THIRD DIVISION

RAFAEL ARSENIO S. DIZON, in his G.R. No. 140944

capacity as the Judicial Administrator of
the Estate of the deceased JOSE P. Present:
FERNANDEZ,
Petitioner, YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
- versus - CHICO-NAZARIO,
NACHURA, and
REYES, JJ.
COURT OF TAX APPEALS
and COMMISSIONER OF INTERNAL Promulgated:
REVENUE,
Respondents. April 30, 2008
x------------------------------------------------------------------------------------x

DECISION

NACHURA, J.:

Before this Court is a Petition for Review on Certiorari[1] under Rule 45 of the Rules
of Civil Procedure seeking the reversal of the Court of Appeals (CA)
Decision[2] dated April 30, 1999 which affirmed the Decision[3] of the Court of Tax
Appeals (CTA) dated June 17, 1997.[4]

The Facts

On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition for the
probate of his will[5] was filed with Branch 51 of the Regional Trial Court (RTC)
of Manila (probate court).[6] The probate court then appointed retired Supreme Court
Justice Arsenio P. Dizon (Justice Dizon) and petitioner, Atty. Rafael Arsenio P.
Dizon (petitioner) as Special and Assistant Special Administrator, respectively, of
the Estate of Jose (Estate). In a letter[7] dated October 13, 1988, Justice
Dizon informed respondent Commissioner of the Bureau of Internal Revenue (BIR)
of the special proceedings for the Estate.

Petitioner alleged that several requests for extension of the period to file the required
estate tax return were granted by the BIR since the assets of the estate, as well as the
claims against it, had yet to be collated, determined and identified. Thus, in a
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:

COMPUTATION OF TAX

Conjugal Real Property (Sch. 1) P10,855,020.00

Conjugal Personal Property (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]

On April 27, 1990, BIR Regional Director for San Pablo City, Osmundo G.
Umali issued Certification Nos. 2052[12] and 2053[13] stating that the taxes due on the
transfer of real and personal properties[14] of Jose had been fully paid and said
properties may be transferred to his heirs. Sometime in August 1990, Justice Dizon
passed away. Thus, on October 22, 1990, the probate court appointed petitioner as
the administrator of the Estate.[15]

Petitioner requested the probate court's authority to sell several properties

forming part of the Estate, for the purpose of paying its creditors, namely: Equitable
Banking Corporation (P19,756,428.31), Banque de L'Indochine et. de Suez
(US$4,828,905.90 as of January 31, 1988), Manila Banking Corporation
(P84,199,160.46 as of February 28, 1989) and State Investment House, Inc.
(P6,280,006.21). Petitioner manifested that Manila Bank, a major creditor of
the Estate was not included, as it did not file a claim with the probate court since it
had security over several real estate properties forming part of the Estate.[16]

However, on November 26, 1991, the Assistant Commissioner for Collection

of the BIR, Themistocles Montalban, issued Estate Tax Assessment Notice No.
FAS-E-87-91-003269,[17] demanding the payment of P66,973,985.40 as deficiency
estate tax, itemized as follows:

Deficiency Estate Tax- 1987

Estate tax P31,868,414.48

25% surcharge- late filing 7,967,103.62
late payment 7,967,103.62
Interest 19,121,048.68
Compromise-non filing 25,000.00
non payment 25,000.00
no notice of death 15.00
no CPA Certificate 300.00

Total amount due & collectible P66,973,985.40[18]

In his letter[19] dated December 12, 1991, Atty. Gonzales moved for the
reconsideration of the said estate tax assessment. However, in her
letter[20] dated April 12, 1994, the BIR Commissioner denied the request and
reiterated that the estate is liable for the payment of P66,973,985.40 as deficiency
estate tax. On May 3, 1994, petitioner received the letter of denial. On June 2, 1994,
petitioner filed a petition for review[21] before respondent CTA. Trial on the merits
ensued.

As found by the CTA, the respective parties presented the following pieces of
evidence, to wit:

In the hearings conducted, petitioner did not present testimonial evidence

but merely documentary evidence consisting of the following:

Nature of Document (sic) Exhibits

1. Letter dated October 13, 1988

from Arsenio P. Dizon addressed
to the Commissioner of Internal
Revenue informing the latter of
the special proceedings for the
settlement of the estate (p. 126,
BIR records); "A"

2. Petition for the probate of the

will and issuance of letter of
administration filed with the
Regional Trial Court (RTC) of
Manila, docketed as Sp. Proc.
No. 87-42980 (pp. 107-108, BIR
records); "B" & "B-1

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 of the case.[24]

Nevertheless, the CTA did not fully adopt the assessment made by the BIR and it
came up with its own computation of the deficiency estate tax, to wit:

Conjugal Real Property P 5,062,016.00

Conjugal Personal Prop. 33,021,999.93
Gross Conjugal Estate 38,084,015.93
Less: Deductions 26,250,000.00
Net Conjugal Estate P 11,834,015.93
Less: Share of Surviving Spouse 5,917,007.96
Net Share in Conjugal Estate P 5,917,007.96
Add: Capital/Paraphernal
Properties P44,652,813.66
Less: Capital/Paraphernal
Deductions 44,652,813.66
Net Taxable Estate P 50,569,821.62
============

Estate Tax Due P 29,935,342.97

Add: 25% Surcharge for Late Filing 7,483,835.74
Add: Penalties for-No notice of death 15.00
No CPA certificate 300.00
Total deficiency estate tax P 37,419,493.71
=============

exclusive of 20% interest from due date of its payment until full payment
thereof
[Sec. 283 (b), Tax Code of 1987].[25]

Thus, the CTA disposed of the case in this wise:

WHEREFORE, viewed from all the foregoing, the Court finds the
petition unmeritorious and denies the same. Petitioner and/or the heirs of
 Jose P. Fernandez are hereby ordered to pay to respondent the amount
of P37,419,493.71 plus 20% interest from the due date of its payment
until full payment thereof as estate tax liability of the estate of Jose P.
Fernandez who died on November 7, 1987.

SO ORDERED.[26]

Aggrieved, petitioner, on March 2, 1998, went to the CA via a petition for review.[27]

The CA's Ruling

On April 30, 1999, the CA affirmed the CTA's ruling. Adopting in full the CTA's
findings, the CA ruled that the petitioner's act of filing an estate tax return with the
BIR and the issuance of BIR Certification Nos. 2052 and 2053 did not deprive the
BIR Commissioner of her authority to re-examine or re-assess the said return filed
on behalf of the Estate.[28]

On May 31, 1999, petitioner filed a Motion for Reconsideration[29] which the CA
denied in its Resolution[30] dated November 3, 1999.

Hence, the instant Petition raising the following issues:

1. Whether or not the admission of evidence which were not formally

offered by the respondent BIR by the Court of Tax Appeals which was
subsequently upheld by the Court of Appeals is contrary to the Rules
of Court and rulings of this Honorable Court;

2. Whether or not the Court of Tax Appeals and the Court of Appeals erred
in recognizing/considering the estate tax return prepared and filed by
respondent BIR knowing that the probate court appointed administrator
of the estate of Jose P. Fernandez had previously filed one as in fact,
BIR Certification Clearance Nos. 2052 and 2053 had been issued in the
estate's favor;

3. Whether or not the Court of Tax Appeals and the Court of Appeals erred
in disallowing the valid and enforceable claims of creditors against the
 estate, as lawful deductions despite clear and convincing evidence
thereof; and

4. Whether or not the Court of Tax Appeals and the Court of Appeals erred
in validating erroneous double imputation of values on the very same
estate properties in the estate tax return it prepared and filed which
effectively bloated the estate's assets.[31]

The petitioner claims that in as much as the valid claims of creditors against the
Estate are in excess of the gross estate, no estate tax was due; that the lack of a formal
offer of evidence is fatal to BIR's cause; that the doctrine laid down in Vda. de
Oate has already been abandoned in a long line of cases in which the Court held that
evidence not formally offered is without any weight or value; that Section 34 of Rule
132 of the Rules on Evidence requiring a formal offer of evidence is mandatory in
character; that, while BIR's witness Alberto Enriquez (Alberto) in his testimony
before the CTA identified the pieces of evidence aforementioned such that the same
were marked, BIR's failure to formally offer said pieces of evidence and depriving
petitioner the opportunity to cross-examine Alberto, render the same inadmissible in
evidence; that assuming arguendo that the ruling in Vda. de Oate is still applicable,
BIR failed to comply with the doctrine's requisites because the documents herein
remained simply part of the BIR records and were not duly incorporated in the court
records; that the BIR failed to consider that although the actual payments made to
the Estate creditors were lower than their respective claims, such were compromise
agreements reached long after the Estate's liability had been settled by the filing of
its estate tax return and the issuance of BIR Certification Nos. 2052 and 2053; and
that the reckoning date of the claims against the Estate and the settlement of the
estate tax due should be at the time the estate tax return was filed by the judicial
administrator and the issuance of said BIR Certifications and not at the time the
aforementioned Compromise Agreements were entered into with the Estate's
creditors.[32]

On the other hand, respondent counters that the documents, being part of the records
of the case and duly identified in a duly recorded testimony are considered evidence
even if the same were not formally offered; that the filing of the estate tax return by
the Estate and the issuance of BIR Certification Nos. 2052 and 2053 did not deprive
the BIR of its authority to examine the return and assess the estate tax; and that the
factual findings of the CTA as affirmed by the CA may no longer be reviewed by
this Court via a petition for review.[33]

The Issues

There are two ultimate issues which require resolution in this case:

First. Whether or not the CTA and the CA gravely erred in allowing the admission
of the pieces of evidence which were not formally offered by the BIR; and

Second. Whether or not the CA erred in affirming the CTA in the latter's
determination of the deficiency estate tax imposed against the Estate.

The Courts Ruling

The Petition is impressed with merit.

Under Section 8 of RA 1125, the CTA is categorically described as a court of record.

As cases filed before it are litigated de novo, party-litigants shall prove every minute
aspect of their cases. Indubitably, no evidentiary value can be given the pieces of
evidence submitted by the BIR, as the rules on documentary evidence require that
these documents must be formally offered before the CTA.[34] Pertinent is Section
34, Rule 132 of the Revised Rules on Evidence which reads:

SEC. 34. Offer of evidence. The court shall consider no evidence which
has not been formally offered. The purpose for which the evidence is
offered must be specified.

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 in this jurisdiction. In Vda. de Oate, we held that:

From the foregoing provision, it is clear that for evidence to be considered,

the same must be formally offered. Corollarily, the mere fact that a
particular document is identified and marked as an exhibit does not mean
that it has already been offered as part of the evidence of a party.
In Interpacific Transit, Inc. v. Aviles [186 SCRA 385], we had the
occasion to make a distinction between identification of documentary
evidence and its formal offer as an exhibit. We said that the first is done
in the course of the trial and is accompanied by the marking of the
evidence as an exhibit while the second is done only when the party rests
its case and not before. A party, therefore, may opt to formally offer his
evidence if he believes that it will advance his cause or not to do so at all.
In the event he chooses to do the latter, the trial court is not authorized by
the Rules to consider the same.

However, in People v. Napat-a [179 SCRA 403] citing People v.

Mate [103 SCRA 484], we relaxed the foregoing rule and allowed
evidence not formally offered to be admitted and considered by the
trial court provided the following requirements are present, viz.: first,
the same must have been duly identified by testimony duly recorded
and, second, the same must have been incorporated in the records of
the case.[40]

From the foregoing declaration, however, it is clear that Vda. de Oate is

merely an exception to the general rule. Being an exception, it may be applied only
when there is strict compliance with the requisites mentioned therein; otherwise, the
general rule in Section 34 of Rule 132 of the Rules of Court should prevail.
In this case, we find that these requirements have not been satisfied. The assailed
pieces of evidence were presented and marked during the trial particularly when
Alberto took the witness stand. Alberto identified these pieces of evidence in his
direct testimony.[41] He was also subjected to cross-examination and re-cross
examination by petitioner.[42]But Albertos account and the exchanges between
Alberto and petitioner did not sufficiently describe the contents of the said pieces of
evidence presented by the BIR. In fact, petitioner sought that the lead examiner, one
Ma. Anabella A. Abuloc, be summoned to testify, inasmuch as Alberto was
incompetent to answer questions relative to the working papers.[43] The lead
examiner never testified. Moreover, while Alberto's testimony identifying the BIR's
evidence was duly recorded, the BIR documents themselves were not incorporated
in the records of the case.

A common fact threads through Vda. de Oate and Ramos that does not exist at all in
the instant case. In the aforementioned cases, the exhibits were marked at the pre-
trial proceedings to warrant the pronouncement that the same were duly incorporated
in the records of the case. Thus, we held in Ramos:

In this case, we find and so rule that these requirements have been
satisfied. The exhibits in question were presented and marked during
the pre-trial of the case thus, they have been incorporated into the
records. Further, Elpidio himself explained the contents of these exhibits
when he was interrogated by respondents' counsel...

xxxx

But what further defeats petitioner's cause on this issue is that respondents'
exhibits were marked and admitted during the pre-trial stage as shown by
the Pre-Trial Order quoted earlier.[44]

While the CTA is not governed strictly by technical rules of evidence,[45] as rules of
procedure are not ends in themselves and are primarily intended as tools in the
administration of justice, the presentation of the BIR's evidence is not a mere
procedural technicality which may be disregarded considering that it is the only
means by which the CTA may ascertain and verify the truth of BIR's claims against
the Estate.[46] The BIR's failure to formally offer these pieces of evidence, despite
CTA's directives, is fatal to its cause.[47] Such failure is aggravated by the fact that
not even a single reason was advanced by the BIR to justify such fatal omission.
This, we take against the BIR.

Per the records of this case, the BIR was directed to present its 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 Commonwealth Act No. 466 (CA 466),
otherwise known as the National Internal Revenue Code of 1939, and which was the
first codification of Philippine tax laws. Philippine tax laws were, in turn, based on
the federal tax laws of the United States. Thus, pursuant to established rules of
statutory construction, the decisions of American courts construing the federal tax
code are entitled to great weight in the interpretation of our own tax laws.[60]

It is noteworthy that even in the United States, there is some dispute as to whether
the deductible amount for a claim against the estate is fixed as of the decedent's death
which is the general rule, or the same should be adjusted to reflect post-death
developments, such as where a settlement between the parties results in the reduction
of the amount actually paid.[61] On one hand, the U.S. court ruled that the appropriate
deduction is the value that the claim had at the date of the decedent's death.[62] Also,
as held in Propstra v. U.S.,[63] where a lien claimed against the estate was certain and
enforceable on the date of the decedent's death, the fact that the claimant
subsequently settled for lesser amount did not preclude the estate from deducting the
entire amount of the claim for estate tax purposes. These pronouncements essentially
confirm the general principle that post-death developments are not material in
determining the amount of the deduction.

