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 -

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.

(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 petitionerFerdinand '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
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]
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.
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.

"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)"

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.

xxx
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 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 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.

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.: Supr-ema

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] Jur-
is

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.

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]Juri-ssc

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. J-jlex

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

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. Sc-juris

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
[13]
excluded. 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. ] Nc-mmis

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 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 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. Acctmis

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] Scc-alr
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 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.
Melo, (Chairman), Vitug, Panganiban, and Purisima, JJ., concur.

RAFAEL ARSENIO S. DIZON, in his G.R. No. 140944

capacity as the Judicial Administrator
of the Estate of the deceased JOSE P. Present:
FERNANDEZ,
Petitioner, YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
- versus - CHICO-NAZARIO,
NACHURA, and
REYES, JJ.
COURT OF TAX APPEALS
and COMMISSIONER OF INTERNAL Promulgated:
REVENUE,
Respondents. April 30, 2008
x------------------------------------------------------------------------------------x

DECISION

NACHURA, J.:

Before this Court is a Petition for Review on Certiorari[1] under Rule 45 of

the Rules of Civil Procedure seeking the reversal of the Court of Appeals
(CA) Decision[2] dated April 30, 1999 which affirmed the Decision[3]of the
Court of Tax Appeals (CTA) dated June 17, 1997.[4]

The Facts

On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a

petition for the probate of his will[5] was filed with Branch 51 of the Regional
Trial Court (RTC) of Manila (probate court).[6] 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 letter[7] 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,
determined and identified. Thus, in a letter[8] 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 letter[9] addressed to the BIR Regional
Director for San Pablo City and filed the estate tax return[10] with the same
BIR Regional Office, showing therein a NIL estate tax liability, computed as
follows:

COMPUTATION OF TAX

Conjugal Real Property (Sch. 1) P10,855,020.00

Conjugal Personal Property (Sch.2) 3,460,591.34
Taxable Transfer (Sch. 3)
Gross Conjugal Estate 14,315,611.34
Less: Deductions (Sch. 4) 187,822,576.06
Net Conjugal Estate NIL
Less: Share of Surviving Spouse NIL .
Net Share in Conjugal Estate NIL
xxx
Net Taxable Estate NIL .
Estate Tax Due NIL .[11]

On April 27, 1990, BIR Regional Director for San Pablo City,
Osmundo G. Umali issued Certification Nos. 2052[12] and 2053[13] stating
that the taxes due on the transfer of real and personal properties[14] of Jose
had been fully paid and said properties may be transferred to his heirs.
Sometime in August 1990, Justice Dizon passed away. Thus, on October
22, 1990, the probate court appointed petitioner as the administrator of the
Estate.[15]

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 over several real estate
properties forming part of the Estate.[16]

However, on November 26, 1991, the Assistant Commissioner for

Collection of the BIR, Themistocles Montalban, issued Estate Tax
Assessment Notice No. FAS-E-87-91-003269,[17] demanding the payment
of P66,973,985.40 as deficiency estate tax, itemized as follows:

Deficiency Estate Tax- 1987

Estate tax P31,868,414.48

25% surcharge- late filing 7,967,103.62
late payment 7,967,103.62
Interest 19,121,048.68
Compromise-non filing 25,000.00
non payment 25,000.00
no notice of death 15.00
no CPA Certificate 300.00

Total amount due & collectible P66,973,985.40[18]

In his letter[19] dated December 12, 1991, Atty. Gonzales moved for the
reconsideration of the said estate tax assessment. However, in her
letter[20] 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, petitioner received the letter of
denial. On June 2, 1994, petitioner filed a petition for review[21] 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 Document (sic) Exhibits

1. Letter dated October 13, 1988

from Arsenio P. Dizon addressed
to the Commissioner of Internal
Revenue informing the latter of
the special proceedings for the
settlement of the estate (p. 126,
BIR records); "A"

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. 87-42980 (pp. 107-108, BIR
records); "B" & "B-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 properties of
the deceased (pp. 89-105, BIR rec.); "C-1" to "C-17"

5. Claims against the estate filed

by Equitable Banking Corp. with
the probate Court in the amount
of P19,756,428.31 as of March 31,
1988, together with the Annexes
to the claim (pp. 64-88, BIR records); "D" to "D-24"

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 31,
1988 (pp. 262-265, BIR records); "E" to "E-3"

7. Claim of the Manila Banking

Corporation (MBC) which as of
November 7, 1987 amounts to
P65,158,023.54, but recomputed
as of February 28, 1989 at a
total amount of P84,199,160.46;
together with the demand letter
from MBC's lawyer (pp. 194-197,
BIR records); "F" to "F-3"

8. Demand letter of Manila Banking

Corporation prepared by Asedillo,
Ramos 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, 1989
(pp. 186-187, BIR records); "G" & "G-1"

9. Claim of State Investment

House, Inc. filed with the
RTC, Branch VII of Manila,
docketed as Civil Case No.
86-38599 entitled "State
Investment House, Inc.,
Plaintiff, versus Maritime
Company Overseas, Inc. and/or
Jose P. Fernandez, Defendants,"
(pp. 200-215, BIR records); "H" to "H-16"

10. Letter dated March 14, 1990

of Arsenio P. Dizon addressed
to Atty. Jesus M. Gonzales,
(p. 184, BIR records); "I"

11. Letter dated April 17, 1990

from J.M. Gonzales addressed
to the Regional Director of
BIR in San Pablo City
(p. 183, BIR records); "J"

12. Estate Tax Return filed by

the estate of the late Jose P.
Fernandez through its authorized
representative, Atty. Jesus M.
Gonzales, for Arsenio P. Dizon,
with attachments (pp. 177-182,
BIR records); "K" to "K-5"

13. Certified true 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"

14. Certification of 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 attachments
(pp. 103-104, CTA records.). "M" to "M-5"

Respondent's [BIR] counsel presented on June 26, 1995

one witness in the person of Alberto Enriquez, 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/
Signatures BIR Record

1. Estate Tax Return prepared by

the BIR; p. 138

2. Signatures of Ma. Anabella

Abuloc and Alberto Enriquez,
Jr. appearing at the lower
Portion of Exh. "1"; -do-

3. Memorandum for the Commissioner,

dated July 19, 1991, prepared by
revenue examiners, Ma. Anabella A.
Abuloc, Alberto S. Enriquez and
Raymund S. Gallardo; Reviewed by
Maximino V. Tagle pp. 143-144

4. Signature of Alberto S.
Enriquez appearing at the
lower portion on p. 2 of Exh. "2"; -do-

5. Signature of Ma. Anabella A.

Abuloc appearing at the
lower portion on p. 2 of Exh. "2"; -do-
 6. Signature of Raymund S.
Gallardo appearing at the
Lower portion on p. 2 of Exh. "2"; -do-

7. Signature of Maximino V.
Tagle also appearing on
p. 2 of Exh. "2"; -do-

8. Summary of revenue
Enforcement Officers Audit
Report, dated July 19, 1991; p. 139

9. Signature of Alberto
Enriquez at the lower
portion of Exh. "3"; -do-

10. Signature of Ma. Anabella A.

Abuloc at the lower
portion of Exh. "3"; -do-

11. Signature of Raymond S.

Gallardo at the lower
portion of Exh. "3"; -do-

12. Signature of Maximino

V. Tagle at the lower
portion of Exh. "3"; -do-

13. Demand letter (FAS-E-87-91-00),

signed by the Asst. Commissioner
for Collection for the Commissioner
of Internal Revenue, demanding
payment of the amount of
P66,973,985.40; and p. 169

14. Assessment Notice FAS-E-87-91-00 pp. 169-170[22]

The CTA's Ruling

On June 17, 1997, the CTA denied the said petition for review. Citing this
Court's ruling in Vda. de Oate v. Court of Appeals,[23] 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 documents marked as
respondent's exhibits formed part of the BIR records of the
case.[24]

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
Net Taxable Estate P 50,569,821.62
============

Estate Tax Due P 29,935,342.97

Add: 25% Surcharge for Late Filing 7,483,835.74
Add: Penalties for-No notice of death 15.00
No CPA certificate 300.00
 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 1987].[25]

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.

