Pirovano v.

CIR (14 SCRA 232)

Sec. 32[B] of the NIRC provides that Gifts, bequests and devises are excluded from gross income liable to tax. Instead,
such donations are subject to estate or gift taxes. However, if the amount is received on account of services rendered,
whether constituting a demandable debt or not (such as remuneratory donations under Civil Law), the donation is
considered taxable income.
Facts: De la Rama Steamship Co. insured the life of Enrico Pirovano who was then its President and General Manager.
The company initially designated itself as the beneficiary of the policies but, after Pirovanos death, it renounced all its
rights, title and interest therein, in favor of Pirovanos heirs.
The CIR subjected the donation to gift tax. Pirovanos heirs contended that the grant was not subject to such donees tax
because it was not a simple donation, as it was made for a full and adequate compensation for the valuable services by
the late Priovano (i.e. that it was remuneratory).
Issue: WON the donation is remuneratory and therefore not subject to donees tax, but rather taxable as part of gross
income.
Held: No. the donation is not remuneratory. There is nothing on record to show that when the late Enrico Pirovano
rendered services as President and General Manager of the De la Rama Steamship Co. and was largely responsible for
the rapid and very successful development of the activities of the company", he was not fully compensated for such
services. The fact that his services contributed in a large measure to the success of the company did not give rise to a
recoverable debt, and the conveyances made by the company to his heirs remain a gift or a donation. The companys
gratitude was the true consideration for the donation, and not the services themselves.
1.

Definition:
A tax on the privilege of transmitting ones property or property rights to another or others without adequate valuable
consideration.
Donors tax shall be imposed upon the transfer by any person, resident or non-resident, of any property by gift. This tax
shall be applied whether the transfer is by trust or otherwise, whether the gift is direct or indirect, and whether the
property is real or personal, tangible or intangible. (Sec. 98, NIRC)

2.

Composition of gross gift (Sec. 98 and 104)

Gross gifts include real and personal property whether tangible or intangible or mixed wherever situated.
3.

Tax exempt, net gift (Sec. 99)

If the net gift is not over PhP100,000, it shall be exempted from donors tax.

4.
Minimum and Maximum Rates (Sec 99)
If the Donee is not a stranger- The minimum donors tax rate is 2% in excess of PhP100,000 but not over
PhP200,000. The maximum donors tax rate is 15% in excess of 10M.
b) If the done is a stranger, the maximum and the minimum tax rate is fixed at 30% of the net gifts.
a)

a)
b)

5.
Who is a stranger and applicable tax rate (Sec 99)
A stranger is not the brother, sister (whether by whole or half blood), spouse, ancestor and lineal descendant; or
Relative by consanguinity, in the collateral line, within the fourth civil degree of relationship.

B.

Composition of the gross gift (Sec. 104)

1.

Resident and citizens; resident alien

All properties, real or personal, tangible or intangible wherever situated

2.

Non-resident alien
Only properties situated in the Philippines provided that, with respect to intangible personal property, its inclusion in the
gross estate is subject to the rule of reciprocity provided for under Section 104 of the NIRC.

Rule on Reciprocity: No tax shall be collected in respect of intangible personal property if

the decedent at the time of his death or the donor at the time of donation was a citizen of and resident of a foreign
country which at the time of his death or donation did not impose a transfer tax of any character, in respect of
intangible personal property of citizens of the Philippines not residing in that foreign country; or
b) the laws of the foreign country of which the decedent or donor was a citizen and resident at the time of his death or
donation allows a similar exemption from transfer or death, taxes of every character or description in respect of
intangible personal property owned by citizens of the Philippines not residing to that foreign country.
a)

3.