On the other hand, the Internal Revenue Service (Service) opines that post-
death settlement should be taken into consideration and the claim should be allowed
as a deduction only to the extent of the amount actually paid.[64] Recognizing the
dispute, the Service released Proposed Regulations in 2007 mandating that the
deduction would be limited to the actual amount paid.[65]

In announcing its agreement with Propstra,[66] the U.S. 5th Circuit Court of
Appeals held:

We are persuaded that the Ninth Circuit's decision...in Propstra correctly

apply the Ithaca Trust date-of-death valuation principle to enforceable
claims against the estate. As we interpret Ithaca Trust, when the Supreme
 Court announced the date-of-death valuation principle, it was making a
judgment about the nature of the federal estate tax specifically, that it is a
tax imposed on the act of transferring property by will or intestacy and,
because the act on which the tax is levied occurs at a discrete time, i.e.,
the instance of death, the net value of the property transferred should be
ascertained, as nearly as possible, as of that time. This analysis supports
broad application of the date-of-death valuation rule.[67]

We express our agreement with the date-of-death valuation rule, made pursuant to
the ruling of the U.S. Supreme Court in Ithaca Trust Co. v. United
States.[68] First. There is no law, nor do we discern any legislative intent in our tax
laws, which disregards the date-of-death valuation principle and particularly
provides that post-death developments must be considered in determining the net
value of the estate. It bears emphasis that tax burdens are not to be imposed, nor
presumed to be imposed, beyond what the statute expressly and clearly imports, tax
statutes being construed strictissimi juris against the government.[69] Any doubt on
whether a person, article or activity is taxable is generally resolved against
taxation.[70] Second. Such construction finds relevance and consistency in our Rules
on Special Proceedings wherein the term "claims" required to be presented against
a decedent's estate is generally construed to mean debts or demands of a pecuniary
nature which could have been enforced against the deceased in his lifetime, or
liability contracted by the deceased before his death.[71] Therefore, the claims
existing at the time of death are significant to, and should be made the basis of, the
determination of allowable deductions.

WHEREFORE, the instant Petition is GRANTED. Accordingly, the

assailed Decision dated April 30, 1999 and the Resolution dated November 3, 1999
of the Court of Appeals in CA-G.R. S.P. No. 46947 are REVERSED and SET
ASIDE. The Bureau of Internal Revenue's deficiency estate tax assessment against
the Estate of Jose P. Fernandez is hereby NULLIFIED. No costs.

SO ORDERED.
 SECOND DIVISION

[G.R. No. 120880. June 5, 1997]

FERDINAND R. MARCOS II, petitioner, vs. COURT OF APPEALS, THE

COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE and
HERMINIA D. DE GUZMAN, respondents.

DECISION
TORRES, JR., J.:

In this Petition for Review on Certiorari, Government action is once again

assailed as precipitate and unfair, suffering the basic and oftly implored
requisites of due process of law.Specifically, the petition assails the
Decision of the Court of Appeals dated November 29, 1994 in CA-G.R. SP No.
[1]

31363, where the said court held:

"In view of all the foregoing, we rule that the deficiency income tax assessments and
estate tax assessment, are already final and (u)nappealable -and- the subsequent levy
of real properties is a tax remedy resorted to by the government, sanctioned by
Section 213 and 218 of the National Internal Revenue Code. This summary tax
remedy is distinct and separate from the other tax remedies (such as Judicial Civil
actions and Criminal actions), and is not affected or precluded by the pendency of any
other tax remedies instituted by the government.

WHEREFORE, premises considered, judgment is hereby rendered DISMISSING the

petition for certiorari with prayer for Restraining Order and Injunction.

No pronouncements as to costs.

SO ORDERED."

More than seven years since the demise of the late Ferdinand E. Marcos,
the former President of the Republic of the Philippines, the matter of the
settlement of his estate, and its dues to the government in estate taxes, are still
unresolved, the latter issue being now before this Court for
resolution. Specifically, petitioner Ferdinand R. Marcos II, the eldest son of the
decedent, questions the actuations of the respondent Commissioner of Internal
Revenue in assessing, and collecting through the summary remedy of Levy on
Real Properties, estate and income tax delinquencies upon the estate and
properties of his father, despite the pendency of the proceedings on probate of
the will of the late president, which is docketed as Sp. Proc. No. 10279 in the
Regional Trial Court of Pasig, Branch 156.
Petitioner had filed with the respondent Court of Appeals a Petition
for Certiorari and Prohibition with an application for writ of preliminary injunction
and/or temporary restraining order on June 28, 1993, seeking to -

I. Annul and set aside the Notices of Levy on real property dated February 22, 1993
and May 20, 1993, issued by respondent Commissioner of Internal Revenue;

II. Annul and set aside the Notices of Sale dated May 26, 1993;

III. Enjoin the Head Revenue Executive Assistant Director II (Collection Service),
from proceeding with the Auction of the real properties covered by Notices of Sale.

After the parties had pleaded their case, the Court of Appeals rendered its
Decision on November 29, 1994, ruling that the deficiency assessments for
[2]

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 MEANS OF
LEVY.
The facts as found by the appellate court are undisputed, and are hereby
adopted:

"On September 29, 1989, former President Ferdinand Marcos died in Honolulu,
Hawaii, USA.

On June 27, 1990, a Special Tax Audit Team was created to conduct investigations
and examinations of the tax liabilities and obligations of the late president, as well as
that of his family, associates and "cronies". Said audit team concluded its
investigation with a Memorandum dated July 26, 1991. The investigation disclosed
that the Marcoses failed to file a written notice of the death of the decedent, an estate
tax returns [sic], as well as several income tax returns covering the years 1982 to
1986, -all in violation of the National Internal Revenue Code (NIRC).

Subsequently, criminal charges were filed against Mrs. Imelda R. Marcos before the
Regional Trial of Quezon City for violations of Sections 82, 83 and 84 (has penalized
under Sections 253 and 254 in relation to Section 252- a & b) of the National Internal
Revenue Code (NIRC).

The Commissioner of Internal Revenue thereby caused the preparation and filing of
the Estate Tax Return for the estate of the late president, the Income Tax Returns of
the Spouses Marcos for the years 1985 to 1986, and the Income Tax Returns of
petitioner Ferdinand 'Bongbong' Marcos II for the years 1982 to 1985.

On July 26, 1991, the BIR issued the following: (1) Deficiency estate tax assessment
no. FAC-2-89-91-002464 (against the estate of the late president Ferdinand Marcos in
the amount of P23,293,607,638.00 Pesos); (2) Deficiency income tax assessment no.
FAC-1-85-91-002452 and Deficiency income tax assessment no. FAC-1-86-91-
002451 (against the Spouses Ferdinand and Imelda Marcos in the amounts of
P149,551.70 and P184,009,737.40 representing deficiency income tax for the years
1985 and 1986); (3) Deficiency income tax assessment nos. FAC-1-82-91-002460 to
FAC-1-85-91-002463 (against petitioner Ferdinand 'Bongbong' Marcos II in the
amounts of P258.70 pesos; P9,386.40 Pesos; P4,388.30 Pesos; and P6,376.60 Pesos
representing his deficiency income taxes for the years 1982 to 1985).

The Commissioner of Internal Revenue avers that copies of the deficiency estate and
income tax assessments were all personally and constructively served on August 26,
1991 and September 12, 1991 upon Mrs. Imelda Marcos (through her caretaker Mr.
Martinez) at her last known address at No. 204 Ortega St., San Juan, M.M. (Annexes
'D' and 'E' of the Petition). Likewise, copies of the deficiency tax assessments issued
against petitioner Ferdinand 'Bongbong' Marcos II were also personally and
constructively served upon him (through his caretaker) on September 12, 1991, at his
last known address at Don Mariano Marcos St. corner P. Guevarra St., San Juan,
M.M. (Annexes 'J' and 'J-1' of the Petition). Thereafter, Formal Assessment notices
were served on October 20, 1992, upon Mrs. Marcos c/o petitioner, at his office,
House of Representatives, Batasan Pambansa, Quezon City. Moreover, a notice to
Taxpayer inviting Mrs. Marcos (or her duly authorized representative or counsel), to a
conference, was furnished the counsel of Mrs. Marcos, Dean Antonio Coronel - but to
no avail.

The deficiency tax assessments were not protested administratively, by Mrs. Marcos
and the other heirs of the late president, within 30 days from service of said
assessments.

On February 22, 1993, the BIR Commissioner issued twenty-two notices of levy on
real property against certain parcels of land owned by the Marcoses - to satisfy the
alleged estate tax and deficiency income taxes of Spouses Marcos.
On May 20, 1993, four more Notices of Levy on real property were issued for the
purpose of satisfying the deficiency income taxes.

On May 26, 1993, additional four (4) notices of Levy on real property were again
issued. The foregoing tax remedies were resorted to pursuant to Sections 205 and 213
of the National Internal Revenue Code (NIRC).

In response to a letter dated March 12, 1993 sent by Atty. Loreto Ata (counsel of
herein petitioner) calling the attention of the BIR and requesting that they be duly
notified of any action taken by the BIR affecting the interest of their client Ferdinand
'Bongbong Marcos II, as well as the interest of the late president - copies of the
aforesaid notices were served on April 7, 1993 and on June 10, 1993, upon Mrs.
Imelda Marcos, the petitioner, and their counsel of record, 'De Borja, Medialdea, Ata,
Bello, Guevarra and Serapio Law Office'.

Notices of sale at public auction were posted on May 26, 1993, at the lobby of the
City Hall of Tacloban City. The public auction for the sale of the eleven (11) parcels
of land took place on July 5, 1993.There being no bidder, the lots were declared
forfeited in favor of the government.

On June 25, 1993, petitioner Ferdinand 'Bongbong' Marcos II filed the instant petition
for certiorari and prohibition under Rule 65 of the Rules of Court, with prayer for
temporary restraining order and/or writ of preliminary injunction."

It has been repeatedly observed, and not without merit, that the
enforcement of tax laws and the collection of taxes, is of paramount importance
for the sustenance of government.Taxes are the lifeblood of the government
and should be collected without unnecessary hindrance. However, such
collection should be made in accordance with law as any arbitrariness will
negate the very reason for government itself. It is therefore necessary to
reconcile the apparently conflicting interests of the authorities and the taxpayers
so that the real purpose of taxation, which is the promotion of the common good,
may be achieved." [3]

Whether or not the proper avenues of assessment and collection of the said
tax obligations were taken by the respondent Bureau is now the subject of the
Court's inquiry.
Petitioner posits that notices of levy, notices of sale, and subsequent sale
of properties of the late President Marcos effected by the BIR are null and void
for disregarding the established procedure for the enforcement of taxes due
upon the estate of the deceased. The case of Domingo vs. Garlitos is [4]

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; to determine who are the heirs of
[5]

the decedent; the recognition of a natural child; the status of a woman

[6] [7]

claiming to be the legal wife of the decedent; the legality of disinheritance of

[8]

an heir by the testator; and to pass upon the validity of a waiver of hereditary
[9]

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 that the court recognized the liberal
[12]

treatment of claims for taxes charged against the estate of the decedent. Such
taxes, we said, were exempted from the application of the statute of non-claims,
and this is justified by the necessity of government funding, immortalized in the
maxim that taxes are the lifeblood of the
government.Vectigalia nervi sunt rei publicae - taxes are the sinews of the
state.

"Taxes assessed against the estate of a deceased person, after administration is

opened, need not be submitted to the committee on claims in the ordinary course of
administration. In the exercise of its control over the administrator, the court may
direct the payment of such taxes upon motion showing that the taxes have been
assessed against the estate."

Such liberal treatment of internal revenue taxes in the probate proceedings

extends so far, even to allowing the enforcement of tax obligations against the
heirs of the decedent, even after distribution of the estate's properties.

"Claims for taxes, whether assessed before or after the death of the deceased, can be
collected from the heirs even after the distribution of the properties of the
decedent. They are exempted from the application of the statute of non-claims. The
heirs shall be liable therefor, in proportion to their share in the inheritance."
[13]

"Thus, the Government has two ways of collecting the taxes in question. One, by
going after all the heirs and collecting from each one of them the amount of the tax
proportionate to the inheritance received.Another remedy, pursuant to the lien created
by Section 315 of the Tax Code upon all property and rights to property belong to the
taxpayer for unpaid income tax, is by subjecting said property of the estate which is in
the hands of an heir or transferee to the payment of the tax due the estate.
(Commissioner of Internal Revenue vs. Pineda, 21 SCRA 105, September 15, 1967.)

From the foregoing, it is discernible that the approval of the court, sitting in
probate, or as a settlement tribunal over the deceased is not a mandatory
requirement in the collection of estate taxes. It cannot therefore be argued that
the Tax Bureau erred in proceeding with the levying and sale of the properties
allegedly owned by the late President, on the ground that it was required to
seek first the probate court's sanction. There is nothing in the Tax Code, and in
the pertinent remedial laws that implies the necessity of the probate or estate
settlement court's approval of the state's claim for estate taxes, before the same
can be enforced and collected.
On the contrary, under Section 87 of the NIRC, it is the probate or settlement
court which is bidden not to authorize the executor or judicial administrator of
the decedent's estate to deliver any distributive share to any party interested in
the estate, unless it is shown a Certification by the Commissioner of Internal
Revenue that the estate taxes have been paid. This provision disproves the
petitioner's contention that it is the probate court which approves the
assessment and collection of the estate tax.
If there is any issue as to the validity of the BIR's decision to assess the
estate taxes, this should have been pursued through the proper administrative
and judicial avenues provided for by law.
Section 229 of the NIRC tells us how:

"Sec. 229. Protesting of assessment.-When the Commissioner of Internal Revenue or

his duly authorized representative finds that proper taxes should be assessed, he shall
first notify the taxpayer of his findings. Within a period to be prescribed by
implementing regulations, the taxpayer shall be required to respond to said notice. If
the taxpayer fails to respond, the Commissioner shall issue an assessment based on his
findings.