SO ORDERED.[26]

Aggrieved, petitioner, on March 2, 1998, went to the CA via a petition for

review.[27]

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 the Estate.[28]

On May 31, 1999, petitioner filed a Motion for Reconsideration[29] which the
CA denied in its Resolution[30] 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;

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 effectively bloated the
estate's assets.[31]

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 Oate 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 Oate 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
Agreements were entered into with the Estate's creditors.[32]

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 CTA as affirmed by the CA may no longer be
reviewed by this Court via a petition for review.[33]

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

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 Courts 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 these documents must be formally
offered before the CTA.[34] 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 Oate, which
reiterated this Court's previous rulings in People v. Napat-a[35] and People
v. Mate[36] 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 Oate, we held that courts cannot
consider evidence which has not been formally offered,[37] nevertheless,
petitioner cannot validly assume that the doctrine laid down in Vda. de
Oate has already been abandoned. Recently, in Ramos v. Dizon,[38] 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 Internal Revenue,[39] the Court made reference to said
doctrine in resolving the issues therein. Indubitably, the doctrine laid down
in Vda. De Oate still subsists in this jurisdiction. In Vda. de Oate, 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 duly recorded and,
second, the same must have been incorporated in the
records of the case.[40]

From the foregoing declaration, however, it is clear that Vda. de

Oate 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
pieces of evidence in his direct testimony.[41] He was also subjected to
cross-examination and re-cross examination by petitioner.[42] But Albertos
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
incompetent to answer questions relative to the working papers.[43] 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 Oate 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...

xxxx

But what further defeats petitioner's cause on this issue is that

respondents' exhibits were marked and admitted during the pre-
trial stage as shown by the Pre-Trial Order quoted earlier.[44]

While the CTA is not governed strictly by technical rules of evidence, [45] 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 which the CTA may ascertain and
verify the truth of BIR's claims against the Estate.[46] The BIR's failure to
formally offer these pieces of evidence, despite CTA's directives, is fatal to
its cause.[47] 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.

Per the records of this case, the BIR was directed to present its
evidence[48] in the hearing of February 21, 1996, but BIR's counsel failed to
appear.[49] 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 appear.[50] Thus, in its Resolution[51] 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 memorandum. Petitioner complied but BIR failed to do so.[52] In
all of these proceedings, BIR was duly notified. Hence, in this case, we are
constrained to apply our ruling in Heirs of Pedro Pasag v. Parocha:[53]
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 on appeal unless it is shown
that the lower courts committed gross error in the appreciation of facts.[54] 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 extinguishing an obligation,[55] condonation
or remission of debt[56] 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
exchange of some concession which the creditor receives.[57]
Verily, the second issue in this case involves the construction of Section
79[58] of the National Internal Revenue Code[59] (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 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 the federal tax
code are entitled to great weight in the interpretation of our own tax laws. [60]

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 reduction of the amount actually
paid.[61] On one hand, the U.S. court ruled that the appropriate deduction is
the value that the claim had at the date of the decedent's death.[62] Also, as
held in Propstra v. U.S., [63] 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
paid.[64] Recognizing the dispute, the Service released Proposed
Regulations in 2007 mandating that the deduction would be limited to the
actual amount paid.[65]

In announcing its agreement with Propstra,[66] the U.S. 5th 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 of the date-of-death valuation
rule.[67]

We express our agreement with the date-of-death valuation rule, made

pursuant to the ruling of the U.S. Supreme Court in Ithaca Trust Co. v.
United States.[68] 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 statutes being
construed strictissimi juris against the government.[69] Any doubt on
whether a person, article or activity is taxable is generally resolved against
taxation.[70] 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 enforced
against the deceased in his lifetime, or liability contracted by the deceased
before his death.[71]Therefore, the claims existing at the time of death are
significant to, and should be made the basis of, the determination of
allowable deductions.

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.

ANTONIO EDUARDO B. NACHURA

Associate Justice

MANUEL G. ABELLO, JOSE C. CONCEPCION, TEODORO D. REGALA,

AVELINO V. CRUZ, petitioners, vs. COMMISSIONER OF
INTERNAL REVENUE and COURT OF APPEALS, respondents.

DECISION
AZCUNA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of

Civil Procedure, assailing the decision of the Court of Appeals in CA G.R.
SP No. 27134, entitled Comissioner of Internal Revenue v. Manuel G.
Abello, Jose C. Concepcion, Teodoro D. Regala, Avelino V. Cruz and Court
of Tax Appeals, which reversed and set aside the decision of the Court of
Tax Appeals (CTA), ordering the Commissioner of Internal Revenue
(Commissioner) to withdraw his letters dated April 21, 1988 and August 4,
1988 assessing donors taxes and to desist from collecting donors taxes
from petitioners.
During the 1987 national elections, petitioners, who are partners in the
Angara, Abello, Concepcion, Regala and Cruz (ACCRA) law firm,
contributed P882,661.31 each to the campaign funds of Senator Edgardo
Angara, then running for the Senate. In letters dated April 21, 1988, the
Bureau of Internal Revenue (BIR) assessed each of the
petitioners P263,032.66 for their contributions. On August 2, 1988,
petitioners questioned the assessment through a letter to the BIR. They
claimed that political or electoral contributions are not considered gifts
under the National Internal Revenue Code (NIRC), and that, therefore, they
are not liable for donors tax. The claim for exemption was denied by the
Commissioner.[1]
On September 12, 1988, petitioners filed a petition for review with the
CTA, which was decided on October 7, 1991 in favor of the petitioners. As
aforestated, the CTA ordered the Commissioner to desist from collecting
donors taxes from the petitioners.[2]
On appeal, the Court of Appeals reversed and set aside the CTA
decision on April 20, 1994.[3] The appellate Court ordered the petitioners to
pay donors tax amounting to P263,032.66 each, reasoning as follows:

The National Internal Revenue Code, as amended, provides:

Sec. 91. Imposition of Tax. (a) There shall be levied, assessed, collected,
and paid upon the transfer by any person, resident, or non-resident, of the
property by gift, a tax, computed as provided in Section 92. (b) The tax
shall apply whether the transfer is in trust or otherwise, whether the gift is
direct or indirect, and whether the property is real or personal, tangible or
intangible.