Corporations
Shall be considered as situated in the Philippines and therefore the property shall be subject to tax, provided thata) Franchise which must be exercised in the Philippines;

b)

Shares, obligations or bonds issued by any corporation or sociedad anonimaorganized or constituted in accordance
with its laws;
c)
Shares, obligations or bonds by any foreign corporation 85% of the business of which is located in the Philippines;
d) Shares, obligations or bonds issued by any foreign corporation if such shares, obligations or bonds have acquired a
business situs in the Philippines;
e) Shares, or rights in partnership, business or industry established in the Philippines, shall be considered as situated in
the Philippines; provided further that imposition of such donors tax is subject to Reciprocity Rule.
4.
a)

Valuation of gifts made in the property (Sec 102)

In case of personal property: the value to be taken into consideration is the fair market value at the time of the
donation
b) For real properties: Section 102 refers to Section 88 (B) which provides that the value to be considered shall be the (i)
FMV as determined by the Commissioner; or (ii) FMV as showed in the schedule of values fixed by the Provincial or City
Assessors, whichever is higher.
5.
a)
-

(i)
(ii)
(iii)
(iv)

Exemption of certain gifts made in the property (Sec 101)

Resident and Citizens
For dowries or gifts made on account of marriage, the following should be present (i) the gift was made on account of
marriage; (ii) it was made before or within one year after the celebration of marriage; (iii) the donor is the parent; (iv)
the donee is the legitimate natural, or adopted children of the donor; and (v) the amount of the gift exempted is only to
the extent of the first PhP100,000.00
For Gifts made for the use of the National Government or any entity created by any of its agencies which is not
conducted for profit, or any political subdivision of the said government are exempt from donors tax. The only
requirement to be exempt is that the done should be an agency not conducted for profits.
Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution,
accredited nongovernment organization, trust or philanthropic organization or research institution or organization. To
be exempted
Not more than 30% of the said gift should be used for administrative purposes;
The donee must be a non-stock, non profit organization or institution;
The donee organization or institution should be governed by trustees who do not receive dividends; and
Said donee devotes all its income to the accomplishment and promotion of its purposes.

b)
-

Non-resident aliens
Gifts made for the use of the National Government or any entity created by any of its agencies which is not conducted
for profit, or any political subdivision of the government;
Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution,
accredited nongovernment organization, trust or philanthropic organization or research institution or organization.
Unlike in the case of residents and citizens, for nonresidents who are not citizens of the Philippines, there is only one
requirement that is not more than 30% of the gift should be used for administrative purposes.
c)
Corporations
Incorporated as a non-stock entity;
Pays no dividends;
Governed by trustee who received no compensation; and
Devotes all its income whether students fees or gifts, donations, subsidies or other forms of philanthropy to the
accomplishment and promotion of the purposes enumerated in its articles of incorporation
C.

Other Matters

Rule on Political Contributions (Sec 13 and 14 RA 7166)

As provided in the Election Code, as amended by RA 7166, Sec 13, if the donee is a candidate, a political party or a
coalition of parties, the donation is exempt from donors tax. As provided in Sec 14 of the law, the only requirement to
be exempt thereof is that the donation should be duly reported to the COMELEC.
Thus:
Section 13. Authorized Expenses of Candidates and Political Parties. - The agreement amount that a candidate
or registered political party may spend for election campaign shall be as follows:
(a) For candidates. - Ten pesos (P10.00) for President and Vice-President; and for other candidates Three Pesos (P3.00)
for every voter currently registered in the constituency where he filed his certificate of candidacy: Provided, That a
candidate without any political party and without support from any political party may be allowed to spend Five Pesos
(P5.00) for every such voter; and
(b) For political parties. - Five pesos (P5.00) for every voter currently registered in the constituency or constituencies
where it has official candidates.
Any provision of law to the contrary notwithstanding any contribution in cash or in kind to any candidate or political
party or coalition of parties for campaign purposes, duly reported to the Commission shall not be subject to the
payment of any gift tax.
Section 14. Statement of Contributions and Expenditures: Effect of Failure to File Statement. - Every candidate and