Such assessment may be protested administratively by filing a request for

reconsideration or reinvestigation in such form and manner as may be prescribed by
implementing regulations within (30) days from receipt of the assessment; otherwise,
the assessment shall become final and unappealable.

If the protest is denied in whole or in part, the individual, association or corporation

adversely affected by the decision on the protest may appeal to the Court of Tax
Appeals within thirty (30) days from receipt of said decision; otherwise, the decision
shall become final, executory and demandable. (As inserted by P.D. 1773)"

Apart from failing to file the required estate tax return within the time required
for the filing of the same, petitioner, and the other heirs never questioned the
assessments served upon them, allowing the same to lapse into finality, and
prompting the BIR to collect the said taxes by levying upon the properties left
by President Marcos.
 Petitioner submits, however, that "while the assessment of taxes may have
been validly undertaken by the Government, collection thereof may have been
done in violation of the law.Thus, the manner and method in which the latter is
enforced may be questioned separately, and irrespective of the finality of the
former, because the Government does not have the unbridled discretion to
enforce collection without regard to the clear provision of law." [14]

Petitioner specifically points out that applying Memorandum Circular No. 38-
68, implementing Sections 318 and 324 of the old tax code (Republic Act 5203),
the BIR's Notices of Levy on the Marcos properties, were issued beyond the
allowed period, and are therefore null and void:

"...the Notices of Levy on Real Property (Annexes 0 to NN of Annex C of this

Petition) in satisfaction of said assessments were still issued by respondents well
beyond the period mandated in Revenue Memorandum Circular No. 38-68. These
Notices of Levy were issued only on 22 February 1993 and 20 May 1993 when at
least seventeen (17) months had already lapsed from the last service of tax assessment
on 12 September 1991. As no notices of distraint of personal property were first
issued by respondents, the latter should have complied with Revenue Memorandum
Circular No. 38-68 and issued these Notices of Levy not earlier than three (3) months
nor later than six (6) months from 12 September 1991. In accordance with the
Circular, respondents only had until 12 March 1992 (the last day of the sixth month)
within which to issue these Notices of Levy. The Notices of Levy, having been issued
beyond the period allowed by law, are thus void and of no effect." [15]

We hold otherwise. The Notices of Levy upon real property were issued
within the prescriptive period and in accordance with the provisions of the
present Tax Code. The deficiency tax assessment, having already become
final, executory, and demandable, the same can now be collected through the
summary remedy of distraint or levy pursuant to Section 205 of the NIRC.
The applicable provision in regard to the prescriptive period for the
assessment and collection of tax deficiency in this instance is Article 223 of the
NIRC, which pertinently provides:

"Sec. 223. Exceptions as to a period of limitation of assessment and collection of

taxes.- (a) In the case of a false or fraudulent return with intent to evade tax or of a
failure to file a return, the tax may be assessed, or a proceeding in court for the
collection of such tax may be begun without assessment, at any time within ten (10)
years after the discovery of the falsity, fraud, or omission: Provided, That, in a fraud
assessment which has become final and executory, the fact of fraud shall be judicially
taken cognizance of in the civil or criminal action for the collection thereof.
 xxx

(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 whose determinations and assessments are presumed
[16]

correct and made in good faith. The taxpayer has the duty of proving
[17]

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. In this instance, petitioner has not pointed out one single
[18]

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. This judicial policy becomes more
[19]

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 the property in question.

xxx"
The foregoing notwithstanding, the record shows that notices of warrants of
distraint and levy of sale were furnished the counsel of petitioner on April 7,
1993, and June 10, 1993, and the petitioner himself on April 12, 1993 at his
office at the Batasang Pambansa. We cannot therefore, countenance
[21]

petitioner's insistence that he was denied due process. Where there was an
opportunity to raise objections to government action, and such opportunity was
disregarded, for no justifiable reason, the party claiming oppression then
becomes the oppressor of the orderly functions of government. He who comes
to court must come with clean hands. Otherwise, he not only taints his name,
but ridicules the very structure of established authority.
IN VIEW WHEREOF, the Court RESOLVED to DENY the present
petition. The Decision of the Court of Appeals dated November 29, 1994 is
hereby AFFIRMED in all respects.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 159694 January 27, 2006

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
AZUCENA T. REYES, Respondent.

x -- -- -- -- -- -- -- -- -- -- -- -- -- x

G.R. No. 163581 January 27, 2006

AZUCENA T. REYES, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

PANGANIBAN, CJ.:

Under the present provisions of the Tax Code and pursuant to elementary due process, taxpayers
must be informed in writing of the law and the facts upon which a tax assessment is based;
otherwise, the assessment is void. Being invalid, the assessment cannot in turn be used as a basis
for the perfection of a tax compromise.

The Case

Before us are two consolidated1 Petitions for Review2 filed under Rule 45 of the Rules of Court,
assailing the August 8, 2003 Decision3 of the Court of Appeals (CA) in CA-GR SP No. 71392. The
dispositive portion of the assailed Decision reads as follows:

"WHEREFORE, the petition is GRANTED. The assailed decision of the Court of Tax Appeals is
ANNULLED and SET ASIDE without prejudice to the action of the National Evaluation Board on the
proposed compromise settlement of the Maria C. Tancinco estate’s tax liability."4

The Facts

The CA narrated the facts as follows:

"On July 8, 1993, Maria C. Tancinco (or ‘decedent’) died, leaving a 1,292 square-meter residential
lot and an old house thereon (or ‘subject property’) located at 4931 Pasay Road, Dasmariñas
Village, Makati City.

"On the basis of a sworn information-for-reward filed on February 17, 1997 by a certain Raymond
Abad (or ‘Abad’), Revenue District Office No. 50 (South Makati) conducted an investigation on the
decedent’s estate (or ‘estate’). Subsequently, it issued a Return Verification Order. But without the
required preliminary findings being submitted, it issued Letter of Authority No. 132963 for the regular
investigation of the estate tax case. Azucena T. Reyes (or ‘[Reyes]’), one of the decedent’s heirs,
received the Letter of Authority on March 14, 1997.

"On February 12, 1998, the Chief, Assessment Division, Bureau of Internal Revenue (or ‘BIR’),
issued a preliminary assessment notice against the estate in the amount of P14,580,618.67. On May
10, 1998, the heirs of the decedent (or ‘heirs’) received a final estate tax assessment notice and a
demand letter, both dated April 22, 1998, for the amount of P14,912,205.47, inclusive of surcharge
and interest.

"On June 1, 1998, a certain Felix M. Sumbillo (or ‘Sumbillo’) protested the assessment [o]n behalf of
the heirs on the ground that the subject property had already been sold by the decedent sometime in
1990.

"On November 12, 1998, the Commissioner of Internal Revenue (or ‘[CIR]’) issued a preliminary
collection letter to [Reyes], followed by a Final Notice Before Seizure dated December 4, 1998.

"On January 5, 1999, a Warrant of Distraint and/or Levy was served upon the estate, followed on
February 11, 1999 by Notices of Levy on Real Property and Tax Lien against it.

"On March 2, 1999, [Reyes] protested the notice of levy. However, on March 11, 1999, the heirs
proposed a compromise settlement of P1,000,000.00.

"In a letter to [the CIR] dated January 27, 2000, [Reyes] proposed to pay 50% of the basic tax due,
citing the heirs’ inability to pay the tax assessment. On March 20, 2000, [the CIR] rejected [Reyes’s]
offer, pointing out that since the estate tax is a charge on the estate and not on the heirs, the latter’s
financial incapacity is immaterial as, in fact, the gross value of the estate amounting
to P32,420,360.00 is more than sufficient to settle the tax liability. Thus, [the CIR] demanded
payment of the amount of P18,034,382.13 on or before April 15, 2000[;] otherwise, the notice of sale
of the subject property would be published.

"On April 11, 2000, [Reyes] again wrote to [the CIR], this time proposing to pay 100% of the basic
tax due in the amount of P5,313,891.00. She reiterated the proposal in a letter dated May 18, 2000.

"As the estate failed to pay its tax liability within the April 15, 2000 deadline, the Chief, Collection
Enforcement Division, BIR, notified [Reyes] on June 6, 2000 that the subject property would be sold
at public auction on August 8, 2000.

"On June 13, 2000, [Reyes] filed a protest with the BIR Appellate Division. Assailing the scheduled
auction sale, she asserted that x x x the assessment, letter of demand[,] and the whole tax
proceedings against the estate are void ab initio. She offered to file the corresponding estate tax
return and pay the correct amount of tax without surcharge [or] interest.

"Without acting on [Reyes’s] protest and offer, [the CIR] instructed the Collection Enforcement
Division to proceed with the August 8, 2000 auction sale. Consequently, on June 28, 2000, [Reyes]
filed a [P]etition for [R]eview with the Court of Tax Appeals (or ‘CTA’), docketed as CTA Case No.
6124.

"On July 17, 2000, [Reyes] filed a Motion for the Issuance of a Writ of Preliminary Injunction or
Status Quo Order, which was granted by the CTA on July 26, 2000. Upon [Reyes’s] filing of a surety
bond in the amount of P27,000,000.00, the CTA issued a [R]esolution dated August 16, 2000
ordering [the CIR] to desist and refrain from proceeding with the auction sale of the subject property
or from issuing a [W]arrant of [D]istraint or [G]arnishment of [B]ank [A]ccount[,] pending
determination of the case and/or unless a contrary order is issued.

"[The CIR] filed a [M]otion to [D]ismiss the petition on the grounds (i) that the CTA no longer has
jurisdiction over the case[,] because the assessment against the estate is already final and
executory; and (ii) that the petition was filed out of time. In a [R]esolution dated November 23, 2000,
the CTA denied [the CIR’s] motion.

"During the pendency of the [P]etition for [R]eview with the CTA, however, the BIR issued Revenue
Regulation (or ‘RR’) No. 6-2000 and Revenue Memorandum Order (or ‘RMO’) No. 42-2000 offering
certain taxpayers with delinquent accounts and disputed assessments an opportunity to compromise
their tax liability.

"On November 25, 2000, [Reyes] filed an application with the BIR for the compromise settlement (or
‘compromise’) of the assessment against the estate pursuant to Sec. 204(A) of the Tax Code, as
implemented by RR No. 6-2000 and RMO No. 42-2000.

"On December 26, 2000, [Reyes] filed an Ex-Parte Motion for Postponement of the hearing before
the CTA scheduled on January 9, 2001, citing her pending application for compromise with the BIR.
The motion was granted and the hearing was reset to February 6, 2001.

"On January 29, 2001, [Reyes] moved for postponement of the hearing set on February 6, 2001, this
time on the ground that she had already paid the compromise amount of P1,062,778.20 but was still
awaiting approval of the National Evaluation Board (or ‘NEB’). The CTA granted the motion and
reset the hearing to February 27, 2001.

"On February 19, 2001, [Reyes] filed a Motion to Declare Application for the Settlement of Disputed
Assessment as a Perfected Compromise. In said motion, she alleged that [the CIR] had not yet
signed the compromise[,] because of procedural red tape requiring the initials of four Deputy
Commissioners on relevant documents before the compromise is signed by the [CIR]. [Reyes]
posited that the absence of the requisite initials and signature[s] on said documents does not vitiate
the perfected compromise.

"Commenting on the motion, [the CIR] countered that[,] without the approval of the NEB, [Reyes’s]
application for compromise with the BIR cannot be considered a perfected or consummated
compromise.

"On March 9, 2001, the CTA denied [Reyes’s] motion, prompting her to file a Motion for
Reconsideration Ad Cautelam. In a [R]esolution dated April 10, 2001, the CTA denied the [M]otion
for [R]econsideration with the suggestion that[,] for an orderly presentation of her case and to
prevent piecemeal resolutions of different issues, [Reyes] should file a [S]upplemental [P]etition for
[R]eview[,] setting forth the new issue of whether there was already a perfected compromise.

"On May 2, 2001, [Reyes] filed a Supplemental Petition for Review with the CTA, followed on June 4,
2001 by its Amplificatory Arguments (for the Supplemental Petition for Review), raising the following
issues:

‘1. Whether or not an offer to compromise by the [CIR], with the acquiescence by the Secretary of
Finance, of a tax liability pending in court, that was accepted and paid by the taxpayer, is a perfected
and consummated compromise.
‘2. Whether this compromise is covered by the provisions of Section 204 of the Tax Code (CTRP)
that requires approval by the BIR [NEB].’

"Answering the Supplemental Petition, [the CIR] averred that an application for compromise of a tax
liability under RR No. 6-2000 and RMO No. 42-2000 requires the evaluation and approval of either
the NEB or the Regional Evaluation Board (or ‘REB’), as the case may be.

"On June 14, 2001, [Reyes] filed a Motion for Judgment on the Pleadings; the motion was granted
on July 11, 2001. After submission of memoranda, the case was submitted for [D]ecision.

"On June 19, 2002, the CTA rendered a [D]ecision, the decretal portion of which pertinently reads:

‘WHEREFORE, in view of all the foregoing, the instant [P]etition for [R]eview is hereby DENIED.
Accordingly, [Reyes] is hereby ORDERED to PAY deficiency estate tax in the amount of Nineteen
Million Five Hundred Twenty Four Thousand Nine Hundred Nine and 78/100 (P19,524,909.78),
computed as follows:

xxxxxxxxx

‘[Reyes] is likewise ORDERED to PAY 20% delinquency interest on deficiency estate tax due
of P17,934,382.13 from January 11, 2001 until full payment thereof pursuant to Section 249(c) of the
Tax Code, as amended.’

"In arriving at its decision, the CTA ratiocinated that there can only be a perfected and consummated
compromise of the estate’s tax liability[,] if the NEB has approved [Reyes’s] application for
compromise in accordance with RR No. 6-2000, as implemented by RMO No. 42-2000.

