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No. L-11622. January 28, 1961.

THE COLLECTOR OF INTERNAL REVENUE,
petitioner, vs. DOUGLAS FlSHER and
BETTINA FlSHER, and the COURT OF TAX
APPEALS, respondents.
No. L-11668. January 28, 1961.

DOUGLAS FISHER and BETTINA FISHER,

petitioners, vs. THE COLLECTOR OF
INTERNAL REVENUE, and the COURT OF TAX
APPEALS. respondents.
Husband and wife; Conjugal partnership.In the
absence of any ante-nuptial agreement, the husband
and wife are presumed to have adopted the system
of conjugal partnership.
Civil Code of the Philippines; Husband and wife;
Marriage.The property relations of husband and
wife who were married in 1909 are governed by
article 1325 of the Spanish Civil Code and not by
article 124 of the New Civil Code.
Same; Private International Law (Conflict of laws).
Artide 1325 of the Old Civil Code and article 124 of
the New Civil Code both adhere to the so-called
nationality theory of determining the property
relations of spouses where one of them is a foreigner
and they have made no prior agreement as to the
administration, disposition and ownership of their
conjugal properties. In such a case, the national law
of the husband becomes the dominant law in
determining the property relations of the spouses.
However, there is a difference between two articles.
Article 124 expressly provides that it applies
regardless of where the marriage was celebrated,
while article 1325 is limited to marriages contracted
abroad. Both articles apply only to mixed marriages
between a Filipino and a foreigner.
Same; Old law; Property relations of British citizens
who were, married in Manila in 1909.English law
governs the property relations of a man and woman,
both British citizens, who were married in Manila
1909.
Evidence; Foreign laws; Processual presumption.In
the absence of proof of a foreign law, the processual
presumption is that it is the same as the law of the
forum.
Private International Law; Article 10 of the old Civil
Code; Husband and wife.Article 10 of the old Civil
Code does not govern the property relations of
husband and wife. It refers to successional rights,
which are distinct from the property relations of the
spouses.
Taxation; Estate and inheritance taxes; Share of
surviving spouse is deductible.In determining- the
net taxable estate of a deceased British subject, for
purposes of the estate and inheritance taxes, where
said deceased was married to another British citizen
in Manila in 1909, the one-half conjugal share of the
surviving wife should be deducted inasmuch as they

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are presumed to have adopted the system of

conjugal partnership in the absence of an antenuptial agreement.
Evidence; Proof of foreign laws.Foreign laws do not
prove themselves in our courts. They are not a
matter of judicial notice. Like any other fact, they
must be alleged and proven.
Same.The provisions of the Rules of Court on proof
of foreign laws do not exclude the presentation of
other competent evidence to prove the existence of
a foreign law. The testimony of a lawyer, practising in
California, together with a quotation from a
publication of Bancroft-Whitney, is sufficient to prove
the certain provisions of the California Internal
Revenue Code.
Taxation; Estate and inheritance taxes; Reciprocity in
exemption.Under section 122 of the Tax Code and
section 13851 of the California Inheritance Tax Law,
the reciprocity must be total, that is, with respect to
transfer or death taxes of any and every character, in
the case of the Philippine law, and to legacy,
succession, or death taxes of any and every
character, in the case of the California law. Therefore,
if any of the two states collects or imposes and does
not exempt any transfer, death, legacy, or
succession tax of any character, the reciprocity does
not work. The shares of stock in the Philippines, left
by a deceased resident of California, are subject to
the Philippine inheritance tax. The reciprocity
provisions of section 122 of the Tax Code are not
applicable because there is no total reciprocity under
the two laws.
Same; Deduction under Federal Estate Tax Law.The
amount allowed under the Federal Estate Tax Law is
in the nature of a deduction and not of an exemption,
regarding which reciprocity cannot be claimed under
section 122 of the Philippine Tax Code. Nor is
reciprocity allowed under the Federal Law.
Taxation; Estate and inheritance taxes; Assessed
value is not the controlling market value.For
purposes of the estate and inheritance taxes, the
assessed value of real estate is considered as the fair
market value only when evidence to the contrary has
not been submitted. If there is such contrary
evidence, the assessed value will not be considered
the fair market value.
Same; Market value of shares of stock.Shares of
stock of a Philippine (domestic) corporation have a
situs here for purposes of taxation. Their situs is not
California where the certificates were located and in
whose stock exchange the shares were registered.
Their fair market value should be based on the price
prevailing in this country where they are sought to be
taxed.
Same; Deductibility of expenses allowed by the
probate court.The Supreme Court will not disturb
the ruling of the Tax Court, allowing the
administrator's fee, lawyer's fee and judicial and

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administration expenses as liabilities of the

estate, it appearing the said items were likewise
allowed by the probate court. The ruling of the
Tax Court, disallowing an additional amount for
funeral expenses, for lack of evidence, should
be upheld. The Supreme Court will set aside the
factual findings of the Tax Court only in case
they are not supported by any evidence.

Executors and administrators; Settlement of

decedent's estates; Ancillary and domiciliary
adminintration.The distinction between a
domiciliary and an ancillary administration serves
only to distinguish one administration from the other,
for the two proceedings are separate and
independent. The reason for the ancillary
administration is that a grant of administration does
not, ex proprio vigore, have any effect beyond the
limits of the country in which it was granted. In other
words, there is a regular administration under the
control of the court, where claims must be presented
and approved and expenses of administration
allowed before the deductions from the estate can be
authorized.
Same; California debt of decedent should be
presented to Philippine court for allo-icance.--A debt
of the decedent, which was incurred in California and
which was allowed by the California court, having
jurisdiction over the domiciliary administration,
should, nevertheless, be presented to the Philippine
probate court for allowance in order that it may
constitute a valid claim against the Philippine estate
under ancillary administration.
Same; Deductions allowed the estate of nonresident
aliens.No deduction from the estate of a
nonresident alien is allowed unless the value of his
gross estate not situated in the Philippines is stated
in the return. This requirement is intended to enable
the revenue officer to determine how much of the
debt may be deducted pursuant to section 89(b)(l) of
the Tax Code. The deduction is allowed only to the
extent of that portion of the debt, which is equivalent
to the proportion that the Philippine estate bears to
the total estate wherever situated. If the Philippine
estate constitutes but 1/5 of the entire estate,
wherever situated, then only 1/5 of the debt may be
deducted. If no statement of the estate situated
outside the Philippines is attached to the return, then
no part of the debt may be deducted from the
decedents' estate.
Taxation; Interest on amount overpaid.In the
absence of any statutory provision clearly or
expressly directing or authorizing the payment of
interest on taxes overpaid, the National Government
cannot be required to pay interest.
PETITION for review by certiorari of a decision of the
Court of Tax Appeals.
BARRERA, J.:

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This case relates to the determination and

settlement of the hereditary estate left by the
deceased Walter G. Stevenson, and the laws
applicable thereto. Walter G. Stevenson (born in the
Philippines on August 9, 1874 of British parents and
married in the City of Manila on January 23, 1909 to
Beatrice Mauricia Stevenson another British subject)
died on February 22, 1951 in San Francisco,
California, U.S.A. whereto he and his wife moved and
established their permanent residence since May 10,
1945. In his will executed in San Francisco on May
22, 1947, and which was duly probated in the
Superior Court of California on April 11, 1951,
Stevenson instituted his wife Beatrice as his sole
heiress to the following real and personal properties
acquired by the spouses while residing in the
Philippines, described and preliminary assessed as
follows:
Gross Estate
Real Property 2 parcels
of land in Baguio,
covered by T.C.T. Nos.
378 and 379
P43,500.00
Personal Property
(1) 177 shares of stock of
Canacao Estate at P10.00
each

1,770.00

(2) 210,000 shares of

stock of Mindanao Mother
Lode Mines, Inc. at P0.38
per share

79,800.00

(3) Cash credit with

Canacao Estate Inc.
(4) Cash, with the
Chartered Bank of India,
Australia & China

Total Gross Assets

4,870.88

851.97
P130,792.8
5

On May 22, 1951, ancillary administration

proceedings were instituted in the Court of First
Instance of Manila for the settlement of the estate in
the Philippines. In due time Stevenson's will was duly
admitted to probate by our court and Ian Murray
Statt was appointed ancillary administrator of the

CARPIO, JDP
estate, who on July 11, 1951, filed a preliminary
estate and inheritance tax return with the
reservation of having the properties declared
therein finally appraised at their values six
months after the death of Stevenson.
Preliminary return was made by the ancillary
administrator in order to secure the waiver of
the Collector of Internal Revenue on the
inheritance tax due on the 210,000 shares of
stock in the Mindanao Mother Lode Mines Inc.
which the estate then desired to dispose in the
United States. Acting upon said return, the Collector
of Internal Revenue accepted the valuation of the
personal properties declared therein, but increased
the appraisal of the two parcels of land located in
Baguio City by fixing their fair market value in the
amount of P52.200.00, instead of P43,500.00. After
allowing the deductions claimed by the ancillary
administrator for funeral expenses in the amount of
P2,000.00 and for judicial and administration
expenses in the sum of P5,500.00, the Collector
assessed the state the amount of P5,147.98 for
estate tax and P10,875,26 or inheritance tax, or a
total of P16,023.23. Both of these assessments were
paid by the estate on June 6, 1952.

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On September 27, 1952, the ancillary administrator

filed in amended estate and inheritance tax return in
pursuance f his reservation made at the time of filing
of the preliminary return and for the purpose of
availing of the right granted by section 91 of the
National Internal Revenue Code.
In this amended return the valuation of the 210,000
shares of stock in the Mindanao Mother Lode Mines,
Inc. was reduced from 0.38 per share, as originally
declared, to P0.20 per share, or from a total valuation
of P79,800.00 to P42,000.00. This change in price per
share of stock was based by the ancillary
administrator on the market notation of the stock
obtaining at the San Francisco California) Stock
Exchange six months from the death of Stevenson,
that is, As of August 22, 1931. In addition, the
ancillary administrator made claim for the following
deductions:
Funeral expenses ($1,04326)
Judicial Expenses:
(a) Administrator's
Fee

P1,204.3
4

(b) Attorney's Fee

6.000.00

(c) Judicial and

1,400.05

P2,086.52

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Administration
expenses as of
August 9, 1952
8,604.39
Real Estate Tax for
1951 on Baguio
real properties
(O.R. No. B-1
686836)
Claims against the
estate:
($5,000.00)
P10,000.00
Plus: 4% int. p.a.
from Feb. 2 to 22,
1951

Sub-Total

652.50

P10,000.
00

22.47 10,022.47
P21,365.8
8

In the meantime, on December 1, 1952, Beatrice

Mauricia Stevenson assigned all her rights and
interests in the estate to the spouses, Douglas and
Bettina Fisher, respondents herein.
On September 7, 1953, the ancillary administrator
filed a second amended estate and inheritance tax
return (Exh. "M-N"). This return declared the same
assets of the estate stated in the amended return of
September 22, 1952, except that it contained new
claims for additional exemption and deduction to wit:
(1) deduction in the amount of P4,000.00 from the
gross estate of the decedent as provided for in
Section 861 (4) of the U.S. Federal Internal Revenue
Code which the ancillary administrator averred was
allowable by way of the reciprocity granted by
Section 122 of the National Internal Revenue Code,
as then held by the Board of Tax Appeals in case No.
71 entitled "Housman vs. Collector," August 14,
1952; and (2) exemption from the imposition of
estate and inheritance taxes on the 210,000 shares
of stock in the Mindanao Mother Lode Mines, Inc. also
pursuant to the reciprocity proviso of Section 122 of
the National Internal Revenue Code. In this last
return, the estate claimed that it was liable only for
the amount of P525.34 for estate tax and P238.06 for
inheritance tax and that, as a consequence, it had
overpaid the government. The refund of the amount
of P15,259.83, allegedly overpaid, was accordingly
requested by the estate. The Collector denied the

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claim. For this reason, action was commenced

in the Court of First Instance of Manila by
respondents, as assignees of Beatrice Mauricia
Stevenson, for the recovery of said amount.
Pursuant to Republic Act No. 1125, the case was
forwarded to the Court of Tax Appeals which
court, after hearing, rendered decision the
dispositive portion of which reads as follows:
In fine, we are of the opinion and so hold that:
(a) the one-half () share of the surviving
spouse in the conjugal partnership property
as diminished by the obligations properly
chargeable to such property should be
deducted from the net estate of the deceased
Walter G. Stevenson, pursuant to Section 89-C
of the National Internal Revenue Code; (b) the
intangible personal property belonging to the
estate of said Stevenson is exempt from
inheritance tax, pursuant to the provision of
section 122 of the National Internal Revenue
Code in relation to the California Inheritance
Tax Law but decedent's estate is not entitled
to an exemption of P4,000.00 in the
computation of the estate tax; (c) for
purposes of estate and inheritance taxation
the Baguio real estate of the spouses should
be valued at P52,200.00, and 210,000 shares
of stock in the Mindanao Mother Lode Mines,
Inc. should be appraised at P0.38 per share;
and (d) the estate shall be entitled to a
deduction of P2,000.00 for funeral expenses
and judicial expenses of P8,604.39.

