PABLO LORENZO, as trustee of the estate of Thomas Hanley, deceased, plaintiff-appellant, vs.

JUAN
POSADAS, JR., Collector of Internal Revenue, defendant-appellant. G.R. No. L-43082 June 18, 1937

Pablo Lorenzo and Delfin Joven for plaintiff-appellant. Office of the Solicitor-General Hilado for defendant-appellant.

LAUREL, J.:

On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as trustee of the estate of Thomas Hanley,
deceased, brought this action in the Court of First Instance of Zamboanga against the defendant, Juan Posadas, Jr.,
then the Collector of Internal Revenue, for the refund of the amount of P2,052.74, paid by the plaintiff as inheritance
tax on the estate of the deceased, and for the collection of interst thereon at the rate of 6 per cent per annum,
computed from September 15, 1932, the date when the aforesaid tax was [paid under protest. The defendant set up
a counterclaim for P1,191.27 alleged to be interest due on the tax in question and which was not included in the
original assessment. From the decision of the Court of First Instance of Zamboanga dismissing both the plaintiff's
complaint and the defendant's counterclaim, both parties appealed to this court.

It appears that on May 27, 1922, one Thomas Hanley died in Zamboanga, Zamboanga, leaving a will (Exhibit 5) and
considerable amount of real and personal properties. On june 14, 1922, proceedings for the probate of his will and
the settlement and distribution of his estate were begun in the Court of First Instance of Zamboanga. The will was
admitted to probate. Said will provides, among other things, as follows:

4. I direct that any money left by me be given to my nephew Matthew Hanley.

5. I direct that all real estate owned by me at the time of my death be not sold or otherwise disposed of for a
period of ten (10) years after my death, and that the same be handled and managed by the executors, and
proceeds thereof to be given to my nephew, Matthew Hanley, at Castlemore, Ballaghaderine, County of
Rosecommon, Ireland, and that he be directed that the same be used only for the education of my brother's
children and their descendants.

6. I direct that ten (10) years after my death my property be given to the above mentioned Matthew Hanley to
be disposed of in the way he thinks most advantageous.

xxx xxx xxx

8. I state at this time I have one brother living, named Malachi Hanley, and that my nephew, Matthew Hanley,
is a son of my said brother, Malachi Hanley.

The Court of First Instance of Zamboanga considered it proper for the best interests of ther estate to appoint a
trustee to administer the real properties which, under the will, were to pass to Matthew Hanley ten years after the two
executors named in the will, was, on March 8, 1924, appointed trustee. Moore took his oath of office and gave bond
on March 10, 1924. He acted as trustee until February 29, 1932, when he resigned and the plaintiff herein was
appointed in his stead.

During the incumbency of the plaintiff as trustee, the defendant Collector of Internal Revenue, alleging that the estate
left by the deceased at the time of his death consisted of realty valued at P27,920 and personalty valued at P1,465,
and allowing a deduction of P480.81, assessed against the estate an inheritance tax in the amount of P1,434.24
which, together with the penalties for deliquency in payment consisting of a 1 per cent monthly interest from July 1,
1931 to the date of payment and a surcharge of 25 per cent on the tax, amounted to P2,052.74. On March 15, 1932,
the defendant filed a motion in the testamentary proceedings pending before the Court of First Instance of
Zamboanga (Special proceedings No. 302) praying that the trustee, plaintiff herein, be ordered to pay to the
Government the said sum of P2,052.74. The motion was granted. On September 15, 1932, the plaintiff paid said
amount under protest, notifying the defendant at the same time that unless the amount was promptly refunded suit
would be brought for its recovery. The defendant overruled the plaintiff's protest and refused to refund the said
amount hausted, plaintiff went to court with the result herein above indicated.

In his appeal, plaintiff contends that the lower court erred:

 I. In holding that the real property of Thomas Hanley, deceased, passed to his instituted heir, Matthew
Hanley, from the moment of the death of the former, and that from the time, the latter became the owner
thereof.

II. In holding, in effect, that there was deliquency in the payment of inheritance tax due on the estate of said
deceased.

III. In holding that the inheritance tax in question be based upon the value of the estate upon the death of the
testator, and not, as it should have been held, upon the value thereof at the expiration of the period of ten
years after which, according to the testator's will, the property could be and was to be delivered to the
instituted heir.

IV. In not allowing as lawful deductions, in the determination of the net amount of the estate subject to said
tax, the amounts allowed by the court as compensation to the "trustees" and paid to them from the
decedent's estate.

V. In not rendering judgment in favor of the plaintiff and in denying his motion for new trial.

The defendant-appellant contradicts the theories of the plaintiff and assigns the following error besides:

The lower court erred in not ordering the plaintiff to pay to the defendant the sum of P1,191.27, representing
part of the interest at the rate of 1 per cent per month from April 10, 1924, to June 30, 1931, which the plaintiff
had failed to pay on the inheritance tax assessed by the defendant against the estate of Thomas Hanley.

The following are the principal questions to be decided by this court in this appeal: (a) When does the inheritance tax
accrue and when must it be satisfied? (b) Should the inheritance tax be computed on the basis of the value of the
estate at the time of the testator's death, or on its value ten years later? (c) In determining the net value of the estate
subject to tax, is it proper to deduct the compensation due to trustees? (d) What law governs the case at bar? Should
the provisions of Act No. 3606 favorable to the tax-payer be given retroactive effect? (e) Has there been deliquency
in the payment of the inheritance tax? If so, should the additional interest claimed by the defendant in his appeal be
paid by the estate? Other points of incidental importance, raised by the parties in their briefs, will be touched upon in
the course of this opinion.

(a) The accrual of the inheritance tax is distinct from the obligation to pay the same. Section 1536 as amended, of
the Administrative Code, imposes the tax upon "every transmission by virtue of inheritance, devise, bequest,
gift mortis causa, or advance in anticipation of inheritance,devise, or bequest." The tax therefore is upon
transmission or the transfer or devolution of property of a decedent, made effective by his death. (61 C. J., p. 1592.)
It is in reality an excise or privilege tax imposed on the right to succeed to, receive, or take property by or under a will
or the intestacy law, or deed, grant, or gift to become operative at or after death. Acording to article 657 of the Civil
Code, "the rights to the succession of a person are transmitted from the moment of his death." "In other words", said
Arellano, C. J., ". . . the heirs succeed immediately to all of the property of the deceased ancestor. The property
belongs to the heirs at the moment of the death of the ancestor as completely as if the ancestor had executed and
delivered to them a deed for the same before his death." (Bondad vs. Bondad, 34 Phil., 232. See also, Mijares vs.
Nery, 3 Phil., 195; Suilong & Co., vs. Chio-Taysan, 12 Phil., 13; Lubrico vs. Arbado, 12 Phil., 391; Innocencio vs.
Gat-Pandan, 14 Phil., 491; Aliasas vs.Alcantara, 16 Phil., 489; Ilustre vs. Alaras Frondosa, 17 Phil., 321; Malahacan
vs. Ignacio, 19 Phil., 434; Bowa vs. Briones, 38 Phil., 27; Osario vs. Osario & Yuchausti Steamship Co., 41 Phil.,
531; Fule vs. Fule, 46 Phil., 317; Dais vs. Court of First Instance of Capiz, 51 Phil., 396; Baun vs. Heirs of Baun, 53
Phil., 654.) Plaintiff, however, asserts that while article 657 of the Civil Code is applicable to testate as well as
intestate succession, it operates only in so far as forced heirs are concerned. But the language of article 657 of the
Civil Code is broad and makes no distinction between different classes of heirs. That article does not speak of forced
heirs; it does not even use the word "heir". It speaks of the rights of succession and the transmission thereof from the
moment of death. The provision of section 625 of the Code of Civil Procedure regarding the authentication and
probate of a will as a necessary condition to effect transmission of property does not affect the general rule laid down
in article 657 of the Civil Code. The authentication of a will implies its due execution but once probated and allowed
the transmission is effective as of the death of the testator in accordance with article 657 of the Civil Code. Whatever
may be the time when actual transmission of the inheritance takes place, succession takes place in any event at the
moment of the decedent's death. The time when the heirs legally succeed to the inheritance may differ from the time
when the heirs actually receive such inheritance. "Poco importa", says Manresa commenting on article 657 of the
Civil Code, "que desde el falleimiento del causante, hasta que el heredero o legatario entre en posesion de los
bienes de la herencia o del legado, transcurra mucho o poco tiempo, pues la adquisicion ha de retrotraerse al
momento de la muerte, y asi lo ordena el articulo 989, que debe considerarse como complemento del presente." (5
Manresa, 305; see also, art. 440, par. 1, Civil Code.) Thomas Hanley having died on May 27, 1922, the inheritance
tax accrued as of the date.

