Tax Digests
Content
ESTATE OF HILARIO RUIZ V. COURT OF APPEALS (1.17)
FACTS:
Hilario Ruiz executed a holographic will where he named as heirs: Edmond Ruiz (only son); Maria Pilar
(adopted daughter); Maria Cathryn, Candice Albertine and Maria Angeline (three granddaughters). The
testator bequeathed to his heirs substantial cash, personal and real properties and named Edmond Ruiz
as executor of his estate. Hilario Ruiz died and the cash component of his estate was immediately
distributed among Ruiz and respondents. Edmond, the named executor, did not take any action for the
probate of his father’s holographic will. Four years later, Pilar filed before the Regional Trial Court a
petition for probate and approval of the deceased’s will and for the issuance of letters testamentary to
Edmond Ruiz. Edmond opposed on the ground that the will was executed under undue influence. The
house and lot in Valle Verde, Pasig which the testator bequeathed to the three granddaughters was
leased out by Edmond to third persons. The probate court ordered Edmond to deposit with the branch
clerk of court the rental deposit and payments totaling P540,000 representing the one-year lease of the
Valle Verde property. Edmond moved for the release of P50,000 to pay the real estate taxes on the real
properties of the estate. The probate court approved the release of P7,722,009. Edmond withdrew his
opposition then the probate court admitted the will to probate and ordered the issuance of letters
testamentary to Edmond conditioned upon the filing of a bond in the amount of P50,000. The testate
estate of Hilario Ruiz, with Edmond Ruiz as executor, filed an Ex-Parte Motion for Release of Funds,
praying for release of rent payments be given to the three granddaughters. The probate court denied
the motion for release of funds and granted the motion of Montes due to Edmond’s lack of opposition.
The court ordered release of the funds to Edmond but only “such amount as may be necessary to cover
the expenses of administration and allowances for support” of the testator’s three granddaughters
subject to collation and deductible from their share in the inheritance. The Court of Appeals sustained
the order of the probate court.
ISSUE:
Whether the probate court, after admitting the will to probate but before payment of the estate’s debts
and obligations, has the authority to order the release of the titles to the Valle Verde property and the
Blue Ridge Apartments to private respondents
RULING:
The probate court ordered the release of the titles to the Valle Verde property and the Blue Ridge
Apartments to the private respondents after the lapse of six months from the date of the first
publication of the notice to creditors. The questioned order speaks of “notice” to creditors, not payment
of debts and obligations. Hilario Ruiz allegedly left no debts when he died but the taxes on his estate had
not hitherto been paid, much less ascertained. The estate tax is one of the obligations that must be paid
before distribution of the estate. If not yet paid, the rule requires that the distributes post a bond or
make such provisions as to meet the said tax obligation in proportion to their respective shares in the
inheritance. Notably, at the time the order was issued the properties of the estate had not yet been
inventoried and appraised.
ELEGADO V. COURT OF TAX APPEALS (1.18)
FACTS:
On March 14, 1976, Warren Taylor Graham, an American national, formerly resident of the Philippines,
died in Oregon, USA. As certain shares of stock are left in the Philippines, his son Ward Graham filed an
estate tax return. Meanwhile, Ward Graham, designated executor, appointed Ildefonso Elegado as his
attorney-in-fact for the allowance of the will in the Philippines. On the basis of such estate tax return,
respondent Commissioner assessed the decedent’s estate in the amount of P96, 509.35. The assessment
was protested to by the law firm of Bump, Yang and Walker on behalf of the estate. The protest was
denied by the Commissioner. Elegado as an ancillary administrator filed a second estate tax return. The
Commissioner imposed an assessment on the estate in the amount of P72, 948.87 based on the second
estate tax return which was protested to by the Agrava Law Office on behalf of the estate. While the
protest was pending, the petitioner filed a motion for the allowance of the basic estate tax of P96,
509.35. He said that this liability had not yet been paid although the assessment had long become final
and executory. Petitioner contended that the first assessment is not binding on him because it was
based on a return filed for by lawyers.
