Estate Tax Cases

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Stevenson S. Yu, XU Law, 2 Semester 2017-2018 Taxation 2 (Atty. Cherry P. Ibaoc)
Estate Tax
1. Marcos II vs CA
G.R. No. 120880, June 05, 1997
FERDINAND R. MARCOS II, PETITIONER, VS. COURT OF APPEALS, THE COMMISSIONER OF THE
BUREAU OF INTERNAL REVENUE AND HERMINIA D. DE GUZMAN, RESPONDENTS.
DECISION
TORRES, JR., J.:
In this Petition for Review on Certiorari, Government action is once again assailed as precipitate and unfair,
suffering the basic and oftly implored requisites of due process of law. Specifically, the petition assails the
Decision[1] of the Court of Appeals dated November 29, 1994 in CA-G.R. SP No. 31363, where the said court
held:
"In view of all the foregoing, we rule that the deficiency income tax assessments and estate tax assessment, are
already final and (u)nappealable -and- the subsequent levy of real properties is a tax remedy resorted to by the
government, sanctioned by Section 213 and 218 of the National Internal Revenue Code. This summary tax
remedy is distinct and separate from the other tax remedies (such as Judicial Civil actions and Criminal actions),
and is not affected or precluded by the pendency of any other tax remedies instituted by the government.
WHEREFORE, premises considered, judgment is hereby rendered DISMISSING the petition for certiorari with
prayer for Restraining Order and Injunction.
No pronouncements as to costs.
SO ORDERED."
More than seven years since the demise of the late Ferdinand E. Marcos, the former President of the Republic of
the Philippines, the matter of the settlement of his estate, and its dues to the government in estate taxes, are still
unresolved, the latter issue being now before this Court for resolution. Specifically, petitioner Ferdinand R. Marcos
II, the eldest son of the decedent, questions the actuations of the respondent Commissioner of Internal Revenue
in assessing, and collecting through the summary remedy of Levy on Real Properties, estate and income tax
delinquencies upon the estate and properties of his father, despite the pendency of the proceedings on probate of
the will of the late president, which is docketed as Sp. Proc. No. 10279 in the Regional Trial Court of Pasig,
Branch 156.
Petitioner had filed with the respondent Court of Appeals a Petition for Certiorari and Prohibition with an
application for writ of preliminary injunction and/or temporary restraining order on June 28, 1993, seeking to -
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I. Annul and set aside the Notices of Levy on real property dated February 22, 1993 and May 20, 1993, issued by
respondent Commissioner of Internal Revenue;
II. Annul and set aside the Notices of Sale dated May 26, 1993;
III. Enjoin the Head Revenue Executive Assistant Director II (Collection Service), from proceeding with the
Auction of the real properties covered by Notices of Sale.
After the parties had pleaded their case, the Court of Appeals rendered its Decision[2] on November 29, 1994,
ruling that the deficiency assessments for estate and income tax made upon the petitioner and the estate of the
deceased President Marcos have already become final and unappealable, and may thus be enforced by the
summary remedy of levying upon the properties of the late President, as was done by the respondent
Commissioner of Internal Revenue.
"WHEREFORE, premises considered judgment is hereby rendered DISMISSING the petition for Certiorari with
prayer for Restraining Order and Injunction.
No pronouncements as to cost.
SO ORDERED."
Unperturbed, petitioner is now before us assailing the validity of the appellate court's decision, assigning the
following as errors:
A. RESPONDENT COURT MANIFESTLY ERRED IN RULING THAT THE SUMMARY TAX REMEDIES
RESORTED TO BY THE GOVERNMENT ARE NOT AFFECTED AND PRECLUDED BY THE PENDENCY OF
THE SPECIAL PROCEEDING FOR THE ALLOWANCE OF THE LATE PRESIDENT'S ALLEGED WILL. TO THE
CONTRARY, THIS PROBATE PROCEEDING PRECISELY PLACED ALL PROPERTIES WHICH FORM PART
OF THE LATE PRESIDENT'S ESTATE IN CUSTODIA LEGIS OF THE PROBATE COURT TO THE EXCLUSION
OF ALL OTHER COURTS AND ADMINISTRATIVE AGENCIES.
B. RESPONDENT COURT ARBITRARILY ERRED IN SWEEPINGLY DECIDING THAT SINCE THE TAX
ASSESSMENTS OF PETITIONER AND HIS PARENTS HAD ALREADY BECOME FINAL AND
UNAPPEALABLE, THERE WAS NO NEED TO GO INTO THE MERITS OF THE GROUNDS CITED IN THE
PETITION. INDEPENDENT OF WHETHER THE TAX ASSESSMENTS HAD ALREADY BECOME FINAL,
HOWEVER, PETITIONER HAS THE RIGHT TO QUESTION THE UNLAWFUL MANNER AND METHOD IN
WHICH TAX COLLECTION IS SOUGHT TO BE ENFORCED BY RESPONDENTS COMMISSIONER AND DE
GUZMAN. THUS, RESPONDENT COURT SHOULD HAVE FAVORABLY CONSIDERED THE MERITS OF THE
FOLLOWING GROUNDS IN THE PETITION:
(1) The Notices of Levy on Real Property were issued beyond the period provided in the Revenue Memorandum
Circular No. 38-68.
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(2) [a] The numerous pending court cases questioning the late President's ownership or interests in several
properties (both personal and real) make the total value of his estate, and the consequent estate tax due,
incapable of exact pecuniary determination at this time. Thus, respondents’ assessment of the estate tax and their
issuance of the Notices of Levy and Sale are premature, confiscatory and oppressive.
[b] Petitioner, as one of the late President's compulsory heirs, was never notified, much less served with copies of
the Notices of Levy, contrary to the mandate of Section 213 of the NIRC. As such, petitioner was never given an
opportunity to contest the Notices in violation of his right to due process of law.
C. ON ACCOUNT OF THE CLEAR MERIT OF THE PETITION, RESPONDENT COURT MANIFESTLY ERRED
IN RULING THAT IT HAD NO POWER TO GRANT INJUNCTIVE RELIEF TO PETITIONER. SECTION 219 OF
THE NIRC NOTWITHSTANDING, COURTS POSSESS THE POWER TO ISSUE A WRIT OF PRELIMINARY
INJUNCTION TO RESTRAIN RESPONDENTS COMMISSIONER'S AND DE GUZMAN'S ARBITRARY METHOD
OF COLLECTING THE ALLEGED DEFICIENCY ESTATE AND INCOME TAXES BY MEANS OF LEVY.
The facts as found by the appellate court are undisputed, and are hereby adopted:
"On September 29, 1989, former President Ferdinand Marcos died in Honolulu, Hawaii, USA.
On June 27, 1990, a Special Tax Audit Team was created to conduct investigations and examinations of the tax
liabilities and obligations of the late president, as well as that of his family, associates and "cronies". Said audit
team concluded its investigation with a Memorandum dated July 26, 1991. The investigation disclosed that the
Marcoses failed to file a written notice of the death of the decedent, an estate tax returns [sic], as well as several
income tax returns covering the years 1982 to 1986, -all in violation of the National Internal Revenue Code
(NIRC).
Subsequently, criminal charges were filed against Mrs. Imelda R. Marcos before the Regional Trial of Quezon
City for violations of Sections 82, 83 and 84 (has penalized under Sections 253 and 254 in relation to Section
252- a & b) of the National Internal Revenue Code (NIRC).
The Commissioner of Internal Revenue thereby caused the preparation and filing of the Estate Tax Return for the
estate of the late president, the Income Tax Returns of the Spouses Marcos for the years 1985 to 1986, and the
Income Tax Returns of petitioner Ferdinand 'Bongbong' Marcos II for the years 1982 to 1985.
On July 26, 1991, the BIR issued the following: (1) Deficiency estate tax assessment no. FAC-2-89-91-002464
(against the estate of the late president Ferdinand Marcos in the amount of P23,293,607,638.00 Pesos); (2)
Deficiency income tax assessment no. FAC-1-85-91-002452 and Deficiency income tax assessment no. FAC-1-
86-91-002451 (against the Spouses Ferdinand and Imelda Marcos in the amounts of P149,551.70 and
P184,009,737.40 representing deficiency income tax for the years 1985 and 1986); (3) Deficiency income tax
assessment nos. FAC-1-82-91-002460 to FAC-1-85-91-002463 (against petitioner Ferdinand 'Bongbong' Marcos
II in the amounts of P258.70 pesos; P9,386.40 Pesos; P4,388.30 Pesos; and P6,376.60 Pesos representing his
deficiency income taxes for the years 1982 to 1985).
The Commissioner of Internal Revenue avers that copies of the deficiency estate and income tax assessments
were all personally and constructively served on August 26, 1991 and September 12, 1991 upon Mrs. Imelda
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Marcos (through her caretaker Mr. Martinez) at her last known address at No. 204 Ortega St., San Juan, M.M.
(Annexes 'D' and 'E' of the Petition). Likewise, copies of the deficiency tax assessments issued against petitioner
Ferdinand 'Bongbong' Marcos II were also personally and constructively served upon him (through his caretaker)
on September 12, 1991, at his last known address at Don Mariano Marcos St. corner P. Guevarra St., San Juan,
M.M. (Annexes 'J' and 'J-1' of the Petition). Thereafter, Formal Assessment notices were served on October 20,
1992, upon Mrs. Marcos c/o petitioner, at his office, House of Representatives, Batasan Pambansa, Quezon City.
Moreover, a notice to Taxpayer inviting Mrs. Marcos (or her duly authorized representative or counsel), to a
conference, was furnished the counsel of Mrs. Marcos, Dean Antonio Coronel - but to no avail.
The deficiency tax assessments were not protested administratively, by Mrs. Marcos and the other heirs of the
late president, within 30 days from service of said assessments.
On February 22, 1993, the BIR Commissioner issued twenty-two notices of levy on real property against certain
parcels of land owned by the Marcoses - to satisfy the alleged estate tax and deficiency income taxes of Spouses
Marcos.
On May 20, 1993, four more Notices of Levy on real property were issued for the purpose of satisfying the
deficiency income taxes.
On May 26, 1993, additional four (4) notices of Levy on real property were again issued. The foregoing tax
remedies were resorted to pursuant to Sections 205 and 213 of the National Internal Revenue Code (NIRC).
In response to a letter dated March 12, 1993 sent by Atty. Loreto Ata (counsel of herein petitioner) calling the
attention of the BIR and requesting that they be duly notified of any action taken by the BIR affecting the interest
of their client Ferdinand 'Bongbong’ Marcos II, as well as the interest of the late president - copies of the aforesaid
notices were served on April 7, 1993 and on June 10, 1993, upon Mrs. Imelda Marcos, the petitioner, and their
counsel of record, 'De Borja, Medialdea, Ata, Bello, Guevarra and Serapio Law Office'.
Notices of sale at public auction were posted on May 26, 1993, at the lobby of the City Hall of Tacloban City. The
public auction for the sale of the eleven (11) parcels of land took place on July 5, 1993. There being no bidder, the
lots were declared forfeited in favor of the government.
On June 25, 1993, petitioner Ferdinand 'Bongbong' Marcos II filed the instant petition for certiorari and prohibition
under Rule 65 of the Rules of Court, with prayer for temporary restraining order and/or writ of preliminary
injunction."
It has been repeatedly observed, and not without merit, that the enforcement of tax laws and the collection of
taxes, is of paramount importance for the sustenance of government. Taxes are the lifeblood of the government
and should be collected without unnecessary hindrance. However, such collection should be made in accordance
with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to
reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of
taxation, which is the promotion of the common good, may be achieved."[3]
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Whether or not the proper avenues of assessment and collection of the said tax obligations were taken by the
respondent Bureau is now the subject of the Court's inquiry.
Petitioner posits that notices of levy, notices of sale, and subsequent sale of properties of the late President
Marcos effected by the BIR are null and void for disregarding the established procedure for the enforcement of
taxes due upon the estate of the deceased. The case of Domingo vs. Garlitos[4] is specifically cited to bolster the
argument that "the ordinary procedure by which to settle claims of indebtedness against the estate of a deceased,
person, as in an inheritance (estate) tax, is for the claimant to present a claim before the probate court so that
said court may order the administrator to pay the amount therefor." This remedy is allegedly, exclusive, and
cannot be effected through any other means.
Petitioner goes further, submitting that the probate court is not precluded from denying a request by the
government for the immediate payment of taxes, and should order the payment of the same only within the period
fixed by the probate court for the payment of all the debts of the decedent. In this regard, petitioner cites the case
of Collector of Internal Revenue vs. The Administratrix of the Estate of Echarri (67 Phil 502), where it was held
that:
"The case of Pineda vs. Court of First Instance of Tayabas and Collector of Internal Revenue (52 Phil 803), relied
upon by the petitioner-appellant is good authority on the proposition that the court having control over the
administration proceedings has jurisdiction to entertain the claim presented by the government for taxes due and
to order the administrator to pay the tax should it find that the assessment was proper, and that the tax was legal,
due and collectible. And the rule laid down in that case must be understood in relation to the case of Collector of
Customs vs. Haygood, supra., as to the procedure to be followed in a given case by the government to effectuate
the collection of the tax. Categorically stated, where during the pendency of judicial administration over the estate
of a deceased person a claim for taxes is presented by the government, the court has the authority to order
payment by the administrator; but, in the same way that it has authority to order payment or satisfaction, it also
has the negative authority to deny the same. While there are cases where courts are required to perform certain
duties mandatory and ministerial in character, the function of the court in a case of the present character is not
one of them; and here, the court cannot be an organism endowed with latitude of judgment in one direction, and
converted into a mere mechanical contrivance in another direction."
On the other hand, it is argued by the BIR, that the state's authority to collect internal revenue taxes is paramount.
Thus, the pendency of probate proceedings over the estate of the deceased does not preclude the assessment
and collection, through summary remedies, of estate taxes over the same. According to the respondent, claims
for payment of estate and income taxes due and assessed after the death of the decedent need not be presented
in the form of a claim against the estate. These can and should be paid immediately. The probate court is not the
government agency to decide whether an estate is liable for payment of estate of income taxes. Well-settled is the
rule that the probate court is a court with special and limited jurisdiction.
Concededly, the authority of the Regional Trial Court, sitting, albeit with limited jurisdiction, as a probate court
over estate of deceased individual, is not a trifling thing. The court's jurisdiction, once invoked, and made
effective, cannot be treated with indifference nor should it be ignored with impunity by the very parties invoking its
authority.
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In testament to this, it has been held that it is within the jurisdiction of the probate court to approve the sale of
properties of a deceased person by his prospective heirs before final adjudication;[5] to determine who are the
heirs of the decedent;[6] the recognition of a natural child;[7] the status of a woman claiming to be the legal wife of
the decedent;[8] the legality of disinheritance of an heir by the testator;[9] and to pass upon the validity of a waiver
of hereditary rights.[10]
The pivotal question the court is tasked to resolve refers to the authority of the Bureau of Internal Revenue to
collect by the summary remedy of levying upon, and sale of real properties of the decedent, estate tax
deficiencies, without the cognition and authority of the court sitting in probate over the supposed will of the
deceased.
The nature of the process of estate tax collection has been described as follows:
"Strictly speaking, the assessment of an inheritance tax does not directly involve the administration of a
decedent's estate, although it may be viewed as an incident to the complete settlement of an estate, and, under
some statutes, it is made the duty of the probate court to make the amount of the inheritance tax a part of the final
decree of distribution of the estate. It is not against the property of decedent, nor is it a claim against the estate as
such, but it is against the interest or property right which the heir, legatee, devisee, etc., has in the property
formerly held by decedent. Further, under some statutes, it has been held that it is not a suit or controversy
between the parties, nor is it an adversary proceeding between the state and the person who owes the tax on the
inheritance. However, under other statutes it has been held that the hearing and determination of the cash value
of the assets and the determination of the tax are adversary proceedings. The proceeding has been held to be
necessarily a proceeding in rem.[11]
In the Philippine experience, the enforcement and collection of estate tax, is executive in character, as the
legislature has seen it fit to ascribe this task to the Bureau of Internal Revenue. Section 3 of the National Internal
Revenue Code attests to this:
"Sec. 3. Powers and duties of the Bureau.-The powers and duties of the Bureau of Internal Revenue shall
comprehend the assessment and collection of all national internal revenue taxes, fees, and charges, and the
enforcement of all forfeitures, penalties, and fines connected therewith, including the execution of judgments in all
cases decided in its favor by the Court of Tax Appeals and the ordinary courts. Said Bureau shall also give effect
to and administer the supervisory and police power conferred to it by this Code or other laws."
Thus, it was in Vera vs. Fernandez[12] that the court recognized the liberal treatment of claims for taxes charged
against the estate of the decedent. Such taxes, we said, were exempted from the application of the statute of non-
claims, and this is justified by the necessity of government funding, immortalized in the maxim that taxes are the
lifeblood of the government. Vectigalia nervi sunt rei publicae - taxes are the sinews of the state.
"Taxes assessed against the estate of a deceased person, after administration is opened, need not be submitted
to the committee on claims in the ordinary course of administration. In the exercise of its control over the
administrator, the court may direct the payment of such taxes upon motion showing that the taxes have been
assessed against the estate."
Such liberal treatment of internal revenue taxes in the probate proceedings extends so far, even to allowing the
enforcement of tax obligations against the heirs of the decedent, even after distribution of the estate's properties.
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"Claims for taxes, whether assessed before or after the death of the deceased, can be collected from the heirs
even after the distribution of the properties of the decedent. They are exempted from the application of the statute
of non-claims. The heirs shall be liable therefor, in proportion to their share in the inheritance."[13]
"Thus, the Government has two ways of collecting the taxes in question. One, by going after all the heirs and
collecting from each one of them the amount of the tax proportionate to the inheritance received. Another remedy,
pursuant to the lien created by Section 315 of the Tax Code upon all property and rights to property belong to the
taxpayer for unpaid income tax, is by subjecting said property of the estate which is in the hands of an heir or
transferee to the payment of the tax due the estate. (Commissioner of Internal Revenue vs. Pineda, 21 SCRA
105, September 15, 1967.)
From the foregoing, it is discernible that the approval of the court, sitting in probate, or as a settlement tribunal
over the deceased is not a mandatory requirement in the collection of estate taxes. It cannot therefore be argued
that the Tax Bureau erred in proceeding with the levying and sale of the properties allegedly owned by the late
President, on the ground that it was required to seek first the probate court's sanction. There is nothing in the Tax
Code, and in the pertinent remedial laws that implies the necessity of the probate or estate settlement court's
approval of the state's claim for estate taxes, before the same can be enforced and collected.
On the contrary, under Section 87 of the NIRC, it is the probate or settlement court which is bidden not to
authorize the executor or judicial administrator of the decedent's estate to deliver any distributive share to any
