and must "yield to established fact of legal ownership, actual presence and control
elsewhere, and cannot be applied if to do so result in inescapable and patent injustice." (Safe Deposit
& Trust Co. vs. Virginia, 280 U. S., 83, 91-92) There is thus a marked shift from artificial postulates of
law, formulated for reasons of convenience, to the actualities of each case.
An examination of the adjudged cases will disclose that the relaxation of the original rule rests on
either of two fundamental considerations: (1) upon the recognition of the inherent power of each
government to tax persons, properties and rights within its jurisdiction and enjoying, thus, the
protection of its laws; and (2) upon the principle that as o intangibles, a single location in space is
hardly possible, considering the multiple, distinct relationships which may be entered into with
respect thereto. It is on the basis of the first consideration that the case of Burnet vs. Brooks, supra,
was decided by the Federal Supreme Court, sustaining the power of the Government to impose an
inheritance tax upon transmission, by death of a non-resident, of shares of stock in a domestic
(America) corporation, regardless of the situs of their corresponding certificates; and on the basis of
the second consideration, the case of Cury vs. McCanless, supra.
In Burnet vs. Brooks, the court, in disposing of the argument that the imposition of the federal estate
tax is precluded by the due-process clause of the Fifth Amendment, held:
The point, being solely one of jurisdiction to tax, involves none of the other consideration raised by
confiscatory or arbitrary legislation inconsistent with the fundamental conceptions of justice which
are embodied in the due-process clause for the protection of life, liberty, and property of all persons
citizens and friendly aliens alike. Russian Volunteer Fleet vs. United States, 282 U. S., 481, 489; 75
Law ed., 473, 476; 41 S. Ct., 229; Nicholas vs. Coolidge, 274 U. S., 531; 542, 71 Law ed., 1184, 1192;
47 S. Ct., 710; 52 A. L. R., 1081; Heiner vs. Donnon, 285 U.S., 312, 326; 76 Law ed., 772, 779; 52 S.
Ct., 358. If in the instant case the Federal Government had jurisdiction to impose the tax, there is
manifestly no ground for assailing it. Knowlton vs. Moore, 178 U.S., 41, 109; 44 Law. ed., 969, 996; 20
S. Ct., 747; MaGray vs. United States, 195 U.S., 27, 61; 49 Law. ed., 78; 97; 24 S. Ct., 769; 1 Ann. Cas.,
561; Flint vs. Stone Tracy Co., 220 U.S., 107, 153, 154; 55 Law. ed., 389, 414, 415; 31 S. Ct., 342; Ann.
Cas., 1912B, 1312; Brushaber vs. Union p. R. Co., 240 U.S., 1, 24; 60 Law. ed., 493, 504; 36 S. Ct.,
236; L. R. A., 1917 D; 414, Ann. Cas, 1917B, 713; United States vs. Doremus, 249 U. S., 86, 93; 63
Law. ed., 439, 496; 39 S. Ct., 214. (Emphasis ours.)
And, in sustaining the power of the Federal Government to tax properties within its borders, wherever
its owner may have been domiciled at the time of his death, the court ruled:
. . . There does not appear, a priori, to be anything contrary to the principles of international law, or
hurtful to the polity of nations, in a State's taxing property physically situated within its borders,
wherever its owner may have been domiciled at the time of his death. . . .
As jurisdiction may exist in more than one government, that is, jurisdiction based on distinct grounds
the citizenship of the owner, his domicile, the source of income, the situs of the property efforts
have been made to preclude multiple taxation through the negotiation of appropriate international
conventions. These endeavors, however, have proceeded upon express or implied recognition, and not
in denial, of the sovereign taxing power as exerted by governments in the exercise of jurisdiction upon
any one of these grounds. . . . (See pages 396-397; 399.)
In Curry vs. McCanless, supra, the court, in deciding the question of whether the States of Alabama
and Tennessee may each constitutionally impose death taxes upon the transfer of an interest in
intangibles held in trust by an Alabama trustee but passing under the will of a beneficiary decedent
domiciles in Tennessee, sustained the power of each State to impose the tax. In arriving at this
conclusion, the court made the following observations:

In cases where the owner of intangibles confines his activity to the place of his domicile it has been
found convenient to substitute a rule for a reason, cf. New York ex rel., Cohn vs. Graves, 300 U.S.,
308, 313; 81 Law. ed., 666, 670; 57 S. Ct., 466; 108 A. L. R., 721; First Bank Stock Corp. vs.
Minnesota, 301 U. S., 234, 241; 81 Law. ed., 1061, 1065; 57 S. Ct., 677; 113 A. L. R., 228, by saying
that his intangibles are taxed at their situs and not elsewhere, or perhaps less artificially, by invoking
the maxim mobilia sequuntur personam. Blodgett vs. Silberman, 277 U.S., 1; 72 Law. ed., 749; S. Ct.,
410, supra; Baldwin vs. Missouri, 281 U. S., 568; 74 Law. ed., 1056; 50 S. Ct., 436; 72 A. L. R., 1303,
supra, which means only that it is the identify owner at his domicile which gives jurisdiction to tax.
But when the taxpayer extends his activities with respect to his intangibles, so as to avail himself of
the protection and benefit of the laws of another state, in such a way as to bring his person or
properly within the reach of the tax gatherer there, the reason for a single place of taxation no longer
obtains, and the rule even workable substitute for the reasons may exist in any particular case to
support the constitutional power of each state concerned to tax. Whether we regard the right of a
state to tax as founded on power over the object taxed, as declared by Chief Justice Marshall in
McCulloch vs. Maryland, 4 Wheat., 316; 4 Law. ed., 579, supra, through dominion over tangibles or
over persons whose relationships are source of intangibles rights, or on the benefit and protection
conferred by the taxing sovereignty, or both, it is undeniable that the state of domicile is not deprived,
by the taxpayer's activities elsewhere, of its constitutional jurisdiction to tax, and consequently that
there are many circumstances in which more than one state may have jurisdiction to impose a tax and
measure it by some or all of the taxpayer's intangibles. Shares or corporate stock be taxed at the
domicile of the shareholder and also at that of the corporation, which the taxing state has created and
controls; and income may be taxed both by the state where it is earned and by the state of the
recipient's domicile. protection, benefit, and power over the subject matter are not confined to either
state. . . .(p. 1347-1349.)
. . . We find it impossible to say that taxation of intangibles can be reduced in every case to the mere
mechanical operation of locating at a single place, and there taxing, every legal interest growing out
of all the complex legal relationships which may be entered into between persons. This is the case
because in point of actuality those interests may be too diverse in their relationships to various taxing
jurisdictions to admit of unitary treatment without discarding modes of taxation long accepted and
applied before the Fourteen Amendment was adopted, and still recognized by this Court as valid. (P.
1351.)
We need not belabor the doctrines of the foregoing cases. We believe, and so hold, that the issue here
involved is controlled by those doctrines. In the instant case, the actual situs of the shares of stock is
in the Philippines, the corporation being domiciled therein. And besides, the certificates of stock have
remained in this country up to the time when the deceased died in California, and they were in
possession of one Syrena McKee, secretary of the Benguet Consolidated Mining Company, to whom
they have been delivered and indorsed in blank. This indorsement gave Syrena McKee the right to
vote the certificates at the general meetings of the stockholders, to collect dividends, and dispose of
the shares in the manner she may deem fit, without prejudice to her liability to the owner for violation
of instructions. For all practical purposes, then, Syrena McKee had the legal title to the certificates of
stock held in trust for the true owner thereof. In other words, the owner residing in California has
extended here her activities with respect to her intangibles so as to avail herself of the protection and
benefit of the Philippine laws. Accordingly, the jurisdiction of the Philippine Government to tax must
be upheld. Judgment is affirmed, with costs against petitioner-appellant.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. Nos. L-9456 and L-9481
January 6, 1958
THE COLLECTOR OF INTERNAL REVENUE, petitioner,
vs.
DOMINGO DE LARA, as ancilliary administrator of the estate of HUGO H. MILLER
(Deceased), and the COURT OF TAX APPEALS, respondents.
Allison J. Gibbs, Zafra, De Leon and Veneracion for Domingo E. de Lara.Assistant Solicitor General
Ramon L. Avancena and Cezar L. Kierulf for the Collector of Internal Revenue.
MONTEMAYOR, J.:
These are two separate appeals, one by the Collector of Internal Revenue, later on referred to as the
Collector, and the other by Domingo de Lara as Ancilliary Administrator of the estate of Hugo H.
Miller, from the decision of the Court of Tax Appeals of June 25, 1955, with the following dispositive
part:
WHEREFORE, respondent's assessment for estate and inheritance taxes upon the estate of the
decedent Hugo H. Miller is hereby modified in accordance with the computation attached as Annex
"A" of this decision. Petitioner is hereby ordered to pay the amount of P2,047.22 representing estate
taxes due, together with the interests and other increments. In case of failure to pay the amount of

P2,047.22 within thirty (30) days from the time this decision has become final, the 5 per cent
surcharge and the corresponding interest due thereon shall be paid as a part of the tax.
The facts in the case gathered from the record and as found by the Court of Tax Appeals may be
briefly stated as follows: Hugo H. Miller, an American citizen, was born in Santa Cruz, California,
U.S.A., in 1883. In 1905, he came to the Philippines. From 1906 to 1917, he was connected with the
public school system, first as a teacher and later as a division superintendent of schools, later retiring
under the Osmeiia Retirement Act. After his retirement, Miller accepted an executive position in the
local branch of Ginn & Co., book publishers with principal offices in New York and Boston, U.S.A., up
to the outbreak of the Pacific War. From 1922 up to December 7, 1941, he was stationed in the
Philippines as Oriental representative of Ginn & Co., covering not only the Philippines, but also China
and Japan. His principal work was selling books specially written for Philippine schools. In or about
the year 1922, Miller lived at the Manila Hotel. His wife remained at their home in Ben-Lomond,
Santa Cruz, California, but she used to come to the Philippines for brief visits with Miller, staying
three or four months. Miller also used to visit his wife in California. He never lived in any residential
house in the Philippines. After the death of his wife in 1931, he transferred from the Manila Hotel to
the Army and Navy Club, where he was staying at the outbreak of the Pacific War. On January 17,
1941, Miller executed his last will and testament in Santa Cruz, California, in which he declared that
he was "of Santa Cruz, California". On December 7, 1941, because of the Pacific War, the office of
Ginn & Co. was closed, and Miller joined the Board of Censors of the United States Navy. During the
war, he was taken prisoner by the Japanese forces in Leyte, and in January, 1944, he was transferred
to Catbalogan, Samar, where he was reported to have been executed by said forces on March 11,
1944, and since then, nothing has been heard from him. At the time of his death in 1944, Miller owned
the following properties:
Real Property situated in Ben-Lomond, Santa Cruz, California
valued at ......................................................................
P 5,000.00
Real property situated in Burlingame, San Mateo, California valued
at ........................................................................................
16,200.00
Tangible Personal property, worth.............................................

2,140.00

Cash in the banks in the United States....................................