treasurer of the political party shall, within thirty (30) days after the day of the election, file in duplicate with the offices
of the Commission the full, true and itemized statement of all contributions and expenditures in connection with the
election.
No person elected to any public offices shall enter upon the duties of his office until he has filed the statement of
contributions and expenditures herein required.
The same prohibition shall apply if the political party which nominated the winning candidate fails to file the statement
required herein within the period prescribed by this Act.
Except candidates for elective barangay office, failure to file the statements or reports in connection with electoral
contributions and expenditures are required herein shall constitute an administrative offense for which the offenders
shall be liable to pay an administrative fine ranging from One thousand pesos (P1,000.00) to Thirty thousand pesos
(P30,000.00), in the discretion of the Commission.
The fine shall be paid within thirty (30) days from receipt of notice of such failure; otherwise, it shall be enforceable by a
writ of execution issued by the Commission against the properties of the offender.
It shall be the duty of every city or municipal election registrar to advise in writing, by personal delivery or registered
mail, within five (5) days from the date of election all candidates residing in his jurisdiction to comply with their
obligation to file their statements of contributions and expenditures.
For the commission of a second or subsequent offense under this section, the administrative fine shall be from Two
thousand pesos (P2,000.00) to Sixty thousand pesos (P60,000.00), in the discretion of the Commission. In addition, the
offender shall be subject to perpetual disqualification to hold public office.

Transfer for less than adequate and full consideration (Sec 100)
Under this Section, the property was transferred by the donor for less than adequate consideration for money or
moneys worth. However, the Code considers this transfer as a donation since what motivated the donor in transferring
the property is his generosity. It is as if the property was donated but in order to avoid donors tax, the donor opted to
transfer the property for inadequate consideration.
By way of exception, Sec 100 provides that for the property mentioned in Sec 24 (D)(1), this is not applicable. Sec
24(D)(1) refers to real property located in the Philippines which is capital asset. Hence, under Sec 100, if the property
transferred for inadequate consideration was a real property located in the Philippines which is capital asset, donors tax
will not be applicable. In that case, the applicable tax is Final Income Tax of 6% of the FMV or gross selling price
whichever is higher.
Further Sec 100 will not apply if the transfer is a bona fide donation. In that case, if there was a consideration given by
the donee to the donor, even if such consideration is inadequate, Sec 100 will not apply and the donation shall be
subject to donors tax.
Manner of Computing the Donors Tax (Sec 12 RR No. 2-03)
The computation of the donors tax is on a cumulative basis over a period of one calendar year. Thus when the donor
makes two or more donation within the same calendar year, it is required that said donation be included in the return
for the last donation. There is no double taxation. Under this method, the tax paid on the first donation will be
considered as tax credit. Relevant in a donation made not by a strangers in the computation of tax percentage to be
imposed under Sec 99(A).
D.

Filing and Payment of Returns (Sec 103/ Sec 13 RR No. 2-03)

1. Requirements
Any person making a donation (whether direct or indirect), unless the donation is specifically exempt under the Code or
other special laws, is required, for every donation, to accomplish under oath a donors tax return in duplicate. The return
shall set forth:
(i) Each gift made during the calendar year which is to be included in computing net gifts;
(ii) The deductions claimed and allowable;
(iii) Any previous net gifts made during the same calendar year;
(iv) The name of the donee;
(v) Relationship of the donor to the donee; and
(vi) Such further information as the Commissioner may require.
2. Time and Place of Filing
The Code provides that the return shall be filed within 30 days after the date the gift was made and the tax due
thereon shall be paid at the time of filing. The pay as you file system is applicable.
Unlike in the estate tax, there is no extension allowed by the Code for the donor tax. At the time of filing of the return,
the donor tax due should be paid.
The return shall be filed and the tax shall be paid at any authorized agent bank, the RDO, RCO, or duly authorized
treasure of the city or municipality where the donor was domiciled at the time of the transfer, or if there be no legal

residence in the Philippines, with the office of the Commissioner. In case of the gifts made by a non-resident, the return
may be filed with the Philippine Embassy or Consulate in the country where he is domiciled at the time of the transfer,
or directly with the office of the Commissioner.