party interested in the estate, unless it is shown a Certification by the Commissioner of Internal Revenue that the
estate taxes have been paid. This provision disproves the petitioner's contention that it is the probate court which
approves the assessment and collection of the estate tax.
If there is any issue as to the validity of the BIR's decision to assess the estate taxes, this should have been
pursued through the proper administrative and judicial avenues provided for by law.
Section 229 of the NIRC tells us how:
"Sec. 229. Protesting of assessment.-When the Commissioner of Internal Revenue or his duly authorized
representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings. Within
a period to be prescribed by implementing regulations, the taxpayer shall be required to respond to said notice. If
the taxpayer fails to respond, the Commissioner shall issue an assessment based on his findings.
Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation in
such form and manner as may be prescribed by implementing regulations within (30) days from receipt of the
assessment; otherwise, the assessment shall become final and unappealable.
If the protest is denied in whole or in part, the individual, association or corporation adversely affected by the
decision on the protest may appeal to the Court of Tax Appeals within thirty (30) days from receipt of said
decision; otherwise, the decision shall become final, executory and demandable. (As inserted by P.D. 1773)"
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Apart from failing to file the required estate tax return within the time required for the filing of the same, petitioner,
and the other heirs never questioned the assessments served upon them, allowing the same to lapse into finality,
and prompting the BIR to collect the said taxes by levying upon the properties left by President Marcos.
Petitioner submits, however, that "while the assessment of taxes may have been validly undertaken by the
Government, collection thereof may have been done in violation of the law. Thus, the manner and method in
which the latter is enforced may be questioned separately, and irrespective of the finality of the former, because
the Government does not have the unbridled discretion to enforce collection without regard to the clear provision
of law."[14]
Petitioner specifically points out that applying Memorandum Circular No. 38-68, implementing Sections 318 and
324 of the old tax code (Republic Act 5203), the BIR's Notices of Levy on the Marcos properties, were issued
beyond the allowed period, and are therefore null and void:
"...the Notices of Levy on Real Property (Annexes 0 to NN of Annex C of this Petition) in satisfaction of said
assessments were still issued by respondents well beyond the period mandated in Revenue Memorandum
Circular No. 38-68. These Notices of Levy were issued only on 22 February 1993 and 20 May 1993 when at least
seventeen (17) months had already lapsed from the last service of tax assessment on 12 September 1991. As no
notices of distraint of personal property were first issued by respondents, the latter should have complied with
Revenue Memorandum Circular No. 38-68 and issued these Notices of Levy not earlier than three (3) months nor
later than six (6) months from 12 September 1991. In accordance with the Circular, respondents only had until 12
March 1992 (the last day of the sixth month) within which to issue these Notices of Levy. The Notices of Levy,
having been issued beyond the period allowed by law, are thus void and of no effect."[15]
We hold otherwise. The Notices of Levy upon real property were issued within the prescriptive period and in
accordance with the provisions of the present Tax Code. The deficiency tax assessment, having already become
final, executory, and demandable, the same can now be collected through the summary remedy of distraint or
levy pursuant to Section 205 of the NIRC.
The applicable provision in regard to the prescriptive period for the assessment and collection of tax deficiency in
this instance is Article 223 of the NIRC, which pertinently provides:
"Sec. 223. Exceptions as to a period of limitation of assessment and collection of taxes.- (a) In the case of a false
or fraudulent return with intent to evade tax or of a failure to file a return, the tax may be assessed, or a
proceeding in court for the collection of such tax may be begun without assessment, at any time within ten (10)
years after the discovery of the falsity, fraud, or omission: Provided, That, in a fraud assessment which has
become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal action
for the collection thereof.
xxx
(c) Any internal revenue tax which has been assessed within the period of limitation above prescribed, may be
collected by distraint or levy or by a proceeding in court within three years following the assessment of the tax.
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The omission to file an estate tax return, and the subsequent failure to contest or appeal the assessment made by
the BIR is fatal to the petitioner's cause, as under the above-cited provision, in case of failure to file a return, the
tax may be assessed at any time within ten years after the omission, and any tax so assessed may be collected
by levy upon real property within three years following the assessment of the tax. Since the estate tax
assessment had become final and unappealable by the petitioner's default as regards protesting the validity of the
said assessment, there is now no reason why the BIR cannot continue with the collection of the said tax. Any
objection against the assessment should have been pursued following the avenue paved in Section 229 of the
NIRC on protests on assessments of internal revenue taxes.
Petitioner further argues that "the numerous pending court cases questioning the late president's ownership or
interests in several properties (both real and personal) make the total value of his estate, and the consequent
estate tax due, incapable of exact pecuniary determination at this time. Thus, respondents' assessment of the
estate tax and their issuance of the Notices of Levy and sale are premature and oppressive." He points out the
pendency of Sandiganbayan Civil Case Nos. 0001-0034 and 0141, which were filed by the government to
question the ownership and interests of the late President in real and personal properties located within and
outside the Philippines. Petitioner, however, omits to allege whether the properties levied upon by the BIR in the
collection of estate taxes upon the decedent's estate were among those involved in the said cases pending in the
Sandiganbayan. Indeed, the court is at a loss as to how these cases are relevant to the matter at issue. The mere
fact that the decedent has pending cases involving ill-gotten wealth does not affect the enforcement of tax
assessments over the properties indubitably included in his estate.
Petitioner also expresses his reservation as to the propriety of the BIR's total assessment of P23,292,607,638.00,
stating that this amount deviates from the findings of the Department of Justice's Panel of Prosecutors as per its
resolution of 20 September 1991. Allegedly, this is clear evidence of the uncertainty on the part of the
Government as to the total value of the estate of the late President.
This is, to our mind, the petitioner's last ditch effort to assail the assessment of estate tax which had already
become final and unappealable.
It is not the Department of Justice which is the government agency tasked to determine the amount of taxes due
upon the subject estate, but the Bureau of Internal Revenue[16] whose determinations and assessments are
presumed correct and made in good faith.[17] The taxpayer has the duty of proving otherwise. In the absence of
proof of any irregularities in the performance of official duties, an assessment will not be disturbed. Even an
assessment based on estimates is prima facie valid and lawful where it does not appear to have been arrived at
arbitrarily or capriciously. The burden of proof is upon the complaining party to show clearly that the assessment
is erroneous. Failure to present proof of error in the assessment will justify the judicial affirmance of said
assessment.[18] In this instance, petitioner has not pointed out one single provision in the Memorandum of the
Special Audit Team which gave rise to the questioned assessment, which bears a trace of falsity. Indeed, the
petitioner's attack on the assessment bears mainly on the alleged improbable and unconscionable amount of the
taxes charged. But mere rhetoric cannot supply the basis for the charge of impropriety of the assessments made.
Moreover, these objections to the assessments should have been raised, considering the ample remedies
afforded the taxpayer by the Tax Code, with the Bureau of Internal Revenue and the Court of Tax Appeals, as
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described earlier, and cannot be raised now via Petition for Certiorari, under the pretext of grave abuse of
discretion. The course of action taken by the petitioner reflects his disregard or even repugnance of the
established institutions for governance in the scheme of a well-ordered society. The subject tax assessments
having become final, executory and enforceable, the same can no longer be contested by means of a disguised
protest. In the main, Certiorari may not be used as a substitute for a lost appeal or remedy.[19] This judicial policy
becomes more pronounced in view of the absence of sufficient attack against the actuations of government.
On the matter of sufficiency of service of Notices of Assessment to the petitioner, we find the respondent
appellate court's pronouncements sound and resilient to petitioner's attacks.
"Anent grounds 3(b) and (B) - both alleging/claiming lack of notice - We find, after considering the facts and
circumstances, as well as evidences, that there was sufficient, constructive and/or actual notice of assessments,
levy and sale, sent to herein petitioner Ferdinand "Bongbong" Marcos as well as to his mother Mrs. Imelda
Marcos.
Even if we are to rule out the notices of assessments personally given to the caretaker of Mrs. Marcos at the
latter's last known address, on August 26, 1991 and September 12, 1991, as well as the notices of assessment
personally given to the caretaker of petitioner also at his last known address on September 12, 1991 - the
subsequent notices given thereafter could no longer be ignored as they were sent at a time when petitioner was
already here in the Philippines, and at a place where said notices would surely be called to petitioner's attention,
and received by responsible persons of sufficient age and discretion.
Thus, on October 20, 1992, formal assessment notices were served upon Mrs. Marcos c/o the petitioner, at his
office, House of Representatives, Batasan Pambansa, Q.C. (Annexes "A", "A-1", "A-2", "A-3"; pp. 207-210,
Comment/Memorandum of OSG). Moreover, a notice to taxpayer dated October 8, 1992 inviting Mrs. Marcos to a
conference relative to her tax liabilities, was furnished the counsel of Mrs. Marcos - Dean Antonio Coronel (Annex
"B", p. 211, ibid). Thereafter, copies of Notices were also served upon Mrs. Imelda Marcos, the petitioner and
their counsel "De Borja, Medialdea, Ata, Bello, Guevarra and Serapio Law Office", on April 7, 1993 and June 10,
1993. Despite all of these Notices, petitioner never lifted a finger to protest the assessments, (upon which the
Levy and sale of properties were based), nor appealed the same to the Court of Tax Appeals.
There being sufficient service of Notices to herein petitioner (and his mother) and it appearing that petitioner
continuously ignored said Notices despite several opportunities given him to file a protest and to thereafter appeal
to the Court of Tax Appeals, - the tax assessments subject of this case, upon which the levy and sale of
properties were based, could no longer be contested (directly or indirectly) via this instant petition for
certiorari."[20]
Petitioner argues that all the questioned Notices of Levy, however, must be nullified for having been issued
without validly serving copies thereof to the petitioner. As a mandatory heir of the decedent, petitioner avers that
he has an interest in the subject estate, and notices of levy upon its properties should have been served upon
him.
We do not agree. In the case of notices of levy issued to satisfy the delinquent estate tax, the delinquent taxpayer
is the Estate of the decedent, and not necessarily, and exclusively, the petitioner as heir of the deceased. In the
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same vein, in the matter of income tax delinquency of the late president and his spouse, petitioner is not the
taxpayer liable. Thus, it follows that service of notices of levy in satisfaction of these tax delinquencies upon the
petitioner is not required by law, as under Section 213 of the NIRC, which pertinently states:
"xxx
...Levy shall be effected by writing upon said certificate a description of the property upon which levy is made. At
the same time, written notice of the levy shall be mailed to or served upon the Register of Deeds of the province
or city where the property is located and upon the delinquent taxpayer, or if he be absent from the Philippines, to
his agent or the manager of the business in respect to which the liability arose, or if there be none, to the
occupant of the property in question.
xxx"
The foregoing notwithstanding, the record shows that notices of warrants of distraint and levy of sale were
furnished the counsel of petitioner on April 7, 1993, and June 10, 1993, and the petitioner himself on April 12,
1993 at his office at the Batasang Pambansa.[21] We cannot therefore, countenance petitioner's insistence that
he was denied due process. Where there was an opportunity to raise objections to government action, and such
opportunity was disregarded, for no justifiable reason, the party claiming oppression then becomes the oppressor
of the orderly functions of government. He who comes to court must come with clean hands. Otherwise, he not
only taints his name, but ridicules the very structure of established authority.
IN VIEW WHEREOF, the Court RESOLVED to DENY the present petition. The Decision of the Court of Appeals
dated November 29, 1994 is hereby AFFIRMED in all respects.
SO ORDERED.
11
nd
2. Ruiz vs CA
G.R. No. 118671, January 29, 1996
THE ESTATE OF HILARIO M. RUIZ, EDMOND RUIZ, EXECUTOR, PETITIONER, VS. THE COURT OF
APPEALS (FORMER SPECIAL SIXTH DIVISION), MARIA PILAR RUIZ-MONTES, MARIA CATHRYN RUIZ,
CANDICE ALBERTINE RUIZ, MARIA ANGELINE RUIZ AND THE PRESIDING JUDGE OF THE REGIONAL
TRIAL COURT OF PASIG, BRANCH 156, RESPONDENTS.
DECISION
PUNO, J.:
This petition for review on certiorari seeks to annul and set aside the decision dated November 10, 1994 and the
resolution dated January 5, 1995 of the Court of Appeals in CA-G.R. SP No. 33045.
The facts show that on June 27, 1987, Hilario M. Ruiz[1] executed a holographic will naming as his heirs his only
son, Edmond Ruiz, his adopted daughter, private respondent Maria Pilar Ruiz Montes, and his three
granddaughters, private respondents Maria Cathryn, Candice Albertine and Maria Angeline, all children of
Edmond Ruiz. The testator bequeathed to his heirs substantial cash, personal and real properties and named
Edmond Ruiz executor of his estate.[2]
On April 12, 1988, Hilario Ruiz died. Immediately thereafter, the cash component of his estate was distributed
among Edmond Ruiz and private respondents in accordance with the decedent’s will. For unbeknown reasons,
Edmond, the named executor, did not take any action for the probate of his father’s holographic will.
On June 29, 1992, four years after the testator’s death, it was private respondent Maria Pilar Ruiz Montes who
filed before the Regional Trial Court, Branch 156, Pasig, a petition for the probate and approval of Hilario Ruiz’s
will and for the issuance of letters testamentary to Edmond Ruiz.[3]Surprisingly, Edmond opposed the petition on
the ground that the will was executed under undue influence.
On November 2, 1992, one of the properties of the estate - the house and lot at No. 2 Oliva Street, Valle Verde
IV, Pasig which the testator bequeathed to Maria Cathryn, Candice Albertine and Maria Angeline[4]-- was leased
out by Edmond Ruiz to third persons.
On January 19, 1993, the probate court ordered Edmond to deposit with the Branch Clerk of Court the rental
deposit and payments totalling P540,000.00 representing the one-year lease of the Valle Verde property. In
compliance, on January 25, 1993, Edmond turned over the amount of P348,583.56, representing the balance of
the rent after deducting P191,416.14 for repair and maintenance expenses on the estate.[5]
In March 1993, Edmond moved for the release of P50,000.00 to pay the real estate taxes on the real properties of
the estate. The probate court approved the release of P7,722.00.[6]
12
nd
On May 14, 1993, Edmond withdrew his opposition to the probate of the will. Consequently, the probate court,
on May 18, 1993, admitted the will to probate and ordered the issuance of letters testamentary to Edmond
conditioned upon the filing of a bond in the amount of P50,000.00. The letters testamentary were issued on June
23, 1993.
On July 28, 1993, petitioner Testate Estate of Hilario Ruiz as executor, filed an "Ex-Parte Motion for Release of
Funds." It prayed for the release of the rent payments deposited with the Branch Clerk of Court. Respondent
Montes opposed the motion and concurrently filed a "Motion for Release of Funds to Certain Heirs" and Motion
for Issuance of Certificate of Allowance of Probate Will." Montes prayed for the release of the said rent payments
to Maria Cathryn, Candice Albertine and Maria Angeline and for the distribution of the testator’s properties,
specifically the Valle Verde property and the Blue Ridge apartments, in accordance with the provisions of the
holographic will.
On August 26, 1993, the probate court denied petitioner’s motion for release of funds but granted respondent
Montes’ motion in view of petitioner’s lack of opposition. It thus ordered the release of the rent payments to the
decedent’s three granddaughters. It further ordered the delivery of the titleds to and possession of the properties
bequeathed to the three granddaughters and respondent Montes upon the filing of a bond of P50,000.00.
Petitioner moved for reconsideration alleging that he actually filed his opposition to respondent Montes’ motion for
release of rent payments which opposition the court failed to consider. Petitioner likewise reiterated his previous
motion for release of funds.
On November 23, 1993, petitioner, through counsel, manifested that he was withdrawing his motion for release of
funds in view of the fact that the lease contract over Valle Verde property had been renewed for another year.[7]
Despite petitioner’s manifestation, the probate court, on December 22, 1993, ordered the release of the funds to
Edmond but only "such amount as may be necessary to cover the espenses of administration and allowanceas
for support" of the testator’s three granddaughters subject to collation and deductible from their share in the
inheritance. The court, however, held in abeyance the release of the titles to respondent Montes and the three
granddaughters until the lapse of six months from the date of firast publication of the notice to creditors.[8] The
Court stated thus:
"xxx xxx xxx
After consideration of the arguments set forth thereon by the parties, the court resolves to allow Administrator
Edmond M. Ruiz to take possession of the rental payments deposited with the Clerk of Court, Pasig Regional
Trial Court, but only such amount as may be necessary to cover the expenses of administration and allowances
for support of Maria Cathryn Veronique, Candice Albertine and Maria Angeli, which are subject to collation and
deductible from the share in the inheritance of said heirs and insofar as they exceed the fruits or rents pertaining
to them.
13
nd
As to the release of the titles bequeathed to petitioner Maria Pilar Ruiz-Montes and the above-named heirs, the
same is hereby reconsidered and held in abeyance until the lapse of six (6) months from the date of first
publication of Notice to Creditors.
WHEREFORE, Administrator Edmond M. Ruiz is hereby ordered to submit an accounting of the expenses
necessary for administration including provisions for the support Of Maria Cathryn Veronique Ruiz, Candice
Albertine Ruiz and Maria Angeli Ruiz before the amount required can be withdrawn and cause the publication of
the notice to creditors with reasonable dispatch.[9]
Petitioner assailed this order before the Court of Appeals. Finding no grave abuse of discretion on the part of
respondent judge, the appellate court dismissed the petition and sustained the probate court’s order in a decision
dated November 10, 1994[10] and a resolution dated January 5, 1995.[11]
Hence, this petition.
Petitioner claims that:
"THE PUBLIC RESPONDENT COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION

AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN AFFIRMING AND CONFIRMING THE ORDER OF
RESPONDENT REGIONAL TRIAL COURT OF PASIG, BRANCH 156, DATED DECEMBER 22, 1993, WHICH
WHEN GIVEN DUE COURSE AND IS EFFECTED WOULD: (1) DISALLOW THE
EXECUTOR/ADMINISTRATOR OF THE ESTATE OF THE LATE HILARIO M. RUIZ TO TAKE POSSESSION OF
ALL THE REAL AND PERSONAL PROPERTIES OF THE ESTATE; (2) GRANT SUPPORT, DURING THE
PENDENCY OF THE SETTLEMENT OF AN ESTATE, TO CERTAIN PERSONS NOT ENTITLED THERETO;
AND (3) PREMATURELY PARTITION AND DISTRIBUTE THE ESTATE PURSUANT TO THE PROVISIONS OF
THE HOLOGRAPHIC WILL EVEN BEFORE ITS INTRINSIC VALIDITY HAS BEEN DETERMINED, AND
DESPITE THE EXISTENCE OF UNPAID DEBTS AND OBLIGATIONS OF THE ESTATE."[12]
The issue for resolution is whether the probate court, after admitting the will to probate but before payment of the
estate’s debts and obligations, has the authority: (1) to grant an allowance from the funds of the estate for the
support of the testator’s grandchildren; (2) to order the release of the titles to certain heirs; and (3) to grant
possession of all properties of the estate to the executor of the will.
On the matter of allowance, Section 3 of Rule 83 of the Revised Rules of Court provides:
"Sec. 3. Allowance to widow and family. - The widow and minor or incapacitated children of a deceased person,
during the settlement of the estate, shall receive therefrom under the direction of the court, such allowance as are
provided by law."
14
nd
Petitioner alleges that this provision only gives the widow and the minor or incapacitated children of the deceased
the right to receive allowances for support during the settlement of estate proceedings. He contends that the
testator’s three granddaughters do not qualify for an allowance because they are not incapacitated and are no
longer minors but of legal age, married and gainfully employed. In addition, the provision expressly states
"children" of the deceased which excludes the latter’s grandchildren.
It is settled that allowances for support under Section 3 of Rule 83 should not be limited to the "minor or
incapacitated" children of the deceased. Article 188[13]of the Civil Code of the Philippines, the substantive law in
force at the time of the testator’s death, provides that during the liquidation of the conjugal partnership, the
deceased’s legitimate spouse and children, regardless of their age, civil status or gainful employment, are entitled
to provisional support from the funds of the estate.[14] The law is rooted on the fact that the right and duty to
support, especially the right to education, subsist even beyond the age of majority.[15]
Be that as it may, grandchildren are not entitled to provisional support from the funds of the decedent’s estate.
The law clearly limits the allowance to "widow and children" and does not extend it to the deceased’s
grandchildren, regardless of their minority or incapacity.[16] It was error, therefore, for the appellate court to
sustain the probate court’s order granting an allowance to the grandchildren of the testator pending settlement of
his estate.
Respondent courts also erred when they ordered the release of the titles of the bequeathed properties to private
respondents six months after the date of first publication of notice to creditors. An order releasing titles to
properties of the estate amounts to an advance distribution of the estate which is allowed only under the following
conditions:
"Sec. 2. Advance distribution in special proceedings. - Nothwithstanding a pending controversy or appeal in