21,178.20

Accounts Receivable from various persons in the United States

including notes ...............................................................
36,062.74
Stocks in U.S. Corporations and U.S. Savings Bonds, valued
at ........................................................................................
123,637.16
Shares of stock in Philippine Corporations, valued at ..........
51,906.45
Testate proceedings were instituted before the Court of California in Santa Cruz County, in the course
of which Miller's will of January 17, 1941 was admitted to probate on May 10, 1946. Said court
subsequently issued an order and decree of settlement of final account and final distribution, wherein
it found that Miller was a "resident of the County of Santa Cruz, State of California" at the time of his
death in 1944. Thereafter ancilliary proceedings were filed by the executors of the will before the
Court of First Instance of Manila, which court by order of November 21, 1946, admitted to probate
the will of Miller was probated in the California court, also found that Miller was a resident of Santa
Cruz, California, at the time of his death. On July 29, 1949, the Bank of America, National Trust and
Savings Association of San Francisco California, co-executor named in Miller's will, filed an estate and
inheritance tax return with the Collector, covering only the shares of stock issued by Philippines
corporations, reporting a liability of P269.43 for taxes and P230.27 for inheritance taxes. After due
investigation, the Collector assessed estate and inheritance taxes, which was received by the said
executor on April 3, 1950. The estate of Miller protested the assessment of the liability for estate and
inheritance taxes, including penalties and other increments at P77,300.92, as of January 16, 1954.
This assessment was appealed by De Lara as Ancilliary Administrator before the Board of Tax Appeals,
which appeal was later heard and decided by the Court of Tax Appeals.
In determining the "gross estate" of a decedent, under Section 122 in relation to section 88 of our Tax
Code, it is first necessary to decide whether the decedent was a resident or a non-resident of the
Philippines at the time of his death. The Collector maintains that under the tax laws, residence and
domicile have different meanings; that tax laws on estate and inheritance taxes only mention resident
and non-resident, and no reference whatsoever is made to domicile except in Section 93 (d) of the Tax
Code; that Miller during his long stay in the Philippines had required a "residence" in this country, and
was a resident thereof at the time of his death, and consequently, his intangible personal properties
situated here as well as in the United States were subject to said taxes. The Ancilliary Administrator,
however, equally maintains that for estate and inheritance tax purposes, the term "residence" is
synonymous with the term domicile.
We agree with the Court of Tax Appeals that at the time that The National Internal Revenue Code was
promulgated in 1939, the prevailing construction given by the courts to the "residence" was

synonymous with domicile. and that the two were used interchangeably. Cases were cited in support
of this view, particularly that of Velilla vs. Posadas, 62 Phil. 624, wherein this Tribunal used the terms
"residence" and "domicile" interchangeably and without distinction, the case involving the application
of the term residence employed in the inheritance tax law at the time (section 1536- 1548 of the
Revised Administrative Code), and that consequently, it will be presumed that in using the term
residence or resident in the meaning as construed and interpreted by the Court. Moreover, there is
reason to believe that the Legislature adopted the American (Federal and State) estate and
inheritance tax system (see e.g. Report to the Tax Commision of the Philippines, Vol. II, pages 122124, cited in I Dalupan, National Internal Revenue Code Annotated, p. 469-470). In the United States,
for estate tax purposes, a resident is considered one who at the time of his death had his domicile in
the United States, and in American jurisprudence, for purposes of estate and taxation, "residence" is
interpreted as synonymous with domicile, and that
The incidence of estate and succession has historically been determined by domicile and situs and not
by the fact of actual residence. (Bowring vs. Bowers, (1928) 24 F 2d 918, at 921, 6 AFTR 7498, cert.
den (1928) 272 U.S.608).
We also agree with the Court of Tax Appeals that at the time of his death, Miller had his residence or
domicile in Santa Cruz, California. During his country, Miller never acquired a house for residential
purposes for he stayed at the Manila Hotel and later on at the Army and Navy Club. Except this wife
never stayed in the Philippines. The bulk of his savings and properties were in the United States. To
his home in California, he had been sending souvenirs, such as carvings, curios and other similar
collections from the Philippines and the Far East. In November, 1940, Miller took out a property
insurance policy and indicated therein his address as Santa Cruz, California, this aside from the fact
that Miller, as already stated, executed his will in Santa Cruz, California, wherein he stated that he
was "of Santa Cruz, California". From the foregoing, it is clear that as a non-resident of the
Philippines, the only properties of his estate subject to estate and inheritance taxes are those shares
of stock issued by Philippines corporations, valued at P51,906.45. It is true, as stated by the Tax
Court, that while it may be the general rule that personal property, like shares of stock in the
Philippines, is taxable at the domicile of the owner (Miller) under the doctrine of mobilia secuuntur
persona, nevertheless, when he during his life time,
. . . extended his activities with respect to his intangibles, so as to avail himself of the protection and
benefits of the laws of the Philippines, in such a way as to bring his person or property within the
reach of the Philippines, the reason for a single place of taxation no longer obtains- protection,
benefit, and power over the subject matter are no longer confined to California, but also to the
Philippines (Wells Fargo Bank & Union Trust Co. vs. Collector (1940), 70 Phil. 325). In the instant
case, the actual situs of the shares of stock is in the Philippines, the corporation being domiciled
herein: and besides, the right to vote the certificates at stockholders' meetings, the right to collect
dividends, and the right to dispose of the shares including the transmission and acquisition thereof by
succession, all enjoy the protection of the Philippines, so that the right to collect the estate and
inheritance taxes cannot be questioned (Wells Fargo Bank & Union Trust Co. vs. Collector supra). It is
recognized that the state may, consistently with due process, impose a tax upon transfer by death of
shares of stock in a domestic corporation owned by a decedent whose domicile was outside of the
state (Burnett vs. Brooks, 288 U.S. 378; State Commission vs. Aldrich, (1942) 316 U.S. 174, 86 L. Ed.
1358, 62 ALR 1008)." (Brief for the Petitioner, p. 79-80).
The Ancilliary Administrator for purposes of exemption invokes the proviso in Section 122 of the Tax
Code, which provides as follows:
. . ."And Provided, however, That no tax shall be collected under this Title in respect of intangible
personal property (a) if the decedent at the time of his death was a resident of a foreign country which
at the time of his death did not impose a transfer tax or death tax of any character in respect of
intangible personal property of citizens of the Philippines not residing in that country, or (b) if the
laws of the foreign country of which the decedent was resident at the tune of his death allow a similar
exemption from transfer taxes or death taxes of every character in respect of intangible personal
property owned by citizen, of the Philippine not residing in that foreign country.
The Ancilliary Administrator bases his claim of exemption on (a) the exemption of non-residents from
the California inheritance taxes with respect to intangibles, and (b) the exemption by way of reduction
of P4,000 from the estates of non-residents, under the United States Federal Estate Tax Law. Section 6
of the California Inheritance Tax Act of 1935, now reenacted as Section 13851, California Revenue
and Taxation Code, reads as follows:
SEC. 6. The following exemption from the tax are hereby allowed:
xxx
xxx
xxx.
(7) The tax imposed by this act in respect of intangible personal property shall not be payable if
decedent is a resident of a State or Territory of the United States or a foreign state or country which
at the time of his death imposed a legacy, succession of death tax in respect of intangible personal
property within the State or Territory or foreign state or country of residents of the States or Territory
or foreign state or country of residence of the decedent at the time of his death contained a reciprocal
provision under which non-residents were exempted from legacy or succession taxes or death taxes of
every character in respect of intangible personal property providing the State or Territory or foreign

state or country of residence of such non-residents allowed a similar exemption to residents of the
State, Territory or foreign state or country of residence of such decedent.
Considering the State of California as a foreign country in relation to section 122 of Our Tax Code we
beleive and hold, as did the Tax Court, that the Ancilliary Administrator is entitled to exemption from
the tax on the intangible personal property found in the Philippines. Incidentally, this exemption
granted to non-residents under the provision of Section 122 of our Tax Code, was to reduce the
burden of multiple taxation, which otherwise would subject a decedent's intangible personal property
to the inheritance tax, both in his place of residence and domicile and the place where those
properties are found. As regards the exemption or reduction of P4,000 based on the reduction under
the Federal Tax Law in the amount of $2,000, we agree with the Tax Court that the amount of $2,000
allowed under the Federal Estate Tax Law is in the nature of deduction and not of an exemption.
Besides, as the Tax Court observes--.
. . . this exemption is allowed on all gross estate of non-residents of the United States, who are not
citizens thereof, irrespective of whether there is a corresponding or similar exemption from transfer
or death taxes of non-residents of the Philippines, who are citizens of the United States; and thirdly,
because this exemption is allowed on all gross estates of non-residents irrespective of whether it
involves tangible or intangible, real or personal property; so that for these reasons petitioner cannot
claim a reciprocity. . .
Furthermore, in the Philippines, there is already a reduction on gross estate tax in the amount of
P3,000 under section 85 of the Tax Code, before it was amended, which in part provides as follows:
SEC. 85. Rates of estate tax.There shall be levied, assessed, collected, and paid upon the transfer of
the net estate of every decedent, whether a resident or non-resident of the Philippines, a tax equal to
the sum of the following percentages of the value of the net estate determined as provided in sections
88 and 89:
One per centrum of the amount by which the net estate exceeds three thousand pesos and does not
exceed ten thousand pesos;. . .
It will be noticed from the dispositive part of the appealed decision of the Tax Court that the Ancilliary
Administrator was ordered to pay the amount of P2,047.22, representing estate taxes due, together
with interest and other increments. Said Ancilliary Administrator invokes the provisions of Republic
Act No. 1253, which was passed for the benefit of veterans, guerrillas or victims of Japanese atrocities
who died during the Japanese occupation. The provisions of this Act could not be invoked during the
hearing before the Tax Court for the reason that said Republic Act was approved only on June 10,
1955. We are satisfied that inasmuch as Miller, not only suffered deprivation of the war, but was killed
by the Japanese military forces, his estate is entitled to the benefits of this Act. Consequently, the
interests and other increments provided in the appealed judgment should not be paid by his estate.
With the above modification, the appealed decision of the Court of Tax Appeals is hereby affirmed. We
deem it unnecessary to pass upon the other points raised in the appeal. No costs.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-24756
October 31, 1968
CITY OF BAGUIO, plaintiff-appellee,
vs.
FORTUNATO DE LEON, defendant-appellant.
The City Attorney for plaintiff-appellee.Fortunato de Leon for and in his own behalf as defendantappellant.
FERNANDO, J.:
In this appeal, a lower court decision upholding the validity of an ordinance 1 of the City of Baguio
imposing a license fee on any person, firm, entity or corporation doing business in the City of Baguio
is assailed by defendant-appellant Fortunato de Leon. He was held liable as a real estate dealer with a
property therein worth more than P10,000, but not in excess of P50,000, and therefore obligated to
pay under such ordinance the P50 annual fee. That is the principal question. In addition, there has
been a firm and unyielding insistence by defendant-appellant of the lack of jurisdiction of the City
Court of Baguio, where the suit originated, a complaint having been filed against him by the City
Attorney of Baguio for his failure to pay the amount of P300 as license fee covering the period from
the first quarter of 1958 to the fourth quarter of 1962, allegedly, inspite of repeated demands. Nor
was defendant-appellant agreeable to such a suit being instituted by the City Treasurer without the
consent of the Mayor, which for him was indispensable. The lower court was of a different mind.
In its decision of December 19, 1964, it declared the above ordinance as amended, valid and
subsisting, and held defendant-appellant liable for the fees therein prescribed as a real estate dealer.
Hence, this appeal. Assume the validity of such ordinance, and there would be no question about the
liability of defendant-appellant for the above license fee, it being shown in the partial stipulation of