Pursuant to the above-quoted provisions of law, the transfer of property by

gift, whether the transfer is in trust or otherwise, whether the gift is direct or
indirect, and whether the property is real or personal, tangible or intangible,
is subject to donors or gift tax.

A gift is generally defined as a voluntary transfer of property by one to

another without any consideration or compensation therefor (28 C.J. 620;
Santos vs. Robledo, 28 Phil. 250).

In the instant case, the contributions are voluntary transfers of property in

the form of money from private respondents to Sen. Angara, without
considerations therefor. Hence, they squarely fall under the definition of
donation or gift.

As correctly pointed out by the Solicitor General:

The fact that the contributions were given to be used as campaign funds of
Sen. Angara does not affect the character of the fund transfers as donation
or gift. There was thereby no retention of control over the disposition of the
contributions. There was simply an indication of the purpose for which they
were to be used. For as long as the contributions were used for the
purpose for which they were intended, Sen. Angara had complete and
absolute power to dispose of the contributions. He was fully entitled to the
economic benefits of the contributions.

Section 91 of the Tax Code is very clear. A donors or gift tax is imposed on
the transfer of property by gift.

The Bureau of Internal Revenue issued Ruling No. 344 on July 20, 1988,
which reads:

Political Contributions. For internal revenue purposes, political contributions

in the Philippines are considered taxable gift rather than taxable income.
This is so, because a political contribution is indubitably not intended by the
giver or contributor as a return of value or made because of any intent to
repay another what is his due, but bestowed only because of motives of
philanthropy or charity. His purpose is to give and to bolster the morals, the
winning chance of the candidate and/or his party, and not to employ or buy.
On the other hand, the recipient-donee does not regard himself as
exchanging his services or his product for the money contributed. But more
importantly he receives financial advantages gratuitously.

When the U.S. gift tax law was adopted in the Philippines (before May 7,
1974), the taxability of political contributions was, admittedly, an unsettled
issue; hence, it cannot be presumed that the Philippine Congress then had
intended to consider or treat political contributions as non-taxable gifts
when it adopted the said gift tax law. Moreover, well-settled is the rule that
the Philippines need not necessarily adopt the present rule or construction
in the United States on the matter. Generally, statutes of different states
relating to the same class of persons or things or having the same
purposes are not considered to be in pari materia because it cannot be
justifiably presumed that the legislature had them in mind when enacting
the provision being construed. (5206, Sutherland, Statutory Construction, p.
546.) Accordingly, in the absence of an express exempting provision of law,
political contributions in the Philippines are subject to the donors gift
tax. (cited in National Internal Revenue Code Annotated by Hector S. de
Leon, 1991 ed., p. 290).

In the light of the above BIR Ruling, it is clear that the political contributions
of the private respondents to Sen. Edgardo Angara are taxable gifts. The
vagueness of the law as to what comprise the gift subject to tax was made
concrete by the above-quoted BIR ruling. Hence, there is no doubt that
political contributions are taxable gifts.[4]

Petitioners filed a motion for reconsideration, which the Court of

Appeals denied in its resolution of June 16, 1995.[5]
Petitioners thereupon filed the instant petition on July 26, 1995. Raised
are the following issues:
1. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT
FAILED TO CONSIDER IN ITS DECISION THE PURPOSE
BEHIND THE ENACTMENT OF OUR GIFT TAX LAW?
2. DID THE HONORABLE COURT OF APPEALS ERR IN NOT
CONSIDERING THE INTENTION OF THE GIVERS IN
DETERMINING WHETHER OR NOT THE PETITIONERS
POLITICAL CONTRIBUTIONS WERE GIFTS SUBJECT TO
DONORS TAX?
3. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT
FAILED TO CONSIDER THE DEFINITION OF AN ELECTORAL
CONTRIBUTION UNDER THE OMNIBUS ELECTION CODE IN
DETERMINING WHETHER OR NOT POLITICAL
CONTRIBUTIONS ARE TAXABLE?
4. DID THE HONORABLE COURT OF APPEALS ERR IN NOT
CONSIDERING THE ADMINISTRATIVE PRACTICE OF CLOSE
TO HALF A CENTURY OF NOT SUBJECTING POLITICAL
CONTRIBUTIONS TO DONORS TAX?
5. DID THE HONORABLE COURT OF APPEALS ERR IN NOT
CONSIDERING THE AMERICAN JURISPRUDENCE RELIED
UPON BY THE COURT OF TAX APPEALS AND BY THE
PETITIONERS TO THE EFFECT THAT POLITICAL
CONTRIBUTIONS ARE NOT TAXABLE GIFTS?
6. DID THE HONORABLE COURT OF APPEALS ERR IN NOT
APPLYING AMERICAN JURISPRUDENCE ON THE GROUND
 THAT THIS WAS NOT KNOWN AT THE TIME THE
PHILIPPINES GIFT TAX LAW WAS ADOPTED IN 1939?
7. DID THE HONORABLE COURT OF APPEALS ERR IN
RESOLVING THE CASE MAINLY ON THE BASIS OF A
RULING ISSUED BY THE RESPONDENT ONLY AFTER THE
ASSESSMENTS HAD ALREADY BEEN MADE?
8. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT
DID NOT CONSTRUE THE GIFT TAX LAW LIBERALLY IN
FAVOR OF THE TAXPAYER AND STRICLTY AGAINST THE
GOVERNMENT IN ACCORDANCE WITH APPLICABLE
PRINCIPLES OF STATUTORY CONSTRUCTION?[6]

First, Fifth and Sixth Issues

Section 91 of the National Internal Revenue Code (NIRC) reads:

(A) There shall be levied, assessed, collected and paid upon the
transfer by any person, resident or nonresident, of the property
by gift, a tax, computed as provided in Section 92

(B) The tax shall apply whether the transfer is in trust or otherwise,
whether the gift is direct or indirect, and whether the property is
real or personal, tangible or intangible.

The NIRC does not define transfer of property by gift. However, Article
18 of the Civil Code, states:

In matters which are governed by the Code of Commerce and special laws,
their deficiency shall be supplied by the provisions of this Code.

Thus, reference may be made to the definition of a donation in the Civil

Code. Article 725 of said Code defines donation as:

. . . an act of liberality whereby a person disposes gratuitously of a thing or

right in favor of another, who accepts it.