proceedings to settle the estate of a decedent, the court may, in its discretion and upon such terms as it may
deem proper and just, permit that such part of the estate as may not be affected by the controversy or appeal be
distributed among the heirs or legatees, upon compliance with the conditions set forth in Rule 90 of these
Rules."[17]
And Rule 90 provides that:
"Sec. 1. When order for distribution of residue made. - When the debts, funeral charges, and expenses of
administration, the allowance to the widow, and inheritance tax, if any, chargeable to the estate in accordance
with law, have been paid, the court, on the application of the executor or administrator, or of a person interested in
the estate, and after hearing upon notice, shall assign the residue of the estate to the persons entitled to the
same, naming them and the proportions, or parts, to which each is entitled, and such persons may demand and
recover their respective shares from the executor or administrator, or any other person having the same in his
possession. If there is a controversy before the court as to who are the lawful heirs of the deceased person or as
to the distributive shares to which each person is entitled under the law, the controversy shall be heard and
decided as in ordinary cases.
15
nd
No distribution shall be allowed until the payment of the obligations above-mentioned has been made or provided
for, unless the distributees, or any of them, give a bond, in a sum to be fixed by the court, conditioned for the
payment of said obligations within such time as the court directs.[18]
In settlement of estate proceedings, the distribution of the estate properties can only be made: (1) after all the
debts, funeral charges, expenses of administration, allowance to the widow, and estate tax have been paid; or (2)
before payment of said obligations only if the distributees or any of them gives a bond in a sum fixed by the court
conditioned upon the payment of said obligations within such time as the court directs, or when provision is made
to meet those obligations.[19]
In the case at bar, the probate court ordered the release of the titles to the Valle Verde property and the Blue
Ridge apartments to the private respondents after the lapse of six months from the date of first publication of the
notice to creditors. The questioned order speaks of "notice" to creditors, not payment of debts and obligations.
Hilario Ruiz allegedly left no debts when he died but the taxes on his estate had not hitherto been paid, much less
ascertained. The estate tax is one of those obligations that must be paid before distribution of the estate. If not
yet paid, the rule requires that the distributees post a bond or make such provisions as to meet the said tax
obligation in proportion to their respective shares in the inheritance.[20] Notably, at the time the order was issued
the properties of the estate had not yet been inventoried and appraised.
It was also too early in the day for the probate court to order the release of the titles six months after admitting the
will to probate. The probate of a will is conclusive as to its due execution and extrinsic validity[21] and settles only
the question of whether the testator, being of sound mind, freely executed it in accordance with the formalities
prescribed by law.[22] Questions as to the intrinsic validity and efficacy of the provisions of the will, the legality of
any devise or legacy may be raised even after the will has been authenticated.[23]
The intrinsic validity of Hilario’s holographic will was controverted by petitioner before the probate court in his
Reply to Montes’ Opposition to his motion for release of funds[24] and his motion for reconsideration of the
August 26, 1993 order of the said court.[25] Therein, petitioner assailed the distributive shares of the devisees
and legatees inasmuch as his father’s will included the estate of his mother and allegedly impaired his legitime as
an intestate heir of his mother. The Rules provide that if there is a controversy as to who are the lawful heirs of
the decedent and their distributive shares in his estate, the probate court shall proceed to hear and decide the
same as in ordinary cases.[26]
Still and all, petitioner cannot correctly claim that the assailed order deprived him of his right to take possession of
all the real and personal properties of the estate. The right of an executor or administrator to the possession and
management of the real and personal properties of the deceased is not absolute and can only be exercised "so
long as it is necessary for the payment of the debts and expenses of administration,"[27] Section 3 of Rule 84 of
the Revised Rules of Court explicitly provides:
"Sec. 3. Executor or administrator to retain whole estate to pay debts, and to administer estate not willed. - An
executor or administrator shall have the right to the possession and management of the real as well as the
16
nd
personal estate of the deceased so long as it is necessary for the payment of the debts and expenses for
administration."[28]
When petitioner moved for further release of the funds deposited with the clerk of court, he had been previously
granted by the probate court certain amounts for repair and maintenance expenses on the properties of the
estate, and payment of the real estate taxes thereon. But petitioner moved again for the release of additional
funds for the same reasons he previously cited. It was correct for the probate court to require him to submit an
accounting of the necessary expenses for administration before releasing any further money in his favor.
It was relevantly noted by the probate court that petitioner had deposited with it only a portion of the one-year
rental income from the Valle Verde property. Petitioner did not deposit its succeeding rents after renewal of the
lease.[29] Neither did he render an accounting of such funds.
Petitioner must be reminded that his right of ownership over the properties of his father is merely inchoate as long
as the estate has not been fully settled and partitioned.[30] As executor, he is a mere trustee of his father’s estate.
The funds of the estate in his hands are trust funds and he is held to the duties and responsibilities of a trustee of
the highest order.[31] He cannot unilaterally assign to himself and possess all his parents’ properties and the
fruits thereof without first submitting an inventory and appraisal of all real and personal properties of the
deceased, rendering a true account of his administration, the expenses of administration, the amount of the
obligations and estate tax, all of which are subject to a determination by the court as to their veracity, propriety
and justness.[32]
IN VIEW WHEREOF, the decision and resolution of the Court of Appeals in CA-G.R. SP No. 33045 affirming the
order dated December 22, 1993 of the Regional Trial Court, Branch 156, Pasig in SP Proc. No. 10259 are
affirmed with the modification that those portions of the order granting an allowance to the testator’s grandchildren
and ordering the release of the titles to the private respondents upon notice to creditors are annulled and set
aside.
Respondent judge is ordered to proceed with dispatch in the proceedings below.
SO ORDERED.
17
nd
3. CIR vs CA
G.R. No. 123206, March 22, 2000
COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS . COURT OF APPEALS, COURT OF TAX