facts, that he was "engaged in the rental of his property in Baguio" deriving income therefrom during
the period covered by the first quarter of 1958 to the fourth quarter of 1962.
The source of authority for the challenged ordinance is supplied by Republic Act No. 329, amending
the city charter of Baguio2 empowering it to fix the license fee and regulate "businesses, trades and
occupations as may be established or practiced in the City."
Unless it can be shown then that such a grant of authority is not broad enough to justify the
enactment of the ordinance now assailed, the decision appealed from must be affirmed. The task
confronting defendant-appellant, therefore, was far from easy. Why he failed is understandable,
considering that even a cursory reading of the above amendment readily discloses that the enactment
of the ordinance in question finds support in the power thus conferred.
Nor is the question raised by him as to the validity thereof novel in character. In Medina v. City of
Baguio,3 the effect of the amendatory section insofar as it would expand the previous power vested by
the city charter was clarified in these terms: "Appellants apparently have in mind section 2553,
paragraph (c) of the Revised Administrative Code, which empowers the City of Baguio merely to
impose a license fee for the purpose of rating the business that may be established in the city. The
power as thus conferred is indeed limited, as it does not include the power to levy a tax. But on July
15, 1948, Republic Act No. 329 was enacted amending the charter of said city and adding to its power
to license the power to tax and to regulate. And it is precisely having in view this amendment that
Ordinance No. 99 was approved in order to increase the revenues of the city. In our opinion, the
amendment above adverted to empowers the city council not only to impose a license fee but also to
levy a tax for purposes of revenue, more so when in amending section 2553 (b), the phrase 'as
provided by law' has been removed by section 2 of Republic Act No. 329. The city council of Baguio,
therefore, has now the power to tax, to license and to regulate provided that the subjects affected be
one of those included in the charter. In this sense, the ordinance under consideration cannot be
considered ultra vires whether its purpose be to levy a tax or impose a license fee. The terminology
used is of no consequence."
It would be an undue and unwarranted emasculation of the above power thus granted if defendantappellant were to be sustained in his contention that no such statutory authority for the enactment of
the challenged ordinance could be discerned from the language used in the amendatory act. That is
about all that needs to be said in upholding the lower court, considering that the City of Baguio was
not devoid of authority in enacting this particular ordinance. As mentioned at the outset, however,
defendant-appellant likewise alleged procedural missteps and asserted that the challenged ordinance
suffered from certain constitutional infirmities. To such points raised by him, we shall now turn.
1. Defendant-appellant makes much of the alleged lack of jurisdiction of the City Court of Baguio in
the suit for the collection of the real estate dealer's fee from him in the amount of P300. He contended
before the lower court, and it is his contention now, that while the amount of P300 sought was within
the jurisdiction of the City Court of Baguio where this action originated, since the principal issue was
the legality and constitutionality of the challenged ordinance, it is not such City Court but the Court of
First Instance that has original jurisdiction.
There is here a misapprehension of the Judiciary Act. The City Court has jurisdiction. Only recently, on
September 7, 1968 to be exact, we rejected a contention similar in character in Nemenzo v. Sabillano.4
The plaintiff in that case filed a claim for the payment of his salary before the Justice of the Peace
Court of Pagadian, Zamboanga del Sur. The question of jurisdiction was raised; the defendant Mayor
asserted that what was in issue was the enforcement of the decision of the Commission of Civil
Service; the Justice of the Peace Court was thus without jurisdiction to try the case. The above plea
was curtly dismissed by Us, as what was involved was "an ordinary money claim" and therefore
"within the original jurisdiction of the Justice of the Peace Court where it was filed, considering the
amount involved." Such is likewise the situation here.
Moreover, in City of Manila v. Bugsuk Lumber Co.,5 a suit to collect from a defendant this license fee
corresponding to the years 1951 and 1952 was filed with the Municipal Court of Manila, in view of the
amount involved. The thought that the municipal court lacked jurisdiction apparently was not even in
the minds of the parties and did not receive any consideration by this Court.
Evidently, the fear is entertained by defendant-appellant that whenever a constitutional question is
raised, it is the Court of First Instance that should have original jurisdiction on the matter. It does not
admit of doubt, however, that what confers jurisdiction is the amount set forth in the complaint. Here,
the sum sought to be recovered was clearly within the jurisdiction of the City Court of Baguio.
Nor could it be plausibly maintained that the validity of such ordinance being open to question as a
defense against its enforcement from one adversely affected, the matter should be elevated to the
Court of First Instance. For the City Court could rely on the presumption of the validity of such
ordinance,6 and the mere fact, however, that in the answer to such a complaint a constitutional
question was raised did not suffice to oust the City Court of its jurisdiction. The suit remains one for
collection, the lack of validity being only a defense to such an attempt at recovery. Since the City
Court is possessed of judicial power and it is likewise axiomatic that the judicial power embraces the
ascertainment of facts and the application of the law, the Constitution as the highest law superseding
any statute or ordinance in conflict therewith, it cannot be said that a City Court is bereft of
competence to proceed on the matter. In the exercise of such delicate power, however, the admonition

of Cooley on inferior tribunals is well worth remembering. Thus: "It must be evident to any one that
the power to declare a legislative enactment void is one which the judge, conscious of the fallibility of
the human judgment, will shrink from exercising in any case where he can conscientiously and with
due regard to duty and official oath decline the responsibility." 7 While it remains undoubted that such
a power to pass on the validity of an ordinance alleged to infringe certain constitutional rights of a
litigant exists, still it should be exercised with due care and circumspection, considering not only the
presumption of validity but also the relatively modest rank of a city court in the judicial hierarchy.
2. To repeat the challenged ordinance cannot be considered ultra vires as there is more than ample
statutory authority for the enactment thereof. Nonetheless, its validity on constitutional grounds is
challenged because of the allegation that it imposed double taxation, which is repugnant to the due
process clause, and that it violated the requirement of uniformity. We do not view the matter thus.
As to why double taxation is not violative of due process, Justice Holmes made clear in this language:
"The objection to the taxation as double may be laid down on one side. ... The 14th Amendment [the
due process clause] no more forbids double taxation than it does doubling the amount of a tax, short
of confiscation or proceedings unconstitutional on other grounds." 8With that decision rendered at a
time when American sovereignty in the Philippines was recognized, it possesses more than just a
persuasive effect. To some, it delivered the coup de grace to the bogey of double taxation as a
constitutional bar to the exercise of the taxing power. It would seem though that in the United States,
as with us, its ghost as noted by an eminent critic, still stalks the juridical state. In a 1947 decision,
however,9 we quoted with approval this excerpt from a leading American decision: 10 "Where, as here,
Congress has clearly expressed its intention, the statute must be sustained even though double
taxation results."
At any rate, it has been expressly affirmed by us that such an "argument against double taxation may
not be invoked where one tax is imposed by the state and the other is imposed by the city ..., it being
widely recognized that there is nothing inherently obnoxious in the requirement that license fees or
taxes be exacted with respect to the same occupation, calling or activity by both the state and the
political subdivisions thereof."11
The above would clearly indicate how lacking in merit is this argument based on double taxation.
Now, as to the claim that there was a violation of the rule of uniformity established by the constitution.
According to the challenged ordinance, a real estate dealer who leases property worth P50,000 or
above must pay an annual fee of P100. If the property is worth P10,000 but not over P50,000, then he
pays P50 and P24 if the value is less than P10,000. On its face, therefore, the above ordinance cannot
be assailed as violative of the constitutional requirement of uniformity. In Philippine Trust Company v.
Yatco,12 Justice Laurel, 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."
There was no occasion in that case to consider the possible effect on such a constitutional
requirement where there is a classification. The opportunity came in Eastern Theatrical Co. v.
Alfonso.13 Thus: "Equality and uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of taxation; ..." About two years later, Justice
Tuason, speaking for this Court in Manila Race Horses Trainers Assn. v. De la Fuente 14 incorporated
the above excerpt in his opinion and continued: "Taking everything into account, the differentiation
against which the plaintiffs complain conforms to the practical dictates of justice and equity and is not
discriminatory within the meaning of the Constitution."
To satisfy this requirement then, all that is needed as held in another case decided two years later, 15
is that the statute or ordinance in question "applies equally to all persons, firms and corporations
placed in similar situation." This Court is on record as accepting the view in a leading American case 16
that "inequalities which result from a singling out of one particular class for taxation or exemption
infringe no constitutional limitation."17
It is thus apparent from the above that in much the same way that the plea of double taxation is
unavailing, the allegation that there was a violation of the principle of uniformity is inherently lacking
in persuasiveness. There is no need to pass upon the other allegations to assail the validity of the
above ordinance, it being maintained that the license fees therein imposed "is excessive, unreasonable
and oppressive" and that there is a failure to observe the mandate of equal protection. A reading of
the ordinance will readily disclose their inherent lack of plausibility.
3. That would dispose of all the errors assigned, except the last two, which would predicate a
grievance on the complaint having been started by the City Treasurer rather than the City Mayor of
Baguio. These alleged errors, as was the case with the others assigned, lack merit.
In much the same way that an act of a department head of the national government, performed within
the limits of his authority, is presumptively the act of the President unless reprobated or
disapproved,18 similarly the act of the City Treasurer, whose position is roughly analogous, may be
assumed to carry the seal of approval of the City Mayor unless repudiated or set aside. This should be
the case considering that such city official is called upon to see to it that revenues due the City are
collected. When administrative steps are futile and unavailing, given the stubbornness and obduracy
of a taxpayer, convinced in good faith that no tax was due, judicial remedy may be resorted to by him.

It would be a reflection on the state of the law if such fidelity to duty would be met by condemnation
rather than commendation.
So, much for the analytical approach. The conclusion thus reached has a reinforcement that comes to
it from the functional and pragmatic test. If a city treasurer has to await the nod from the city mayor
before a municipal ordinance is enforced, then opportunity exists for favoritism and undue
discrimination to come into play. Whatever valid reason may exist as to why one taxpayer is to be
accorded a treatment denied another, the suspicion is unavoidable that such a manifestation of official
favor could have been induced by unnamed but not unknown consideration. It would not be going too
far to assert that even defendant-appellant would find no satisfaction in such a sad state of affairs. The
more desirable legal doctrine therefore, on the assumption that a choice exists, is one that would do
away with such temptation on the part of both taxpayer and public official alike.
WHEREFORE, the lower court decision of December 19, 1964, is hereby affirmed. Costs against
defendant-appellant.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-7521
October 18, 1955
VERONICA SANCHEZ, plaintiff-appellant,
vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee.
Benjamin C. Yatco for appellant.Office of the Solicitor General Ambrocio Padilla and Solicitors
Esmeraldo Umali and Roman Cansino, Jr. for appellee.
REYES, J.B.L., J.:
Appellant Veronica Sanchez is the owner of a two-story, four-door "accessoria" building at 181
Libertad Street, Pasay City, which she constructed in 1947. The building has an assessed value of
P21,540 and the land is assessed at P7,980, or a total value of P29,540 (Exhibit 2). While appellant
lives in one of the apartments, she is renting the rest to other persons. In 1949, she derived an income
therefrom of P7,540 (Exhibit 1). Appellant also runs a small dry goods store in the Pasay market, from
which she derives an annual income of about P1,300 (also Exhibit 1).
In the early part of 1951, the Collector of Internal Revenue made demand upon appellant for the
payment of P163.51 as income tax for the year 1950, and P637 as real estate dealer's tax for the year
1946 to 1950, plus the sum of P50 as compromise (Exhibit 4). Appellant paid the taxes demanded
under protest, and on October 16, 1951 filed action in the Court of First Instance of Manila (C. C. No.
14957) against the Collector of Internal Revenue for the refund of the taxes paid, claiming that she is
not a real estate dealer. The lower Court, after trial, found appellant to be such a dealer, as defined by
section 194 (s) of the National Internal Revenue Code, as amended by Republic Act Nos. 42 and 588,
and declared the collection of the taxes in question legal and in accordance with said provision.
Wherefore, Veronica Sanchez appealed to this Court.
At the outset, it should be noted that while appellant claims the refund of the amount of P825
allegedly paid by her to the Collector of Internal Revenue as real estate dealer's tax, it appears that
the sum of P163.31 thereof corresponds to her income tax for the year 1949 (Exhibit 4), so that the
amount of tax actually involved herein is only P687, paid by appellant as real estate dealer's tax for
the year 1946 to 1950. We notice also that the lower Court, in deciding this case, applied the
definition of "real estate dealer" in section 194 (s) of the National Internal Revenue Code, as amended
by Republic Acts Nos. 42 and 588. Republic Act No. 588 took effect only on September 22, 1950, while
the tax in question was paid by appellant for the year 1946 to 1950. Hence, the law applicable to this
case is section 194 (s) of the Tax Code before it was amended by Republic Act No. 588, which defines
real estate dealers as follows:
"Real estate dealers" includes all persons who for their own account are engaged in the sale of lands,
buildings or interests therein or in leasing real estate. (R. A. No. 42)
Does appellant fall within the above definition? We are of the opinion that she does. The kind of nature
of the building constructed by herwhich is a four-door "accessoria"shows that it was from the
beginning intended for lease as a source of income or profit to the owner; and while appellant resides
in one of the apartments, it appears that she always rented the other apartments to other persons
from the time the building was constructed up to the time of the filing of this case.
The case of Argellies vs. Meer* G. R. No. L-3730, promulgated on April 25, 1952, cited by appellant in
support of her appeal, is not in point. In that case, Argellies had always resided outside the
Philippines, and his properties in Manila were administered and managed by a local real estate
company. We held that Argellies could not be considered as engaged in business of letting real estate,
because he did not appear to have reinvested the rents received by him from this country, nor to have
taken part in the management of his local holdings. In the case at bar, however, it was appellant who
had the apartment in question constructed, purposely for lease or profit, and she manages the
property herself. While she runs a small store in Pasay market, it is unlikely and the evidence does not

