G.R. No.
188497 February 19, 2014
COMMISSIONER OF INTERNAL
REVENUE, Petitioner,
vs.
PILIPINAS SHELL PETROLEUM
CORPORATION, Respondent.
RESOLUTION
VILLARAMA, JR., J.:
For resolution are the Motion for Reconsideration
dated May 22, 2012 and Supplemental Motion for
Reconsideration dated December 12, 2012 filed by
Pilipinas Shell Petroleum Corporation (respondent).
As directed, the Solicitor General on behalf of
petitioner Commissioner of Internal Revenue filed
their Comment, to which respondent filed its Reply.
In our Decision promulgated on April 25, 2012, we
ruled that the Court of Tax Appeals (CTA) erred in
granting respondent's claim for tax refund because
the latter failed to establish a tax exemption in its
favor under Section 135(a) of the National Internal
Revenue Code of 1997 (NIRC).
WHEREFORE, the petition for review on certiorari is
GRANTED. The Decision dated March 25, 2009 and
Resolution dated June 24, 2009 of the Court of Tax
Appeals En Banc in CTA EB No. 415 are hereby
REVERSED and SET ASIDE. The claims for tax
refund or credit filed by respondent Pilipinas Shell
Petroleum Corporation are DENIED for lack of basis.
No pronouncement as to costs.
SO ORDERED.1
Respondent argues that a plain reading of Section
135 of the NIRC reveals that it is the petroleum
products sold to international carriers which are
exempt from excise tax for which reason no excise
taxes are deemed to have been due in the first place.
It points out that excise tax being an indirect tax,
Section 135 in relation to Section 148 should be
interpreted as referring to a tax exemption from the
point of production and removal from the place of
production considering that it is only at that point
that an excise tax is imposed. The situation is unlike
the value-added tax (VAT) which is imposed at every
point of turnover – from production to wholesale, to
retail and to end-consumer. Respondent thus
concludes that exemption could only refer to the
imposition of the tax on the statutory seller, in this
case the respondent. This is because when a tax paid
by the statutory seller is passed on to the buyer it is
no longer in the nature of a tax but an added cost to
the purchase price of the product sold.
Respondent also contends that our ruling that
Section 135 only prohibits local petroleum
manufacturers like respondent from shifting the
burden of excise tax to international carriers has
adverse economic impact as it severely curtails the
domestic oil industry. Requiring local petroleum
manufacturers to absorb the tax burden in the sale
of its products to international carriers is contrary to
the State’s policy of "protecting gasoline dealers and
distributors from unfair and onerous trade
conditions," and places them at a competitive
disadvantage since foreign oil producers,
particularly those whose governments with which we
have entered into bilateral service agreements, are
not subject to excise tax for the same transaction.
Respondent fears this could lead to cessation of
supply of petroleum products to international
carriers, retrenchment of employees of domestic
manufacturers/producers to prevent further losses,
or worse, shutting down of their production of jet A-
1 fuel and aviation gas due to unprofitability of
sustaining operations. Under this scenario,
participation of Filipino capital, management and
labor in the domestic oil industry is effectively
diminished.
Lastly, respondent asserts that the imposition by the
Philippine Government of excise tax on petroleum
products sold to international carriers is in violation
of the Chicago Convention on International Aviation
("Chicago Convention") to which it is a signatory, as
well as other international agreements (the Republic
of the Philippines’ air transport agreements with the
United States of America, Netherlands, Belgium and
Japan).
In his Comment, the Solicitor General underscores
the statutory basis of this Court’s ruling that the
exemption under Section 135 does not attach to the
products. Citing Exxonmobil Petroleum & Chemical
Holdings, Inc.-Philippine Branch v. Commissioner of
Internal Revenue,2 which held that the excise tax,
when passed on to the purchaser, becomes part of
the purchase price, the Solicitor General claims this
refutes respondent’s theory that the exemption
attaches to the petroleum product itself and not to
the purchaser for it would have been erroneous for
the seller to pay the excise tax and inequitable to
pass it on to the purchaser if the excise tax
exemption attaches to the product.
As to respondent’s reliance in the cases of Silkair
(Singapore) Pte. Ltd. v. Commissioner of Internal
Revenue3 and Exxonmobil Petroleum & Chemical
Holdings, Inc.-Philippine Branch v. Commissioner of
Internal Revenue,4 the Solicitor General points out
that there was no pronouncement in these cases that
petroleum manufacturers selling petroleum
products to international carriers are exempt from
paying excise taxes. In fact, Exxonmobil even cited
the case of Philippine Acetylene Co, Inc. v.
Commissioner of Internal Revenue.5 Further, the
ruling in Maceda v. Macaraig, Jr.6 which confirms
that Section 135 does not intend to exempt
manufacturers or producers of petroleum products
from the payment of excise tax.
The Court will now address the principal arguments
proffered by respondent: (1) Section 135 intended
the tax exemption to apply to petroleum products at
the point of production; (2) Philippine Acetylene Co.,
Inc. v. Commissioner of Internal Revenue and
Maceda v. Macaraig, Jr. are inapplicable in the light
of previous rulings of the Bureau of Internal Revenue
(BIR) and the CTA that the excise tax on petroleum
products sold to international carriers for use or
consumption outside the Philippines attaches to the
article when sold to said international carriers, as it
is the article which is exempt from the tax, not the
international carrier; and (3) the Decision of this
Court will not only have adverse impact on the
domestic oil industry but is also in violation of
international agreements on aviation.
Under Section 129 of the NIRC, excise taxes are
those applied to goods manufactured or produced in
the Philippines for domestic sale or consumption or
for any other disposition and to things imported.
Excise taxes as used in our Tax Code fall under two
types – (1) specific tax which is based on weight or
volume capacity and other physical unit of
measurement, and (2) ad valorem tax which is based
on selling price or other specified value of the goods.
Aviation fuel is subject to specific tax under Section
148 (g) which attaches to said product "as soon as
they are in existence as such."
On this point, the clarification made by our esteemed
colleague, Associate Justice Lucas P. Bersamin
regarding the traditional meaning of excise tax
adopted in our Decision, is well-taken.
The transformation undergone by the term "excise
tax" from its traditional concept up to its current
definition in our Tax Code was explained in the case
of Petron Corporation v. Tiangco,7 as follows:
Admittedly, the proffered definition of an excise tax
as "a tax upon the performance, carrying on, or
exercise of some right, privilege, activity, calling or
occupation" derives from the compendium American
Jurisprudence, popularly referred to as Am Jur and
has been cited in previous decisions of this Court,
including those cited by Petron itself. Such a
definition would not have been inconsistent with
previous incarnations of our Tax Code, such as the
NIRC of 1939, as amended, or the NIRC of 1977
because in those laws the term "excise tax" was not
used at all. In contrast, the nomenclature used in
those prior laws in referring to taxes imposed on
specific articles was "specific tax." Yet beginning with
the National Internal Revenue Code of 1986, as
amended, the term "excise taxes" was used and
defined as applicable "to goods manufactured or
produced in the Philippines… and to things
imported." This definition was carried over into the
present NIRC of 1997. Further, these two latest
codes categorize two different kinds of excise taxes:
"specific tax" which is imposed and based on weight
or volume capacity or any other physical unit of
measurement; and "ad valorem tax" which is
imposed and based on the selling price or other
specified value of the goods. In other words, the
meaning of "excise tax" has undergone a
transformation, morphing from the Am Jur
definition to its current signification which is a tax
on certain specified goods or articles.
The change in perspective brought forth by the use
of the term "excise tax" in a different connotation was
not lost on the departed author Jose Nolledo as he
accorded divergent treatments in his 1973 and 1994
commentaries on our tax laws. Writing in 1973, and
essentially alluding to the Am Jur definition of
"excise tax," Nolledo observed:
Are specific taxes, taxes on property or excise taxes
–
In the case of Meralco v. Trinidad ([G.R.] 16738,
1925) it was held that specific taxes are property
taxes, a ruling which seems to be erroneous. Specific
taxes are truly excise taxes for the fact that the value
of the property taxed is taken into account will not
change the nature of the tax. It is correct to say that
specific taxes are taxes on the privilege to import,
manufacture and remove from storage certain
articles specified by law.
In contrast, after the tax code was amended to
classify specific taxes as a subset of excise taxes,
Nolledo, in his 1994 commentaries, wrote:
1. Excise taxes, as used in the Tax Code, refers
to taxes applicable to certain specified goods
or articles manufactured or produced in the
Philippines for domestic sale or consumption
or for any other disposition and to things
imported into the Philippines. They are either
specific or ad valorem.
2. Nature of excise taxes. – They are imposed
directly on certain specified goods. (infra) They
are, therefore, taxes on property. (see Medina
vs. City of Baguio, 91 Phil. 854.)
A tax is not excise where it does not subject directly
the produce or goods to tax but indirectly as an
incident to, or in connection with, the business to be
taxed.
In their 2004 commentaries, De Leon and De Leon
restate the Am Jur definition of excise tax, and
observe that the term is "synonymous with ‘privilege
tax’ and [both terms] are often used
interchangeably." At the same time, they offer a
caveat that "[e]xcise tax, as [defined by Am Jur], is
not to be confused with excise tax imposed [by the
NIRC] on certain specified articles manufactured or
produced in, or imported into, the Philippines, ‘for
domestic sale or consumption or for any other
disposition.’"
It is evident that Am Jur aside, the current definition
of an excise tax is that of a tax levied on a specific
article, rather than one "upon the performance,
carrying on, or the exercise of an activity."
This current definition was already in place when the
Code was enacted in 1991, and we can only presume
that it was what the Congress had intended as it
specified that local government units could not
impose "excise taxes on articles enumerated under
the [NIRC]." This prohibition must pertain to the
same kind of excise taxes as imposed by the NIRC,
and not those previously defined "excise taxes" which
were not integrated or denominated as such in our
present tax law.8 (Emphasis supplied.)
That excise tax as presently understood is a tax on
property has no bearing at all on the issue of
respondent’s entitlement to refund. Nor does the
nature of excise tax as an indirect tax supports
respondent’s postulation that the tax exemption
provided in Sec. 135 attaches to the petroleum
products themselves and consequently the domestic
petroleum manufacturer is not liable for the
payment of excise tax at the point of production. As
already discussed in our Decision, to which Justice
Bersamin concurs, "the accrual and payment of the
excise tax on the goods enumerated under Title VI of
the NIRC prior to their removal at the place of
production are absolute and admit of no exception."
This also underscores the fact that the exemption
from payment of excise tax is conferred on
international carriers who purchased the petroleum
products of respondent.
On the basis of Philippine Acetylene, we held that a
tax exemption being enjoyed by the buyer cannot be
the basis of a claim for tax exemption by the
manufacturer or seller of the goods for any tax due
to it as the manufacturer or seller. The excise tax
imposed on petroleum products under Section 148
is the direct liability of the manufacturer who cannot
thus invoke the excise tax exemption granted to its
buyers who are international carriers. And following
our pronouncement in Maceda v. Macarig, Jr. we
further ruled that Section 135(a) should be
construed as prohibiting the shifting of the burden
of the excise tax to the international carriers who buy
petroleum products from the local manufacturers.
Said international carriers are thus allowed to
purchase the petroleum products without the excise
tax component which otherwise would have been
added to the cost or price fixed by the local
manufacturers or distributors/sellers.
Excise tax on aviation fuel used for international
flights is practically nil as most countries are
signatories to the 1944 Chicago Convention on
International Aviation (Chicago Convention). Article
249 of the Convention has been interpreted to
prohibit taxation of aircraft fuel consumed for
international transport. Taxation of international air
travel is presently at such low level that there has
been an intensified debate on whether these should
be increased to "finance development rather than
simply to augment national tax revenue" considering
the "cross-border environmental damage" caused by
aircraft emissions that contribute to global warming,
not to mention noise pollution and congestion at
airports).10 Mutual exemptions given under bilateral
air service agreements are seen as main legal
obstacles to the imposition of indirect taxes on
aviation fuel. In response to present realities, the
International Civil Aviation Organization (ICAO) has
adopted policies on charges and emission-related
taxes and charges.11
Section 135(a) of the NIRC and earlier amendments
to the Tax Code represent our Governments’
compliance with the Chicago Convention, its
subsequent resolutions/annexes, and the air
transport agreements entered into by the Philippine
Government with various countries. The rationale for
exemption of fuel from national and local taxes was
expressed by ICAO as follows:
...The Council in 1951 adopted a Resolution and
Recommendation on the taxation of fuel, a
Resolution on the taxation of income and of aircraft,
and a Resolution on taxes related to the sale or use
of international air transport (cf. Doc 7145) which
were further amended and amplified by the policy
statements in Doc 8632 published in 1966. The
Resolutions and Recommendation concerned were
designed to recognize the uniqueness of civil aviation
and the need to accord tax exempt status to certain
aspects of the operations of international air
transport and were adopted because multiple
taxation on the aircraft, fuel, technical supplies and
the income of international air transport, as well as
taxes on its sale and use, were considered as major
obstacles to the further development of international
air transport. Non-observance of the principle of
reciprocal exemption envisaged in these policies was
also seen as risking retaliatory action with adverse
repercussions on international air transport which
plays a major role in the development and expansion
of international trade and travel.12
In the 6th Meeting of the Worldwide Air Transport
Conference (ATCONF) held on March 18-22, 2013 at
Montreal, among matters agreed upon was that "the
proliferation of various taxes and duties on air
transport could have negative impact on the
sustainable development of air transport and on
consumers." Confirming that ICAO’s policies on
taxation remain valid, the Conference recommended
that "ICAO promote more vigorously its policies and
with industry stakeholders to develop analysis and
guidance to States on the impact of taxes and other
levies on air transport."13 Even as said conference
was being held, on March 7, 2013, President Benigno
Aquino III has signed into law Republic Act (R.A.) No.
1037814 granting tax incentives to foreign carriers
which include exemption from the 12% value-added
tax (VAT) and 2.5% gross Philippine billings tax
(GPBT). GPBT is a form of income tax applied to
international airlines or shipping companies. The
law, based on reciprocal grant of similar tax
exemptions to Philippine carriers, is expected to
increase foreign tourist arrivals in the country.
Indeed, the avowed purpose of a tax exemption is
always "some public benefit or interest, which the
law-making body considers sufficient to offset the
monetary loss entailed in the grant of the
exemption."15 The exemption from excise tax of
aviation fuel purchased by international carriers for
consumption outside the Philippines fulfills a treaty
obligation pursuant to which our Government
supports the promotion and expansion of
international travel through avoidance of multiple
taxation and ensuring the viability and safety of
international air travel. In recent years, developing
economies such as ours focused more serious
attention to significant gains for business and
tourism sectors as well. Even without such recent
incidental benefit, States had long accepted the need
for international cooperation in maintaining a capital
intensive, labor intensive and fuel intensive airline
industry, and recognized the major role of
international air transport in the development of
international trade and travel.
Under the basic international law principle of pacta
sunt servanda, we have the duty to fulfill our treaty
obligations in good faith. This entails harmonization
of national legislation with treaty provisions. In this
case, Sec. 135(a) of the NIRC embodies our
compliance with our undertakings under the
Chicago Convention and various bilateral air service
agreements not to impose excise tax on aviation fuel
purchased by international carriers from domestic
manufacturers or suppliers. In our Decision in this
case, we interpreted Section 135 (a) as prohibiting
domestic manufacturer or producer to pass on to
international carriers the excise tax it had paid on
petroleum products upon their removal from the
place of production, pursuant to Article 148 and
pertinent BIR regulations. Ruling on respondent’s
claim for tax refund of such paid excise taxes on
petroleum products sold to tax-exempt international
carriers, we found no basis in the Tax Code and
jurisprudence to grant the refund of an "erroneously
or illegally paid" tax.
Justice Bersamin argues that "(T)he shifting of the
tax burden by manufacturers-sellers is a business
prerogative resulting from the collective impact of
market forces," and that it is "erroneous to construe
Section 135(a) only as a prohibition against the
shifting by the manufacturers-sellers of petroleum
products of the tax burden to international carriers,
for such construction will deprive the
manufacturers-sellers of their business prerogative
to determine the prices at which they can sell their
products."
We maintain that Section 135 (a), in fulfillment of
international agreement and practice to exempt
aviation fuel from excise tax and other impositions,
prohibits the passing of the excise tax to
international carriers who buys petroleum products
from local manufacturers/sellers such as
respondent. However, we agree that there is a need
to reexamine the effect of denying the domestic
manufacturers/sellers’ claim for refund of the excise
taxes they already paid on petroleum products sold
to international carriers, and its serious implications
on our Government’s commitment to the goals and
objectives of the Chicago Convention.
The Chicago Convention, which established the legal
framework for international civil aviation, did not
deal comprehensively with tax matters. Article 24 (a)
of the Convention simply provides that fuel and
lubricating oils on board an aircraft of a Contracting
State, on arrival in the territory of another
Contracting State and retained on board on leaving
the territory of that State, shall be exempt from
customs duty, inspection fees or similar national or
local duties and charges. Subsequently, the
exemption of airlines from national taxes and
customs duties on spare parts and fuel has become
a standard element of bilateral air service
agreements (ASAs) between individual countries.
The importance of exemption from aviation fuel tax
was underscored in the following observation made
by a British author16 in a paper assessing the debate
on using tax to control aviation emissions and the
obstacles to introducing excise duty on aviation fuel,
thus:
Without any international agreement on taxing fuel,
it is highly likely that moves to impose duty on
international flights, either at a domestic or
European level, would encourage 'tankering':
carriers filling their aircraft as full as possible
whenever they landed outside the EU to avoid paying
tax.1âwphi1 Clearly this would be entirely
counterproductive. Aircraft would be travelling
further than necessary to fill up in low-tax
jurisdictions; in addition they would be burning up
more fuel when carrying the extra weight of a full fuel
tank.
With the prospect of declining sales of aviation jet
fuel sales to international carriers on account of
major domestic oil companies' unwillingness to
shoulder the burden of excise tax, or of petroleum
products being sold to said carriers by local
manufacturers or sellers at still high prices , the
practice of "tankering" would not be discouraged.
This scenario does not augur well for the Philippines'
growing economy and the booming tourism industry.
Worse, our Government would be risking retaliatory
action under several bilateral agreements with
various countries. Evidently, construction of the tax
exemption provision in question should give primary
consideration to its broad implications on our
commitment under international agreements.
In view of the foregoing reasons, we find merit in
respondent's motion for reconsideration. We
therefore hold that respondent, as the statutory
taxpayer who is directly liable to pay the excise tax
on its petroleum products, is entitled to a refund or
credit of the excise taxes it paid for petroleum
products sold to international carriers, the latter
having been granted exemption from the payment of
said excise tax under Sec. 135 (a) of the NIRC.
WHEREFORE, the Court hereby resolves to:
(1) GRANT the original and supplemental
motions for reconsideration filed by
respondent Pilipinas Shell Petroleum
Corporation; and
 (2) AFFIRM the Decision dated March 25, 2009
and Resolution dated June 24, 2009 of the
Court of Tax Appeals En Banc in CT A EB No.
415; and DIRECT petitioner Commissioner of
Internal Revenue to refund or to issue a tax
credit certificate to Pilipinas Shell Petroleum
Corporation in the amount of
J195,014,283.00 representing the excise taxes
it paid on petroleum products sold to
international carriers from October 2001 to
June 2002.
SO ORDERED.
G.R. No. L-13250 October 29, 1971
THE COLLECTOR OF INTERNAL
REVENUE, petitioner,
vs.
ANTONIO CAMPOS RUEDA, respondent..
Assistant Solicitor General Jose P. Alejandro and
Special Attorney Jose G. Azurin, (O.S.G.) for petitioner.
Ramirez and Ortigas for respondent.
FERNANDO, J.:
The basic issue posed by petitioner Collector of
Internal Revenue in this appeal from a decision of
the Court of Tax Appeals as to whether or not the
requisites of statehood, or at least so much thereof
as may be necessary for the acquisition of an
international personality, must be satisfied for a
"foreign country" to fall within the exemption of
Section 122 of the National Internal Revenue
Code1 is now ripe for adjudication. The Court of Tax
Appeals answered the question in the negative, and
thus reversed the action taken by petitioner
Collector, who would hold respondent Antonio
Campos Rueda, as administrator of the estate of the
late Estrella Soriano Vda. de Cerdeira, liable for the
sum of P161,874.95 as deficiency estate and
inheritance taxes for the transfer of intangible
personal properties in the Philippines, the deceased,
a Spanish national having been a resident of Tangier,
Morocco from 1931 up to the time of her death in
1955. In an earlier resolution promulgated May 30,
1962, this Court on the assumption that the need for
resolving the principal question would be obviated,
referred the matter back to the Court of Tax Appeals
to determine whether the alleged law of Tangier did
grant the reciprocal tax exemption required by the
aforesaid Section 122. Then came an order from the
Court of Tax Appeals submitting copies of legislation
of Tangier that would manifest that the element of
reciprocity was not lacking. It was not until July 29,
1969 that the case was deemed submitted for
decision. When the petition for review was filed on
January 2, 1958, the basic issue raised was
impressed with an element of novelty. Four days
thereafter, however, on January 6, 1958, it was held
by this Court that the aforesaid provision does not
require that the "foreign country" possess an
international personality to come within its
terms.2 Accordingly, we have to affirm.