From the fact, however, that Thomas Hanley died on May 27, 1922, it does not follow that the obligation to pay the
tax arose as of the date. The time for the payment on inheritance tax is clearly fixed by section 1544 of the Revised
Administrative Code as amended by Act No. 3031, in relation to section 1543 of the same Code. The two sections
follow:

SEC. 1543. Exemption of certain acquisitions and transmissions. — The following shall not be taxed:

(a) The merger of the usufruct in the owner of the naked title.

(b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the
trustees.

(c) The transmission from the first heir, legatee, or donee in favor of another beneficiary, in
accordance with the desire of the predecessor.

In the last two cases, if the scale of taxation appropriate to the new beneficiary is greater than that paid by the
first, the former must pay the difference.

SEC. 1544. When tax to be paid. — The tax fixed in this article shall be paid:

(a) In the second and third cases of the next preceding section, before entrance into possession of the
property.

(b) In other cases, within the six months subsequent to the death of the predecessor; but if judicial
testamentary or intestate proceedings shall be instituted prior to the expiration of said period, the
payment shall be made by the executor or administrator before delivering to each beneficiary his
share.

If the tax is not paid within the time hereinbefore prescribed, interest at the rate of twelve per centum per
annum shall be added as part of the tax; and to the tax and interest due and unpaid within ten days after the
date of notice and demand thereof by the collector, there shall be further added a surcharge of twenty-five
per centum.

A certified of all letters testamentary or of admisitration shall be furnished the Collector of Internal Revenue
by the Clerk of Court within thirty days after their issuance.

It should be observed in passing that the word "trustee", appearing in subsection (b) of section 1543, should read
"fideicommissary" or "cestui que trust". There was an obvious mistake in translation from the Spanish to the English
version.

The instant case does fall under subsection (a), but under subsection (b), of section 1544 above-quoted, as there is
here no fiduciary heirs, first heirs, legatee or donee. Under the subsection, the tax should have been paid before the
delivery of the properties in question to P. J. M. Moore as trustee on March 10, 1924.

(b) The plaintiff contends that the estate of Thomas Hanley, in so far as the real properties are concerned, did not
and could not legally pass to the instituted heir, Matthew Hanley, until after the expiration of ten years from the death
of the testator on May 27, 1922 and, that the inheritance tax should be based on the value of the estate in 1932, or
ten years after the testator's death. The plaintiff introduced evidence tending to show that in 1932 the real properties
in question had a reasonable value of only P5,787. This amount added to the value of the personal property left by
the deceased, which the plaintiff admits is P1,465, would generate an inheritance tax which, excluding deductions,
interest and surcharge, would amount only to about P169.52.
If death is the generating source from which the power of the estate to impose inheritance taxes takes its being and
if, upon the death of the decedent, succession takes place and the right of the estate to tax vests instantly, the tax
should be measured by the vlaue of the estate as it stood at the time of the decedent's death, regardless of any
subsequent contingency value of any subsequent increase or decrease in value. (61 C. J., pp. 1692, 1693; 26 R. C.
L., p. 232; Blakemore and Bancroft, Inheritance Taxes, p. 137. See also Knowlton vs. Moore, 178 U.S., 41; 20 Sup.
Ct. Rep., 747; 44 Law. ed., 969.) "The right of the state to an inheritance tax accrues at the moment of death, and
hence is ordinarily measured as to any beneficiary by the value at that time of such property as passes to him.
Subsequent appreciation or depriciation is immaterial." (Ross, Inheritance Taxation, p. 72.)

Our attention is directed to the statement of the rule in Cyclopedia of Law of and Procedure (vol. 37, pp. 1574, 1575)
that, in the case of contingent remainders, taxation is postponed until the estate vests in possession or the
contingency is settled. This rule was formerly followed in New York and has been adopted in Illinois, Minnesota,
Massachusetts, Ohio, Pennsylvania and Wisconsin. This rule, horever, is by no means entirely satisfactory either to
the estate or to those interested in the property (26 R. C. L., p. 231.). Realizing, perhaps, the defects of its anterior
system, we find upon examination of cases and authorities that New York has varied and now requires the
immediate appraisal of the postponed estate at its clear market value and the payment forthwith of the tax on its out
of the corpus of the estate transferred. (In re Vanderbilt, 172 N. Y., 69; 69 N. E., 782; In re Huber, 86 N. Y. App. Div.,
458; 83 N. Y. Supp., 769; Estate of Tracy, 179 N. Y., 501; 72 N. Y., 519; Estate of Brez, 172 N. Y., 609; 64 N. E.,
958; Estate of Post, 85 App. Div., 611; 82 N. Y. Supp., 1079. Vide also, Saltoun vs. Lord Advocate, 1 Peter. Sc.
App., 970; 3 Macq. H. L., 659; 23 Eng. Rul. Cas., 888.) California adheres to this new rule (Stats. 1905, sec. 5, p.
343).

But whatever may be the rule in other jurisdictions, we hold that a transmission by inheritance is taxable at the time
of the predecessor's death, notwithstanding the postponement of the actual possession or enjoyment of the estate
by the beneficiary, and the tax measured by the value of the property transmitted at that time regardless of its
appreciation or depreciation.

(c) Certain items are required by law to be deducted from the appraised gross in arriving at the net value of the
estate on which the inheritance tax is to be computed (sec. 1539, Revised Administrative Code). In the case at bar,
the defendant and the trial court allowed a deduction of only P480.81. This sum represents the expenses and
disbursements of the executors until March 10, 1924, among which were their fees and the proven debts of the
deceased. The plaintiff contends that the compensation and fees of the trustees, which aggregate P1,187.28
(Exhibits C, AA, EE, PP, HH, JJ, LL, NN, OO), should also be deducted under section 1539 of the Revised
Administrative Code which provides, in part, as follows: "In order to determine the net sum which must bear the tax,
when an inheritance is concerned, there shall be deducted, in case of a resident, . . . the judicial expenses of the
testamentary or intestate proceedings, . . . ."

A trustee, no doubt, is entitled to receive a fair compensation for his services (Barney vs. Saunders, 16 How., 535;
14 Law. ed., 1047). But from this it does not follow that the compensation due him may lawfully be deducted in
arriving at the net value of the estate subject to tax. There is no statute in the Philippines which requires trustees'
commissions to be deducted in determining the net value of the estate subject to inheritance tax (61 C. J., p. 1705).
Furthermore, though a testamentary trust has been created, it does not appear that the testator intended that the
duties of his executors and trustees should be separated. (Ibid.; In re Vanneck's Estate, 161 N. Y. Supp., 893; 175
App. Div., 363; In re Collard's Estate, 161 N. Y. Supp., 455.) On the contrary, in paragraph 5 of his will, the testator
expressed the desire that his real estate be handled and managed by his executors until the expiration of the period
of ten years therein provided. Judicial expenses are expenses of administration (61 C. J., p. 1705) but, in State vs.
Hennepin County Probate Court (112 N. W., 878; 101 Minn., 485), it was said: ". . . The compensation of a trustee,
earned, not in the administration of the estate, but in the management thereof for the benefit of the legatees or
devises, does not come properly within the class or reason for exempting administration expenses. . . . Service
rendered in that behalf have no reference to closing the estate for the purpose of a distribution thereof to those
entitled to it, and are not required or essential to the perfection of the rights of the heirs or legatees. . . . Trusts . . . of
the character of that here before the court, are created for the the benefit of those to whom the property ultimately
passes, are of voluntary creation, and intended for the preservation of the estate. No sound reason is given to
support the contention that such expenses should be taken into consideration in fixing the value of the estate for the
purpose of this tax."

(d) The defendant levied and assessed the inheritance tax due from the estate of Thomas Hanley under the
provisions of section 1544 of the Revised Administrative Code, as amended by section 3 of Act No. 3606. But Act
No. 3606 went into effect on January 1, 1930. It, therefore, was not the law in force when the testator died on May
27, 1922. The law at the time was section 1544 above-mentioned, as amended by Act No. 3031, which took effect
on March 9, 1922.

It is well-settled that inheritance taxation is governed by the statute in force at the time of the death of the decedent
(26 R. C. L., p. 206; 4 Cooley on Taxation, 4th ed., p. 3461). The taxpayer can not foresee and ought not to be
required to guess the outcome of pending measures. Of course, a tax statute may be made retroactive in its
operation. Liability for taxes under retroactive legislation has been "one of the incidents of social life." (Seattle vs.
Kelleher, 195 U. S., 360; 49 Law. ed., 232 Sup. Ct. Rep., 44.) But legislative intent that a tax statute should operate
retroactively should be perfectly clear. (Scwab vs. Doyle, 42 Sup. Ct. Rep., 491; Smietanka vs. First Trust & Savings
Bank, 257 U. S., 602; Stockdale vs. Insurance Co., 20 Wall., 323; Lunch vs. Turrish, 247 U. S., 221.) "A statute
should be considered as prospective in its operation, whether it enacts, amends, or repeals an inheritance tax,
unless the language of the statute clearly demands or expresses that it shall have a retroactive effect, . . . ." (61 C.
J., P. 1602.) Though the last paragraph of section 5 of Regulations No. 65 of the Department of Finance makes
section 3 of Act No. 3606, amending section 1544 of the Revised Administrative Code, applicable to all estates the
inheritance taxes due from which have not been paid, Act No. 3606 itself contains no provisions indicating legislative
intent to give it retroactive effect. No such effect can begiven the statute by this court.