From this decision, both parties appealed.

The Collector of Internal Revenue, hereinafter called
petitioner assigned four errors allegedly committed
by the trial court, while the assignees, Douglas and
Bettina Fisher hereinafter called respondents, made
six assignments of error. Together, the assigned
errors raise the following main issues for resolution
by this Court:
(1) Whether or not, in determining the taxable net
estate of the decedent, one-half () of the net estate
should be deducted therefrom as the share of tile
surviving spouse in accordance with our law on
conjugal partnership and in relation to section 89 (c)
of the National Internal revenue Code;
(2) Whether or not the estate can avail itself of the
reciprocity proviso embodied in Section 122 of the
National Internal Revenue Code granting exemption
from the payment of estate and inheritance taxes on
the 210,000 shares of stock in the Mindanao Mother
Lode Mines Inc.;
(3) Whether or not the estate is entitled to the
deduction of P4,000.00 allowed by Section 861, U.S.

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Internal Revenue Code in relation to section 122 of

the National Internal Revenue Code;
(4) Whether or not the real estate properties of the
decedent located in Baguio City and the 210,000
shares of stock in the Mindanao Mother Lode Mines,
Inc., were correctly appraised by the lower court;
(5) Whether or not the estate is entitled to the
following deductions: P8,604.39 for judicial and
administration expenses; P2,086.52 for funeral
expenses; P652.50 for real estate taxes; and
P10,0,22.47 representing the amount of
indebtedness allegedly incurred by the decedent
during his lifetime; and
(6) Whether or not the estate is entitled to the
payment of interest on the amount it claims to have
overpaid the government and to be refundable to it.
In deciding the first issue, the lower court applied a
well-known doctrine in our civil law that in the
absence of any ante-nuptial agreement, the
contracting parties are presumed to have adopted
the system of conjugal partnership as to the
properties acquired during their marriage. The
application of this doctrine to the instant case is
being disputed, however, by petitioner Collector of
Internal Revenue, who contends that pursuant to
Article 124 of the New Civil Code, the property
relation of the spouses Stevensons ought not to be
determined by the Philippine law, but by the national
law of the decedent husband, in this case, the law of
England. It is alleged by petitioner that English laws
do not recognize legal partnership between spouses,
and that what obtains in that jurisdiction is another
regime of property relation, wherein all properties
acquired during the marriage pertain and belong
Exclusively to the husband. In further support of his
stand, petitioner cites Article 16 of the New Civil
Code (Art. 10 of the old) to the effect that in testate
and intestate proceedings, the amount of
successional rights, among others, is to be
determined by the national law of the decedent.
In this connection, let it be noted that since the
mariage of the Stevensons in the Philippines took
place in 1909, the applicable law is Article 1325 of
the old Civil Code and not Article 124 of the New Civil
Code which became effective only in 1950. It is true
that both articles adhere to the so-called nationality
theory of determining the property relation of
spouses where one of them is a foreigner and they
have made no prior agreement as to the
administration disposition, and ownership of their
conjugal properties. In such a case, the national law
of the husband becomes the dominant law in
determining the property relation of the spouses.
There is, however, a difference between the two
articles in that Article 1241 of the new Civil Code

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expressly provides that it shall be applicable

regardless of whether the marriage was
celebrated in the Philippines or abroad while
Article 13252 of the old Civil Code is limited to
marriages contracted in a foreign land.

It must be noted, however, that what has just

been said refers to mixed marriages between a
Filipino citizen and a foreigner. In the instant
case, both spouses are foreigners who married in the
Philippines. Manresa,3 in his Commentaries, has this
to say on this point:
La regla establecida en el art. 1.315, se
refiere a las capitulaciones otorgadas en
Espana y entre espanoles. El 1.325, a las
celebradas en el extranjero cuando alguno de
los conyuges es espanol. En cuanto a la regla
procedente cuando dos extranjeros se casan
en Espana, o dos espanoles en el extranjero
hay que atender en el primer caso a la
legislacion de pais a que aquellos
pertenezean, y en el segundo, a las reglas
generales consignadas en los articulos 9 y 10
de nuestro Codigo. (Emphasis supplied.)
If we adopt the view of Manresa, the law
determinative of the property relation of the
Stevensons, married in 1909, would be the English
law even if the marriage was celebrated in the
Philippines, both of them being foreigners. But, as
correctly observed by the Tax Court, the pertinent
English law that allegedly vests in the decedent
husband full ownership of the properties acquired
during the marriage has not been proven by
petitioner. Except for a mere allegation in his answer,
which is not sufficient, the record is bereft of any
evidence as to what English law says on the matter.
In the absence of proof, the Court is justified,
therefore, in indulging in what Wharton calls
"processual presumption," in presuming that the law
of England on this matter is the same as our law.4
Nor do we believe petitioner can make use of Article
16 of the New Civil Code (art. 10, old Civil Code) to
bolster his stand. A reading of Article 10 of the old
Civil Code, which incidentally is the one applicable,
shows that it does not encompass or contemplate to
govern the question of property relation between
spouses. Said article distinctly speaks of amount of
successional rights and this term, in speaks in our
opinion, properly refers to the extent or amount of
property that each heir is legally entitled to inherit
from the estate available for distribution. It needs to
be pointed out that the property relation of spouses,
as distinguished from their successional rights, is
governed differently by the specific and express
provisions of Title VI, Chapter I of our new Civil Code
(Title III, Chapter I of the old Civil Code.) We,
therefore, find that the lower court correctly

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deducted the half of the conjugal property in

determining the hereditary estate left by the
deceased Stevenson.
On the second issue, petitioner disputes the action of
the Tax Court in the exempting the respondents from
paying inheritance tax on the 210,000 shares of
stock in the Mindanao Mother Lode Mines, Inc. in
virtue of the reciprocity proviso of Section 122 of the
National Internal Revenue Code, in relation to Section
13851 of the California Revenue and Taxation Code,
on the ground that: (1) the said proviso of the
California Revenue and Taxation Code has not been
duly proven by the respondents; (2) the reciprocity
exemptions granted by section 122 of the National
Internal Revenue Code can only be availed of by
residents of foreign countries and not of residents of
a state in the United States; and (3) there is no
"total" reciprocity between the Philippines and the
state of California in that while the former exempts
payment of both estate and inheritance taxes on
intangible personal properties, the latter only
exempts the payment of inheritance tax..
To prove the pertinent California law, Attorney Allison
Gibbs, counsel for herein respondents, testified that
as an active member of the California Bar since
1931, he is familiar with the revenue and taxation
laws of the State of California. When asked by the
lower court to state the pertinent California law as
regards exemption of intangible personal properties,
the witness cited article 4, section 13851 (a) and (b)
of the California Internal and Revenue Code as
published in Derring's California Code, a publication
of the Bancroft-Whitney Company inc. And as part of
his testimony, a full quotation of the cited section
was offered in evidence as Exhibits "V-2" by the
respondents.
It is well-settled that foreign laws do not prove
themselves in our jurisdiction and our courts are not
authorized to take judicial notice of them.5 Like any
other fact, they must be alleged and proved.6
Section 41, Rule 123 of our Rules of Court prescribes
the manner of proving foreign laws before our
tribunals. However, although we believe it desirable
that these laws be proved in accordance with said
rule, we held in the case of Willamette Iron and Steel
Works v. Muzzal, 61 Phil. 471, that "a reading of
sections 300 and 301 of our Code of Civil Procedure
(now section 41, Rule 123) will convince one that
these sections do not exclude the presentation of
other competent evidence to prove the existence of
a foreign law." In that case, we considered the
testimony of an attorney-at-law of San Francisco,
California who quoted verbatim a section of California
Civil Code and who stated that the same was in force
at the time the obligations were contracted, as
sufficient evidence to establish the existence of said

CARPIO, JDP

It is clear from both these quoted provisions that the

reciprocity must be total, that is, with respect to
transfer or death taxes of any and every character, in
the case of the Philippine law, and to legacy,
succession, or death taxes of any and every
character, in the case of the California law. Therefore,
We now take up the question of reciprocity in
if any of the two states collects or imposes and does
exemption from transfer or death taxes,
not exempt any transfer, death, legacy, or
between the State of California and the
succession tax of any character, the reciprocity does
Philippines.F
not work. This is the underlying principle of the
Section 122 of our National Internal Revenue Code, in reciprocity clauses in both laws.
pertinent part, provides:
In the Philippines, upon the death of any citizen or
... And, provided, further, That no tax shall be resident, or non-resident with properties therein,
there are imposed upon his estate and its settlement,
collected under this Title in respect of
both an estate and an inheritance tax. Under the
intangible personal property (a) if the
laws of California, only inheritance tax is imposed. On
decedent at the time of his death was a
resident of a foreign country which at the time the other hand, the Federal Internal Revenue Code
imposes an estate tax on non-residents not citizens
of his death did not impose a transfer of tax
of the United States,7 but does not provide for any
or death tax of any character in respect of
intangible personal property of citizens of the exemption on the basis of reciprocity. Applying these
laws in the manner the Court of Tax Appeals did in
Philippines not residing in that foreign
the instant case, we will have a situation where a
country, or (b) if the laws of the foreign
country of which the decedent was a resident Californian, who is non-resident in the Philippines but
has intangible personal properties here, will the
at the time of his death allow a similar
subject to the payment of an estate tax, although
exemption from transfer taxes or death taxes
exempt from the payment of the inheritance tax. This
of every character in respect of intangible
being the case, will a Filipino, non-resident of
personal property owned by citizens of the
California, but with intangible personal properties
Philippines not residing in that foreign
there, be entitled to the exemption clause of the
country." (Emphasis supplied).
California law, since the Californian has not been
exempted from every character of legacy,
On the other hand, Section 13851 of the California
succession, or death tax because he is, under our
Inheritance Tax Law, insofar as pertinent, reads:.
law, under obligation to pay an estate tax? Upon the
other hand, if we exempt the Californian from paying
"SEC. 13851, Intangibles of nonresident:
the estate tax, we do not thereby entitle a Filipino to
Conditions. Intangible personal property is
be exempt from a similar estate tax in California
exempt from the tax imposed by this part if
because under the Federal Law, which is equally
the decedent at the time of his death was a
enforceable in California he is bound to pay the
resident of a territory or another State of the
same, there being no reciprocity recognized in
United States or of a foreign state or country
respect thereto. In both instances, the Filipino citizen
which then imposed a legacy, succession, or
is always at a disadvantage. We do not believe that
death tax in respect to intangible personal
our legislature has intended such an unfair situation
property of its own residents, but either:.
to the detriment of our own government and people.
We, therefore, find and declare that the lower court
erred in exempting the estate in question from
(a) Did not impose a legacy, succession, or
payment of the inheritance tax.
death tax of any character in respect to
intangible personal property of residents of
this State, or
We are not unaware of our ruling in the case
of Collector of Internal Revenue vs. Lara (G.R. Nos. L(b) Had in its laws a reciprocal provision under 9456 & L-9481, prom. January 6, 1958, 54 O.G. 2881)
exempting the estate of the deceased Hugo H. Miller
which intangible personal property of a nonresident was exempt from legacy, succession, from payment of the inheritance tax imposed by the
Collector of Internal Revenue. It will be noted,
or death taxes of every character if the
Territory or other State of the United States or however, that the issue of reciprocity between the
pertinent provisions of our tax law and that of the
foreign state or country in which the
State of California was not there squarely raised, and
nonresident resided allowed a similar
the ruling therein cannot control the determination of
exemption in respect to intangible personal
the case at bar. Be that as it may, we now declare
property of residents of the Territory or State
that in view of the express provisions of both the
of the United States or foreign state or
Philippine and California laws that the exemption
country of residence of the decedent." (Id.)