3. Notice of Donation - Exemption from Donors Tax (Sec 13 RR No. 2-03)

In order to be exempt from donors tax and to claim full deduction of the donation given to qualified donee
institutions duly accredited by the Philippine Council for NGO Certification, Inc. (PCNC), the donor engaged in business
shall give a notice of donation on every donation worth at least Fifty Thousand Pesos (P50,000) to the Revenue District
Office (RDO) which has jurisdiction over his place of business within thirty (30) days after receipt of the qualified donee
institutions duly issued Certificate of Donation, which shall be attached to the said Notice of Donation, stating that not
more than thirty percent (30%) of the said donation/gifts for the taxable year shall be used by such accredited nonstock, non-profit corporation/NGO institution (qualified-donee institution) for administration purposes pursuant to the
provisions of Section 101(A)(3) and (B)(2) of the Code.

4. Rule on waiver of hereditary share correlate with Estate Tax

Renunciation by the surviving spouse of his/her share in the conjugal partnership or absolute community after the
dissolution of the marriage in favor of the heirs of the deceased spouse of any other person/s is subject to donor tax.
General renunciation by an heir, including the surviving spouse, of his/her share in the hereditary estate left by the
decedent is not subject to donors tax, unless specifically done in favor of an identified heir/s to the exclusion or
disadvantage of the other co-heirs in the hereditary estate
-

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-19865

July 31, 1965

MARIA CARLA PIROVANO, etc., et al., petitioners-appellants,

vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent-appellee.
Angel S. Gamboa for petitioners-appellants.
Office of the Solicitor General for respondent-appellee.
REYES, J.B.L., J.:
This case is a sequel to the case of Pirovano vs. De la Rama Steamship Co., 96 Phil. 335.
Briefly, the facts of the aforestated case may be stated as follows:
Enrico Pirovano was the father of the herein petitioners-appellants. Sometime in the early part of 1941, De la Rama
Steamship Co. insured the life of said Enrico Pirovano, who was then its President and General Manager until the time of
his death, with various Philippine and American insurance companies for a total sum of one million pesos, designating
itself as the beneficiary of the policies, obtained by it. Due to the Japanese occupation of the Philippines during the
second World War, the Company was unable to pay the premiums on the policies issued by its Philippine insurers and
these policies lapsed, while the policies issued by its American insurers were kept effective and subsisting, the New York
office of the Company having continued paying its premiums from year to year.
During the Japanese occupation , or more particularly in the latter part of 1944, said Enrico Pirovano died.
After the liberation of the Philippines from the Japanese forces, the Board of Directors of De la Rama Steamship Co.
adopted a resolution dated July 10, 1946 granting and setting aside, out of the proceeds expected to be collected on the
insurance policies taken on the life of said Enrico Pirovano, the sum of P400,000.00 for equal division among the four (4)
minor children of the deceased, said sum of money to be convertible into 4,000 shares of stock of the Company, at par,
or 1,000 shares for each child. Shortly thereafter, the Company received the total sum of P643,000.00 as proceeds of the
said life insurance policies obtained from American insurers.
Upon receipt of the last stated sum of money, the Board of Directors of the Company modified, on January 6, 1947, the
above-mentioned resolution by renouncing all its rights title, and interest to the said amount of P643,000.00 in favor of
the minor children of the deceased, subject to the express condition that said amount should be retained by the
Company in the nature of a loan to it, drawing interest at the rate of five per centum (5%) per annum, and payable to
the Pirovano children after the Company shall have first settled in full the balance of its present remaining bonded
indebtedness in the sum of approximately P5,000,000.00. This latter resolution was carried out in a Memorandum
Agreement on January 10, 1947 and June 17, 1947., respectively, executed by the Company and Mrs. Estefania R.