Donation has the following elements: (a) the reduction of the patrimony of
the donor; (b) the increase in the patrimony of the donee; and, (c) the intent
to do an act of liberality or animus donandi.[7]
 The present case falls squarely within the definition of a donation.
Petitioners, the late Manuel G. Abello[8], Jose C. Concepcion, Teodoro D.
Regala and Avelino V. Cruz, each gave P882,661.31 to the campaign
funds of Senator Edgardo Angara, without any material consideration. All
three elements of a donation are present. The patrimony of the four
petitioners were reduced by P882,661.31 each. Senator Edgardo Angaras
patrimony correspondingly increased by P3,530,645.24[9]. There was intent
to do an act of liberality or animus donandi was present since each of the
petitioners gave their contributions without any consideration.
Taken together with the Civil Code definition of donation, Section 91 of
the NIRC is clear and unambiguous, thereby leaving no room for
construction. In Rizal Commercial Banking Corporation v. Intermediate
Appellate Court[10] the Court enunciated:

It bears stressing that the first and fundamental duty of the Court is to apply
the law. When the law is clear and free from any doubt or ambiguity, there
is no room for construction or interpretation. As has been our consistent
ruling, where the law speaks in clear and categorical language, there is no
occasion for interpretation; there is only room for application (Cebu
Portland Cement Co. v. Municipality of Naga, 24 SCRA 708 [1968])

Where the law is clear and unambiguous, it must be taken to mean exactly
what it says and the court has no choice but to see to it that its mandate is
obeyed (Chartered Bank Employees Association v. Ople, 138 SCRA 273
[1985]; Luzon Surety Co., Inc. v. De Garcia, 30 SCRA 111 [1969]; Quijano
v. Development Bank of the Philippines, 35 SCRA 270 [1970]).

Only when the law is ambiguous or of doubtful meaning may the court
interpret or construe its true intent. Ambiguity is a condition of admitting two
or more meanings, of being understood in more than one way, or of
referring to two or more things at the same time. A statute is ambiguous if it
is admissible of two or more possible meanings, in which case, the Court is
called upon to exercise one of its judicial functions, which is to interpret the
law according to its true intent.

Second Issue

Since animus donandi or the intention to do an act of liberality is an

essential element of a donation, petitioners argue that it is important to look
into the intention of the giver to determine if a political contribution is a gift.
Petitioners argument is not tenable. First of all, donative intent is a creature
of the mind. It cannot be perceived except by the material and tangible acts
which manifest its presence. This being the case, donative intent is
presumed present when one gives a part of ones patrimony to another
without consideration. Second, donative intent is not negated when the
person donating has other intentions, motives or purposes which do not
contradict donative intent. This Court is not convinced that since the
purpose of the contribution was to help elect a candidate, there was no
donative intent. Petitioners contribution of money without any material
consideration evinces animus donandi. The fact that their purpose for
donating was to aid in the election of the donee does not negate the
presence of donative intent.

Third Issue

Petitioners maintain that the definition of an electoral contribution under

the Omnibus Election Code is essential to appreciate how a political
contribution differs from a taxable gift.[11] Section 94(a) of the said Code
defines electoral contribution as follows:

The term "contribution" includes a gift, donation, subscription, loan,

advance or deposit of money or anything of value, or a contract, promise or
agreement to contribute, whether or not legally enforceable, made for the
purpose of influencing the results of the elections but shall not include
services rendered without compensation by individuals volunteering a
portion or all of their time in behalf of a candidate or political party. It shall
also include the use of facilities voluntarily donated by other persons, the
money value of which can be assessed based on the rates prevailing in the
area.

Since the purpose of an electoral contribution is to influence the results

of the election, petitioners again claim that donative intent is not present.
Petitioners attempt to place the barrier of mutual exclusivity between
donative intent and the purpose of political contributions. This Court
reiterates that donative intent is not negated by the presence of other
intentions, motives or purposes which do not contradict donative intent.
 Petitioners would distinguish a gift from a political donation by saying
that the consideration for a gift is the liberality of the donor, while the
consideration for a political contribution is the desire of the giver to
influence the result of an election by supporting candidates who, in the
perception of the giver, would influence the shaping of government policies
that would promote the general welfare and economic well-being of the
electorate, including the giver himself.
Petitioners attempt is strained. The fact that petitioners will somehow in
the future benefit from the election of the candidate to whom they
contribute, in no way amounts to a valuable material consideration so as to
remove political contributions from the purview of a donation. Senator
Angara was under no obligation to benefit the petitioners. The proper
performance of his duties as a legislator is his obligation as an elected
public servant of the Filipino people and not a consideration for the political
contributions he received. In fact, as a public servant, he may even be
called to enact laws that are contrary to the interests of his benefactors, for
the benefit of the greater good.
In fine, the purpose for which the sums of money were given, which was
to fund the campaign of Senator Angara in his bid for a senatorial seat,
cannot be considered as a material consideration so as to negate a
donation.

Fourth Issue

Petitioners raise the fact that since 1939 when the first Tax Code was
enacted, up to 1988 the BIR never attempted to subject political
contributions to donors tax. They argue that:

. . . It is a familiar principle of law that prolonged practice by the

government agency charged with the execution of a statute, acquiesced in
and relied upon by all concerned over an appreciable period of time, is an
authoritative interpretation thereof, entitled to great weight and the highest
respect. . . .[12]

This Court holds that the BIR is not precluded from making a new
interpretation of the law, especially when the old interpretation was flawed.
It is a well-entrenched rule that
. . . erroneous application and enforcement of the law by public officers do
not block subsequent correct application of the statute (PLDT v. Collector
of Internal Revenue, 90 Phil. 676), and that the Government is never
estopped by mistake or error on the part of its agents (Pineda v. Court of
First Instance of Tayabas, 52 Phil. 803, 807; Benguet Consolidated Mining
Co. v. Pineda, 98 Phil. 711, 724).[13]

Seventh Issue

Petitioners question the fact that the Court of Appeals decision is based
on a BIR ruling, namely BIR Ruling No. 88-344, which was issued after the
petitioners were assessed for donors tax. This Court does not need to
delve into this issue. It is immaterial whether or not the Court of Appeals
based its decision on the BIR ruling because it is not pivotal in deciding this
case. As discussed above, Section 91 (now Section 98) of the NIRC as
supplemented by the definition of a donation found in Article 725 of the Civil
Code, is clear and unambiguous, and needs no further elucidation.

Eighth Issue

Petitioners next contend that tax laws are construed liberally in favor of
the taxpayer and strictly against the government. This rule of construction,
however, does not benefit petitioners because, as stated, there is here no
room for construction since the law is clear and unambiguous.
Finally, this Court takes note of the fact that subsequent to the
donations involved in this case, Congress approved Republic Act No. 7166
on November 25, 1991, providing in Section 13 thereof that
political/electoral contributions, duly reported to the Commission on
Elections, are not subject to the payment of any gift tax. This all the more
shows that the political contributions herein made are subject to the
payment of gift taxes, since the same were made prior to the exempting
legislation, and Republic Act No. 7166 provides no retroactive effect on this
point.
WHEREFORE, the petition is DENIED and the assailed Decision and
Resolution of the Court of Appeals are AFFIRMED.
No costs.
 SO ORDERED.
Davide, Jr., C.J., (Chairman), Quisumbing, and Carpio, JJ., concur.
Ynares-Santiago, J., no part.

G.R. No. 210987 November 24, 2014

THE PHILIPPINE AMERICAN LIFE AND GENERAL INSURANCE

COMPANY, Petitioner,
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF
INTERNAL REVENUE, Respondents.

DECISION

VELASCO, JR., J.:

Nature of the Case

Before the Court is a Petition for Review on Certiorari under Rule 45 of the
Rules of Court assailing and seeking the reversal of the Resolutions of the
Court of Appeals (CA) in CA-G.R. SP No. 127984, dated May 23,
20131 and January 21, 2014, which dismissed outright the petitioner's
appeal from the Secretary of Finance's review of BIR Ruling No. 015-
122 for lack of jurisdiction.