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law. In line with this view, we find no error,

therefore, on the part of the Tax Court in
considering the pertinent California law as
proved by respondents' witness.

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would apply only if the law of the other grants

an exemption from legacy, succession, or death
taxes of every character, there could not be
partial reciprocity. It would have to be total or
none at all.

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made by defendant is fair, reasonable and

justified in the premises." (Decision, p. 19).

In respect to the valuation of the 210,000 shares of

stock in the Mindanao Mother Lode Mines, Inc., (a
domestic corporation), respondents contend that
With respect to the question of deduction or
their value should be fixed on the basis of the market
reduction in the amount of P4,000.00 based on
quotation obtaining at the San Francisco (California)
the U.S. Federal Estate Tax Law which is also
Stock Exchange, on the theory that the certificates of
being claimed by respondents, we uphold and adhere stocks were then held in that place and registered
to our ruling in the Lara case (supra) that the amount with the said stock exchange. We cannot agree with
of $2,000.00 allowed under the Federal Estate Tax
respondents' argument. The situs of the shares of
Law is in the nature of a deduction and not of an
stock, for purposes of taxation, being located here in
exemption regarding which reciprocity cannot be
the Philippines, as respondents themselves concede
claimed under the provision of Section 122 of our
and considering that they are sought to be taxed in
National Internal Revenue Code. Nor is reciprocity
this jurisdiction, consistent with the exercise of our
authorized under the Federal Law. .
government's taxing authority, their fair market
value should be taxed on the basis of the price
prevailing in our country.
On the issue of the correctness of the appraisal of
the two parcels of land situated in Baguio City, it is
contended that their assessed values, as appearing
Upon the other hand, we find merit in respondents'
in the tax rolls 6 months after the death of
other contention that the said shares of stock
Stevenson, ought to have been considered by
commanded a lesser value at the Manila Stock
petitioner as their fair market value, pursuant to
Exchange six months after the death of Stevenson.
section 91 of the National Internal Revenue Code. It
Through Atty. Allison Gibbs, respondents have shown
should be pointed out, however, that in accordance
that at that time a share of said stock was bid for at
with said proviso the properties are required to be
only P.325 (p. 103, t.s.n.). Significantly, the testimony
appraised at their fair market value and the assessed of Atty. Gibbs in this respect has never been
value thereof shall be considered as the fair market
questioned nor refuted by petitioner either before
value only when evidence to the contrary has not
this court or in the court below. In the absence of
been shown. After all review of the record, we are
evidence to the contrary, we are, therefore,
satisfied that such evidence exists to justify the
constrained to reverse the Tax Court on this point
valuation made by petitioner which was sustained by and to hold that the value of a share in the said
the tax court, for as the tax court aptly observed:
mining company on August 22, 1951 in the Philippine
market was P.325 as claimed by respondents..
"The two parcels of land containing 36,264
square meters were valued by the
It should be noted that the petitioner and the Tax
administrator of the estate in the Estate and
Court valued each share of stock of P.38 on the basis
Inheritance tax returns filed by him at
of the declaration made by the estate in its
P43,500.00 which is the assessed value of
preliminary return. Patently, this should not have
said properties. On the other hand, defendant been the case, in view of the fact that the ancillary
appraised the same at P52,200.00. It is of
administrator had reserved and availed of his legal
common knowledge, and this Court can take
right to have the properties of the estate declared at
judicial notice of it, that assessments for real
their fair market value as of six months from the time
estate taxation purposes are very much lower the decedent died..
than the true and fair market value of the
properties at a given time and place. In fact
On the fifth issue, we shall consider the various
one year after decedent's death or in 1952
deductions, from the allowance or disallowance of
the said properties were sold for a price of
which by the Tax Court, both petitioner and
P72,000.00 and there is no showing that
respondents have appealed..
special or extraordinary circumstances caused
the sudden increase from the price of
Petitioner, in this regard, contends that no evidence
P43,500.00, if we were to accept this value as of record exists to support the allowance of the sum
a fair and reasonable one as of 1951. Even
of P8,604.39 for the following expenses:.
more, the counsel for plaintiffs himself
admitted in open court that he was willing to
purchase the said properties at P2.00 per
1) Administrator's fee
P1,204.34
square meter. In the light of these facts we
believe and therefore hold that the valuation
of P52,200.00 of the real estate in Baguio
2) Attorney's fee
6,000.00

CARPIO, JDP
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3) Judicial and Administrative

expenses
Total Deductions

2,052.55

P8,604.39

An examination of the record discloses,

however, that the foregoing items were considered
deductible by the Tax Court on the basis of their
approval by the probate court to which said
expenses, we may presume, had also been
presented for consideration. It is to be supposed that
the probate court would not have approved said
items were they not supported by evidence
presented by the estate. In allowing the items in
question, the Tax Court had before it the pertinent
order of the probate court which was submitted in
evidence by respondents. (Exh. "AA-2", p. 100,
record). As the Tax Court said, it found no basis for
departing from the findings of the probate court, as it
must have been satisfied that those expenses were
actually incurred. Under the circumstances, we see
no ground to reverse this finding of fact which, under
Republic Act of California National Association, which
it would appear, that while still living, Walter G.
Stevenson obtained we are not inclined to pass upon
the claim of respondents in respect to the additional
amount of P86.52 for funeral expenses which was
disapproved by the court a quo for lack of evidence.
In connection with the deduction of P652.50
representing the amount of realty taxes paid in 1951
on the decedent's two parcels of land in Baguio City,
which respondents claim was disallowed by the Tax
Court, we find that this claim has in fact been
allowed. What happened here, which a careful review
of the record will reveal, was that the Tax Court, in
itemizing the liabilities of the estate, viz:

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which was arrived at by the Tax Court for judicial and

administration expenses. Hence, the difference
between the total of P9,256.98 allowed by the Tax
Court as deductions, and the P8,604.39 as found by
the probate court, which is P652.50, the same
amount allowed for realty taxes. An evident oversight
has involuntarily been made in omitting the
P2,000.00 for funeral expenses in the final
computation. This amount has been expressly
allowed by the lower court and there is no reason
why it should not be. .
We come now to the other claim of respondents that
pursuant to section 89(b) (1) in relation to section
89(a) (1) (E) and section 89(d), National Internal
Revenue Code, the amount of P10,022.47 should
have been allowed the estate as a deduction,
because it represented an indebtedness of the
decedent incurred during his lifetime. In support
thereof, they offered in evidence a duly certified
claim, presented to the probate court in California by
the Bank of California National Association, which it
would appear, that while still living, Walter G.
Stevenson obtained a loan of $5,000.00 secured by
pledge on 140,000 of his shares of stock in the
Mindanao Mother Lode Mines, Inc. (Exhs. "Q-Q4", pp.
53-59, record). The Tax Court disallowed this item on
the ground that the local probate court had not
approved the same as a valid claim against the
estate and because it constituted an indebtedness in
respect to intangible personal property which the Tax
Court held to be exempt from inheritance tax.
For two reasons, we uphold the action of the lower
court in disallowing the deduction.

Firstly, we believe that the approval of the Philippine

probate court of this particular indebtedness of the
decedent is necessary. This is so although the same,
it is averred has been already admitted and approved
by the corresponding probate court in California,
situs of the principal or domiciliary administration. It
is true that we have here in the Philippines only an
1) Administrator's fee
ancillary administration in this case, but, it has been
held, the distinction between domiciliary or principal
administration and ancillary
2) Attorney's fee
administration serves only to distinguish one
administration from the other, for the two
proceedings are separate and independent.8 The
3) Judicial and Administration expenses as of
reason for the ancillary administration is that, a grant
August 9, 1952
of administration does not ex proprio vigore, have
any effect beyond the limits of the country in which it
was granted. Hence, we have the requirement that
before a will duly probated outside of the Philippines
Total
can have effect here, it must first be proved and
allowed before our courts, in much the same manner
added the P652.50 for realty taxes as a liability of the as wills 9originally presented for allowance
therein. And the estate shall be administered under
estate, to the P1,400.05 for judicial and
letters testamentary, or letters of administration
administration expenses approved by the court,
granted by the court, and disposed of according to
making a total of P2,052.55, exactly the same figure
the will as probated, after payment of just debts and

CARPIO, JDP
10

expenses of administration. In other words,

there is a regular administration under the
control of the court, where claims must be
presented and approved, and expenses of
administration allowed before deductions from
the estate can be authorized. Otherwise, we
would have the actuations of our own probate
court, in the settlement and distribution of the
estate situated here, subject to the proceedings
before the foreign court over which our courts
have no control. We do not believe such a procedure
is countenanced or contemplated in the Rules of
Court.

Pa
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Another reason for the disallowance of this

indebtedness as a deduction, springs from the
provisions of Section 89, letter (d), number (1), of the
National Internal Revenue Code which reads:
(d) Miscellaneous provisions (1) No
deductions shall be allowed in the case of a
non-resident not a citizen of the Philippines
unless the executor, administrator or anyone
of the heirs, as the case may be, includes in
the return required to be filed under section
ninety-three the value at the time of his death
of that part of the gross estate of the nonresident not situated in the Philippines."
In the case at bar, no such statement of the gross
estate of the non-resident Stevenson not situated in
the Philippines appears in the three returns
submitted to the court or to the office of the
petitioner Collector of Internal Revenue. The purpose
of this requirement is to enable the revenue officer to
determine how much of the indebtedness may be
allowed to be deducted, pursuant to (b), number (1)
of the same section 89 of the Internal Revenue Code
which provides:
(b) Deductions allowed to non-resident
estates. In the case of a non-resident not a
citizen of the Philippines, by deducting from
the value of that part of his gross estate
which at the time of his death is situated in
the Philippines
(1) Expenses, losses, indebtedness, and
taxes. That proportion of the deductions
specified in paragraph (1) of subjection (a) of
this section11 which the value of such part
bears the value of his entire gross estate
wherever situated;"
In other words, the allowable deduction is only to the
extent of the portion of the indebtedness which is
equivalent to the proportion that the estate in the
Philippines bears to the total estate wherever
situated. Stated differently, if the properties in the
Philippines constitute but 1/5 of the entire assets

TAX 2

wherever situated, then only 1/5 of the indebtedness

may be deducted. But since, as heretofore adverted
to, there is no statement of the value of the estate
situated outside the Philippines, no part of the
indebtedness can be allowed to be deducted,
pursuant to Section 89, letter (d), number (1) of the
Internal Revenue Code.
For the reasons thus stated, we affirm the ruling of
the lower court disallowing the deduction of the
alleged indebtedness in the sum of P10,022.47.
In recapitulation, we hold and declare that:
(a) only the one-half (1/2) share of the
decedent Stevenson in the conjugal
partnership property constitutes his
hereditary estate subject to the estate and
inheritance taxes;
(b) the intangible personal property is not
exempt from inheritance tax, there existing no
complete total reciprocity as required in
section 122 of the National Internal Revenue
Code, nor is the decedent's estate entitled to
an exemption of P4,000.00 in the computation
of the estate tax;
(c) for the purpose of the estate and
inheritance taxes, the 210,000 shares of stock
in the Mindanao Mother Lode Mines, Inc. are
to be appraised at P0.325 per share; and
(d) the P2,000.00 for funeral expenses should
be deducted in the determination of the net
asset of the deceased Stevenson.
In all other respects, the decision of the Court of Tax
Appeals is affirmed.
Respondent's claim for interest on the amount
allegedly overpaid, if any actually results after a
recomputation on the basis of this decision is hereby
denied in line with our recent decision in Collector of
Internal Revenue v. St. Paul's Hospital (G.R. No. L12127, May 29, 1959) wherein we held that, "in the
absence of a statutory provision clearly or expressly
directing or authorizing such payment, and none has
been cited by respondents, the National Government
cannot be required to pay interest."
WHEREFORE, as modified in the manner heretofore
indicated, the judgment of the lower court is hereby
affirmed in all other respects not inconsistent
herewith. No costs. So ordered.
[No. 43082. June 18, 1937]
PABLO LORENZO, as trustee of the estate of
Thomas Hanley, deceased, plaintiff and
appellant, vs. JUAN POSADAS, JR., Collector of

CARPIO, JDP
Pa
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10

Internal Revenue, defendant and

appellant.