"Anent the validity of the assessment notice and letter of demand against the estate, the CTA stated
that ‘at the time the questioned assessment notice and letter of demand were issued, the heirs knew
very well the law and the facts on which the same were based.’ It also observed that the petition was
not filed within the 30-day reglementary period provided under Sec. 11 of Rep. Act No. 1125 and
Sec. 228 of the Tax Code."5

Ruling of the Court of Appeals

In partly granting the Petition, the CA said that Section 228 of the Tax Code and RR 12-99 were
mandatory and unequivocal in their requirement. The assessment notice and the demand letter
should have stated the facts and the law on which they were based; otherwise, they were deemed
void.6 The appellate court held that while administrative agencies, like the BIR, were not bound by
procedural requirements, they were still required by law and equity to observe substantive due
process. The reason behind this requirement, said the CA, was to ensure that taxpayers would be
duly apprised of -- and could effectively protest -- the basis of tax assessments against them.7 Since
the assessment and the demand were void, the proceedings emanating from them were likewise
void, and any order emanating from them could never attain finality.

The appellate court added, however, that it was premature to declare as perfected and
consummated the compromise of the estate’s tax liability. It explained that, where the basic tax
assessed exceeded P1 million, or where the settlement offer was less than the prescribed minimum
rates, the National Evaluation Board’s (NEB) prior evaluation and approval were the conditio sine
qua non to the perfection and consummation of any compromise.8 Besides, the CA pointed out,
Section 204(A) of the Tax Code applied to all compromises, whether government-initiated or
not.9 Where the law did not distinguish, courts too should not distinguish.

Hence, this Petition.10

The Issues

In GR No. 159694, petitioner raises the following issues for the Court’s consideration:

"I.

Whether petitioner’s assessment against the estate is valid.

"II.

Whether respondent can validly argue that she, as well as the other heirs, was not aware of the facts
and the law on which the assessment in question is based, after she had opted to propose several
compromises on the estate tax due, and even prematurely acting on such proposal by paying 20%
of the basic estate tax due."11

The foregoing issues can be simplified as follows: first, whether the assessment against the estate is
valid; and, second, whether the compromise entered into is also valid.

The Court’s Ruling

The Petition is unmeritorious.

First Issue:

Validity of the Assessment Against the Estate

The second paragraph of Section 228 of the Tax Code12 is clear and mandatory. It provides as
follows:

"Sec. 228. Protesting of Assessment. --

xxxxxxxxx

"The taxpayers shall be informed in writing of the law and the facts on which the assessment is
made: otherwise, the assessment shall be void."

In the present case, Reyes was not informed in writing of the law and the facts on which the
assessment of estate taxes had been made. She was merely notified of the findings by the CIR, who
had simply relied upon the provisions of former Section 22913 prior to its amendment by Republic Act
(RA) No. 8424, otherwise known as the Tax Reform Act of 1997.

First, RA 8424 has already amended the provision of Section 229 on protesting an assessment. The
old requirement of merely notifying the taxpayer of the CIR’s findings was changed in 1998
to informing the taxpayer of not only the law, but also of the facts on which an assessment would be
made; otherwise, the assessment itself would be invalid.
It was on February 12, 1998, that a preliminary assessment notice was issued against the estate. On
April 22, 1998, the final estate tax assessment notice, as well as demand letter, was also issued.
During those dates, RA 8424 was already in effect. The notice required under the old law was no
longer sufficient under the new law.

To be simply informed in writing of the investigation being conducted and of the recommendation for
the assessment of the estate taxes due is nothing but a perfunctory discharge of the tax function of
correctly assessing a taxpayer. The act cannot be taken to mean that Reyes already knew the law
and the facts on which the assessment was based. It does not at all conform to the compulsory
requirement under Section 228. Moreover, the Letter of Authority received by respondent on March
14, 1997 was for the sheer purpose of investigation and was not even the requisite notice under the
law.

The procedure for protesting an assessment under the Tax Code is found in Chapter III of Title VIII,
which deals with remedies. Being procedural in nature, can its provision then be applied
retroactively? The answer is yes.

The general rule is that statutes are prospective. However, statutes that are remedial, or that do not
create new or take away vested rights, do not fall under the general rule against the retroactive
operation of statutes.14Clearly, Section 228 provides for the procedure in case an assessment is
protested. The provision does not create new or take away vested rights. In both instances, it can
surely be applied retroactively. Moreover, RA 8424 does not state, either expressly or by necessary
implication, that pending actions are excepted from the operation of Section 228, or that applying it
to pending proceedings would impair vested rights.

Second, the non-retroactive application of Revenue Regulation (RR) No. 12-99 is of no moment,
considering that it merely implements the law.

A tax regulation is promulgated by the finance secretary to implement the provisions of the Tax
Code.15 While it is desirable for the government authority or administrative agency to have one
immediately issued after a law is passed, the absence of the regulation does not automatically mean
that the law itself would become inoperative.

At the time the pre-assessment notice was issued to Reyes, RA 8424 already stated that the
taxpayer must be informed of both the law and facts on which the assessment was based. Thus, the
CIR should have required the assessment officers of the Bureau of Internal Revenue (BIR) to follow
the clear mandate of the new law. The old regulation governing the issuance of estate tax
assessment notices ran afoul of the rule that tax regulations -- old as they were -- should be in
harmony with, and not supplant or modify, the law.16

It may be argued that the Tax Code provisions are not self-executory. It would be too wide a stretch
of the imagination, though, to still issue a regulation that would simply require tax officials to inform
the taxpayer, in any manner, of the law and the facts on which an assessment was based. That
requirement is neither difficult to make nor its desired results hard to achieve.

Moreover, an administrative rule interpretive of a statute, and not declarative of certain rights and
corresponding obligations, is given retroactive effect as of the date of the effectivity of the
statute.17 RR 12-99 is one such rule. Being interpretive of the provisions of the Tax Code, even if it
was issued only on September 6, 1999, this regulation was to retroact to January 1, 1998 -- a date
prior to the issuance of the preliminary assessment notice and demand letter.

Third, neither Section 229 nor RR 12-85 can prevail over Section 228 of the Tax Code.
No doubt, Section 228 has replaced Section 229. The provision on protesting an assessment has
been amended. Furthermore, in case of discrepancy between the law as amended and its
implementing but old regulation, the former necessarily prevails.18 Thus, between Section 228 of the
Tax Code and the pertinent provisions of RR 12-85, the latter cannot stand because it cannot go
beyond the provision of the law. The law must still be followed, even though the existing tax
regulation at that time provided for a different procedure. The regulation then simply provided that
notice be sent to the respondent in the form prescribed, and that no consequence would ensue for
failure to comply with that form.

Fourth, petitioner violated the cardinal rule in administrative law that the taxpayer be accorded due
process. Not only was the law here disregarded, but no valid notice was sent, either. A void
assessment bears no valid fruit.

The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax
collection without first establishing a valid assessment is evidently violative of the cardinal principle
in administrative investigations: that taxpayers should be able to present their case and adduce
supporting evidence.19 In the instant case, respondent has not been informed of the basis of the
estate tax liability. Without complying with the unequivocal mandate of first informing the taxpayer of
the government’s claim, there can be no deprivation of property, because no effective protest can be
made.20 The haphazard shot at slapping an assessment, supposedly based on estate taxation’s
general provisions that are expected to be known by the taxpayer, is utter chicanery.

Even a cursory review of the preliminary assessment notice, as well as the demand letter sent,
reveals the lack of basis for -- not to mention the insufficiency of -- the gross figures and details of
the itemized deductions indicated in the notice and the letter. This Court cannot countenance an
assessment based on estimates that appear to have been arbitrarily or capriciously arrived at.
Although taxes are the lifeblood of the government, their assessment and collection "should be
made in accordance with law as any arbitrariness will negate the very reason for government
itself."21

Fifth, the rule against estoppel does not apply. Although the government cannot be estopped by the
negligence or omission of its agents, the obligatory provision on protesting a tax assessment cannot
be rendered nugatory by a mere act of the CIR .

Tax laws are civil in nature.22 Under our Civil Code, acts executed against the mandatory provisions
of law are void, except when the law itself authorizes the validity of those acts.23 Failure to comply
with Section 228 does not only render the assessment void, but also finds no validation in any
provision in the Tax Code. We cannot condone errant or enterprising tax officials, as they are
expected to be vigilant and law-abiding.

Second Issue:

Validity of Compromise

It would be premature for this Court to declare that the compromise on the estate tax liability has
been perfected and consummated, considering the earlier determination that the assessment
against the estate was void. Nothing has been settled or finalized. Under Section 204(A) of the Tax
Code, where the basic tax involved exceeds one million pesos or the settlement offered is less than
the prescribed minimum rates, the compromise shall be subject to the approval of the NEB
composed of the petitioner and four deputy commissioners.
Finally, as correctly held by the appellate court, this provision applies to all compromises, whether
government-initiated or not. Ubi lex non distinguit, nec nos distinguere debemos. Where the law
does not distinguish, we should not distinguish.

WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. No
pronouncement as to costs.

SO ORDERED.
 FIRST DIVISION

[G.R. No. 155541. January 27, 2004]

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, which [1]

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. Philtrusts 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 decedents 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 decedents 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 BIRs 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
respondents claim against the Estate, after finding that there was no notice of
[2]

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, assailing the Order of the probate court
[4]

dated November 19, 1985. It was claimed that Philtrust, in filing the decedents
1978 income tax return on April 5, 1979, two days after the taxpayers death,
had constituted itself as the administrator of the estate of the deceased at least
insofar as said return is concerned. Citing Basilan Estate Inc. v. Commissioner
[5]

of Internal Revenue, respondent argued that the legal requirement of notice

[6]

with respect to tax assessments requires merely that the Commissioner of

[7]

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. Claiming that Philtrust had been remiss in not notifying respondent of
[8]
the decedents 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 latters death, it was ruled that
the administrator of the Estate had failed in its legal duty to inform respondent
of the decedents death, pursuant to Section 104 of the National Internal
Revenue Code of 1977. Consequently, the BIRs 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. Petitioner further contends that respondents
[10]
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
decedents income tax return subsequent to her death, Philtrust was the de
facto administrator of her Estate. Consequently, when the Assessment Notice
[12]

and demand letter dated November 18, 1982 were sent to Philtrust, there was
proper service on the Estate. Respondent further asserts that Philtrust had the
[13]

legal obligation to inform petitioner of the decedents death, which requirement

is found in Section 104 of the NIRC of 1977. Since Philtrust did not,
[14]

respondent contends that petitioner Estate should not be allowed to profit from
this omission. Respondent further argues that Philtrusts failure to protest the
[15]

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 Philtrusts
inaction thereon could bind petitioner. If both sub-issues are answered in the
affirmative, respondents 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 Taxpayers death, none of Philtrusts 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
Philtrusts 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
decedents 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 decedents 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 decedents 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 decedents 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 decedents 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, respondents 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. It [18]

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, we had occasion to say:
[19]

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, we clarified that, when an estate is under

[20]

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 decedents death, and (4) the assessment notice is therefore
binding on the Estate, respondent is arguing in circles. The most crucial point
to be remembered is that Philtrust had absolutely no legal relationship to the
deceased, or to her Estate. There was therefore no assessment served on the
Estate as to the alleged underpayment of tax. Absent this assessment, no
proceedings could be initiated in court for the collection of said tax, and [21]

respondents claim for collection, filed with the probate court only on November
22, 1984, was barred for having been made beyond the five-year prescriptive
period set by law.
WHEREFORE, the petition is GRANTED. The Decision of the Court of
Appeals in CA-G.R. CV No. 09107, dated September 30, 2002, is REVERSED
and SET ASIDE. The Order of the Regional Trial Court of Manila, Branch
XXXVIII, in Sp. Proc. No. R-82-6994, dated November 19, 1985, which denied
the claim of the Bureau of Internal Revenue against the Estate of Juliana Diez
Vda. De Gabriel for the deficiency income tax of the decedent for the year 1977
in the amount of P318,223.93, is AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
 THIRD DIVISION

[G.R. No. 123206. March 22, 2000]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF

APPEALS, COURT OF TAX APPEALS and JOSEFINA P. PAJONAR, as
Administratrix of the Estate of Pedro P. Pajonar, respondents.

RESOLUTION

GONZAGA-REYES, J.: Supr-ema

Assailed in this petition for review on certiorari is the December 21, 1995 Decision[1] of
the Court of Appeals[2] in CA-G.R. Sp. No. 34399 affirming the June 7, 1994 Resolution
of the Court of Tax Appeals in CTA Case No. 4381 granting private respondent Josefina
P. Pajonar, as administratrix of the estate of Pedro P. Pajonar, a tax refund in the
amount of P76,502.42, representing erroneously paid estate taxes for the year 1988.

Pedro Pajonar, a member of the Philippine Scout, Bataan Contingent, during the
second World War, was a part of the infamous Death March by reason of which he
suffered shock and became insane. His sister Josefina Pajonar became the guardian
over his person, while his property was placed under the guardianship of the Philippine
National Bank (PNB) by the Regional Trial Court of Dumaguete City, Branch 31, in
Special Proceedings No. 1254. He died on January 10, 1988. He was survived by his
two brothers Isidro P. Pajonar and Gregorio Pajonar, his sister Josefina Pajonar,
nephews Concordio Jandog and Mario Jandog and niece Conchita Jandog.

On May 11, 1988, the PNB filed an accounting of the decedent's property under
guardianship valued at P3,037,672.09 in Special Proceedings No. 1254. However, the
PNB did not file an estate tax return, instead it advised Pedro Pajonar's heirs to execute
an extrajudicial settlement and to pay the taxes on his estate. On April 5, 1988,
pursuant to the assessment by the Bureau of Internal Revenue (BIR), the estate of
Pedro Pajonar paid taxes in the amount of P2,557.

On May 19, 1988, Josefina Pajonar filed a petition with the Regional Trial Court of
Dumaguete City for the issuance in her favor of letters of administration of the estate of
her brother. The case was docketed as Special Proceedings No. 2399. On July 18,
1988, the trial court appointed Josefina Pajonar as the regular administratrix of Pedro
Pajonar's estate.

On December 19, 1988, pursuant to a second assessment by the BIR for deficiency
estate tax, the estate of Pedro Pajonar paid estate tax in the amount of P1,527,790.98.
Josefina Pajonar, in her capacity as administratrix and heir of Pedro Pajonar's estate,
filed a protest on January 11, 1989 with the BIR praying that the estate tax payment in
the amount of P1,527,790.98, or at least some portion of it, be returned to the heirs.[3] Jur-
is
However, on August 15, 1989, without waiting for her protest to be resolved by the BIR,
Josefina Pajonar filed a petition for review with the Court of Tax Appeals (CTA), praying
for the refund of P1,527,790.98, or in the alternative, P840,202.06, as erroneously paid
estate tax.[4] The case was docketed as CTA Case No. 4381.