The Facts

Petitioner The Philippine American Life and General Insurance Company

(Philamlife) used to own 498,590 Class A shares in Philam Care Health
Systems, Inc. (PhilamCare), representing 49.89% of the latter's outstanding
capital stock. In 2009, petitioner, in a bid to divest itself of its interests in the
health maintenance organization industry, offered to sell its shareholdings
in PhilamCare through competitive bidding. Thus, on September 24, 2009,
petitioner's Class A shares were sold for USD 2,190,000, or PhP
104,259,330 based on the prevailing exchange rate at the time of the sale,
to STI Investments, Inc., who emerged as the highest bidder.3
After the sale was completed and the necessary documentary stamp and
capital gains taxes were paid, Philamlife filed an application for a certificate
authorizing registration/tax clearance with the Bureau of Internal Revenue
(BIR) Large Taxpayers Service Division to facilitate the transfer of the
shares. Months later, petitioner was informed that it needed to secure a
BIR ruling in connection with its application due to potential donor’s tax
liability. In compliance, petitioner, on January 4, 2012, requested a
ruling4 to confirm that the sale was not subject to donor’s tax, pointing out,
in its request, the following: that the transaction cannot attract donor’s tax
liability since there was no donative intent and,ergo, no taxable donation,
citing BIR Ruling [DA-(DT-065) 715-09] dated November 27, 2009;5 that
the shares were sold at their actual fair market value and at arm’s length;
that as long as the transaction conducted is at arm’s length––such that a
bona fide business arrangement of the dealings is done inthe ordinary
course of business––a sale for less than an adequate consideration is not
subject to donor’s tax; and that donor’s tax does not apply to saleof shares
sold in an open bidding process.

On January 4, 2012, however, respondent Commissioner on Internal

Revenue (Commissioner) denied Philamlife’s request through BIR Ruling
No. 015-12. As determined by the Commissioner, the selling price of the
shares thus sold was lower than their book value based on the financial
statements of PhilamCare as of the end of 2008.6 As such, the
Commisioner held, donor’s tax became imposable on the price difference
pursuant to Sec. 100 of the National Internal Revenue Code (NIRC), viz:

SEC. 100. Transfer for Less Than Adequate and full Consideration.- Where
property, other than real property referred to in Section 24(D), is transferred
for less than an adequate and full consideration in money or money’s
worth, then the amount by which the fair market value of the property
exceeded the value of the consideration shall, for the purpose of the tax
imposed by this Chapter, be deemed a gift, and shall be included in
computing the amount of gifts made during the calendar year.

The afore-quoted provision, the Commissioner added, is implemented by

Revenue Regulation 6-2008 (RR 6-2008), which provides:

SEC. 7. SALE, BARTER OR EXCHANGE OF SHARES OF STOCK NOT

TRADED THROUGH A LOCAL STOCK EXCHANGE PURSUANT TO
SECS. 24(C), 25(A)(3), 25(B), 27(D)(2), 28(A)(7)(c), 28(B)(5)(c) OF THE
TAX CODE, AS AMENDED. —

xxxx

(c) Determination of Amount and Recognition of Gain or Loss –

(c.1) In the case of cash sale, the selling price shall be the consideration
per deed of sale.

xxxx

(c.1.4) In case the fair market value of the shares of stock sold, bartered, or
exchanged is greater than the amount of money and/or fair market value of
the property received, the excess of the fair market value of the shares of
stock sold, bartered or exchanged overthe amount of money and the fair
market value of the property, if any, received as consideration shall be
deemed a gift subject to the donor’stax under Section 100 of the Tax Code,
as amended.

xxxx

(c.2) Definition of ‘fair market value’of Shares of Stock. – For purposes of

this Section, ‘fair market value’ of the share of stock sold shall be:

xxxx

(c.2.2) In the case of shares of stock not listed and traded in the local stock
exchanges, the book value of the shares of stock as shown in the financial
statements duly certified by an independent certified public accountant
nearest to the date of sale shall be the fair market value.

In view of the foregoing, the Commissioner ruled that the difference

between the book value and the selling price in the sales transaction is
taxable donation subject to a 30% donor’s tax under Section 99(B) of the
NIRC.7Respondent Commissioner likewise held that BIR Ruling [DA-(DT-
065) 715-09], on which petitioner anchored its claim, has already been
revoked by Revenue Memorandum Circular (RMC) No. 25-2011.8

Aggrieved, petitioner requested respondent Secretary of Finance

(Secretary) to review BIR Ruling No. 015-12, but to no avail. For on
November 26, 2012, respondent Secretary affirmed the Commissioner’s
assailed ruling in its entirety.9

Ruling of the Court of Appeals

Not contented with the adverse results, petitioner elevated the case to the
CA via a petition for review under Rule 43, assigning the following errors:10

A.

The Honorable Secretary of Finance gravely erred in not finding that the
application of Section 7(c.2.2) of RR 06-08 in the Assailed Ruling and RMC
25-11 is void insofar as it altersthe meaning and scope of Section 100 of
the Tax Code.

B.

The Honorable Secretary of Finance gravely erred in finding that Section

100 of the Tax Code is applicable tothe sale of the Sale of Shares.

1.

The Sale of Shares were sold at their fair market value and for
fair and full consideration in money or money’s worth.

2.

The sale of the Sale Shares is a bona fide business transaction

without any donative intent and is therefore beyond the ambit of
Section 100 of the Tax Code.

3.

It is superfluous for the BIR to require an express provision for

the exemption of the sale of the Sale Shares from donor’s tax
since Section 100 of the Tax Code does not explicitly subject
the transaction to donor’s tax.

C.

The Honorable Secretary of Finance gravely erred in failing to find that in

the absence of any of the grounds mentioned in Section 246 of the Tax
Code, rules and regulations, rulings or circulars – such as RMC 25-11 –
cannot be given retroactive application to the prejudice of Philamlife.

On May 23, 2013, the CA issued the assailed Resolution dismissing the CA
Petition, thusly:

WHEREFORE, the Petition for Review dated January 9, 2013 is

DISMISSED for lack of jurisdiction.

SO ORDERED.

In disposing of the CA petition, the appellate court ratiocinated that it is the

Court of Tax Appeals (CTA), pursuant to Sec. 7(a)(1) of Republic Act No.
1125 (RA 1125),11 as amended, which has jurisdiction over the issues
raised. The outright dismissal, so the CA held, is predicated on the
postulate that BIR Ruling No. 015-12 was issued in the exercise of the
Commissioner’s power to interpret the NIRC and other tax laws.
Consequently, requesting for its review can be categorized as "other
matters arising under the NIRC or other laws administered by the BIR,"
which is under the jurisdiction of the CTA, not the CA.

Philamlife eventually sought reconsideration but the CA, in its equally

assailed January 21, 2014 Resolution, maintained its earlier position.
Hence, the instant recourse.

Issues

Stripped to the essentials, the petition raises the following issues in both
procedure and substance:

1. Whether or not the CA erred in dismissing the CA Petition for lack

of jurisdiction; and

2. Whether or not the price difference in petitioner’s adverted sale of

shares in PhilamCare attracts donor’s tax.