show, that she devotes all her personal time and labor to such store, considering its size and the fact
that she derives little income therefrom. On the other hand, the work of attending to her leased
property and her tenants would not take much of her time and attention, especially since she lives in
the premises herself. And the leasing of her apartment appears to be her principal means of
livelihood, for the income she derives therefrom amounts to more than five times that which she
makes from her store.
Considering, therefore, that appellant constructed her four-door "accesoria" purposely for rent or
profit; that she has been continuously leasing the same to third persons since its construction in 1947;
that she manages her property herself; and that said leased holding appears to be her main source of
livelihood, we conclude that appellant is engaged in the leasing of real estate, and is a real estate
dealer as defined by section 194 (s) of the Internal Revenue Code, as amended by Republic Act No. 42.
Appellant argues that she is already paying real estate taxes on her property, as well as income tax on
the income derive therefrom, so that to further subject its rentals to the "real estate dealers' tax"
amounts to double taxation. This argument has already been rejected by this Court in the case of
People vs. Mendaros, et al., L-6975, promulgated May 27, 1955, wherein we held that "it is a well
settled rule that license tax may be levied upon a business or occupation although the land or
property used there in is subject to property tax", and that "the state may collect an ad valorem tax on
property used in a calling, and at the same time impose a license tax on the pursuit of that calling",
the imposition of the latter kind of tax being in no sense a double tax.
The evidence shows, however, that the apartment house in question was constructed only in 1947,
while the real estate dealer's tax demanded of and paid by appellant was for the year 1946 to 1950
(see Exhibit 4). Wherefore, appellant is entitled to a refund of the tax paid for the year 1946,
amounting to P37.50.
With the modification that the appellee Collector of Internal Revenue is ordered to refund to appellant
Veronica Sanchez the amount of P37.50 paid as real estate dealer's tax for the year 1946, the decision
appealed from is, in all other respects, affirmed. Costs against appellants. So ordered.
Bengzon, Acting C. J., Padilla, Montemayor, Reyes, A., Jugo, Bautista Angelo, and Concepcion, JJ.,
concur.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-8799
August 31, 1956
THE CITY OF MANILA, plaintiff-appellee,
vs.
THE INTER-ISLAND GAS SERVICE, INC., defendant-appellant.
Pedro Lopez for appellant.City Fiscal Eugenio Angeles and Assistant Fiscal Arsenio Naawa for
appellee.
CONCEPCION, J.:
The City of Manila instituted this action for the collection of a sum of money allegedly due from the
defendant Inter-Island Gas Service, Inc., by way of deficiency municipal tax. The main issue is whether
liquefied flammable gas comes within the purview of section 1, Group 2, of Ordinance No. 1925 of the
City of Manila, as amended by Ordinance No. 3364 thereof, which provides that:
. . . there shall be paid to the City Treasurer for engaging in any of the business or occupations below
enumerated, quarterly license fees based on gross sales or receipts realized during the preceding
quarter, in accordance with the rates herein prescribed: Provided, however, That a person engaging in
any business or occupation for the first time shall pay the initial license fee based on the probable
gross sales of receipts for the first quarter beginning from the date of the opening of the business as
indicated herein for the corresponding business or occupation.
Group 2. Retail dealers in new (not yet used) merchandise, which dealers are not yet subject to the
payment of any municipal tax, such as:(1) Retail dealers in general merchandise and (2) retail dealers
exclusively engaged in the sale of electrical supplies; sporting goods; office equipment and materials;
rice; textile including knitted wares; hardware, including, glassware; cooking utensils and
construction materials; papers; books, including stationary. Both parties stipulated:
"1. That the plaintiff is a municipal corporation created and existing under the laws of the Philippines
and that the defendant is a corporation likewise created by any existing under the laws of the
Philippines;
"2. That the defendant sold at retail in the City of Manila from the 4th quarter of 1949 to the a 4th
quarter of 1951, inclusive, cooking appliances and liquefied petroleum gas in cylinders in the
following amounts:
Period of sales
Amount of sales
4th quarter 1949

P207,651.53

1st quarter 1950

190,936.92

2nd quarter 1950

188,796.79

3rd quarter 1950

212,542.53

4th quarter 1950

206,696.26

1st quarter 1951

216,346.69

2nd quarter 1951

219,283.45

3rd quarter 1951

184,290.85

4th quarter 1951

191,138.62
"3. That the defendant paid the different amount alleged in paragraph 4 of the complaint
corresponding to the quarters therein stated based on its sales of cooking appliances only;
"4. That the total claim of the plaintiff against the defendant under section 1, Group 2, of Ordinance
No. 1925, as last amended by Ordinance No. 3364 is P11,250.00, based on the defendant's sales
alleged in paragraph 2 of the complaint computed at the rate of P1,250.00 quarterly corresponding to
the first, second, third and fourth quarterly of 1951, and the first quarter of 1952; and
"5. That the defendant has paid the prescribed fees under Ordinance No. 3259 of the City of Manila,
'An Ordinance prescribing regulations for storage, installations, use and transportation of compressed
and liquefied, inflammable gases other than acetylene, and providing fees therefor", covering the
same quarters mentioned in paragraph 4 of the complaint.
Then the case was submitted for decision, whereupon the Court of First Instance of Manila rendered
judgment for the plaintiff, the dispositive part of which, as amended reads as follows:
Therefore, this Court is of opinion and so holds, that the City Government of Manila has the right to
impose tax on liquefied flammable gas under Ordinance No. 925, as amended by Ordinance No. 3364.
And for this reason, the defendant Inter-Island Gas Service, Inc., is hereby sentenced to pay to the
City of Manila the sum of P8,361 as deficiency tax due from the year 1952, inclusive, including the
amount of P50 as surcharge thereon, and the payment of the costs . . .
The defendant has appealed from this decision and now in maintains that: .
1. The lower court erred in not holding and declaring that the No. 1925 as amended (imposing a tax
for purposes of revenue), does not clearly provided that it applies to the sale of liquefied flammable
gas.
2. The lower court erred in not holding and declaring that the provisions of section 1, Group 2, of
Ordinance No. 1925, as amended by Ordinance No. 3364, are and clearly within the legislative powers
granted to the Municipal Board of Manila, if said Ordinance is applied to the sale of liquefied
flammable gas.
3. That assuming arguendo that under the provision of section 1, Group 2, of Ordinance No. 1925, as
last amended by Ordinance No. 3364, liquefied flammable gas in included, still the lower court erred
in not finding and declaring that said Ordinance No. 1925, as amended, is a percentage tax; hence,
the complaint does not state a cause of action because no allegation has been made that the ordinance
in question had previously been approved by the President of the Philippines.
4. Further assuming arguendo that Ordinance No. 1925, as amended, is valid, yet the lower court
erred in not finding that to apply it to the liquefied gas business of the defendant will constitute
double taxation; hence, unconstitutional and void. .
5. The lower court erred in ordering the defendant to pay the City of Manila the sum of P8,861.00 as
deficiency tax due under Ordinance No. 1925, as amended by Ordinance No. 3364, and to pay the
costs.
In support of the first two assignments of error appellant cites paragraphs (m) and (o) of section 18 of
the Revised Charter of Manila (Republic Act No. 409) authorizing said city:
"(m) To tax, fix the license fee and regulate the . . . storage and sale of . . . petroleum or any of the
products thereof and of all other highly combustible or explosive materials
"(o) To tax and fix the license fee on dealers in general merchandise. . . . .
Then appellant argues that liquefied flammable gas is included in said paragraph (m) and, hence,
excluded from the connotation of the word "merchandise," as used in paragraph (o). This argument at
first impressed the court, but, upon further reflection, we are persuaded that it is not decisive on the
issue before us. Indeed, although the clause "petroleum or any of the products thereof and all other
said paragraph (m) may indicate the intent of Congress of the Philippines to include liquefied
flammable gas within the purview of said paragraph, it does not follow necessarily that in using the
word "merchandise", in Municipal Ordinance No. 1925, as amended, the Municipal Board of Manila
intended to convey thereto the restricted meaning allegedly given to the term "merchandise" in
paragraph (o) of Section 18 of its Revised Charter, or to exclude liquefied flammable gas from the
operation of said ordinance. In this connection, it should be noted that the authority of the City of
Manila to tax dealers in liquefied flammable gas under its Revised Charter, is conceded. Accordingly,
the question whether the grant of power appears in paragraph (m) or in paragraph (o) of the
aforementioned Section 18, is immaterial to the exercise of said authority.

As already adverted to, the case hinges on the connotation of the term "merchandise" as used in said
ordinance, or the interest of the Municipal Board in connection therewith. Referring to the meaning of
said word, Corpus Juris Secundum has the following to say:
The word "merchandise," employed as a noun, is defined as meaning the objects of commerce; the
subjects of commerce and traffic; whatever is usually bought and sold in trade, or market, or by
merchants; goods; ware; commodities, goods, or wares bought and sold for gain; commodities or
goods to trade with; a commercial commodity or commercial commodities in general.
The term is also defined as meaning things which are ordinarily bought and sold; anything movable,
anything customarily bought and sold for profit; any movable object of trade or traffic; any article
which is the object of commerce, or which may be bought or sold in trade; the staple of a mercantile
business; that which is passed from hand to hand by purchase and sale. (Vol. 57 pp. 1056-1057.)
Inasmuch as, admittedly, liquefied gas may be, and is being, bought and sold in trade, it clearly is a
merchandise, and comes within the purview of the ordinary import of this world. Was it used in this
sense in Ordinance No. 1925, as amended, as, in effect, held by the lower court or did the Municipal
Board intend to convey therewith the meaning allegedly given thereto in paragraph (o) of Section 18
of Republic Act No. 409, as contended by defendant-appellant? We find ourselves unable to accept the
latter view, not only because the former is more in accord with the simple and usual connotation of
said term, but, also, because it appears that said ordinance has not followed the classification made in
Section 18 of Republic Act No. 109. Thus, for instance, although the word "merchandise" appears in
paragraph (o) of said Section 18, it is included in Group 2 of said ordinance, together with electrical
supplies, sporting goods, textiles, hardware, including glassware, and cooking utensils, which are
found in paragraph (n) of said Article 18. Moreover, said Group 2 refers to "retail dealers in new (not
yet used) merchandise, which dealers are not yet subject to the payment of any municipal tax, such
as: (1) Retail dealers in general merchandise . . . ." Obviously, the enumeration made in said Group 2
is not all inclusive. It merely illustrates some of the objects the dealers in which are taxed under its
provision. The word "merchandise" as used therein has not restrictive meaning. Said group taxes
dealers in all "new (not yet used) merchandise, which dealers are not yet subject to the payment of
any municipal tax." Liquefied flammable gas is a "new" object of commerce, and hence, merchandise,
and, at the time of the passage of said ordinance, dealers therein were not, as yet, subject to the
payment of any municipal tax. In short, the first and second assignments of error are untenable.
Under the third assignment of error, it is claimed that the tax imposed under the ordinance in
question is in the nature of a percentage tax. The schedule of taxes under the aforementioned Group 2
is a follows:
Quarterly
license
Class
Quarterly gross sales
fee
1. ....................

Over to P125,000.00

P1,250.00

2. ....................

P100,000.00 to 125,000.00

P1,125.00

3. ....................

90,000.00 to 99.999.99

1,000.00

4. ....................

80,000.00 to 89,999.99

900.00

5. ....................

70,000.00 to 79,999.99

800.00

6. ....................

60,000.00 to 69,999.99

700.00

7. ....................

50,000.00 to 59,999.99

600.00

8. ....................

45,000.00 to 49,999.99

500.00

9. ....................

40,000.00 to 44,999.99

450.00

10. ..................

36,000.00 to 39,999.99

400.00

11. ..................

33,000.00 to 35,999.99

360.00

12. ..................