On May 6, 1993, the CTA ordered the Commissioner of Internal Revenue to refund
Josefina Pajonar the amount of P252,585.59, representing erroneously paid estate tax
for the year 1988.[5]

Among the deductions from the gross estate allowed by the CTA were the amounts of
P60,753 representing the notarial fee for the Extrajudicial Settlement and the amount of
P50,000 as the attorney's fees in Special Proceedings No. 1254 for guardianship. [6]Juri-ssc

On June 15, 1993, the Commissioner of Internal Revenue filed a motion for
reconsideration[7] of the CTA's May 6, 1993 decision asserting, among others, that the
notarial fee for the Extrajudicial Settlement and the attorney's fees in the guardianship
proceedings are not deductible expenses.

On June 7, 1994, the CTA issued the assailed Resolution[8] ordering the Commissioner
of Internal Revenue to refund Josefina Pajonar, as administratrix of the estate of Pedro
Pajonar, the amount of P76,502.42 representing erroneously paid estate tax for the year
1988. Also, the CTA upheld the validity of the deduction of the notarial fee for the
Extrajudicial Settlement and the attorney's fees in the guardianship proceedings.

On July 5, 1994, the Commissioner of Internal Revenue filed with the Court of Appeals
a petition for review of the CTA's May 6, 1993 Decision and its June 7, 1994 Resolution,
questioning the validity of the abovementioned deductions. On December 21, 1995, the
Court of Appeals denied the Commissioner's petition.[9]

Hence, the present appeal by the Commissioner of Internal Revenue.

The sole issue in this case involves the construction of section 79[10] of the National
Internal Revenue Code[11] (Tax Code) which provides for the allowable deductions from
the gross estate of the decedent. More particularly, the question is whether the notarial
fee paid for the extrajudicial settlement in the amount of P60,753 and the attorney's fees
in the guardianship proceedings in the amount of P50,000 may be allowed as
deductions from the gross estate of decedent in order to arrive at the value of the net
estate.

We answer this question in the affirmative, thereby upholding the decisions of the
appellate courts. J-jlex

In its May 6, 1993 Decision, the Court of Tax Appeals ruled thus:
 Respondent maintains that only judicial expenses of the testamentary or
intestate proceedings are allowed as a deduction to the gross estate. The
amount of P60,753.00 is quite extraordinary for a mere notarial fee.

This Court adopts the view under American jurisprudence that expenses
incurred in the extrajudicial settlement of the estate should be allowed as
a deduction from the gross estate. "There is no requirement of formal
administration. It is sufficient that the expense be a necessary contribution
toward the settlement of the case." [ 34 Am. Jur. 2d, p. 765; Nolledo, Bar
Reviewer in Taxation, 10th Ed. (1990), p. 481 ]

xxx.....xxx.....xxx

The attorney's fees of P50,000.00, which were already incurred but not yet
paid, refers to the guardianship proceeding filed by PNB, as guardian over
the ward of Pedro Pajonar, docketed as Special Proceeding No. 1254 in
the RTC (Branch XXXI) of Dumaguete City. x x x

xxx.....xxx.....xxx

The guardianship proceeding had been terminated upon delivery of the

residuary estate to the heirs entitled thereto. Thereafter, PNB was
discharged of any further responsibility.

Attorney's fees in order to be deductible from the gross estate must be

essential to the collection of assets, payment of debts or the distribution of
the property to the persons entitled to it. The services for which the fees
are charged must relate to the proper settlement of the estate. [ 34 Am.
Jur. 2d 767. ] In this case, the guardianship proceeding was necessary for
the distribution of the property of the late Pedro Pajonar to his rightful
heirs. Sc-juris

xxx.....xxx.....xxx

PNB was appointed as guardian over the assets of the late Pedro Pajonar,
who, even at the time of his death, was incompetent by reason of insanity.
The expenses incurred in the guardianship proceeding was but a
necessary expense in the settlement of the decedent's estate. Therefore,
the attorney's fee incurred in the guardianship proceedings amounting to
P50,000.00 is a reasonable and necessary business expense deductible
from the gross estate of the decedent.[12]

Upon a motion for reconsideration filed by the Commissioner of Internal Revenue, the
Court of Tax Appeals modified its previous ruling by reducing the refundable amount to
P76,502.43 since it found that a deficiency interest should be imposed and the
compromise penalty excluded.[13] However, the tax court upheld its previous ruling
regarding the legality of the deductions -

It is significant to note that the inclusion of the estate tax law in the
codification of all our national internal revenue laws with the enactment of
the National Internal Revenue Code in 1939 were copied from the Federal
Law of the United States. [UMALI, Reviewer in Taxation (1985), p. 285 ]
The 1977 Tax Code, promulgated by Presidential Decree No. 1158,
effective June 3, 1977, reenacted substantially all the provisions of the old
law on estate and gift taxes, except the sections relating to the meaning of
gross estate and gift. [ Ibid, p. 286. ] Nc-mmis

In the United States, [a]dministrative expenses, executor's commissions

and attorney's fees are considered allowable deductions from the Gross
Estate. Administrative expenses are limited to such expenses as are
actually and necessarily incurred in the administration of a decedent's
estate. [PRENTICE-HALL, Federal Taxes Estate and Gift Taxes (1936), p.
120, 533. ] Necessary expenses of administration are such expenses as
are entailed for the preservation and productivity of the estate and for its
management for purposes of liquidation, payment of debts and distribution
of the residue among the persons entitled thereto. [Lizarraga Hermanos
vs. Abada, 40 Phil. 124. ] They must be incurred for the settlement of the
estate as a whole. [34 Am. Jur. 2d, p. 765. ] Thus, where there were no
substantial community debts and it was unnecessary to convert
community property to cash, the only practical purpose of administration
being the payment of estate taxes, full deduction was allowed for
attorney's fees and miscellaneous expenses charged wholly to decedent's
estate. [ Ibid., citing Estate of Helis, 26 T .C. 143 (A). ]

Petitioner stated in her protest filed with the BIR that "upon the death of
the ward, the PNB, which was still the guardian of the estate, (Annex 'Z' ),
did not file an estate tax return; however, it advised the heirs to execute an
extrajudicial settlement, to pay taxes and to post a bond equal to the value
of the estate, for which the estate paid P59,341.40 for the premiums. (See
Annex 'K')." [p. 17, CTA record. ] Therefore, it would appear from the
records of the case that the only practical purpose of settling the estate by
means of an extrajudicial settlement pursuant to Section 1 of Rule 74 of
the Rules of Court was for the payment of taxes and the distribution of the
estate to the heirs. A fortiori, since our estate tax laws are of American
origin, the interpretation adopted by American Courts has some
persuasive effect on the interpretation of our own estate tax laws on the
subject.

Anent the contention of respondent that the attorney's fees of P50,000.00

incurred in the guardianship proceeding should not be deducted from the
Gross Estate, We consider the same unmeritorious. Attorneys' and
 guardians' fees incurred in a trustee's accounting of a taxable inter
vivos trust attributable to the usual issues involved in such an accounting
was held to be proper deductions because these are expenses incurred in
terminating an inter vivos trust that was includible in the decedent's estate.
(Prentice Hall, Federal Taxes on Estate and Gift, p.120, 861] Attorney's
fees are allowable deductions if incurred for the settlement of the estate. It
is noteworthy to point that PNB was appointed the guardian over the
assets of the deceased. Necessarily the assets of the deceased formed
part of his gross estate. Accordingly, all expenses incurred in relation to
the estate of the deceased will be deductible for estate tax purposes
provided these are necessary and ordinary expenses for administration of
the settlement of the estate.[14]

In upholding the June 7, 1994 Resolution of the Court of Tax Appeals, the Court of
Appeals held that: Newmiso

2. Although the Tax Code specifies "judicial expenses of the testamentary

or intestate proceedings," there is no reason why expenses incurred in the
administration and settlement of an estate in extrajudicial proceedings
should not be allowed. However, deduction is limited to such
administration expenses as are actually and necessarily incurred in the
collection of the assets of the estate, payment of the debts, and
distribution of the remainder among those entitled thereto. Such expenses
may include executor's or administrator's fees, attorney's fees, court fees
and charges, appraiser's fees, clerk hire, costs of preserving and
distributing the estate and storing or maintaining it, brokerage fees or
commissions for selling or disposing of the estate, and the like. Deductible
attorney's fees are those incurred by the executor or administrator in the
settlement of the estate or in defending or prosecuting claims against or
due the estate. (Estate and Gift Taxation in the Philippines, T. P. Matic,
Jr., 1981 Edition, p. 176 ).

xxx.....xxx.....xxx

It is clear then that the extrajudicial settlement was for the purpose of
payment of taxes and the distribution of the estate to the heirs. The
execution of the extrajudicial settlement necessitated the notarization of
the same. Hence the Contract of Legal Services of March 28, 1988
entered into between respondent Josefina Pajonar and counsel was
presented in evidence for the purpose of showing that the amount of
P60,753.00 was for the notarization of the Extrajudicial Settlement. It
follows then that the notarial fee of P60,753.00 was incurred primarily to
settle the estate of the deceased Pedro Pajonar. Said amount should then
be considered an administration expenses actually and necessarily
incurred in the collection of the assets of the estate, payment of debts and
distribution of the remainder among those entitled thereto. Thus, the
 notarial fee of P60,753 incurred for the Extrajudicial Settlement should be
allowed as a deduction from the gross estate.

3. Attorney's fees, on the other hand, in order to be deductible from the

gross estate must be essential to the settlement of the estate. Acctmis

The amount of P50,000.00 was incurred as attorney's fees in the

guardianship proceedings in Spec. Proc. No. 1254. Petitioner contends
that said amount are not expenses of the testamentary or intestate
proceedings as the guardianship proceeding was instituted during the
lifetime of the decedent when there was yet no estate to be settled.

Again , this contention must fail.

The guardianship proceeding in this case was necessary for the

distribution of the property of the deceased Pedro Pajonar. As correctly
pointed out by respondent CTA, the PNB was appointed guardian over the
assets of the deceased, and that necessarily the assets of the deceased
formed part of his gross estate. x x x

xxx.....xxx.....xxx

It is clear therefore that the attorney's fees incurred in the guardianship

proceeding in Spec. Proc. No. 1254 were essential to the distribution of
the property to the persons entitled thereto. Hence, the attorney's fees
incurred in the guardianship proceedings in the amount of P50,000.00
should be allowed as a deduction from the gross estate of the decedent. [15]

The deductions from the gross estate permitted under section 79 of the Tax Code
basically reproduced the deductions allowed under Commonwealth Act No. 466 (CA
466), otherwise known as the National Internal Revenue Code of 1939, [16] and which was
the first codification of Philippine tax laws. Section 89 (a) (1) (B) of CA 466 also
provided for the deduction of the "judicial expenses of the testamentary or intestate
proceedings" for purposes of determining the value of the net estate. Philippine tax laws
were, in turn, based on the federal tax laws of the United States.[17] In accord with
established rules of statutory construction, the decisions of American courts construing
the federal tax code are entitled to great weight in the interpretation of our own tax
laws.[18] Scc-alr

Judicial expenses are expenses of administration.[19] Administration expenses, as an

allowable deduction from the gross estate of the decedent for purposes of arriving at the
value of the net estate, have been construed by the federal and state courts of the
United States to include all expenses "essential to the collection of the assets, payment
of debts or the distribution of the property to the persons entitled to it." [20] In other words,
the expenses must be essential to the proper settlement of the estate. Expenditures
incurred for the individual benefit of the heirs, devisees or legatees are not
deductible.[21] This distinction has been carried over to our jurisdiction. Thus, in Lorenzo
v. Posadas[22] the Court construed the phrase "judicial expenses of the testamentary or
intestate proceedings" as not including the compensation paid to a trustee of the
decedent's estate when it appeared that such trustee was appointed for the purpose of
managing the decedent's real estate for the benefit of the testamentary heir. In another
case, the Court disallowed the premiums paid on the bond filed by the administrator as
an expense of administration since the giving of a bond is in the nature of a qualification
for the office, and not necessary in the settlement of the estate. [23] Neither may attorney's
fees incident to litigation incurred by the heirs in asserting their respective rights be
claimed as a deduction from the gross estate.[24]

Coming to the case at bar, the notarial fee paid for the extrajudicial settlement is clearly
a deductible expense since such settlement effected a distribution of Pedro Pajonar's
estate to his lawful heirs. Similarly, the attorney's fees paid to PNB for acting as the
guardian of Pedro Pajonar's property during his lifetime should also be considered as a
deductible administration expense. PNB provided a detailed accounting of decedent's
property and gave advice as to the proper settlement of the latter's estate, acts which
contributed towards the collection of decedent's assets and the subsequent settlement
of the estate.

We find that the Court of Appeals did not commit reversible error in affirming the
questioned resolution of the Court of Tax Appeals.

WHEREFORE, the December 21, 1995 Decision of the Court of Appeals is AFFIRMED.
The notarial fee for the extrajudicial settlement and the attorney's fees in the
guardianship proceedings are allowable deductions from the gross estate of Pedro
Pajonar.

SO ORDERED.

Melo, (Chairman), Vitug, Panganiban, and Purisima, JJ., concur. Calrs-pped

[1]
Entitled "Commissioner of Internal Revenue v. Josefina P. Pajonar, as Administratrix of the Estate of Pedro P.
Pajonar, and Court of Tax Appeals." Rollo, 35-46.
[2]
Eighth Division composed of J. Jaime M. Lantin, ponente; and JJ Eduardo G. Montenegro and Jose C. De la
Rama, concurring.
[3]
CA Records, 45-53.
[4]
Ibid., 37-44.