The defendant Collector of Internal Revenue maintains, however, that certain provisions of Act No. 3606 are more
favorable to the taxpayer than those of Act No. 3031, that said provisions are penal in nature and, therefore, should
operate retroactively in conformity with the provisions of article 22 of the Revised Penal Code. This is the reason why
he applied Act No. 3606 instead of Act No. 3031. Indeed, under Act No. 3606, (1) the surcharge of 25 per cent is
based on the tax only, instead of on both the tax and the interest, as provided for in Act No. 3031, and (2) the
taxpayer is allowed twenty days from notice and demand by rthe Collector of Internal Revenue within which to pay
the tax, instead of ten days only as required by the old law.

Properly speaking, a statute is penal when it imposes punishment for an offense committed against the state which,
under the Constitution, the Executive has the power to pardon. In common use, however, this sense has been
enlarged to include within the term "penal statutes" all status which command or prohibit certain acts, and establish
penalties for their violation, and even those which, without expressly prohibiting certain acts, impose a penalty upon
their commission (59 C. J., p. 1110). Revenue laws, generally, which impose taxes collected by the means ordinarily
resorted to for the collection of taxes are not classed as penal laws, although there are authorities to the contrary.
(See Sutherland, Statutory Construction, 361; Twine Co. vs. Worthington, 141 U. S., 468; 12 Sup. Ct., 55; Rice vs.
U. S., 4 C. C. A., 104; 53 Fed., 910; Com. vs. Standard Oil Co., 101 Pa. St., 150; State vs. Wheeler, 44 P., 430; 25
Nev. 143.) Article 22 of the Revised Penal Code is not applicable to the case at bar, and in the absence of clear
legislative intent, we cannot give Act No. 3606 a retroactive effect.

(e) The plaintiff correctly states that the liability to pay a tax may arise at a certain time and the tax may be paid
within another given time. As stated by this court, "the mere failure to pay one's tax does not render one delinqent
until and unless the entire period has eplased within which the taxpayer is authorized by law to make such payment
without being subjected to the payment of penalties for fasilure to pay his taxes within the prescribed period." (U. S.
vs. Labadan, 26 Phil., 239.)

The defendant maintains that it was the duty of the executor to pay the inheritance tax before the delivery of the
decedent's property to the trustee. Stated otherwise, the defendant contends that delivery to the trustee was delivery
to the cestui que trust, the beneficiery in this case, within the meaning of the first paragraph of subsection (b) of
section 1544 of the Revised Administrative Code. This contention is well taken and is sustained. The appointment of
P. J. M. Moore as trustee was made by the trial court in conformity with the wishes of the testator as expressed in his
will. It is true that the word "trust" is not mentioned or used in the will but the intention to create one is clear. No
particular or technical words are required to create a testamentary trust (69 C. J., p. 711). The words "trust" and
"trustee", though apt for the purpose, are not necessary. In fact, the use of these two words is not conclusive on the
question that a trust is created (69 C. J., p. 714). "To create a trust by will the testator must indicate in the will his
intention so to do by using language sufficient to separate the legal from the equitable estate, and with sufficient
certainty designate the beneficiaries, their interest in the ttrust, the purpose or object of the trust, and the property or
subject matter thereof. Stated otherwise, to constitute a valid testamentary trust there must be a concurrence of
three circumstances: (1) Sufficient words to raise a trust; (2) a definite subject; (3) a certain or ascertain object;
statutes in some jurisdictions expressly or in effect so providing." (69 C. J., pp. 705,706.) There is no doubt that the
testator intended to create a trust. He ordered in his will that certain of his properties be kept together undisposed
during a fixed period, for a stated purpose. The probate court certainly exercised sound judgment in appointment a
trustee to carry into effect the provisions of the will (see sec. 582, Code of Civil Procedure).

P. J. M. Moore became trustee on March 10, 1924. On that date trust estate vested in him (sec. 582 in relation to
sec. 590, Code of Civil Procedure). The mere fact that the estate of the deceased was placed in trust did not remove
it from the operation of our inheritance tax laws or exempt it from the payment of the inheritance tax. The
corresponding inheritance tax should have been paid on or before March 10, 1924, to escape the penalties of the
laws. This is so for the reason already stated that the delivery of the estate to the trustee was in esse delivery of the
same estate to the cestui que trust, the beneficiary in this case. A trustee is but an instrument or agent for the cestui
que trust (Shelton vs. King, 299 U. S., 90; 33 Sup. Ct. Rep., 689; 57 Law. ed., 1086). When Moore accepted the trust
and took possesson of the trust estate he thereby admitted that the estate belonged not to him but to his cestui que
trust (Tolentino vs. Vitug, 39 Phil.,126, cited in 65 C. J., p. 692, n. 63). He did not acquire any beneficial interest in
the estate. He took such legal estate only as the proper execution of the trust required (65 C. J., p. 528) and, his
estate ceased upon the fulfillment of the testator's wishes. The estate then vested absolutely in the beneficiary (65 C.
J., p. 542).

The highest considerations of public policy also justify the conclusion we have reached. Were we to hold that the
payment of the tax could be postponed or delayed by the creation of a trust of the type at hand, the result would be
plainly disastrous. Testators may provide, as Thomas Hanley has provided, that their estates be not delivered to their
beneficiaries until after the lapse of a certain period of time. In the case at bar, the period is ten years. In other cases,
the trust may last for fifty years, or for a longer period which does not offend the rule against petuities. The collection
of the tax would then be left to the will of a private individual. The mere suggestion of this result is a sufficient
warning against the accpetance of the essential to the very exeistence of government. (Dobbins vs. Erie Country, 16
Pet., 435; 10 Law. ed., 1022; Kirkland vs. Hotchkiss, 100 U. S., 491; 25 Law. ed., 558; Lane County vs. Oregon, 7
Wall., 71; 19 Law. ed., 101; Union Refrigerator Transit Co. vs. Kentucky, 199 U. S., 194; 26 Sup. Ct. Rep., 36; 50
Law. ed., 150; Charles River Bridge vs. Warren Bridge, 11 Pet., 420; 9 Law. ed., 773.) The obligation to pay taxes
rests not upon the privileges enjoyed by, or the protection afforded to, a citizen by the government but upon the
necessity of money for the support of the state (Dobbins vs. Erie Country, supra). For this reason, no one is allowed
to object to or resist the payment of taxes solely because no personal benefit to him can be pointed out. (Thomas vs.
Gay, 169 U. S., 264; 18 Sup. Ct. Rep., 340; 43 Law. ed., 740.) While courts will not enlarge, by construction, the
government's power of taxation (Bromley vs. McCaughn, 280 U. S., 124; 74 Law. ed., 226; 50 Sup. Ct. Rep., 46)
they also will not place upon tax laws so loose a construction as to permit evasions on merely fanciful and
insubstantial distictions. (U. S. vs. Watts, 1 Bond., 580; Fed. Cas. No. 16,653; U. S. vs. Wigglesirth, 2 Story, 369;
Fed. Cas. No. 16,690, followed in Froelich & Kuttner vs. Collector of Customs, 18 Phil., 461, 481; Castle Bros., Wolf
& Sons vs. McCoy, 21 Phil., 300; Muñoz & Co. vs. Hord, 12 Phil., 624; Hongkong & Shanghai Banking Corporation
vs. Rafferty, 39 Phil., 145; Luzon Stevedoring Co. vs. Trinidad, 43 Phil., 803.) When proper, a tax statute should be
construed to avoid the possibilities of tax evasion. Construed this way, the statute, without resulting in injustice to the
taxpayer, becomes fair to the government.

That taxes must be collected promptly is a policy deeply intrenched in our tax system. Thus, no court is allowed to
grant injunction to restrain the collection of any internal revenue tax ( sec. 1578, Revised Administrative Code;
Sarasola vs. Trinidad, 40 Phil., 252). In the case of Lim Co Chui vs. Posadas (47 Phil., 461), this court had occassion
to demonstrate trenchment adherence to this policy of the law. It held that "the fact that on account of riots directed
against the Chinese on October 18, 19, and 20, 1924, they were prevented from praying their internal revenue taxes
on time and by mutual agreement closed their homes and stores and remained therein, does not authorize the
Collector of Internal Revenue to extend the time prescribed for the payment of the taxes or to accept them without
the additional penalty of twenty five per cent." (Syllabus, No. 3.)

