G.R. No.

123206 March 22, 2000

COMMISSIONER OF INTERNAL REVENUE,

petitioner, vs.
COURT OF APPEALS, COURT OF TAX APPEALS an !OSEFINA P. PA!ONAR, a" A#$n$"%ra%r$& o' %h( E"%a%( o'
P(ro P. Pa)onar,
respondents.

Fac%" o' %h( Ca"(*

• When Pedro Pajonar suffered shock and became insane, his sister Josefina Pajonar became the guardian over
his person while his property was placed under guardianship of the Philippine National Bank PNB!.
•
"n #ay $$, $%&&, four months after the death of Pedro, the PNB filed an accounting of the decedent's property
under guardianship valued at P(,)(*,+*.)% . -owever, the PNB did not file an estate ta return, instead it advised
Pedro Pajonar's heirs to eecute an etrajudicial settlement and to pay the taes on his estate.

• "n /pril 0, $%&&, pursuant to the assessment by the Bureau of 1nternal 2evenue B12!, the estate of Pedro
Pajonar paid taes in the amount of P,00*.

• Pursuant to a second assessment by the B12 for deficiency estate ta, the estate of Pedro Pajonar paid estate
ta in the amount of P$,0*, *%).%&. Josefina Pajonar, filed a protest wit h the B12 praying that the estat e ta
payment in the amount of P$,0*,*%).%&, or at least some portion of it, be returned to the heirs. 3

• 3he 43/ ordered the 4ommissioner of 1nternal 2evenue to refund Josefina Pajonar the amount of
P0,0&0.0%, representing erroneously paid estate ta for the year $%&&. + /mong the deductions from the gross
estate allowed by the 43/ were the amounts of P+),*0( representing the notar ial fee for the 5trajudicial
6ettlement and the amount of P0),))) as the attorney's fees for guardianship. 6

• 4ommissioner of 1nternal 2evenue filed a motion for reconsideration asserted that the notarial fee for the
etrajudicial settlement and the attorney7s fees in the guardianship proceedings are not deductible epenses.

• "n June *, $%%8, the 43/ upheld the validity of the deduction of the notarial fee for the 5trajudicial 6ettlement
and the attorney's fees in the guardianship proceedings. 9ater on, the 4ourt of /ppeals denied the 4ommissioner7s
petition for review of the 43/7s decision.

• -ence, the present appeal by the 4ommissioner of 1nternal 2evenue.

I""(*

Whether or not the notarial fee paid for the etrajudicial settlement and the attorney7s fees in the guardianship proceedings
may be allowed as deductions from the decedent7s gross estate in order to arrive at the value of the net estate.

-(*

:pholding the decisions of the appellate courts, the 4ourt of 3a /ppeals thus ruled;

3his 4ourt adopts the view under /merican jurisprudence that epenses incurred in the etrajudicial settlement of the
estate should be allowed as a deduction from the gross estate. <3here is no re=uirement of formal administration. 1t is
sufficient that the epense be a necessary contribution toward the settlement of the case.

/ttorney'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. 3he services for which the fees are charged must relate
to the proper settlement of the estate.1n this case, the guardianship proceeding was necessary for the distribution of the
property of the late Pedro Pajonar to his rightful heirs.

1t is clear then that the etrajudicial settlement was for the purpose of payment of taes and the distribution of the
estate to the heirs. 3he eecution of the etrajudicial settlement necessitated the notari>ation of the same. -ence the
4ontract of 9egal 6ervices of #arch &, $%&& entered into between respondent Josefina Pajonar and counsel was

presented in 6ettlement.
5trajudicial evidence for the purpose
1t follows ofthe
then that showing
notarialthat theP+),*0(.))
fee of amoun t ofwas
P+),*0(.)) was for to
incurred primarily the notar
settle i>ation
the estateofofthe
the
 deceased Pedro Pajonar. 6aid amount should then be considered an administration epenses 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.

W-525?"25, the @ecember $, $%%0 @ecision of the 4ourt of /ppeals is /??12#5@. 3he notarial fee for the etrajudicial
settlement and the attorney's fees in the guardianship proceedings are allowable deductions from the gross estate of Pedro
Pajonar.1 �wp hi1.nt
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