[5]
The CTA made the following computations

Estate of Pedro P. Pajonar

Lagtangon, Siaton, Negros Oriental
Died January 10, 1998
I. Real
Properties P102,966.59

II. Personal Properties

a. Refrigerator P7,500.00

b. Wall Clock, Esso Gasul Tables and

Chairs 3,090.00

c.Beddings, Stereo Cassette, TV,

Betamax 15,700.00

d. Karaoke, Electric Iron,

Fan,Transformer and Corner Set 7,400.00

e. Toyota Tamaraw 27,500.00 61,190.00

Additional Personal Properties:

f. Time Deposit-PNB P200,000.00

g. Stocks and Bonds-PNB 201,232.37

h. Money Market 2,300,000.00

i. Cash Deposit 114,101.83 2,815,334.20

GROSS
ESTATE P 2,979,490.79

Less: Deductions:

A a. Funeral expenses P50,000.00

b. Commission to Trustee (PNB) 18,335.93

c. Notarial Fee for the Extra-judicial

B Settlement 60,753.00

d. Attorneys Fees in Special

Proceeding No. 1254 for guardianship 50,000.00

e.Filing Fees in Special Proceeding

No. 2399 6,374.88

f.Publication of Notice to Creditors

September 7, 14 and 21, 1988 issues
of the Dumaguete Star Informer 600.00

g.Certification fee for Publication on

the Bulletin Board of the Municipal
Building of Siaton, Negros Oriental 2.00

h.Certification fee for Publication in

the Capitol 5.00
 i.Certification fee for publication of
Notice to Creditors 5.00 186,075.81

NET ESTATE 2,793,414.98

Estate Tax Due P1,277,762.39

Less: Estate Tax Paid:

CB Confirmation Receipt Nos.

.....B 14268064 P2,557.00

.....B 15517625 1,527,790.98 1,530,347.98

AMOUNT REFUNDABLE P252,585.59

Rollo, 86-88.

[6]
Ibid., 78-79, 81-83.
[7]
CA Records, 118-130.
[8]
Rollo, 47-56.
[9]
Ibid., 35-46.

SEC. 79 Computation of net estate and estate tax. For the purpose of the tax imposed in this Chapter, the value of
[10]

the net estate shall be determined:

(a).....In the case of a citizen or resident of the Philippines, by deducting from the value of the gross estate-

(1)..... Expenses, losses, indebtedness, and taxes. Such amounts-

(A).....For funeral expenses in an amount equal to five per centum of the gross estate but in no case to exceed
P50,000.00;

(B).....For judicial expenses of the testamentary or intestate proceedings;

xxx.....xxx.....xxx
[11]
This refers to the 1977 National Internal Revenue Code, as amended. On the date of decedents death (January 10,
1988), the latest amendment to the Tax Code was introduced by Executive Order No. 273, which became effective
on January 1, 1988.
[12]
Rollo, 78-79, 81-83.
[13]

Estate tax Due P1,277,762.39

Less : estate tax paid 04.05.88

........ [CBCR No. 14268054] 2,557.00

Deficiency estate tax P1,275,205.39

Add: Additions to tax

........Interest on deficiency [Sec.
249 (b)]
........04.12.88 to 12.19.88 176,083.16
 ........(1,275,205.39 x 20% x
252/365)

Total deficiency tax P1,451,288.55

Less: estate tax paid 12.19.88

........ (CBCR No. 15517625) 1,527,790.98

Amount Refundable P76,502.43

Ibid., 54.
[14]
Ibid., 49-51.
[15]
Ibid., 43-45.
[16]
Approved on June 15, 1939.
[17]
Wise & Co. v. Meer, 78 Phil 655 (1947)
[18]
Carolina Industries, Inc. v. CMS Stock Brokerage, Inc., 97 SCRA 734 (1980)
[19]
Lorenzo v. Posada, 64 Phil 353 (1937)
[20]
34A Am Jur 2d, Federal Taxation (1995), sec. 144, 288, citing Union Commerce Bank, trans, (1963) 39 TC 973,
affd & revd on other issues (1964, CA6) 339 F2d 163, 65-1 USTC p 12279, 15 AFTR 2d 1281.
[21]
Ibid., sec. 144,272, citing Bretzfelder, Charles, exr v. Com., (1936, CA2) 86 F2d 713, 36-2 USTC sec. 9548, 18
AFTR 653.
[22]
Lorenzo v. Posada, supra.
[23]
Sison vs. Teodoro, 100 Phil. 1055 (1957)
[24]
Johannes v. Imperial, 43 Phil 597 (1922)
 SECOND DIVISION

[G.R. No. 132964. February 18, 2000]

REPUBLIC OF THE PHILIPPINES, petitioner, vs. DAVID REY GUZMAN,

represented by his Attorney-in-Fact, LOLITA G. ABELA, and the
REGISTER OF DEEDS OF BULACAN, MEYCAUAYAN
BRANCH, respondents.

DECISION

BELLOSILLO, J.:

The REPUBLIC OF THE PHILIPPINES seeks the nullification of the 5 March

1998 Decision of the Court of Appeals which affirmed the dismissal by the
[1]

Regional Trial Court, Br. 77, Malolos, Bulacan, of the petition for escheat filed
by the Government. h Y
[2]

David Rey Guzman, a natural-born American citizen, is the son of the

spouses Simeon Guzman, a naturalized American citizen, and Helen Meyers
[3]

Guzman, an American citizen. In 1968 Simeon died leaving to his sole heirs
Helen and David an estate consisting of several parcels of land located in
Bagbaguin, Sta. Maria, Bulacan, covered by TCT Nos. T-146837 (M), T-
146839 (M), T-146840 (M), T- 146841 (M), T-146842 (M), T-120254 (M) and
T-120257 (M).

On 29 December 1970 Helen and David executed a Deed of Extrajudicial

Settlement of the Estate of Simeon Guzman dividing and adjudicating to
themselves all the property belonging to the estate of Simeon. The document
of extrajudicial settlement was registered in the Office of the Register of
Deeds on 8 December 1971. The taxes due thereon were paid through their
attorneys-in-fact, Attys. Juan L. Austria and Lolita G. Abela, and the parcels of
land were accordingly registered in the name of Helen Meyers Guzman and
David Rey Guzman in undivided equal shares.

On 10 December 1981 Helen executed a Quitclaim Deed assigning,

transferring and conveying to her son David her undivided one-half (1/2)
interest on all the parcels of land subject matter of the Deed of Extrajudicial
Settlement of the Estate of Simeon Guzman. Since the document appeared
not to have been registered, upon advice of Atty. Lolita G. Abela, Helen
executed another document, a Deed of Quitclaim, on 9 August 1989
confirming the earlier deed of quitclaim as well as modifying the document to
encompass all her other property in the Philippines. [4]

On 18 October 1989 David executed a Special Power of Attorney where he

acknowledged that he became the owner of the parcels of land subject of the
Deed of Quitclaim executed by Helen on 9 August 1989 and empowering Atty.
Lolita G. Abela to sell or otherwise dispose of the lots. On 1 February 1990
Atty. Lolita G. Abela, upon instruction of Helen, paid donors taxes to facilitate
the registry of the parcels of land in the name of David.

On 16 March 1994 a certain Atty. Mario A. Batongbacal wrote the Office of the
Solicitor General and furnished it with documents showing that Davids
ownership of the one-half (1/2) of the estate of Simeon Guzman was
defective. On the basis thereof, the Government filed before the Regional Trial
Court of Malolos Bulacan a Petition for Escheat praying that one-half (1/2) of
David's interest in each of the subject parcels of land be forfeited in its favor.
On 9 August 1994 David Rey Guzman responded with a prayer that the
petition be dismissed. Sppedsc

On 11 July 1995 the trial court dismissed the petition holding that the two (2)
deeds of quitclaim executed by Helen Meyers Guzman had no legal force and
effect so that the ownership of the property subject thereof remained with
her.[5]

The Government appealed the dismissal of the petition but the appellate
[6]

court affirmed the court a quo.

Petitioner anchors its argument on Art. XII of the Constitution which provides -

Sec. 7. Save in cases of hereditary succession, no private lands

shall be transferred or conveyed except to individuals,
corporations, or associations qualified to acquire or hold lands of
the public domain.

Sec. 8. Notwithstanding the provisions of Section 7 of this Article,

a natural-born citizen of the Philippines who has lost his Philippine
citizenship may be a transferee of private lands, subject to
limitations provided by law.

Thus as a rule, only a Filipino citizen can acquire private lands in the
Philippines. The only instances when a foreigner can acquire private lands in
the Philippines are by hereditary succession and if he was formerly a natural-
born Filipino citizen who lost his Philippine citizenship. Petitioner therefore
contends that the acquisition of the parcels of land by David does not fall
under any of these exceptions. It asserts that David being an American citizen
could not validly acquire one-half (1/2) interest in each of the subject parcels
of land by way of the two (2) deeds of quitclaim as they are in reality
donations inter vivos. It also reasons out that the elements of donation are
present in the conveyance made by Helen in favor of David: first, Helen
consented to the execution of the documents; second, the dispositions were
made in public documents; third, David manifested his acceptance of the
donation in the Special Power of Attorney he executed in favor of Atty. Lolita
G. Abela; fourth, the deeds were executed with the intention of benefiting
David; and lastly, there was a resultant decrease in the assets or patrimony of
Helen, being the donor. Petitioner further argues that the payment of donors
taxes on the property proved that Helen intended the transfer to be a gift or
donation inter vivos.

David maintains, on the other hand, that he acquired the property by right of
accretion and not by way of donation, with the deeds of quitclaim merely
declaring Helens intention to renounce her share in the property and not an
intention to donate. He further argues that, assuming there was indeed a
donation, it never took effect since the Special Power of Attorney he executed
does not indicate acceptance of the alleged donation. Calrsc

There are three (3) essential elements of a donation: (a) the reduction of the
patrimony of the donor; (b) the increase in the patrimony of the donee; and,
(c) the intent to do an act of liberality or animus donandi. When applied to a
donation of an immovable property, the law further requires that the donation
be made in a public document and that there should be an acceptance thereof
made in the same deed of donation or in a separate public document. In [7]

cases where the acceptance is made in a separate instrument, it is mandated

that the donor should be notified thereof in an authentic form, to be noted in
both instruments.[8]

Not all the elements of a donation of an immovable property are present in the
instant case. The transfer of the property by virtue of the Deed of Quitclaim
executed by Helen resulted in the reduction of her patrimony as donor and the
consequent increase in the patrimony of David as donee. However, Helens
intention to perform an act of liberality in favor of David was not sufficiently
established. A perusal of the two (2) deeds of quitclaim reveals that Helen
intended to convey to her son David certain parcels of land located in the
Philippines, and to re-affirm the quitclaim she executed in 1981 which likewise
declared a waiver and renunciation of her rights over the parcels of land. The
language of the deed of quitclaim is clear that Helen merely contemplated a
waiver of her rights, title and interest over the lands in favor of David, and not
a donation. That a donation was far from Helen's mind is further supported by
her deposition which indicated that she was aware that a donation of the
parcels of land was not possible since Philippine law does not allow such an
arrangement. She reasoned that if she really intended to donate something
[9]

to David it would have been more convenient if she sold the property and
gave him the proceeds therefrom. It appears that foremost in Helens mind
[10]

was the preservation of the Bulacan realty within the bloodline of Simeon from
where they originated, over and above the benefit that would accrue to David
by reason of her renunciation. The element of animus donandi therefore was
[11]

missing.

Likewise, the two (2) deeds of quitclaim executed by Helen may have been in
the nature of a public document but they lack the essential element of
acceptance in the proper form required by law to make the donation valid. We
find no merit in petitioners argument that the Special Power of Attorney
executed by David in favor of Atty. Lolita G. Abela manifests his implied
acceptance of his mothers alleged donation as a scrutiny of the document
clearly evinces the absence thereof. The Special Power of Attorney merely
acknowledges that David owns the property referred to and that he authorizes
Atty. Abela to sell the same in his name. There is no intimation, expressly or
impliedly, that Davids acquisition of the parcels of land is by virtue of Helens
possible donation to him and we cannot look beyond the language of the
document to make a contrary construction as this would be inconsistent with
the parol evidence rule.[12]

Moreover, it is mandated that if an acceptance is made in a separate public

writing the notice of the acceptance must be noted not only in the document
containing the acceptance but also in the deed of donation. Commenting on
Art. 633 of the Civil Code from whence Art. 749 came Manresa said: "If the
[13]

acceptance does not appear in the same document, it must be made in

another. Solemn words are not necessary; it is sufficient if it shows the
intention to accept x x x x it is necessary that formal notice thereof be given to
the donor, and the fact that due notice has been given must be noted in both
instruments. Then and only then is the donation perfected. " [14]

Thus, in Santos v. Robledo we emphasized that when the deed of donation is

recorded in the registry of property the document that evidences the
acceptance - if this has not been made in the deed of gift - should also be
recorded. And in one or both documents, as the case may be, the notification
of the acceptance as formally made to the donor or donors should be duly set
forth. Where the deed of donation fails to show the acceptance, or where the
[15]

formal notice of the acceptance made in a separate instrument is either not

given to the donor or else noted in the deed of donation, and in the separate
acceptance, the donation is null and void.[16]

These requisites, definitely prescribed by law, have not been complied with,
and no proof of compliance appears in the record. The two (2) quitclaim deeds
set out the conveyance of the parcels of land by Helen in favor of David but its
acceptance by David does not appear in the deeds, nor in the Special Power
of Attorney. Further, the records reveal no other instrument that evidences
such acceptance and notice thereof to the donor in an authentic manner. It is
well-settled that if the notification and notation are not complied with, the
donation is void. Therefore, the provisions of the law not having been
complied with, there was no effective conveyance of the parcels of land by
way of donation inter vivos. Scncm
[17]

However, the inexistence of a donation does not render the repudiation made
by Helen in favor of David valid. There is no valid repudiation of inheritance as
Helen had already accepted her share of the inheritance when she, together
with David, executed a Deed of Extrajudicial Settlement of the Estate of
Simeon Guzman on 29 December 1970 dividing and adjudicating between the
two (2) of them all the property in Simeons estate. By virtue of such
extrajudicial settlement the parcels of land were registered in her and her sons
name in undivided equal share and for eleven (11) years they possessed the
lands in the concept of owner. Article 1056 of the Civil Code provides -

The acceptance or repudiation of an inheritance, once made is

irrevocable and cannot be impugned, except when it was made
through any of the causes that vitiate consent or when an
unknown will appears.