1.INHERITANCE TAX; ACCRUAL OF, DISTINCT

FROM THE OBLIGATION TO PAY IT.The accrual
of the inheritance tax is distinct from the
obligation to pay the same. Section 1536 as
amended, of the Administrative Code, imposes
the tax upon "every transmission by virtue of
inheritance, devise, bequest, gift mortis causa,
or advance in anticipation of inheritance, devise, or
bequest." The tax therefore is upon transmission or
the transfer or devolution of property of a decedent,
made effective by his death, (61 C. J., p. 1592.)
2.ID.; MEASURE OF, BY VALUE OF ESTATE.If death is
the generating source from which the power of the
state to impose inheritance taxes takes its being and
if, upon the death of the decedent, succession takes
place and the right of the state to tax vests instantly,
the tax should be measured by the value of the
estate as it stood at the time of the decedent's
death, regardless of any subsequent contingency
affecting value or any subsequent increase or
decrease in value. (61 C. J., pp.' 1692, 1693; 26 R. C.
L., p. 232; Blakemore and Bancroft, Inheritance
Taxes, p. 137. See also Knowlton vs. Moore, 178 U.
S., 41; 20 Sup. Ct. Rep., 747; 44 Law. ed., 968.)
3.ID.; ID."The right of the state to an inheritance
tax accrues at the moment of death, and hence is
ordinarily measured as to any beneficiary by the
value at that time of such property as passes to him.
Subsequent appreciation or depreciation is
immaterial." (Ross, Inheritance Taxation, p. 72.)
4.ID.; ID.Whatever may be the rule in other
jurisdictions, we hold that a transmission by
inheritance is taxable at the time of the
predecessor's death, notwithstanding the
postponement of the actual possession or enjoyment
of the estate by the beneficiary, and the tax
measured by the value of the property transmitted at
that time regardless of its appreciation or
depreciation.
5.ID.; TRUSTS AND TRUSTEES.A trustee, no doubt,
is entitled to receive a fair compensation for his
services. (Barney vs. Saunders, 16 How., 535; 14
Law. ed., 1047.) But from this it does not follow that
the compensation due him may lawfully be deducted
in arriving at the net value of the estate subject to
tax. There is no statute in the Philippines which
requires trustees' commissions to be deducted in
determining the net value of the estate subject to
inheritance tax. (61 C. J., p. 1705.) Furthermore,
though a testamentary trust has been created, it
does not appear that the testator intended that the
duties of his executors and trustees should be
separated. (Ibid.; In re Vanneck's Estate, 161 N. Y.
Supp., 893; 175 App. Div., 363; In re Collard's Estate,
161 N. Y. Supp., 455.)
6.ID.; ID.; ADMINISTRATION EXPENSES.Judicial
expenses are expenses of administration (61 C. J., p.

TAX 2

1705) but, in State vs. Hennepin County Probate

Court (112 N. W., 878; 101 Minn., 485), it was said: "*
* * the compensation of a trustee, earned, not in the
administration of the estate, but in the management
thereof for the benefit of the legatees or devisees,
does not come properly within the class or reason for
exempting administration expenses. * * * Services
rendered in that behalf have no reference to closing
the estate for the purpose of a distribution thereof to
those entitled to it, and are not required or essential
to the perfection of the rights of the heirs or
legatees. * * * Trusts * * * of the character of that
here before the court, are created for the benefit of
those to whom the property ultimately passes, are of
voluntary creation, and intended for the preservation
of the estate. No sound reason is given to support
the contention that such expenses should be taken
into consideration in fixing the value of the estate for
the purposes of .this tax.
7.ID.; RETROACTIVE LEGISLATION.It is well-settled
that inheritance taxation is governed by the statute
in force at the time of the death of the decedent (26
R. C. L., p. 206; 4 Cooley on Taxation, 4th ed., p.
3461). The taxpayer cannot foresee and ought not to
be required to guess the outcome of pending
measures. Of course, a tax statute may be made
retroactive in its operation. Liability for taxes under
retroactive legislation has been "one of the incidents
of social life." (Seattle vs. Kelleher, 195 U. S., 351,
360; 49 Law. ed., 232; 25 Sup. Ct. Rep., 44.)
8.ID.; ID.But legislative intent that a tax statute
should operate retroactively should be perfectly
clear. (Scwab vs. Doyle, 42 Sup. Ct. Rep., 491;
Smietanka vs. First Trust & Savings Bank, 257 U. S.,
602; Stockdale vs. Insurance Co., 20 Wall., 323;
Lunch vs. Turrish, 247 U. S., 221.) "A statute should
be considered as prospective in its operation,
whether it enacts, amends, or repeals an inheritance
tax, unless the language of the statute clearly
demands or expresses that it shall have a retroactive
effect, * * * " (61 C. J., 1602.)
9.ID.; ID.Though the last paragraph of section 5 of
Regulations No. 65 of the Department of Finance
makes section 3 of Act No. 3606, amending section
1544 of the Revised Administrative Code, applicable
to all estates the inheritance taxes due from which
have not been paid, Act No. 3606 itself contains no
provisions indicating legislative intent to give it
retroactive effect. No such effect can be given the
statute by this court.
10.ID.; ID.; PENAL STATUTES.Properly speaking, a
statute is penal when it imposes punishment for an
offense committed against the state which, under the
Constitution, the Executive has the power to pardon.
In common use, however, this sense has been
enlarged to include within the term "penal statutes"
all statutes which command or prohibit certain acts,
and establish penalties for their violation, and even
those which, without expressly prohibiting certain

CARPIO, JDP

TAX 2

counterclaim for P1,191.27 alleged to be interest due

on the tax in question and which was not included in
the original assessment. From the decision of the
11.ID.; ID.; ID.; REVENUE LAW.Revenue laws,
Court of First Instance of Zamboanga dismissing both
generally, which impose taxes collected by the
means ordinarily resorted to for the collection of the plaintiff's complaint and the defendant's
counterclaim, both parties appealed to this court.
taxes are not classed as penal laws, although
there are authorities to the contrary. (See
Sutherland, Statutory Construction, 361; Twine
It appears that on May 27, 1922, one Thomas Hanley
Co. vs. Worthington, 141 U. S., 468; 12 Sup. Ct., died in Zamboanga, Zamboanga, leaving a will
55; Rice vs. U. S., 4 C. C. A., 104; 53 Fed., 910; Com.
(Exhibit 5) and considerable amount of real and
vs. Standard Oil Co., 101 Pa. St., 150; State vs.
personal properties. On june 14, 1922, proceedings
Wheeler, 44 P., 430; 25 Nev., 143.) Article 22 of the
for the probate of his will and the settlement and
Revised Penal Code is not applicable to the case at
bar, and in the absence of clear legislative intent, we distribution of his estate were begun in the Court of
First Instance of Zamboanga. The will was admitted
cannot give Act No. 3606 a retroactive effect.
to probate. Said will provides, among other things, as
12.ID.; TRUSTS AND TRUSTEES.The word "trust" is
follows:
not mentioned or used in the will but the intention to
create one is clear. No particular or technical words
4. I direct that any money left by me be given
are required to create a testamentary trust. * (69 C.
to my nephew Matthew Hanley.
J., p. 711.) The words "trust" and "trustee", though
apt for the purpose, are not necessary. In fact, the
use of these two words is not conclusive on the
5. I direct that all real estate owned by me at
question that a trust is created. (69 C. J., p. 714.)
the time of my death be not sold or otherwise
disposed of for a period of ten (10) years after
13.ID.; ID.There is no doubt that the testator
my death, and that the same be handled and
intended to create a trust. He ordered in his will that
managed by the executors, and proceeds
certain of his properties be kept together undisposed
during a fixed period, for a stated purpose. The
thereof to be given to my nephew, Matthew
probate court certainly exercised sound judgment in
Hanley, at Castlemore, Ballaghaderine,
appointing a trustee to carry into effect the
County of Rosecommon, Ireland, and that he
provisions of the will. (See sec. 582, Code of Civil
be directed that the same be used only for the
Procedure.)
education of my brother's children and their
14.ID.; ID.; ERROR IN ENGLISH VERSION OF
descendants.
SUBSECTION (B), SECTION 1543, REVISED
ADMINISTRATIVE CODE.The word "trustee",
6. I direct that ten (10) years after my death
appearing in subsection (b) of section 1543, should
my property be given to the above mentioned
read "fideicommissary" or "cestui que trust". There
Matthew Hanley to be disposed of in the way
was an obvious mistake in translation from the
he thinks most advantageous.
Spanish to the English version.

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acts, impose a penalty upon their commission.

(59 C. J., p. 1110.)

APPEAL from a judgment of the Court of First

Instance of Zamboanga. De la Costa, J.
The facts are stated in the opinion of the court.
Pablo Lorenzo and Delfin Joven for plaintiff-appellant.
Solicitor-General Hilado for defendant-appellant.
[Lorenzo vs. Posadas, 64 Phil. 353(1937)]
LAUREL, J.:
On October 4, 1932, the plaintiff Pablo Lorenzo, in his
capacity as trustee of the estate of Thomas Hanley,
deceased, brought this action in the Court of First
Instance of Zamboanga against the defendant, Juan
Posadas, Jr., then the Collector of Internal Revenue,
for the refund of the amount of P2,052.74, paid by
the plaintiff as inheritance tax on the estate of the
deceased, and for the collection of interst thereon at
the rate of 6 per cent per annum, computed from
September 15, 1932, the date when the aforesaid tax
was [paid under protest. The defendant set up a

xxx

xxx

xxx

8. I state at this time I have one brother living,

named Malachi Hanley, and that my nephew,
Matthew Hanley, is a son of my said brother,
Malachi Hanley.
The Court of First Instance of Zamboanga considered
it proper for the best interests of ther estate to
appoint a trustee to administer the real properties
which, under the will, were to pass to Matthew
Hanley ten years after the two executors named in
the will, was, on March 8, 1924, appointed trustee.
Moore took his oath of office and gave bond on March
10, 1924. He acted as trustee until February 29,
1932, when he resigned and the plaintiff herein was
appointed in his stead.