The decision of the Court of Tax Appeals, now under
review, sets forth the background facts as follows:
"This is an appeal interposed by petitioner Antonio
Campos Rueda as administrator of the estate of the
deceased Doña Maria de la Estrella Soriano Vda. de
Cerdeira, from the decision of the respondent
Collector of Internal Revenue, assessing against and
demanding from the former the sum P161,874.95 as
deficiency estate and inheritance taxes, including
interest and penalties, on the transfer of intangible
personal properties situated in the Philippines and
belonging to said Maria de la Estrella Soriano Vda.
de Cerdeira. Maria de la Estrella Soriano Vda. de
Cerdeira (Maria Cerdeira for short) is a Spanish
national, by reason of her marriage to a Spanish
citizen and was a resident of Tangier, Morocco from
1931 up to her death on January 2, 1955. At the
time of her demise she left, among others, intangible
personal properties in the Philippines."3 Then came
this portion: "On September 29, 1955, petitioner
filed a provisional estate and inheritance tax return
on all the properties of the late Maria Cerdeira. On
the same date, respondent, pending investigation,
issued an assessment for state and inheritance taxes
in the respective amounts of P111,592.48 and
P157,791.48, or a total of P369,383.96 which tax
liabilities were paid by petitioner ... . On November
17, 1955, an amended return was filed ... wherein
intangible personal properties with the value of
P396,308.90 were claimed as exempted from taxes.
On November 23, 1955, respondent, pending
investigation, issued another assessment for estate
and inheritance taxes in the amounts of
P202,262.40 and P267,402.84, respectively, or a
total of P469,665.24 ... . In a letter dated January
11, 1956, respondent denied the request for
exemption on the ground that the law of Tangier is
not reciprocal to Section 122 of the National Internal
Revenue Code. Hence, respondent demanded the
payment of the sums of P239,439.49 representing
deficiency estate and inheritance taxes including ad
valorem penalties, surcharges, interests and
compromise penalties ... . In a letter dated February
8, 1956, and received by respondent on the following
day, petitioner requested for the reconsideration of
the decision denying the claim for tax exemption of
the intangible personal properties and the
imposition of the 25% and 5% ad valorem penalties
... . However, respondent denied request, in his letter
dated May 5, 1956 ... and received by petitioner on
May 21, 1956. Respondent premised the denial on
the grounds that there was no reciprocity [with
Tangier, which was moreover] a mere principality,
not a foreign country. Consequently, respondent
demanded the payment of the sums of P73,851.21
and P88,023.74 respectively, or a total of
P161,874.95 as deficiency estate and inheritance
taxes including surcharges, interests and
compromise penalties." 4
The matter was then elevated to the Court of Tax
Appeals. As there was no dispute between the parties
regarding the values of the properties and the
mathematical correctness of the deficiency
assessments, the principal question as noted dealt
with the reciprocity aspect as well as the insisting by
the Collector of Internal Revenue that Tangier was
not a foreign country within the meaning of Section
122. In ruling against the contention of the Collector
of Internal Revenue, the appealed decision states: "In
fine, we believe, and so hold, that the expression
"foreign country", used in the last proviso of Section
122 of the National Internal Revenue Code, refers to
a government of that foreign power which, although
not an international person in the sense of
international law, does not impose transfer or death
upon intangible person properties of our citizens not
residing therein, or whose law allows a similar
exemption from such taxes. It is, therefore, not
necessary that Tangier should have been recognized
by our Government order to entitle the petitioner to
the exemption benefits of the proviso of Section 122
of our Tax. Code."5
Hence appeal to this court by petitioner. The
respective briefs of the parties duly submitted, but
as above indicated, instead of ruling definitely on the
question, this Court, on May 30, 1962, resolve to
inquire further into the question of reciprocity and
sent back the case to the Court of Tax Appeals for
the motion of evidence thereon. The dispositive
portion of such resolution reads as follows: "While
section 122 of the Philippine Tax Code aforequoted
speaks of 'intangible personal property' in both
subdivisions (a) and (b); the alleged laws of Tangier
refer to 'bienes muebles situados en Tanger', 'bienes
muebles radicantes en Tanger', 'movables' and
'movable property'. In order that this Court may be
able to determine whether the alleged laws of Tangier
grant the reciprocal tax exemptions required by
Section 122 of the Tax Code, and without, for the
time being, going into the merits of the issues raised
by the petitioner-appellant, the case is [remanded] to
the Court of Tax Appeals for the reception of evidence
or proof on whether or not the words `bienes
muebles', 'movables' and 'movable properties as
used in the Tangier laws, include or embrace
'intangible person property', as used in the Tax
Code."6 In line with the above resolution, the Court
of Tax Appeals admitted evidence submitted by the
administrator petitioner Antonio Campos Rueda,
consisting of exhibits of laws of Tangier to the effect
that "the transfers by reason of death of movable
properties, corporeal or incorporeal, including
furniture and personal effects as well as of securities,
bonds, shares, ..., were not subject, on that date and
in said zone, to the payment of any death tax,
whatever might have been the nationality of the
deceased or his heirs and legatees." It was further
noted in an order of such Court referring the matter
back to us that such were duly admitted in evidence
during the hearing of the case on September 9, 1963.
Respondent presented no evidence."7
The controlling legal provision as noted is a proviso
in Section 122 of the National Internal Revenue
Code. It reads thus: "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 person
property of the Philippines not residing in that
foreign country, or (b) if the laws of the foreign
country of which the decedent was a resident at the
time of his death allow a similar exemption from
transfer taxes or death taxes of every character in
respect of intangible personal property owned by
citizens of the Philippines not residing in that foreign
country."8 The only obstacle therefore to a definitive
ruling is whether or not as vigorously insisted upon
by petitioner the acquisition of internal personality
is a condition sine qua non to Tangier being
considered a "foreign country". Deference to the De
Lara ruling, as was made clear in the opening
paragraph of this opinion, calls for an affirmance of
the decision of the Court of Tax Appeals.
It does not admit of doubt that if a foreign country is
to be identified with a state, it is required in line with
Pound's formulation that it be a politically organized
sovereign community independent of outside control
bound by penalties of nationhood, legally supreme
within its territory, acting through a government
functioning under a regime of
law. It is thus a sovereign person with the people
9 the State of California as a foreign country in relation
composing it viewed as an organized corporate
society under a government with the legal
competence to exact obedience to its
commands. It has been referred to as a body-
10
politic organized by common consent for mutual
defense and mutual safety and to promote the
general welfare.11Correctly has it been described by
Esmein as "the juridical personification of the
nation." 12 This is to view it in the light of its
historical development. The stress is on its being a
nation, its people occupying a definite territory,
politically organized, exercising by means of its
government its sovereign will over the individuals
within it and maintaining its separate international
personality. Laski could speak of it then as a
territorial society divided into government and
subjects, claiming within its allotted area a
supremacy over all other institutions.13 McIver
similarly would point to the power entrusted to its
government to maintain within its territory the
conditions of a legal order and to enter into
international relations. 14 With the latter requisite
satisfied, international law do not exact
independence as a condition of statehood. So Hyde
did opine. 15
Even on the assumption then that Tangier is bereft
of international personality, petitioner has not
successfully made out a case. It bears repeating that
four days after the filing of this petition on January
6, 1958 in Collector of Internal Revenue v. De
Lara, 16 it was specifically held by us: "Considering
to section 122 of our Tax Code we believe and hold,
as did the Tax Court, that the Ancilliary
Administrator is entitled the exemption from the
inheritance tax on the intangible personal property
found in the Philippines." 17 There can be no doubt
that California as a state in the American Union was
in the alleged requisite of international personality. would be concededly subject to estate and
Nonetheless, it was held to be a foreign country inheritance taxes. Nevertheless our Congress chose
within the meaning of Section 122 of the National to make an exemption where conditions are such
Internal Revenue Code. 18 that demand reciprocity — as in this case. And the
exemption must be honored." 21
What is undeniable is that even prior to the De Lara
ruling, this Court did commit itself to the doctrine WHEREFORE, the decision of the respondent Court
that even a tiny principality, that of Liechtenstein, of Tax Appeals of October 30, 1957 is affirmed.
hardly an international personality in the sense, did Without pronouncement as to costs.
fall under this exempt category. So it appears in an
opinion of the Court by the then Acting Chief
Justicem Bengson who thereafter assumed that
position in a permanent capacity, in Kiene v. G.R. No. L-11622 January 28, 1961
Collector of Internal Revenue. 19 As was therein
noted: 'The Board found from the documents THE COLLECTOR OF INTERNAL
submitted to it — proof of the laws of Liechtenstein REVENUE, petitioner,
— that said country does not impose estate, vs.
inheritance and gift taxes on intangible property of DOUGLAS FISHER AND BETTINA FISHER, and
Filipino citizens not residing in that country. the COURT OF TAX APPEALS, respondents.
Wherefore, the Board declared that pursuant to the
exemption above established, no estate or x---------------------------------------------------------x
inheritance taxes were collectible, Ludwig Kiene
being a resident of Liechtestein when he passed G.R. No. L-11668 January 28, 1961.
away." 20 Then came this definitive ruling: "The
Collector — hereafter named the respondent — cites DOUGLAS FISHER AND BETTINA
decisions of the United States Supreme Court and of FISHER, petitioner,
this Court, holding that intangible personal property vs.
in the Philippines belonging to a non-resident THE COLLECTOR OF INTERNAL REVENUE, and
foreigner, who died outside of this country is subject the COURT OF TAX APPEALS, respondents.
to the estate tax, in disregard of the principle 'mobilia
sequuntur personam'. Such property is admittedly BARRERA, J.:
taxable here. Without the proviso above quoted, the
shares of stock owned here by the Ludwig Kiene
This case relates to the determination and settlement
of the hereditary estate left by the deceased Walter
G. Stevenson, and the laws applicable thereto.
Walter G. Stevenson (born in the Philippines on
August 9, 1874 of British parents and married in the
City of Manila on January 23, 1909 to Beatrice
Mauricia Stevenson another British subject) died on
February 22, 1951 in San Francisco, California,
U.S.A. whereto he and his wife moved and
established their permanent residence since May 10,
1945. In his will executed in San Francisco on May
22, 1947, and which was duly probated in the
Superior Court of California on April 11, 1951,
Stevenson instituted his wife Beatrice as his sole
heiress to the following real and personal properties
acquired by the spouses while residing in the
Philippines, described and preliminary assessed as
follows:
Gross Estate
Real Property — 2 parcels of land
in Baguio, covered by T.C.T. Nos.
378 and 379 P43,500.00
Personal Property
(1) 177 shares of stock of
Canacao Estate at P10.00 each 1,770.00
(2) 210,000 shares of stock of
Mindanao Mother Lode Mines,
Inc. at P0.38 per share 79,800.00
(3) Cash credit with Canacao
Estate Inc. 4,870.88
(4) Cash, with the Chartered
Bank of India, Australia & China 851.97
Total Gross Assets P130,792.85
On May 22, 1951, ancillary administration
proceedings were instituted in the Court of First
Instance of Manila for the settlement of the estate in
the Philippines. In due time Stevenson's will was
duly admitted to probate by our court and Ian
Murray Statt was appointed ancillary administrator
of the estate, who on July 11, 1951, filed a
preliminary estate and inheritance tax return with
the reservation of having the properties declared
therein finally appraised at their values six months
after the death of Stevenson. Preliminary return was
made by the ancillary administrator in order to
secure the waiver of the Collector of Internal Revenue
on the inheritance tax due on the 210,000 shares of
stock in the Mindanao Mother Lode Mines Inc. which
the estate then desired to dispose in the United
States. Acting upon said return, the Collector of
Internal Revenue accepted the valuation of the
personal properties declared therein, but increased
the appraisal of the two parcels of land located in
Baguio City by fixing their fair market value in the
amount of P52.200.00, instead of P43,500.00. After
allowing the deductions claimed by the ancillary
administrator for funeral expenses in the amount of
P2,000.00 and for judicial and administration
expenses in the sum of P5,500.00, the Collector
assessed the state the amount of P5,147.98 for
estate tax and P10,875,26 or inheritance tax, or a
total of P16,023.23. Both of these assessments were
paid by the estate on June 6, 1952.
On September 27, 1952, the ancillary administrator
filed in amended estate and inheritance tax return in
pursuance f his reservation made at the time of filing
of the preliminary return and for the purpose of
availing of the right granted by section 91 of the
National Internal Revenue Code.
In this amended return the valuation of the 210,000
shares of stock in the Mindanao Mother Lode Mines,
Inc. was reduced from 0.38 per share, as originally
declared, to P0.20 per share, or from a total
valuation of P79,800.00 to P42,000.00. This change
in price per share of stock was based by the ancillary
administrator on the market notation of the stock
obtaining at the San Francisco California) Stock
Exchange six months from the death of Stevenson,
that is, As of August 22, 1931. In addition, the
ancillary administrator made claim for the following
deductions:
Funeral expenses ($1,04326)
Judicial Expenses:
(a) Administrator's Fee P1,204.34
(b) Attorney's Fee 6.000.00
(c) Judicial and
Administration expenses as
of August 9, 1952 1,400.05
Real Estate Tax for 1951 on
Baguio real properties (O.R.
No. B-1 686836) 652.50
Claims against the estate:
($5,000.00) P10,000.00 P10,000.00
Plus: 4% int. p.a. from Feb.
2 to 22, 1951 22.47 10,022.47
Sub-Total P21,365.88
In the meantime, on December 1, 1952, Beatrice
Mauricia Stevenson assigned all her rights and
interests in the estate to the spouses, Douglas and
Bettina Fisher, respondents herein.
On September 7, 1953, the ancillary administrator
filed a second amended estate and inheritance tax
return (Exh. "M-N"). This return declared the same
assets of the estate stated in the amended return of
September 22, 1952, except that it contained new
claims for additional exemption and deduction to
wit: (1) deduction in the amount of P4,000.00 from
the gross estate of the decedent as provided for in
P2,086.52
Section 861 (4) of the U.S. Federal Internal Revenue
Code which the ancillary administrator averred was
allowable by way of the reciprocity granted by
Section 122 of the National Internal Revenue Code,
as then held by the Board of Tax Appeals in case No.
71 entitled "Housman vs. Collector," August 14,
1952; and (2) exemption from the imposition of
estate and inheritance taxes on the 210,000 shares
of stock in the Mindanao Mother Lode Mines, Inc.
8,604.39
also pursuant to the reciprocity proviso of Section
122 of the National Internal Revenue Code. In this
last return, the estate claimed that it was liable only
for the amount of P525.34 for estate tax and P238.06
for inheritance tax and that, as a consequence, it had
overpaid the government. The refund of the amount
of P15,259.83, allegedly overpaid, was accordingly
requested by the estate. The Collector denied the
claim. For this reason, action was commenced in the
Court of First Instance of Manila by respondents, as
assignees of Beatrice Mauricia Stevenson, for the
recovery of said amount. Pursuant to Republic Act
No. 1125, the case was forwarded to the Court of Tax
Appeals which court, after hearing, rendered
decision the dispositive portion of which reads as
follows:
In fine, we are of the opinion and so hold that:
(a) the one-half (½) share of the surviving
spouse in the conjugal partnership property as
diminished by the obligations properly
chargeable to such property should be
deducted from the net estate of the deceased
Walter G. Stevenson, pursuant to Section 89-
C of the National Internal Revenue Code; (b)
the intangible personal property belonging to
the estate of said Stevenson is exempt from
inheritance tax, pursuant to the provision of
section 122 of the National Internal Revenue
Code in relation to the California Inheritance
Tax Law but decedent's estate is not entitled
to an exemption of P4,000.00 in the
computation of the estate tax; (c) for purposes
of estate and inheritance taxation the Baguio
real estate of the spouses should be valued at
P52,200.00, and 210,000 shares of stock in
the Mindanao Mother Lode Mines, Inc. should
be appraised at P0.38 per share; and (d) the
estate shall be entitled to a deduction of
P2,000.00 for funeral expenses and judicial
expenses of P8,604.39.
From this decision, both parties appealed.
The Collector of Internal Revenue, hereinafter called
petitioner assigned four errors allegedly committed
by the trial court, while the assignees, Douglas and
Bettina Fisher hereinafter called respondents, made
six assignments of error. Together, the assigned
errors raise the following main issues for resolution
by this Court:
(1) Whether or not, in determining the taxable net
estate of the decedent, one-half (½) of the net estate
should be deducted therefrom as the share of tile
surviving spouse in accordance with our law on
conjugal partnership and in relation to section 89 (c)
of the National Internal revenue Code;
(2) Whether or not the estate can avail itself of the
reciprocity proviso embodied in Section 122 of the
National Internal Revenue Code granting exemption
from the payment of estate and inheritance taxes on
the 210,000 shares of stock in the Mindanao Mother
Lode Mines Inc.;
(3) Whether or not the estate is entitled to the
deduction of P4,000.00 allowed by Section 861, U.S.
Internal Revenue Code in relation to section 122 of
the National Internal Revenue Code;
(4) Whether or not the real estate properties of the
decedent located in Baguio City and the 210,000
shares of stock in the Mindanao Mother Lode Mines,
Inc., were correctly appraised by the lower court;
(5) Whether or not the estate is entitled to the
following deductions: P8,604.39 for judicial and
administration expenses; P2,086.52 for funeral
expenses; P652.50 for real estate taxes; and
P10,0,22.47 representing the amount of
indebtedness allegedly incurred by the decedent
during his lifetime; and
(6) Whether or not the estate is entitled to the
payment of interest on the amount it claims to have
overpaid the government and to be refundable to it.
In deciding the first issue, the lower court applied a
well-known doctrine in our civil law that in the
absence of any ante-nuptial agreement, the
contracting parties are presumed to have adopted
the system of conjugal partnership as to the
properties acquired during their marriage. The
application of this doctrine to the instant case is
being disputed, however, by petitioner Collector of
Internal Revenue, who contends that pursuant to
Article 124 of the New Civil Code, the property
relation of the spouses Stevensons ought not to be
determined by the Philippine law, but by the national
law of the decedent husband, in this case, the law of
England. It is alleged by petitioner that English laws
do not recognize legal partnership between spouses,
and that what obtains in that jurisdiction is another
regime of property relation, wherein all properties
acquired during the marriage pertain and belong
Exclusively to the husband. In further support of his
stand, petitioner cites Article 16 of the New Civil
Code (Art. 10 of the old) to the effect that in testate
and intestate proceedings, the amount of
successional rights, among others, is to be
determined by the national law of the decedent.
In this connection, let it be noted that since the
mariage of the Stevensons in the Philippines took
place in 1909, the applicable law is Article 1325 of
the old Civil Code and not Article 124 of the New Civil
Code which became effective only in 1950. It is true
that both articles adhere to the so-called nationality
theory of determining the property relation of
spouses where one of them is a foreigner and they
have made no prior agreement as to the
administration disposition, and ownership of their
conjugal properties. In such a case, the national law
of the husband becomes the dominant law in
determining the property relation of the spouses.
There is, however, a difference between the two
articles in that Article 1241 of the new Civil Code
expressly provides that it shall be applicable
regardless of whether the marriage was celebrated in
the Philippines or abroad while Article 13252 of the
old Civil Code is limited to marriages contracted in a
foreign land.
It must be noted, however, that what has just been
said refers to mixed marriages between a Filipino
citizen and a foreigner. In the instant case, both
spouses are foreigners who married in the
Philippines. Manresa,3 in his Commentaries, has
this to say on this point:
La regla establecida en el art. 1.315, se refiere
a las capitulaciones otorgadas en Espana y
entre espanoles. El 1.325, a las celebradas en
el extranjero cuando alguno de los conyuges
es espanol. En cuanto a la regla procedente
cuando dos extranjeros se casan en Espana, o
dos espanoles en el extranjero hay que atender
en el primer caso a la legislacion de pais a que
aquellos pertenezean, y en el segundo, a las
reglas generales consignadas en los articulos
9 y 10 de nuestro Codigo. (Emphasis
supplied.)