". . . It is of the utmost importance," said the Supreme Court of the United States, ". . . that the modes adopted to
enforce the taxes levied should be interfered with as little as possible. Any delay in the proceedings of the officers,
upon whom the duty is developed of collecting the taxes, may derange the operations of government, and thereby,
cause serious detriment to the public." (Dows vs. Chicago, 11 Wall., 108; 20 Law. ed., 65, 66; Churchill and Tait vs.
Rafferty, 32 Phil., 580.)

It results that the estate which plaintiff represents has been delinquent in the payment of inheritance tax and,
therefore, liable for the payment of interest and surcharge provided by law in such cases.
The delinquency in payment occurred on March 10, 1924, the date when Moore became trustee. The interest due
should be computed from that date and it is error on the part of the defendant to compute it one month later. The
provisions cases is mandatory (see and cf. Lim Co Chui vs. Posadas, supra), and neither the Collector of Internal
Revenuen or this court may remit or decrease such interest, no matter how heavily it may burden the taxpayer.

To the tax and interest due and unpaid within ten days after the date of notice and demand thereof by the Collector
of Internal Revenue, a surcharge of twenty-five per centum should be added (sec. 1544, subsec. (b), par. 2, Revised
Administrative Code). Demand was made by the Deputy Collector of Internal Revenue upon Moore in a
communiction dated October 16, 1931 (Exhibit 29). The date fixed for the payment of the tax and interest was
November 30, 1931. November 30 being an official holiday, the tenth day fell on December 1, 1931. As the tax and
interest due were not paid on that date, the estate became liable for the payment of the surcharge.

In view of the foregoing, it becomes unnecessary for us to discuss the fifth error assigned by the plaintiff in his brief.

We shall now compute the tax, together with the interest and surcharge due from the estate of Thomas Hanley
inaccordance with the conclusions we have reached.

At the time of his death, the deceased left real properties valued at P27,920 and personal properties worth P1,465,
or a total of P29,385. Deducting from this amount the sum of P480.81, representing allowable deductions under
secftion 1539 of the Revised Administrative Code, we have P28,904.19 as the net value of the estate subject to
inheritance tax.

The primary tax, according to section 1536, subsection (c), of the Revised Administrative Code, should be imposed
at the rate of one per centum upon the first ten thousand pesos and two per centum upon the amount by which the
share exceed thirty thousand pesos, plus an additional two hundred per centum. One per centum of ten thousand
pesos is P100. Two per centum of P18,904.19 is P378.08. Adding to these two sums an additional two hundred per
centum, or P965.16, we have as primary tax, correctly computed by the defendant, the sum of P1,434.24.

To the primary tax thus computed should be added the sums collectible under section 1544 of the Revised
Administrative Code. First should be added P1,465.31 which stands for interest at the rate of twelve per centum per
annum from March 10, 1924, the date of delinquency, to September 15, 1932, the date of payment under protest, a
period covering 8 years, 6 months and 5 days. To the tax and interest thus computed should be added the sum of
P724.88, representing a surhcarge of 25 per cent on both the tax and interest, and also P10, the compromise sum
fixed by the defendant (Exh. 29), giving a grand total of P3,634.43.

As the plaintiff has already paid the sum of P2,052.74, only the sums of P1,581.69 is legally due from the estate.
This last sum is P390.42 more than the amount demanded by the defendant in his counterclaim. But, as we cannot
give the defendant more than what he claims, we must hold that the plaintiff is liable only in the sum of P1,191.27 the
amount stated in the counterclaim.

The judgment of the lower court is accordingly modified, with costs against the plaintiff in both instances. So ordered.

Avanceña, C.J., Abad Santos, Imperial, Diaz and Concepcion, JJ., concur.
Villa-Real, J., concurs.
COLLECTOR OF INTERNAL REVENUE, petitioner, vs. CONVENTION OF PHILIPPINE BAPTIST CHURCHES
and THE COURT OF TAX APPEALS, respondents. G.R. No. L-11807 January 28, 1961

Solicitor General for petitioner. Luis G. Hofileña and Efrain Treña for respondents. DIZON, J.:

Appeal by the Collector of Internal Revenue from the decision of the Court of Tax Appeals in C.T.A. Case No. 149,
ordering him "to refund to Convention of Philippine Baptist Churches the amount of P505.00 with legal interest
thereon from the date of payment thereof" by the latter to the former, without special pronouncement as to costs.

Convention of Philippine Baptist Churches hereinafter referred to merely as appellee, is a domestic religious
corporation. It owns a hospital in La Paz, City of Iloilo, known as the Iloilo Mission Hospital which, in turn, operates a
pharmacy which supplies medicines only to its charity and paying patients, the former getting the medicines free,
while the latter are required to pay for them with an overprice of 10% of the costs in order to compensate for or
recover the cost of the medicines supplied to the charity patients.

On April 14, 1954 appellant assessed and demanded from appellee the amount of P505.00 as graduated fixed tax
including penalty for the years 1946 to 1952, based on the total amount received for medicines supplied by the latter
to its paying patients. Appellee refused to pay the tax and appealed to the Court of Tax Appeals, but, during the
pendency of its appeal, it had to pay appellant the tax assessed in order to prevent a levy from being made upon its
hospital equipment.

From the decision of the Court of Tax Appeals mentioned above, appellant appealed to this Court raising concretely
the following questions: (a) that appellee's appeal from the assessment to the Court of Tax Appeals was not taken in
due time because its motions for reconsideration filed with appellant did not interrupt the running of the period of
appeal provided by law; (b) that the Court of Tax Appeals erred in holding that the sales made by appellee to its
paying patients are exempt from the payment of the privilege tax on business prescribed in Sections 178, 180 and
182 of the National Internal Revenue Code, and erred, consequently, in ordering appellant to refund to appellee the
sum of P505.00.

It is not disputed that under date of April 14, 1954 appellant assessed and demanded from appellee the total amount
of P505.00 as graduated fixed annual tax, including penalty, for the years 1946 to 1952; that on May 13 of the same
year appellee contested the legality of the assessment; that in appellant's letter dated March 10, 1955 — received by
appellee on March 25 — he reiterated and maintained the assessment and demand; that in his letters of March 31
and June 13, 1955 appellee reiterated its opposition to the assessment, this opposition — obviously in the nature of
a motion for reconsideration — was overruled by appellant in his letter of May 6, 1955, which was waived by
appellee on May 30 of the same year; that on June 13, 1955 appellee appealed from the assessment to the Court of
Tax Appeals.

In deciding the question of whether or not appellee's appeal to the Court of Tax Appeals was taken in due time, said
Court said the following:

"In the computation of the thirty (30) day period prescribed under section 11 of Republic Act No 1125, we
have repeatedly held that a motion or request for a reconsideration of the decision of the Collector of Internal
Revenue suspends the running of the prescriptive period within which the taxpayer may appeal to this Court
and that the period of thirty (30) days held resume to run again the day following the receipt by the taxpayer
of the Collectors denial to said motion or request for reconsideration. The taxpayer should be given an
opportunity to exhaust all administrative remedies before coming to this Court and the Collector on the other
hand should be given an opportunity to correct his mistake if any has been committed in his original
assessment. (La Tondeña v. Collector, C.T.A. No. 99, March 15, 1956; Tomas Quirino v. Collector, C.T.A.
No. 86, June 26, 1956; American Rubber Co. v. Collector, C.T.A. No. 164, August 25, 1956). In fairness to
taxpayers as the appellant herein who were caught by that interregnum with the creation of this Court, we laid
down the rule that in such cases the thirty (30) day period should be counted from July 21, 1954 when this
Court started to function and do business as a judicial body with the appointment of two judges and its
clerical force. (Sta. Clara Lumber Co. v. Collector, C.T.A. No. 91, September 20, 1955; Ipekdjian
Merchandising Co. v. Collector, C.T.A. No. 167, October 1, 1955; Blas Gutierrez v. Collector, C.T.A. No. 65,
August 31, 1955).
 With these basic considerations in mind, it is evident from the record of this case, that the thirty-day period to
appeal as fixed under section 11 of Republic Act No. 1125, should be counted from March 25, 1955, the date
when appellants received appellee's letter of denial to its request for consideration filed on May 13, 1964
before this Court started to function as a judicial body. From March 26, 1955 to March 31, 1955, when the
running of the thirty-day period was suspended because of another request for reconsideration, the appellant
had consumed six (6) days. The period resumed to run again on May 31, 1955, the day following receipt by
appellant of the letter of appellee denying his request for reconsideration of March 31, 1955, and from said
date up to June 13, 1955 when the present petition for review was filed, the appellant consumed another
fourteen (14) days. All in all therefore, the appellant actually consumed only twenty (20) days of the thirty (30)
days allowed it under Section 11 of Republic Act No. 1125, a period well within the limitation set by law."