CARPIO, JDP
During the incumbency of the plaintiff as
trustee, the defendant Collector of Internal
Revenue, alleging that the estate left by the
deceased at the time of his death consisted of
realty valued at P27,920 and personalty valued
at P1,465, and allowing a deduction of P480.81,
assessed against the estate an inheritance tax
in the amount of P1,434.24 which, together with
the penalties for deliquency in payment
consisting of a 1 per cent monthly interest from July
1, 1931 to the date of payment and a surcharge of
25 per cent on the tax, amounted to P2,052.74. On
March 15, 1932, the defendant filed a motion in the
testamentary proceedings pending before the Court
of First Instance of Zamboanga (Special proceedings
No. 302) praying that the trustee, plaintiff herein, be
ordered to pay to the Government the said sum of
P2,052.74. The motion was granted. On September
15, 1932, the plaintiff paid said amount under
protest, notifying the defendant at the same time
that unless the amount was promptly refunded suit
would be brought for its recovery. The defendant
overruled the plaintiff's protest and refused to refund
the said amount hausted, plaintiff went to court with
the result herein above indicated.

Pa
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TAX 2

V. In not rendering judgment in favor of the

plaintiff and in denying his motion for new
trial.
The defendant-appellant contradicts the theories of
the plaintiff and assigns the following error besides:
The lower court erred in not ordering the
plaintiff to pay to the defendant the sum of
P1,191.27, representing part of the interest at
the rate of 1 per cent per month from April
10, 1924, to June 30, 1931, which the plaintiff
had failed to pay on the inheritance tax
assessed by the defendant against the estate
of Thomas Hanley.

The following are the principal questions to be

decided by this court in this appeal: (a) When does
the inheritance tax accrue and when must it be
satisfied? (b) Should the inheritance tax be computed
on the basis of the value of the estate at the time of
the testator's death, or on its value ten years later?
(c) In determining the net value of the estate subject
to tax, is it proper to deduct the compensation due to
trustees? (d) What law governs the case at bar?
Should the provisions of Act No. 3606 favorable to
In his appeal, plaintiff contends that the lower court
the tax-payer be given retroactive effect? (e) Has
erred:
there been deliquency in the payment of the
inheritance tax? If so, should the additional interest
I. In holding that the real property of Thomas
claimed by the defendant in his appeal be paid by
Hanley, deceased, passed to his instituted
the estate? Other points of incidental importance,
heir, Matthew Hanley, from the moment of the raised by the parties in their briefs, will be touched
death of the former, and that from the time,
upon in the course of this opinion.
the latter became the owner thereof.
(a) The accrual of the inheritance tax is distinct from
the obligation to pay the same. Section 1536 as
amended, of the Administrative Code, imposes the
tax upon "every transmission by virtue of
inheritance, devise, bequest, giftmortis causa, or
III. In holding that the inheritance tax in
advance in anticipation of inheritance,devise, or
question be based upon the value of the
bequest." The tax therefore is upon transmission or
estate upon the death of the testator, and
the transfer or devolution of property of a decedent,
not, as it should have been held, upon the
made effective by his death. (61 C. J., p. 1592.) It is
value thereof at the expiration of the period of in reality an excise or privilege tax imposed on the
ten years after which, according to the
right to succeed to, receive, or take property by or
testator's will, the property could be and was
under a will or the intestacy law, or deed, grant, or
to be delivered to the instituted heir.
gift to become operative at or after death. Acording
to article 657 of the Civil Code, "the rights to the
IV. In not allowing as lawful deductions, in the succession of a person are transmitted from the
determination of the net amount of the estate moment of his death." "In other words", said
Arellano, C. J., ". . . the heirs succeed immediately to
subject to said tax, the amounts allowed by
all of the property of the deceased ancestor. The
the court as compensation to the "trustees"
property belongs to the heirs at the moment of the
and paid to them from the decedent's estate.
death of the ancestor as completely as if the
ancestor had executed and delivered to them a deed
for the same before his death." (Bondad vs. Bondad,
II. In holding, in effect, that there was
deliquency in the payment of inheritance tax
due on the estate of said deceased.

CARPIO, JDP
34 Phil., 232. See also, Mijares vs. Nery, 3 Phil.,
195; Suilong & Co., vs. Chio-Taysan, 12 Phil., 13;
Lubrico vs. Arbado, 12 Phil., 391; Innocencio vs.
Gat-Pandan, 14 Phil., 491; Aliasas vs.Alcantara,
16 Phil., 489; Ilustre vs. Alaras Frondosa, 17
Phil., 321; Malahacan vs. Ignacio, 19 Phil., 434;
Bowa vs. Briones, 38 Phil., 27; Osario vs. Osario
& Yuchausti Steamship Co., 41 Phil., 531; Fule
vs. Fule, 46 Phil., 317; Dais vs. Court of First
Instance of Capiz, 51 Phil., 396; Baun vs. Heirs of
Baun, 53 Phil., 654.) Plaintiff, however, asserts that
while article 657 of the Civil Code is applicable to
testate as well as intestate succession, it operates
only in so far as forced heirs are concerned. But the
language of article 657 of the Civil Code is broad and
makes no distinction between different classes of
heirs. That article does not speak of forced heirs; it
does not even use the word "heir". It speaks of the
rights of succession and the transmission thereof
from the moment of death. The provision of section
625 of the Code of Civil Procedure regarding the
authentication and probate of a will as a necessary
condition to effect transmission of property does not
affect the general rule laid down in article 657 of the
Civil Code. The authentication of a will implies its due
execution but once probated and allowed the
transmission is effective as of the death of the
testator in accordance with article 657 of the Civil
Code. Whatever may be the time when actual
transmission of the inheritance takes place,
succession takes place in any event at the moment
of the decedent's death. The time when the heirs
legally succeed to the inheritance may differ from
the time when the heirs actually receive such
inheritance. "Poco importa", says Manresa
commenting on article 657 of the Civil Code, "que
desde el falleimiento del causante, hasta que el
heredero o legatario entre en posesion de los bienes
de la herencia o del legado, transcurra mucho o poco
tiempo, pues la adquisicion ha de retrotraerse al
momento de la muerte, y asi lo ordena el articulo
989, que debe considerarse como complemento del
presente." (5 Manresa, 305; see also, art. 440, par. 1,
Civil Code.) Thomas Hanley having died on May 27,
1922, the inheritance tax accrued as of the date.

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TAX 2

(a) The merger of the usufruct in the

owner of the naked title.
(b) The transmission or delivery of the
inheritance or legacy by the fiduciary
heir or legatee to the trustees.
(c) The transmission from the first heir,
legatee, or donee in favor of another
beneficiary, in accordance with the
desire of the predecessor.
In the last two cases, if the scale of taxation
appropriate to the new beneficiary is greater
than that paid by the first, the former must
pay the difference.
SEC. 1544. When tax to be paid. The tax
fixed in this article shall be paid:
(a) In the second and third cases of the
next preceding section, before
entrance into possession of the
property.
(b) In other cases, within the six
months subsequent to the death of the
predecessor; but if judicial
testamentary or intestate proceedings
shall be instituted prior to the
expiration of said period, the payment
shall be made by the executor or
administrator before delivering to each
beneficiary his share.
If the tax is not paid within the time
hereinbefore prescribed, interest at the rate of
twelve per centum per annum shall be added
as part of the tax; and to the tax and interest
due and unpaid within ten days after the date
of notice and demand thereof by the collector,
there shall be further added a surcharge of
twenty-five per centum.
A certified of all letters testamentary or of
admisitration shall be furnished the Collector
of Internal Revenue by the Clerk of Court
within thirty days after their issuance.

From the fact, however, that Thomas Hanley died on

May 27, 1922, it does not follow that the obligation to
pay the tax arose as of the date. The time for the
payment on inheritance tax is clearly fixed by section
1544 of the Revised Administrative Code as amended It should be observed in passing that the word
"trustee", appearing in subsection (b) of section
by Act No. 3031, in relation to section 1543 of the
1543, should read "fideicommissary" or "cestui que
same Code. The two sections follow:
trust". There was an obvious mistake in translation
from the Spanish to the English version.
SEC. 1543. Exemption of certain acquisitions
and transmissions. The following shall not
be taxed:

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The instant case does fall under subsection (a),

but under subsection (b), of section 1544
above-quoted, as there is here no fiduciary
heirs, first heirs, legatee or donee. Under the
subsection, the tax should have been paid
before the delivery of the properties in question
to P. J. M. Moore as trustee on March 10, 1924.

(b) The plaintiff contends that the estate of

Thomas Hanley, in so far as the real properties are
concerned, did not and could not legally pass to the
instituted heir, Matthew Hanley, until after the
expiration of ten years from the death of the testator
on May 27, 1922 and, that the inheritance tax should
be based on the value of the estate in 1932, or ten
years after the testator's death. The plaintiff
introduced evidence tending to show that in 1932 the
real properties in question had a reasonable value of
only P5,787. This amount added to the value of the
personal property left by the deceased, which the
plaintiff admits is P1,465, would generate an
inheritance tax which, excluding deductions, interest
and surcharge, would amount only to about P169.52.

TAX 2

estate at its clear market value and the payment

forthwith of the tax on its out of the corpus of the
estate transferred. (In re Vanderbilt, 172 N. Y., 69; 69
N. E., 782; In re Huber, 86 N. Y. App. Div., 458; 83 N.
Y. Supp., 769; Estate of Tracy, 179 N. Y., 501; 72 N. Y.,
519; Estate of Brez, 172 N. Y., 609; 64 N. E., 958;
Estate of Post, 85 App. Div., 611; 82 N. Y. Supp.,
1079. Vide also, Saltoun vs. Lord Advocate, 1 Peter.
Sc. App., 970; 3 Macq. H. L., 659; 23 Eng. Rul. Cas.,
888.) California adheres to this new rule (Stats. 1905,
sec. 5, p. 343).
But whatever may be the rule in other jurisdictions,
we hold that a transmission by inheritance is taxable
at the time of the predecessor's death,
notwithstanding the postponement of the actual
possession or enjoyment of the estate by the
beneficiary, and the tax measured by the value of
the property transmitted at that time regardless of its
appreciation or depreciation.

(c) Certain items are required by law to be deducted

from the appraised gross in arriving at the net value
of the estate on which the inheritance tax is to be
If death is the generating source from which the
computed (sec. 1539, Revised Administrative Code).
power of the estate to impose inheritance taxes
In the case at bar, the defendant and the trial court
takes its being and if, upon the death of the
allowed a deduction of only P480.81. This sum
decedent, succession takes place and the right of the represents the expenses and disbursements of the
estate to tax vests instantly, the tax should be
executors until March 10, 1924, among which were
measured by the vlaue of the estate as it stood at
their fees and the proven debts of the deceased. The
the time of the decedent's death, regardless of any
plaintiff contends that the compensation and fees of
subsequent contingency value of any subsequent
the trustees, which aggregate P1,187.28 (Exhibits C,
increase or decrease in value. (61 C. J., pp. 1692,
AA, EE, PP, HH, JJ, LL, NN, OO), should also be
1693; 26 R. C. L., p. 232; Blakemore and Bancroft,
deducted under section 1539 of the Revised
Inheritance Taxes, p. 137. See also Knowlton vs.
Administrative Code which provides, in part, as
Moore, 178 U.S., 41; 20 Sup. Ct. Rep., 747; 44 Law.
follows: "In order to determine the net sum which
ed., 969.) "The right of the state to an inheritance tax must bear the tax, when an inheritance is concerned,
accrues at the moment of death, and hence is
there shall be deducted, in case of a resident, . . . the
ordinarily measured as to any beneficiary by the
judicial expenses of the testamentary or intestate
value at that time of such property as passes to him. proceedings, . . . ."
Subsequent appreciation or depriciation is
immaterial." (Ross, Inheritance Taxation, p. 72.)
A trustee, no doubt, is entitled to receive a fair
compensation for his services (Barney vs. Saunders,
Our attention is directed to the statement of the rule 16 How., 535; 14 Law. ed., 1047). But from this it
in Cyclopedia of Law of and Procedure (vol. 37, pp.
does not follow that the compensation due him may
1574, 1575) that, in the case of contingent
lawfully be deducted in arriving at the net value of
remainders, taxation is postponed until the estate
the estate subject to tax. There is no statute in the
vests in possession or the contingency is settled. This Philippines which requires trustees' commissions to
rule was formerly followed in New York and has been be deducted in determining the net value of the
adopted in Illinois, Minnesota, Massachusetts, Ohio,
estate subject to inheritance tax (61 C. J., p. 1705).
Pennsylvania and Wisconsin. This rule, horever, is by Furthermore, though a testamentary trust has been
no means entirely satisfactory either to the estate or created, it does not appear that the testator intended
to those interested in the property (26 R. C. L., p.
that the duties of his executors and trustees should
231.). Realizing, perhaps, the defects of its anterior
be separated. (Ibid.; In re Vanneck's Estate, 161 N. Y.
system, we find upon examination of cases and
Supp., 893; 175 App. Div., 363; In re Collard's Estate,
authorities that New York has varied and now
161 N. Y. Supp., 455.) On the contrary, in paragraph
requires the immediate appraisal of the postponed
5 of his will, the testator expressed the desire that