Procedural Arguments

a. Petitioner’s contentions
Insisting on the propriety of the interposed CA petition, Philamlife, while
conceding that respondent Commissioner issued BIR Ruling No. 015-12 in
accordance with her authority to interpret tax laws, argued nonetheless that
such ruling is subject to review by the Secretary of Finance under Sec. 4 of
the NIRC, to wit:

SECTION 4. Power of the Commissioner to Interpret Tax Laws and to

Decide Tax Cases. – The power to interpret the provisions of this Code and
other tax laws shall be under the exclusive and original jurisdiction of the
Commissioner, subject to review by the Secretary of Finance.

The power to decide disputed assessments, refunds of internal revenue

taxes, fees or other charges, penalties imposed in relation thereto, or other
matters arising under this Code orother laws or portions thereof
administered by the Bureau of Internal Revenue is vested in the
Commissioner, subject to the exclusive appellate jurisdiction of the Court of
Tax Appeals. Petitioner postulates that there is a need to differentiate the
rulings promulgated by the respondent Commissioner relating to those
rendered under the first paragraph of Sec. 4 of the NIRC, which are
appealable to the Secretary of Finance, from those rendered under the
second paragraph of Sec. 4 of the NIRC, which are subject to review on
appeal with the CTA.

This distinction, petitioner argues, is readily made apparent by Department

Order No. 7-02,12 as circularized by RMC No. 40-A-02.

Philamlife further averred that Sec.7 of RA 1125, as amended, does not

find application in the case at bar since it only governs appeals from the
Commissioner’s rulings under the second paragraph and does not
encompass rulings from the Secretary of Finance in the exercise of his
power of review under the first, as what was elevated to the CA. It added
that under RA 1125, as amended, the only decisions of the Secretary
appealable to the CTA are those rendered in customs cases elevated to
him automatically under Section 2315 of the Tariff and Customs Code.13

There is, thus, a gap in the law when the NIRC, as couched, and RA 1125,
as amended, failed to supply where the rulings of the Secretary in its
exercise of its power of review under Sec. 4 of the NIRC are appealable to.
This gap, petitioner submits, was remedied by British American Tobacco v.
Camacho14 wherein the Court ruled that where what is assailed is the
validity or constitutionality of a law, or a rule or regulation issued by the
administrative agency, the regular courts have jurisdiction to pass upon the
same.

In sum, appeals questioning the decisions of the Secretary of Finance in

the exercise of its power of review under Sec. 4 of the NIRC are not within
the CTA’s limited special jurisdiction and, according to petitioner, are
appealable to the CA via a Rule 43 petition for review.

b. Respondents’ contentions

Before the CA, respondents countered petitioner’s procedural arguments

by claiming that even assuming arguendo that the CTA does not have
jurisdiction over the case, Philamlife, nevertheless,committed a fatal error
when it failed to appeal the Secretary of Finance’s ruling to the Office of the
President (OP). As made apparent by the rules, the Department of Finance
is not among the agencies and quasi-judicial bodies enumerated under
Sec. 1, Rule 43 of the Rules of Court whose decisions and rulings are
appealable through a petition for review.15 This is in stark contrast to the
OP’s specific mention under the same provision, so respondents pointed
out.

To further reinforce their argument, respondents cite the President’s power

of review emanating from his power of control as enshrined under Sec. 17
of Article VII of the Constitution, which reads:

Section 17.The President shall have control of all the executive

departments, bureaus, and offices. He shall ensure that the laws be
faithfully executed.

The nature and extent of the President’s constitutionally granted power of

control have beendefined in a plethora of cases, most recently in Elma v.
Jacobi,16 wherein it was held that:

x x x This power of control, which even Congress cannot limit, let alone
withdraw, means the power of the Chief Executive to review, alter, modify,
nullify, or set aside what a subordinate, e.g., members of the Cabinet and
heads of line agencies, had done in the performance of their duties and to
substitute the judgment of the former for that of the latter.
In their Comment on the instant petition, however, respondents asseverate
that the CA did not err in its holding respecting the CTA’s jurisdiction over
the controversy.

The Court’s Ruling

The petition is unmeritorious.

Reviews by the Secretary of Finance pursuant to Sec. 4 of the NIRC are

appealable to the CTA

To recapitulate, three different, if not conflicting, positions as indicated

below have been advanced by the parties and by the CA as the proper
remedy open for assailing respondents’ rulings:

1. Petitioners: The ruling of the Commissioner is subject to review by

the Secretary under Sec. 4 of the NIRC, and that of the Secretary to
the CA via Rule 43;

2. Respondents: The ruling of the Commissioner is subject to review

by the Secretary under Sec. 4 of the NIRC, and that of the Secretary
to the Office of the President before appealing to the CA via a Rule
43 petition; and

3. CA: The ruling of the Commissioner is subject to review by the

CTA.

We now resolve.

Preliminarily, it bears stressing that there is no dispute that what is involved

herein is the respondent Commissioner’s exercise of power under the first
paragraph of Sec. 4 of the NIRC––the power to interpret tax laws. This, in
fact, was recognized by the appellate court itself, but erroneously held that
her action in the exercise of such power is appealable directly to the CTA.
As correctly pointed out by petitioner, Sec. 4 of the NIRC readily provides
that the Commissioner’s power to interpret the provisions of this Code and
other tax laws is subject to review by the Secretary of Finance. The issue
that now arises is this––where does one seek immediate recourse from the
adverse ruling of the Secretary of Finance in its exercise of its power of
review under Sec. 4?
Admittedly, there is no provision in law that expressly provides where
exactly the ruling of the Secretary of Finance under the adverted NIRC
provision is appealable to. However, We find that Sec. 7(a)(1) of RA 1125,
as amended, addresses the seeming gap in the law asit vests the CTA,
albeit impliedly, with jurisdiction over the CA petition as "other matters"
arising under the NIRC or other laws administered by the BIR. As stated:

Sec. 7. Jurisdiction.- The CTA shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

1. Decisions of the Commissioner of Internal Revenue in cases involving

disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties in relation thereto, or other matters arising under the
National Internal Revenue or other laws administered by the Bureau of
Internal Revenue. (emphasis supplied)

Even though the provision suggests that it only covers rulings of the
Commissioner, We hold that it is, nonetheless, sufficient enough to include
appeals from the Secretary’s review under Sec. 4 of the NIRC.