If we adopt the view of Manresa, the law
determinative of the property relation of the
Stevensons, married in 1909, would be the English
law even if the marriage was celebrated in the
Philippines, both of them being foreigners. But, as
correctly observed by the Tax Court, the pertinent
English law that allegedly vests in the decedent
husband full ownership of the properties acquired
during the marriage has not been proven by
petitioner. Except for a mere allegation in his
answer, which is not sufficient, the record is bereft
of any evidence as to what English law says on the
matter. In the absence of proof, the Court is justified,
therefore, in indulging in what Wharton calls
"processual presumption," in presuming that the law
of England on this matter is the same as our law.4
Nor do we believe petitioner can make use of Article
16 of the New Civil Code (art. 10, old Civil Code) to
bolster his stand. A reading of Article 10 of the old
Civil Code, which incidentally is the one applicable,
shows that it does not encompass or contemplate to
govern the question of property relation between
spouses. Said article distinctly speaks of amount of
successional rights and this term, in speaks in our
opinion, properly refers to the extent or amount of
property that each heir is legally entitled to inherit
from the estate available for distribution. It needs to
be pointed out that the property relation of spouses,
as distinguished from their successional rights, is
governed differently by the specific and express
provisions of Title VI, Chapter I of our new Civil Code
(Title III, Chapter I of the old Civil Code.) We,
therefore, find that the lower court correctly
deducted the half of the conjugal property in
determining the hereditary estate left by the
deceased Stevenson.
On the second issue, petitioner disputes the action
of the Tax Court in the exempting the respondents
from paying inheritance tax on the 210,000 shares
of stock in the Mindanao Mother Lode Mines, Inc. in
virtue of the reciprocity proviso of Section 122 of the
National Internal Revenue Code, in relation to
Section 13851 of the California Revenue and
Taxation Code, on the ground that: (1) the said
proviso of the California Revenue and Taxation Code
has not been duly proven by the respondents; (2) the
reciprocity exemptions granted by section 122 of the
National Internal Revenue Code can only be availed
of by residents of foreign countries and not of
residents of a state in the United States; and (3) there
is no "total" reciprocity between the Philippines and
the state of California in that while the former
exempts payment of both estate and inheritance
taxes on intangible personal properties, the latter
only exempts the payment of inheritance tax..
To prove the pertinent California law, Attorney
Allison Gibbs, counsel for herein respondents,
testified that as an active member of the California
Bar since 1931, he is familiar with the revenue and
taxation laws of the State of California. When asked
by the lower court to state the pertinent California
law as regards exemption of intangible personal
properties, the witness cited article 4, section 13851
(a) and (b) of the California Internal and Revenue
Code as published in Derring's California Code, a
publication of the Bancroft-Whitney Company inc.
And as part of his testimony, a full quotation of the
cited section was offered in evidence as Exhibits "V-
2" by the respondents.
It is well-settled that foreign laws do not prove
themselves in our jurisdiction and our courts are not
authorized to take judicial notice of them.5 Like any
other fact, they must be alleged and proved.6
Section 41, Rule 123 of our Rules of Court prescribes
the manner of proving foreign laws before our
tribunals. However, although we believe it desirable
that these laws be proved in accordance with said
rule, we held in the case of Willamette Iron and Steel
Works v. Muzzal, 61 Phil. 471, that "a reading of
sections 300 and 301 of our Code of Civil Procedure
(now section 41, Rule 123) will convince one that
these sections do not exclude the presentation of
other competent evidence to prove the existence of a
foreign law." In that case, we considered the
testimony of an attorney-at-law of San Francisco,
California who quoted verbatim a section of
California Civil Code and who stated that the same
was in force at the time the obligations were
contracted, as sufficient evidence to establish the
existence of said law. In line with this view, we find
no error, therefore, on the part of the Tax Court in
considering the pertinent California law as proved by
respondents' witness.
We now take up the question of reciprocity in
exemption from transfer or death taxes, between the
State of California and the Philippines.F
Section 122 of our National Internal Revenue Code,
in pertinent part, provides:
... And, provided, further, 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 of tax or death tax of
any character in respect of intangible personal
property of citizens of the Philippines not
residing in that foreign country, or (b) if the
laws of the foreign country of which the
decedent was a resident at the time of his
death allow a similar exemption from transfer
taxes or death taxes of every character in
respect of intangible personal property owned
by citizens of the Philippines not residing in
that foreign country." (Emphasis supplied).
On the other hand, Section 13851 of the California
Inheritance Tax Law, insofar as pertinent, reads:.
"SEC. 13851, Intangibles of nonresident:
Conditions. Intangible personal property is
exempt from the tax imposed by this part if the
decedent at the time of his death was a
resident of a territory or another State of the
United States or of a foreign state or country
which then imposed a legacy, succession, or
death tax in respect to intangible personal
property of its own residents, but either:.
(a) Did not impose a legacy, succession, or
death tax of any character in respect to
intangible personal property of residents of
this State, or
(b) Had in its laws a reciprocal provision under
which intangible personal property of a non-
resident was exempt from legacy, succession,
or death taxes of every character if the
Territory or other State of the United States or
foreign state or country in which the
nonresident resided allowed a similar
exemption in respect to intangible personal
property of residents of the Territory or State
of the United States or foreign state or country
of residence of the decedent." (Id.)
It is clear from both these quoted provisions that the
reciprocity must be total, that is, with respect to
transfer or death taxes of any and every character,
in the case of the Philippine law, and to legacy,
succession, or death taxes of any and every
character, in the case of the California law.
Therefore, if any of the two states collects or imposes
and does not exempt any transfer, death, legacy, or
succession tax of any character, the reciprocity does
not work. This is the underlying principle of the
reciprocity clauses in both laws.
In the Philippines, upon the death of any citizen or
resident, or non-resident with properties therein,
there are imposed upon his estate and its settlement,
both an estate and an inheritance tax. Under the
laws of California, only inheritance tax is imposed.
On the other hand, the Federal Internal Revenue
Code imposes an estate tax on non-residents not
citizens of the United States,7 but does not provide
for any exemption on the basis of reciprocity.
Applying these laws in the manner the Court of Tax
Appeals did in the instant case, we will have a
situation where a Californian, who is non-resident in
the Philippines but has intangible personal
properties here, will the subject to the payment of an
estate tax, although exempt from the payment of the
inheritance tax. This being the case, will a Filipino,
non-resident of California, but with intangible
personal properties there, be entitled to the
exemption clause of the California law, since the
Californian has not been exempted from every
character of legacy, succession, or death tax because
he is, under our law, under obligation to pay an
estate tax? Upon the other hand, if we exempt the
Californian from paying the estate tax, we do not
thereby entitle a Filipino to be exempt from a similar
estate tax in California because under the Federal
Law, which is equally enforceable in California he is
bound to pay the same, there being no reciprocity
recognized in respect thereto. In both instances, the
Filipino citizen is always at a disadvantage. We do
not believe that our legislature has intended such an
unfair situation to the detriment of our own
government and people. We, therefore, find and
declare that the lower court erred in exempting the
estate in question from payment of the inheritance
tax.
We are not unaware of our ruling in the case
of Collector of Internal Revenue vs. Lara (G.R. Nos. L-
9456 & L-9481, prom. January 6, 1958, 54 O.G.
2881) exempting the estate of the deceased Hugo H.
Miller from payment of the inheritance tax imposed
by the Collector of Internal Revenue. It will be noted,
however, that the issue of reciprocity between the
pertinent provisions of our tax law and that of the
State of California was not there squarely raised, and
the ruling therein cannot control the determination
of the case at bar. Be that as it may, we now declare
that in view of the express provisions of both the
Philippine and California laws that the exemption
would apply only if the law of the other grants an
exemption from legacy, succession, or death taxes of
every character, there could not be partial
reciprocity. It would have to be total or none at all.
With respect to the question of deduction or
reduction in the amount of P4,000.00 based on the
U.S. Federal Estate Tax Law which is also being
claimed by respondents, we uphold and adhere to
our ruling in the Lara case (supra) that the amount
of $2,000.00 allowed under the Federal Estate Tax
Law is in the nature of a deduction and not of an
exemption regarding which reciprocity cannot be
claimed under the provision of Section 122 of our
National Internal Revenue Code. Nor is reciprocity
authorized under the Federal Law. .
On the issue of the correctness of the appraisal of
the two parcels of land situated in Baguio City, it is
contended that their assessed values, as appearing
in the tax rolls 6 months after the death of
Stevenson, ought to have been considered by
petitioner as their fair market value, pursuant to
section 91 of the National Internal Revenue Code. It
should be pointed out, however, that in accordance
with said proviso the properties are required to be
appraised at their fair market value and the assessed
value thereof shall be considered as the fair market
value only when evidence to the contrary has not
been shown. After all review of the record, we are
satisfied that such evidence exists to justify the
valuation made by petitioner which was sustained by
the tax court, for as the tax court aptly observed:
"The two parcels of land containing 36,264
square meters were valued by the
administrator of the estate in the Estate and
Inheritance tax returns filed by him at
P43,500.00 which is the assessed value of said
properties. On the other hand, defendant
appraised the same at P52,200.00. It is of
common knowledge, and this Court can take
judicial notice of it, that assessments for real
estate taxation purposes are very much lower
than the true and fair market value of the
properties at a given time and place. In fact
one year after decedent's death or in 1952 the
said properties were sold for a price of
P72,000.00 and there is no showing that
special or extraordinary circumstances caused
the sudden increase from the price of
P43,500.00, if we were to accept this value as
a fair and reasonable one as of 1951. Even
more, the counsel for plaintiffs himself
admitted in open court that he was willing to
purchase the said properties at P2.00 per
square meter. In the light of these facts we
believe and therefore hold that the valuation of
P52,200.00 of the real estate in Baguio made
by defendant is fair, reasonable and justified
in the premises." (Decision, p. 19).
In respect to the valuation of the 210,000 shares of
stock in the Mindanao Mother Lode Mines, Inc., (a
domestic corporation), respondents contend that
their value should be fixed on the basis of the market
quotation obtaining at the San Francisco (California)
Stock Exchange, on the theory that the certificates
of stocks were then held in that place and registered
with the said stock exchange. We cannot agree with
respondents' argument. The situs of the shares of
stock, for purposes of taxation, being located here in
the Philippines, as respondents themselves concede
and considering that they are sought to be taxed in
this jurisdiction, consistent with the exercise of our
government's taxing authority, their fair market
value should be taxed on the basis of the price
prevailing in our country.
Upon the other hand, we find merit in respondents'
other contention that the said shares of stock
commanded a lesser value at the Manila Stock
Exchange six months after the death of Stevenson.
Through Atty. Allison Gibbs, respondents have
shown that at that time a share of said stock was bid
for at only P.325 (p. 103, t.s.n.). Significantly, the
testimony of Atty. Gibbs in this respect has never
been questioned nor refuted by petitioner either
before this court or in the court below. In the absence
of evidence to the contrary, we are, therefore,
constrained to reverse the Tax Court on this point
and to hold that the value of a share in the said
mining company on August 22, 1951 in the
Philippine market was P.325 as claimed by
respondents..
It should be noted that the petitioner and the Tax
Court valued each share of stock of P.38 on the basis
of the declaration made by the estate in its
preliminary return. Patently, this should not have
been the case, in view of the fact that the ancillary
administrator had reserved and availed of his legal
right to have the properties of the estate declared at
their fair market value as of six months from the time
the decedent died..
On the fifth issue, we shall consider the various
deductions, from the allowance or disallowance of
which by the Tax Court, both petitioner and
respondents have appealed..
Petitioner, in this regard, contends that no evidence
of record exists to support the allowance of the sum
of P8,604.39 for the following expenses:.
1) Administrator's fee P1,204.34
2) Attorney's fee 6,000.00
3) Judicial and Administrative 2,052.55
expenses
Total Deductions P8,604.39
An examination of the record discloses, however,
that the foregoing items were considered deductible
by the Tax Court on the basis of their approval by
the probate court to which said expenses, we may
presume, had also been presented for consideration.
It is to be supposed that the probate court would not
have approved said items were they not supported
by evidence presented by the estate. In allowing the
items in question, the Tax Court had before it the
pertinent order of the probate court which was
submitted in evidence by respondents. (Exh. "AA-2",
p. 100, record). As the Tax Court said, it found no
basis for departing from the findings of the probate
court, as it must have been satisfied that those
expenses were actually incurred. Under the
circumstances, we see no ground to reverse this
finding of fact which, under Republic Act of
California National Association, which it would
appear, that while still living, Walter G. Stevenson
obtained we are not inclined to pass upon the claim
of respondents in respect to the additional amount
of P86.52 for funeral expenses which was
disapproved by the court a quo for lack of evidence.
In connection with the deduction of P652.50
representing the amount of realty taxes paid in 1951
on the decedent's two parcels of land in Baguio City,
which respondents claim was disallowed by the Tax
Court, we find that this claim has in fact been
allowed. What happened here, which a careful review
of the record will reveal, was that the Tax Court, in
itemizing the liabilities of the estate, viz:
 1) Administrator's fee P1,204.34 California National Association, which it would
2) Attorney's fee 6,000.00
3) Judicial and Administration expenses
as of August 9, 1952 2,052.55 Mother Lode Mines, Inc. (Exhs. "Q-Q4", pp. 53-59,
Total P9,256.89 record). The Tax Court disallowed this item on the
added the P652.50 for realty taxes as a liability of the
estate, to the P1,400.05 for judicial and
administration expenses approved by the court,
making a total of P2,052.55, exactly the same figure
which was arrived at by the Tax Court for judicial
and administration expenses. Hence, the difference
between the total of P9,256.98 allowed by the Tax
Court as deductions, and the P8,604.39 as found by
the probate court, which is P652.50, the same
amount allowed for realty taxes. An evident oversight
has involuntarily been made in omitting the
P2,000.00 for funeral expenses in the final
computation. This amount has been expressly
allowed by the lower court and there is no reason
why it should not be. .
We come now to the other claim of respondents that
pursuant to section 89(b) (1) in relation to section
89(a) (1) (E) and section 89(d), National Internal
Revenue Code, the amount of P10,022.47 should
have been allowed the estate as a deduction, because
it represented an indebtedness of the decedent
incurred during his lifetime. In support thereof, they
offered in evidence a duly certified claim, presented
to the probate court in California by the Bank of
appear, that while still living, Walter G. Stevenson
obtained a loan of $5,000.00 secured by pledge on
140,000 of his shares of stock in the Mindanao
ground that the local probate court had not approved
the same as a valid claim against the estate and
because it constituted an indebtedness in respect to
intangible personal property which the Tax Court
held to be exempt from inheritance tax.
For two reasons, we uphold the action of the lower
court in disallowing the deduction.
Firstly, we believe that the approval of the Philippine
probate court of this particular indebtedness of the
decedent is necessary. This is so although the same,
it is averred has been already admitted and approved
by the corresponding probate court in California,
situs of the principal or domiciliary administration.
It is true that we have here in the Philippines only an
ancillary administration in this case, but, it has been
held, the distinction between domiciliary or principal
administration and ancillary
administration serves only to distinguish one
administration from the other, for the two
proceedings are separate and independent.8 The
reason for the ancillary administration is that, a
grant of administration does not ex proprio vigore,
have any effect beyond the limits of the country in
which it was granted. Hence, we have the
requirement that before a will duly probated outside
of the Philippines can have effect here, it must first
be proved and allowed before our courts, in much
the same manner as wills originally presented for
allowance therein.9 And the estate shall be
administered under letters testamentary, or letters
of administration granted by the court, and disposed
of according to the will as probated, after payment of
just debts and expenses of administration.10 In other
words, there is a regular administration under the
control of the court, where claims must be presented
and approved, and expenses of administration
allowed before deductions from the estate can be
authorized. Otherwise, we would have the actuations
of our own probate court, in the settlement and
distribution of the estate situated here, subject to the
proceedings before the foreign court over which our
courts have no control. We do not believe such a
procedure is countenanced or contemplated in the
Rules of Court.
Another reason for the disallowance of this
indebtedness as a deduction, springs from the
provisions of Section 89, letter (d), number (1), of the
National Internal Revenue Code which reads:
(d) Miscellaneous provisions — (1) No
deductions shall be allowed in the case of a
non-resident not a citizen of the Philippines
unless the executor, administrator or anyone
of the heirs, as the case may be, includes in
the return required to be filed under section
ninety-three the value at the time of his death
of that part of the gross estate of the non-
resident not situated in the Philippines."
In the case at bar, no such statement of the gross
estate of the non-resident Stevenson not situated in
the Philippines appears in the three returns
submitted to the court or to the office of the
petitioner Collector of Internal Revenue. The purpose
of this requirement is to enable the revenue officer to
determine how much of the indebtedness may be
allowed to be deducted, pursuant to (b), number (1)
of the same section 89 of the Internal Revenue Code
which provides:
(b) Deductions allowed to non-resident
estates. — In the case of a non-resident not a
citizen of the Philippines, by deducting from
the value of that part of his gross estate which
at the time of his death is situated in the
Philippines —
(1) Expenses, losses, indebtedness, and
taxes. — That proportion of the deductions
specified in paragraph (1) of subjection (a) of
this section11 which the value of such part
bears the value of his entire gross estate
wherever situated;"
In other words, the allowable deduction is only to the
extent of the portion of the indebtedness which is
equivalent to the proportion that the estate in the
Philippines bears to the total estate wherever
situated. Stated differently, if the properties in the
Philippines constitute but 1/5 of the entire assets
wherever situated, then only 1/5 of the indebtedness
may be deducted. But since, as heretofore adverted
to, there is no statement of the value of the estate
situated outside the Philippines, no part of the
indebtedness can be allowed to be deducted,
pursuant to Section 89, letter (d), number (1) of the
Internal Revenue Code.
For the reasons thus stated, we affirm the ruling of
the lower court disallowing the deduction of the
alleged indebtedness in the sum of P10,022.47.
In recapitulation, we hold and declare that:
(a) only the one-half (1/2) share of the
decedent Stevenson in the conjugal
partnership property constitutes his
hereditary estate subject to the estate and
inheritance taxes;
(b) the intangible personal property is not
exempt from inheritance tax, there existing no
complete total reciprocity as required in
section 122 of the National Internal Revenue
Code, nor is the decedent's estate entitled to
an exemption of P4,000.00 in the computation
of the estate tax;
(d) the P2,000.00 for funeral expenses should
be deducted in the determination of the net
asset of the deceased Stevenson.
In all other respects, the decision of the Court of Tax
Appeals is affirmed.
Respondent's claim for interest on the amount
allegedly overpaid, if any actually results after a
recomputation on the basis of this decision is hereby
denied in line with our recent decision in Collector of
Internal Revenue v. St. Paul's Hospital (G.R. No. L-
12127, May 29, 1959) wherein we held that, "in the
absence of a statutory provision clearly or expressly
directing or authorizing such payment, and none has
been cited by respondents, the National Government
cannot be required to pay interest."
WHEREFORE, as modified in the manner heretofore
indicated, the judgment of the lower court is hereby
affirmed in all other respects not inconsistent
herewith. No costs. So ordered.

(c) for the purpose of the estate and

inheritance taxes, the 210,000 shares of stock
in the Mindanao Mother Lode Mines, Inc. are
to be appraised at P0.325 per share; and
 RAFAEL ARSENIO S. DIZON, G.R. No. affirmed the Decision[3] of the Court of Tax Appeals
in his capacity as the Judicial 140944
(CTA) dated June 17, 1997.[4]
Administrator of the Estate of
the deceased JOSE P. Present:
The Facts
FERNANDEZ,
Petitioner,
YNARES-
SANTIAGO, J.,
Chairperson, On November 7, 1987, Jose P. Fernandez (Jose) died.
- versus - AUSTRIA- Thereafter, a petition for the probate of his will[5] was
MARTINEZ, filed with Branch 51 of the Regional Trial Court (RTC)
CHICO-
COURT OF TAX APPEALS NAZARIO, of Manila(probate court).[6] The probate court then
and COMMISSIONER OF NACHURA, and appointed retired Supreme Court Justice Arsenio P.
INTERNAL REVENUE, REYES, JJ. Dizon (Justice Dizon) and petitioner, Atty. Rafael
Respondents.
Arsenio P. Dizon (petitioner) as Special and Assistant
Promulgated:
Special Administrator, respectively, of the Estate of
April 30, 2008 Jose (Estate). In a letter[7] dated October 13, 1988,
x------------------------------------------------------------------ Justice Dizon informed respondent Commissioner of
------------------x
the Bureau of Internal Revenue (BIR) of the special
proceedings for the Estate.
DECISION
Petitioner alleged that several requests for extension
NACHURA, J.:
of the period to file the required estate tax return
Before this Court is a Petition for Review were granted by the BIR since the assets of the
on Certiorari[1] under Rule 45 of the Rules of Civil estate, as well as the claims against it, had yet to be
Procedure seeking the reversal of the Court of collated, determined and identified. Thus, in a
Appeals (CA) Decision[2] dated April 30, 1999 which letter[8] dated March 14, 1990, Justice Dizon
authorized Atty. Jesus M. Gonzales (Atty. Gonzales)
to sign and file on behalf of the Estate the required
estate tax return and to represent the same in
securing a Certificate of Tax Clearance. Eventually,
on April 17, 1990, Atty. Gonzales wrote a
letter[9] addressed to the BIR Regional Director
for San Pablo City and filed the estate tax
return[10] with the same BIR Regional Office, showing
therein a NIL estate tax liability, computed as
follows:
On April 27, 1990, BIR Regional Director
for San Pablo City, Osmundo G. Umali issued
Certification Nos. 2052[12] and 2053[13] stating that
the taxes due on the transfer of real and personal
properties[14] of Jose had been fully paid and said
properties may be transferred to his heirs. Sometime
in August 1990, Justice Dizon passed away. Thus,
on October 22, 1990, the probate court appointed
petitioner as the administrator of the Estate.[15]

Petitioner requested the probate court's

COMPUTATION OF TAX
Conjugal Real Property
1) P10,855,020.00
Conjugal Personal
(Sch.2) 3,460,591.34
Taxable Transfer (Sch. 3)
Gross Conjugal Estate 14,315,611.34
Less: Deductions (Sch. 4) 187,822,576.06
Net Conjugal Estate NIL
Less: Share of Surviving Spouse NIL .