CARPIO, JDP

TAX 2

his real estate be handled and managed by his

executors until the expiration of the period of
ten years therein provided. Judicial expenses
are expenses of administration (61 C. J., p.
1705) but, in State vs. Hennepin County Probate
Court (112 N. W., 878; 101 Minn., 485), it was
said: ". . . The compensation of a trustee,
earned, not in the administration of the estate,
but in the management thereof for the benefit
of the legatees or devises, does not come properly
within the class or reason for exempting
administration expenses. . . . Service rendered in that
behalf have no reference to closing the estate for the
purpose of a distribution thereof to those entitled to
it, and are not required or essential to the perfection
of the rights of the heirs or legatees. . . . Trusts . . . of
the character of that here before the court, are
created for the the benefit of those to whom the
property ultimately passes, are of voluntary creation,
and intended for the preservation of the estate. No
sound reason is given to support the contention that
such expenses should be taken into consideration in
fixing the value of the estate for the purpose of this
tax."

section 5 of Regulations No. 65 of the Department of

Finance makes section 3 of Act No. 3606, amending
section 1544 of the Revised Administrative Code,
applicable to all estates the inheritance taxes due
from which have not been paid, Act No. 3606 itself
contains no provisions indicating legislative intent to
give it retroactive effect. No such effect can begiven
the statute by this court.

(d) The defendant levied and assessed the

inheritance tax due from the estate of Thomas
Hanley under the provisions of section 1544 of the
Revised Administrative Code, as amended by section
3 of Act No. 3606. But Act No. 3606 went into effect
on January 1, 1930. It, therefore, was not the law in
force when the testator died on May 27, 1922. The
law at the time was section 1544 above-mentioned,
as amended by Act No. 3031, which took effect on
March 9, 1922.

Properly speaking, a statute is penal when it imposes

punishment for an offense committed against the
state which, under the Constitution, the Executive
has the power to pardon. In common use, however,
this sense has been enlarged to include within the
term "penal statutes" all status which command or
prohibit certain acts, and establish penalties for their
violation, and even those which, without expressly
prohibiting certain acts, impose a penalty upon their
commission (59 C. J., p. 1110). Revenue laws,
generally, which impose taxes collected by the
means ordinarily resorted to for the collection of
taxes are not classed as penal laws, although there
are authorities to the contrary. (See Sutherland,
Statutory Construction, 361; Twine Co. vs.
Worthington, 141 U. S., 468; 12 Sup. Ct., 55; Rice vs.
U. S., 4 C. C. A., 104; 53 Fed., 910; Com. vs. Standard
Oil Co., 101 Pa. St., 150; State vs. Wheeler, 44 P.,
430; 25 Nev. 143.) Article 22 of the Revised Penal
Code is not applicable to the case at bar, and in the
absence of clear legislative intent, we cannot give
Act No. 3606 a retroactive effect.

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15

It is well-settled that inheritance taxation is governed

by the statute in force at the time of the death of the
decedent (26 R. C. L., p. 206; 4 Cooley on Taxation,
4th ed., p. 3461). The taxpayer can not foresee and
ought not to be required to guess the outcome of
pending measures. Of course, a tax statute may be
made retroactive in its operation. Liability for taxes
under retroactive legislation has been "one of the
incidents of social life." (Seattle vs. Kelleher, 195 U.
S., 360; 49 Law. ed., 232 Sup. Ct. Rep., 44.) But
legislative intent that a tax statute should operate
retroactively should be perfectly clear. (Scwab vs.
Doyle, 42 Sup. Ct. Rep., 491; Smietanka vs. First Trust
& Savings Bank, 257 U. S., 602; Stockdale vs.
Insurance Co., 20 Wall., 323; Lunch vs. Turrish, 247 U.
S., 221.) "A statute should be considered as
prospective in its operation, whether it enacts,
amends, or repeals an inheritance tax, unless the
language of the statute clearly demands or
expresses that it shall have a retroactive effect, . . . ."
(61 C. J., P. 1602.) Though the last paragraph of

The defendant Collector of Internal Revenue

maintains, however, that certain provisions of Act No.
3606 are more favorable to the taxpayer than those
of Act No. 3031, that said provisions are penal in
nature and, therefore, should operate retroactively in
conformity with the provisions of article 22 of the
Revised Penal Code. This is the reason why he
applied Act No. 3606 instead of Act No. 3031. Indeed,
under Act No. 3606, (1) the surcharge of 25 per cent
is based on the tax only, instead of on both the tax
and the interest, as provided for in Act No. 3031, and
(2) the taxpayer is allowed twenty days from notice
and demand by rthe Collector of Internal Revenue
within which to pay the tax, instead of ten days only
as required by the old law.

(e) The plaintiff correctly states that the liability to

pay a tax may arise at a certain time and the tax
may be paid within another given time. As stated by
this court, "the mere failure to pay one's tax does not
render one delinqent until and unless the entire
period has eplased within which the taxpayer is
authorized by law to make such payment without
being subjected to the payment of penalties for

CARPIO, JDP
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fasilure to pay his taxes within the prescribed

period." (U. S. vs. Labadan, 26 Phil., 239.)

The defendant maintains that it was the duty of

the executor to pay the inheritance tax before
the delivery of the decedent's property to the
trustee. Stated otherwise, the defendant
contends that delivery to the trustee was
delivery to the cestui que trust, the beneficiery
in this case, within the meaning of the first
paragraph of subsection (b) of section 1544 of the
Revised Administrative Code. This contention is well
taken and is sustained. The appointment of P. J. M.
Moore as trustee was made by the trial court in
conformity with the wishes of the testator as
expressed in his will. It is true that the word "trust" is
not mentioned or used in the will but the intention to
create one is clear. No particular or technical words
are required to create a testamentary trust (69 C. J.,
p. 711). The words "trust" and "trustee", though apt
for the purpose, are not necessary. In fact, the use of
these two words is not conclusive on the question
that a trust is created (69 C. J., p. 714). "To create a
trust by will the testator must indicate in the will his
intention so to do by using language sufficient to
separate the legal from the equitable estate, and
with sufficient certainty designate the beneficiaries,
their interest in the ttrust, the purpose or object of
the trust, and the property or subject matter thereof.
Stated otherwise, to constitute a valid testamentary
trust there must be a concurrence of three
circumstances: (1) Sufficient words to raise a trust;
(2) a definite subject; (3) a certain or ascertain
object; statutes in some jurisdictions expressly or in
effect so providing." (69 C. J., pp. 705,706.) There is
no doubt that the testator intended to create a trust.
He ordered in his will that certain of his properties be
kept together undisposed during a fixed period, for a
stated purpose. The probate court certainly exercised
sound judgment in appointment a trustee to carry
into effect the provisions of the will (see sec. 582,
Code of Civil Procedure).
P. J. M. Moore became trustee on March 10, 1924. On
that date trust estate vested in him (sec. 582 in
relation to sec. 590, Code of Civil Procedure). The
mere fact that the estate of the deceased was placed
in trust did not remove it from the operation of our
inheritance tax laws or exempt it from the payment
of the inheritance tax. The corresponding inheritance
tax should have been paid on or before March 10,
1924, to escape the penalties of the laws. This is so
for the reason already stated that the delivery of the
estate to the trustee was in esse delivery of the
same estate to the cestui que trust, the beneficiary
in this case. A trustee is but an instrument or agent
for thecestui que trust (Shelton vs. King, 299 U. S.,

TAX 2

90; 33 Sup. Ct. Rep., 689; 57 Law. ed., 1086). When

Moore accepted the trust and took possesson of the
trust estate he thereby admitted that the estate
belonged not to him but to his cestui que
trust (Tolentino vs. Vitug, 39 Phil.,126, cited in 65 C.
J., p. 692, n. 63). He did not acquire any beneficial
interest in the estate. He took such legal estate only
as the proper execution of the trust required (65 C. J.,
p. 528) and, his estate ceased upon the fulfillment of
the testator's wishes. The estate then vested
absolutely in the beneficiary (65 C. J., p. 542).
The highest considerations of public policy also
justify the conclusion we have reached. Were we to
hold that the payment of the tax could be postponed
or delayed by the creation of a trust of the type at
hand, the result would be plainly disastrous.
Testators may provide, as Thomas Hanley has
provided, that their estates be not delivered to their
beneficiaries until after the lapse of a certain period
of time. In the case at bar, the period is ten years. In
other cases, the trust may last for fifty years, or for a
longer period which does not offend the rule against
petuities. The collection of the tax would then be left
to the will of a private individual. The mere
suggestion of this result is a sufficient warning
against the accpetance of the essential to the very
exeistence of government. (Dobbins vs. Erie Country,
16 Pet., 435; 10 Law. ed., 1022; Kirkland vs.
Hotchkiss, 100 U. S., 491; 25 Law. ed., 558; Lane
County vs. Oregon, 7 Wall., 71; 19 Law. ed., 101;
Union Refrigerator Transit Co. vs. Kentucky, 199 U. S.,
194; 26 Sup. Ct. Rep., 36; 50 Law. ed., 150; Charles
River Bridge vs. Warren Bridge, 11 Pet., 420; 9 Law.
ed., 773.) The obligation to pay taxes rests not upon
the privileges enjoyed by, or the protection afforded
to, a citizen by the government but upon the
necessity of money for the support of the state
(Dobbins vs. Erie Country, supra). For this reason, no
one is allowed to object to or resist the payment of
taxes solely because no personal benefit to him can
be pointed out. (Thomas vs. Gay, 169 U. S., 264; 18
Sup. Ct. Rep., 340; 43 Law. ed., 740.) While courts
will not enlarge, by construction, the government's
power of taxation (Bromley vs. McCaughn, 280 U. S.,
124; 74 Law. ed., 226; 50 Sup. Ct. Rep., 46) they also
will not place upon tax laws so loose a construction
as to permit evasions on merely fanciful and
insubstantial distictions. (U. S. vs. Watts, 1 Bond.,
580; Fed. Cas. No. 16,653; U. S. vs. Wigglesirth, 2
Story, 369; Fed. Cas. No. 16,690, followed in Froelich
& Kuttner vs. Collector of Customs, 18 Phil., 461, 481;
Castle Bros., Wolf & Sons vs. McCoy, 21 Phil., 300;
Muoz & Co. vs. Hord, 12 Phil., 624; Hongkong &
Shanghai Banking Corporation vs. Rafferty, 39 Phil.,
145; Luzon Stevedoring Co. vs. Trinidad, 43 Phil.,
803.) When proper, a tax statute should be construed

CARPIO, JDP
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to avoid the possibilities of tax evasion.

Construed this way, the statute, without
resulting in injustice to the taxpayer, becomes
fair to the government.