30,000.00 to 32,999.99

330.00

13. ..................

27,000.00 to 29,999.99

300.00

14. ..................

25,000.00 to 27,499.99

275.00

15. ..................

22,000.00 to 24,999.99

250.00

16. ..................

20,000.00 to 22,499.99

225.00

17. ..................

18,700.00 to 20,499.99

205.00

18. ..................

17,200.00 to 18,699.99

187.00

19. ..................

15,500.00 to 17,199.99

172.00

20. ..................

14,100.00 to 15,499.99

155.00

21. ..................

12,700.00 to 14.099.99

141.00

22. ..................

11,500.00 to 12,699.99

127.00

23. ..................

10,500.00 to 11,499.99

115.00

24. ..................

9,500.00 to 10,499.99

105.00

25. ..................

8,700.00 to 9,499.99

95.00

26. ..................

8,000.00 to 8,699.99

87.00

27. ..................

7,200.00 to 7,999.99

80.00

28. ...................

6,300.00 to 7,199.99

72.00

29. ...................

5,500.00 to 6,299.99

63.00

30. ...................

5,000.00 to 5,499.99

55.00

31. ...................

4,500.00 to 4,999.99

50.00

32. ...................

4,400.00 to 4,999.99

45.00

33. ...................

3,500.00 to 3,999.99

40.00

34. ...................
Less than to 3,500.00
35.00
PROVIDED, That retail dealers only rice, whose quarterly sales do not exceed two thousand pesos
(P2,000) shall only pay a quarterly license fee of eighteen pesos (P18). (Appellee's Brief, pp. 2-3.)
This is not a percentage tax. It is a graduated tax, not based on a given ratio between the gross
income and the burden imposed upon the taxpayer.
The fourth assignment of error is even more devoid of merit because: (1) the fees paid by the
defendant under Ordinance No. 3259 for the storage, installation, use and transportation of
compressed inflammable gases was charged by way of license fees, in the exercise of the police
power of the State, not under its inherent power of taxation; and (2) double taxation is not prohibited
in our Constitution.
Being a mere consequence of the previous assignments of error, the last one needs no discussion.
Wherefore, the decision appealed from is hereby affirmed, with cost against defendant-appellant. It is
so ordered.
Paras, C. J., Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, Reyes, J.B.L., and Felix, JJ.,
concur.
EN BANC
[G.R. No. L-9408. October 31, 1956.]
EMILIO Y. HILADO, Petitioner, vs. THE COLLECTOR OF INTERNAL REVENUE and THE
COURT OF TAX APPEALS, Respondents.
DECISION
BAUTISTA ANGELO, J.:
On March 31, 1952, Petitioner filed his income tax return for 1951 with the treasurer of Bacolod City
wherein he claimed, among other things, the amount of P12,837.65 as a deductible item from his
gross income pursuant to General Circular No. V-123 issued by the Collector of Internal Revenue. This
circular was issued pursuant to certain rules laid down by the Secretary of Finance On the basis of
said return, an assessment notice demanding the payment of P9,419 was sent to Petitioner, who paid
the tax in monthly installments, the last payment having been made on January 2, 1953.
Meanwhile, on August 30, 1952, the Secretary of Finance, through the Collector of Internal Revenue,
issued General Circular No. V-139 which not only revoked and declared void his general Circular No.
V- 123 but laid down the rule that losses of property which occurred during the period of World War II
from fires, storms, shipwreck or other casualty, or from robbery, theft, or embezzlement are
deductible in the year of actual loss or destruction of said property. As a consequence, the amount of
P12,837.65 was disallowed as a deduction from the gross income of Petitioner for 1951 and the
Collector of Internal Revenue demanded from him the payment of the sum of P3,546 as deficiency
income tax for said year. When the petition for reconsideration filed by Petitioner was denied, he filed
a petition for review with the Court of Tax Appeals. In due time, this court rendered decision affirming
the assessment made by Respondent Collector of Internal Revenue. This is an appeal from said
decision.
It appears that Petitioner claimed in his 1951 income tax return the deduction of the sum of
P12,837.65 as a loss consisting in a portion of his war damage claim which had been duly approved by
the Philippine War Damage Commission under the Philippine Rehabilitation Act of 1946 but which
was not paid and never has been paid pursuant to a notice served upon him by said Commission that
said part of his claim will not be paid until the United States Congress should make further
appropriation. He claims that said amount of P12,837.65 represents a business asset within the
meaning of said Act which he is entitled to deduct as a loss in his return for 1951. This claim is
untenable.
To begin with, assuming that said a mount represents a portion of the 75% of his war damage claim
which was not paid, the same would not be deductible as a loss in 1951 because, according to
Petitioner, the last installment he received from the War Damage Commission, together with the

notice that no further payment would be made on his claim, was in 1950. In the circumstance, said
amount would at most be a proper deduction from his 1950 gross income. In the second place, said
amount cannot be considered as a business asset which can be deducted as a loss in contemplation
of law because its collection is not enforceable as a matter of right, but is dependent merely upon the
generosity and magnanimity of the U. S. government. Note that, as of the end of 1945, there was
absolutely no law under which Petitioner could claim compensation for the destruction of his
properties during the battle for the liberation of the Philippines. And under the Philippine
Rehabilitation Act of 1946, the payments of claims by the War Damage Commission merely depended
upon its discretion to be exercised in the manner it may see fit, but the non-payment of which cannot
give rise to any enforceable right, for, under said Act, All findings of the Commission concerning the
amount of loss or damage sustained, the cause of such loss or damage, the persons to whom
compensation pursuant to this title is payable, and the value of the property lost or damaged, shall be
conclusive and shall not be reviewable by any court. (section 113).
It is true that under the authority of section 338 of the National Internal Revenue Code the Secretary
of Finance, in the exercise of his administrative powers, caused the issuance of General Circular No.
V-123 as an implementation or interpretative regulation of section 30 of the same Code, under which
the amount of P12,837.65 was allowed to be deducted in the year the last installment was received
with notice that no further payment would be made until the United States Congress makes further
appropriation therefor, but such circular was found later to be wrong and was revoked. Thus, when
doubts arose as to the soundness or validity of such circular, the Secretary of Finance sought the
advice of the Secretary of Justice who, accordingly, gave his opinion the pertinent portion of which
reads as follows:
Yet it might be argued that war losses were not included as deductions for the year when they were
sustained because the taxpayers had prospects that losses would be compensated for by the United
States Government; that since only uncompensated losses are deductible, they had to wait until after
the determination by the Philippine War Damage Commission as to the compensability in part or in
whole of their war losses so that they could exclude from the deductions those compensated for by the
said Commission; and that, of necessity, such determination could be complete only much later than in
the year when the loss was sustained. This contention falls to the ground when it is considered that
the Philippine Rehabilitation Act which authorized the payment by the United States Government of
war losses suffered by property owners in the Philippines was passed only on August 30, 1946, long
after the losses were sustained. It cannot be said therefore, that the property owners had any
conclusive assurance during the years said losses were sustained, that the compensation was to be
paid therefor. Whatever assurance they could have had, could have been based only on some
information less reliable and less conclusive than the passage of the Act itself. Hence, as diligent
property owners, they should adopt the safest alternative by considering such losses deductible
during the year when they were sustained.
In line with this opinion, the Secretary of Finance, through the Collector of Internal Revenue, issued
General Circular No. V-139 which not only revoked and declared void his previous Circular No. V
123 but laid down the rule that losses of property which occurred during the period of World War II
from fires, storms, shipwreck or other casualty, or from robbery, theft, or embezzlement are
deductible for income tax purposes in the year of actual destruction of said property. We can hardly
argue against this opinion. Since we have already stated that the amount claimed does not represent a
business asset that may be deducted as a loss in 1951, it is clear that the loss of the corresponding
asset or property could only be deducted in the year it was actually sustained. This is in line with
section 30 (d) of the National Internal Revenue Code which prescribes that losses sustained are
allowable as deduction only within the corresponding taxable year.
Petitioners contention that during the last war and as a consequence of enemy occupation in the
Philippines there was no taxable year within the meaning of our internal revenue laws because
during that period they were unenforceable, is without merit. It is well known that our internal
revenue laws are not political in nature and as such were continued in force during the period of
enemy occupation and in effect were actually enforced by the occupation government. As a matter of
fact, income tax returns were filed during that period and income tax payment were effected and
considered valid and legal. Such tax laws are deemed to be the laws of the occupied territory and not
of the occupying enemy.
Furthermore, it is a legal maxim, that excepting that of a political nature, Law once established
continues until changed by some competent legislative power. It is not changed merely by change of
sovereignty. (Joseph H. Beale, Cases on Conflict of Laws, III, Summary section 9, citing
Commonwealth vs. Chapman, 13 Met., 68.) As the same author says, in his Treatise on the Conflict of
Laws (Cambridge, 1916, section 131): There can be no break or interregnum in law. From the time
the law comes into existence with the first-felt corporateness of a primitive people it must last until
the final disappearance of human society. Once created, it persists until a change takes place, and
when changed it continues in such changed condition until the next change and so forever. Conquest
or colonization is impotent to bring law to an end; inspite of change of constitution, the law continues
unchanged until the new sovereign by legislative act creates a change. (Co Kim Chan vs. Valdes Tan
Keh and Dizon, 75 Phil., 113, 142-143.)

It is likewise contended that the power to pass upon the validity of General Circular No. V-123 is
vested exclusively in our courts in view of the principle of separation of powers and, therefore, the
Secretary of Finance acted without valid authority in revoking it and approving in lieu thereof General
Circular No. V-139. It cannot be denied, however, that the Secretary of Finance is vested with
authority to revoke, repeal or abrogate the acts or previous rulings of his predecessor in office
because the construction of a statute by those administering it is not binding on their successors if
thereafter the latter become satisfied that a different construction should be given. [Association of
Clerical Employees vs. Brotherhood of Railways & Steamship Clerks, 85 F. (2d) 152, 109 A.L.R., 345.]
When the Commissioner determined in 1937 that the Petitioner was not exempt and never had been,
it was his duty to determine, assess and collect the tax due for all years not barred by the statutes of
limitation. The conclusion reached and announced by his predecessor in 1924 was not binding upon
him. It did not exempt the Petitioner from tax, This same point was decided in this way in Stanford
University Bookstore, 29 B. T. A., 1280; affd., 83 Fed. (2d) 710. (Southern Maryland Agricultural Fair
Association vs. Commissioner of Internal Revenue, 40 B. T. A., 549, 554).
With regard to the contention that General Circular No. V-139 cannot be given retroactive effect
because that would affect and obliterate the vested right acquired by Petitioner under the previous
circular, suffice it to say that General Circular No. V-123, having been issued on a wrong construction
of the law, cannot give rise to a vested right that can be invoked by a taxpayer. The reason is obvious:
a vested right cannot spring from a wrong interpretation. This is too clear to require elaboration.
It seems too clear for serious argument that an administrative officer cannot change a law enacted
by Congress. A regulation that is merely an interpretation of the statute when once determined to
have been erroneous becomes nullity. An erroneous construction of the law by the Treasury
Department or the collector of internal revenue does not preclude or estop the government from
collecting a tax which is legally due. (Ben Stocker, et al., 12 B. T. A., 1351.)
Art. 2254. No vested or acquired right can arise from acts or omissions which are against the law
or which infringe upon the rights of others. (Article 2254, New Civil Code.)
Wherefore, the decision appealed from is affirmed Without pronouncement as to costs.
Paras, C.J., Padilla, Montemayor, Labrador, Concepcion, Reyes, J. B. L., Endencia and Felix, JJ., concur.