ISSUE:
Whether or not the first assessment is binding on petitioner
RULING:
The Supreme Court held that Elegado’s contention is flimsy. The petitioner cannot be serious when he
argues that the first assessment was invalid because the foreign lawyers who filed the return on which it
was based were not familiar with Philippine tax laws and procedure. If our own lawyers and taxpayers
cannot claim similar preferences, it follows that foreigners cannot be any less bound by laws in our
country. It is to noted that in the letter of July 3, 1980, imposing the second assessment of P72, 948.87,
the Commissioner made it clear that “the aforesaid amount is considered provisional only based on the
estate tax return filed subject to investigation by this Office for final determination of the correct estate
tax due from the estate. Any amount that may be found due after said investigation will be assessed and
collected later.” It is illogical to suggest that a provisional assessment can supersede an earlier
assessment which had clearly become final and executory.
COMMISSIONER OF INTERNAL REVENUE V. PINEDA (1.19)
FACTS:
Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and fifteen children, the eldest of whom is
Atty. Manuel Pineda. Estate proceedings were had in court so that the estate was divided among and
awarded to the heirs. Atty. Pineda’s share amounted to about P2,500.00. After the estate proceedings
were closed, the BIR investigated the income tax liability of the estate for the years 1945, 1946, 1947
and 1948 and it found that the corresponding income tax returns were not filed. Thereupon, the
representative of the Collector of Internal Revenue filed said returns for the estate, issued an
assessment and charged the full amount to the inheritance due to Atty. Pineda who argued that he is
liable only to the extent of his proportional share in the inheritance.
ISSUE:
Whether or not the Bureau of Internal Revenue can collect the full amount of estate taxes from an heir’s
inheritance
RULING:
The Supreme Court ruled in the affirmative. The government can require Atty. Pineda to pay the full
amount of the taxes assessed. The reason is that the government has a lien on the P2, 500.00 received
by him from the estate as his share in the inheritance, for unpaid income taxes for which said estate is
liable. By virtue of such lien, the government has the right to subject the property in Pineda’s possession
to satisfy the income tax assessment. After such payment, Pineda will have a right of contribution from
his co-heirs to achieve an adjustment of the proper share of each heir in the distribution of the estate.
The government has two ways of collecting the tax 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; and
second, by subjecting said property of the estate which is in the hands of an heir or transferee to the
payment of the tax due. This second remedy is the very avenue the Government took in this case to
collect the tax. The Bureau of Internal Revenue should be give, in instances like in the case at bar, the
necessary discretion to avail itself of the most expeditious way to collect the tax as it may be envisioned
in the particular provision of the Tax Code, because taxes are the lifeblood of the government and their
prompt and certain availability is an imperious need.
GONZALES V. COURT OF TAX APPEALS (1.20)
FACTS:
On April 18, 1990, petitioner filed before the Court of Tax Appeals a petition for review the assessment
of respondent Commissioner of Internal Revenue of the estate and inheritance taxes of the estate of the
late Matias Yusay on the ground of prescription. After hearing, respondent Court of Tax Appeals
rendered judgment holding that the assessment had prescribed, and reversing the decision of the
respondent Commissioner whereupon respondent Commissioner appealed to the Supreme Court. In a
decision dated November 24, 1966, the Supreme Court upheld the Commissioner of Internal Revenue
and reversed the respondent Court of Tax Appeals in G.R. No. L-19495. Petitioner filed a motion for
reconsideration paying that the decision be amended so that the liability for the estate and inheritance
taxes to be paid be allotted as 1/3 to petitioner and 2/3 to administratrix Florencia Vda. De Yusay, she
risked being ordered to pay the whole assessment should the assessment be sustained. Petitioner was
estopped from denying liability for the whole tax. As administratrix, petitioner is liable for the entire
inheritance tax although her liability would not exceed the amount of her share in the estate. The entire
inheritance tax which amounts to P39, 178.12 excluding penalties is obviously much less than her
distributive share. After the decision rendered in G.R. No. L-19495 became final, respondent
Commissioner filed a motion for execution before respondent Court of Tax Appeals. Petitioner opposed
the motion contending that it should be the Court of First Instance of Iloilo before which the special
proceeding was pending that should enforce the decision and not the Court of Tax Appeals. Respondent
Court of Tax Appeals granted the writ of execution. Petitioner’s motion for reconsideration was denied
by the Court of Tax Appeals.