Pirovano, the latter acting in her capacity as guardian of her children (petitioners-appellants herein) find pursuant to an
express authority granted her by the court.
On June 24, 1947, the Board of Directors of the Company further modified the last mentioned resolution providing
therein that the Company shall pay the proceeds of said life insurance policies to the heirs of the said Enrico Pirovano
after the Company shall have settled in full the balance of its present remaining bonded indebtedness, but the annual
interests accruing on the principal shall be paid to the heirs of the said Enrico Pirovano, or their duly appointed
representative, whenever the Company is in a position to meet said obligation.
On February 26, 1948, Mrs. Estefania R. Pirovano, in behalf of her children, executed a public document formally
accepting the donation; and, on the same date, the Company through its Board of Directors, took official notice of this
formal acceptance.
On September 13, 1949, the stockholders of the Company formally ratified the various resolutions hereinabove
mentioned with certain clarifying modifications that the payment of the donation shall not be effected until such time as
the Company shall have first duly liquidated its present bonded indebtedness in the amount of P3,260,855.77 with the
National Development Company, or fully redeemed the preferred shares of stock in the amount which shall be issued to
the National Development Company in lieu thereof; and that any and all taxes, legal fees, and expenses in any way
connected with the above transaction shall be chargeable and deducted from the proceeds of the life insurance policies
mentioned in the resolutions of the Board of Directors.
On March 8, 1951, however, the majority stockholders of the Company voted to revoke the resolution approving the
donation in favor of the Pirovano children.
As a consequence of this revocation and refusal of the Company to pay the balance of the donation amounting to
P564,980.90 despite demands therefor, the herein petitioners-appellants represented by their natural guardian, Mrs.
Estefania R. Pirovano, brought an action for the recovery of said amount, plus interest and damages against De la Rama
Steamship Co., in the Court of First Instance of Rizal, which case ultimately culminated to an appeal to this Court. On
December 29, 1954, this court rendered its decision in the appealed case (96 Phil. 335) holding that the donation was
valid and remunerative in nature, the dispositive part of which reads:
Wherefore, the decision appealed from should be modified as follows: (a) that the donation in favor of the
children of the late Enrico Pirovano of the proceeds of the insurance policies taken on his life is valid and binding
on the defendant corporation; (b) that said donation, which amounts to a total of P583,813.59, including
interest, as it appears in the books of the corporation as of August 31, 1951, plus interest thereon at the rate of
5 per cent per annum from the filing of the complaint, should be paid to the plaintiffs after the defendant
corporation shall have fully redeemed the preferred shares issued to the National Development Company under
the terms and conditions stared in the resolutions of the Board of Directors of January 6, 1947 and June 24,
1947, as amended by the resolution of the stockholders adopted on September 13, 1949; and (c) defendant
shall pay to plaintiffs an additional amount equivalent to 10 per cent of said amount of P583,813.59 as damages
by way of attorney's fees, and to pay the costs of action. (Pirovano et al. vs. De la Rama Steamship Co., 96 Phil.
367-368)
The above decision became final and executory. In compliance therewith, De la Rama Steamship Co. made, on April 6,
1955, a partial payment on the amount of the judgment and paid the balance thereof on May 12, 1955.
On March 6, 1955, respondent Commissioner of Internal Revenue assessed the amount of P60,869.67 as donees' gift
tax, inclusive of surcharges, interests and other penalties, against each of the petitioners-appellants, or for the total sum
of P243,478.68; and, on April 23, 1955, a donor's gift tax in the total amount of P34,371.76 was also assessed against De
la Rama Steamship Co., which the latter paid.
Petitioners-appellants herein contested respondent Commissioner's assessment and imposition of the donees' gift taxes
and donor's gift tax and also made a claim for refund of the donor's gift tax so collected. Respondent Commissioner
overruled petitioners' claims; hence, the latter presented two (2) petitions for review against respondent's rulings
before the Court of Tax Appeals, said petitions having been docketed as CTA Cases Nos. 347 and 375. CTA Case No. 347
relates to the petition disputing the legality of the assessment of donees' gift taxes and donor's gift tax while CTA Case
No. 375 refers to the claim for refund of the donor's gift tax already paid.
After the filing of respondent's usual answers to the petitions, the two cases, being interrelated to each other, were
tried jointly and terminated.
On January 31, 1962, the Court of Tax Appeals rendered its decision in the two cases, the dispositive part of which reads:
In resume, we are of the opinion, that (1) the donor's gift tax in the sum of P34,371.76 was erroneously assessed
and collected, hence, petitioners are entitled to the refund thereof; (2) the donees' gift taxes were correctly
assessed; (3) the imposition of the surcharge of 25% is not proper; (4) the surcharge of 5% is legally due; and (5)
the interest of 1% per month on the deficiency donees' gift taxes is due from petitioners from March 8, 1955
until the taxes are paid.