Nothing on record shows that Helens acceptance of her inheritance from

Simeon was made through any of the causes which vitiated her consent nor is
there any proof of the existence of an unknown will executed by Simeon.
Thus, pursuant to Art. 1056, Helen cannot belatedly execute an instrument
which has the effect of revoking or impugning her previous acceptance of her
one-half (1/2) share of the subject property from Simeons estate. Hence, the
two (2) quitclaim deeds which she executed eleven (11) years after she had
accepted the inheritance have no legal force and effect.

Nevertheless, the nullity of the repudiation does not ipso facto operate to
convert the parcels of land into res nullius to be escheated in favor of the
[18]
Government. The repudiation being of no effect whatsoever the parcels of
land should revert to their private owner, Helen, who, although being an
American citizen, is qualified by hereditary succession to own the property
subject of the litigation.

WHEREFORE, the assailed Decision of the Court of Appeals which sustained

the Decision of the Regional Trial Court of Malolos, Bulacan, dismissing the
petition for escheat is AFFIRMED. No costs.

SO ORDERED. Sdjad

Mendoza, Quisumbing, Buena, and De Leon, Jr., JJ., concur.

 FIRST DIVISION

[G.R. No. 120721. February 23, 2005]

MANUEL G. ABELLO, JOSE C. CONCEPCION, TEODORO D. REGALA,

AVELINO V. CRUZ, petitioners, vs. COMMISSIONER OF
INTERNAL REVENUE and COURT OF APPEALS, respondents.

DECISION
AZCUNA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Civil
Procedure, assailing the decision of the Court of Appeals in CA G.R. SP No.
27134, entitled Comissioner of Internal Revenue v. Manuel G. Abello, Jose C.
Concepcion, Teodoro D. Regala, Avelino V. Cruz and Court of Tax Appeals,
which reversed and set aside the decision of the Court of Tax Appeals (CTA),
ordering the Commissioner of Internal Revenue (Commissioner) to withdraw
his letters dated April 21, 1988 and August 4, 1988 assessing donors taxes and
to desist from collecting donors taxes from petitioners.
During the 1987 national elections, petitioners, who are partners in the
Angara, Abello, Concepcion, Regala and Cruz (ACCRA) law firm,
contributed P882,661.31 each to the campaign funds of Senator Edgardo
Angara, then running for the Senate. In letters dated April 21, 1988, the Bureau
of Internal Revenue (BIR) assessed each of the petitioners P263,032.66 for
their contributions. On August 2, 1988, petitioners questioned the assessment
through a letter to the BIR. They claimed that political or electoral contributions
are not considered gifts under the National Internal Revenue Code (NIRC), and
that, therefore, they are not liable for donors tax. The claim for exemption was
denied by the Commissioner. [1]

On September 12, 1988, petitioners filed a petition for review with the CTA,
which was decided on October 7, 1991 in favor of the petitioners. As
aforestated, the CTA ordered the Commissioner to desist from collecting donors
taxes from the petitioners. [2]

On appeal, the Court of Appeals reversed and set aside the CTA decision
on April 20, 1994. The appellate Court ordered the petitioners to pay donors
[3]

tax amounting to P263,032.66 each, reasoning as follows:

The National Internal Revenue Code, as amended, provides:

Sec. 91. Imposition of Tax. (a) There shall be levied, assessed, collected, and paid
upon the transfer by any person, resident, or non-resident, of the property by gift, a
tax, computed as provided in Section 92. (b) The tax shall apply whether the transfer
is in trust or otherwise, whether the gift is direct or indirect, and whether the property
is real or personal, tangible or intangible.

Pursuant to the above-quoted provisions of law, the transfer of property by gift,

whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and
whether the property is real or personal, tangible or intangible, is subject to donors or
gift tax.

A gift is generally defined as a voluntary transfer of property by one to another

without any consideration or compensation therefor (28 C.J. 620; Santos vs. Robledo,
28 Phil. 250).

In the instant case, the contributions are voluntary transfers of property in the form of
money from private respondents to Sen. Angara, without considerations therefor.
Hence, they squarely fall under the definition of donation or gift.

As correctly pointed out by the Solicitor General:

The fact that the contributions were given to be used as campaign funds of Sen.
Angara does not affect the character of the fund transfers as donation or gift. There
was thereby no retention of control over the disposition of the contributions. There
was simply an indication of the purpose for which they were to be used. For as long as
the contributions were used for the purpose for which they were intended, Sen.
Angara had complete and absolute power to dispose of the contributions. He was fully
entitled to the economic benefits of the contributions.

Section 91 of the Tax Code is very clear. A donors or gift tax is imposed on the
transfer of property by gift.

The Bureau of Internal Revenue issued Ruling No. 344 on July 20, 1988, which reads:

Political Contributions. For internal revenue purposes, political contributions in the

Philippines are considered taxable gift rather than taxable income. This is so, because
a political contribution is indubitably not intended by the giver or contributor as a
return of value or made because of any intent to repay another what is his due, but
bestowed only because of motives of philanthropy or charity. His purpose is to give
and to bolster the morals, the winning chance of the candidate and/or his party, and
not to employ or buy. On the other hand, the recipient-donee does not regard himself
as exchanging his services or his product for the money contributed. But more
importantly he receives financial advantages gratuitously.

When the U.S. gift tax law was adopted in the Philippines (before May 7, 1974), the
taxability of political contributions was, admittedly, an unsettled issue; hence, it
cannot be presumed that the Philippine Congress then had intended to consider or
treat political contributions as non-taxable gifts when it adopted the said gift tax law.
Moreover, well-settled is the rule that the Philippines need not necessarily adopt the
present rule or construction in the United States on the matter. Generally, statutes of
different states relating to the same class of persons or things or having the same
purposes are not considered to be in pari materia because it cannot be justifiably
presumed that the legislature had them in mind when enacting the provision being
construed. (5206, Sutherland, Statutory Construction, p. 546.) Accordingly, in the
absence of an express exempting provision of law, political contributions in the
Philippines are subject to the donors gift tax. (cited in National Internal Revenue Code
Annotated by Hector S. de Leon, 1991 ed., p. 290).

In the light of the above BIR Ruling, it is clear that the political contributions of the
private respondents to Sen. Edgardo Angara are taxable gifts. The vagueness of the
law as to what comprise the gift subject to tax was made concrete by the above-quoted
BIR ruling. Hence, there is no doubt that political contributions are taxable gifts.
[4]

Petitioners filed a motion for reconsideration, which the Court of Appeals

denied in its resolution of June 16, 1995. [5]

Petitioners thereupon filed the instant petition on July 26, 1995. Raised are
the following issues:
1. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT FAILED TO
CONSIDER IN ITS DECISION THE PURPOSE BEHIND THE ENACTMENT OF
OUR GIFT TAX LAW?
2. DID THE HONORABLE COURT OF APPEALS ERR IN NOT CONSIDERING THE
INTENTION OF THE GIVERS IN DETERMINING WHETHER OR NOT THE
PETITIONERS POLITICAL CONTRIBUTIONS WERE GIFTS SUBJECT TO
DONORS TAX?
3. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT FAILED TO
CONSIDER THE DEFINITION OF AN ELECTORAL CONTRIBUTION UNDER
THE OMNIBUS ELECTION CODE IN DETERMINING WHETHER OR NOT
POLITICAL CONTRIBUTIONS ARE TAXABLE?
4. DID THE HONORABLE COURT OF APPEALS ERR IN NOT CONSIDERING THE
ADMINISTRATIVE PRACTICE OF CLOSE TO HALF A CENTURY OF NOT
SUBJECTING POLITICAL CONTRIBUTIONS TO DONORS TAX?
 5. DID THE HONORABLE COURT OF APPEALS ERR IN NOT CONSIDERING THE
AMERICAN JURISPRUDENCE RELIED UPON BY THE COURT OF TAX
APPEALS AND BY THE PETITIONERS TO THE EFFECT THAT POLITICAL
CONTRIBUTIONS ARE NOT TAXABLE GIFTS?
6. DID THE HONORABLE COURT OF APPEALS ERR IN NOT APPLYING AMERICAN
JURISPRUDENCE ON THE GROUND THAT THIS WAS NOT KNOWN AT THE
TIME THE PHILIPPINES GIFT TAX LAW WAS ADOPTED IN 1939?
7. DID THE HONORABLE COURT OF APPEALS ERR IN RESOLVING THE CASE
MAINLY ON THE BASIS OF A RULING ISSUED BY THE RESPONDENT ONLY
AFTER THE ASSESSMENTS HAD ALREADY BEEN MADE?
8. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT DID NOT CONSTRUE
THE GIFT TAX LAW LIBERALLY IN FAVOR OF THE TAXPAYER AND STRICLTY
AGAINST THE GOVERNMENT IN ACCORDANCE WITH APPLICABLE
PRINCIPLES OF STATUTORY CONSTRUCTION?[6]

First, Fifth and Sixth Issues

Section 91 of the National Internal Revenue Code (NIRC) reads:

(A) There shall be levied, assessed, collected and paid upon the transfer by
any person, resident or nonresident, of the property by gift, a tax,
computed as provided in Section 92

(B) The tax shall apply whether the transfer is in trust or otherwise, whether
the gift is direct or indirect, and whether the property is real or personal,
tangible or intangible.

The NIRC does not define transfer of property by gift. However, Article 18
of the Civil Code, states:

In matters which are governed by the Code of Commerce and special laws, their
deficiency shall be supplied by the provisions of this Code.

Thus, reference may be made to the definition of a donation in the Civil Code.
Article 725 of said Code defines donation as:

. . . an act of liberality whereby a person disposes gratuitously of a thing or right in

favor of another, who accepts it.

Donation has the following elements: (a) the reduction of the patrimony of the
donor; (b) the increase in the patrimony of the donee; and, (c) the intent to do
an act of liberality or animus donandi. [7]
 The present case falls squarely within the definition of a donation.
Petitioners, the late Manuel G. Abello , Jose C. Concepcion, Teodoro D.
[8]

Regala and Avelino V. Cruz, each gave P882,661.31 to the campaign funds of
Senator Edgardo Angara, without any material consideration. All three
elements of a donation are present. The patrimony of the four petitioners were
reduced by P882,661.31 each. Senator Edgardo Angaras patrimony
correspondingly increased by P3,530,645.24 . There was intent to do an act of
[9]

liberality or animus donandi was present since each of the petitioners gave their
contributions without any consideration.
Taken together with the Civil Code definition of donation, Section 91 of the
NIRC is clear and unambiguous, thereby leaving no room for construction.
In Rizal Commercial Banking Corporation v. Intermediate Appellate Court the [10]

Court enunciated:

It bears stressing that the first and fundamental duty of the Court is to apply the law.
When the law is clear and free from any doubt or ambiguity, there is no room for
construction or interpretation. As has been our consistent ruling, where the law speaks
in clear and categorical language, there is no occasion for interpretation; there is only
room for application (Cebu Portland Cement Co. v. Municipality of Naga, 24 SCRA
708 [1968])

Where the law is clear and unambiguous, it must be taken to mean exactly what it
says and the court has no choice but to see to it that its mandate is obeyed (Chartered
Bank Employees Association v. Ople, 138 SCRA 273 [1985]; Luzon Surety Co., Inc. v.
De Garcia, 30 SCRA 111 [1969]; Quijano v. Development Bank of the Philippines, 35
SCRA 270 [1970]).

Only when the law is ambiguous or of doubtful meaning may the court interpret or
construe its true intent. Ambiguity is a condition of admitting two or more meanings,
of being understood in more than one way, or of referring to two or more things at the
same time. A statute is ambiguous if it is admissible of two or more possible
meanings, in which case, the Court is called upon to exercise one of its judicial
functions, which is to interpret the law according to its true intent.

Second Issue

Since animus donandi or the intention to do an act of liberality is an

essential element of a donation, petitioners argue that it is important to look into
the intention of the giver to determine if a political contribution is a gift.
Petitioners argument is not tenable. First of all, donative intent is a creature of
the mind. It cannot be perceived except by the material and tangible acts which
manifest its presence. This being the case, donative intent is presumed present
when one gives a part of ones patrimony to another without consideration.
Second, donative intent is not negated when the person donating has other
intentions, motives or purposes which do not contradict donative intent. This
Court is not convinced that since the purpose of the contribution was to help
elect a candidate, there was no donative intent. Petitioners contribution of
money without any material consideration evinces animus donandi. The fact
that their purpose for donating was to aid in the election of the donee does not
negate the presence of donative intent.

Third Issue

Petitioners maintain that the definition of an electoral contribution under the

Omnibus Election Code is essential to appreciate how a political contribution
differs from a taxable gift. Section 94(a) of the said Code defines electoral
[11]

contribution as follows:

The term "contribution" includes a gift, donation, subscription, loan, advance or

deposit of money or anything of value, or a contract, promise or agreement to
contribute, whether or not legally enforceable, made for the purpose of influencing the
results of the elections but shall not include services rendered without compensation
by individuals volunteering a portion or all of their time in behalf of a candidate or
political party. It shall also include the use of facilities voluntarily donated by other
persons, the money value of which can be assessed based on the rates prevailing in the
area.

Since the purpose of an electoral contribution is to influence the results of

the election, petitioners again claim that donative intent is not present.
Petitioners attempt to place the barrier of mutual exclusivity between donative
intent and the purpose of political contributions. This Court reiterates that
donative intent is not negated by the presence of other intentions, motives or
purposes which do not contradict donative intent.
Petitioners would distinguish a gift from a political donation by saying that
the consideration for a gift is the liberality of the donor, while the consideration
for a political contribution is the desire of the giver to influence the result of an
election by supporting candidates who, in the perception of the giver, would
influence the shaping of government policies that would promote the general
welfare and economic well-being of the electorate, including the giver himself.
 Petitioners attempt is strained. The fact that petitioners will somehow in the
future benefit from the election of the candidate to whom they contribute, in no
way amounts to a valuable material consideration so as to remove political
contributions from the purview of a donation. Senator Angara was under no
obligation to benefit the petitioners. The proper performance of his duties as a
legislator is his obligation as an elected public servant of the Filipino people and
not a consideration for the political contributions he received. In fact, as a public
servant, he may even be called to enact laws that are contrary to the interests
of his benefactors, for the benefit of the greater good.
In fine, the purpose for which the sums of money were given, which was to
fund the campaign of Senator Angara in his bid for a senatorial seat, cannot be
considered as a material consideration so as to negate a donation.