After a careful review of the pertinent facts and the law, we cannot but agree with the above findings and conclusions
of the court of origin.

We now come to the question of whether the sales made by appellee to the paying patients of its hospital are
exempt from the payment of the privilege tax on business. This question depends upon whether, in operating a
pharmacy department, appellee may be reputed to be engaged in that particular business.

As stated heretofore, the medicines supplied by appellee to the charity patients of its hospital are given free, and that
its paying patients are charged an overprice of 10% on the cost of medicines prescribed to them, this overprice being
intended to cover the actual cost of medicines supplied to the charity patients free of charge, plus the proportionate
cost of handling the same. In the strict sense, therefore, it cannot be said that appellee was really engaged in
business and for profit.

The test for the determination of whether or not a corporation is engaged in business is whether its business is
operated for profit or not. The facts of the present case show conclusively that appellee operates a pharmacy
department not for profit but to afford facilities to the patients of its hospital, both charity and paying, in the purchase
of medicines prescribed to them by the hospital physicians. The overprice charged to the paying patients goes
exclusively to cover the cost of the medicines supplied, free of charge, to the charity patients. Our conclusion,
therefore, is that its sales to its paying patients are not taxable.

WHEREFORE, the decision appealed from being in accordance with law, the same is hereby affirmed, with costs.

Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera, Gutierrez David and Paredes, JJ., concur.
 __________

RESOLUTION

May 19, 1961

DIZON, J.:

The decision rendered by this Court of January 28, 1961 affirmed the decision of the Court of Tax Appeals, with
costs. In his motion for reconsideration dated February 21, 1961 petitioner, Collector of Internal Revenue, prays thatt
said decision be amended by eliminating from its dispositive part of the imposition of the costs of suit on him.

The motion for reconsideration is well founded (Collector vs. St. Paul Hospital, etc., G.R. No. L-12127, May 25, 1959;
Collector vs. Sweeney, 106 Phil., 59; 57 Off. Gaz., [7] 1221) and is hereby granted by eliminating from the dispositive
part of the decision rendered in this case the imposition of costs on the petitioner, Collector of Internal Revenue.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera, and Paredes, J.J., concur.

_______________________

RESOLUTION

Sept. 26, 1961

DIZON, J.:

The facts involved in this case do not show that the taxes declared refundable in our decision promulgated on
January 28, 1961 were collected arbitrarily by petitioner. Therefore, resolving the motion for clarification filed by the
latter, and conformably with our resolution in G.R. No. L-11976 entitled Collector of Internal Revenue vs. Antonio
Prieto et al., our resolution in this case of May 19, 1961 is clarified by extending the exemption from liability of the
Collector of Internal Revenue -- that is, of the Government -- to the payment of interest on the refundable tax. It is so
ordered.

Bengzon, C.J., Padilla, Labrador, Concepcion, Reyes, J.B.L., Paredes, and de Leon, J.J., concur.
RUFINA ZAPANTA, ET AL., plaintiffs-appellees, vs. JUAN POSADAS, JR., ET AL., defendants-appellants.
G.R. No. L-29204 December 29, 1928

ROSARIO PINEDA, plaintiff-appellee, vs. JUAN POSADAS, JR., ET AL., defendants-appellants.

G.R. No. L-29205 December 29, 1928

OLIMPIO GUANZON, ET AL., plaintiffs-appellees, vs. JUAN POSADAS, JR., ET AL., defendants-appellants.
G.R. No. L-29206 December 29, 1928

LEONCIA PINEDA, ET AL., plaintiffs-appellees, vs. JUAN POSADAS, JR., ET AL., defendants-appellants.
G.R. No. L-29207 December 29, 1928

EMIGDIO DAVID, ET AL., plaintiffs-appellees, vs. JUAN POSADAS, JR., ET AL., defendants-appellants.
G.R. No. L-29208 December 29, 1928

GERONIMA PINEDA, plaintiff-appellees, vs. JUAN POSADAS, JR., ET AL., defendants-appellants.

G.R. No. L-29209 December 29, 1928

Office of the Solicitor-General Reyes for appellants. Aurelio Pineda for appellees. AVANCEÑA, C. J.:

Father Braulio Pineda died in January 1925 without any ascendants or descendants leaving a will in which he
instituted his sister Irene Pineda as his sole heiress. During his lifetime Father Braulio donated some of his property
by the instruments to the six plaintifffs, severally, with the condition that some of them would pay him a certain
amount of rice, and others of money every year, and with the express provision that failure to fulfill this condition
would revoke the donations ipso facto. These six plaintiff-donees are relatives, and some of them brothers of Father
Braulio Pineda. The donations contained another clause that they would take effect upon acceptance. They were
accepted during Father Braulio's lifetime by every one of the donees.

Every one of the six plaintiffs filed a separate action against the Collector of Internal Revenue and his deputy for the
sums of which each of them paid, under protest, as inheritance tax on the property donated to them, in accordance
with section 1536 of the Administrative Code, as amended by section 10 of Act No. 2835, and by section 1 of Act No.
3031. Section 1536 of the Administrative Code reads:

Every transmission by virtue of inheritance, devise, bequest, gift mortis causa or advance in anticipation of
inheritance, devise, or bequest of real property located in the Philippine Islands and real rights in such
property; . . .

The trial court in deciding these six cases, held that the donations to the six plaintiffs made by the deceased Father
Braulio Pineda are donations inter vivos, and therefore, not subject to the inheritance tax, and ordered the
defendants to return to each of the plaintiffs the sums paid by the latter.

The defendants appealed from this judgment.

The whole quetion involved in this appeal resolves into whether the donations made by Father Braulio Pineda to
each of the plaintiffs are donations inter vivos, or mortis causa, for it is the latter upon which the Administrative Code
imposes inheritance tax. In our opinion, said donations are inter vivos. It is so expressly stated in the instruments in
which they appear. They were made in consideration of the donor's affection for the donees, and of the services they
had rendered him, but he has charged them with the obligation to pay him a certain amount of rice and money,
respectively, each year during his lifetime, the donations to become effective upon acceptance. They are therefore
not in the nature of donations mortis causa but inter vivos.

The principal characteristics of a donation mortis causa, which distinguish it essentially from a donation inter vivos,
are that in the former it is the donor's death that determines the acquisition of, or the right to, the property, and that it
is revocable at the will of the donor. In the donations in question, their effect, that is, the acquisition of, or the right to,
the property, was produced while the donor was still alive, for according to their expressed terms they were to have
this effect upon acceptance, and this took place during the donor's lifetime. The nature of these donations is not
affected by the fact that they were subject to a condition, since it was imposed as a resolutory condition, and in this
sense, it is necessarily implies that the right came into existence first as well as its effect, because otherwise there
would be nothing to resolve upon the nonfulfillment of the condition imposed. Neither does the fact that these
donations are revocable, give them the character of donations mortis causa, inasmuch as the revocation is not the
failure to fulfill the condition imposed. In relation to the donor's will alone, these donations are irrevocable. On the
other hand, this condition, in so far as it renders the donation onerous, takes it further away from the
disposition mortis causa and brings it nearer to contract. In this sense, by virtue of this condition imposed, they are
not donations throughout their full extent, but only so far as they exceed the incumbrance imposed, for so far as
concerns the portion equivalent to or less than said incumbrance, it has the nature of a real contract and is governed
by the rule on contracts (art. 622 of the Civil Code). And in the part in which it is strictly a donation, it is a
donation inter vivos, because its effect was produced by the donees' acceptance during the donor's lifetime and was
not determined by the donor's death. Upon being accepted they had full effect. If the donor's life is mentioned in
connection with this condition, it is only fix the donor's death as the end of the term within which the condition must
be fulfilled, and not because such death of the donor is the cause which determines the birth of the right to the
donation. The property donated passed to the ownership of the donees from the acceptance of the donations, and
these could not be revoked except upon the nonfulfillment of the condition imposed, or for other causes prescribed
by the law, but not by mere will of the donor.

Neither can these donations be considered as an advance on inheritance or legacy, according to the terms of section
1536 of the Administrative Code, because they are neither an inheritance nor a legacy. And it cannot be said that the
plaintiffs received such advance on inheritance or legacy, since they were not heirs or legatees of their predessor in
interest upon his death (sec. 1540 of the Administrative Code). Neither can it be said that they obtained this
inheritance or legacy by virtue of a document which does not contain the requisites of a will (sec. 618 of the Code of
Civil Pocedure).1awphi1.net

Besides, if the donations made by the plaintiffs are, as the appellants contended, mortis causa, then they must be
governed by the law on testate succession (art. 620 of the Civil Code). In such a case, the documents in which these
donations appear, being instruments which do not contain the requisites of a will, are not valid to transmit the
property to the donees (sec. 618, Code of Civil Procedure.) Then the defendants are not justified in collecting from
the donees the inheritance tax, on property which has not been legally transferred to them, and in which they
acquired no right.