EN BANC
[G.R. No. L-9141. September 25, 1956.]
Testate Estate of OLIMPIO FERNANDEZ deceased. REPUBLIC OF THE PHILIPPINES, claimantAppellee, vs. ANGELINA OASAN VDA DE FERNANDEZ, PRISCILLA O. FERNANDEZ, and
ESTELA O. FERNANDEZ, Oppositors-Appellants.
DECISION
LABRADOR, J.:
Appeal from a decision of the Court of Tax Appeals sustaining the validity of a tax amounting to
P7,614.60 against the estate of Olimpio Fernandez under the War Profits Tax Law (Republic Act No.
55).
Olimpio Fernandez and his wife Angelina Oasan had a net worth of P8,600 on December 8, 1941.
During the Japanese occupation the spouses acquired several real properties, and at the time of his
death on February 11, 1945 he had a net worth of P31,489. The Collector of Internal Revenue
assessed a war profits tax on the estate of the deceased at P7,614.60, which his administratrix refused
to pay. The case was brought to the Court of Tax Appeals which sustained the validity and legality of
the assessment. The administratrix has appealed this decision to this Court.
The most important questions raised by the Appellant are: (a) the unconstitutionality of the war profits
tax law for the reason that it is retroactive; (b) the inapplicability of said law to the estate of the
deceased Olimpio Fernandez, because the law taxes individuals; and (c) the separate taxation of the
estate of the deceased Olimpio Fernandez from that of his wifes, because Olimpio Fernandez died
before the law was passed.
Appellants contention that the law is invalid or unconstitutional because it acts retroactively, thus
violating the due process of law clause, is not supported by reason or authority. The tax, insofar as
applicable to the estate of the deceased Olimpio Fernandez, is both a property tax and a tax on
income. It is a property tax in relation to the properties that Fernandez had in December, 1941; and it
is an income tax in relation to the properties which he purchased during the Japanese occupation. In
both cases, however, the war profits tax may not be considered as unconstitutional.
The doctrine of unconstitutionality raised by Appellant is based on the prohibition against ex post
facto laws. But this prohibition applies only to criminal or penal matters, and not to laws which
concern civil matters or proceedings generally, or which affect or regulate civil or private rights (Ex
parte Garland, 18 Law Ed., 366; 16 C.J. S., 889-891).

At an early day it was settled by authoritative decisions, in opposition to what might seem the more
natural and obvious meaning of the term ex post facto, that in their scope and purpose these
provisions were confined to laws respecting criminal punishments, and had no relation whatever to
retrospective legislation of any other description. And it has, therefore, been repeatedly held, that
retrospective laws, when not of a criminal nature, do not come in conflict with the national
Constitution, unless obnoxious to its provisions on other grounds than their respective character. (1
Cooley, Constitutional Limitations, 544-545.)
We have applied the above principle in the cases of Mekin vs. Wolf, 2 Phil. 74 and Ongsiako vs.
Gamboa, 47 Off. Gaz., No. 11, 5613, 5616.
It has also been held that property taxes and benefit assessments on real estate, retroactively applied,
are not open to the objection that they infringe upon the due process of law clause of the Constitution
(Wagner vs. Baltimore, 239 U. S. 207, 60 L. Ed. 230); that taxes on income are not subject to the
constitutional objection because of their retroactivity. The universal practice has been to increase
taxes on incomes already earned; yet notwithstanding this retroactive operation, income taxes have
not been successfully assailed as invalid. The uniform ruling of the courts in the United States has
been to reject the contention that the retroactive application of revenue acts is a denial of the due
process guaranteed by the Fifth Amendment (Welch vs. Henry, 305 U. S. 134, 83 L. Ed. 87).
It has also been held that in order to declare a tax as transgressing the constitutional limitation, it
must be so harsh and oppressive in its retroactive application (Idem.). But we hold that far from being
unjust or harsh and oppressive our war profits tax is both wise and just. The last Pacific war and the
Japanese occupation of the Islands have wrought divergent effects upon the different sectors of the
population. The quiet and the timid, who were afraid to go out of their homes or who refused to have
any dealings with the enemy, stopped from exercising their callings or professions, losing their
incomes; and they supported themselves with properties they already owned, selling these from time
to time to raise funds with which to purchase their daily needs. These were reduced to penury and
want. But the bold and the daring, as well as those who were callous to the criticism of being
collaborators, engaged in trading in all forms or sorts of commodities, from foodstuffs to war
materials, earning fabulous incomes and acquiring properties with their earnings. Those who were
able to retain their properties found themselves possessed of increased wealth because inflation set
in, the currency dropped in value and properties soared in prices. It would have been unrealistic for
the legislature to have ignored all these facts and circumstances. After the war it could not, with
justice to all concerned, apportion the expenses of government equally on all the people irrespective
of the vicissitudes of war, equally on those who had their properties decimated as on those who had
become fabulously rich after the war. Those who were fortunate to increase their wealth during the
troublous period of the war were made to contribute a portion of their newly-acquired wealth for the
maintenance of the government and defray its expenses. Those who in turn were reduced to penury or
whose incomes suffered reductions could not be compelled to share in the expenses to the same
extent as those who grew rich. This in effect is what the legislature did when it enacted the War
Profits Tax Law. The law may not be considered harsh and oppressive because the force of its impact
fell on those who had amassed wealth or increased their wealth during the war, but did not touch the
less fortunate. The policy followed is the same as that which underlies the Income Tax Law, imposing
the burden upon those who have and relieving those who have not. No one can dare challenge the law
as harsh and oppressive. We declare it to be just and sound and overrule the objection thereto on the
ground of unconstitutionality.
The contention that the deceased Olimpio Fernandez or his estate should not be responsible because
he died in 1945 and was no longer living when the law was enacted at a later date, in 1946, is
absolutely without merit. Fernandez died immediately before the liberation and the actual cessation of
hostilities. He profited by the war; there is no reason why the incident of his death should relieve his
estate from the tax. On this matter we agree with the Court of Tax Appeals that the provisions of
section 18 of the Internal Revenue Code have been incorporated in Republic Act No. 55 by virtue of
Section 9 thereof, which provides:
SEC. 9. Administrative remedies. All administrative, special and general provisions of law,
including the laws in relation to the assessment, remission, collection and refund of national internal
revenue taxes, not inconsistent with the provisions of the Act, are hereby extended and made
applicable to all the provisions of this law, and to the tax herein imposed.
Under section 84 of the National Internal Revenue Code, the term person means an individual, a
trust, estate, corporation, or a duly registered general co-partnership. If the individual is already
dead, property or estate left by him should be subject to the tax in the same manner as if he were
alive.
The last contention is also without merit. The property which Olimpio Fernandez was possessed of in
December, 1941 is presumed to be conjugal property and so are the properties which were acquired
by him during the war, because at that time he was married. There is no claim or evidence to support
the claim that any of the properties were paraphernal properties of the wife; so the presumption
stands that they were conjugal properties of the husband and wife. Under these circumstances they
cannot be considered as properties belonging to two individuals, each of which shall be subject to the
tax independently of the other.

For the foregoing considerations, the judgment appealed from is hereby affirmed, with costs against
the Appellants.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-43082
June 18, 1937
PABLO LORENZO, as trustee of the estate of Thomas Hanley, deceased, plaintiff-appellant,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.
Pablo Lorenzo and Delfin Joven for plaintiff-appellant.Office of the Solicitor-General Hilado for
defendant-appellant.
LAUREL, J.:
On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as trustee of the estate of Thomas
Hanley, deceased, brought this action in the Court of First Instance of Zamboanga against the
defendant, Juan Posadas, Jr., then the Collector of Internal Revenue, for the refund of the amount of
P2,052.74, paid by the plaintiff as inheritance tax on the estate of the deceased, and for the collection
of interest thereon at the rate of 6 per cent per annum, computed from September 15, 1932, the date
when the aforesaid tax was [paid under protest. The defendant set up a counterclaim for P1,191.27
alleged to be interest due on the tax in question and which was not included in the original
assessment. From the decision of the Court of First Instance of Zamboanga dismissing both the
plaintiff's complaint and the defendant's counterclaim, both parties appealed to this court.
It appears that on May 27, 1922, one Thomas Hanley died in Zamboanga, Zamboanga, leaving a will
(Exhibit 5) and considerable amount of real and personal properties. On June 14, 1922, proceedings
for the probate of his will and the settlement and distribution of his estate were begun in the Court of
First Instance of Zamboanga. The will was admitted to probate. Said will provides, among other
things, as follows:
4. I direct that any money left by me be given to my nephew Matthew Hanley.
5. I direct that all real estate owned by me at the time of my death be not sold or otherwise disposed
of for a period of ten (10) years after my death, and that the same be handled and managed by the
executors, and proceeds thereof to be given to my nephew, Matthew Hanley, at Castlemore,
Ballaghaderine, County of Rosecommon, Ireland, and that he be directed that the same be used only
for the education of my brother's children and their descendants.
6. I direct that ten (10) years after my death my property be given to the above mentioned Matthew
Hanley to be disposed of in the way he thinks most advantageous.
8. I state at this time I have one brother living, named Malachi Hanley, and that my nephew, Matthew
Hanley, is a son of my said brother, Malachi Hanley.
The Court of First Instance of Zamboanga considered it proper for the best interests of their estate to
appoint a trustee to administer the real properties which, under the will, were to pass to Matthew
Hanley ten years after the two executors named in the will, was, on March 8, 1924, appointed trustee.
Moore took his oath of office and gave bond on March 10, 1924. He acted as trustee until February
29, 1932, when he resigned and the plaintiff herein was appointed in his stead.
During the incumbency of the plaintiff as trustee, the defendant Collector of Internal Revenue,
alleging that the estate left by the deceased at the time of his death consisted of realty valued at
P27,920 and personalty valued at P1,465, and allowing a deduction of P480.81, assessed against the
estate an inheritance tax in the amount of P1,434.24 which, together with the penalties for
delinquency in payment consisting of a 1 per cent monthly interest from July 1, 1931 to the date of
payment and a surcharge of 25 per cent on the tax, amounted to P2,052.74. On March 15, 1932, the
defendant filed a motion in the testamentary proceedings pending before the Court of First Instance
of Zamboanga (Special proceedings No. 302) praying that the trustee, plaintiff herein, be ordered to
pay to the Government the said sum of P2,052.74. The motion was granted. On September 15, 1932,
the plaintiff paid said amount under protest, notifying the defendant at the same time that unless the
amount was promptly refunded suit would be brought for its recovery. The defendant overruled the
plaintiff's protest and refused to refund the said amount hausted, plaintiff went to court with the
result herein above indicated.
In his appeal, plaintiff contends that the lower court erred:
I. In holding that the real property of Thomas Hanley, deceased, passed to his instituted heir, Matthew
Hanley, from the moment of the death of the former, and that from the time, the latter became the
owner thereof.
II. In holding, in effect, that there was delinquency in the payment of inheritance tax due on the estate
of said deceased.
III. In holding that the inheritance tax in question be based upon the value of the estate upon the
death of the testator, and not, as it should have been held, upon the value thereof at the expiration of