Net Share in Conjugal Estate NIL
xxx
Net Taxable Estate NIL .
Estate Tax Due NIL .[11]
authority to sell several properties forming part of
the Estate, for the purpose of paying its creditors,
(Sch. namely: Equitable Banking Corporation
(P19,756,428.31), Banque de L'Indochine et. de Suez
Property
(US$4,828,905.90 as of January 31, 1988), Manila
Banking Corporation (P84,199,160.46 as of
February 28, 1989) and State Investment House,
Inc. (P6,280,006.21). Petitioner manifested that
Manila Bank, a major creditor of the Estate was not
included, as it did not file a claim with the probate
court since it had security over several real estate
properties forming part of the Estate.[16]
 However, on November 26, 1991, the Assistant received the letter of denial. On June 2, 1994,
Commissioner for Collection of the BIR, Themistocles petitioner filed a petition for review[21] before
Montalban, issued Estate Tax Assessment Notice No. respondent CTA. Trial on the merits ensued.
FAS-E-87-91-003269,[17] demanding the payment
of P66,973,985.40 as deficiency estate tax, itemized
As found by the CTA, the respective parties
as follows:
presented the following pieces of evidence, to wit:
Deficiency Estate Tax- 1987
In the hearings conducted, petitioner
Estate tax P31,868,414.48 did not present testimonial evidence but
25% surcharge- late filing 7,967,103.62 merely documentary evidence
late payment 7,967,103.62 consisting of the following:
Interest 19,121,048.68
Compromise-non filing 25,000.00 Nature of Document (sic) Exhibits
non payment 25,000.00
no notice of death 15.00 1. Letter dated October 13, 1988
no CPA Certificate 300.00 from Arsenio P. Dizon addressed
to the Commissioner of Internal
Total amount due & Revenue informing the latter of
collectible P66,973,985.40[18] the special proceedings for the
settlement of the estate (p. 126,
BIR records); "A"
In his letter[19] dated December 12, 1991, Atty.
2. Petition for the probate of the
Gonzales moved for the reconsideration of the said will and issuance of letter of
estate tax assessment. However, in her administration filed with the
letter [20] dated April 12, 1994, the BIR Commissioner Regional Trial Court (RTC) of
Manila, docketed as Sp. Proc.
denied the request and reiterated that the estate is No. 87-42980 (pp. 107-108, BIR
liable for the payment of P66,973,985.40 as records); "B" & "B-1
deficiency estate tax. On May 3, 1994, petitioner
3. Pleading entitled "Compliance"
filed with the probate Court
submitting the final inventory
of all the properties of the
deceased (p. 106, BIR records); "C"
4. Attachment to Exh. "C" which
is the detailed and complete
listing of the properties of
the deceased (pp. 89-105, BIR rec.); "C-
1" to "C-17"
5. Claims against the estate filed
by Equitable Banking Corp. with
the probate Court in the amount
of P19,756,428.31 as of March 31,
1988, together with the Annexes
to the claim (pp. 64-88, BIR
records); "D" to "D-24"
6. Claim filed by Banque de L'
Indochine et de Suez with the
probate Court in the amount of
US $4,828,905.90 as of January 31,
1988 (pp. 262-265, BIR records); "E" to
"E-3"
7. Claim of the Manila Banking
Corporation (MBC) which as of
November 7, 1987 amounts to
P65,158,023.54, but recomputed
as of February 28, 1989 at a
total amount of P84,199,160.46;
together with the demand letter
from MBC's lawyer (pp. 194-197,
BIR records); "F" to "F-3"
8. Demand letter of Manila Banking
Corporation prepared by Asedillo,
Ramos and Associates Law Offices
addressed to Fernandez Hermanos,
Inc., represented by Jose P.
Fernandez, as mortgagors, in the
total amount of P240,479,693.17
as of February 28, 1989
(pp. 186-187, BIR records); "G" & "G-1"
9. Claim of State Investment
House, Inc. filed with the
RTC, Branch VII of Manila,
docketed as Civil Case No.
86-38599 entitled "State
Investment House, Inc.,
Plaintiff, versus Maritime
Company Overseas, Inc. and/or
Jose P. Fernandez, Defendants,"
(pp. 200-215, BIR records); "H" to "H-
16"
10. Letter dated March 14, 1990
of Arsenio P. Dizon addressed
to Atty. Jesus M. Gonzales,
(p. 184, BIR records); "I"
11. Letter dated April 17, 1990
from J.M. Gonzales addressed
to the Regional Director of
BIR in San Pablo City
(p. 183, BIR records); "J"
12. Estate Tax Return filed by
the estate of the late Jose P.
Fernandez through its authorized
representative, Atty. Jesus M.
Gonzales, for Arsenio P. Dizon,
with attachments (pp. 177-182,
BIR records); "K" to "K-5"
13. Certified true copy of the
Letter of Administration
issued by RTC Manila, Branch
51, in Sp. Proc. No. 87-42980
appointing Atty. Rafael S.
Dizon as Judicial Administrator
of the estate of Jose P.
Fernandez; (p. 102, CTA records)
and "L"
14. Certification of Payment of
estate taxes Nos. 2052 and
2053, both dated April 27, 1990,
issued by the Office of the
Regional Director, Revenue
Region No. 4-C, San Pablo
City, with attachments
(pp. 103-104, CTA records.). "M" to "M-
5"
Respondent's [BIR] counsel presented
on June 26, 1995 one witness in the
person of Alberto Enriquez, who was
one of the revenue examiners who
conducted the investigation on the
estate tax case of the late Jose P.
Fernandez. In the course of the direct
examination of the witness, he
identified the following:
Documents/
Signatures BIR Record
1. Estate Tax Return prepared by
the BIR; p. 138
2. Signatures of Ma. Anabella
Abuloc and Alberto Enriquez,
Jr. appearing at the lower
Portion of Exh. "1"; -do-
3. Memorandum for the Commissioner,
dated July 19, 1991, prepared by
revenue examiners, Ma. Anabella A.
Abuloc, Alberto S. Enriquez and
Raymund S. Gallardo; Reviewed by
Maximino V. Tagle pp. 143-144
4. Signature of Alberto S.
Enriquez appearing at the
lower portion on p. 2 of Exh. "2"; -do-
5. Signature of Ma. Anabella A.
Abuloc appearing at the
lower portion on p. 2 of Exh. "2"; -do-
6. Signature of Raymund S.
Gallardo appearing at the
Lower portion on p. 2 of Exh. "2"; -do-
7. Signature of Maximino V.
Tagle also appearing on
p. 2 of Exh. "2"; -do-
8. Summary of revenue
Enforcement Officers Audit
Report, dated July 19, 1991; p. 139
9. Signature of Alberto
Enriquez at the lower
portion of Exh. "3"; -do-
10. Signature of Ma. Anabella A.
Abuloc at the lower
portion of Exh. "3"; -do-
11. Signature of Raymond S.
Gallardo at the lower
portion of Exh. "3"; -do-
12. Signature of Maximino
V. Tagle at the lower
portion of Exh. "3"; -do-
13. Demand letter (FAS-E-87-91-00),
signed by the Asst. Commissioner
for Collection for the Commissioner
of Internal Revenue, demanding
payment of the amount of
P66,973,985.40; and p. 169
14. Assessment Notice FAS-E-87-91-
00 pp. 169-170[22]
The CTA's Ruling
On June 17, 1997, the CTA denied the said petition
for review. Citing this Court's ruling in Vda. de Oate
v. Court of Appeals,[23] the CTA opined that the
aforementioned pieces of evidence introduced by the
BIR were admissible in evidence. The CTA
ratiocinated:
Although the above-mentioned
documents were not formally offered as
evidence for respondent, considering
that respondent has been declared to
have waived the presentation thereof
during the hearing on March 20, 1996,
still they could be considered as
evidence for respondent since they were
properly identified during the
presentation of respondent's witness,
whose testimony was duly recorded as
part of the records of this case. Besides,
the documents marked as respondent's
 exhibits formed part of the BIR records Total deficiency estate
of the case.[24] tax P 37,419,493.71
=============

exclusive of 20% interest from due date

Nevertheless, the CTA did not fully adopt the of its payment until full payment thereof
[Sec. 283 (b), Tax Code of 1987].[25]
assessment made by the BIR and it came up with its
own computation of the deficiency estate tax, to wit:
Thus, the CTA disposed of the case in this wise:
Conjugal Real Property P 5,062,016.00
Conjugal Personal Prop. 33,021,999.93
Gross Conjugal Estate 38,084,015.93 WHEREFORE, viewed from all the
Less: Deductions 26,250,000.00 foregoing, the Court finds the petition
Net Conjugal Estate P 11,834,015.93 unmeritorious and denies the same.
Less: Share of Surviving Petitioner and/or the heirs of Jose P.
Spouse 5,917,007.96 Fernandez are hereby ordered to pay to
Net Share in Conjugal respondent the amount
Estate P 5,917,007.96 of P37,419,493.71 plus 20% interest
Add: Capital/Paraphernal from the due date of its payment until
Properties P44,652,813.66 full payment thereof as estate tax
Less: Capital/Paraphernal liability of the estate of Jose P.
Deductions 44,652,813.66 Fernandez who died on November 7,
Net Taxable Estate P 50,569,821.62 1987.
============
SO ORDERED.[26]
Estate Tax Due P 29,935,342.97
Add: 25% Surcharge for Late
Filing 7,483,835.74 Aggrieved, petitioner, on March 2, 1998, went to the
Add: Penalties for-No notice of
CA via a petition for review.[27]
death 15.00
No CPA certificate 300.00
The CA's Ruling 2. Whether or not the Court of Tax
Appeals and the Court of Appeals
erred in recognizing/considering the
estate tax return prepared and filed
On April 30, 1999, the CA affirmed the CTA's ruling. by respondent BIR knowing that the
Adopting in full the CTA's findings, the CA ruled that probate court appointed
administrator of the estate of Jose P.
the petitioner's act of filing an estate tax return with Fernandez had previously filed one as
the BIR and the issuance of BIR Certification Nos. in fact, BIR Certification Clearance
2052 and 2053 did not deprive the BIR Nos. 2052 and 2053 had been issued
in the estate's favor;
Commissioner of her authority to re-examine or re-
assess the said return filed on behalf of the Estate.[28] 3. Whether or not the Court of Tax
Appeals and the Court of Appeals
erred in disallowing the valid and
On May 31, 1999, petitioner filed a Motion for enforceable claims of creditors
Reconsideration[29] which the CA denied in its against the estate, as lawful
deductions despite clear and
Resolution[30] dated November 3, 1999. convincing evidence thereof; and

Hence, the instant Petition raising the following 4. Whether or not the Court of Tax
Appeals and the Court of Appeals
issues:
erred in validating erroneous double
imputation of values on the very
1. Whether or not the admission of same estate properties in the estate
evidence which were not formally tax return it prepared and filed which
offered by the respondent BIR by the effectively bloated the estate's
Court of Tax Appeals which was assets.[31]
subsequently upheld by the Court of
Appeals is contrary to the Rules of
Court and rulings of this Honorable
The petitioner claims that in as much as the valid
Court;
claims of creditors against the Estate are in excess
of the gross estate, no estate tax was due; that the 2053; and that the reckoning date of the claims
lack of a formal offer of evidence is fatal to BIR's against the Estate and the settlement of the estate
cause; that the doctrine laid down in Vda. de tax due should be at the time the estate tax return
Oate has already been abandoned in a long line of was filed by the judicial administrator and the
cases in which the Court held that evidence not issuance of said BIR Certifications and not at the
formally offered is without any weight or value; that time the aforementioned Compromise Agreements
Section 34 of Rule 132 of the Rules on Evidence were entered into with the Estate's creditors.[32]
requiring a formal offer of evidence is mandatory in
character; that, while BIR's witness Alberto Enriquez
On the other hand, respondent counters that the
(Alberto) in his testimony before the CTA identified
documents, being part of the records of the case and
the pieces of evidence aforementioned such that the
duly identified in a duly recorded testimony are
same were marked, BIR's failure to formally offer
considered evidence even if the same were not
said pieces of evidence and depriving petitioner the
formally offered; that the filing of the estate tax
opportunity to cross-examine Alberto, render the
return by the Estate and the issuance of
same inadmissible in evidence; that
BIR Certification Nos. 2052 and 2053 did not deprive
assuming arguendo that the ruling in Vda. de
the BIR of its authority to examine the return and
Oate is still applicable, BIR failed to comply with the
assess the estate tax; and that the factual findings of
doctrine's requisites because the documents herein
the CTA as affirmed by the CA may no longer be
remained simply part of the BIR records and were
reviewed by this Court via a petition for review.[33]
not duly incorporated in the court records; that the
BIR failed to consider that although the actual
The Issues
payments made to the Estate creditors were lower
than their respective claims, such were compromise
There are two ultimate issues which require
agreements reached long after the Estate's liability
resolution in this case:
had been settled by the filing of its estate tax return
and the issuance of BIR Certification Nos. 2052 and
First. Whether or not the CTA and the CA gravely
erred in allowing the admission of the pieces of
evidence which were not formally offered by the BIR;
and
Second. Whether or not the CA erred in affirming the
CTA in the latter's determination of the deficiency
estate tax imposed against the Estate.
The Courts Ruling
The Petition is impressed with merit.
Under Section 8 of RA 1125, the CTA is categorically
described as a court of record. As cases filed before
it are litigated de novo, party-litigants shall prove
every minute aspect of their cases. Indubitably, no
evidentiary value can be given the pieces of evidence
submitted by the BIR, as the rules on documentary
evidence require that these documents must be
formally offered before the CTA.[34] Pertinent is
Section 34, Rule 132 of the Revised Rules on
Evidence which reads:
SEC. 34. Offer of evidence. The court
shall consider no evidence which has
not been formally offered. The purpose
for which the evidence is offered must be
specified.
The CTA and the CA rely solely on the case
of Vda. de Oate, which reiterated this Court's
previous rulings in People v. Napat-a[35] and People v.
Mate[36] on the admission and consideration of
exhibits which were not formally offered during the
trial. Although in a long line of cases many of which
were decided after Vda. de Oate, we held that courts
cannot consider evidence which has not been
formally offered,[37] nevertheless, petitioner cannot
validly assume that the doctrine laid down in Vda.
de Oate has already been abandoned. Recently,
in Ramos v. Dizon,[38] this Court, applying the said
doctrine, ruled that the trial court judge therein
committed no error when he admitted and
considered the respondents' exhibits in the
resolution of the case, notwithstanding the fact that
the same
were not formally offered. Likewise, in Far East Bank
& Trust Company v. Commissioner of Internal
Revenue,[39] the Court made reference to said
doctrine in resolving the issues therein. Indubitably,
the doctrine laid down in Vda. De Oate still subsists rule and allowed evidence not
formally offered to be admitted and
in this jurisdiction. In Vda. de Oate, we held that:
considered by the trial court provided
the following requirements are
present, viz.: first, the same must
From the foregoing provision, it is clear
have been duly identified by
that for evidence to be considered, the
testimony duly recorded and, second,
same must be formally offered.
the same must have been
Corollarily, the mere fact that a
incorporated in the records of the
particular document is identified and
case.[40]
marked as an exhibit does not mean
that it has already been offered as part
of the evidence of a party. In Interpacific From the foregoing declaration, however, it is
Transit, Inc. v. Aviles [186 SCRA 385], clear that Vda. de Oate is merely an exception to the
we had the occasion to make a general rule. Being an exception, it may be applied
distinction between identification of
only when there is strict compliance with the
documentary evidence and its formal
offer as an exhibit. We said that the first requisites mentioned therein; otherwise, the general
is done in the course of the trial and is rule in Section 34 of Rule 132 of the Rules of Court
accompanied by the marking of the should prevail.
evidence as an exhibit while the second
is done only when the party rests its
case and not before. A party, therefore, In this case, we find that these requirements have
may opt to formally offer his evidence if not been satisfied. The assailed pieces of evidence
he believes that it will advance his cause
were presented and marked during the trial
or not to do so at all. In the event he
chooses to do the latter, the trial court particularly when Alberto took the witness stand.
is not authorized by the Rules to Alberto identified these pieces of evidence in his
consider the same. direct testimony.[41] He was also subjected to cross-
However, in People v. Napat-a [179 examination and re-cross examination by
SCRA 403] citing People v. Mate [103 petitioner.[42]But Albertos account and the
SCRA 484], we relaxed the foregoing exchanges between Alberto and petitioner did not
sufficiently describe the contents of the said pieces
of evidence presented by the BIR. In fact, petitioner
sought that the lead examiner, one Ma. Anabella A.
Abuloc, be summoned to testify, inasmuch as
Alberto was incompetent to answer questions
relative to the working papers.[43] The lead examiner
never testified. Moreover, while Alberto's testimony
identifying the BIR's evidence was duly recorded, the
BIR documents themselves were not incorporated in
the records of the case.
A common fact threads through Vda. de
Oate and Ramos that does not exist at all in the
instant case. In the aforementioned cases, the
exhibits were marked at the pre-trial proceedings to
warrant the pronouncement that the same were duly
incorporated in the records of the case. Thus, we
held in Ramos:
In this case, we find and so rule that
these requirements have been
satisfied. The exhibits in question
were presented and marked during
the pre-trial of the case thus, they
have been incorporated into the
records. Further, Elpidio himself
explained the contents of these exhibits
when he was interrogated by
respondents' counsel...
xxxx
But what further defeats petitioner's
cause on this issue is that respondents'
exhibits were marked and admitted
during the pre-trial stage as shown by
the Pre-Trial Order quoted earlier.[44]
While the CTA is not governed strictly by technical
rules of evidence,[45] as rules of procedure are not
ends in themselves and are primarily intended as
tools in the administration of justice, the
presentation of the BIR's evidence is not a mere
procedural technicality which may be disregarded
considering that it is the only means by which the
CTA may ascertain and verify the truth of BIR's
claims against the Estate.[46] The BIR's failure to
formally offer these pieces of evidence, despite CTA's
directives, is fatal to its cause.[47] Such failure is
aggravated by the fact that not even a single reason
was advanced by the BIR to justify such fatal
omission. This, we take against the BIR.
Per the records of this case, the BIR was directed to
present its evidence[48] in the hearing of February 21,
1996, but BIR's counsel failed to appear.[49] The CTA
denied petitioner's motion to consider BIR's
presentation of evidence as waived, with a warning
to BIR that such presentation would be considered
waived if BIR's evidence would not be presented at
the next hearing. Again, in the hearing of March 20,
1996, BIR's counsel failed to appear.[50] Thus, in its
Resolution[51] dated March 21, 1996, the CTA
considered the BIR to have waived presentation of its
evidence. In the same Resolution, the parties were
directed to file their respective memorandum.
Petitioner complied but BIR failed to do so.[52] In all
of these proceedings, BIR was duly notified. Hence,
in this case, we are constrained to apply our ruling
in Heirs of Pedro Pasag v. Parocha:[53]
A formal offer is necessary
because judges are mandated to rest
their findings of facts and their
judgment only and strictly upon the
evidence offered by the parties at the
trial. Its function is to enable the trial
judge to know the purpose or purposes
for which the proponent is presenting
the evidence. On the other hand, this
allows opposing parties to examine the
evidence and object to its admissibility.
Moreover, it facilitates review as the
appellate court will not be required to
review documents not previously
scrutinized by the trial court.
Strict adherence to the said rule is not a
trivial matter. The Court in Constantino
v. Court of Appeals ruled that the
formal offer of one's evidence is
deemed waived after failing to submit
it within a considerable period of
time. It explained that the court
cannot admit an offer of evidence
made after a lapse of three (3) months
because to do so would "condone an
inexcusable laxity if not non-
compliance with a court order which,
in effect, would encourage needless
delays and derail the speedy
administration of justice."
Applying the aforementioned principle
in this case, we find that the trial court
had reasonable ground to consider that
petitioners had waived their right to
make a formal offer of documentary or
object evidence. Despite several
extensions of time to make their formal
offer, petitioners failed to comply with
their commitment and allowed almost
five months to lapse before finally
submitting it. Petitioners' failure to
comply with the rule on admissibility
of evidence is anathema to the
 efficient, effective, and expeditious
dispensation of justice.