For these reasons the judgment appealed from is affirmed, without special pronouncement as to costs. So ordered.

Johnson, Malcolm, Villamor, Romualdez and Villa-Real, JJ., concur.

Ostrand and Johns, JJ., dissent.

Separate Opinions STREET, J., dissenting:

Of course I agree with so much of the discussion in the majority opinion as declarees that the various donations
made prior to his death by Rev. Braulio Pineda to various nephews and nieces were not donations mortis causa. But
this is by no means decisive of the case. Among the forms of succession which are by law made subject to the
inheritance tax are advances in anticipation of inheritance (Adm. Code, sec. 1536, as amended); and I consider
these donations to be taxable in that character. The device adopted in this case for the distribution of the bulk of the
donor's property before his death is, to my mind, a transparent attempt at an evasion of the tax. The donations in
question were made to all persons who would have been entitled to inherit if no will had been made, except one; and
this one was instituted as sole heir in the will. If no will had been left, all of the donees and the heir instituted in the
will would have shared jointly in the estate by regular succession. It is thus seen that the making of the donations
and the making of the will were part of a single purpose, which was, to effect the distribution of the donor's property.
What else is necessary to make an advance "in anticipation of inheritance?" The suggestion in the opinion that the
institution of another person as heir in the will had effect of destroying the capacity of the donees to take as heirs, is
not well founded, for the question whether these donations should be considered advances in anticipation of
inheritance ought to be determined with reference to the situation at the time the donations were made. The very
reason that the prospective heir to whom no donation had been made was instituted as sole heir in the will is of
course found in the fact that advances had already been made to the others. The purpose of the statute was to
impose a tax on successions; and in order to prevent the successful use of devices of this kind, the lawmaker
expressly made the tax applicable to advance in anticipation inheritance. If the situation before us is not within both
the letter and meaning of that provision, the undersigned has entirely misinterpreted its purport.
ALFONSO TUASON Y ANGELES and MARIANO TUASON Y ANGELES, plaintiffs-appellees, vs. JUAN
POSADAS, JR., Collector of Internal Revenue, defendant-appellant. G.R. No. L-30885 January 23, 1930

Attorney-General Jaranilla for appellant. Salvador Franco for appellees. AVANCEÑA, C.J.:

On September 15, 1922, Esperanza Tuason y Chuajap made a donation inter vivos of certain property to plaintiff
Mariano Tuason y Angeles. On April 30, 1923, she made another donation inter vivos to Alfonso Tuason y Angeles,
the other plaintiff. On January 5, 1926, she died of senile weakness at the age of 73, leaving a will bequeathing of
P5,025 to Mariano Tuason y Angeles. Her judicial administratrix paid the prescribed inheritance tax on these two
bequests.

Furthermore, the defendant collected the sums of P3,809.76 and P6,653.64 from plaintiffs Mariano Tuason y
Angeles and Alfonso Tuason y Angeles against their opposition and over their protest as inheritance tax upon the
gifts inter vivos made to them.

The plaintiffs brought this action against the Collector of Internal Revenue for the recovery of the amounts of
P3,809.76 and P6,653.64 collected from them as inheritance tax.

The judgment appealed from ordered the defendant to return the amounts claimed to the plaintiffs.

The appellant contends that the collection of these amounts as inheritance tax is authorized by the law.

Section 1536 of the Administrative Code provides:

SEC. 1536. Conditions and rate of taxation. — Every transmission by virtue of inheritance, devise, bequest,
gift mortis causa, or advance in anticipation of inheritance, devise, or bequest shall be subject to the following
tax;

xxx xxx xxx

Section 1539 enumerates the deductions to be made in determining the net sum which must bear the tax.

Section 1540 then provides:

SEC. 1540. Additions of gifts and advances. — After the aforementioned deductions have been made, there
shall be added to the resulting amount the value of all gifts or advances made by the predecessor to any of
those who, after his death, shall prove to be his heirs, devisees, legatees, or donees mortis causa.

When the law say all gifts, it doubtless refers to gifts inter vivos, and not mortis causa. Both the letter and the spirit of
the law leave no room for any other interpretation. Such, clearly, is the tenor of the language which refers to donation
that took effect before the donor's death, and not to mortis causa donations, which can only be made with the
formalities of a will, and can only take effect after the donor's death. Any other construction would virtually change
this provision into:

. . . there shall be added to the resulting amount the value of all gifts mortis causa . . . made by the
predecessor to those who, after his death, shall prove to be his . . . donees mortis causa." We cannot give to
the law an interpretation that would so vitiate its language. The truth of the matter is that in this section (1540)
the law presumes that such gifts have been made in anticipation of inheritance, devise, bequest, or gift mortis
causa, when the donee, after the death of the donor proves to be his heir, devisee or donee mortis causa, for
the purpose of evading the tax, and it is to prevent this that it provides that they shall be added to the
resulting amount.

This being so, and it appearing that the appellees after the death of Esperanza Tuason y Chuajap, were found to be
legatees under her will, the donation inter vivos she had made to them in 1922 and 1923, must be added to the net
amount that is to be taxed.
In the course of the deliberations of this court on this case, the question arose as to whether or not that interpretation
of the law would be constitutional. But as the parties did not raise this question in the court below, nor in this court,
we cannot consider it. At any rate the argument adduced against its constitutionality, which is the lack of uniformity,
does not seem to be well-founded. It was said that under such an interpretation, while a donee inter vivos who, after
the predecessor's death prove to be an heir, a legatee, or a donee mortis causa, would have to pay the tax, another
donee inter vivos who did not prove to be an heir, a legatee, or a donee mortis causa of the predecessor, would be
exempt from such a tax. But as these are two different cases, the principle of uniformity is inapplicable to them.
Aside from this, in regard to other aspects, we see nothing against the constitutionality of the law (Bromley vs.
McCaughn [1929], U. S. Supreme Court Advance Opinions, p. 69).

The judgment appealed from is reversed, and the defendant is absolved from the complaint, without special
pronouncement of costs. So ordered.

Malcolm, Villamor, Ostrand, Johns and Romualdez, JJ., concur.

Separate Opinions

STREET, J., dissenting:

The two plaintiffs in this case are suing to recover two several sums of money, the payment of which has been
exacted from them in the character of taxes upon inheritance, and it is very manifest to me that the taxes in question
were imposed, and have been collected, in violation of that portion of section 3 of the Autonomy Act (Jones Law)
which declares that the rule of taxation in these Islands shall be uniform. To demonstrate this conclusion it is
desirable to fix in the mind the exact state of fact upon which the decision should turn. In this connection we note that
the plaintiffs are not persons who would have inherited any part of the estate of Esperanza Tuason y Chuajap, if she
had died intestate. It is clear therefore that the donations made to the two plaintiffs in 1922 and 1923, respectively,
were not made "in anticipation of inheritance," and they are therefore not taxable in that character. The gifts in
question were donations inter vivos, and as such they should be free from the inheritance tax.

But it happened that the donor, in a will executed late in 1925, gave two legacies of about P5,000 each to the two
plaintiffs. These two legacies were of course subject to the legacy tax imposed by law, and those taxes have been
paid without question. Nevertheless, under the decision now before us, the giving of those legacies has the effect of
making the gifts of 1922 and 1923 to the plaintiffs taxable in the character of inheritances. This substitutes mere
caprice for uniformity.

Further to illustrate this, let it be supposed that a person, desirous of conferring a benefit upon two persons held in
about equal esteem, makes a gift of P10,000 to one and P9,900 to the other. In a subsequent will, in order to
equalize the gifts, the same benefactor gives a legacy of P100 to the second donee. Under the statute, as
interpreted by the court, the first donee is not liable to any inheritance tax, but the second is liable upon the entire
amount first given to him. This shows the lack of logical relation between the incidence of the tax and the fact taken
as a basis for its imposition.

It will be noted that we do not here question the proposition that section 1540 of the Administrative Code might
lawfully operate upon a donee who at the time of receiving the gift inter vivos belongs to the class who could take by
intestate succession, in the absence of a will, for in this case the donation may be made in anticipation of inheritance
(sec. 1536, Adm. Code). It was for this very reason that the undersigned sustained the position in Zapanta vs.
Posadas (52 Phil., 557), that the gifts there made were taxable. But section 1540 of the Administrative Code cannot,
in my opinion, properly be interpreted to extend to gifts inter vivos made to a person not in a position to take as heir
of the donor dying intestate.