the period of ten years after which, according to the testator's will, the property could be and was to
be delivered to the instituted heir.
IV. In not allowing as lawful deductions, in the determination of the net amount of the estate subject to
said tax, the amounts allowed by the court as compensation to the "trustees" and paid to them from
the decedent's estate.
V. In not rendering judgment in favor of the plaintiff and in denying his motion for new trial.
The defendant-appellant contradicts the theories of the plaintiff and assigns the following error
besides:
The lower court erred in not ordering the plaintiff to pay to the defendant the sum of P1,191.27,
representing part of the interest at the rate of 1 per cent per month from April 10, 1924, to June 30,
1931, which the plaintiff had failed to pay on the inheritance tax assessed by the defendant against
the estate of Thomas Hanley.
The following are the principal questions to be decided by this court in this appeal: ( a) When does the
inheritance tax accrue and when must it be satisfied? (b) Should the inheritance tax be computed on
the basis of the value of the estate at the time of the testator's death, or on its value ten years later?
(c) In determining the net value of the estate subject to tax, is it proper to deduct the compensation
due to trustees? (d) What law governs the case at bar? Should the provisions of Act No. 3606
favorable to the tax-payer be given retroactive effect? (e) Has there been delinquency in the payment
of the inheritance tax? If so, should the additional interest claimed by the defendant in his appeal be
paid by the estate? Other points of incidental importance, raised by the parties in their briefs, will be
touched upon in the course of this opinion.
(a) The accrual of the inheritance tax is distinct from the obligation to pay the same. Section 1536 as
amended, of the Administrative Code, imposes the tax upon "every transmission by virtue of
inheritance, devise, bequest, gift mortis causa, or advance in anticipation of inheritance, devise, or
bequest." The tax therefore is upon transmission or the transfer or devolution of property of a
decedent, made effective by his death. (61 C. J., p. 1592.) It is in reality an excise or privilege tax
imposed on the right to succeed to, receive, or take property by or under a will or the intestacy law, or
deed, grant, or gift to become operative at or after death. According to article 657 of the Civil Code,
"the rights to the succession of a person are transmitted from the moment of his death." "In other
words", said Arellano, C. J., ". . . the heirs succeed immediately to all of the property of the deceased
ancestor. The property belongs to the heirs at the moment of the death of the ancestor as completely
as if the ancestor had executed and delivered to them a deed for the same before his death." (Bondad
vs. Bondad, 34 Phil., 232. See also, Mijares vs. Nery, 3 Phil., 195; Suilong & Co., vs. Chio-Taysan, 12
Phil., 13; Lubrico vs. Arbado, 12 Phil., 391; Innocencio vs. Gat-Pandan, 14 Phil., 491; Aliasas
vs.Alcantara, 16 Phil., 489; Ilustre vs. Alaras Frondosa, 17 Phil., 321; Malahacan vs. Ignacio, 19 Phil.,
434; Bowa vs. Briones, 38 Phil., 27; Osario vs. Osario & Yuchausti Steamship Co., 41 Phil., 531; Fule
vs. Fule, 46 Phil., 317; Dais vs. Court of First Instance of Capiz, 51 Phil., 396; Baun vs. Heirs of Baun,
53 Phil., 654.) Plaintiff, however, asserts that while article 657 of the Civil Code is applicable to testate
as well as intestate succession, it operates only in so far as forced heirs are concerned. But the
language of article 657 of the Civil Code is broad and makes no distinction between different classes
of heirs. That article does not speak of forced heirs; it does not even use the word "heir". It speaks of
the rights of succession and the transmission thereof from the moment of death. The provision of
section 625 of the Code of Civil Procedure regarding the authentication and probate of a will as a
necessary condition to effect transmission of property does not affect the general rule laid down in
article 657 of the Civil Code. The authentication of a will implies its due execution but once probated
and allowed the transmission is effective as of the death of the testator in accordance with article 657
of the Civil Code. Whatever may be the time when actual transmission of the inheritance takes place,
succession takes place in any event at the moment of the decedent's death. The time when the heirs
legally succeed to the inheritance may differ from the time when the heirs actually receive such
inheritance. "Poco importa", says Manresa commenting on article 657 of the Civil Code, "que desde el
falleimiento del causante, hasta que el heredero o legatario entre en posesion de los bienes de la
herencia o del legado, transcurra mucho o poco tiempo, pues la adquisicion ha de retrotraerse al
momento de la muerte, y asi lo ordena el articulo 989, que debe considerarse como complemento del
presente." (5 Manresa, 305; see also, art. 440, par. 1, Civil Code.) Thomas Hanley having died on May
27, 1922, the inheritance tax accrued as of the date.
From the fact, however, that Thomas Hanley died on May 27, 1922, it does not follow that the
obligation to pay the tax arose as of the date. The time for the payment on inheritance tax is clearly
fixed by section 1544 of the Revised Administrative Code as amended by Act No. 3031, in relation to
section 1543 of the same Code. The two sections follow:
SEC. 1543. Exemption of certain acquisitions and transmissions. The following shall not be taxed:
(a) The merger of the usufruct in the owner of the naked title.
(b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the
trustees.
(c) The transmission from the first heir, legatee, or donee in favor of another beneficiary, in
accordance with the desire of the predecessor.

In the last two cases, if the scale of taxation appropriate to the new beneficiary is greater than that
paid by the first, the former must pay the difference.
SEC. 1544. When tax to be paid. The tax fixed in this article shall be paid:
(a) In the second and third cases of the next preceding section, before entrance into possession of the
property.
(b) In other cases, within the six months subsequent to the death of the predecessor; but if judicial
testamentary or intestate proceedings shall be instituted prior to the expiration of said period, the
payment shall be made by the executor or administrator before delivering to each beneficiary his
share.
If the tax is not paid within the time hereinbefore prescribed, interest at the rate of twelve per centum
per annum shall be added as part of the tax; and to the tax and interest due and unpaid within ten
days after the date of notice and demand thereof by the collector, there shall be further added a
surcharge of twenty-five per centum.
A certified of all letters testamentary or of administration shall be furnished the Collector of Internal
Revenue by the Clerk of Court within thirty days after their issuance.
It should be observed in passing that the word "trustee", appearing in subsection ( b) of section 1543,
should read "fideicommissary" or "cestui que trust". There was an obvious mistake in translation from
the Spanish to the English version.
The instant case does fall under subsection (a), but under subsection (b), of section 1544 abovequoted, as there is here no fiduciary heirs, first heirs, legatee or donee. Under the subsection, the tax
should have been paid before the delivery of the properties in question to P. J. M. Moore as trustee on
March 10, 1924.
(b) The plaintiff contends that the estate of Thomas Hanley, in so far as the real properties are
concerned, did not and could not legally pass to the instituted heir, Matthew Hanley, until after the
expiration of ten years from the death of the testator on May 27, 1922 and, that the inheritance tax
should be based on the value of the estate in 1932, or ten years after the testator's death. The plaintiff
introduced evidence tending to show that in 1932 the real properties in question had a reasonable
value of only P5,787. This amount added to the value of the personal property left by the deceased,
which the plaintiff admits is P1,465, would generate an inheritance tax which, excluding deductions,
interest and surcharge, would amount only to about P169.52.
If death is the generating source from which the power of the estate to impose inheritance taxes takes
its being and if, upon the death of the decedent, succession takes place and the right of the estate to
tax vests instantly, the tax should be measured by the value of the estate as it stood at the time of the
decedent's death, regardless of any subsequent contingency value of any subsequent increase or
decrease in value. (61 C. J., pp. 1692, 1693; 26 R. C. L., p. 232; Blakemore and Bancroft, Inheritance
Taxes, p. 137. See also Knowlton vs. Moore, 178 U.S., 41; 20 Sup. Ct. Rep., 747; 44 Law. ed., 969.)
"The right of the state to an inheritance tax accrues at the moment of death, and hence is ordinarily
measured as to any beneficiary by the value at that time of such property as passes to him.
Subsequent appreciation or depreciation is immaterial." (Ross, Inheritance Taxation, p. 72.)
Our attention is directed to the statement of the rule in Cyclopedia of Law of and Procedure (vol. 37,
pp. 1574, 1575) that, in the case of contingent remainders, taxation is postponed until the estate vests
in possession or the contingency is settled. This rule was formerly followed in New York and has been
adopted in Illinois, Minnesota, Massachusetts, Ohio, Pennsylvania and Wisconsin. This rule, however,
is by no means entirely satisfactory either to the estate or to those interested in the property (26 R. C.
L., p. 231.). Realizing, perhaps, the defects of its anterior system, we find upon examination of cases
and authorities that New York has varied and now requires the immediate appraisal of the postponed
estate at its clear market value and the payment forthwith of the tax on its out of the corpus of the
estate transferred. (In re Vanderbilt, 172 N. Y., 69; 69 N. E., 782; In re Huber, 86 N. Y. App. Div., 458;
83 N. Y. Supp., 769; Estate of Tracy, 179 N. Y., 501; 72 N. Y., 519; Estate of Brez, 172 N. Y., 609; 64 N.
E., 958; Estate of Post, 85 App. Div., 611; 82 N. Y. Supp., 1079. Vide also, Saltoun vs. Lord Advocate, 1
Peter. Sc. App., 970; 3 Macq. H. L., 659; 23 Eng. Rul. Cas., 888.) California adheres to this new rule
(Stats. 1905, sec. 5, p. 343).
But whatever may be the rule in other jurisdictions, we hold that a transmission by inheritance is
taxable at the time of the predecessor's death, notwithstanding the postponement of the actual
possession or enjoyment of the estate by the beneficiary, and the tax measured by the value of the
property transmitted at that time regardless of its appreciation or depreciation.
(c) Certain items are required by law to be deducted from the appraised gross in arriving at the net
value of the estate on which the inheritance tax is to be computed (sec. 1539, Revised Administrative
Code). In the case at bar, the defendant and the trial court allowed a deduction of only P480.81. This
sum represents the expenses and disbursements of the executors until March 10, 1924, among which
were their fees and the proven debts of the deceased. The plaintiff contends that the compensation
and fees of the trustees, which aggregate P1,187.28 (Exhibits C, AA, EE, PP, HH, JJ, LL, NN, OO),
should also be deducted under section 1539 of the Revised Administrative Code which provides, in
part, as follows: "In order to determine the net sum which must bear the tax, when an inheritance is
concerned, there shall be deducted, in case of a resident, . . . the judicial expenses of the testamentary
or intestate proceedings, . . . ."

A trustee, no doubt, is entitled to receive a fair compensation for his services (Barney vs. Saunders, 16
How., 535; 14 Law. ed., 1047). But from this it does not follow that the compensation due him may
lawfully be deducted in arriving at the net value of the estate subject to tax. There is no statute in the
Philippines which requires trustees' commissions to be deducted in determining the net value of the
estate subject to inheritance tax (61 C. J., p. 1705). Furthermore, though a testamentary trust has
been created, it does not appear that the testator intended that the duties of his executors and
trustees should be separated. (Ibid.; In re Vanneck's Estate, 161 N. Y. Supp., 893; 175 App. Div., 363;
In re Collard's Estate, 161 N. Y. Supp., 455.) On the contrary, in paragraph 5 of his will, the testator
expressed the desire that his real estate be handled and managed by his executors until the expiration
of the period of ten years therein provided. Judicial expenses are expenses of administration (61 C. J.,
p. 1705) but, in State vs. Hennepin County Probate Court (112 N. W., 878; 101 Minn., 485), it was
said: ". . . The compensation of a trustee, earned, not in the administration of the estate, but in the
management thereof for the benefit of the legatees or devises, does not come properly within the class
or reason for exempting administration expenses. . . . Service rendered in that behalf have no
reference to closing the estate for the purpose of a distribution thereof to those entitled to it, and are
not required or essential to the perfection of the rights of the heirs or legatees. . . . Trusts . . . of the
character of that here before the court, are created for the benefit of those to whom the property
ultimately passes, are of voluntary creation, and intended for the preservation of the estate. No sound
reason is given to support the contention that such expenses should be taken into consideration in
fixing the value of the estate for the purpose of this tax."
(d) The defendant levied and assessed the inheritance tax due from the estate of Thomas Hanley
under the provisions of section 1544 of the Revised Administrative Code, as amended by section 3 of
Act No. 3606. But Act No. 3606 went into effect on January 1, 1930. It, therefore, was not the law in
force when the testator died on May 27, 1922. The law at the time was section 1544 above-mentioned,
as amended by Act No. 3031, which took effect on March 9, 1922.
It is well-settled that inheritance taxation is governed by the statute in force at the time of the death
of the decedent (26 R. C. L., p. 206; 4 Cooley on Taxation, 4th ed., p. 3461). The taxpayer can not
foresee and ought not to be required to guess the outcome of pending measures. Of course, a tax
statute may be made retroactive in its operation. Liability for taxes under retroactive legislation has
been "one of the incidents of social life." (Seattle vs. Kelleher, 195 U. S., 360; 49 Law. ed., 232 Sup. Ct.
Rep., 44.) But legislative intent that a tax statute should operate retroactively should be perfectly
clear. (Scwab vs. Doyle, 42 Sup. Ct. Rep., 491; Smietanka vs. First Trust & Savings Bank, 257 U. S.,
602; Stockdale vs. Insurance Co., 20 Wall., 323; Lunch vs. Turrish, 247 U. S., 221.) "A statute should
be considered as prospective in its operation, whether it enacts, amends, or repeals an inheritance
tax, unless the language of the statute clearly demands or expresses that it shall have a retroactive
effect, . . . ." (61 C. J., P. 1602.) Though the last paragraph of section 5 of Regulations No. 65 of the
Department of Finance makes section 3 of Act No. 3606, amending section 1544 of the Revised
Administrative Code, applicable to all estates the inheritance taxes due from which have not been
paid, Act No. 3606 itself contains no provisions indicating legislative intent to give it retroactive
effect. No such effect can begiven the statute by this court.
The defendant Collector of Internal Revenue maintains, however, that certain provisions of Act No.
3606 are more favorable to the taxpayer than those of Act No. 3031, that said provisions are penal in
nature and, therefore, should operate retroactively in conformity with the provisions of article 22 of
the Revised Penal Code. This is the reason why he applied Act No. 3606 instead of Act No. 3031.
Indeed, under Act No. 3606, (1) the surcharge of 25 per cent is based on the tax only, instead of on
both the tax and the interest, as provided for in Act No. 3031, and (2) the taxpayer is allowed twenty
days from notice and demand by the Collector of Internal Revenue within which to pay the tax, instead
of ten days only as required by the old law.
Properly speaking, a statute is penal when it imposes punishment for an offense committed against
the state which, under the Constitution, the Executive has the power to pardon. In common use,
however, this sense has been enlarged to include within the term "penal statutes" all status which
command or prohibit certain acts, and establish penalties for their violation, and even those which,
without expressly prohibiting certain acts, impose a penalty upon their commission (59 C. J., p. 1110).
Revenue laws, generally, which impose taxes collected by the means ordinarily resorted to for the
collection of taxes are not classed as penal laws, although there are authorities to the contrary. ( See
Sutherland, Statutory Construction, 361; Twine Co. vs. Worthington, 141 U. S., 468; 12 Sup. Ct., 55;
Rice vs. U. S., 4 C. C. A., 104; 53 Fed., 910; Com. vs. Standard Oil Co., 101 Pa. St., 150; State vs.
Wheeler, 44 P., 430; 25 Nev. 143.) Article 22 of the Revised Penal Code is not applicable to the case at
bar, and in the absence of clear legislative intent, we cannot give Act No. 3606 a retroactive effect.
(e) The plaintiff correctly states that the liability to pay a tax may arise at a certain time and the tax
may be paid within another given time. As stated by this court, "the mere failure to pay one's tax does
not render one delinquent until and unless the entire period has elapsed within which the taxpayer is
authorized by law to make such payment without being subjected to the payment of penalties for
failure to pay his taxes within the prescribed period." (U. S. vs. Abadan, 26 Phil., 239.)
The defendant maintains that it was the duty of the executor to pay the inheritance tax before the
delivery of the decedent's property to the trustee. Stated otherwise, the defendant contends that