APPEALS AND JOSEFINA P. PAJONAR, AS ADMINISTRATRIX OF THE ESTATE OF PEDRO P. PAJONAR,
RESPONDENTS.
RESOLUTION
GONZAGA-REYES, J.:
Assailed in this petition for review on certiorari is the December 21, 1995 Decision[1] of the Court of Appeals[2] in
CA-G.R. Sp. No. 34399 affirming the June 7, 1994 Resolution of the Court of Tax Appeals in CTA Case No. 4381
granting private respondent Josefina P. Pajonar, as administratrix of the estate of Pedro P. Pajonar, a tax refund
in the amount of P76,502.42, representing erroneously paid estate taxes for the year 1988.
Pedro Pajonar, a member of the Philippine Scout, Bataan Contingent, during the second World War, was a part of
the infamous Death March by reason of which he suffered shock and became insane. His sister Josefina Pajonar
became the guardian over his person, while his property was placed under the guardianship of the Philippine
National Bank (PNB) by the Regional Trial Court of Dumaguete City, Branch 31, in Special Proceedings No.
1254. He died on January 10, 1988. He was survived by his two brothers Isidro P. Pajonar and Gregorio Pajonar,
his sister Josefina Pajonar, nephews Concordio Jandog and Mario Jandog and niece Conchita Jandog.
On May 11, 1988, the PNB filed an accounting of the decedent's property under guardianship valued at
P3,037,672.09 in Special Proceedings No. 1254. However, the PNB did not file an estate tax return, instead it
advised Pedro Pajonar's heirs to execute an extrajudicial settlement and to pay the taxes on his estate. On April
5, 1988, pursuant to the assessment by the Bureau of Internal Revenue (BIR), the estate of Pedro Pajonar paid
taxes in the amount of P2,557.
On May 19, 1988, Josefina Pajonar filed a petition with the Regional Trial Court of Dumaguete City for the
issuance in her favor of letters of administration of the estate of her brother. The case was docketed as Special
Proceedings No. 2399. On July 18, 1988, the trial court appointed Josefina Pajonar as the regular administratrix
of Pedro Pajonar's estate.
On December 19, 1988, pursuant to a second assessment by the BIR for deficiency estate tax, the estate of
Pedro Pajonar paid estate tax in the amount of P1,527,790.98. Josefina Pajonar, in her capacity as administratrix
and heir of Pedro Pajonar's estate, filed a protest on January 11, 1989 with the BIR praying that the estate tax
payment in the amount of P1,527,790.98, or at least some portion of it, be returned to the heirs.[3]
However, on August 15, 1989, without waiting for her protest to be resolved by the BIR, Josefina Pajonar filed a
petition for review with the Court of Tax Appeals (CTA), praying for the refund of P1,527,790.98, or in the
alternative, P840,202.06, as erroneously paid estate tax.[4] The case was docketed as CTA Case No. 4381.
18
nd
On May 6, 1993, the CTA ordered the Commissioner of Internal Revenue to refund Josefina Pajonar the amount
of P252,585.59, representing erroneously paid estate tax for the year 1988.[5]
Among the deductions from the gross estate allowed by the CTA were the amounts of P60,753 representing the
notarial fee for the Extrajudicial Settlement and the amount of P50,000 as the attorney's fees in Special
Proceedings No. 1254 for guardianship.[6]
On June 15, 1993, the Commissioner of Internal Revenue filed a motion for reconsideration[7] of the CTA's May
6, 1993 decision asserting, among others, that the notarial fee for the Extrajudicial Settlement and the attorney's
fees in the guardianship proceedings are not deductible expenses.
On June 7, 1994, the CTA issued the assailed Resolution[8] ordering the Commissioner of Internal Revenue to
refund Josefina Pajonar, as administratrix of the estate of Pedro Pajonar, the amount of P76,502.42 representing
erroneously paid estate tax for the year 1988. Also, the CTA upheld the validity of the deduction of the notarial fee
for the Extrajudicial Settlement and the attorney's fees in the guardianship proceedings.
On July 5, 1994, the Commissioner of Internal Revenue filed with the Court of Appeals a petition for review of the
CTA's May 6, 1993 Decision and its June 7, 1994 Resolution, questioning the validity of the abovementioned
deductions. On December 21, 1995, the Court of Appeals denied the Commissioner's petition.[9]
Hence, the present appeal by the Commissioner of Internal Revenue.
The sole issue in this case involves the construction of section 79[10] of the National Internal Revenue Code[11]
(Tax Code) which provides for the allowable deductions from the gross estate of the decedent. More particularly,
the question is whether the notarial fee paid for the extrajudicial settlement in the amount of P60,753 and the
attorney's fees in the guardianship proceedings in the amount of P50,000 may be allowed as deductions from the
gross estate of decedent in order to arrive at the value of the net estate.
We answer this question in the affirmative, thereby upholding the decisions of the appellate courts.
In its May 6, 1993 Decision, the Court of Tax Appeals ruled thus:
Respondent maintains that only judicial expenses of the testamentary or intestate proceedings are allowed as a
deduction to the gross estate. The amount of P60,753.00 is quite extraordinary for a mere notarial fee.
This Court adopts the view under American jurisprudence that expenses incurred in the extrajudicial settlement of
the estate should be allowed as a deduction from the gross estate. "There is no requirement of formal
administration. It is sufficient that the expense be a necessary contribution toward the settlement of the case." [ 34
Am. Jur. 2d, p. 765; Nolledo, Bar Reviewer in Taxation, 10th Ed. (1990), p. 481 ]
xxx.....xxx.....xxx
19
nd
The attorney's fees of P50,000.00, which were already incurred but not yet paid, refers to the guardianship
proceeding filed by PNB, as guardian over the ward of Pedro Pajonar, docketed as Special Proceeding No. 1254
in the RTC (Branch XXXI) of Dumaguete City. x x x
xxx.....xxx.....xxx
The guardianship proceeding had been terminated upon delivery of the residuary estate to the heirs entitled
thereto. Thereafter, PNB was discharged of any further responsibility.
Attorney's fees in order to be deductible from the gross estate must be essential to the collection of assets,
payment of debts or the distribution of the property to the persons entitled to it. The services for which the fees
are charged must relate to the proper settlement of the estate. [ 34 Am. Jur. 2d 767. ] In this case, the
guardianship proceeding was necessary for the distribution of the property of the late Pedro Pajonar to his rightful
heirs.
xxx.....xxx.....xxx
PNB was appointed as guardian over the assets of the late Pedro Pajonar, who, even at the time of his death,
was incompetent by reason of insanity. The expenses incurred in the guardianship proceeding was but a
necessary expense in the settlement of the decedent's estate. Therefore, the attorney's fee incurred in the
guardianship proceedings amounting to P50,000.00 is a reasonable and necessary business expense deductible
from the gross estate of the decedent.[12]
Upon a motion for reconsideration filed by the Commissioner of Internal Revenue, the Court of Tax Appeals
modified its previous ruling by reducing the refundable amount to P76,502.43 since it found that a deficiency
interest should be imposed and the compromise penalty excluded.[13] However, the tax court upheld its previous
ruling regarding the legality of the deductions -
It is significant to note that the inclusion of the estate tax law in the codification of all our national internal revenue
laws with the enactment of the National Internal Revenue Code in 1939 were copied from the Federal Law of the
United States. [UMALI, Reviewer in Taxation (1985), p. 285 ] The 1977 Tax Code, promulgated by Presidential
Decree No. 1158, effective June 3, 1977, reenacted substantially all the provisions of the old law on estate and
gift taxes, except the sections relating to the meaning of gross estate and gift. [ Ibid, p. 286. ]
In the United States, [a]dministrative expenses, executor's commissions and attorney's fees are considered
allowable deductions from the Gross Estate. Administrative expenses are limited to such expenses as are actually
and necessarily incurred in the administration of a decedent's estate. [PRENTICE-HALL, Federal Taxes Estate
and Gift Taxes (1936), p. 120, 533. ] Necessary expenses of administration are such expenses as are entailed for
the preservation and productivity of the estate and for its management for purposes of liquidation, payment of
debts and distribution of the residue among the persons entitled thereto. [Lizarraga Hermanos vs. Abada, 40 Phil.
124. ] They must be incurred for the settlement of the estate as a whole. [34 Am. Jur. 2d, p. 765. ] Thus, where
there were no substantial community debts and it was unnecessary to convert community property to cash, the
only practical purpose of administration being the payment of estate taxes, full deduction was allowed for
20
nd
attorney's fees and miscellaneous expenses charged wholly to decedent's estate. [ Ibid., citing Estate of Helis, 26
T .C. 143 (A). ]
Petitioner stated in her protest filed with the BIR that "upon the death of the ward, the PNB, which was still the
guardian of the estate, (Annex 'Z' ), did not file an estate tax return; however, it advised the heirs to execute an
extrajudicial settlement, to pay taxes and to post a bond equal to the value of the estate, for which the estate paid
P59,341.40 for the premiums. (See Annex 'K')." [p. 17, CTA record. ] Therefore, it would appear from the records
of the case that the only practical purpose of settling the estate by means of an extrajudicial settlement pursuant
to Section 1 of Rule 74 of the Rules of Court was for the payment of taxes and the distribution of the estate to the
heirs. A fortiori, since our estate tax laws are of American origin, the interpretation adopted by American Courts
has some persuasive effect on the interpretation of our own estate tax laws on the subject.
Anent the contention of respondent that the attorney's fees of P50,000.00 incurred in the guardianship proceeding
should not be deducted from the Gross Estate, We consider the same unmeritorious. Attorneys' and guardians'
fees incurred in a trustee's accounting of a taxable inter vivos trust attributable to the usual issues involved in
such an accounting was held to be proper deductions because these are expenses incurred in terminating an
inter vivos trust that was includible in the decedent's estate. (Prentice Hall, Federal Taxes on Estate and Gift,
p.120, 861] Attorney's fees are allowable deductions if incurred for the settlement of the estate. It is noteworthy to
point that PNB was appointed the guardian over the assets of the deceased. Necessarily the assets of the
deceased formed part of his gross estate. Accordingly, all expenses incurred in relation to the estate of the
deceased will be deductible for estate tax purposes provided these are necessary and ordinary expenses for
administration of the settlement of the estate.[14]
In upholding the June 7, 1994 Resolution of the Court of Tax Appeals, the Court of Appeals held that: Newmiso
2. Although the Tax Code specifies "judicial expenses of the testamentary or intestate proceedings," there is no
reason why expenses incurred in the administration and settlement of an estate in extrajudicial proceedings
should not be allowed. However, deduction is limited to such administration expenses as are actually and
necessarily incurred in the collection of the assets of the estate, payment of the debts, and distribution of the
remainder among those entitled thereto. Such expenses may include executor's or administrator's fees, attorney's
fees, court fees and charges, appraiser's fees, clerk hire, costs of preserving and distributing the estate and
storing or maintaining it, brokerage fees or commissions for selling or disposing of the estate, and the like.
Deductible attorney's fees are those incurred by the executor or administrator in the settlement of the estate or in
defending or prosecuting claims against or due the estate. (Estate and Gift Taxation in the Philippines, T. P.
Matic, Jr., 1981 Edition, p. 176 ).
xxx.....xxx.....xxx
It is clear then that the extrajudicial settlement was for the purpose of payment of taxes and the distribution of the
estate to the heirs. The execution of the extrajudicial settlement necessitated the notarization of the same. Hence
the Contract of Legal Services of March 28, 1988 entered into between respondent Josefina Pajonar and counsel
was presented in evidence for the purpose of showing that the amount of P60,753.00 was for the notarization of
the Extrajudicial Settlement. It follows then that the notarial fee of P60,753.00 was incurred primarily to settle the
21
nd
estate of the deceased Pedro Pajonar. Said amount should then be considered an administration expenses
actually and necessarily incurred in the collection of the assets of the estate, payment of debts and distribution of
the remainder among those entitled thereto. Thus, the notarial fee of P60,753 incurred for the Extrajudicial
Settlement should be allowed as a deduction from the gross estate.
3. Attorney's fees, on the other hand, in order to be deductible from the gross estate must be essential to the
settlement of the estate.
The amount of P50,000.00 was incurred as attorney's fees in the guardianship proceedings in Spec. Proc. No.
1254. Petitioner contends that said amount are not expenses of the testamentary or intestate proceedings as the
guardianship proceeding was instituted during the lifetime of the decedent when there was yet no estate to be
settled.
Again , this contention must fail.
The guardianship proceeding in this case was necessary for the distribution of the property of the deceased
Pedro Pajonar. As correctly pointed out by respondent CTA, the PNB was appointed guardian over the assets of
the deceased, and that necessarily the assets of the deceased formed part of his gross estate. x x x
xxx.....xxx.....xxx
It is clear therefore that the attorney's fees incurred in the guardianship proceeding in Spec. Proc. No. 1254 were