In closing I wish to point out that the vital difference between this case and that under consideration in Zapanta vs.
Posadas, supra, is that in the latter case the donees were persons who would have been heirs of the donor if the
latter had died intestate, while in this case the donees are not in such position.

The judgment, in my opinion, should have been affirmed. Johnson and Villa-Real, JJ., concur.

LUIS W. DISON, plaintiff-appellant, vs. JUAN POSADAS, JR., Collector of Internal Revenue, defendant-
appellant. G.R. No. L-36770 November 4, 1932
Marcelino Aguas for plaintiff-appellant. Attorney-General Jaranilla for defendant-appellant. BUTTE, J.:

This is an appeal from the decision of the Court of First Instance of Pampanga in favor of the defendant Juan
Posadas, Jr., Collector of Internal Revenue, in a suit filed by the plaintiffs, Luis W. Dison, for the recovery of an
inheritance tax in the sum of P2,808.73 paid under protest. The petitioner alleged in his complaint that the tax is
illegal because he received the property, which is the basis of the tax, from his father before his death by a deed of
gift inter vivos which was duly accepted and registered before the death of his father. The defendant answered with a
general denial and with a counterdemand for the sum of P1,245.56 which it was alleged is a balance still due and
unpaid on account of said tax. The plaintiff replied to the counterdemand with a general denial. The court a quo held
that the cause of action set up in the counterdemand was not proven and dismissed the same. Both sides appealed
to this court, but the cross-complaint and appeal of the Collector of Internal Revenue were dismissed by this court on
March 17, 1932, on motion of the Attorney-General.1awphil.net

The only evidence introduced at the trial of this cause was the proof of payment of the tax under protest, as stated,
and the deed of gift executed by Felix Dison on April 9, 1928, in favor of his sons Luis W. Dison, the plaintiff-
appellant. This deed of gift transferred twenty-two tracts of land to the donee, reserving to the donor for his life the
usufruct of three tracts. This deed was acknowledged by the donor before a notary public on April 16, 1928. Luis W.
Dison, on April 17, 1928, formally accepted said gift by an instrument in writing which he acknowledged before a
notary public on April 20, 1928.

At the trial the parties agreed to and filed the following ingenious stipulation of fact:

1. That Don Felix Dison died on April 21, 1928;

2. That Don Felix Dison, before his death, made a gift inter vivos in favor of the plaintiff Luis W. Dison of all
his property according to a deed of gift (Exhibit D) which includes all the property of Don Felix Dizon;

3. That the plaintiff did not receive property of any kind of Don Felix Dison upon the death of the latter;

4. That Don Luis W. Dison was the legitimate and only child of Don Felix Dison.

It is inferred from Exhibit D that Felix Dison was a widower at the time of his death.

The theory of the plaintiff-appellant is that he received and holds the property mentioned by a consummated gift and
that Act No. 2601 (Chapter 40 of the Administrative Code) being the inheritance tax statute, does not tax gifts. The
provision directly here involved is section 1540 of the Administrative Code which reads as follows:

Additions of Gifts and Advances. — After the aforementioned deductions have been made, there shall be
added to the resulting amount the value of all gifts or advances made by the predecessor to any of those
who, after his death, shall prove to be his heirs, devises, legatees, or donees mortis causa.

The question to be resolved may be stated thus: Does section 1540 of the Administrative Code subject the plaintiff-
appellant to the payment of an inheritance tax?

The appellant argues that there is no evidence in this case to support a finding that the gift was simulated and that it
was an artifice for evading the payment of the inheritance tax, as is intimated in the decision of the court below and
the brief of the Attorney-General. We see no reason why the court may not go behind the language in which the
transaction is masked in order to ascertain its true character and purpose. In this case the scanty facts before us
may not warrant the inference that the conveyance, acknowledged by the donor five days before his death and
accepted by the donee one day before the donor's death, was fraudulently made for the purpose of evading the
inheritance tax. But the facts, in our opinion, do warrant the inference that the transfer was an advancement upon the
inheritance which the donee, as the sole and forced heir of the donor, would be entitled to receive upon the death of
the donor.

The argument advanced by the appellant that he is not an heir of his deceased father within the meaning of section
1540 of the Administrative Code because his father in his lifetime had given the appellant all his property and left no
property to be inherited, is so fallacious that the urging of it here casts a suspicion upon the appellants reason for
completing the legal formalities of the transfer on the eve of the latter's death. We do not know whether or not the
father in this case left a will; in any event, this appellant could not be deprived of his share of the inheritance because
the Civil Code confers upon him the status of a forced heir. We construe the expression in section 1540 "any of
those who, after his death, shall prove to be his heirs", to include those who, by our law, are given the status and
rights of heirs, regardless of the quantity of property they may receive as such heirs. That the appellant in this case
occupies the status of heir to his deceased father cannot be questioned. Construing the conveyance here in
question, under the facts presented, as an advance made by Felix Dison to his only child, we hold section 1540 to be
applicable and the tax to have been properly assessed by the Collector of Internal Revenue.

This appeal was originally assigned to a Division of five but referred to the court in banc by reason of the appellant's
attack upon the constitutionality of section 1540. This attack is based on the sole ground that insofar as section 1540
levies a tax upon gifts inter vivos, it violates that provision of section 3 of the organic Act of the Philippine Islands (39
Stat. L., 545) which reads as follows: "That no bill which may be enacted into law shall embraced more than one
subject, and that subject shall be expressed in the title of the bill." Neither the title of Act No. 2601 nor chapter 40 of
the Administrative Code makes any reference to a tax on gifts. Perhaps it is enough to say of this contention that
section 1540 plainly does not tax gifts per se but only when those gifts are made to those who shall prove to be the
heirs, devisees, legatees or donees mortis causa of the donor. This court said in the case of Tuason and
Tuason vs. Posadas 954 Phil., 289):lawphil.net

When the law says all gifts, it doubtless refers to gifts inter vivos, and not mortis causa. Both the letter and
the spirit of the law leave no room for any other interpretation. Such, clearly, is the tenor of the language
which refers to donations that took effect before the donor's death, and not to mortis causa donations, which
can only be made with the formalities of a will, and can only take effect after the donor's death. Any other
construction would virtually change this provision into:

". . . there shall be added to the resulting amount the value of all gifts mortis causa . . . made by the predecessor to
those who, after his death, shall prove to be his . . . donees mortis causa." We cannot give to the law an
interpretation that would so vitiate its language. The truth of the matter is that in this section (1540) the law presumes
that such gifts have been made in anticipation of inheritance, devise, bequest, or gift mortis causa, when the donee,
after the death of the donor proves to be his heir, devisee or donee mortis causa, for the purpose of evading the tax,
and it is to prevent this that it provides that they shall be added to the resulting amount." However much appellant's
argument on this point may fit his preconceived notion that the transaction between him and his father was a
consummated gift with no relation to the inheritance, we hold that there is not merit in this attack upon the
constitutionality of section 1540 under our view of the facts. No other constitutional questions were raised in this
case.

The judgment below is affirmed with costs in this instance against the appellant. So ordered.

Avanceña, C.J., Street, Malcolm, Ostrand, Abad Santos, Vickers and Imperial, JJ., concur.
CONCEPCION VIDAL DE ROCES and her husband, MARCOS ROCES, and ELVIRA VIDAL DE
RICHARDS, plaintiff-appellants, vs. JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellee.
G.R. No. L-34937 March 13, 1933

Feria and La O for appellants. Attorney-General Jaranilla for appellee. IMPERIAL, J.:

The plaintiffs herein brought this action to recover from the defendant, Collector of Internal Revenue, certain sums of
money paid by them under protest as inheritance tax. They appealed from the judgment rendered by the Court of
First Instance of Manila dismissing the action, without costs.

On March 10 and 12, 1925, Esperanza Tuazon, by means of public documents, donated certain parcels of land
situated in Manila to the plaintiffs herein, who, with their respective husbands, accepted them in the same public
documents, which were duly recorded in the registry of deeds. By virtue of said donations, the plaintiffs took
possession of the said lands, received the fruits thereof and obtained the corresponding transfer certificates of title.

On January 5, 1926, the donor died in the City of Manila without leaving any forced heir and her will which was
admitted to probate, she bequeathed to each of the donees the sum of P5,000. After the estate had been distributed
among the instituted legatees and before delivery of their respective shares, the appellee herein, as Collector of
Internal Revenue, ruled that the appellants, as donees and legatees, should pay as inheritance tax the sums of
P16,673 and P13,951.45, respectively. Of these sums P15,191.48 was levied as tax on the donation to Concepcion
Vidal de Roces and P1,481.52 on her legacy, and, likewise, P12,388.95 was imposed upon the donation made to
Elvira Vidal de Richards and P1,462.50 on her legacy. At first the appellants refused to pay the aforementioned
taxes but, at the insistence of the appellee and in order not to delay the adjudication of the legacies, they agreed at
last, to pay them under protest.