It is axiomatic that laws should be given a reasonable interpretation which

does not defeat the very purpose for which they were passed.17 Courts
should not follow the letter of a statute when to do so would depart from the
true intent of the legislature or would otherwise yield conclusions
inconsistent with the purpose of the act.18 This Court has, in many cases
involving the construction of statutes, cautioned against narrowly
interpreting a statute as to defeat the purpose of the legislator, and rejected
the literal interpretation of statutes if todo so would lead to unjust or absurd
results.19

Indeed, to leave undetermined the mode of appeal from the Secretary of

Finance would be an injustice to taxpayers prejudiced by his adverse
rulings. To remedy this situation, Weimply from the purpose of RA 1125
and its amendatory laws that the CTA is the proper forum with which to
institute the appeal. This is not, and should not, in any way, be taken as a
derogation of the power of the Office of President but merely as recognition
that matters calling for technical knowledge should be handled by the
agency or quasi-judicial body with specialization over the controversy. As
the specialized quasi-judicial agency mandated to adjudicate tax, customs,
and assessment cases, there can be no other court of appellate jurisdiction
that can decide the issues raised inthe CA petition, which involves the tax
treatment of the shares of stocks sold. Petitioner, though, nextinvites
attention to the ruling in Ursal v. Court of Tax Appeals20 to argue against
granting the CTA jurisdiction by implication, viz:

Republic Act No. 1125 creating the Court of Tax Appeals did not grant it
blanket authority to decide any and all tax disputes. Defining such special
court’s jurisdiction, the Act necessarily limited its authority to those matters
enumerated therein. Inline with this idea we recently approved said court’s
order rejecting an appeal to it by Lopez & Sons from the decision of the
Collector ofCustoms, because in our opinion its jurisdiction extended only
to a review of the decisions of the Commissioner of Customs, as provided
bythe statute — and not to decisions of the Collector of Customs. (Lopez &
Sons vs. The Court of Tax Appeals, 100 Phil., 850, 53 Off. Gaz., [10]
3065).

xxxx

x x x Republic Act No. 1125 is a complete law by itself and expressly

enumerates the matters which the Court of Tax Appeals may consider;
such enumeration excludes all others by implication. Expressio unius est
exclusio alterius.

Petitioner’s contention is untenable. Lest the ruling in Ursalbe taken out of

context, but worse as a precedent, it must be noted that the primary reason
for the dismissal of the said case was that the petitioner therein lacked the
personality to file the suit with the CTA because he was not adversely
affected by a decision or ruling of the Collector of Internal Revenue, as was
required under Sec. 11 of RA 1125.21 As held:

We share the view that the assessor had no personality to resort to the
Court of Tax Appeals. The rulings of the Board of Assessment Appeals did
not "adversely affect" him. At most it was the City of Cebu that had been
adversely affected in the sense that it could not thereafter collect higher
realty taxes from the abovementioned property owners. His opinion, it is
true had been overruled; but the overruling inflicted no material damage
upon him or his office. And the Court of Tax Appeals was not created to
decide mere conflicts of opinion between administrative officers or
agencies. Imagine an income tax examiner resorting to the Court of Tax
Appeals whenever the Collector of Internal Revenue modifies, or lower his
assessment on the return of a tax payer!22

The appellate power of the CTA includes certiorari

Petitioner is quick to point out, however, that the grounds raised in its CA
petition included the nullity of Section 7(c.2.2) of RR 06-08 and RMC 25-11.
In an attempt to divest the CTA jurisdiction over the controversy, petitioner
then cites British American Tobacco, wherein this Court has expounded on
the limited jurisdiction of the CTA in the following wise:

While the above statute confers on the CTA jurisdiction to resolve tax
disputes in general, this does not include cases where the constitutionality
of a law or rule is challenged. Where what is assailed is the validity or
constitutionality of a law, or a rule or regulation issued by the administrative
agency in the performance of its quasi legislative function, the regular
courts have jurisdiction to pass upon the same. The determination of
whether a specific rule or set of rules issued by an administrative agency
contravenes the law or the constitution is within the jurisdiction of the
regular courts. Indeed, the Constitution vests the power of judicial review or
the power to declare a law, treaty, international or executive agreement,
presidential decree, order, instruction, ordinance, or regulation inthe courts,
including the regional trial courts. This is within the scope of judicial power,
which includes the authority of the courts to determine inan appropriate
action the validity of the acts of the political departments. Judicial power
includes the duty of the courts of justice to settle actual controversies
involving rights which are legally demandable and enforceable, and to
determine whether or not there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the Government.23

Vis-a-vis British American Tobacco, it bears to stress what appears to be a

contrasting ruling in Asia International Auctioneers, Inc. v. Parayno, Jr., to
wit:

Similarly, in CIR v. Leal, pursuant to Section 116 of Presidential Decree No.

1158 (The National Internal Revenue Code, as amended) which states that
"[d]ealers in securities shall pay a tax equivalent to six (6%) per centum of
their gross income. Lending investors shall pay a tax equivalent to five (5%)
per cent, of their gross income," the CIR issued Revenue Memorandum
Order (RMO) No. 15-91 imposing 5% lending investor’s tax on pawnshops
based on their gross income and requiring all investigating units of the BIR
to investigate and assess the lending investor’s tax due from them. The
issuance of RMO No. 15-91 was an offshoot of the CIR’s finding that the
pawnshop business is akin to that of "lending investors" as defined in
Section 157(u) of the Tax Code. Subsequently, the CIR issued RMC No.
43-91 subjecting pawn tickets to documentary stamp tax. Respondent
therein, Josefina Leal, owner and operator of Josefina’s Pawnshop, asked
for a reconsideration of both RMO No. 15-91 and RMC No. 43-91, but the
same was denied by petitioner CIR. Leal then filed a petition for prohibition
with the RTC of San Mateo, Rizal, seeking to prohibit petitioner CIR from
implementing the revenue orders. The CIR, through the OSG, filed a
motion to dismiss on the ground of lack of jurisdiction. The RTC denied the
motion. Petitioner filed a petition for certiorari and prohibition with the CA
which dismissed the petition "for lack of basis." In reversing the CA,
dissolving the Writ of Preliminary Injunction issued by the trial court and
ordering the dismissal of the case before the trial court, the Supreme Court
held that "[t]he questioned RMO No. 15-91 and RMC No. 43-91 are
actually rulings or opinions of the Commissioner implementing the Tax
Code on the taxability of pawnshops." They were issued pursuant to the
CIR’s power under Section 245 of the Tax Code "to make rulings or
opinions in connection with the implementation of the provisions of internal
revenue laws, including ruling on the classification of articles of sales and
similar purposes."The Court held that under R.A. No. 1125 (An Act
Creating the Court of Tax Appeals), as amended, such rulings of the CIR
are appealable to the CTA.

In the case at bar, the assailed revenue regulations and revenue

memorandum circulars are actually rulings or opinions of the CIR on the tax
treatment of motor vehicles sold at public auction within the SSEZ to
implement Section 12 of R.A. No. 7227 which provides that "exportation or
removal of goods from the territory of the [SSEZ] to the other parts of the
Philippine territory shall be subject to customs duties and taxes under the
Customs and Tariff Codeand other relevant tax laws of the Philippines."
They were issued pursuant to the power of the CIR under Section 4 of the
National Internal Revenue Code x x x.24 (emphasis added)

The respective teachings in British American Tobacco and Asia

International Auctioneers, at first blush, appear to bear no conflict––that
when the validity or constitutionality of an administrative rule or regulation is
assailed, the regular courts have jurisdiction; and if what is assailed are
rulings or opinions of the Commissioner on tax treatments, jurisdiction over
the controversy is lodged with the CTA. The problem with the above
postulates, however, is that they failed to take into consideration one
crucial point––a taxpayer can raise both issues simultaneously.