Having disposed of the foregoing procedural issue,
we proceed to discuss the merits of the case.
Ordinarily, the CTA's findings, as affirmed by
the CA, are entitled to the highest respect and will
not be disturbed on appeal unless it is shown that
the lower courts committed gross error in the
appreciation of facts.[54] In this case, however, we
find the decision of the CA affirming that of the CTA
tainted with palpable error.
It is admitted that the claims of the Estate's
aforementioned creditors have been condoned. As a
mode of extinguishing an obligation,[55] condonation
or remission of debt[56] is defined as:
an act of liberality, by virtue of which,
without receiving any equivalent, the
creditor renounces the enforcement of
the obligation, which is extinguished in
its entirety or in that part or aspect of
the same to which the remission refers.
It is an essential characteristic of
remission that it be gratuitous, that
there is no equivalent received for the
benefit given; once such equivalent
exists, the nature of the act changes. It
may become dation in payment when
the creditor receives a thing different
from that stipulated; or novation, when
the object or principal conditions of the
obligation should be changed; or
compromise, when the matter
renounced is in litigation or dispute and
in exchange of some concession which
the creditor receives.[57]
Verily, the second issue in this case involves the
construction of Section 79[58] of the National Internal
Revenue Code[59] (Tax Code) which provides for the
allowable deductions from the gross estate of the
decedent. The specific question is whether the actual
claims of the aforementioned creditors may be fully
allowed as deductions from the gross estate of Jose
despite the fact that the said claims were reduced or
condoned through compromise agreements entered
into by the Estate with its creditors.
Claims against the estate, as allowable deductions
from the gross estate under Section 79 of the Tax
Code, are basically a reproduction of the deductions
allowed under Section 89 (a) (1) (C) and (E) of amount did not preclude the estate from deducting
Commonwealth Act No. 466 (CA 466), otherwise the entire amount of the claim for estate tax
known as the National Internal Revenue Code of purposes. These pronouncements essentially
1939, and which was the first codification of confirm the general principle that post-death
Philippine tax laws. Philippine tax laws were, in developments are not material in determining the
turn, based on the federal tax laws of the United amount of the deduction.
States. Thus, pursuant to established rules of
statutory construction, the decisions of American
On the other hand, the Internal Revenue
courts construing the federal tax code are entitled to
Service (Service) opines that post-death settlement
great weight in the interpretation of our own tax
should be taken into consideration and the claim
laws.[60]
should be allowed as a deduction only to the extent
of the amount actually paid.[64] Recognizing the
It is noteworthy that even in the United States, there
dispute, the Service released Proposed Regulations
is some dispute as to whether the deductible amount
in 2007 mandating that the deduction would be
for a claim against the estate is fixed as of the
limited to the actual amount paid.[65]
decedent's death which is the general rule, or the
same should be adjusted to reflect post-death
In announcing its agreement
developments, such as where a settlement between
with Propstra,[66] the U.S. 5th Circuit Court of
the parties results in the reduction of the amount
Appeals held:
actually paid.[61] On one hand, the U.S. court ruled
that the appropriate deduction is the value that the
We are persuaded that the Ninth
claim had at the date of the decedent's Circuit's decision...in Propstra correctly
death.[62] Also, as held in Propstra v. U.S.,[63] where a apply the Ithaca Trust date-of-death
lien claimed against the estate was certain and valuation principle to enforceable claims
against the estate. As we
enforceable on the date of the decedent's death, the interpret Ithaca Trust, when the
fact that the claimant subsequently settled for lesser
 Supreme Court announced the date-of- whether a person, article or activity is taxable is
death valuation principle, it was making
generally resolved against taxation.[70] Second. Such
a judgment about the nature of the
federal estate tax specifically, that it is a construction finds relevance and consistency in our
tax imposed on the act of transferring Rules on Special Proceedings wherein the term
property by will or intestacy and, "claims" required to be presented against a
because the act on which the tax is
levied occurs at a discrete time, i.e., the decedent's estate is generally construed to mean
instance of death, the net value of the debts or demands of a pecuniary nature which could
property transferred should be have been enforced against the deceased in his
ascertained, as nearly as possible, as of
lifetime, or liability contracted by the deceased before
that time. This analysis supports broad
application of the date-of-death his death.[71] Therefore, the claims existing at the
valuation rule.[67] time of death are significant to, and should be made
the basis of, the determination of allowable
deductions.
We express our agreement with the date-of-death
valuation rule, made pursuant to the ruling of the
WHEREFORE, the instant Petition is GRANTED.
U.S. Supreme Court in Ithaca Trust Co. v. United
Accordingly, the assailed Decision dated April 30,
States.[68] First. There is no law, nor do we discern
1999 and the Resolution dated November 3, 1999 of
any legislative intent in our tax laws, which
the Court of Appeals in CA-G.R. S.P. No. 46947
disregards the date-of-death valuation principle and
are REVERSED and SET ASIDE. The Bureau of
particularly provides that post-death developments
Internal Revenue's deficiency estate tax assessment
must be considered in determining the net value of
against the Estate of Jose P. Fernandez is
the estate. It bears emphasis that tax burdens are
hereby NULLIFIED. No costs.
not to be imposed, nor presumed to be imposed,
beyond what the statute expressly and clearly
imports, tax statutes being construed strictissimi G.R. No. 155541 January 27, 2004
juris against the government.[69] Any doubt on
ESTATE OF THE LATE JULIANA DIEZ VDA. DE
GABRIEL, petitioner,
vs.
COMMISSIONER OF INTERNAL
REVENUE, respondent.
DECISION
YNARES-SANTIAGO, J.:
This petition for review on certiorari assails the
decision of the Court of Appeals in CA-G.R. CV No.
09107, dated September 30, 2002,1 which reversed
the November 19, 1995 Order of Regional Trial Court
of Manila, Branch XXXVIII, in Sp. Proc. No. R-82-
6994, entitled "Testate Estate of Juliana Diez Vda.
De Gabriel". The petition was filed by the Estate of
the Late Juliana Diez Vda. De Gabriel, represented
by Prudential Bank as its duly appointed and
qualified Administrator.
As correctly summarized by the Court of Appeals, the
relevant facts are as follows:
During the lifetime of the decedent, Juliana
Vda. De Gabriel, her business affairs were
managed by the Philippine Trust Company
(Philtrust). The decedent died on April 3, 1979.
Two days after her death, Philtrust, through
its Trust Officer, Atty. Antonio M. Nuyles, filed
her Income Tax Return for 1978. The return
did not indicate that the decedent had died.
On May 22, 1979, Philtrust also filed a verified
petition for appointment as Special Administrator
with the Regional Trial Court of Manila, Branch
XXXVIII, docketed as Sp. Proc. No. R-82-6994. The
court a quo appointed one of the heirs as Special
Administrator. Philtrust’s motion for reconsideration
was denied by the probate court.
On January 26, 1981, the court a quo issued an
Order relieving Mr. Diez of his appointment, and
appointed Antonio Lantin to take over as Special
Administrator. Subsequently, on July 30, 1981, Mr.
Lantin was also relieved of his appointment, and
Atty. Vicente Onosa was appointed in his stead.
In the meantime, the Bureau of Internal Revenue
conducted an administrative investigation on the
decedent’s tax liability and found a deficiency income
tax for the year 1977 in the amount of P318,233.93.
Thus, on November 18, 1982, the BIR sent by
registered mail a demand letter and Assessment
Notice No. NARD-78-82-00501 addressed to the
decedent "c/o Philippine Trust Company, Sta. Cruz,
Manila" which was the address stated in her 1978
Income Tax Return. No response was made by
Philtrust. The BIR was not informed that the
decedent had actually passed away.
In an Order dated September 5, 1983, the court a
quo appointed Antonio Ambrosio as the
Commissioner and Auditor Tax Consultant of the
Estate of the decedent.
On June 18, 1984, respondent Commissioner of
Internal Revenue issued warrants of distraint and
levy to enforce collection of the decedent’s deficiency
income tax liability, which were served upon her
heir, Francisco Gabriel. On November 22, 1984,
respondent filed a "Motion for Allowance of Claim
and for an Order of Payment of Taxes" with the court
a quo. On January 7, 1985, Mr. Ambrosio filed a
letter of protest with the Litigation Division of the
BIR, which was not acted upon because the
assessment notice had allegedly become final,
executory and incontestable.
On May 16, 1985, petitioner, the Estate of the
decedent, through Mr. Ambrosio, filed a formal
opposition to the BIR’s Motion for Allowance of Claim
based on the ground that there was no proper service
of the assessment and that the filing of the aforesaid
claim had already prescribed. The BIR filed its Reply,
contending that service to Philippine Trust Company
was sufficient service, and that the filing of the claim
against the Estate on November 22, 1984 was within
the five-year prescriptive period for assessment and
collection of taxes under Section 318 of the 1977
National Internal Revenue Code (NIRC).
On November 19, 1985, the court a quo issued an
Order denying respondent’s claim against the
Estate,2 after finding that there was no notice of its
tax assessment on the proper party.3
On July 2, 1986, respondent filed an appeal with the
Court of Appeals, docketed as CA-G.R. CV No.
09107,4assailing the Order of the probate court
dated November 19, 1985. It was claimed that
Philtrust, in filing the decedent’s 1978 income tax
return on April 5, 1979, two days after the taxpayer’s
death, had "constituted itself as the administrator of
the estate of the deceased at least insofar as said
return is concerned."5 Citing Basilan Estate Inc. v.
Commissioner of Internal Revenue,6 respondent
argued that the legal requirement of notice with
respect to tax assessments7 requires merely that the
Commissioner of Internal Revenue release, mail and
send the notice of the assessment to the taxpayer at
the address stated in the return filed, but not that
the taxpayer actually receive said assessment within
the five-year prescriptive period.8 Claiming that
Philtrust had been remiss in not notifying
respondent of the decedent’s death, respondent
therefore argued that the deficiency tax assessment
had already become final, executory and
incontestable, and that petitioner Estate was liable
therefor.
On September 30, 2002, the Court of Appeals
rendered a decision in favor of the respondent.
Although acknowledging that the bond of agency
between Philtrust and the decedent was severed
upon the latter’s death, it was ruled that the
administrator of the Estate had failed in its legal duty
to inform respondent of the decedent’s death,
pursuant to Section 104 of the National Internal
Revenue Code of 1977. Consequently, the BIR’s
service to Philtrust of the demand letter and Notice
of Assessment was binding upon the Estate, and,
upon the lapse of the statutory thirty-day period to
question this claim, the assessment became final,
executory and incontestable. The dispositive portion
of said decision reads:
WHEREFORE, finding merit in the appeal, the
appealed decision is REVERSED AND SET
ASIDE. Another one is entered ordering the
Administrator of the Estate to pay the
Commissioner of Internal Revenue the
following:
a. The amount of P318,223.93,
representing the deficiency income tax
liability for the year 1978, plus 20%
interest per annum from November 2,
1982 up to November 2, 1985 and in
addition thereto 10% surcharge on the
basic tax of P169,155.34 pursuant to
Section 51(e)(2) and (3) of the Tax Code
as amended by PD 69 and 1705; and
b. The costs of the suit.
SO ORDERED.9
Hence, the instant petition, raising the following
issues:
1. Whether or not the Court of Appeals erred
in holding that the service of deficiency tax
assessment against Juliana Diez Vda. de
Gabriel through the Philippine Trust Company
was a valid service in order to bind the Estate;
2. Whether or not the Court of Appeals erred
in holding that the deficiency tax assessment
and final demand was already final, executory
and incontestable.
Petitioner Estate denies that Philtrust had any legal
personality to represent the decedent after her death.
As such, petitioner argues that there was no proper
notice of the assessment which,
therefore, never became final, executory and
incontestable.10 Petitioner further contends that
respondent’s failure to file its claim against the
Estate within the proper period prescribed by the
Rules of Court is a fatal error, which forever bars its
claim against the Estate.11
Respondent, on the other hand, claims that because
Philtrust filed the decedent’s income tax return
subsequent to her death, Philtrust was the de facto
administrator of her Estate.12 Consequently, when
the Assessment Notice and demand letter dated
November 18, 1982 were sent to Philtrust, there was
proper service on the Estate.13Respondent further
asserts that Philtrust had the legal obligation to
inform petitioner of the decedent’s death, which
requirement is found in Section 104 of the NIRC of
1977.14 Since Philtrust did not, respondent contends
that petitioner Estate should not be allowed to profit
from this omission.15 Respondent further argues
that Philtrust’s failure to protest the aforementioned
assessment within the 30-day period provided in
Section 319-A of the NIRC of 1977 meant that the
assessment had already become final, executory and
incontestable.16
The resolution of this case hinges on the legal
relationship between Philtrust and the decedent,
and, by extension, between Philtrust and petitioner
Estate. Subsumed under this primary issue is the
sub-issue of whether or not service on Philtrust of
the demand letter and Assessment Notice No. NARD-
78-82-00501 was valid service on petitioner, and the
issue of whether Philtrust’s inaction thereon could
bind petitioner. If both sub-issues are answered in
the affirmative, respondent’s contention as to the
finality of Assessment Notice No. NARD-78-82-
00501 must be answered in the affirmative. This is
because Section 319-A of the NIRC of 1977 provides
a clear 30-day period within which to protest an
assessment. Failure to file such a protest within said
period means that the assessment ipso jure becomes
final and unappealable, as a consequence of which
legal proceedings may then be initiated for collection
thereof.
We find in favor of the petitioner.
The first point to be considered is that the
relationship between the decedent and Philtrust was
one of agency, which is a personal relationship
between agent and principal. Under Article 1919 (3)
of the Civil Code, death of the agent or principal
automatically terminates the agency. In this
instance, the death of the decedent on April 3, 1979
automatically severed the legal relationship between
her and Philtrust, and such could not be revived by
the mere fact that Philtrust continued to act as her
agent when, on April 5, 1979, it filed her Income Tax
Return for the year 1978.
Since the relationship between Philtrust and the
decedent was automatically severed at the moment
of the Taxpayer’s death, none of Philtrust’s acts or
omissions could bind the estate of the Taxpayer.
Service on Philtrust of the demand letter and
Assessment Notice No. NARD-78-82-00501 was
improperly done.
It must be noted that Philtrust was never
appointed as the administrator of the Estate of the
decedent, and, indeed, that the court a quo twice
rejected Philtrust’s motion to be thus appointed. As
of November 18, 1982, the date of the demand letter
and Assessment Notice, the legal relationship
between the decedent and Philtrust had already been
non-existent for three years.
Respondent claims that Section 104 of the National
Internal Revenue Code of 1977 imposed the legal
obligation on Philtrust to inform respondent of the
decedent’s death. The said Section reads:
SEC. 104. Notice of death to be filed. – In all
cases of transfers subject to tax or where,
though exempt from tax, the gross value of the
estate exceeds three thousand pesos, the
executor, administrator, or any of the legal
heirs, as the case may be, within two months
after the decedent’s death, or within a like
period after qualifying as such executor or
administrator, shall give written notice thereof
to the Commissioner of Internal Revenue.
The foregoing provision falls in Title III,
Chapter I of the National Internal Revenue
Code of 1977, or the chapter on Estate Tax,
and pertains to "all cases of transfers subject
to tax" or where the "gross value of the estate
exceeds three thousand pesos". It has
absolutely no applicability to a case for
deficiency income tax, such as the case at bar.
It further lacks applicability since Philtrust
was never the executor, administrator of the
decedent’s estate, and, as such, never had the
legal obligation, based on the above provision,
to inform respondent of her death.
Although the administrator of the estate may
have been remiss in his legal obligation to
inform respondent of the decedent’s death, the
consequences thereof, as provided in Section
119 of the National Internal Revenue Code of
1977, merely refer to the imposition of certain
penal sanctions on the administrator. These
do not include the indefinite tolling of the
prescriptive period for making deficiency tax
assessments, or the waiver of the notice
requirement for such assessments.
Thus, as of November 18, 1982, the date of the
demand letter and Assessment Notice No.
NARD-78-82-00501, there was absolutely no
legal obligation on the part of Philtrust to
either (1) respond to the demand letter and
assessment notice, (2) inform respondent of
the decedent’s death, or (3) inform petitioner
that it had received said demand letter and
assessment notice. This lack of legal obligation
was implicitly recognized by the Court of
Appeals, which, in fact, rendered its assailed
decision on grounds of "equity".17
Since there was never any valid notice of this
assessment, it could not have become final,
executory and incontestable, and, for failure to make
the assessment within the five-year period provided
in Section 318 of the National Internal Revenue Code
of 1977, respondent’s claim against the petitioner
Estate is barred. Said Section 18 reads:
SEC. 318. Period of limitation upon assessment
and collection. – Except as provided in the
succeeding section, internal revenue taxes
shall be assessed within five years after the
return was filed, and no proceeding in court
without assessment for the collection of such
taxes shall be begun after the expiration of
such period. For the purpose of this section, a
return filed before the last day prescribed by
law for the filing thereof shall be considered as
filed on such last day: Provided, That this
 limitation shall not apply to cases already
investigated prior to the approval of this Code.
Respondent argues that an assessment is deemed
made for the purpose of giving effect to such
assessment when the notice is released, mailed or
sent to the taxpayer to effectuate the assessment,
and there is no legal requirement that the taxpayer
actually receive said notice within the five-year
period.18 It must be noted, however, that the
foregoing rule requires that the notice be sent to the
taxpayer, and not merely to a disinterested party.
Although there is no specific requirement that the
taxpayer should receive the notice within the said
period, due process requires at the very least that
such notice actually be received. In Commissioner of
Internal Revenue v. Pascor Realty and Development
Corporation,19 we had occasion to say:
An assessment contains not only a
computation of tax liabilities, but also a
demand for payment within a prescribed
period. It also signals the time when penalties
and interests begin to accrue against the
taxpayer. To enable the taxpayer to determine
his remedies thereon, due process requires
that it must be served on and received by the
taxpayer.
In Republic v. De le Rama,20 we clarified that, when
an estate is under administration, notice must be
sent to the administrator of the estate, since it is the
said administrator, as representative of the estate,
who has the legal obligation to pay and discharge all
debts of the estate and to perform all orders of the
court. In that case, legal notice of the assessment
was sent to two heirs, neither one of whom had any
authority to represent the estate. We said:
The notice was not sent to the taxpayer for the
purpose of giving effect to the assessment, and
said notice could not produce any effect. In the
case of Bautista and Corrales Tan v. Collector
of Internal Revenue … this Court had occasion
to state that "the assessment is deemed made
when the notice to this effect is released,
mailed or sent to the taxpayer for the purpose
of giving effect to said assessment." It
appearing that the person liable for the
payment of the tax did not receive the
assessment, the assessment could not become
final and executory. (Citations omitted,
emphasis supplied.)
In this case, the assessment was served not even on
an heir of the Estate, but on a completely
disinterested third party. This improper service was
clearly not binding on the petitioner.
By arguing that (1) the demand letter and
assessment notice were served on Philtrust, (2)
Philtrust was remiss in its obligation to respond to
the demand letter and assessment notice, (3)
Philtrust was remiss in its obligation to inform
respondent of the decedent’s death, and (4) the
assessment notice is therefore binding on the Estate,
respondent is arguing in circles. The most crucial FERDINAND R. MARCOS II, petitioner,
point to be remembered is that Philtrust had vs. COURT OF APPEALS, THE
absolutely no legal relationship to the deceased, or COMMISSIONER OF THE BUREAU OF
to her Estate. There was therefore no assessment INTERNAL REVENUE and HERMINIA D. DE
served on the Estate as to the alleged underpayment GUZMAN, respondents.
of tax. Absent this assessment, no proceedings could
be initiated in court for the collection of said DECISION
tax,21 and respondent’s claim for collection, filed
TORRES, JR., J.:
with the probate court only on November 22, 1984,
was barred for having been made beyond the five-
In this Petition for Review
year prescriptive period set by law.
on Certiorari, Government action is once again
assailed as precipitate and unfair, suffering the basic
WHEREFORE, the petition is GRANTED. The
and oftly implored requisites of due process of
Decision of the Court of Appeals in CA-G.R. CV No.
law.Specifically, the petition assails the Decision[1] of
09107, dated September 30, 2002, is REVERSED
the Court of Appeals dated November 29, 1994 in
and SET ASIDE. The Order of the Regional Trial
CA-G.R. SP No. 31363, where the said court held:
Court of Manila, Branch XXXVIII, in Sp. Proc. No. R-
82-6994, dated November 19, 1985, which denied
"In view of all the foregoing, we rule that the
the claim of the Bureau of Internal Revenue against
deficiency income tax assessments and estate tax
the Estate of Juliana Diez Vda. De Gabriel for the
assessment, are already final and (u)nappealable -
deficiency income tax of the decedent for the year
and- the subsequent levy of real properties is a tax
1977 in the amount of P318,223.93, is AFFIRMED.
remedy resorted to by the government, sanctioned by
Section 213 and 218 of the National Internal
No pronouncement as to costs.