The appellee filed a demurrer to the complaint on the ground that the facts alleged therein were not sufficient to
constitute a cause of action. After the legal questions raised therein had been discussed, the court sustained the
demurrer and ordered the amendment of the complaint which the appellants failed to do, whereupon the trial court
dismissed the action on the ground that the afore- mentioned appellants did not really have a right of action.

In their brief, the appellants assign only one alleged error, to wit: that the demurrer interposed by the appellee was
sustained without sufficient ground.

The judgment appealed from was based on the provisions of section 1540 Administrative Code which reads as
follows:

SEC. 1540. Additions of gifts and advances. — After the aforementioned deductions have been made, there
shall be added to the resulting amount the value of all gifts or advances made by the predecessor to any
those who, after his death, shall prove to be his heirs, devisees, legatees, or donees mortis causa.

The appellants contend that the above-mentioned legal provision does not include donations inter vivos and if it
does, it is unconstitutional, null and void for the following reasons: first, because it violates section 3 of the Jones
Law which provides that no law should embrace more than one subject, and that subject should be expressed in the
title thereof; second that the Legislature has no authority to impose inheritance tax on donations inter vivos; and
third, because a legal provision of this character contravenes the fundamental rule of uniformity of taxation. The
appellee, in turn, contends that the words "all gifts" refer clearly to donations inter vivos and, in support of his theory,
cites the doctrine laid in the case of Tuason and Tuason vs. Posadas (54 Phil., 289). After a careful study of the law
and the authorities applicable thereto, we are the opinion that neither theory reflects the true spirit of the
aforementioned provision. The gifts referred to in section 1540 of the Revised Administration Code are, obviously,
those donations inter vivos that take effect immediately or during the lifetime of the donor but are made in
consideration or in contemplation of death. Gifts inter vivos, the transmission of which is not made in contemplation
of the donor's death should not be understood as included within the said legal provision for the reason that it would
amount to imposing a direct tax on property and not on the transmission thereof, which act does not come within the
scope of the provisions contained in Article XI of Chapter 40 of the Administrative Code which deals expressly with
the tax on inheritances, legacies and other acquisitions mortis causa.

Our interpretation of the law is not in conflict with the rule laid down in the case of Tuason and Tuason vs.
Posadas, supra. We said therein, as we say now, that the expression "all gifts" refers to gifts inter vivos inasmuch as
the law considers them as advances on inheritance, in the sense that they are gifts inter vivos made in contemplation
or in consideration of death. In that case, it was not held that that kind of gifts consisted in those made completely
independent of death or without regard to it.

Said legal provision is not null and void on the alleged ground that the subject matter thereof is not embraced in the
title of the section under which it is enumerated. On the contrary, its provisions are perfectly summarized in the
heading, "Tax on Inheritance, etc." which is the title of Article XI. Furthermore, the constitutional provision cited
should not be strictly construed as to make it necessary that the title contain a full index to all the contents of the law.
It is sufficient if the language used therein is expressed in such a way that in case of doubt it would afford a means of
determining the legislators intention. (Lewis' Sutherland Statutory Construction, Vol. II, p. 651.) Lastly, the
circumstance that the Administrative Code was prepared and compiled strictly in accordance with the provisions of
the Jones Law on that matter should not be overlooked and that, in a compilation of laws such as the Administrative
Code, it is but natural and proper that provisions referring to diverse matters should be found. (Ayson and Ignacio vs.
Provincial Board of Rizal and Municipal Council of Navotas, 39 Phil., 931.)

The appellants question the power of the Legislature to impose taxes on the transmission of real estate that takes
effect immediately and during the lifetime of the donor, and allege as their reason that such tax partakes of the
nature of the land tax which the law has already created in another part of the Administrative Code. Without making
express pronouncement on this question, for it is unnecessary, we wish to state that such is not the case in these
instance. The tax collected by the appellee on the properties donated in 1925 really constitutes an inheritance tax
imposed on the transmission of said properties in contemplation or in consideration of the donor's death and under
the circumstance that the donees were later instituted as the former's legatees. For this reason, the law considers
such transmissions in the form of gifts inter vivos, as advances on inheritance and nothing therein violates any
constitutional provision, inasmuch as said legislation is within the power of the Legislature.

Property Subject to Inheritance Tax. — The inheritance tax ordinarily applies to all property within the power
of the state to reach passing by will or the laws regulating intestate succession or by gift inter vivos in the
manner designated by statute, whether such property be real or personal, tangible or intangible, corporeal or
incorporeal. (26 R.C.L., p. 208, par. 177.)

In the case of Tuason and Tuason vs. Posadas, supra, it was also held that section 1540 of the Administrative Code
did not violate the constitutional provision regarding uniformity of taxation. It cannot be null and void on this ground
because it equally subjects to the same tax all of those donees who later become heirs, legatees or donees mortis
causa by the will of the donor. There would be a repugnant and arbitrary exception if the provisions of the law were
not applicable to all donees of the same kind. In the case cited above, it was said: "At any rate the argument
adduced against its constitutionality, which is the lack of Uniformity, does not seem to be well founded. It was said
that under such an interpretation, while a donee inter vivos who, after the predecessor's death proved to be an heir,
a legatee, or a donee mortis causa, would have to pay the tax, another donee inter vivos who did not prove to he an
heir, a legatee, or a donee mortis causa of the predecessor, would be exempt from such a tax. But as these are two
different cases, the principle of uniformity is inapplicable to them."

The last question of a procedural nature arising from the case at bar, which should be passed upon, is whether the
case, as it now stands, can be decided on the merits or should be remanded to the court a quo for further
proceedings. According to our view of the case, it follows that, if the gifts received by the appellants would have the
right to recover the sums of money claimed by them. Hence the necessity of ascertaining whether the complaint
contains an allegation to that effect. We have examined said complaint and found nothing of that nature. On the
contrary, it be may be inferred from the allegations contained in paragraphs 2 and 7 thereof that said donations inter
vivos were made in consideration of the donor's death. We refer to the allegations that such transmissions were
effected in the month of March, 1925, that the donor died in January, 1926, and that the donees were instituted
legatees in the donor's will which was admitted to probate. It is from these allegations, especially the last, that we
infer a presumption juris tantum that said donations were made mortis causa and, as such, are subject to the
payment of inheritance tax.

Wherefore, the demurrer interposed by the appellee was well-founded because it appears that the complaint did not
allege fact sufficient to constitute a cause of action. When the appellants refused to amend the same, spite of the
court's order to that effect, they voluntarily waived the opportunity offered them and they are not now entitled to have
the case remanded for further proceedings, which would serve no purpose altogether in view of the insufficiency of
the complaint.
Wherefore, the judgment appealed from is hereby affirmed, with costs of this instance against the appellants. So
ordered.

Avanceña, C.J., Villamor, Ostrand, Abad Santos, Hull, Vickers and Buttes, JJ., concur.

Separate Opinions

VILLA-REAL, J., dissenting:

I sustain my concurrence in Justice Street's dissenting opinion in the case of Tuason and Tuason vs. Posadas (54
Phil., 289).

The majority opinion to distinguish the present case from above-mentioned case of Tuason and Tuason vs.
Posadas, by interpreting section 1540 of the Administrative Code in the sense that it establishes the legal
presumption juris tantum that all gifts inter vivos made to persons who are not forced heirs but who are instituted
legatees in the donor's will, have been made in contemplation of the donor's death. Presumptions are of two kinds:
One determined by law which is also called presumption of law or of right; and another which is formed by the judge
from circumstances antecedent to, coincident with or subsequent to the principal fact under investigation, which is
also called presumption of man (presuncion de hombre). (Escriche, Vol. IV, p. 662.) The Civil Code as well as the
code of Civil Procedure establishes presumptions juris et de jure and juris tantum which the courts should take into
account in deciding questions of law submitted to them for decision. The presumption which majority opinion wishes
to draw from said section 1540 of the Administrative Code can neither be found in this Code nor in any of the
aforementioned Civil Code and Code of Civil Procedure. Therefore, said presumption cannot be called legal or of
law. Neither can it be called a presumption of man (presuncion de hombre) inasmuch as the majority opinion did not
infer it from circumstances antecedent to, coincident with or subsequent to the principal fact with is the donation
itself. In view of the nature, mode of making and effects of donations inter vivos, the contrary presumption would be
more reasonable and logical; in other words, donations inter vivos made to persons who are not forced heirs, but
who are instituted legatees in the donor's will, should be presumed as not made mortis causa, unless the contrary is
proven. In the case under consideration, the burden of the proof rests with the person who contends that the
donation inter vivos has been made mortis causa.

It is therefore, the undersigned's humble opinion that the order appealed from should be reversed and the demurrer
overruled, and the defendant ordered to file his answer to the complaint.

Street, J., concurs.