Petitioner avers that there is now a trend wherein both the CTA and the CA
disclaim jurisdiction over tax cases: on the one hand, mere prayer for the
declaration of a tax measure’s unconstitutionality or invalidity before the
CTA can result in a petition’s outright dismissal, and on the other hand, the
CA will likewise dismiss the same petition should it find that the primary
issue is not the tax measure’s validity but the assessment or taxability of
the transaction or subject involved. To illustrate this point, petitioner cites
the assailed Resolution, thusly: Admittedly, in British American Tobacco vs.
Camacho, the Supreme Court has ruled that the determination of whether a
specific rule or set of rules issued by an administrative agency contravenes
the law or the constitution is within the jurisdiction of the regular courts, not
the CTA.

xxxx

Petitioner essentially questions the CIR’s ruling that Petitioner’s sale of

shares is a taxable donation under Sec. 100 of the NIRC. The validity of
Sec. 100 of the NIRC, Sec. 7 (C.2.2) and RMC 25-11 is merely questioned
incidentally since it was used by the CIR as bases for its unfavourable
opinion. Clearly, the Petition involves an issue on the taxability of the
transaction rather than a direct attack on the constitutionality of Sec. 100,
Sec.7 (c.2.2.) of RR 06-08 and RMC 25-11. Thus, the instant Petition
properly pertains to the CTA under Sec. 7 of RA 9282.

As a result of the seemingly conflicting pronouncements, petitioner submits

that taxpayers are now at a quandary on what mode of appeal should be
taken, to which court or agency it should be filed, and which case law
should be followed.

Petitioner’s above submission is specious.

In the recent case of City of Manila v. Grecia-Cuerdo,25 the Court en banc

has ruled that the CTA now has the power of certiorari in cases within its
appellate jurisdiction. To elucidate:
The prevailing doctrine is that the authority to issue writs of certiorari
involves the exercise of original jurisdiction which must be expressly
conferred by the Constitution or by law and cannot be implied from the
mere existence of appellate jurisdiction. Thus, x x x this Court has ruled
against the jurisdiction of courts or tribunals over petitions for certiorari on
the ground that there is no law which expressly gives these tribunals such
power. Itmust be observed, however, that x x x these rulings pertain not to
regular courts but to tribunals exercising quasijudicial powers. With respect
tothe Sandiganbayan, Republic Act No. 8249 now provides that the special
criminal court has exclusive original jurisdiction over petitions for the
issuance of the writs of mandamus, prohibition, certiorari, habeas corpus,
injunctions, and other ancillary writs and processes in aid of its appellate
jurisdiction.

In the same manner, Section 5 (1), Article VIII of the 1987 Constitution
grants power to the Supreme Court, in the exercise of its original
jurisdiction, to issue writs of certiorari, prohibition and mandamus. With
respect to the Court of Appeals, Section 9 (1) of Batas Pambansa Blg. 129
(BP 129) gives the appellate court, also in the exercise of its original
jurisdiction, the power to issue, among others, a writ of certiorari, whether
or not in aid of its appellate jurisdiction. As to Regional Trial Courts, the
power to issue a writ of certiorari, in the exercise of their original
jurisdiction, is provided under Section 21 of BP 129.

The foregoing notwithstanding, while there is no express grant of such

power, with respect to the CTA, Section 1, Article VIII of the 1987
Constitution provides, nonetheless, that judicial power shall be vested in
one Supreme Court and in such lower courts as may be established by law
and that judicial power includes the duty of the courts of justice to settle
actual controversies involving rights which are legally demandable and
enforceable, and to determine whether or not there has been a grave
abuse of discretion amounting to lack or excess of jurisdiction on the part of
any branch or instrumentality of the Government.

On the strength of the above constitutional provisions, it can be fairly

interpreted that the power of the CTA includes that of determining whether
or not there has been grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of the RTC in issuing an interlocutory
order in cases falling within the exclusive appellate jurisdiction of the tax
court. It, thus, follows that the CTA, by constitutional mandate, is vested
with jurisdiction to issue writs of certiorari in these cases.

Indeed, in order for any appellate court to effectively exercise its appellate
jurisdiction, it must have the authority to issue, among others, a writ of
certiorari. In transferring exclusive jurisdiction over appealed tax cases to
the CTA, it can reasonably be assumed that the law intended to transfer
also such power as is deemed necessary, if not indispensable, in aid of
such appellate jurisdiction. There is no perceivable reason why the transfer
should only be considered as partial, not total. (emphasis added)

Evidently, City of Manilacan be considered as a departure from Ursal in

that in spite of there being no express grant in law, the CTA is deemed
granted with powers of certiorari by implication. Moreover, City of Manila
diametrically opposes British American Tobacco to the effect that it is now
within the power of the CTA, through its power of certiorari, to rule on the
validity of a particular administrative ruleor regulation so long as it is within
its appellate jurisdiction. Hence, it can now rule not only on the propriety of
an assessment or tax treatment of a certain transaction, but also on the
validity of the revenue regulation or revenue memorandum circular on
which the said assessment is based.

Guided by the doctrinal teaching in resolving the case at bar, the fact that
the CA petition not only contested the applicability of Sec. 100 of the NIRC
over the sales transaction but likewise questioned the validity of Sec. 7
(c.2.2) of RR 06-08 and RMC 25-11 does not divest the CTA of its
jurisdiction over the controversy, contrary to petitioner's arguments.

The price difference is subject to donor's tax

Petitioner's substantive arguments are unavailing. The absence of donative

intent, if that be the case, does not exempt the sales of stock transaction
from donor's tax since Sec. 100 of the NIRC categorically states that the
amount by which the fair market value of the property exceeded the value
of the consideration shall be deemed a gift.1âwphi1 Thus, even if there is
no actual donation, the difference in price is considered a donation by
fiction of law.

Moreover, Sec. 7(c.2.2) of RR 06-08 does not alter Sec. 100 of the NIRC
but merely sets the parameters for determining the "fair market value" of a
sale of stocks. Such issuance was made pursuant to the Commissioner's
power to interpret tax laws and to promulgate rules and regulations for their
implementation.

Lastly, petitioner is mistaken in stating that RMC 25-11, having been issued
after the sale, was being applied retroactively in contravention to Sec. 246
of the NIRC.26 Instead, it merely called for the strict application of Sec. 100,
which was already in force the moment the NIRC was enacted.

WHEREFORE, the petition is hereby DISMISSED. The Resolutions of the

Court of Appeals in CA-G.R. SP No. 127984 dated May 23, 2013 and
January 21, 2014 are hereby AFFIRMED.

SO ORDERED.

PRESBITERO J. VELASCO, JR.

Associate Justice

WE CONCUR:

DIOSDADO M. PERALTA
Associate Justice

MARTIN S. VILLARAMA, JR. JOSE CATRAL MENDOZA*

Associate Justice Associate Justice

MARVIC MARIO VICTOR F. LEONEN**

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Court's Division.

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division
Chairperson's Attestation, I certify that the conclusions in the above
Decision had been reached in consultation before the case was assigned
to the writer of the opinion of the Court's Division.

MARIA LOURDES P.A. SERENO

Chief Justice