Revenue Code. This summary tax remedy is distinct
and separate from the other tax remedies (such as
SO ORDERED.
Judicial Civil actions and Criminal actions), and is
not affected or precluded by the pendency of any
other tax remedies instituted by the government.

WHEREFORE, premises considered, judgment is

[G.R. No. 120880. June 5, 1997] hereby rendered DISMISSING the petition for
certiorari with prayer for Restraining Order and
Injunction.
No pronouncements as to costs.
SO ORDERED."
More than seven years since the demise of the
late Ferdinand E. Marcos, the former President of the
Republic of the Philippines, the matter of the
settlement of his estate, and its dues to the
government in estate taxes, are still unresolved, the
latter issue being now before this Court for
resolution. Specifically, petitioner Ferdinand R.
Marcos II, the eldest son of the decedent, questions
the actuations of the respondent Commissioner of
Internal Revenue in assessing, and collecting
through the summary remedy of Levy on Real
Properties, estate and income tax delinquencies
upon the estate and properties of his father, despite
the pendency of the proceedings on probate of the
will of the late president, which is docketed as Sp.
Proc. No. 10279 in the Regional Trial Court of Pasig,
Branch 156.
Petitioner had filed with the respondent Court of
Appeals a Petition for Certiorari and Prohibition with
an application for writ of preliminary injunction
and/or temporary restraining order on June 28,
1993, seeking to -
I. Annul and set aside the Notices of Levy on real
property dated February 22, 1993 and May 20, 1993,
issued by respondent Commissioner of Internal
Revenue;
II. Annul and set aside the Notices of Sale dated May
26, 1993;
III. Enjoin the Head Revenue Executive Assistant
Director II (Collection Service), from proceeding with
the Auction of the real properties covered by Notices
of Sale.
After the parties had pleaded their case, the
Court of Appeals rendered its Decision[2] on
November 29, 1994, ruling that the deficiency
assessments for estate and income tax made upon
the petitioner and the estate of the deceased
President Marcos have already become final and
unappealable, and may thus be enforced by the
summary remedy of levying upon the properties of
the late President, as was done by the respondent
Commissioner of Internal Revenue.
"WHEREFORE, premises considered judgment is
hereby rendered DISMISSING the petition for
Certiorari with prayer for Restraining Order and
Injunction.
No pronouncements as to cost.
SO ORDERED."
 Unperturbed, petitioner is now before us
assailing the validity of the appellate court's
decision, assigning the following as errors:
A. RESPONDENT COURT MANIFESTLY ERRED
IN RULING THAT THE SUMMARY TAX REMEDIES
RESORTED TO BY THE GOVERNMENT ARE NOT
AFFECTED AND PRECLUDED BY THE PENDENCY
OF THE SPECIAL PROCEEDING FOR THE
ALLOWANCE OF THE LATE PRESIDENT'S
ALLEGED WILL. TO THE CONTRARY, THIS
PROBATE PROCEEDING PRECISELY PLACED ALL
PROPERTIES WHICH FORM PART OF THE LATE
PRESIDENT'S ESTATE IN CUSTODIA LEGIS OF THE
PROBATE COURT TO THE EXCLUSION OF ALL
OTHER COURTS AND ADMINISTRATIVE
AGENCIES.
B. RESPONDENT COURT ARBITRARILY ERRED
IN SWEEPINGLY DECIDING THAT SINCE THE TAX
ASSESSMENTS OF PETITIONER AND HIS PARENTS
HAD ALREADY BECOME FINAL AND
UNAPPEALABLE, THERE WAS NO NEED TO GO
INTO THE MERITS OF THE GROUNDS CITED IN
THE PETITION. INDEPENDENT OF WHETHER THE
TAX ASSESSMENTS HAD ALREADY BECOME
FINAL, HOWEVER, PETITIONER HAS THE RIGHT
TO QUESTION THE UNLAWFUL MANNER AND
METHOD IN WHICH TAX COLLECTION IS SOUGHT
TO BE ENFORCED BY RESPONDENTS
COMMISSIONER AND DE GUZMAN. THUS,
RESPONDENT COURT SHOULD HAVE FAVORABLY
CONSIDERED THE MERITS OF THE FOLLOWING
GROUNDS IN THE PETITION:
(1) The Notices of Levy on Real Property were
issued beyond the period provided in the
Revenue Memorandum Circular No. 38-68.
(2) [a] The numerous pending court cases
questioning the late President's ownership or
interests in several properties (both personal and
real) make the total value of his estate, and the
consequent estate tax due, incapable of exact
pecuniary determination at this time. Thus,
respondents assessment of the estate tax and
their issuance of the Notices of Levy and Sale are
premature, confiscatory and oppressive.
[b] Petitioner, as one of the late President's
compulsory heirs, was never notified, much less
served with copies of the Notices of Levy,
contrary to the mandate of Section 213 of the
NIRC. As such, petitioner was never given an
opportunity to contest the Notices in violation of
his right to due process of law.
C. ON ACCOUNT OF THE CLEAR MERIT OF THE
PETITION, RESPONDENT COURT MANIFESTLY
ERRED IN RULING THAT IT HAD NO POWER TO
GRANT INJUNCTIVE RELIEF TO
PETITIONER. SECTION 219 OF THE NIRC
NOTWITHSTANDING, COURTS POSSESS THE
POWER TO ISSUE A WRIT OF PRELIMINARY
INJUNCTION TO RESTRAIN RESPONDENTS
COMMISSIONER'S AND DE GUZMAN'S ARBITRARY
METHOD OF COLLECTING THE ALLEGED
DEFICIENCY ESTATE AND INCOME TAXES BY years 1985 to 1986, and the Income Tax Returns of
MEANS OF LEVY. petitioner Ferdinand 'Bongbong' Marcos II for the
years 1982 to 1985.
The facts as found by the appellate court are
undisputed, and are hereby adopted:
On July 26, 1991, the BIR issued the following: (1)
Deficiency estate tax assessment no. FAC-2-89-91-
"On September 29, 1989, former President
002464 (against the estate of the late president
Ferdinand Marcos died in Honolulu, Hawaii, USA.
Ferdinand Marcos in the amount of
P23,293,607,638.00 Pesos); (2) Deficiency income
On June 27, 1990, a Special Tax Audit Team was
tax assessment no. FAC-1-85-91-002452 and
created to conduct investigations and examinations
Deficiency income tax assessment no. FAC-1-86-91-
of the tax liabilities and obligations of the late
002451 (against the Spouses Ferdinand and Imelda
president, as well as that of his family, associates
Marcos in the amounts of P149,551.70 and
and "cronies". Said audit team concluded its
P184,009,737.40 representing deficiency income tax
investigation with a Memorandum dated July 26,
for the years 1985 and 1986); (3) Deficiency income
1991. The investigation disclosed that the Marcoses
tax assessment nos. FAC-1-82-91-002460 to FAC-1-
failed to file a written notice of the death of the
85-91-002463 (against petitioner Ferdinand
decedent, an estate tax returns [sic], as well as
'Bongbong' Marcos II in the amounts of P258.70
several income tax returns covering the years 1982
pesos; P9,386.40 Pesos; P4,388.30 Pesos; and
to 1986, -all in violation of the National Internal
P6,376.60 Pesos representing his deficiency income
Revenue Code (NIRC).
taxes for the years 1982 to 1985).
Subsequently, criminal charges were filed against
The Commissioner of Internal Revenue avers that
Mrs. Imelda R. Marcos before the Regional Trial of
copies of the deficiency estate and income tax
Quezon City for violations of Sections 82, 83 and 84
assessments were all personally and constructively
(has penalized under Sections 253 and 254 in
served on August 26, 1991 and September 12, 1991
relation to Section 252- a & b) of the National
upon Mrs. Imelda Marcos (through her caretaker Mr.
Internal Revenue Code (NIRC).
Martinez) at her last known address at No.
204 Ortega St., San Juan, M.M. (Annexes 'D' and 'E'
The Commissioner of Internal Revenue thereby
of the Petition). Likewise, copies of the deficiency tax
caused the preparation and filing of the Estate Tax
assessments issued against petitioner Ferdinand
Return for the estate of the late president, the
'Bongbong' Marcos II were also personally and
Income Tax Returns of the Spouses Marcos for the
constructively served upon him (through his
caretaker) on September 12, 1991, at his last known
address at Don Mariano Marcos St. corner P.
Guevarra St., San Juan, M.M. (Annexes 'J' and 'J-1'
of the Petition). Thereafter, Formal Assessment
notices were served on October 20, 1992, upon Mrs.
Marcos c/o petitioner, at his office, House of
Representatives, Batasan Pambansa, Quezon
City. Moreover, a notice to Taxpayer inviting Mrs.
Marcos (or her duly authorized representative or
counsel), to a conference, was furnished the counsel
of Mrs. Marcos, Dean Antonio Coronel - but to no
avail.
The deficiency tax assessments were not protested
administratively, by Mrs. Marcos and the other heirs
of the late president, within 30 days from service of
said assessments.
On February 22, 1993, the BIR Commissioner issued
twenty-two notices of levy on real property against
certain parcels of land owned by the Marcoses - to
satisfy the alleged estate tax and deficiency income
taxes of Spouses Marcos.
On May 20, 1993, four more Notices of Levy on real
property were issued for the purpose of satisfying the
deficiency income taxes.
On May 26, 1993, additional four (4) notices of Levy
on real property were again issued. The foregoing tax
remedies were resorted to pursuant to Sections 205
and 213 of the National Internal Revenue Code
(NIRC).
In response to a letter dated March 12, 1993 sent by
Atty. Loreto Ata (counsel of herein petitioner) calling
the attention of the BIR and requesting that they be
duly notified of any action taken by the BIR affecting
the interest of their client Ferdinand 'Bongbong
Marcos II, as well as the interest of the late president
- copies of the aforesaid notices were served on April
7, 1993 and on June 10, 1993, upon Mrs. Imelda
Marcos, the petitioner, and their counsel of record,
'De Borja, Medialdea, Ata, Bello, Guevarra and
Serapio Law Office'.
Notices of sale at public auction were posted on May
26, 1993, at the lobby of the City Hall of Tacloban
City. The public auction for the sale of the eleven (11)
parcels of land took place on July 5, 1993.There
being no bidder, the lots were declared forfeited in
favor of the government.
On June 25, 1993, petitioner Ferdinand 'Bongbong'
Marcos II filed the instant petition for certiorari and
prohibition under Rule 65 of the Rules of Court, with
prayer for temporary restraining order and/or writ of
preliminary injunction."
It has been repeatedly observed, and not without
merit, that the enforcement of tax laws and the
collection of taxes, is of paramount importance for
the sustenance of government.Taxes are the lifeblood
of the government and should be collected without
unnecessary hindrance. However, such collection
should be made in accordance with law as any
arbitrariness will negate the very reason for
government itself. It is therefore necessary to
reconcile the apparently conflicting interests of the
authorities and the taxpayers so that the real
purpose of taxation, which is the promotion of the
common good, may be achieved."[3]
Whether or not the proper avenues of
assessment and collection of the said tax obligations
were taken by the respondent Bureau is now the
subject of the Court's inquiry.
Petitioner posits that notices of levy, notices of
sale, and subsequent sale of properties of the late
President Marcos effected by the BIR are null and
void for disregarding the established procedure for
the enforcement of taxes due upon the estate of the
deceased. The case of Domingo vs. Garlitos[4] is
specifically cited to bolster the argument that "the
ordinary procedure by which to settle claims of
indebtedness against the estate of a deceased,
person, as in an inheritance (estate) tax, is for the
claimant to present a claim before the probate court
so that said court may order the administrator to pay
the amount therefor." This remedy is allegedly,
exclusive, and cannot be effected through any other
means.
Petitioner goes further, submitting that the
probate court is not precluded from denying a
request by the government for the immediate
payment of taxes, and should order the payment of
the same only within the period fixed by the probate
court for the payment of all the debts of the
decedent. In this regard, petitioner cites the case of
Collector of Internal Revenue vs. The Administratrix
of the Estate of Echarri (67 Phil 502), where it was
held that:
"The case of Pineda vs. Court of First Instance of
Tayabas and Collector of Internal Revenue (52 Phil
803), relied upon by the petitioner-appellant is good
authority on the proposition that the court having
control over the administration proceedings has
jurisdiction to entertain the claim presented by the
government for taxes due and to order the
administrator to pay the tax should it find that the
assessment was proper, and that the tax was legal,
due and collectible. And the rule laid down in that
case must be understood in relation to the case of
Collector of Customs vs. Haygood, supra., as to the
procedure to be followed in a given case by the
government to effectuate the collection of the
tax. Categorically stated, where during the pendency
of judicial administration over the estate of a
deceased person a claim for taxes is presented by the
government, the court has the authority to order
payment by the administrator; but, in the same way
that it has authority to order payment or
satisfaction, it also has the negative authority to
deny the same. While there are cases where courts
are required to perform certain duties mandatory
and ministerial in character, the function of the
court in a case of the present character is not one of
them; and here, the court cannot be an organism
endowed with latitude of judgment in one direction,
and converted into a mere mechanical contrivance in
another direction."
 On the other hand, it is argued by the BIR, that
the state's authority to collect internal revenue taxes
is paramount. Thus, the pendency of probate
proceedings over the estate of the deceased does not
preclude the assessment and collection, through
summary remedies, of estate taxes over the
same. According to the respondent, claims for
payment of estate and income taxes due and
assessed after the death of the decedent need not be
presented in the form of a claim against the
estate. These can and should be paid
immediately. The probate court is not the
government agency to decide whether an estate is
liable for payment of estate of income taxes. Well-
settled is the rule that the probate court is a court
with special and limited jurisdiction.
Concededly, the authority of the Regional Trial
Court, sitting, albeit with limited jurisdiction, as a
probate court over estate of deceased individual, is
not a trifling thing. The court's jurisdiction, once
invoked, and made effective, cannot be treated with
indifference nor should it be ignored with impunity
by the very parties invoking its authority.
In testament to this, it has been held that it is
within the jurisdiction of the probate court to
approve the sale of properties of a deceased person
by his prospective heirs before final
adjudication;[5] to determine who are the heirs of the
decedent;[6] the recognition of a natural child;[7] the
status of a woman claiming to be the legal wife of the
decedent;[8] the legality of disinheritance of an heir
by the testator;[9] and to pass upon the validity of a
waiver of hereditary rights.[10]
The pivotal question the court is tasked to resolve
refers to the authority of the Bureau of Internal
Revenue to collect by the summary remedy of levying
upon, and sale of real properties of the decedent,
estate tax deficiencies, without the cognition and
authority of the court sitting in probate over the
supposed will of the deceased.
The nature of the process of estate tax collection
has been described as follows:
"Strictly speaking, the assessment of an inheritance
tax does not directly involve the administration of a
decedent's estate, although it may be viewed as an
incident to the complete settlement of an estate, and,
under some statutes, it is made the duty of the
probate court to make the amount of the inheritance
tax a part of the final decree of distribution of the
estate. It is not against the property of decedent, nor
is it a claim against the estate as such, but it is
against the interest or property right which the heir,
legatee, devisee, etc., has in the property formerly
held by decedent. Further, under some statutes, it
has been held that it is not a suit or controversy
between the parties, nor is it an adversary
proceeding between the state and the person who
owes the tax on the inheritance. However, under
other statutes it has been held that the hearing and
determination of the cash value of the assets and the
determination of the tax are adversary
proceedings. The proceeding has been held to be
necessarily a proceeding in rem.[11]
In the Philippine experience, the enforcement
and collection of estate tax, is executive in character,
as the legislature has seen it fit to ascribe this task
to the Bureau of Internal Revenue. Section 3 of the
National Internal Revenue Code attests to this:
"Sec. 3. Powers and duties of the Bureau.-The
powers and duties of the Bureau of Internal Revenue
shall comprehend the assessment and collection of
all national internal revenue taxes, fees, and
charges, and the enforcement of all forfeitures,
penalties, and fines connected therewith, including
the execution of judgments in all cases decided in its
favor by the Court of Tax Appeals and the ordinary
courts. Said Bureau shall also give effect to and
administer the supervisory and police
power conferred to it by this Code or other laws."
Thus, it was in Vera vs. Fernandez[12] that the
court recognized the liberal treatment of claims for
taxes charged against the estate of the
decedent. Such taxes, we said, were exempted from
the application of the statute of non-claims, and this
is justified by the necessity of government funding,
immortalized in the maxim that taxes are the
lifeblood of the
government.Vectigalia nervi sunt rei publicae - taxes
are the sinews of the state.
"Taxes assessed against the estate of a deceased
person, after administration is opened, need not be
submitted to the committee on claims in the ordinary
course of administration. In the exercise of its
control over the administrator, the court may direct
the payment of such taxes upon motion showing that
the taxes have been assessed against the estate."
Such liberal treatment of internal revenue taxes
in the probate proceedings extends so far, even to
allowing the enforcement of tax obligations against
the heirs of the decedent, even after distribution of
the estate's properties.
"Claims for taxes, whether assessed before or after
the death of the deceased, can be collected from the
heirs even after the distribution of the properties of
the decedent. They are exempted from the
application of the statute of non-claims. The heirs
shall be liable therefor, in proportion to their share
in the inheritance."[13]
"Thus, the Government has two ways of collecting
the taxes in question. One, by going after all the
heirs and collecting from each one of them the
amount of the tax proportionate to the inheritance
received.Another remedy, pursuant to the lien
created by Section 315 of the Tax Code upon all
property and rights to property belong to the
taxpayer for unpaid income tax, is by subjecting said
property of the estate which is in the hands
of an heir or transferee to the payment of the tax due
the estate. (Commissioner of Internal Revenue vs.
Pineda, 21 SCRA 105, September 15, 1967.)
From the foregoing, it is discernible that the
approval of the court, sitting in probate, or as a
settlement tribunal over the deceased is not a
mandatory requirement in the collection of estate
taxes. It cannot therefore be argued that the Tax
Bureau erred in proceeding with the levying and sale
of the properties allegedly owned by the late
President, on the ground that it was required to seek
first the probate court's sanction. There is nothing in
the Tax Code, and in the pertinent remedial laws that
implies the necessity of the probate or estate
settlement court's approval of the state's claim for
estate taxes, before the same can be enforced and
collected.
On the contrary, under Section 87 of the NIRC, it
is the probate or settlement court which is bidden
not to authorize the executor or judicial
administrator of the decedent's estate to deliver any
distributive share to any party interested in the
estate, unless it is shown a Certification by the
Commissioner of Internal Revenue that the estate
taxes have been paid. This provision disproves the
petitioner's contention that it is the probate court
which approves the assessment and collection of the
estate tax.
If there is any issue as to the validity of the BIR's
decision to assess the estate taxes, this should have
been pursued through the proper administrative and
judicial avenues provided for by law.
Section 229 of the NIRC tells us how:
"Sec. 229. Protesting of assessment.-When the
Commissioner of Internal Revenue or his duly
authorized representative finds that proper taxes
should be assessed, he shall first notify the taxpayer
of his findings. Within a period to be prescribed by
implementing regulations, the taxpayer shall be
required to respond to said notice. If the taxpayer
fails to respond, the Commissioner shall issue an
assessment based on his findings.
Such assessment may be protested administratively
by filing a request for reconsideration or
reinvestigation in such form and manner as may be
prescribed by implementing regulations within (30)
days from receipt of the assessment; otherwise, the
assessment shall become final and unappealable.
If the protest is denied in whole or in part, the
individual, association or corporation adversely
affected by the decision on the protest may appeal to
the Court of Tax Appeals within thirty (30) days from
receipt of said decision; otherwise, the decision shall
become final, executory and demandable. (As
inserted by P.D. 1773)"
Apart from failing to file the required estate tax
return within the time required for the filing of the
same, petitioner, and the other heirs never
questioned the assessments served upon them,
allowing the same to lapse into finality, and
prompting the BIR to collect the said taxes by levying months nor later than six (6) months from 12
upon the properties left by President Marcos. September 1991. In accordance with the Circular,
respondents only had until 12 March 1992 (the last
Petitioner submits, however, that "while the
day of the sixth month) within which to issue these
assessment of taxes may have been validly
Notices of Levy. The Notices of Levy, having been
undertaken by the Government, collection thereof
issued beyond the period allowed by law, are thus
may have been done in violation of the law.Thus, the
void and of no effect."[15]
manner and method in which the latter is enforced
may be questioned separately, and irrespective of the
We hold otherwise. The Notices of Levy upon real
finality of the former, because the Government does
property were issued within the prescriptive period
not have the unbridled discretion to enforce
and in accordance with the provisions of the present
collection without regard to the clear provision of
Tax Code. The deficiency tax assessment, having
law."[14]
already become final, executory, and demandable,
Petitioner specifically points out that applying the same can now be collected through the summary
Memorandum Circular No. 38-68, implementing remedy of distraint or levy pursuant to Section 205
Sections 318 and 324 of the old tax code (Republic of the NIRC.