essential to the distribution of the property to the persons entitled thereto. Hence, the attorney's fees incurred in
the guardianship proceedings in the amount of P50,000.00 should be allowed as a deduction from the gross
estate of the decedent.[15]
The deductions from the gross estate permitted under section 79 of the Tax Code basically reproduced the
deductions allowed under Commonwealth Act No. 466 (CA 466), otherwise known as the National Internal
Revenue Code of 1939,[16] and which was the first codification of Philippine tax laws. Section 89 (a) (1) (B) of CA
466 also provided for the deduction of the "judicial expenses of the testamentary or intestate proceedings" for
purposes of determining the value of the net estate. Philippine tax laws were, in turn, based on the federal tax
laws of the United States.[17] In accord with established rules of statutory construction, the decisions of American
courts construing the federal tax code are entitled to great weight in the interpretation of our own tax laws.[18]
Judicial expenses are expenses of administration.[19] Administration expenses, as an allowable deduction from
the gross estate of the decedent for purposes of arriving at the value of the net estate, have been construed by
the federal and state courts of the United States to include all expenses "essential to the collection of the assets,
payment of debts or the distribution of the property to the persons entitled to it."[20] In other words, the expenses
must be essential to the proper settlement of the estate. Expenditures incurred for the individual benefit of the
heirs, devisees or legatees are not deductible.[21] This distinction has been carried over to our jurisdiction. Thus,
in Lorenzo v. Posadas[22] the Court construed the phrase "judicial expenses of the testamentary or intestate
proceedings" as not including the compensation paid to a trustee of the decedent's estate when it appeared that
such trustee was appointed for the purpose of managing the decedent's real estate for the benefit of the
22
nd
testamentary heir. In another case, the Court disallowed the premiums paid on the bond filed by the administrator
as an expense of administration since the giving of a bond is in the nature of a qualification for the office, and not
necessary in the settlement of the estate.[23] Neither may attorney's fees incident to litigation incurred by the
heirs in asserting their respective rights be claimed as a deduction from the gross estate.[24]
Coming to the case at bar, the notarial fee paid for the extrajudicial settlement is clearly a deductible expense
since such settlement effected a distribution of Pedro Pajonar's estate to his lawful heirs. Similarly, the attorney's
fees paid to PNB for acting as the guardian of Pedro Pajonar's property during his lifetime should also be
considered as a deductible administration expense. PNB provided a detailed accounting of decedent's property
and gave advice as to the proper settlement of the latter's estate, acts which contributed towards the collection of
decedent's assets and the subsequent settlement of the estate.
We find that the Court of Appeals did not commit reversible error in affirming the questioned resolution of the
Court of Tax Appeals.
WHEREFORE, the December 21, 1995 Decision of the Court of Appeals is AFFIRMED. The notarial fee for the
extrajudicial settlement and the attorney's fees in the guardianship proceedings are allowable deductions from the
gross estate of Pedro Pajonar.
SO ORDERED.
23
nd
4. DIzon vs CTA
G.R. No. 140944, April 30, 2008
RAFAEL ARSENIO S. DIZON, IN HIS CAPACITY AS THE JUDICIAL ADMINISTRATOR OF THE ESTATE OF
THE DECEASED JOSE P. FERNANDEZ, PETITIONER, VS. COURT OF TAX APPEALS AND COMMISSIONER
OF INTERNAL REVENUE, RESPONDENTS.
DECISION
NACHURA, J.:
[1]
Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Civil Procedure seeking the
[2] [3]
reversal of the Court of Appeals (CA) Decision dated April 30, 1999 which affirmed the Decision of the Court of
[4]
Tax Appeals (CTA) dated June 17, 1997.
The Facts
[5]
On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition for the probate of his will was filed
[6]
with Branch 51 of the Regional Trial Court (RTC) of Manila (probate court). The probate court then appointed
retired Supreme Court Justice Arsenio P. Dizon (Justice Dizon) and petitioner, Atty. Rafael Arsenio P. Dizon
(petitioner) as Special and Assistant Special Administrator, respectively, of the Estate of Jose (Estate). In a
[7]
letter dated October 13, 1988, Justice Dizon informed respondent Commissioner of the Bureau of Internal
Revenue (BIR) of the special proceedings for the Estate.
Petitioner alleged that several requests for extension of the period to file the required estate tax return were
granted by the BIR since the assets of the estate, as well as the claims against it, had yet to be collated,
[8]
determined and identified. Thus, in a letter dated March 14, 1990, Justice Dizon authorized Atty. Jesus M.
Gonzales (Atty. Gonzales) to sign and file on behalf of the Estate the required estate tax return and to represent
the same in securing a Certificate of Tax Clearance. Eventually, on April 17, 1990, Atty. Gonzales wrote a
[9] [10]
letter addressed to the BIR Regional Director for San Pablo City and filed the estate tax return with the same
BIR Regional Office, showing therein a NIL estate tax liability, computed as follows:
COMPUTATION OF TAX
Conjugal P10,855,020.00
Real
Property
(Sch. 1)
Conjugal 3,460,591.34
Personal
Property
24
nd
(Sch.2)
Taxable
Transfer
(Sch. 3)
Gross 14,315,611.34
Conjugal
Estate
Less: 187,822,576.06
Deductions
(Sch. 4)
Net NIL
Conjugal
Estate
Less: NIL.
Share of
Surviving
Spouse
Net Share NIL
in Conjugal
Estate
xxx
Net NIL.
Taxable
Estate
[11]
Estate Tax NIL.
Due
On April 27, 1990, BIR Regional Director for San Pablo City, Osmundo G. Umali issued Certification Nos.
[12] [13] [14]
2052 and 2053 stating that the taxes due on the transfer of real and personal properties of Jose had been
fully paid and said properties may be transferred to his heirs. Sometime in August 1990, Justice Dizon passed
[15]
away. Thus, on October 22, 1990, the probate court appointed petitioner as the administrator of the Estate.
Petitioner requested the probate court's authority to sell several properties forming part of the Estate, for the
purpose of paying its creditors, namely: Equitable Banking Corporation (P19,756,428.31), Banque de L'Indochine
et. de Suez (US$4,828,905.90 as of January 31, 1988), Manila Banking Corporation (P84,199,160.46 as of
February 28, 1989) and State Investment House, Inc. (P6,280,006.21). Petitioner manifested that Manila Bank, a
major creditor of the Estate was not included, as it did not file a claim with the probate court since it had security
[16]
over several real estate properties forming part of the Estate.
However, on November 26, 1991, the Assistant Commissioner for Collection of the BIR, Themistocles Montalban,
[17]
issued Estate Tax Assessment Notice No. FAS-E-87-91-003269, demanding the payment of P66,973,985.40 as
deficiency estate tax, itemized as follows:
Deficiency Estate Tax- 1987
25
nd
Estate tax P31,868,414.48
25% surcharge- late 7,967,103.62
filing
late 7,967,103.62
payment
Interest 19,121,048.68
Compromise-non 25,000.00
filing
non 25,000.00
payment
no 15.00
notice of death
no 300.00
CPA Certificate
[18]
Total amount due & P66,973,985.40
collectible
[19]
In his letter dated December 12, 1991, Atty. Gonzales moved for the reconsideration of the said estate tax
[20]
assessment. However, in her letter dated April 12, 1994, the BIR Commissioner denied the request and
reiterated that the estate is liable for the payment of P66,973,985.40 as deficiency estate tax. On May 3, 1994,
[21]
petitioner received the letter of denial. On June 2, 1994, petitioner filed a petition for review before respondent
CTA. Trial on the merits ensued.
As found by the CTA, the respective parties presented the following pieces of evidence, to wit:
In the hearings conducted, petitioner did not present testimonial evidence but merely documentary evidence
consisting of the following:
Nature of Exh
Document ibits
(sic)
1 Letter dated
. October 13,
1988 from
Arsenio P.
Dizon
addressed to
the
Commissioner
of Internal
Revenue
informing the
latter of the
special
proceedings "A"
26
nd
for the
settlement of
the estate (p.
126, BIR
records);
2 Petition for the
. probate of the
will and
issuance of
letter of
administration
filed with the
Regional Trial
Court (RTC) of
Manila,
docketed as
Sp. Proc. No. "B"
87-42980 (pp. &
107-108, BIR "B-
records); 1"
3 Pleading
. entitled
"Compliance"
filed with the
probate Court
submitting the
final inventory
of all the
properties of
the deceased
(p. 106, BIR
records); "C"
4 Attachment to
. Exh. "C" which
is the detailed
and complete
listing of the "C-
properties of 1"
the deceased to
(pp. 89-105, "C-
BIR rec.); 17"
5 Claims against "D"
. the estate filed to
27
nd
by Equitable "D-
Banking Corp. 24"
with the
probate Court
in the amount
of
P19,756,428.3
1 as of March
31, 1988,
together with
the Annexes
to the claim
(pp. 64-88,
BIR records);
6 Claim filed by
. Banque de L'
Indochine et
de Suez with
the probate
Court in the
amount of US
$4,828,905.90
as of January "E"
31, 1988 (pp. to
262-265, BIR "E-
records); 3"
7 Claim of the
. Manila
Banking
Corporation
(MBC) which
as of
November 7,
1987 amounts
to
P65,158,023.5
4, but
recomputed
as of February
28, 1989 at "F"
a total to
amount of "F-
P84,199,160.4 3"
28
nd
6; together
with the
demand letter
from MBC's
lawyer (pp.
194-197, BIR
records);
8 Demand letter
. of Manila
Banking
Corporation
prepared by
Asedillo, Ram
os and
Associates
Law Offices
addressed to
Fernandez
Hermanos,
Inc.,
represented
by Jose P.
Fernandez, as
mortgagors, in
the total
amount of
P240,479,693.
17 as of
February 28, "G"
1989 (pp. &
186-187, BIR "G-
records); 1"
9 Claim of State
. Investment H
ouse, Inc. filed
with the RTC,
Branch VII of
Manila,
docketed as
Civil Case No. "H"
86-38599 to
entitled "State "H-
Investment 16"
29
nd
House, Inc.,
Plaintiff,
versus
Maritime
Company
Overseas, Inc.
and/or Jose P.
Fernandez,
Defendants,"
(pp. 200-215,
BIR records);
1 Letter dated
0 March 14,
. 1990 of
Arsenio P.
Dizon
addressed to
Atty. Jesus M.
Gonzales, (p.
184, BIR
records); "I"
1 Letter dated
1 April 17, 1990
. from J.M.
Gonzales
addressed to
the Regional
Director of BIR
in San Pablo
City (p. 183,
BIR records); "J"
1 Estate Tax
2 Return filed by
. the estate of
the late Jose
P. Fernandez
through its
authorized
representative
, Atty. Jesus "K"
M. Gonzales, to
for Arsenio P. "K-
Dizon, with 5"
30
nd
attachments
(pp. 177-
182, BIR
records);
1 Certified true
3 copy of the
. Letter of
Administration
issued by RTC
Manila,
Branch 51, in
Sp. Proc. No.
87-42980
appointing
Atty. Rafael S.
Dizon as
Judicial
Administrator
of the estate
of Jose P.
Fernandez; (p.
102, CTA
records) and "L"
1 Certification of
4 Payment of
. estate taxes
Nos. 2052 and
2053, both
dated April 27,
1990, issued
by the Office
of the
Regional
Director,
Revenue
Region No. 4-
C, San Pablo
City, with "M"
attachments to
(pp. 103-104, "M-
CTA records.). 5"
Respondent's [BIR] counsel presented on June 26, 1995 one witness in the person of Alberto Enriquez,
31
nd
who was one of the revenue examiners who conducted the investigation on the estate tax case of the late
Jose P. Fernandez. In the course of the direct examination of the witness, he identified the following:
Documents/Sign BI
atures R
R
ec
or
d
1 Estate Tax p.
. Return prepared 13
by the BIR; 8
2 Signatures of
. Ma. Anabella
Abuloc and
Alberto
Enriquez, Jr.
appearing at the -
lower Portion of do
Exh. "1"; -
3 Memorandum
. for the
Commissioner,
dated July 19,
1991, prepared
by revenue
examiners, Ma.
Anabella A.
Abuloc, Alberto
S. Enriquez and pp
Raymund S. .
Gallardo; 14
Reviewed by 3-
Maximino V. 14
Tagle 4
4 Signature of
. Alberto S.
Enriquez
appearing at the -
lower portion on do
p. 2 of Exh. "2"; -
5 Signature of Ma. -
. Anabella A. do
32
nd
Abuloc -
appearing at the
lower portion on
p. 2 of Exh. "2";
6 Signature of
. Raymund S.
Gallardo
appearing at the -
Lower portion on do
p. 2 of Exh. "2"; -
7 Signature of
. Maximino V.
Tagle also -
appearing on p. do
2 of Exh. "2"; -
8 Summary of
. revenue
Enforcement
Officers Audit p.
Report, dated 13
July 19, 1991; 9
9 Signature of
. Alberto Enriquez
at the lower -
portion of Exh. do
"3"; -
1 Signature of Ma.
0 Anabella A.
. Abuloc at the -
lower portion of do
Exh. "3"; -
1 Signature of
1 Raymond S.
. Gallardo at the -
lower portion of do
Exh. "3"; -
1 Signature of
2 Maximino V.
. Tagle at the -
lower portion of do
Exh. "3"; -
1 Demand letter p.
3 (FAS-E-87-91- 16
33
nd
. 00), signed by 9
the Asst.
Commissioner
for Collection for
the
Commissioner of
Internal
Revenue,
demanding
payment of the
amount of
P66,973,985.40;
and
1 Assessment pp
4 Notice FAS-E- .
. 87-91-00 16
9-
17
[2
0
2]
The CTA's Ruling
On June 17, 1997, the CTA denied the said petition for review. Citing this Court's ruling in Vda. de Oñate v. Court
[23]
of Appeals, the CTA opined that the aforementioned pieces of evidence introduced by the BIR were admissible
in evidence. The CTA ratiocinated:
Although the above-mentioned documents were not formally offered as evidence for respondent, considering that
respondent has been declared to have waived the presentation thereof during the hearing on March 20, 1996, still
they could be considered as evidence for respondent since they were properly identified during the presentation of
respondent's witness, whose testimony was duly recorded as part of the records of this case. Besides, the
[24]
documents marked as respondent's exhibits formed part of the BIR records of the case.
Nevertheless, the CTA did not fully adopt the assessment made by the BIR and it came up with its own
computation of the deficiency estate tax, to wit:
Conjugal Real Property P 5,062,016.00
Conjugal Personal Prop. 33,021,999.93
Gross Conjugal Estate 38,084,015.93
Less: Deductions 26,250,000.00
Net Conjugal Estate P 11,834,015.93
Less: Share of Surviving Spouse 5,917,007.96
Net Share in Conjugal Estate P 5,917,007.96
Add: Capital/Paraphernal
Properties - P44,652,813.66
Less: Capital/Paraphernal
Deductions 44,652,813.66
34
nd
Net Taxable Estate P 50,569,821.62
Estate Tax Due P 29,935,342.97