IN LINE WITH THE FOREGOING OPINION, petitioners are hereby ordered to pay the donees' gift taxes as
assessed by respondent, plus 5% surcharge and interest at the rate of 1% per month from March 8, 1955 to the
date of payment of said donees' gift taxes. Respondent is ordered to apply the sum of P34,371.76 which is
refundable to petitioners, against the amount due from petitioners. With costs against petitioners in Case No.
347.
Petitioners-appellants herein filed a motion to reconsider the above decision, which the lower court denied. Hence, this
appeal before us.
In the instant appeal, petitioners-appellants herein question only that portion of the decision of the lower court ordering
the payment of donees' gift taxes as assessed by respondent as well as the imposition of surcharge and interest on the
amount of donees' gift taxes.
In their brief and memorandum, they dispute the factual finding of the lower court that De la Rama Steamship
Company's renunciation of its rights, title, and interest over the proceeds of said life insurance policies in favor of the
Pirovano children "was motivated solely and exclusively by its sense of gratitude, an act of pure liberality, and not to pay
additional compensation for services inadequately paid for." Petitioners now contend that the lower court's finding was
erroneous in seemingly considering the disputed grant as a simple donation, since our previous decision (96 Phil. 335)
had already declared that the transfer to the Pirovano children was a remuneratory donation. Petitioners further
contend that the same was made not for an insufficient or inadequate consideration but rather it a was made for a full
and adequate compensation for the valuable services rendered by the late Enrico Pirovano to the De la Rama Steamship
Co.; hence, the donation does not constitute a taxable gift under the provisions of Section 108 of the National Internal
Revenue Code.
The argument for petitioners-appellants fails to take into account the fact that neither in Spanish nor in Anglo-American
law was it considered that past services, rendered without relying on a coetaneous promise, express or implied, that
such services would be paid for in the future, constituted cause or consideration that would make a conveyance of
property anything else but a gift or donation. This conclusion flows from the text of Article 619 of the Code of 1889
(identical with Article 726 of the present Civil Code of the Philippines):
When a person gives to another a thing ... on account of the latter's merits or of the services rendered by him to
the donor, provided they do not constitute a demandable debt, ..., there is also a donation. ... .
There is nothing on record to show that when the late Enrico Pirovano rendered services as President and General
Manager of the De la Rama Steamship Co. he was not fully compensated for such services, or that, because they were
"largely responsible for the rapid and very successful development of the activities of the company" (Res. of July 10,
1946). Pirovano expected or was promised further compensation over and in addition to his regular emoluments as
President and General Manager. The fact that his services contributed in a large measure to the success of the company
did not give rise to a recoverable debt, and the conveyances made by the company to his heirs remain a gift or donation.
This is emphasized by the directors' Resolution of January 6, 1947, that "out of gratitude" the company decided to
renounce in favor of Pirovano's heirs the proceeds of the life insurance policies in question. The true consideration for
the donation was, therefore, the company's gratitude for his services, and not the services themselves.
That the tax court regarded the conveyance as a simple donation, instead of a remuneratory one as it was declared to
be in our previous decision, is but an innocuous error; whether remuneratory or simple, the conveyance remained a gift,
taxable under Chapter 2, Title III of the Internal Revenue Code.
But then appellants contend, the entire property or right donated should not be considered as a gift for taxation
purposes; only that portion of the value of the property or right transferred, if any, which is in excess of the value of the
services rendered should be considered as a taxable gift. They cite in support Section 111 of the Tax Code which
provides that
Where property is transferred for less, than an adequate and full consideration in money or money's worth,
then the amount by which the value of the property exceeded the value of the consideration shall, for the
purpose of the tax imposed by this Chapter, be deemed a gift, ... .
The flaw in this argument lies in the fact that, as copied from American law, the term consideration used in this section
refers to the technical "consideration" defined by the American Law Institute (Restatement of Contracts) as "anything
that is bargained for by the promisor and given by the promisee in exchange for the promise" (Also, Corbin on Contracts,
Vol. I, p. 359). But, as we have seen, Pirovano's successful activities as officer of the De la Rama Steamship Co. cannot be
deemed such consideration for the gift to his heirs, since the services were rendered long before the Company ceded
the value of the life policies to said heirs; cession and services were not the result of one bargain or of a mutual
exchange of promises.
And the Anglo-American law treats a subsequent promise to pay for past services (like one to pay for improvements
already made without prior request from the promisor) to be a nudum pactum (Roscorla vs. Thomas, 3 Q.B. 234; Peters
vs. Poro, 25 ALR 615; Carson vs. Clark, 25 Am. Dec. 79; Boston vs. Dodge, 12 Am. Dec. 206), i.e., one that is
unenforceable in view of the common law rule that consideration must consist in a legal benefit to the promisee or
some legal detriment to the promisor.