Fourth Issue

Petitioners raise the fact that since 1939 when the first Tax Code was
enacted, up to 1988 the BIR never attempted to subject political contributions
to donors tax. They argue that:

. . . It is a familiar principle of law that prolonged practice by the government agency

charged with the execution of a statute, acquiesced in and relied upon by all
concerned over an appreciable period of time, is an authoritative interpretation
thereof, entitled to great weight and the highest respect. . . .
[12]

This Court holds that the BIR is not precluded from making a new
interpretation of the law, especially when the old interpretation was flawed. It is
a well-entrenched rule that

. . . erroneous application and enforcement of the law by public officers do not block
subsequent correct application of the statute (PLDT v. Collector of Internal Revenue,
90 Phil. 676), and that the Government is never estopped by mistake or error on the
part of its agents (Pineda v. Court of First Instance of Tayabas, 52 Phil. 803, 807;
Benguet Consolidated Mining Co. v. Pineda, 98 Phil. 711, 724). [13]

Seventh Issue

Petitioners question the fact that the Court of Appeals decision is based on
a BIR ruling, namely BIR Ruling No. 88-344, which was issued after the
petitioners were assessed for donors tax. This Court does not need to delve
into this issue. It is immaterial whether or not the Court of Appeals based its
decision on the BIR ruling because it is not pivotal in deciding this case. As
discussed above, Section 91 (now Section 98) of the NIRC as supplemented
by the definition of a donation found in Article 725 of the Civil Code, is clear and
unambiguous, and needs no further elucidation.

Eighth Issue

Petitioners next contend that tax laws are construed liberally in favor of the
taxpayer and strictly against the government. This rule of construction,
however, does not benefit petitioners because, as stated, there is here no room
for construction since the law is clear and unambiguous.
Finally, this Court takes note of the fact that subsequent to the donations
involved in this case, Congress approved Republic Act No. 7166 on November
25, 1991, providing in Section 13 thereof that political/electoral contributions,
duly reported to the Commission on Elections, are not subject to the payment
of any gift tax. This all the more shows that the political contributions herein
made are subject to the payment of gift taxes, since the same were made prior
to the exempting legislation, and Republic Act No. 7166 provides no retroactive
effect on this point.
WHEREFORE, the petition is DENIED and the assailed Decision and
Resolution of the Court of Appeals are AFFIRMED.
No costs.
SO ORDERED.
 THIRD DIVISION

[G.R. No. 104171. February 24, 1999]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. B.F.

GOODRICH PHILS., INC. (now SIME DARBY INTERNATIONAL
TIRE CO., INC.) and THE COURT OF APPEALS, respondents.

DECISION
PANGANIBAN, J.:

Notwithstanding the expiration of the five-year prescriptive period, may the Bureau of Internal
Revenue (BIR) still assess a taxpayer even after the latter has already paid the tax due, on the
ground that the previous assessment was insufficient or based on a false return?

The Case

This is the main question raised before us in this Petition for Review on Certiorari assailing
the Decision[1] dated February 14, 1992, promulgated by the Court of Appeals[2] in CA-GR SP No.
25100.The assailed Decision reversed the Court of Tax Appeals (CTA)[3] which upheld the BIR
commissioners assessments made beyond the five-year statute of limitations.

The Facts

The facts are undisputed.[4] Private Respondent BF Goodrich Phils., Inc. (now Sime Darby
International Tire Co. Inc.), was an American-owned and controlled corporation previous to July
3, 1974. As a condition for approving the manufacture by private respondent of tires and other
rubber products, the Central Bank of the Philippines required that it should develop a rubber
plantation. In compliance with this requirement, private respondent purchased from the Philippine
government in 1961, under the Public Land Act and the Parity Amendment to the 1935
Constitution, certain parcels of land located in Tumajubong, Basilan, and there developed a rubber
plantation.
More than a decade later, on August 2, 1973, the justice secretary rendered an opinion stating
that, upon the expiration of the Parity Amendment on July 3, 1974, the ownership rights of
Americans over public agricultural lands, including the right to dispose or sell their real estate,
would be lost. On the basis of this Opinion, private respondent sold to Siltown Realty Philippines,
Inc. on January 21, 1974, its Basilan landholding for P500,000 payable in installments. In accord
with the terms of the sale, Siltown Realty Philippines, Inc. leased the said parcels of land to private
respondent for a period of 25 years, with an extension of another 25 years at the latters option.
Based on the BIRs Letter of Authority No. 10115 dated April 14, 1975, the books and accounts
of private respondent were examined for the purpose of determining its tax liability for taxable
year 1974.The examination resulted in the April 23, 1975 assessment of private respondent for
deficiency income tax in the amount of P6,005.35, which it duly paid.
Subsequently the BIR also issued Letters of Authority Nos. 074420 RR and 074421 RR and
Memorandum Authority Reference No. 749157 for the purpose of examining Siltowns business,
income and tax liabilities. On the basis of this examination, the BIR commissioner issued against
private respondent on October 10, 1980, an assessment for deficiency in donors tax in the amount
of P1,020,850, in relation to the previously mentioned sale of its Basilan landholdings to
Siltown. Apparently, the BIR deemed the consideration for the sale insufficient, and the difference
between the fair market value and the actual purchase price a taxable donation.
In a letter dated November 24, 1980, private respondent contested this assessment. On April
9, 1981, it received another assessment dated March 16, 1981, which increased to P1,092,949 the
amount demanded for the alleged deficiency donors tax, surcharge, interest and compromise
penalty.
Private respondent appealed the correctness and the legality of these last two assessments to
the CTA. After trial in due course, the CTA rendered its Decision dated March 29, 1991, the
dispositive portion of which reads as follows:

WHEREFORE, the decision of the Commissioner of Internal Revenue assessing

petitioner deficiency gift tax is MODIFIED and petitioner is ordered to pay the
amount of P1,311,179.01 plus 10% surcharge and 20% annual interest from March
16, 1981 until fully paid provided that the maximum amount that may be collected as
interest on delinquency shall in no case exceed an amount corresponding to a period
of three years pursuant to Section 130(b) (1) and (c) of the 1977 Tax Code, as
amended by P.D. No. 1705, which took effect on August 1, 1980.

SO ORDERED.[5]

Undaunted, private respondent elevated the matter to the Court of Appeals, which reversed
the CTA, as follows:

What is involved here is not a first assessment; nor is it one within the 5-year period
stated in Section 331 above. Since what is involved in this case is a multiple
assessment beyond the five-year period, the assessment must be based on the grounds
provided in Section 337, and not on Section 15 of the 1974 Tax Code. Section 337
utilizes the very specific terms fraud, irregularity, and mistake. Falsity does not appear
to be included in this enumeration. Falsity suffices for an assessment, which is
a first assessment made within the five-year period. When it is a subsequent
assessment made beyond the five-year period, then, it may be validly justified only by
fraud, irregularity and mistake on the part of the taxpayer.[6]

Hence, this Petition for Review under Rule 45 of the Rules of Court.[7]

The Issues

Before us, petitioner raises the following issues:

Whether or not petitioners right to assess herein deficiency donors tax has indeed
prescribed as ruled by public respondent Court of Appeals

II

Whether or not the herein deficiency donors tax assessment for 1974 is valid and in
accordance with law

Prescription is the crucial issue in the resolution of this case.

The Courts Ruling

The petition has no merit.

Main Issue: Prescription

The petitioner contends that the Court of Appeals erred in reversing the CTA on the issue of
prescription, because its ruling was based on factual findings that should have been left undisturbed
on appeal, in the absence of any showing that it had been tainted with gross error or grave abuse
of discretion.[8] The Court is not persuaded.
True, the factual findings of the CTA are generally not disturbed on appeal when supported
by substantial evidence and in the absence of gross error or grave abuse of discretion. However,
the CTAs application of the law to the facts of this controversy is an altogether different matter,
for it involves a legal question. There is a question of law when the issue is the application of the
law to a given set of facts. On the other hand, a question of fact involves the truth or falsehood of
alleged facts.[9] In the present case, the Court of Appeals ruled not on the truth or falsity of the facts
found by the CTA, but on the latters application of the law on prescription.
Section 331 of the National Internal Revenue Code provides:
SEC. 331. 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 expiration of such period. For the purposes 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.

Applying this provision of law to the facts at hand, it is clear that the October 16, 1980 and
the March 1981 assessments were issued by the BIR beyond the five-year statute of
limitations. The Court has thoroughly studied the records of this case and found no basis to
disregard the five-year period of prescription. As succinctly pronounced by the Court of Appeals:

The subsequent assessment made by the respondent Commissioner on October 10,

1980, modified by that of March 16, 1981, violates the law. Involved in this petition is
the income of the petitioner for the year 1974, the returns for which were required to
be filed on or before April 15 of the succeeding year. The returns for the year 1974
were duly filed by the petitioner, and assessment of taxes due for such year --
including that on the transfer of properties on June 21, 1974 -- was made on April 13,
1975 and acknowledged by Letter of Confirmation No. 101155 terminating the
examination on this subject. The subsequent assessment of October 10, 1980
modified, by that of March 16, 1981, was made beyond the period expressly set in
Section 331 of the National Intenal Revenue Code xxx.[10]

Petitioner relies on the CTA ruling, the salient portion of which reads:

Falsity is what we have here, and for that matter, we hasten to add that the second
assessment (March 16, 1981) of the Commissioner was well-advised having been
made in contemplation of his power under Section 15 of the 1974 Code (now Section
16, of NIRC) to assess the proper tax on the best evidence obtainable when there is
reason to believe that a report of a taxpayer is false, incomplete or erroneous.More,
when there is falsity with intent to evade tax as in this case, the ordinary period of
limitation upon assessment and collection does not apply so that contrary to the
averment of petitioner, the right to assess respondent has not prescribed.

What is the considered falsity? The transfer through sales of the parcels of land in
Tumajubong, Lamitan, Basilan in favor of Siltown Realty for the sum of P500,000.00
only whereas said lands had been sworn to under Presidential Decree No. 76 (Dec. 6,
1972) as having a value of P2,683,467 (P2,475, 467 + P207,700) (see Declaration of
Real Property form, p. 28, and p. 15, no. 5, BIR Record).[11]

For the purpose of safeguarding taxpayers from any unreasonable examination, investigation
or assessment, our tax law provides a statute of limitations in the collection of taxes. Thus, the law
on prescription, being a remedial measure, should be liberally construed in order to afford such
protection.[12] As a corollary, the exceptions to the law on prescription should perforce be strictly
construed.
Section 15 of the NIRC, on the other hand, provides that [w]hen a report required by law as a
basis for the assessment of any national internal revenue tax shall not be forthcoming within the
time fixed by law or regulation, or when there is reason to believe that any such report is false,
incomplete, or erroneous, the Commissioner of Internal Revenue shall assess the proper tax on the
best evidence obtainable.Clearly, Section 15 does not provide an exception to the statute of
limitations on the issuance of an assessment, by allowing the initial assessment to be made on the
basis of the best evidence available. Having made its initial assessment in the manner prescribed,
the commissioner could not have been authorized to issue, beyond the five-year prescriptive
period, the second and the third assessments under consideration before us.
Nor is petitioners claim of falsity sufficient to take the questioned assessments out of the ambit
of the statute of limitations. The relevant part of then Section 332 of the NIRC, which enumerates
the exceptions to the period of prescription, provides:

SEC. 332. Exceptions as to period of limitation of assessment and collection of taxes.

-- (a) In the case of a false or fraudulent return with intent to evade a tax or of a failure
to file a return, the tax may be assessed, or a proceeding in court for the collection of
such tax may be begun without assessment, at any time within ten years after the
discovery of the falsity, fraud, or omission: xxx.

Petitioner insists that private respondent committed falsity when it sold the property for a price
lesser than its declared fair market value. This fact alone did not constitute a false return which
contains wrong information due to mistake, carelessness or ignorance.[13] It is possible that real
property may be sold for less than adequate consideration for a bona fide business purpose; in such
event, the sale remains an arms length transaction. In the present case, the private respondent was
compelled to sell the property even at a price less than its market value, because it would have lost
all ownership rights over it upon the expiration of the parity amendment. In other words, private
respondent was attempting to minimize its losses. At the same time, it was able to lease the
property for 25 years, renewable for another 25. This can be regarded as another consideration on
the price.
Furthermore, the fact that private respondent sold its real property for a price less than its
declared fair market value did not by itself justify a finding of false return. Indeed, private
respondent declared the sale in its 1974 return submitted to the BIR.[14] Within the five-year
prescriptive period, the BIR could have issued the questioned assessment, because the declared
fair market value of said property was of public record. This it did not do, however, during all
those five years. Moreover, the BIR failed to prove that respondent's 1974 return had been filed
fraudulently. Equally. significant was its failure to prove respondent's intent to evade the payment
of the correct amount of tax.
Ineludibly, the BIR failed to show that private respondent's 1974 return was filed fraudulently
with intent to evade the payment of the correct amount of tax.[15] Moreover, even though a donor's
tax, which is defined as "a tax on the privilege of transmitting one's property or property rights to
another or others without adequate and full valuable consideration,"[16] is different from capital
gains tax, a tax on the gain from the sale of the taxpayer's property forming part of capital
assets,[17] the tax return filed by private respondent to report its income for the year 1974 was
sufficient compliance with the legal requirement to file a return. In other words, the fact that the
sale transaction may have partly resulted in a donation does not change the fact that private
respondent already reported its income for 1974 by filing an income tax return.
Since the BIR failed to demonstrate clearly that private respondent had filed a fraudulent
return with the intent to evade tax, or that it had failed to file a return at all, the period for
assessments has obviously prescribed. Such instances of negligence or oversight on the part of the
BIR cannot prejudice taxpayers, considering that the prescriptive period was precisely intended to
give them peace of mind.
Based on the foregoing, a discussion of the validity and legality of the assailed assessments
has become moot and unnecessary.
WHEREFORE, the Petition for Review is DENIED and the assailed Decision of the Court
of Appeals is AFFIRMED. No costs.
SO ORDERED.
Romero (Chairman), Purisima, and Gonzaga-Reyes, JJ., concur.
Vitug, J., on official leave.