ISSUE:
Whether respondent CTA committed a grave abuse of discretion tantamount to lack of jurisdiction in
issuing the order of execution of the decision of the Supreme Court in G.R. No. L-19495
RULING:
What is ordered executed by respondent Court in its controverted resolution is the judgment in G.R. No.
L-19495. It is but proper that when the record of CTA Case No. 777 was returned to the respondent CTA,
it must in a ministerial manner enforce the judgment as rendered by the Supreme Court in G.R. No. L19495. To rule that the proper procedure would be for the decision of the Supreme Court in G.R. No. L19495 to be filed in Special Proceedings No. 459 of the Court of First Instance of Iloilo as a money claim
is not only too late, but also impractical, circuitous, and a cumbersome procedure that would lead to
further delay in the enforcement of the judgment in this case which is for tax liability. Respondent Court
of Tax Appeals did not commit an error, much less abuse of discretion, in ordering the execution of the
decision of the Supreme Court in G.R. No. L-19495. The petition was thus dismissed for lack of merit.
COMMISSIONER OF INTERNAL REVENUE V. COURT OF TAX APPEALS (1.21)
FACTS:
Pedro Pajonar, a member of the Philippine Scout, Bataan Contingent, during the World War II, 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 by the Regional Trial Court of Dumaguete City. He died on
January 10, 1988. He was survived by his two brothers Isidro Pajonar and Gregorio Pajonar, his sister
Josefina Pajonar, nephews Concordio Jandog and niece Conchita Jandog. The PNB filed an accounting of
the decedent’s property under guardianship valued at P3, 037,672.09. 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. Pursuant to the assessment by the BIR, the estate of Pedro Pajonar paid
taxes in the amount of P2, 557. The trial court appointed Josefina as the regular administratrix of Pedro
Pajonar’s estate. 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, as administratrix and heir, filed
a protest 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. Without waiting for the protest to be resolved, Josefina filed a petition for
review with the Court of Tax Appeals, praying for the refund of P1, 527, 790.98, or in the alternative,
P840, 202.06, as erroneously paid estate tax. The CTA ordered the CIR to refund Josefina the amount of
P252, 585.59, representing the erroneously paid tax for the year 1988. The CIR moved for
reconsideration. The CTA issued a resolution ordering the CIR to refund Josefina, the amount of P76,
502.42 and upheld the validity of the deduction of the notarial fee for the Extrajudicial Settlement and
the attorney’s fees in the guardianship proceedings. The CIR filed with the CA a petition for review the
decision and resolution of the CTA, questioning the validity of the deductions. The CA denied the
petition.
ISSUE:
Whether the notarial fee and attorney’s fees may be allowed as deductions from the gross estate of the
decedent in order to arrive at the net value of the net estate
RULING:
The Supreme Court held that “judicial expenses are expenses of administration. 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 estate, payment of debts or the distribution of the
property to the persons entitled to it.” 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. Hence, the decision of the Court of Appeals was 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.
DIZON V. COURT OF TAX APPEALS (1.22)
FACTS:
Jose P. Fernandez died in November 7, 1987. Thereafter, a petition for the probate of will was filed. The
probate court appointed Atty. Rafael Arsenio P. Dizon as administrator of the estate of Jose Fernandez.