delivery to the trustee was delivery to the cestui que trust, the beneficiary in this case, within the
meaning of the first paragraph of subsection (b) of section 1544 of the Revised Administrative Code.
This contention is well taken and is sustained. The appointment of P. J. M. Moore as trustee was made
by the trial court in conformity with the wishes of the testator as expressed in his will. It is true that
the word "trust" is not mentioned or used in the will but the intention to create one is clear. No
particular or technical words are required to create a testamentary trust (69 C. J., p. 711). The words
"trust" and "trustee", though apt for the purpose, are not necessary. In fact, the use of these two
words is not conclusive on the question that a trust is created (69 C. J., p. 714). "To create a trust by
will the testator must indicate in the will his intention so to do by using language sufficient to separate
the legal from the equitable estate, and with sufficient certainty designate the beneficiaries, their
interest in the trust, the purpose or object of the trust, and the property or subject matter thereof.
Stated otherwise, to constitute a valid testamentary trust there must be a concurrence of three
circumstances: (1) Sufficient words to raise a trust; (2) a definite subject; (3) a certain or ascertain
object; statutes in some jurisdictions expressly or in effect so providing." (69 C. J., pp. 705,706.) There
is no doubt that the testator intended to create a trust. He ordered in his will that certain of his
properties be kept together undisposed during a fixed period, for a stated purpose. The probate court
certainly exercised sound judgment in appointment a trustee to carry into effect the provisions of the
will (see sec. 582, Code of Civil Procedure).
P. J. M. Moore became trustee on March 10, 1924. On that date trust estate vested in him (sec. 582 in
relation to sec. 590, Code of Civil Procedure). The mere fact that the estate of the deceased was
placed in trust did not remove it from the operation of our inheritance tax laws or exempt it from the
payment of the inheritance tax. The corresponding inheritance tax should have been paid on or before
March 10, 1924, to escape the penalties of the laws. This is so for the reason already stated that the
delivery of the estate to the trustee was in esse delivery of the same estate to the cestui que trust, the
beneficiary in this case. A trustee is but an instrument or agent for the cestui que trust (Shelton vs.
King, 299 U. S., 90; 33 Sup. Ct. Rep., 689; 57 Law. ed., 1086). When Moore accepted the trust and
took possession of the trust estate he thereby admitted that the estate belonged not to him but to his
cestui que trust (Tolentino vs. Vitug, 39 Phil.,126, cited in 65 C. J., p. 692, n. 63). He did not acquire
any beneficial interest in the estate. He took such legal estate only as the proper execution of the trust
required (65 C. J., p. 528) and, his estate ceased upon the fulfillment of the testator's wishes. The
estate then vested absolutely in the beneficiary (65 C. J., p. 542).
The highest considerations of public policy also justify the conclusion we have reached. Were we to
hold that the payment of the tax could be postponed or delayed by the creation of a trust of the type at
hand, the result would be plainly disastrous. Testators may provide, as Thomas Hanley has provided,
that their estates be not delivered to their beneficiaries until after the lapse of a certain period of
time. In the case at bar, the period is ten years. In other cases, the trust may last for fifty years, or for
a longer period which does not offend the rule against petuities. The collection of the tax would then
be left to the will of a private individual. The mere suggestion of this result is a sufficient warning
against the acceptance of the essential to the very existence of government. (Dobbins vs. Erie Country,
16 Pet., 435; 10 Law. ed., 1022; Kirkland vs. Hotchkiss, 100 U. S., 491; 25 Law. ed., 558; Lane County
vs. Oregon, 7 Wall., 71; 19 Law. ed., 101; Union Refrigerator Transit Co. vs. Kentucky, 199 U. S., 194;
26 Sup. Ct. Rep., 36; 50 Law. ed., 150; Charles River Bridge vs. Warren Bridge, 11 Pet., 420; 9 Law.
ed., 773.) The obligation to pay taxes rests not upon the privileges enjoyed by, or the protection
afforded to, a citizen by the government but upon the necessity of money for the support of the state
(Dobbins vs. Erie Country, supra). For this reason, no one is allowed to object to or resist the payment
of taxes solely because no personal benefit to him can be pointed out. (Thomas vs. Gay, 169 U. S., 264;
18 Sup. Ct. Rep., 340; 43 Law. ed., 740.) While courts will not enlarge, by construction, the
government's power of taxation (Bromley vs. McCaughn, 280 U. S., 124; 74 Law. ed., 226; 50 Sup. Ct.
Rep., 46) they also will not place upon tax laws so loose a construction as to permit evasions on
merely fanciful and insubstantial distinctions. (U. S. vs. Watts, 1 Bond., 580; Fed. Cas. No. 16,653; U.
S. vs. Wigglesirth, 2 Story, 369; Fed. Cas. No. 16,690, followed in Froelich & Kuttner vs. Collector of
Customs, 18 Phil., 461, 481; Castle Bros., Wolf & Sons vs. McCoy, 21 Phil., 300; Muoz & Co. vs. Hord,
12 Phil., 624; Hongkong & Shanghai Banking Corporation vs. Rafferty, 39 Phil., 145; Luzon
Stevedoring Co. vs. Trinidad, 43 Phil., 803.) When proper, a tax statute should be construed to avoid
the possibilities of tax evasion. Construed this way, the statute, without resulting in injustice to the
taxpayer, becomes fair to the government.
That taxes must be collected promptly is a policy deeply entrenched in our tax system. Thus, no court
is allowed to grant injunction to restrain the collection of any internal revenue tax ( sec. 1578, Revised
Administrative Code; Sarasola vs. Trinidad, 40 Phil., 252). In the case of Lim Co Chui vs. Posadas (47
Phil., 461), this court had occassion to demonstrate trenchment adherence to this policy of the law. It
held that "the fact that on account of riots directed against the Chinese on October 18, 19, and 20,
1924, they were prevented from praying their internal revenue taxes on time and by mutual
agreement closed their homes and stores and remained therein, does not authorize the Collector of
Internal Revenue to extend the time prescribed for the payment of the taxes or to accept them without
the additional penalty of twenty five per cent." (Syllabus, No. 3.)

". . . It is of the utmost importance," said the Supreme Court of the United States, ". . . that the modes
adopted to enforce the taxes levied should be interfered with as little as possible. Any delay in the
proceedings of the officers, upon whom the duty is developed of collecting the taxes, may derange the
operations of government, and thereby, cause serious detriment to the public." (Dows vs. Chicago, 11
Wall., 108; 20 Law. ed., 65, 66; Churchill and Tait vs. Rafferty, 32 Phil., 580.)
It results that the estate which plaintiff represents has been delinquent in the payment of inheritance
tax and, therefore, liable for the payment of interest and surcharge provided by law in such cases.
The delinquency in payment occurred on March 10, 1924, the date when Moore became trustee. The
interest due should be computed from that date and it is error on the part of the defendant to compute
it one month later. The provisions cases is mandatory (see and cf. Lim Co Chui vs. Posadas, supra),
and neither the Collector of Internal Revenuen or this court may remit or decrease such interest, no
matter how heavily it may burden the taxpayer.
To the tax and interest due and unpaid within ten days after the date of notice and demand thereof by
the Collector of Internal Revenue, a surcharge of twenty-five per centum should be added (sec. 1544,
subsec. (b), par. 2, Revised Administrative Code). Demand was made by the Deputy Collector of
Internal Revenue upon Moore in a communication dated October 16, 1931 (Exhibit 29). The date fixed
for the payment of the tax and interest was November 30, 1931. November 30 being an official
holiday, the tenth day fell on December 1, 1931. As the tax and interest due were not paid on that
date, the estate became liable for the payment of the surcharge.
In view of the foregoing, it becomes unnecessary for us to discuss the fifth error assigned by the
plaintiff in his brief.
We shall now compute the tax, together with the interest and surcharge due from the estate of
Thomas Hanley in accordance with the conclusions we have reached.
At the time of his death, the deceased left real properties valued at P27,920 and personal properties
worth P1,465, or a total of P29,385. Deducting from this amount the sum of P480.81, representing
allowable deductions under section 1539 of the Revised Administrative Code, we have P28,904.19 as
the net value of the estate subject to inheritance tax.
The primary tax, according to section 1536, subsection (c), of the Revised Administrative Code, should
be imposed at the rate of one per centum upon the first ten thousand pesos and two per centum upon
the amount by which the share exceed thirty thousand pesos, plus an additional two hundred per
centum. One per centum of ten thousand pesos is P100. Two per centum of P18,904.19 is P378.08.
Adding to these two sums an additional two hundred per centum, or P965.16, we have as primary tax,
correctly computed by the defendant, the sum of P1,434.24.
To the primary tax thus computed should be added the sums collectible under section 1544 of the
Revised Administrative Code. First should be added P1,465.31 which stands for interest at the rate of
twelve per centum per annum from March 10, 1924, the date of delinquency, to September 15, 1932,
the date of payment under protest, a period covering 8 years, 6 months and 5 days. To the tax and
interest thus computed should be added the sum of P724.88, representing a surcharge of 25 per cent
on both the tax and interest, and also P10, the compromise sum fixed by the defendant (Exh. 29),
giving a grand total of P3,634.43.
As the plaintiff has already paid the sum of P2,052.74, only the sums of P1,581.69 is legally due from
the estate. This last sum is P390.42 more than the amount demanded by the defendant in his
counterclaim. But, as we cannot give the defendant more than what he claims, we must hold that the
plaintiff is liable only in the sum of P1,191.27 the amount stated in the counterclaim.
The judgment of the lower court is accordingly modified, with costs against the plaintiff in both
instances. So ordered.