Act 5203), the BIR's Notices of Levy on the Marcos
The applicable provision in regard to the
properties, were issued beyond the allowed period,
prescriptive period for the assessment and collection
and are therefore null and void:
of tax deficiency in this instance is Article 223 of the
NIRC, which pertinently provides:
"...the Notices of Levy on Real Property (Annexes 0 to
NN of Annex C of this Petition) in satisfaction of said
"Sec. 223. Exceptions as to a period of limitation of
assessments were still issued by respondents well
assessment and collection of taxes.- (a) In the case
beyond the period mandated in Revenue
of a false or fraudulent return with intent to evade
Memorandum Circular No. 38-68. These Notices of
tax or of a failure to file a return, the tax may be
Levy were issued only on 22 February 1993 and 20
assessed, or a proceeding in court for the collection
May 1993 when at least seventeen (17) months had
of such tax may be begun without assessment, at
already lapsed from the last service of tax
any time within ten (10) years after the discovery of
assessment on 12 September 1991. As no notices of
the falsity, fraud, or omission: Provided, That, in a
distraint of personal property were first issued by
fraud assessment which has become final and
respondents, the latter should have complied with
executory, the fact of fraud shall be judicially taken
Revenue Memorandum Circular No. 38-68 and
issued these Notices of Levy not earlier than three (3)
cognizance of in the civil or criminal action for the
collection thereof.
xxx
(c) Any internal revenue tax which has been assessed
within the period of limitation above prescribed, may
be collected by distraint or levy or by a proceeding in
court within three years following the assessment of
the tax.
xxx
The omission to file an estate tax return, and the
subsequent failure to contest or appeal the
assessment made by the BIR is fatal to the
petitioner's cause, as under the above-cited
provision, in case of failure to file a return, the tax
may be assessed at any time within ten years after
the omission, and any tax so assessed may be
collected by levy upon real property within three
years following the assessment of the tax. Since the
estate tax assessment had become final and
unappealable by the petitioner's default as regards
protesting the validity of the said assessment, there
is now no reason why the BIR cannot continue with
the collection of the said tax. Any objection against
the assessment should have been pursued following
the avenue paved in Section 229 of the NIRC on
protests on assessments of internal revenue taxes.
Petitioner further argues that "the numerous
pending court cases questioning the late president's
ownership or interests in several properties (both
real and personal) make the total value of his estate,
and the consequent estate tax due, incapable of
exact pecuniary determination at this time. Thus,
respondents' assessment of the estate tax and their
issuance of the Notices of Levy and sale are
premature and oppressive." He points out the
pendency of Sandiganbayan Civil Case Nos. 0001-
0034 and 0141, which were filed by the government
to question the ownership and interests of the late
President in real and personal properties located
within and outside the Philippines. Petitioner,
however, omits to allege whether the properties
levied upon by the BIR in the collection of estate
taxes upon the decedent's estate were among those
involved in the said cases pending in the
Sandiganbayan. Indeed, the court is at a loss as to
how these cases are relevant to the matter at
issue. The mere fact that the decedent has pending
cases involving ill-gotten wealth does not affect the
enforcement of tax assessments over the properties
indubitably included in his estate.
Petitioner also expresses his reservation as to the
propriety of the BIR's total assessment
of P23,292,607,638.00, stating that this amount
deviates from the findings of the Department of
Justice's Panel of Prosecutors as per its resolution of
20 September 1991. Allegedly, this is clear evidence
of the uncertainty on the part of the Government as
to the total value of the estate of the late President.
This is, to our mind, the petitioner's last ditch
effort to assail the assessment of estate tax which
had already become final and unappealable.
 It is not the Department of Justice which is the
government agency tasked to determine the amount
of taxes due upon the subject estate, but the Bureau
of Internal Revenue[16] whose determinations and
assessments are presumed correct and made in good
faith.[17] The taxpayer has the duty of proving
otherwise. In the absence of proof of any
irregularities in the performance of official duties, an
assessment will not be disturbed. Even an
assessment based on estimates is prima facie valid
and lawful where it does not appear to have been
arrived at arbitrarily or capriciously. The burden of
proof is upon the complaining party to show clearly
that the assessment is erroneous. Failure to present
proof of error in the assessment will justify the
judicial affirmance of said assessment.[18] In this
instance, petitioner has not pointed out one single
provision in the Memorandum of the Special Audit
Team which gave rise to the questioned assessment,
which bears a trace of falsity. Indeed, the petitioner's
attack on the assessment bears mainly on the
alleged improbable and unconscionable amount of
the taxes charged. But mere rhetoric cannot supply
the basis for the charge of impropriety of the
assessments made.
Moreover, these objections to the assessments
should have been raised, considering the ample
remedies afforded the taxpayer by the Tax Code, with
the Bureau of Internal Revenue and the Court of Tax
Appeals, as described earlier, and cannot be raised
now via Petition for Certiorari, under the pretext of
grave abuse of discretion. The course of action taken
by the petitioner reflects his disregard or even
repugnance of the established institutions for
governance in the scheme of a well-ordered
society. The subject tax assessments having become
final, executory and enforceable, the same can no
longer be contested by means of a disguised
protest. In the main, Certiorari may not be used as a
substitute for a lost appeal or remedy.[19]This judicial
policy becomes more pronounced in view of the
absence of sufficient attack against the actuations of
government.
On the matter of sufficiency of service of Notices
of Assessment to the petitioner, we find the
respondent appellate court's pronouncements sound
and resilient to petitioner's attacks.
"Anent grounds 3(b) and (B) - both alleging/claiming
lack of notice - We find, after considering the facts
and circumstances, as well as evidences, that there
was sufficient, constructive and/or actual notice of
assessments, levy and sale, sent to herein petitioner
Ferdinand "Bongbong" Marcos as well as to his
mother Mrs. Imelda Marcos.
Even if we are to rule out the notices of assessments
personally given to the caretaker of Mrs. Marcos at
the latter's last known address, on August 26, 1991
and September 12, 1991, as well as the notices of
assessment personally given to the caretaker of
petitioner also at his last known address on
September 12, 1991 - the subsequent notices given
thereafter could no longer be ignored as they were
sent at a time when petitioner was already here in
the Philippines, and at a place where said notices
would surely be called to petitioner's attention, and
received by responsible persons of sufficient age and
discretion.
Thus, on October 20, 1992, formal assessment
notices were served upon Mrs. Marcos c/o the
petitioner, at his office, House of Representatives,
Batasan Pambansa, Q.C. (Annexes "A", "A-1", "A-2",
"A-3"; pp. 207-210, Comment/Memorandum of
OSG). Moreover, a notice to taxpayer dated October
8, 1992 inviting Mrs. Marcos to a conference relative
to her tax liabilities, was furnished the counsel of
Mrs. Marcos - Dean Antonio Coronel (Annex "B", p.
211, ibid). Thereafter, copies of Notices were also
served upon Mrs. Imelda Marcos, the petitioner and
their counsel "De Borja, Medialdea, Ata, Bello,
Guevarra and Serapio Law Office", on April 7, 1993
and June 10, 1993. Despite all of these Notices,
petitioner never lifted a finger to protest the
assessments, (upon which the Levy and sale of
properties were based), nor appealed the same to the
Court of Tax Appeals.
There being sufficient service of Notices to herein
petitioner (and his mother) and it appearing that
petitioner continuously ignored said Notices despite
several opportunities given him to file a protest and
to thereafter appeal to the Court of Tax Appeals, - the
tax assessments subject of this case, upon which the
levy and sale of properties were based, could no
longer be contested (directly or indirectly) via this
instant petition for certiorari."[20]
Petitioner argues that all the questioned Notices
of Levy, however, must be nullified for having been
issued without validly serving copies thereof to the
petitioner. As a mandatory heir of the decedent,
petitioner avers that he has an interest in the subject
estate, and notices of levy upon its properties should
have been served upon him.
We do not agree. In the case of notices of levy
issued to satisfy the delinquent estate tax, the
delinquent taxpayer is the Estate of the decedent,
and not necessarily, and exclusively, the petitioner
as heir of the deceased. In the same vein, in the
matter of income tax delinquency of the late
president and his spouse, petitioner is not the
taxpayer liable. Thus, it follows that service of
notices of levy in satisfaction of these tax
delinquencies upon the petitioner is not required by
law, as under Section 213 of the NIRC, which
pertinently states:
"xxx
...Levy shall be effected by writing upon said
certificate a description of the property upon which
levy is made. At the same time, written notice of the
levy shall be mailed to or served upon the Register of
Deeds of the province or city where the property is
located and upon the delinquent taxpayer, or if he be
absent from the Philippines, to his agent or the
manager of the business in respect to which the
liability arose, or if there be none, to the occupant of vs.
the property in question. MANUEL B. PINEDA, as one of the heirs of
deceased ATANASIO PINEDA, respondent.
xxx"
Office of the Solicitor General for petitioner.
The foregoing notwithstanding, the record shows
Manuel B. Pineda for and in his own behalf as
that notices of warrants of distraint and levy of sale
respondent.
were furnished the counsel of petitioner on April 7,
1993, and June 10, 1993, and the petitioner himself
on April 12, 1993 at his office at the Batasang
Pambansa.[21] We cannot therefore, countenance
petitioner's insistence that he was denied due
BENGZON, J.P., J.:
process. Where there was an opportunity to raise
objections to government action, and such
On May 23, 1945 Atanasio Pineda died, survived by
opportunity was disregarded, for no justifiable
his wife, Felicisima Bagtas, and 15 children, the
reason, the party claiming oppression then becomes
eldest of whom is Manuel B. Pineda, a lawyer. Estate
the oppressor of the orderly functions of
proceedings were had in the Court of First Instance
government. He who comes to court must come with
of Manila (Case No. 71129) wherein the surviving
clean hands. Otherwise, he not only taints his name,
widow was appointed administratrix. The estate was
but ridicules the very structure of established
divided among and awarded to the heirs and the
authority.
proceedings terminated on June 8, 1948. Manuel B.
IN VIEW WHEREOF, the Court RESOLVED to Pineda's share amounted to about P2,500.00.
DENY the present petition. The Decision of the Court
of Appeals dated November 29, 1994 is hereby After the estate proceedings were closed, the Bureau
AFFIRMED in all respects. of Internal Revenue investigated the income tax
liability of the estate for the years 1945, 1946, 1947
SO ORDERED.
and 1948 and it found that the corresponding
income tax returns were not filed. Thereupon, the
representative of the Collector of Internal Revenue
G.R. No. L-22734 September 15, 1967 filed said returns for the estate on the basis of
information and data obtained from the aforesaid
COMMISSIONER OF INTERNAL estate proceedings and issued an assessment for the
REVENUE, petitioner, following:
 1. Deficiency income tax appealing "only that proportionate part or portion
1945 P135.83 pertaining to him as one of the heirs."
1946 436.95 After hearing the parties, the Court of Tax Appeals
1947 1,206.91 P1,779.69 rendered judgment reversing the decision of the
Add: 5% surcharge 88.98 Commissioner on the ground that his right to assess
1% monthly and collect the tax has prescribed. The
interest from Commissioner appealed and this Court affirmed the
November 30, findings of the Tax Court in respect to the
1953 to April assessment for income tax for the year 1947 but held
15, 1957 720.77 that the right to assess and collect the taxes for 1945
and 1946 has not prescribed. For 1945 and 1946 the
Compromise
returns were filed on August 24, 1953; assessments
for late filing 80.00
for both taxable years were made within five years
Compromise therefrom or on October 19, 1953; and the action to
for late collect the tax was filed within five years from the
payment 40.00 latter date, on August 7, 1957. For taxable year
1947, however, the return was filed on March 1,
Total amount due P2,707.44 1948; the assessment was made on October 19,
=========== 1953, more than five years from the date the return
Additional residence P14.50 was filed; hence, the right to assess income tax for
2. 1947 had prescribed. Accordingly, We remanded the
tax for 1945 ===========
3. Real Estate dealer's case to the Tax Court for further appropriate
tax for the fourth proceedings.1
quarter of 1946 and
the whole year of P207.50 In the Tax Court, the parties submitted the case for
1947 =========== decision without additional evidence.

On November 29, 1963 the Court of Tax Appeals

Manuel B. Pineda, who received the assessment,
rendered judgment holding Manuel B. Pineda liable
contested the same. Subsequently, he appealed to
for the payment corresponding to his share of the
the Court of Tax Appeals alleging that he was
following taxes:
 Deficiency income tax
P135.8
1945
3
1946 436.95
Real estate
dealer's fixed
tax 4th quarter
of 1946 and
whole year of
1947 P187.50
The Commissioner of Internal Revenue has appealed
to Us and has proposed to hold Manuel B. Pineda
liable for the payment of all the taxes found by the
Tax Court to be due from the estate in the total
amount of P760.28 instead of only for the amount of
taxes corresponding to his share in the
estate.1awphîl.nèt
Manuel B. Pineda opposes the proposition on the
ground that as an heir he is liable for unpaid income
tax due the estate only up to the extent of and in
proportion to any share he received. He relies
on Government of the Philippine Islands v.
Pamintuan2 where We held that "after the partition of
an estate, heirs and distributees are liable
individually for the payment of all lawful outstanding
claims against the estate in proportion to the amount
or value of the property they have respectively
received from the estate."
We hold that the Government can require Manuel B.
Pineda to pay the full amount of the taxes assessed.
Pineda is liable for the assessment as an heir and as
a holder-transferee of property belonging to the
estate/taxpayer. As an heir he is individually
answerable for the part of the tax proportionate to
the share he received from the inheritance.3 His
liability, however, cannot exceed the amount of his
share.4
As a holder of property belonging to the estate,
Pineda is liable for he tax up to the amount of the
property in his possession. The reason is that the
Government has a lien on the P2,500.00 received by
him from the estate as his share in the inheritance,
for unpaid income taxes4a for which said estate is
liable, pursuant to the last paragraph of Section 315
of the Tax Code, which we quote hereunder:
If any person, corporation, partnership, joint-
account (cuenta en participacion), association,
or insurance company liable to pay the income
tax, neglects or refuses to pay the same after
demand, the amount shall be a lien in favor of
the Government of the Philippines from the
time when the assessment was made by the
Commissioner of Internal Revenue until paid
with interest, penalties, and costs that may
accrue in addition thereto upon all property
and rights to property belonging to the
taxpayer: . . .
By virtue of such lien, the Government has the right
to subject the property in Pineda's possession, i.e.,
the P2,500.00, to satisfy the income tax assessment
in the sum of P760.28. After such payment, Pineda
will have a right of contribution from his co-heirs,5 to
achieve an adjustment of the proper share of each
heir in the distributable estate.
All told, the Government has two ways of collecting
the tax in question. One, by going after all the heirs
and collecting from each one of them the amount of
the tax proportionate to the inheritance received.
This remedy was adopted in Government of the
Philippine Islands v. Pamintuan, supra. In said case,
the Government filed an action against all the heirs
for the collection of the tax. This action rests on the
concept that hereditary property consists only of that
part which remains after the settlement of all lawful
claims against the estate, for the settlement of which
the entire estate is first liable.6 The reason why in
case suit is filed against all the heirs the tax due from
the estate is levied proportionately against them is to
achieve thereby two results: first, payment of the tax;
and second, adjustment of the shares of each heir in
the distributed estate as lessened by the tax.
Another remedy, pursuant to the lien created by
Section 315 of the Tax Code upon all property and
rights to property belonging to the taxpayer for
unpaid income tax, is by subjecting said property of
the estate which is in the hands of an heir or
transferee to the payment of the tax due, the estate.
This second remedy is the very avenue the
Government took in this case to collect the tax. The
Bureau of Internal Revenue should be given, in
instances like the case at bar, the necessary
discretion to avail itself of the most expeditious way
to collect the tax as may be envisioned in the
particular provision of the Tax Code above quoted,
because taxes are the lifeblood of government and
their prompt and certain availability is an imperious
need.7 And as afore-stated in this case the suit seeks
to achieve only one objective: payment of the tax. The
adjustment of the respective shares due to the heirs
from the inheritance, as lessened by the tax, is left
to await the suit for contribution by the heir from
whom the Government recovered said tax.
WHEREFORE, the decision appealed from is
modified. Manuel B. Pineda is hereby ordered to pay
to the Commissioner of Internal Revenue the sum of
P760.28 as deficiency income tax for 1945 and 1946,
and real estate dealer's fixed tax for the fourth
quarter of 1946 and for the whole year 1947, without
prejudice to his right of contribution for his co-heirs.
No costs. So ordered.
G.R. No. 208293
PHILIPPINE NATIONAL BANK, Petitioner
vs.
CARMELITA S. SANTOS, REYME L. SANTOS,
ANGEL L. SANTOS, NONENG S. DIANCO, ET AL.,
Respondent
x-----------------------x
G.R. No. 208295
LINA B. AGUILAR, Petitioner
vs.
CARMELITA S. SANTOS, REYME L. SANTOS,
ANGEL L. SANTOS, BUENVENIDO L. SANTOS, ET
AL.,Respondents.
DECISION
LEONEN, J.:
The standard of diligence required of banks is higher
than the degree of diligence of a good father of a
family. Respondents are children of Angel C. Santos
who died on March 21, 1991.1
Sometime in May 1996, respondents discovered that
their father maintained a premium savings account
with Philippine National Bank (PNB), Sta. Elena-
Marikina City Branch.2 As of July 14, 1996, the
deposit amounted to 1,759,082.63.3 Later,
respondents would discover that their father also
had a time deposit of 1,000,000.00 with PNB.4
Respondents went to PNB to withdraw their father’s
deposit.5
Lina B. Aguilar, the Branch Manager of PNB-Sta.
Elena-Marikina City Branch, required them to
submit the following: "(1) original or certified true
copy of the Death Certificate of Angel C. Santos; (2)
certificate of payment of, or exemption from, estate
tax issued by the Bureau of Internal Revenue (BIR);
(3) Deed of Extrajudicial Settlement; (4) Publisher’s
Affidavit of publication of the Deed of Extrajudicial
Settlement; and (5) Surety bond effective for two (2)
years and in an amount equal to the balance of the
deposit to be withdrawn."6
By April 26, 1998, respondents had already obtained
the necessary documents.7 They tried to withdraw
the deposit.8 However, Aguilar informed them that
the deposit had already "been released to a certain
Bernardito Manimbo (Manimbo) on April 1,
1997."9 An amount of 1,882,002.05 was released
upon presentation of: (a) an affidavit of
selfadjudication purportedly executed by one of the
respondents, Reyme L. Santos; (b) a certificate of
time deposit dated December 14, 1989 amounting to
1,000,000.00; and (c) the death certificate of Angel
C. Santos, among others.10 A special power of
attorney was purportedly executed by Reyme L.
Santos in favor of Manimbo and a certain Angel P.
Santos for purposes of withdrawing and receiving the
proceeds of the certificate of time deposit.11
On May 20, 1998, respondents filed before the
Regional Trial Court of Marikina City a complaint for
sum of money and damages against PNB, Lina B.
Aguilar, and a John Doe.12 Respondents questioned
the release of the deposit amount to Manimbo who
had no authority from them to withdraw their
father’s deposit and who failed to present to PNB all
the requirements for such
withdrawal. Respondents prayed that they be paid:
13
(a) the premium deposit amount; (b) the certificate of
time deposit amount; and (c) moral and exemplary
damages, attorney’s fees, and costs of suit.14
PNB and Aguilar denied that Angel C. Santos had
two separate accounts (premium deposit account
and time deposit account) with PNB.15 They alleged
that Angel C. Santos’ deposit account was originally
a time deposit account that was subsequently
converted into a premium savings account.16 They
also alleged that Aguilar did not know about Angel
C. Santos’ death in 1991 because she only assumed
office in 1996.17 Manimbo was able to submit an
affidavit of self-adjudication and the required surety
bond.18 He also submitted a certificate of payment of
estate tax dated March 31, 1997.19 All documents he
submitted appeared to be regular.20
PNB and Aguilar filed a third-party complaint
against Manimbo, Angel P. Santos, and Capital
Insurance and Surety Co., Inc.21
Angel P. Santos denied having anything to do with
the special power of attorney and affidavit of self-
adjudication presented by Manimbo.22 He also
alleged that Manimbo presented the certificate of
time deposit without his knowledge and consent.23
Capital Insurance and Surety Co., Inc. alleged that
its undertaking was to pay claims only when persons
who were unduly deprived of their lawful
participation in the estate filed an action in court for
their claims.24 It did not undertake to pay claims
resulting from PNB’s negligence.25
In the decision26 dated February 22, 2011, the trial
court held that PNB and Aguilar were jointly and
severally liable to pay respondents the amount of
1,882,002.05 with an interest rate of 6% starting
May 20, 1998.27 PNB and Aguilar were also declared
jointly and severally liable for moral and exemplary
damages, attorney’s fees, and costs of
suit. Manimbo, Angel P. Santos, and Capital
28
Insurance and Surety Co., Inc. were held jointly and
severally liable to pay PNB 1,877,438.83 pursuant to
the heir’s bond and 50,000.00 as attorney’s fees and
the costs of suit.29 The dispositive portion of the trial
court’s decision reads:
WHEREFORE, foregoing premises considered,
judgment is hereby rendered as follows:
1. ordering the defendants PNB and LINA B.