An estate tax return was filed later on which showed zero estate tax liability. The Bureau of Internal
Revenue thereafter issued a deficiency estate tax assessment, demanding payment of P66.97 million as
deficiency estate tax. This was subsequently reduced by the Court of Tax Appeals to P37.42 million. The
Court of Appeals affirmed the ruling of the CTA. Thus, petitioner filed the instant petition, alleging that
inasmuch as the valid claims of creditors against the estate are in excess of the gross estate, no estate
tax was due. On the other hand, respondents argued that since the claims of the estate’s creditors have
been condoned, such claims may no longer be deducted from the gross estate of the decedent.
ISSUE:
Whether the actual claims of creditors may be fully allowed as deductions from the gross estate of Jose
Fernandez despite the fact that the said claims were reduced or condoned through compromise
agreements entered into by the estate with its creditors
RULING:
The Supreme Court answered in the affirmative. Following the US Supreme Court’s ruling in Ithaca Trust
Co. v. US, the court held that post-death developments are not material in determining the amount of
deduction. This is because estate tax 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, that is, the instance of
death, the net value of the property transferred should be ascertained, ass nearly as possible, as of that
time. This is the date-of-death valuation rule. The Court, in adopting the date-of-death valuation rule
explained that: “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, beyond what the statute expressly and clearly imports, tax statutes being construed
strictly against the government. 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. Therefore,
the claims existing at the time of death are significant to, and should be made the basis of the
determination of allowable deductions.
PIROVANO V. COMMISSIONER OF INTERNAL REVENUE (2.1)
FACTS:
De la Rama Steamship Company insured the life of Enrico Pirovano who was then its President and
General Manager. The company initially designated itself as the beneficiary of the policies but, after
Pirovano’s death, it renounced all its rights, title and interest therein, in favor of Pirovano’s heirs. The
Commissioner of Internal Revenue subjected the donation to a gift tax. Pirovano’s heirs contended that
the grant was not subject to such donee’s tax because it was not a simple donation, as it was made for a
full and adequate compensation for the valuable services by the late Pirovano. In other words, it was a
remuneratory donation.
ISSUE:
Whether or not the donation is remuneratory and therefore not subject to donee’s tax but rather
taxable as part of gross income
RULING:
The Supreme Court ruled in the negative. The donation is not remuneratory. There is nothing on record
to show that when the late Enrico Pirovano rendered services as President and General Manager of the
De la Rama Steamship Company and was “largely responsible for the rapid and very successful
development of the activities of the company,” he was not fully compensated for such services. The fact
that his services contributed in a large measure to the success of the company to his heirs remain a gift
or a donation. The company’s gratitude was the true consideration for the donation, and not the
services themselves. “A donation made by a corporation to the heirs of a deceased officer out of
gratitude for his past services is subject to the donee’s gift tax. A donation made out of gratitude for
past services is not subject to deduction for the value of said services which do not constitute a
recoverable debt. Gratitude has no economic value and is not “consideration” in the sense that the
word is used under Section 111 of the Tax Code. On the collection of interest and surcharge for delay in
payment of tax, Section 119, par. (b) (1) and (c) of the Tax Code does not confer on the Commissioner of
Internal Revenue or on the courts any power and discretion not to impose the 1% monthly interest and
the 5% surcharge for delay in payment of the gift tax already assessed. Hence, the decision of the Court
of Tax Appeals was affirmed.
LLADOC V. COMMISSIONER OF INTERNAL REVENUE (2.2)
FACTS:
Sometime in 1957, M.B. Estate Inc., Bacolod City, donated P10,000.00 in cash to Fr. Crispin Ruiz, the
parish priest of Victorias, Negros Occidental, and predecessor of Fr. Lladoc, for the construction of a new
Catholic Church in the locality. The donated amount was spent for such purpose. On March 3, 1958, the
donor M.B. Estate filed the donor’s gift tax return. Under date of April 29, 1960, the Commissioner of
Internal Revenue issued an assessment for the donee’s gift tax against the Catholic Parish of Victorias of
which petitioner was the parish priest.