What is more, the actual consideration for the cession of the policies, as previously shown, was the Company's gratitude
to Pirovano; so that under section 111 of the Code there is no consideration the value of which can be deducted from
that of the property transferred as a gift. Like "love and affection," gratitude has no economic value and is not
"consideration" in the sense that the word is used in this section of the Tax Code.
As stated by Chief Justice Griffith of the Supreme Court of Mississippi in his well-known book, "Outlines of the Law" (p.
204)
Love and affection are not considerations of value they are not estimable in terms of value. Nor are sentiments of
gratitude for gratuitous part favors or kindnesses; nor are obligations which are merely moral. It has been well said that
if a moral obligation were alone sufficient it would remove the necessity for any consideration at all, since the fact of
making a promise impose, the moral obligation to perform it."
It is of course perfectly possible that a donation or gift should at the same time impose a burden or condition on the
donee involving some economic liability for him. A, for example, may donate a parcel of land to B on condition that the
latter assume a mortgage existing on the donated land. In this case the donee may rightfully insist that the gift tax be
computed only on the value of the land less the value of the mortgage. This, in fact, is contemplated by Article 619 of
the Civil Code of 1889 (Art. 726 of the Tax Code) when it provides that there is also a donation "when the gift imposes
upon the donee a burden which is less than the value of the thing given." Section 111 of the Tax Code has in view
situations of this kind, since it also prescribes that "the amount by which the value of the property exceeded the value of
the consideration" shall be deemed a gift for the purpose of the tax. .
Petitioners finally contend that, even assuming that the donation in question is subject to donees' gift taxes, the
imposition of the surcharge of 5% and interest of 1% per month from March 8, 1955 was not justified because the
proceeds of the life insurance policies were actually received on April 6, 1955 and May 12, 1955 only and in accordance
with Section 115(c) of the Tax Code; the filing of the returns of such tax became due on March 1, 1956 and the tax
became payable on May 15, 1956, as provided for in Section 116(a) of the same Code. In other words, petitioners
maintain that the assessment and demand for donees' gift taxes was prematurely made and of no legal effect; hence,
they should not be held liable for such surcharge and interest.
It is well to note, and it is not disputed, that petitioners-donees have failed to file any gift tax return and that they also
failed to pay the amount of the assessment made against them by respondent in 1955. This situation is covered by
Section 119(b) (1) and (c) and Section 120 of the Tax Code:
(b) Deficiency.
(1) Payment not extended. Where a deficiency, or any interest assessed in connection therewith, or any
addition to the taxes provided for in section one hundred twenty is not paid in full within thirty days from the
date of the notice and demand from the Commissioner, there shall be collected as a part of the taxes, interest
upon the unpaid amount at the rate of one per centum a month from the date of such notice and demand until
it is paid. (section 119)
(c) Surcharge. If any amount of the taxes included in the notice and demand from the Commissioner of