Add: 25% Surcharge for Late 7,483,835.74
Filing
Add: Penalties for-No notice of 15.00
death
No CPA 300.00
certificate
Total deficiency estate tax P 37,419,493.71
exclusive of 20% interest from due date of its payment until full payment thereof [Sec. 283 (b), Tax Code of
[25]
1987].
Thus, the CTA disposed of the case in this wise:
WHEREFORE, viewed from all the foregoing, the Court finds the petition unmeritorious and denies the same.
Petitioner and/or the heirs of Jose P. Fernandez are hereby ordered to pay to respondent the amount of
P37,419,493.71 plus 20% interest from the due date of its payment until full payment thereof as estate tax liability
of the estate of Jose P. Fernandez who died on November 7, 1987.
[26]
SO ORDERED.
[27]
Aggrieved, petitioner, on March 2, 1998, went to the CA via a petition for review.
The CA's Ruling
On April 30, 1999, the CA affirmed the CTA's ruling. Adopting in full the CTA's findings, the CA ruled that the
petitioner's act of filing an estate tax return with the BIR and the issuance of BIR Certification Nos. 2052 and 2053
did not deprive the BIR Commissioner of her authority to re-examine or re-assess the said return filed on behalf of
[28]
the Estate.
[29] [30]
On May 31, 1999, petitioner filed a Motion for Reconsideration which the CA denied in its Resolution dated
November 3, 1999.
Hence, the instant Petition raising the following issues:
1. Whether or not the admission of evidence which were not formally offered by the respondent BIR by the
Court of Tax Appeals which was subsequently upheld by the Court of Appeals is contrary to the Rules of
Court and rulings of this Honorable Court;
2. Whether or not the Court of Tax Appeals and the Court of Appeals erred in recognizing/considering the
estate tax return prepared and filed by respondent BIR knowing that the probate court appointed
administrator of the estate of Jose P. Fernandez had previously filed one as in fact, BIR Certification
Clearance Nos. 2052 and 2053 had been issued in the estate's favor;
35
nd
3. Whether or not the Court of Tax Appeals and the Court of Appeals erred in disallowing the valid and
enforceable claims of creditors against the estate, as lawful deductions despite clear and convincing
evidence thereof; and
4. Whether or not the Court of Tax Appeals and the Court of Appeals erred in validating erroneous double
imputation of values on the very same estate properties in the estate tax return it prepared and filed which
[31]
effectively bloated the estate's assets.
The petitioner claims that in as much as the valid claims of creditors against the Estate are in excess of the gross
estate, no estate tax was due; that the lack of a formal offer of evidence is fatal to BIR's cause; that the doctrine
laid down in Vda. de Oñate has already been abandoned in a long line of cases in which the Court held that
evidence not formally offered is without any weight or value; that Section 34 of Rule 132 of the Rules on Evidence
requiring a formal offer of evidence is mandatory in character; that, while BIR's witness Alberto Enriquez (Alberto)
in his testimony before the CTA identified the pieces of evidence aforementioned such that the same were marked,
BIR's failure to formally offer said pieces of evidence and depriving petitioner the opportunity to cross-examine
Alberto, render the same inadmissible in evidence; that assuming arguendo that the ruling in Vda. de Oñate is still
applicable, BIR failed to comply with the doctrine's requisites because the documents herein remained simply part
of the BIR records and were not duly incorporated in the court records; that the BIR failed to consider that although
the actual payments made to the Estate creditors were lower than their respective claims, such were compromise
agreements reached long after the Estate's liability had been settled by the filing of its estate tax return and the
issuance of BIR Certification Nos. 2052 and 2053; and that the reckoning date of the claims against the Estate and
the settlement of the estate tax due should be at the time the estate tax return was filed by the judicial
administrator and the issuance of said BIR Certifications and not at the time the aforementioned Compromise
[32]
Agreements were entered into with the Estate's creditors.
On the other hand, respondent counters that the documents, being part of the records of the case and duly
identified in a duly recorded testimony are considered evidence even if the same were not formally offered; that the
filing of the estate tax return by the Estate and the issuance of BIR Certification Nos. 2052 and 2053 did not
deprive the BIR of its authority to examine the return and assess the estate tax; and that the factual findings of the
[33]
CTA as affirmed by the CA may no longer be reviewed by this Court via a petition for review.
The Issues
There are two ultimate issues which require resolution in this case:
First. Whether or not the CTA and the CA gravely erred in allowing the admission of the pieces of evidence which
were not formally offered by the BIR; and
36
nd
Second. Whether or not the CA erred in affirming the CTA in the latter's determination of the deficiency estate tax
imposed against the Estate.
The Court's Ruling
The Petition is impressed with merit.
Under Section 8 of RA 1125, the CTA is categorically described as a court of record. As cases filed before it are
litigated de novo, party-litigants shall prove every minute aspect of their cases. Indubitably, no evidentiary value
can be given the pieces of evidence submitted by the BIR, as the rules on documentary evidence require that
[34]
these documents must be formally offered before the CTA. Pertinent is Section 34, Rule 132 of the Revised
Rules on Evidence which reads:
SEC. 34. Offer of evidence. -- The court shall consider no evidence which has not been formally offered. The
purpose for which the evidence is offered must be specified.
The CTA and the CA rely solely on the case of Vda. de Oñate, which reiterated this Court's previous rulings
[35] [36]
in People v. Napat-a and People v. Mate on the admission and consideration of exhibits which were not
formally offered during the trial. Although in a long line of cases many of which were decided after Vda. de Oñate,
[37]
we held that courts cannot consider evidence which has not been formally offered, nevertheless, petitioner
cannot validly assume that the doctrine laid down in Vda. de Oñate has already been abandoned. Recently,
[38]
in Ramos v. Dizon, this Court, applying the said doctrine, ruled that the trial court judge therein committed no
error when he admitted and considered the respondents' exhibits in the resolution of the case, notwithstanding the
fact that the same were not formally offered. Likewise, in Far East Bank & Trust Company v. Commissioner of
[39]
Internal Revenue, the Court made reference to said doctrine in resolving the issues therein. Indubitably, the
doctrine laid down in Vda. De Oñate still subsists in this jurisdiction. In Vda. de Oñate, we held that:
From the foregoing provision, it is clear that for evidence to be considered, the same must be formally offered.
Corollarily, the mere fact that a particular document is identified and marked as an exhibit does not mean that it
has already been offered as part of the evidence of a party. In Interpacific Transit, Inc. v. Aviles [186 SCRA 385],
we had the occasion to make a distinction between identification of documentary evidence and its formal offer as
an exhibit. We said that the first is done in the course of the trial and is accompanied by the marking of the
evidence as an exhibit while the second is done only when the party rests its case and not before. A party,
therefore, may opt to formally offer his evidence if he believes that it will advance his cause or not to do so at all. In
the event he chooses to do the latter, the trial court is not authorized by the Rules to consider the same.
However, in People v. Napat-a [179 SCRA 403] citing People v. Mate [103 SCRA 484], we relaxed the foregoing
rule and allowed evidence not formally offered to be admitted and considered by the trial court provided
the following requirements are present, viz.: first, the same must have been duly identified by testimony
[40]
duly recorded and, second, the same must have been incorporated in the records of the case.
37
nd
From the foregoing declaration, however, it is clear that Vda. de Oñate is merely an exception to the general rule.
Being an exception, it may be applied only when there is strict compliance with the requisites mentioned therein;
otherwise, the general rule in Section 34 of Rule 132 of the Rules of Court should prevail.
In this case, we find that these requirements have not been satisfied. The assailed pieces of evidence were
presented and marked during the trial particularly when Alberto took the witness stand. Alberto identified these
[41]
pieces of evidence in his direct testimony. He was also subjected to cross-examination and re-cross
[42]
examination by petitioner. But Alberto's account and the exchanges between Alberto and petitioner did not
sufficiently describe the contents of the said pieces of evidence presented by the BIR. In fact, petitioner sought
that the lead examiner, one Ma. Anabella A. Abuloc, be summoned to testify, inasmuch as Alberto was
[43]
incompetent to answer questions relative to the working papers. The lead examiner never testified. Moreover,
while Alberto's testimony identifying the BIR's evidence was duly recorded, the BIR documents themselves were
not incorporated in the records of the case.
A common fact threads through Vda. de Oñate and Ramos that does not exist at all in the instant case. In the
aforementioned cases, the exhibits were marked at the pre-trial proceedings to warrant the pronouncement that
the same were duly incorporated in the records of the case. Thus, we held in Ramos:
In this case, we find and so rule that these requirements have been satisfied. The exhibits in question were
presented and marked during the pre-trial of the case thus, they have been incorporated into the
records.Further, Elpidio himself explained the contents of these exhibits when he was interrogated by
respondents' counsel...
x x x x
But what further defeats petitioner's cause on this issue is that respondents' exhibits were marked and admitted
[44]
during the pre-trial stage as shown by the Pre-Trial Order quoted earlier.
[45]
While the CTA is not governed strictly by technical rules of evidence, as rules of procedure are not ends in
themselves and are primarily intended as tools in the administration of justice, the presentation of the BIR's
evidence is not a mere procedural technicality which may be disregarded considering that it is the only means by
[46]
which the CTA may ascertain and verify the truth of BIR's claims against the Estate. The BIR's failure to formally
[47]
offer these pieces of evidence, despite CTA's directives, is fatal to its cause. Such failure is aggravated by the
fact that not even a single reason was advanced by the BIR to justify such fatal omission. This, we take against the
BIR.
[48]
Per the records of this case, the BIR was directed to present its evidence in the hearing of February 21, 1996,
[49]
but BIR's counsel failed to appear. The CTA denied petitioner's motion to consider BIR's presentation of
evidence as waived, with a warning to BIR that such presentation would be considered waived if BIR's evidence
would not be presented at the next hearing. Again, in the hearing of March 20, 1996, BIR's counsel failed to
[50] [51]
appear. Thus, in its Resolution dated March 21, 1996, the CTA considered the BIR to have waived
presentation of its evidence. In the same Resolution, the parties were directed to file their respective
[52]
memorandum. Petitioner complied but BIR failed to do so. In all of these proceedings, BIR was duly notified.
[53]
Hence, in this case, we are constrained to apply our ruling in Heirs of Pedro Pasag v. Parocha:
38
nd
A formal offer is necessary because judges are mandated to rest their findings of facts and their judgment only and
strictly upon the evidence offered by the parties at the trial. Its function is to enable the trial judge to know the
purpose or purposes for which the proponent is presenting the evidence. On the other hand, this allows opposing
parties to examine the evidence and object to its admissibility. Moreover, it facilitates review as the appellate court
will not be required to review documents not previously scrutinized by the trial court.
Strict adherence to the said rule is not a trivial matter. The Court in Constantino v. Court of Appeals ruled that the
formal offer of one's evidence is deemed waived after failing to submit it within a considerable period of
time. It explained that the court cannot admit an offer of evidence made after a lapse of three (3) months
because to do so would "condone an inexcusable laxity if not non-compliance with a court order which, in
effect, would encourage needless delays and derail the speedy administration of justice."
Applying the aforementioned principle in this case, we find that the trial court had reasonable ground to consider
that petitioners had waived their right to make a formal offer of documentary or object evidence. Despite several
extensions of time to make their formal offer, petitioners failed to comply with their commitment and allowed almost
five months to lapse before finally submitting it. Petitioners' failure to comply with the rule on admissibility of
evidence is anathema to the efficient, effective, and expeditious dispensation of justice.
Having disposed of the foregoing procedural issue, we proceed to discuss the merits of the case.
Ordinarily, the CTA's findings, as affirmed by the CA, are entitled to the highest respect and will not be disturbed
[54]
on appeal unless it is shown that the lower courts committed gross error in the appreciation of facts. In this case,
however, we find the decision of the CA affirming that of the CTA tainted with palpable error.
It is admitted that the claims of the Estate's aforementioned creditors have been condoned. As a mode of
[55] [56]
extinguishing an obligation, condonation or remission of debt is defined as:
an act of liberality, by virtue of which, without receiving any equivalent, the creditor renounces the enforcement of
the obligation, which is extinguished in its entirety or in that part or aspect of the same to which the remission
refers. It is an essential characteristic of remission that it be gratuitous, that there is no equivalent received for the
benefit given; once such equivalent exists, the nature of the act changes. It may become dation in payment when
the creditor receives a thing different from that stipulated; or novation, when the object or principal conditions of the
obligation should be changed; or compromise, when the matter renounced is in litigation or dispute and in
[57]
exchange of some concession which the creditor receives.
[58]
Verily, the second issue in this case involves the construction of Section 79 of the National Internal Revenue
[59]
Code (Tax Code) which provides for the allowable deductions from the gross estate of the decedent. The
specific question is whether the actual claims of the aforementioned creditors may be fully allowed as deductions
from the gross estate of Jose despite the fact that the said claims were reduced or condoned through compromise