ISSUE:
Whether or not the imposition of gift tax despite the fact that Fr. Lladoc was not the parish priest at the
time of donation, Catholic Parish priest of Victorias did not have juridical personality as the
constitutional exemption for religious purpose is valid
RULING:
The Supreme Court answered in the affirmative. The imposition of the gift tax was valid, under Section
22 (3), Article VI of the Constitution contemplates exemption only from the payment of taxes assessed
on such properties as property taxes contradistinguished from excise taxes. The imposition of the gift
tax on the property used for religious purpose is not a violation of the Constitution. A gift tax is not a
property tax but an excise tax. The head of the Diocese and not the parish priest is the real party in
interest in the imposition of the donee’s tax on the property donated to the church for religious
purpose. The phrase “exempt from taxtation,” as employed in the Constitution should not be
interpreted to mean exemption from all kinds of taxes. And there being no clear, positive or express
grant of such privilege by law, in favor of petitioner, the exemption herein must be denied. The
exemption is only from the payment of taxes assessed on such properties as property taxes if taken to
mean as the exemption under Article VI of the Constitution. A donee’s gift tax is imposed on the transfer
of property by way of gift inter vivos. It does not rest upon general ownership, but an excise upon the
use made of the properties. The imposition of such excise tax on property used for religious purpose
does not constitute an impairment of the Constitution. The tax exemption of the parish, therefore, does
not extend to excise taxes. Thus, insofar as tax liability is concerned, the decision appealed from should
be affirmed and it is modified, in the sense that petitioner is not personally liable for the said gift tax,
and that the head of the Diocese should pay, as he is presently ordered to pay the said gift tax.
FACTS:
Hilario Ruiz executed a holographic will where he named as heirs: Edmond Ruiz (only son); Maria Pilar
(adopted daughter); Maria Cathryn, Candice Albertine and Maria Angeline (three granddaughters). The
testator bequeathed to his heirs substantial cash, personal and real properties and named Edmond Ruiz
as executor of his estate. Hilario Ruiz died and the cash component of his estate was immediately
distributed among Ruiz and respondents. Edmond, the named executor, did not take any action for the
probate of his father’s holographic will. Four years later, Pilar filed before the Regional Trial Court a
petition for probate and approval of the deceased’s will and for the issuance of letters testamentary to
Edmond Ruiz. Edmond opposed on the ground that the will was executed under undue influence. The
house and lot in Valle Verde, Pasig which the testator bequeathed to the three granddaughters was
leased out by Edmond to third persons. The probate court ordered Edmond to deposit with the branch
clerk of court the rental deposit and payments totaling P540,000 representing the one-year lease of the
Valle Verde property. Edmond moved for the release of P50,000 to pay the real estate taxes on the real
properties of the estate. The probate court approved the release of P7,722,009. Edmond withdrew his
opposition then the probate court admitted the will to probate and ordered the issuance of letters
testamentary to Edmond conditioned upon the filing of a bond in the amount of P50,000. The testate
estate of Hilario Ruiz, with Edmond Ruiz as executor, filed an Ex-Parte Motion for Release of Funds,
praying for release of rent payments be given to the three granddaughters. The probate court denied
the motion for release of funds and granted the motion of Montes due to Edmond’s lack of opposition.
The court ordered release of the funds to Edmond but only “such amount as may be necessary to cover
the expenses of administration and allowances for support” of the testator’s three granddaughters
subject to collation and deductible from their share in the inheritance. The Court of Appeals sustained
the order of the probate court.