AGUILAR jointly and severally liable to pay the
plaintiffs the amount of P1,882,002.05, representing
the face value of PNB Manager’s Check No. AF-
974686B as balance of the total deposits of decedent
Angel C. Santos at the time of its issue, with interest
thereon at the rate of 6% starting on May 20, 1998,
the date when the complaint was filed, until fully
paid;
2. ordering both defendants jointly and severally
liable to pay plaintiffs the amount of Php 100,000.00
as moral damages, another Php100,000.00 as
exemplary damages and Php 50,000.00 as attorney’s
fees and the costs of suit;
On the Third party complaint:
3. Ordering the third party defendants Bernardito P.
Manimbo, Angel P. Santos and Capital Insurance &
Surety Co., Inc., jointly and severally liable to pay
third party plaintiff PNB, the amount of Php
1,877,438.83 pursuant to the Heir’s Bond and the
amount of Php 50,000.00 as attorney’s fees and the
costs of suit.
SO ORDERED.30
The trial court found that Angel C. Santos had only
one account with PNB.31 The account was originally
a time deposit, which was converted into a premium
savings account when it was not renewed on
maturity.32 The trial court took judicial notice that in
1989, automatic rollover of time deposit was not yet
prevailing.33
On the liability of PNB and Aguilar, the trial court
held that they were both negligent in releasing the
deposit to Manimbo.34 The trial court noted PNB’s
failure to notify the depositor about the maturity of
the time deposit and the conversion of the time
deposit into a premium savings account.35 The trial
court also noted PNB’s failure to cancel the
certificate of time deposit despite conversion.36 PNB
and Aguilar also failed to require the production of
birth certificates to prove claimants’ relationship to
the depositor.37 Further, they relied on the affidavit
of self-adjudication when several persons claiming to
be heirs had already approached them previously.38
Aguilar filed a motion for reconsideration39 of the
February 22, 2011 Regional Trial Court decision.
This was denied in the June 21, 2011 Regional Trial
Court order.40
PNB and Aguilar appealed before the Court of
Appeals.41
Aguilar contended that she was not negligent and
should not have been made jointly and severally
liable with PNB.42 She merely implemented PNB’s
Legal Department’s directive to release the deposit to
Manimbo.43
PNB argued that it was not negligent.44 The release
of the deposit to Manimbo was pursuant to an
existing policy.45Moreover, the documents submitted
by Manimbo were more substantial than those
submitted by respondents.46Respondents could have
avoided the incident "had they accomplished the
required documents immediately."47
In the decision48 promulgated on July 25, 2013, the
Court of Appeals sustained the trial court’s finding
that there was only one account.49 Angel C. Santos
could not have possibly opened the premium savings
account in 1994 since he already died in 1991.50 The
Court of Appeals also held that PNB and Aguilar were
negligent in handling the deposit.51 The deposit
amount was released to Manimbo who did not
present all the requirements, particularly the
Bureau of Internal Revenue (BIR) certification that
estate taxes had already been paid.52 They should
also not have honored the
affidavit of self-adjudication.53
The Court of Appeals ruled that Aguilar could not
escape liability by pointing her finger at PNB’s Legal
Department.54As the Bank Manager, she should
have given the Legal Department all the necessary
information that must be known in order to protect
both the depositors’ and the bank’s interests.55
The Court of Appeals removed the award of
exemplary damages, upon finding that there was no
malice or bad faith.56
The Court of Appeals considered the deposit as an
ordinary loan by the bank from Angel C. Santos or
his heirs.57Therefore, the deposit was a forbearance
which should earn an interest of 12% per
annum.58 The dispositive portion of the Court of
Appeals’ decision reads:
WHEREFORE, premises considered, the assailed
decision of the court a quo dated February 22, 2011
is AFFIRMED with the MODIFICATIONS in that the
rate of interest shall be twelve percent (12%) per
annum computed from the filing of the case until
fully satisfied. The interest due shall further earn an
interest of 12% per annum to be computed from the
date of the filing of the complaint until fully paid.
Meanwhile, the award of exemplary damages
is DELETED.
SO ORDERED.59
PNB and Aguilar filed their separate petitions for
review of the Court of Appeals’ July 25, 2013
decision.60
We resolve the following issues:
I. Whether Philippine National Bank was negligent in
releasing the deposit to Bernardito Manimbo;
II. Whether Lina B. Aguilar is jointly and severally
liable with Philippine National Bank for the release
of the deposit to Bernardito Manimbo; and
III. Whether respondents were properly awarded
damages.
Petitioner Aguilar argued that the Court of Appeals
had already found no malice or bad faith on her
part.61 Moreover, as a mere officer of the bank, she
cannot be made personally liable for acts that she
was authorized to do.62 These acts were mere
directives to her by her superiors.63 Hence, she
should not be held solidarily liable with PNB.64
Petitioner PNB argued that it was the
presumptuousness and cavalier attitude of
respondents that gave rise to the controversy and not
its judgment call.65 Respondents were lacking in
sufficient documentation.66 Petitioner PNB also
argued that respondents failed to show any
justification for the award of moral damages.67 No
bad faith can be attributed to Aguilar.68
In their separate comments to the petitions,
respondents argued that the trial court and the
Court of Appeals did not err in finding that
petitioners PNB and Aguilar were negligent in
handling their father’s deposit.69 The acceptance of
invalid and incomplete documents to support the
deposit’s release to Manimbo was a violation of the
bank’s fiduciary duty to its clients.70 These acts
constituted gross negligence on the part of
petitioners PNB and Aguilar.71
However, according to respondents, the Court of
Appeals erred in deleting the award for exemplary
damages because the acts in violation of the bank’s
fiduciary were done in bad faith.72
We rule for the respondents.
The trial court and the Court of Appeals correctly
found that petitioners PNB and Aguilar were
negligent in handling the deposit of Angel C. Santos.
The contractual relationship between banks and
their depositors is governed by the Civil Code
provisions on simple loan.73 Once a person makes a
deposit of his or her money to the bank, he or she is
considered to have lent the bank that money.74 The
bank becomes his or her debtor, and he or she
becomes the creditor of the bank, which is obligated
to pay him or her on demand.75
The default standard of diligence in the performance
of obligations is "diligence of a good father of a
family." Thus, the Civil Code provides:
ART. 1163. Every person obliged to give something is
also obliged to take care of it with the proper diligence
of a good father of a family, unless the law or the
stipulation of the parties requires another standard
of care.
....
ART. 1173. The fault or negligence of the obligor
consists in the omission of that diligence which is
required by the nature of the obligation and
corresponds with the circumstances of the persons,
of the time and of the place. When negligence shows
bad faith, the provisions of articles 1171 and 2201,
paragraph 2, shall apply.
If the law or contract does not state the diligence
which is to be observed in the performance, that
which is expected of a good father of a family shall be
required. (Emphasis supplied)
"Diligence of a good father of a family" is the standard
of diligence expected of, among others,
usufructuaries,76 passengers of common
carriers, agents, depositaries, pledgees,80 offici
77 78 79
ous managers,81 and persons deemed by law as
responsible for the acts of others.82 "The diligence of
a good father of a family requires only that diligence
which an ordinary prudent man would exercise with
regard to his own property.83
Other industries, because of their nature, are bound
by law to observe higher standards of diligence.
Common carriers, for example, must observe
"extraordinary diligence in the vigilance over the
goods and for the safety of [their]
passengers"84 because it is considered a business
affected with public interest. "Extraordinary
diligence" with respect to passenger safety is further
qualified as "carry[ing] the passengers safely as far
as human care and foresight can provide, using the
utmost diligence of very cautious persons, with a due
regard for all the circumstances."85
Similar to common carriers, banking is a business
that is impressed with public interest. It affects
economies and plays a significant role in businesses
and commerce.86 The public reposes its faith and
confidence upon banks, such that "even the humble
wage-earner has not hesitated to entrust his life’s
savings to the bank of his choice, knowing that they
will be safe in its custody and will even earn some
interest for him."87 This is why we have recognized
the fiduciary nature of the banks’ functions, and
attached a special standard of diligence for the
exercise of their functions.
In Simex International (Manila), Inc. v. Court of
Appeals,88 this court described the nature of banks’
functions and the attitude expected of banks in
handling their depositors’ accounts, thus:
In every case, the depositor expects the bank to treat
his account with the utmost fidelity, whether such
account consists only of a few hundred pesos or of
millions. . . .
The point is that as a business affected with public
interest and because of the nature of its functions,
the bank is under obligation to treat the accounts of
its depositors with meticulous care, always having in
mind the fiduciary nature of their
relationship.89 (Emphasis supplied)
The fiduciary nature of banking is affirmed in
Republic Act No. 8791 or The General Banking Law,
thus:
SEC. 2. Declaration of Policy.—The State recognizes
the vital role of banks in providing an environment
conducive to the sustained development of the
national economy and the fiduciary nature of
banking that requires high standards of integrity and
performance. In furtherance thereof, the State shall
promote and maintain a stable and efficient banking
and financial system that is globally competitive,
dynamic and responsive to the demands of a
developing economy. (Emphasis supplied)
In The Consolidated Bank and Trust Corporation v.
Court of Appeals,90 this court explained the meaning
of fiduciary relationship and the standard of
diligence assumed by banks:
This fiduciary relationship means that the bank’s
obligation to observe "high standards of integrity and
performance" is deemed written into every deposit
agreement between a bank and its depositor. The
fiduciary nature of banking requires banks to assume
a degree of diligence higher than that of a good father
of a family. Article 1172 of the Civil Code states that
the degree of diligence required of an obligor is that
prescribed by law or contract, and absent such
stipulation then the diligence of a good father of a
family.91 (Emphasis supplied, citation omitted)
Petitioners PNB and Aguilar’s treatment of Angel C.
Santos’ account is inconsistent with the high
standard of diligence required of banks. They
accepted Manimbo’s representations despite
knowledge of the existence of circumstances that
should have raised doubts on such representations.
As a result, Angel C. Santos’ deposit was given to a
person stranger to him.
Petitioner PNB pointed out that since petitioner
Aguilar assumed office as PNB-Sta. Elena-Marikina
City Branch Manager only five (5) years from Angel
C. Santos’ death, she was not in the position to know
that respondents were the heirs of Angel C.
Santos.92 She could not have accepted the unsigned
and unnotarized extrajudicial settlement deed that
respondents had first showed her.93 She was not
competent to make a conclusion whether that deed
was genuine.94 Neither could petitioners PNB and
Aguilar pass judgment on a letter from respondents’
lawyer stating that respondents were the nine heirs
of Angel C. Santos.95 Petitioners PNB and Aguilar’s
negligence is not based on their failure to accept
respondents’ documents as evidence of their right to
claim Angel C. Santos’ deposit. Rather, it is based on
their failure to exercise the diligence required of
banks when they accepted the fraudulent
representations of Manimbo. Petitioners PNB and
Aguilar disregarded their own requirements for the
release of the deposit to persons claiming to be heirs
of a deceased depositor. When respondents asked for
the release of Angel C. Santos’ deposit, they were
required to present the following: "(1) original or
certified true copy of the Death Certificate of Angel
C. Santos; (2) certificate of payment of, or exemption
from, estate tax issued by the Bureau of Internal
Revenue (BIR); (3) Deed of Extrajudicial Settlement;
(4) Publisher’s Affidavit of publication of the Deed of
Extrajudicial Settlement; and (5) Surety bond
effective for two (2) years and in an amount equal to
the balance of the deposit to be withdrawn."96
Petitioners PNB and Aguilar, however, accepted
Manimbo’s representations, and they released Angel
C. Santos’ deposit based on only the following
documents:
1. Death certificate of Angel C. Santos;
2. Birth certificate of Reyme L. Santos;
3. Affidavit of self-adjudication of Reyme L. Santos;
4. Affidavit of publication;
5. Special power of attorney that Reyme L. Santos
executed in favor of Bernardito Manimbo and Angel
P. Santos;
6. Personal items of Angel C. Santos, such as
photocopies or originals of passport, residence
certificate for year 1990, SSS I.D., etc.;
7. Surety good for two (2) years; and
8. Certificate of Time Deposit No. 341306.97
Based on these enumerations, petitioners PNB and
Aguilar either have no fixed standards for the release
of their deceased clients’ deposits or they have
standards that they disregard for convenience, favor,
or upon exercise of discretion. Both are inconsistent
with the required diligence of banks. These threaten
the safety of the depositors’ accounts as they provide
avenues for fraudulent practices by third persons or
by bank officers themselves.
In this case, petitioners PNB and Aguilar released
Angel C. Santos’ deposit to Manimbo without having
been presented the BIR-issued certificate of payment
of, or exception from, estate tax. This is a legal
requirement before the deposit of a decedent is
released. Presidential Decree No. 1158,98 the tax
code applicable when Angel C. Santos died in 1991,
provides:
SEC. 118. Payment of tax antecedent to the transfer
of shares, bonds, or rights. — There shall not be
transferred to any new owner in the books of any
corporation, sociedad anonima, partnership,
business, or industry organized or established in the
Philippines, any shares, obligations, bonds or rights
by way of gift inter vivos or mortis causa, legacy, or
inheritance unless a certification from the
Commissioner that the taxes fixed in this Title and
due thereon have been paid is shown.
If a bank has knowledge of the death of a person who
maintained a bank deposit account alone, or jointly
with another, it shall not allow any withdrawal from
the said deposit account, unless the Commissioner
has certified that the taxes imposed thereon by this
Title have been paid; Provided, however, That the
administrator of the estate or any one of the heirs of
the decedent may upon authorization by the
Commissioner of Internal Revenue, withdraw an
amount not exceeding 10,000 without the said
certification. For this purpose, all withdrawal slips
shall contain a statement to the effect that all of the
joint depositors are still living at the time of
withdrawal by any one of the joint depositors and
such statement shall be under oath by the said
depositors.99 (Emphasis supplied)
This provision was reproduced in Section 97 of the
1997 National Internal Revenue Code, thus:
SEC. 97. Payment of Tax Antecedent to the
Transfer of Shares, Bonds or Rights. - There shall
not be transferred to any new owner in the books of
any corporation, sociedad anonima, partnership,
business, or industry organized or established in the
Philippines any share, obligation, bond or right by
way of gift inter vivos or mortis causa, legacy or
inheritance, unless a certification from the
Commissioner that the taxes fixed in this Title and
due thereon have been paid is shown.
If a bank has knowledge of the death of a person, who
maintained a bank deposit account alone, or jointly
with another, it shall not allow any withdrawal from
the said deposit account, unless the Commissioner
has certified that the taxes imposed thereon by this
Title have been paid: Provided, however, That the
administrator of the estate or any one (1) of the heirs
of the decedent may, upon authorization by the
Commissioner, withdraw an amount not exceeding
Twenty thousand pesos (20,000) without the said
certification. For this purpose, all withdrawal slips
shall contain a statement to the effect that all of the
joint depositors are still living at the time of
withdrawal by any one of the joint depositors and
such statement shall be under oath by the said
depositors. (Emphasis supplied)
Taxes are created primarily to generate revenues for
the maintenance of the government. However, this
particular tax may also serve as guard against the
release of deposits to persons who have no sufficient
and valid claim over the deposits. Based on the
assumption that only those with sufficient and valid
claim to the deposit will pay the taxes for it, requiring
the certificate from the BIR increases the chance that
the deposit will be released only to them.
In their compulsory counterclaim,100 petitioners PNB
and Aguilar claimed that Manimbo presented a
certificate of payment of estate tax.101 During trial,
however, it turned out that this certificate was
instead an authority to accept payment, which is not
the certificate required for the release of bank
deposits.102 It appears that Manimbo was not even
required to submit the BIR certificate.103 He, thus,
failed to present such certificate. Petitioners PNB
and Aguilar provided no satisfactory explanation
why Angel C. Santos’ deposit was released without
it.
Petitioners PNB and Aguilar’s negligence is also clear
when they accepted as bases for the release of the
deposit to Manimbo: (a) a mere photocopy of Angel
C. Santos’ death certificate;104 (b) the falsified
affidavit of self-adjudication and special power of
attorney purportedly executed by Reyme L.
Santos;105 and (c) the certificate of time deposit.106
Petitioner Aguilar was aware that there were other
claimants to Angel C. Santos’ deposit. Respondents
had already communicated with petitioner Aguilar
regarding Angel C. Santos’ account before Manimbo
appeared. Petitioner Aguilar even gave respondents
the updated passbook of Angel C. Santos’
account.107 Yet, petitioners PNB and Aguilar did not
think twice before they released the deposit to
Manimbo. They did not doubt why no original death
certificate could be submitted. They did not doubt
why Reyme L. Santos would execute an affidavit of
self-adjudication when he, together with others, had
previously asked for the release of Angel C. Santos’
deposit. They also relied on the certificate of time
deposit and on Manimbo’s representation that the
passbook was lost when the passbook had just been
previously presented to Aguilar for updating.108
During the trial, petitioner PNB’s counsel only
reasoned that the photocopy of the death certificate
was also submitted with other documents, which led
him to no other conclusion than that Angel C. Santos
was already dead.109 On petitioners PNB and
Aguilar’s reliance special power of attorney allegedly
executed by Reyme L. Santos, Aguilar admitted that
she did not contact Reyme L. Santos for verification.
Her reason was that Reyme L. Santos was their
client. Therefore, they had no obligation to do so.110
Given the circumstances, "diligence of a good father
of a family" would have required petitioners PNB and
Aguilar to verify. A prudent man would have inquired
why Reyme L. Santos would issue an affidavit of
selfadjudication when others had also claimed to be
heirs of Angel C. Santos. Contrary to petitioner
Aguilar’s reasoning, the fact that Reyme L. Santos
was not petitioner PNB’s client should have moved
her to take measures to ensure the veracity of
Manimbo’s documents and representations. This is
because she had no previous knowledge of Reyme L.
Santos his representatives, and his signature.
Petitioner PNB is a bank from which a degree of
diligence higher than that of a good father of a family
is expected. Petitioner PNB and its manager,
petitioner Aguilar, failed to meet even the standard
of diligence of a good father of a family. Their actions
and inactions constitute gross negligence. It is for
this reason that we sustain the trial court’s and the
Court of Appeals’ rulings that petitioners PNB and
Aguilar are solidarily liable with each other.111
For the same reason, we sustain the award for moral
damages. Petitioners PNB and Aguilar’s gross
negligence deprived Angel C. Santos’ heirs what is
rightfully theirs. Respondents also testified that they
experienced anger and embarrassment when
petitioners PNB and Aguilar refused to release Angel
C. Santos’ deposit.112 "The bank’s negligence was the
result of lack of due care and caution required of
managers and employees of a firm engaged in so
sensitive and demanding business as banking."113
Exemplary damages should also be awarded. "The
law allows the grant of exemplary damages by way of
example for the public good. The public relies on the
banks’ sworn profession of diligence and
meticulousness in giving irreproachable service. The
level of meticulousness must be maintained at all
times by the banking sector."114
Since exemplary damages are awarded and since
respondents were compelled to litigate to protect
their interests,115 the award of attorney’s fees is also
proper.
The Court of Appeals' award of interest should be
modified to 12% from demand on April 26, 1998
until June 30, 2013, and 6% from July I, 2013 until
fully paid. In Nacar v. Gallery Frames:116
Thus, from the foregoing, in the absence of an
express stipulation as to the rate of interest that
would govern the parties, the rate of legal interest for
loans or forbearance of any money. . . s.hall no
longer be twelve percent (12%) per annum ... but will
now be six percent (6%) per annum effective July 1,
2013. It should be noted, nonetheless, that. .. the
twelve percent (12%) per annum legal interest shall
apply only until June 30, 2013. Come July 1, 2013
the new rate of six percent (6%) per annum shall be
the prevailing rate of interest when applicable.
....
1. When the obligation is breached, and it consists
in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be
that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall
be 6% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand ...
....
3. When the judgment of the court awarding a sum
of money becomes final and executory, the rate of
legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 6% per
annumfrom such finality until its satisfaction, this
interim period being deemed to be by then an
equivalent to a forbearance of credit.117
WHEREFORE, the Court of Appeals' decision dated
July 25, 2013 is AFFIRMED with
the MODIFICATIONS in that petitioners Philippine
National Bank and Lina B. Aguilar are ordered
solidarily liable to pay respondents Pl 00,000.00 as
exemplary damages. Further, the interest rate for the
amount of Pl,882,002.05, representing the face value
of PNB Manager's Check No. AF-974686B is modified
to 12% from April 26, 1998 until June 30, 2013, and
6% from July 1, 2013 until satisfaction. All monetary
awards shall then earn interest at the rate of 6% per
annum from finality of the decision until full
satisfaction.