agreements entered into by the Estate with its creditors.
"Claims against the estate," as allowable deductions from the gross estate under Section 79 of the Tax Code, are
39
nd
basically a reproduction of the deductions allowed under Section 89 (a) (1) (C) and (E) of Commonwealth Act No.
466 (CA 466), otherwise known as the National Internal Revenue Code of 1939, and which was the first
codification of Philippine tax laws. Philippine tax laws were, in turn, based on the federal tax laws of the United
States. Thus, pursuant to established rules of statutory construction, the decisions of American courts construing
[60]
the federal tax code are entitled to great weight in the interpretation of our own tax laws.
It is noteworthy that even in the United States, there is some dispute as to whether the deductible amount for a
claim against the estate is fixed as of the decedent's death which is the general rule, or the same should be
adjusted to reflect post-death developments, such as where a settlement between the parties results in the
[61]
reduction of the amount actually paid. On one hand, the U.S. court ruled that the appropriate deduction is the
[62] [63]
"value" that the claim had at the date of the decedent's death. Also, as held in Propstra v. U.S., where a lien
claimed against the estate was certain and enforceable on the date of the decedent's death, the fact that the
claimant subsequently settled for lesser amount did not preclude the estate from deducting the entire amount of
the claim for estate tax purposes. These pronouncements essentially confirm the general principle that post-death
developments are not material in determining the amount of the deduction.
On the other hand, the Internal Revenue Service (Service) opines that post-death settlement should be taken into
consideration and the claim should be allowed as a deduction only to the extent of the amount actually
[64]
paid. Recognizing the dispute, the Service released Proposed Regulations in 2007 mandating that the deduction
[65]
would be limited to the actual amount paid.
[66] th
In announcing its agreement with Propstra, the U.S. 5 Circuit Court of Appeals held:
We are persuaded that the Ninth Circuit's decision...in Propstra correctly apply the Ithaca Trust date-of-death
valuation principle to enforceable claims against the estate. As we interpret Ithaca Trust, when the Supreme Court
announced the date-of-death valuation principle, it was making a judgment about the nature of the federal estate
tax specifically, that it is a tax imposed on the act of transferring property by will or intestacy and, because the act
on which the tax is levied occurs at a discrete time, i.e., the instance of death, the net value of the property
transferred should be ascertained, as nearly as possible, as of that time. This analysis supports broad application
[67]
of the date-of-death valuation rule.
We express our agreement with the date-of-death valuation rule, made pursuant to the ruling of the U.S. Supreme
[68]
Court in Ithaca Trust Co. v. United States. First. There is no law, nor do we discern any legislative intent in our
tax laws, which disregards the date-of-death valuation principle and particularly provides that post-death
developments must be considered in determining the net value of the estate. It bears emphasis that tax burdens
are not to be imposed, nor presumed to be imposed, beyond what the statute expressly and clearly imports, tax
[69]
statutes being construed strictissimi juris against the government. Any doubt on whether a person, article or
[70]
activity is taxable is generally resolved against taxation. Second. Such construction finds relevance and
consistency in our Rules on Special Proceedings wherein the term "claims" required to be presented against a
decedent's estate is generally construed to mean debts or demands of a pecuniary nature which could have been
[71]
enforced against the deceased in his lifetime, or liability contracted by the deceased before his death. Therefore,
the claims existing at the time of death are significant to, and should be made the basis of, the determination of
allowable deductions.
40
nd
WHEREFORE, the instant Petition is GRANTED. Accordingly, the assailed Decision dated April 30, 1999 and the
Resolution dated November 3, 1999 of the Court of Appeals in CA-G.R. S.P. No. 46947 are REVERSED and SET
ASIDE. The Bureau of Internal Revenue's deficiency estate tax assessment against the Estate of Jose P.
Fernandez is hereby NULLIFIED. No costs.
SO ORDERED.
41
nd
5. CIR vs Gonzales
G.R. No. L-19495, April 24, 1967
COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. LILIA YUSAY GONZALES AND THE COURT
OF TAX APPEALS, RESPONDENTS.
RESOLUTION
BENGZON, J.P., J.:
Respondent Lilia Yusay Gonzales seeks reconsideration of Our decision holding her liable for the payment of
P97,723.96 as estate and inheritance taxes plus delinquency penalties as administratrix of the intestate estate of
Matias Yusay. The grounds raised by her, deserve this extended resolution.
Firstly, movant maintains that the issue of whether or not the estate and inheritance tax return filed by Jose Yusay
on May 13, 1949 was sufficient to start the running of the statute of limitations on assessment, was neither raised
in the Court of Tax Appeals nor assigned as error before this Court. The records in the Court of Tax Appeals
however show the contrary. Paragraph 2 of the answer filed by the Commissioner of Internal Revenue states:
"2. That he likewise admits, as alleged in paragraph 1 thereof, having received the letter of the petitioner dated
November 27, 1959 (Annex "A" of the Petition for Review), contesting the assessment of estate and inheritance
taxes levied against the Intestate Estate of the Late Matias Yusay, Special Proceedings No. 459, Court of First
Instance of Iloilo, on the ground that the said assessment has already prescribed, but specifically denies the
allegations that the assessments have already prescribed, the truth of the matter being that the returns filed on
May 11, 1949, cannot be considered as a true and complete return sufficient to start the running of the period of
five (5) years prescribed in Sec. 331 of the Tax Code;"
This point was discussed in the memorandum of the Commissioner of Internal Revenue, thus:
"In the estate and inheritance tax return filed by Jose S. Yusay (Exhibits B & 1, pp. 14-20, B.I.R. records) the net
value of the estate of the deceased was claimed to be P203,354.00 and no inheritance tax was shown as the heirs
were not indicated. In the final computation of the estate by an examiner of the respondent, the net estate was
found to be worth P410,518.30 (p. 105, B.I.R. records) or about more than twice the original amount declared in
the return. In the subsequent investigation of this case, it was also determined that the heirs of the deceased were
Jose S. Yusay, a legitimate son, and Lilia Yusay, an acknowledged natural child, (petitioner herein).
"Under the circumstances, we believe the return filed on May 11, 1949 was false or fraudulent in the sense that the
value of the properties were under declared and that the said return was also incomplete as the heirs to the estate
were not specified. Inasmuch as the respondent was not furnished adequate data upon which to base an
assessment, the said return cannot be con-sidered a true and complete return sufficient to start the running of the
period of limitations of five (5) years prescribed in Section 331 of the Tax Code."
In the lower court the defense of the Commissioner of Internal Revenue against Lilia Yusay Gonzales' plea of
prescription, centered on the insufficiency and fraudulence or falsity of the return filed by Jose Yusay. The Court of
Tax Appeals overruled the Commissioner of Internal Revenue. Said the Tax Court:
42
nd
"The provision of Section 332(a) of the Tax Code cannot be invoked in this case as it was neither alleged in
respondent's answer, nor proved during the hearing that the return was false or fraudulent with intent to evade the
payment of tax. Moreover, the failure of respondent to charge fraud and impose the penalty thereof in the
assessments made in 1953, 1955 and 1958 is an eloquent demonstration that the filing of petitio-ner's transfer tax
return was not attended by falsity or fraud with intent to evade tax.
x x x x x
"But respondent urges upon us that the filing of the return did not start the running of the five (5) year period for the
reason that the return did not disclose the heirs of the deceased Matias Yusay, and contained inadequate data
regarding the value of the estate. We believe that these mere omissions do not require additional returns for the
same. Altho incomplete for being de-ficient on these matters, the return cannot be regarded as a case of failure to
file a return where want of good faith and intent to evade the tax on the part of petitioner are not charged. It served
as a sufficient notice to the Commissioner of Internal Revenue to make his assessment and start the running of the
period of limitation. In this connection, it must be borne in mind that the Commissioner is not confined to the
taxpayer's return in making assessment of the tax, and for this purpose he may secure additional information from
other sources. As was done in the case at bar, he sends inves-tigators to examine the taxpayer's records and
other pertinent data. His assessment is based upon the facts uncovered by the inves-tigation (Collector v. Central
Azucarera de Tarlac, G.R. Nos. L-11760 & L-11761, July 31, 1958).
"Furthermore, the failure to state the heirs in the return can be attributed to the then unsettled conflict raging before
the probate court as to who are the heirs of the estate. Such failure could not have been a deliberate attempt to
mislead the government in the assessment of the correct taxes."
In his appeal, the Commissioner of Internal Revenue assigned as third error of the Court of Tax Appeals the
finding that the assessment in question was "made beyond the five-year statutory period provided in Section
332(a) of the Tax Code," and that the right of the Commissioner of Internal Revenue to assess the estate and
inheritance taxes has already prescribed. To sustain his side, the Commissioner ventilated in his brief, fraud in the
filing of the return, absence of certain data from the return which prevented him from assessing thereon the tax
due and the pendency in this Court of L-11374 entitled "Intestate Estate of the late Matias Yusay, Jose C. Yusay,
Administrator vs. Lilia Yusay Gonzales" which allegedly had the effect of suspending the running of the period of
limitations on assessment.
Clearly, therefore, it would be incorrect to say that the question of whether or not the return filed by Jose Yusay
was sufficient to start the running of the statute of limitations to assess the corresponding tax, was not raised by
the Commissioner in the Court of Tax Appeals and in this Court.
Second. Movant contends that contrary to Our ruling, the return filed by Jose Yusay was sufficient to state the
statute of limitations on assessment. Inasmuch as this question was amply discussed in Our decision sought to be
reconsidered, and no new argument was advanced, We deem it unnecessary to pass upon the same. There is no
reason for any change on Our stand on this point.
Third. Movant insists that since she administers only one-third of the estate of Matias Yusay, she should not be
liable for the whole tax. And she suggests that We hold the intestate estate of Matias Yusay liable for said taxes,
one-third to be paid by Lilia Yusay Gonzales and two-thirds to be paid by Florencia P. Vda. de Yusay.
43
nd
The foregoing suggestion to require payment of two-thirds of the total taxes by Florencia P. Vda. de Yusay is not
acceptable, for she (Florencia P. Vda. de Yusay) is not a party in this case.
It should be pointed out that Lilia Yusay Gonzales appealed the whole assessment to the Court of Tax Appeals.
Thereupon, the Commissioner of Internal Revenue questioned her legal capacity to institute the appeal on the
ground that she administered only one-third of the estate of Matias Yusay. In opposition, she espoused the view,
which was sustained by the Tax Court, that in co-administration, the administratrices are regarded as one person
and the acts of one of them in relation to the regular administration of the estate are deemed to be the acts of all;
hence, each administratrix can represent the whole estate. In advancing such a proposition, Lilia Yusay Gonzales
represented the whole estate and hoped to benefit from the favorable outcome of the case. For the same reason
that she represented her co-administratrix and the whole estate of Matias Yusay, she risked being ordered to pay
the whole assessment, should the assessment be sustained.
Her change of stand adopted in the motion for reconsideration to the effect that she should be made liable for only
one-third of the total tax, would negate her aforesaid proposition before the Court of Tax Appeals. She is now
estopped from denying liability for the whole tax.
At any rate, estate and inheritance taxes are satisfied from the estate and are to be paid by the executor or
administrator.[1] Where there are two or more executors, all of them are severally liable for the payment of the
estate tax.[2] The inheritance tax, although charged against the account of each beneficiary, should be paid by the
executor or administrator.[3] Failure to pay the estate and inheritance taxes before distribution of the estate would
subject the executor or administrator to criminal liability under Section 107(c) of the Tax Code.
It is immaterial therefore that Lilia Yusay Gonzales administers only one-third of the estate and will receive as her
share only said portion, for her right to the estate comes after taxes.[4] As an administratrix, she is liable for the
entire estate tax. As an heir, she is liable for the entire inheritance tax although her liability would not exceed the
amount of her share in the estate.[5] The entire inheritance tax which amounts to P39,178.12 excluding penalties
is obviously much less than her distributive share.
MOTION FOR RECONSIDERATION DENIED.
44

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nd

Stevenson S. Yu, XU Law, 2 Semester 2017-2018 Taxation 2 (Atty. Cherry P. Ibaoc)

G.R. No. 120880, June 05, 1997

TORRES, JR., J.:

Section 229 of the NIRC tells us how:

G.R. No. 118671, January 29, 1996

"xxx xxx xxx

Hence, this petition.

Petitioner claims that:

"THE PUBLIC RESPONDENT COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION

"Sec. 2. Advance distribution in special proceedings. - Nothwithstanding a pending controversy or appeal in

And Rule 90 provides that:

Respondent judge is ordered to proceed with dispatch in the proceedings below.

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

COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS . COURT OF APPEALS, COURT OF TAX

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

Again , this contention must fail.

G.R. No. 140944, April 30, 2008

The CTA's Ruling

Estate Tax Due P 29,935,342.97

The CA's Ruling

Hence, the instant Petition raising the following issues:

The Court's Ruling

The Petition is impressed with merit.

G.R. No. L-19495, April 24, 1967

BENGZON, J.P., J.:

MOTION FOR RECONSIDERATION DENIED.

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