That taxes must be collected promptly is a

policy deeply intrenched in our tax system.
Thus, no court is allowed to grant injunction to
restrain the collection of any internal revenue
tax ( sec. 1578, Revised Administrative Code;
Sarasola vs. Trinidad, 40 Phil., 252). In the case of
Lim Co Chui vs. Posadas (47 Phil., 461), this court
had occassion to demonstrate trenchment adherence
to this policy of the law. It held that "the fact that on
account of riots directed against the Chinese on
October 18, 19, and 20, 1924, they were prevented
from praying their internal revenue taxes on time
and by mutual agreement closed their homes and
stores and remained therein, does not authorize the
Collector of Internal Revenue to extend the time
prescribed for the payment of the taxes or to accept
them without the additional penalty of twenty five
per cent." (Syllabus, No. 3.)
". . . It is of the utmost importance," said the
Supreme Court of the United States, ". . . that the
modes adopted to enforce the taxes levied should be
interfered with as little as possible. Any delay in the
proceedings of the officers, upon whom the duty is
developed of collecting the taxes, may derange the
operations of government, and thereby, cause
serious detriment to the public." (Dows vs. Chicago,
11 Wall., 108; 20 Law. ed., 65, 66; Churchill and Tait
vs. Rafferty, 32 Phil., 580.)
It results that the estate which plaintiff represents
has been delinquent in the payment of inheritance
tax and, therefore, liable for the payment of interest
and surcharge provided by law in such cases.
The delinquency in payment occurred on March 10,
1924, the date when Moore became trustee. The
interest due should be computed from that date and
it is error on the part of the defendant to compute it
one month later. The provisions cases is mandatory
(see and cf. Lim Co Chui vs. Posadas, supra), and
neither the Collector of Internal Revenuen or this
court may remit or decrease such interest, no matter
how heavily it may burden the taxpayer.
To the tax and interest due and unpaid within ten
days after the date of notice and demand thereof by
the Collector of Internal Revenue, a surcharge of
twenty-five per centum should be added (sec. 1544,
subsec. (b), par. 2, Revised Administrative Code).
Demand was made by the Deputy Collector of

TAX 2

Internal Revenue upon Moore in a communiction

dated October 16, 1931 (Exhibit 29). The date fixed
for the payment of the tax and interest was
November 30, 1931. November 30 being an official
holiday, the tenth day fell on December 1, 1931. As
the tax and interest due were not paid on that date,
the estate became liable for the payment of the
surcharge.
In view of the foregoing, it becomes unnecessary for
us to discuss the fifth error assigned by the plaintiff
in his brief.
We shall now compute the tax, together with the
interest and surcharge due from the estate of
Thomas Hanley inaccordance with the conclusions
we have reached.
At the time of his death, the deceased left real
properties valued at P27,920 and personal properties
worth P1,465, or a total of P29,385. Deducting from
this amount the sum of P480.81, representing
allowable deductions under secftion 1539 of the
Revised Administrative Code, we have P28,904.19 as
the net value of the estate subject to inheritance tax.
The primary tax, according to section 1536,
subsection (c), of the Revised Administrative Code,
should be imposed at the rate of one per centum
upon the first ten thousand pesos and two per
centum upon the amount by which the share exceed
thirty thousand pesos, plus an additional two
hundred per centum. One per centum of ten
thousand pesos is P100. Two per centum of
P18,904.19 is P378.08. Adding to these two sums an
additional two hundred per centum, or P965.16, we
have as primary tax, correctly computed by the
defendant, the sum of P1,434.24.
To the primary tax thus computed should be added
the sums collectible under section 1544 of the
Revised Administrative Code. First should be added
P1,465.31 which stands for interest at the rate of
twelve per centum per annum from March 10, 1924,
the date of delinquency, to September 15, 1932, the
date of payment under protest, a period covering 8
years, 6 months and 5 days. To the tax and interest
thus computed should be added the sum of P724.88,
representing a surhcarge of 25 per cent on both the
tax and interest, and also P10, the compromise sum
fixed by the defendant (Exh. 29), giving a grand total
of P3,634.43.
As the plaintiff has already paid the sum of
P2,052.74, only the sums of P1,581.69 is legally due
from the estate. This last sum is P390.42 more than

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the amount demanded by the defendant in his

counterclaim. But, as we cannot give the
defendant more than what he claims, we must
hold that the plaintiff is liable only in the sum of
P1,191.27 the amount stated in the
counterclaim.

The judgment of the lower court is accordingly

modified, with costs against the plaintiff in both
instances. So ordered

[No. 34937. March 13, 1933]

CONCEPCION VIDAL DE ROCES and her
husband, MARCOS ROCES, and ELVIRA VIDAL
DE RICHARDS, plaintiffs and appellants, vs.
JUAN POSADAS, jr., Collector of Internal
Revenue, defendant and appellee.
1.INHERITANCE TAX; GlFTS 'INTER VlVOS"; SECTION
1540, ADMINISTRATIVE CODE.The gifts referred to
in section 1540 of the Revised Administrative Code
are, obviously, those donations inter vivos that take
effect immediately or during the lifetime of the
donor, but are made in consideration of his death.
Gifts inter vivos, the transmission of which is not
made in consideration of the donor's death, should
not be understood as included within the said legal
provision for the reason that it would be equivalent
to levying a direct tax on property and not on the
transmission thereof, which act is not within the
scope of the provisions contained in Article XI of
Chapter 40 of the Administrative Code referring
expressly to tax on inheritances, legacies and other
acquisitions mortis causa.
2.ID.; ID.; ID.; INTERPRETATION.Such interpretation
of the law is not in conflict with the rule laid down in
the case of Tuason and Tuason vs. Posadas (54 Phil.,
289), wherein it was said that the expression "all
gifts" refers to gifts inter vivos, because the law
considers them as advances in anticipation of
inheritance in the sense that they are gifts inter vivos
made in consideration of death. In that case, it was
not held that that kind of gifts consisted in those
made completely independent of death or without
regard to it.

TAX 2

3.ID. ; ID. ; ID. ; VALIDITY.The legal provision cited is

not null and void on the alleged ground that the
subject matter thereof is not embraced in the title of
the section under which it is enumerated. On the
contrary, its provisions are perfectly summarized in
the heading, "Tax on Inheritance etc." which
constitutes the title of Article XI. The constitutional
provision should not be so strictly construed as to
make it necessary that the title contain a full index to
all the contents of the law. It is sufficient if the
language used therein is expressed in such a way
that, in case of doubt, it would afford a means of
determining the legislator's intention. (Lewis'
Sutherland Statutory Construction, Vol. II, page 651.)
4.ID.; ID.; ID.; JONES LAW.The circumstance that
the Administrative Code was prepared and compiled
strictly in accordance with the provisions of the Jones
Law on that matter should not be overlooked and
that, in a compilation of laws such as the
Administrative Code, it is but natural and proper that
provisions referring to diverse matters should be
found. (Ayson and Ignacio vs. Provincial Board of
Rizal and Municipal Council of Navotas, 39 Phil., 931.)
5.PLEADING AND PRACTICE; DEMURRER TO THE
COMPLAINT; STEPS TO BE TAKEN WHEN THE
PLAINTIFF HAS NO CAUSE OF ACTION.The demurrer
interposed by the appellee was well-founded
inasmuch as it appears that the complaint does not
allege facts sufficient to constitute a cause of action.
When the appellants refused to amend the same, in
spite of the court's order to that effect, they
voluntarily waived the opportunity offered them and
they are not now entitled to have the case remanded
for any further proceedings, which would serve no
purpose altogether in view of the insufficiency of the
complaint.
APPEAL from a judgment of the Court of First
Instance of Manila. Concepcion, J.
The facts are stated in the opinion of the court.
Feria & La, O for appellants.
Attorney-General Jaranilla for appellee. [Vidal de
Roces vs. Posadas, 58 Phil. 108(1933)]
IMPERIAL, J.:
The plaintiffs herein brought this action to recover
from the defendant, Collector of Internal Revenue,
certain sums of money paid by them under protest
as inheritance tax. They appealed from the judgment
rendered by the Court of First Instance of Manila
dismissing the action, without costs.
On March 10 and 12, 1925, Esperanza Tuazon, by
means of public documents, donated certain parcels
of land situated in Manila to the plaintiffs herein,
who, with their respective husbands, accepted them
in the same public documents, which were duly
recorded in the registry of deeds. By virtue of said

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violates section 3 of the Jones Law which provides

that no law should embrace more than one subject,
and that subject should be expressed in the title
thereof; second that the Legislature has no authority
to impose inheritance tax on donations inter vivos;
and third, because a legal provision of this character
On January 5, 1926, the donor died in the City
contravenes the fundamental rule of uniformity of
of Manila without leaving any forced heir and
taxation. The appellee, in turn, contends that the
her will which was admitted to probate, she
words "all gifts" refer clearly to donations inter
bequeathed to each of the donees the sum of
P5,000. After the estate had been distributed among vivos and, in support of his theory, cites the doctrine
laid in the case of Tuason and Tuason vs. Posadas (54
the instituted legatees and before delivery of their
respective shares, the appellee herein, as Collector of Phil., 289). After a careful study of the law and the
authorities applicable thereto, we are the opinion
Internal Revenue, ruled that the appellants, as
that neither theory reflects the true spirit of the
donees and legatees, should pay as inheritance tax
the sums of P16,673 and P13,951.45, respectively. Of aforementioned provision. The gifts referred to in
section 1540 of the Revised Administration Code are,
these sums P15,191.48 was levied as tax on the
obviously, those donations inter vivos that take effect
donation to Concepcion Vidal de Roces and
immediately or during the lifetime of the donor but
P1,481.52 on her legacy, and, likewise, P12,388.95
was imposed upon the donation made to Elvira Vidal are made in consideration or in contemplation of
death. Gifts inter vivos, the transmission of which is
de Richards and P1,462.50 on her legacy. At first the
not made in contemplation of the donor's death
appellants refused to pay the aforementioned taxes
but, at the insistence of the appellee and in order not should not be understood as included within the said
to delay the adjudication of the legacies, they agreed legal provision for the reason that it would amount to
imposing a direct tax on property and not on the
at last, to pay them under protest.
transmission thereof, which act does not come within
The appellee filed a demurrer to the complaint on the the scope of the provisions contained in Article XI of
Chapter 40 of the Administrative Code which deals
ground that the facts alleged therein were not
expressly with the tax on inheritances, legacies and
sufficient to constitute a cause of action. After the
other acquisitions mortis causa.
legal questions raised therein had been discussed,
the court sustained the demurrer and ordered the
Our interpretation of the law is not in conflict with the
amendment of the complaint which the appellants
rule laid down in the case of Tuason and Tuason vs.
failed to do, whereupon the trial court dismissed the
Posadas, supra. We said therein, as we say now, that
action on the ground that the afore- mentioned
the expression "all gifts" refers to gifts inter
appellants did not really have a right of action.
vivos inasmuch as the law considers them as
advances on inheritance, in the sense that they are
In their brief, the appellants assign only one alleged
gifts inter vivos made in contemplation or in
error, to wit: that the demurrer interposed by the
consideration of death. In that case, it was not held
appellee was sustained without sufficient ground.
that that kind of gifts consisted in those made
completely independent of death or without regard
The judgment appealed from was based on the
provisions of section 1540 Administrative Code which to it.

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donations, the plaintiffs took possession of the

said lands, received the fruits thereof and
obtained the corresponding transfer certificates
of title.

reads as follows:
SEC. 1540. Additions of gifts and advances.
After the aforementioned deductions have
been made, there shall be added to the
resulting amount the value of all gifts or
advances made by the predecessor to any
those who, after his death, shall prove to be
his heirs, devisees, legatees, or donees mortis
causa.
The appellants contend that the above-mentioned
legal provision does not include donations inter
vivos and if it does, it is unconstitutional, null and
void for the following reasons: first, because it

Said legal provision is not null and void on the

alleged ground that the subject matter thereof is not
embraced in the title of the section under which it is
enumerated. On the contrary, its provisions are
perfectly summarized in the heading, "Tax on
Inheritance, etc." which is the title of Article XI.
Furthermore, the constitutional provision cited should
not be strictly construed as to make it necessary that
the title contain a full index to all the contents of the
law. It is sufficient if the language used therein is
expressed in such a way that in case of doubt it
would afford a means of determining the legislators
intention. (Lewis' Sutherland Statutory Construction,
Vol. II, p. 651.) Lastly, the circumstance that the
Administrative Code was prepared and compiled

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strictly in accordance with the provisions of the

Jones Law on that matter should not be
overlooked and that, in a compilation of laws
such as the Administrative Code, it is but
natural and proper that provisions referring to
diverse matters should be found. (Ayson and
Ignacio vs. Provincial Board of Rizal and
Municipal Council of Navotas, 39 Phil., 931.)

