Republic vs. Heirs of Cesar Jalandoni, GR No.

18384, 15 SCRA 51, September 20, 1965

FACTS: Isabel Ledesma died intestate leaving real properties and personal properties consisting of shares of stock in
various domestic corporations. She left as heirs her husband Bernardino Jalandoni and three children, namely, Cesar,
Angeles and Delfin. Cesar Jalandoni, one of the heirs, filed an estate and inheritance tax return. On the basis of this
return, the BIR made two separate partial assessments calling for the payment deficiency estate and inheritance taxes.
The BIR then demanded payment from the heirs while stating that the same was still "to be considered partial pending
investigation of the return." These stated sums were unquestionably paid by the heirs.

When the BIR conducted another investigation, it found: (1) that the market value of the lands reported in the return
filed by Cesar Jalandoni were UNDERDECLARED; (2) that seven lots in the Talisay-Silay, Negros Occidental were
OMITTED from the return; and (3) the shares of stock owned by the deceased in the Victorias Milling Company,
Hawaiian-Philippine Company and Central Azucarera de la Carlota were also UNDERDECLARED. As such, the BIR
required the heirs to pay the amounts of P 29,995.30 and P 49,842.05 as deficiency estate and inheritance taxes.

Defendant Bernardino Jalandoni wrote a letter to the Collector of Internal Revenue setting up the defense of
PRESCRIPTION. He argued that the required deficiency in the estate and inheritance taxes payment can no longer be
collected since MORE THAN FIVE YEARS had already elapsed from the filing of the return pursuant to Section 331 of
the NIRC. As a rejoinder, the Collector retorted claiming that such defense is not valid since the estate and inheritance
tax return filed by them contained OMISSIONS which amount to FRAUD INDICATIVE OF AN INTENTION TO EVADE
PAYMENT of the proper tax due the government. Hence, the Collector concluded that THE TAXES COULD STILL BE
DEMANDED within ten years from the discovery of the falsity or omission pursuant to Section 332(a) of said Code.

When the lower court ordered the Collector to verify the allegation that the seven lots in Negros Occidental were in fact
included therein, the Collector designated Examiner Genaro Butas to conduct the examination. In his report, Examiner
Butas stated that of the seven lots that were previously reported not included in the return, TWO WERE ACTUALLY
DECLARED THEREIN, though he reaffirmed his previous finding as regards the other five lots and the market value of the
sugar lands and rice lands and the value of the shares of stock in several domestic corporations.

Nevertheless, the lower court found that that the return submitted by Cesar Jalandoni is FALSE AND FRAUDULENT on
the ground that the DIFFERENCES between the amounts appearing in the returns filed and the undeclared properties of
the estate of the deceased is a SUBSTANTIAL UNDERSTATEMENT OF THE TRUE VALUE OF THE ESTATE. The lower court
was not inclined to believe that the omission or understatements were due to mere inadvertence, negligence, or honest
statement of error, in fact, it believed that such circumstances are indicative of a willful intent to defraud. Hence, it
ordered the heirs to pay the Collector the sum of P 79,837.35 as estate and inheritance taxes. The heirs appealed the
case arguing that FRAUD CANNOT BE IMPUTED AGAINST THEM since there was NO EVIDENCE ON RECORD SHOWING
THAT SAID RETURN WAS FILED IN BAD FAITH.

ISSUE: Was there an intention on the part of the heirs to evade payment of the proper tax?

DECISION: NO. The omission and under declaration of the properties was NOT DELIBERATE and DID NOT AMOUNT TO
FRAUD indicative of an intention to evade payment of the proper tax due the government. As regards to the claim of the
Government that the SEVEN LOTS were deliberately omitted from the tax returns filed by the representative of the
heirs: It appears, however, that three of the seven lots alleged to have been excluded were actually INCLUDED in the
returns; that one lot was not included because it BELONGED to one of the heirs; and that the three remaining lots
were ALREADY DECLARED in the return submitted by Bernardino Jalandoni as part of the conjugal property for
purposes of income tax.

As regards to the claim of the Government that the MARKET VALUE OF THE SUGAR LANDS were under declared by the
representative of the heirs, as it did not tally with the valuation made by the Collector: Any mistake made in the
valuation made by the representative can only be considered as HONEST MISTAKE or one based on an EXCUSABLE
INADVERTENCE, since HE NOT AN EXPERT IN APPRAISING REAL ESTATE. It is certainly an ERROR TO IMPUTE FRAUD
BASED ON AN HONEST DIFFERENCE OF OPINION.

As regards to the claim of the Government that the VALUE OF THE SHARES OF STOCK did not tally with their book value:
The fact that the value of the shares of stock given in the returns did not tally with their book value appearing in the
corporate books is NOT IN ITSELF INDICATIVE OF FRAUD especially when said BOOK VALUE ONLY BECAME KNOWN
SEVERAL MONTHS AFTER THE DEATH OF THE DECEASED. Moreover, stock securities frequently fluctuate in value and a
MERE DIFFERENCE OF OPINION in relation thereto CANNOT SERVE AS PROPER BASIS for assessing AN INTENTION TO
DEFRAUD the government.