Internal Revenue is not paid in full within thirty days after such notice and demand, there shall be collected in
addition to the interest prescribed above as a part of the taxes a surcharge of five per centum of the unpaid
amount. (sec. 119)
The failure to file a return was found by the lower court to be due to reasonable cause and not to willful neglect. On this
score, the elimination by the lower court of the 25% surcharge is ad valorem penalty which respondent Commissioner
had imposed pursuant to Section 120 of the Tax Code was proper, since said Section 120 vests in the Commissioner of
Internal Revenue or in the tax court power and authority to impose or not to impose such penalty depending upon
whether or not reasonable cause has been shown in the non-filing of such return.
On the other hand, unlike said Section 120, Section 119, paragraphs (b) (1) and (c) of the Tax Code, does not confer on
the Commissioner of Internal Revenue or on the courts any power and discretion not to impose such interest and
surcharge. It is likewise provided for by law that an appeal to the Court of Tax Appeals from a decision of the
Commissioner of Internal Revenue shall not suspend the payment or collection of the tax liability of the taxpayer unless
a motion to that effect shall have been presented to the court and granted by it on the ground that such collection will
jeopardize the interest of the taxpayer (Sec. 11, Republic Act No. 1125; Rule 12, Rules of the Court of Tax Appeals). It
should further be noted that
It has been the uniform holding of this Court that no suit for enjoining the collection of a tax, disputed or
undisputed, can be brought, the remedy being to pay the tax first, formerly under protest and now without
need of protect, file the claim with the Collector, and if he denies it, bring an action for recovery against him.
(David v. Ramos, et al., 90 Phil. 351)
Section 306 of the National Internal Revenue Code ... lays down the procedure to be followed in those cases
wherein a taxpayer entertains some doubt about the correctness of a tax sought to be collected. Said section
provides that the tax, should first be paid and the taxpayer should sue for its recovery afterwards. The purpose

of the law obviously is to prevent delay in the collection of taxes, upon which the Government depends for its
existence. To allow a taxpayer to first secure a ruling as regards the validity of the tax before paying it would be
to defeat this purpose. (National Dental Supply Co. vs. Meer, 90 Phil. 265)
Petitioners did not file in the lower court any motion for the suspension of payment or collection of the amount of
assessment made against them.
On the basis of the above-stated provisions of law and applicable authorities, it is evident that the imposition of 1%
interest monthly and 5% surcharge is justified and legal. As succinctly stated by the court below, said imposition is
"mandatory and may not be waived by the Commissioner of Internal Revenue or by the courts" (Resolution on
petitioners' motion for reconsideration, Annex XIV, petition). Hence, said imposition of interest and surcharge by the
lower court should be upheld.
WHEREFORE, the decision of the Court of Tax Appeals is affirmed. Costs against petitioners Pirovano.
Bengzon, C.J., Bautista Angelo, Paredes, Dizon, Regala, Makalintal, Bengzon, J.P., and Zaldivar, JJ., concur.
Concepcion, J., took no part.
Barrera, J., is on leave.