The appellants question the power of the Legislature

to impose taxes on the transmission of real estate
that takes effect immediately and during the lifetime
of the donor, and allege as their reason that such tax
partakes of the nature of the land tax which the law
has already created in another part of the
Administrative Code. Without making express
pronouncement on this question, for it is
unnecessary, we wish to state that such is not the
case in these instance. The tax collected by the
appellee on the properties donated in 1925 really
constitutes an inheritance tax imposed on the
transmission of said properties in contemplation or in
consideration of the donor's death and under the
circumstance that the donees were later instituted as
the former's legatees. For this reason, the law
considers such transmissions in the form of gifts inter
vivos, as advances on inheritance and nothing
therein violates any constitutional provision,
inasmuch as said legislation is within the power of
the Legislature.
Property Subject to Inheritance Tax. The
inheritance tax ordinarily applies to all
property within the power of the state to
reach passing by will or the laws regulating
intestate succession or by gift inter vivos in
the manner designated by statute, whether
such property be real or personal, tangible or
intangible, corporeal or incorporeal. (26
R.C.L., p. 208, par. 177.)
In the case of Tuason and Tuason vs. Posadas, supra,
it was also held that section 1540 of the
Administrative Code did not violate the constitutional
provision regarding uniformity of taxation. It cannot
be null and void on this ground because it equally
subjects to the same tax all of those donees who
later become heirs, legatees or donees mortis
causa by the will of the donor. There would be a
repugnant and arbitrary exception if the provisions of
the law were not applicable to all donees of the same
kind. In the case cited above, it was said: "At any
rate the argument adduced against its
constitutionality, which is the lack of Uniformity, does
not seem to be well founded. It was said that under
such an interpretation, while a donee inter vivos who,
after the predecessor's death proved to be an heir, a

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legatee, or a donee mortis causa, would have to pay

the tax, another donee inter vivos who did not prove
to he an heir, a legatee, or a donee mortis causa of
the predecessor, would be exempt from such a tax.
But as these are two different cases, the principle of
uniformity is inapplicable to them."
The last question of a procedural nature arising from
the case at bar, which should be passed upon, is
whether the case, as it now stands, can be decided
on the merits or should be remanded to the court a
quo for further proceedings. According to our view of
the case, it follows that, if the gifts received by the
appellants would have the right to recover the sums
of money claimed by them. Hence the necessity of
ascertaining whether the complaint contains an
allegation to that effect. We have examined said
complaint and found nothing of that nature. On the
contrary, it be may be inferred from the allegations
contained in paragraphs 2 and 7 thereof that said
donations inter vivos were made in consideration of
the donor's death. We refer to the allegations that
such transmissions were effected in the month of
March, 1925, that the donor died in January, 1926,
and that the donees were instituted legatees in the
donor's will which was admitted to probate. It is from
these allegations, especially the last, that we infer a
presumption juris tantum that said donations were
made mortis causa and, as such, are subject to the
payment of inheritance tax.
Wherefore, the demurrer interposed by the appellee
was well-founded because it appears that the
complaint did not allege fact sufficient to constitute a
cause of action. When the appellants refused to
amend the same, spite of the court's order to that
effect, they voluntarily waived the opportunity
offered them and they are not now entitled to have
the case remanded for further proceedings, which
would serve no purpose altogether in view of the
insufficiency of the complaint.
Wherefore, the judgment appealed from is hereby
affirmed, with costs of this instance against the
appellants. So ordered.

[No. 36770.November 4, 1932]

Luis W. Dison, plaintiff and appellant, vs. Juan
Posadas, Jr., Collector of Internal Revenue,
defendant and appellant.
1.Internal Revenue; Inheritance Tax; Gifts "Inter
Vivos".Section 1540 of the Administrative Code

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subjects the plaintiff and appellant to the

payment of the inheritance tax upon the gift
28364130
466
466

PHILIPPINE REPORTS ANNOTATED

Dison vs. Posadas

inter vivos he received from his father and which
really was an advancement upon the inheritance he
would be entitled to receive upon the death of the
donor.
2.Id.; Id.; Id.Section 1540 of the Administrative
Code does not tax gifts per se, but only when those
gifts are made to those who shall prove to be the
heirs, devisees, legatees or donees mortis causa of
the donor.

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account of said tax. The plaintiff replied to the

counterdemand with a general denial. The courta
quo held that the cause of action set up in the
counterdemand was not proven and dismissed the
same. Both sides appealed to this court, but the
cross-complaint and appeal of the Collector of
Internal Revenue were dismissed by this court on
March 17, 1932, on motion of the AttorneyGeneral.1awphil.net
The only evidence introduced at the trial of this
cause was the proof of payment of the tax under
protest, as stated, and the deed of gift executed by
Felix Dison on April 9, 1928, in favor of his sons Luis
W. Dison, the plaintiff-appellant. This deed of gift
transferred twenty-two tracts of land to the donee,
reserving to the donor for his life the usufruct of
three tracts. This deed was acknowledged by the
donor before a notary public on April 16, 1928. Luis
W. Dison, on April 17, 1928, formally accepted said
gift by an instrument in writing which he
acknowledged before a notary public on April 20,
1928.

3.Id.; Id.; Id.; "Heirs".The expression in section

1540 of the Administrative Code "those who, after his
At the trial the parties agreed to and filed the
death, shall prove to be his heirs" includes those who
following ingenious stipulation of fact:
are given the status and rights of heirs, regardless of
the quantity of property they may receive as such
1. That Don Felix Dison died on April 21, 1928;
heirs.
APPEAL from a judgment of the Court of First
Instance of Pampanga.Reyes, J.
The facts are stated in the opinion of the court.
Marcelino Aguas for plaintiff-appellant.
Attorney-General Jaranilla for defendant-appellant.
[Dison vs. Posadas, 57 Phil., 465(1932)]
BUTTE, J.:
This is an appeal from the decision of the Court of
First Instance of Pampanga in favor of the defendant
Juan Posadas, Jr., Collector of Internal Revenue, in a
suit filed by the plaintiffs, Luis W. Dison, for the
recovery of an inheritance tax in the sum of
P2,808.73 paid under protest. The petitioner alleged
in his complaint that the tax is illegal because he
received the property, which is the basis of the tax,
from his father before his death by a deed of
gift inter vivos which was duly accepted and
registered before the death of his father. The
defendant answered with a general denial and with a
counterdemand for the sum of P1,245.56 which it
was alleged is a balance still due and unpaid on

2. That Don Felix Dison, before his death,

made a gift inter vivos in favor of the plaintiff
Luis W. Dison of all his property according to a
deed of gift (Exhibit D) which includes all the
property of Don Felix Dizon;
3. That the plaintiff did not receive property of
any kind of Don Felix Dison upon the death of
the latter;
4. That Don Luis W. Dison was the legitimate
and only child of Don Felix Dison.
It is inferred from Exhibit D that Felix Dison was a
widower at the time of his death.
The theory of the plaintiff-appellant is that he
received and holds the property mentioned by a
consummated gift and that Act No. 2601 (Chapter 40
of the Administrative Code) being the inheritance tax
statute, does not tax gifts. The provision directly here
involved is section 1540 of the Administrative Code
which reads as follows:
Additions of Gifts and Advances. After the
aforementioned deductions have been made,
there shall be added to the resulting amount

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the value of all gifts or advances made by the

predecessor to any of those who, after his
death, shall prove to be his heirs, devises,
legatees, or donees mortis causa.
The question to be resolved may be stated
thus: Does section 1540 of the Administrative
Code subject the plaintiff-appellant to the
payment of an inheritance tax?

The appellant argues that there is no evidence in this

case to support a finding that the gift was simulated
and that it was an artifice for evading the payment of
the inheritance tax, as is intimated in the decision of
the court below and the brief of the AttorneyGeneral. We see no reason why the court may not go
behind the language in which the transaction is
masked in order to ascertain its true character and
purpose. In this case the scanty facts before us may
not warrant the inference that the conveyance,
acknowledged by the donor five days before his
death and accepted by the donee one day before the
donor's death, was fraudulently made for the
purpose of evading the inheritance tax. But the facts,
in our opinion, do warrant the inference that the
transfer was an advancement upon the inheritance
which the donee, as the sole and forced heir of the
donor, would be entitled to receive upon the death of
the donor.
The argument advanced by the appellant that he is
not an heir of his deceased father within the meaning
of section 1540 of the Administrative Code because
his father in his lifetime had given the appellant all
his property and left no property to be inherited, is so
fallacious that the urging of it here casts a suspicion
upon the appellants reason for completing the legal
formalities of the transfer on the eve of the latter's
death. We do not know whether or not the father in
this case left a will; in any event, this appellant could
not be deprived of his share of the inheritance
because the Civil Code confers upon him the status
of a forced heir. We construe the expression in
section 1540 "any of those who, after his death, shall
prove to be his heirs", to include those who, by our
law, are given the status and rights of heirs,
regardless of the quantity of property they may
receive as such heirs. That the appellant in this case
occupies the status of heir to his deceased father
cannot be questioned. Construing the conveyance
here in question, under the facts presented, as an
advance made by Felix Dison to his only child, we
hold section 1540 to be applicable and the tax to
have been properly assessed by the Collector of
Internal Revenue.

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This appeal was originally assigned to a Division of

five but referred to the court in banc by reason of the
appellant's attack upon the constitutionality of
section 1540. This attack is based on the sole ground
that insofar as section 1540 levies a tax upon
gifts inter vivos, it violates that provision of section 3
of the organic Act of the Philippine Islands (39 Stat.
L., 545) which reads as follows: "That no bill which
may be enacted into law shall embraced more than
one subject, and that subject shall be expressed in
the title of the bill." Neither the title of Act No. 2601
nor chapter 40 of the Administrative Code makes any
reference to a tax on gifts. Perhaps it is enough to
say of this contention that section 1540 plainly does
not tax gifts per se but only when those gifts are
made to those who shall prove to be the heirs,
devisees, legatees or donees mortis causa of the
donor. This court said in the case of Tuason and
Tuason vs. Posadas 954 Phil., 289):lawphil.net
When the law says all gifts, it doubtless refers
to gifts inter vivos, and not mortis causa. Both
the letter and the spirit of the law leave no
room for any other interpretation. Such,
clearly, is the tenor of the language which
refers to donations that took effect before the
donor's death, and not to mortis
causa donations, which can only be made
with the formalities of a will, and can only
take effect after the donor's death. Any other
construction would virtually change this
provision into:
". . . there shall be added to the resulting amount the
value of all gifts mortis causa . . . made by the
predecessor to those who, after his death, shall prove
to be his . . . donees mortis causa." We cannot give
to the law an interpretation that would so vitiate its
language. The truth of the matter is that in this
section (1540) the law presumes that such gifts have
been made in anticipation of inheritance, devise,
bequest, or gift mortis causa, when the donee, after
the death of the donor proves to be his heir, devisee
or donee mortis causa, for the purpose of evading
the tax, and it is to prevent this that it provides that
they shall be added to the resulting amount."
However much appellant's argument on this point
may fit his preconceived notion that the transaction
between him and his father was a consummated gift
with no relation to the inheritance, we hold that there
is not merit in this attack upon the constitutionality
of section 1540 under our view of the facts. No other
constitutional questions were raised in this case.
The judgment below is affirmed with costs in this
instance against the appellant. So ordered

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