ISSUE:
Whether the probate court, after admitting the will to probate but before payment of the estate’s debts
and obligations, has the authority to order the release of the titles to the Valle Verde property and the
Blue Ridge Apartments to private respondents
RULING:
The probate court ordered the release of the titles to the Valle Verde property and the Blue Ridge
Apartments to the private respondents after the lapse of six months from the date of the first
publication of the notice to creditors. The questioned order speaks of “notice” to creditors, not payment
of debts and obligations. Hilario Ruiz allegedly left no debts when he died but the taxes on his estate had
not hitherto been paid, much less ascertained. The estate tax is one of the obligations that must be paid
before distribution of the estate. If not yet paid, the rule requires that the distributes post a bond or
make such provisions as to meet the said tax obligation in proportion to their respective shares in the
inheritance. Notably, at the time the order was issued the properties of the estate had not yet been
inventoried and appraised.
ELEGADO V. COURT OF TAX APPEALS (1.18)
FACTS:
On March 14, 1976, Warren Taylor Graham, an American national, formerly resident of the Philippines,
died in Oregon, USA. As certain shares of stock are left in the Philippines, his son Ward Graham filed an
estate tax return. Meanwhile, Ward Graham, designated executor, appointed Ildefonso Elegado as his
attorney-in-fact for the allowance of the will in the Philippines. On the basis of such estate tax return,
respondent Commissioner assessed the decedent’s estate in the amount of P96, 509.35. The assessment
was protested to by the law firm of Bump, Yang and Walker on behalf of the estate. The protest was
denied by the Commissioner. Elegado as an ancillary administrator filed a second estate tax return. The
Commissioner imposed an assessment on the estate in the amount of P72, 948.87 based on the second
estate tax return which was protested to by the Agrava Law Office on behalf of the estate. While the
protest was pending, the petitioner filed a motion for the allowance of the basic estate tax of P96,
509.35. He said that this liability had not yet been paid although the assessment had long become final
and executory. Petitioner contended that the first assessment is not binding on him because it was
based on a return filed for by lawyers.
ISSUE:
Whether or not the first assessment is binding on petitioner
RULING:
The Supreme Court held that Elegado’s contention is flimsy. The petitioner cannot be serious when he
argues that the first assessment was invalid because the foreign lawyers who filed the return on which it
was based were not familiar with Philippine tax laws and procedure. If our own lawyers and taxpayers
cannot claim similar preferences, it follows that foreigners cannot be any less bound by laws in our
country. It is to noted that in the letter of July 3, 1980, imposing the second assessment of P72, 948.87,
the Commissioner made it clear that “the aforesaid amount is considered provisional only based on the
estate tax return filed subject to investigation by this Office for final determination of the correct estate
tax due from the estate. Any amount that may be found due after said investigation will be assessed and
collected later.” It is illogical to suggest that a provisional assessment can supersede an earlier
assessment which had clearly become final and executory.
COMMISSIONER OF INTERNAL REVENUE V. PINEDA (1.19)
FACTS:
Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and fifteen children, the eldest of whom is
Atty. Manuel Pineda. Estate proceedings were had in court so that the estate was divided among and
awarded to the heirs. Atty. Pineda’s share amounted to about P2,500.00. After the estate proceedings
were closed, the BIR investigated the income tax liability of the estate for the years 1945, 1946, 1947
and 1948 and it found that the corresponding income tax returns were not filed. Thereupon, the
representative of the Collector of Internal Revenue filed said returns for the estate, issued an
assessment and charged the full amount to the inheritance due to Atty. Pineda who argued that he is
liable only to the extent of his proportional share in the inheritance.
ISSUE:
Whether or not the Bureau of Internal Revenue can collect the full amount of estate taxes from an heir’s
inheritance
RULING:
The Supreme Court ruled in the affirmative. The government can require Atty. Pineda to pay the full
amount of the taxes assessed. The reason is that the government has a lien on the P2, 500.00 received
by him from the estate as his share in the inheritance, for unpaid income taxes for which said estate is
liable. By virtue of such lien, the government has the right to subject the property in Pineda’s possession
to satisfy the income tax assessment. After such payment, Pineda will have a right of contribution from
his co-heirs to achieve an adjustment of the proper share of each heir in the distribution of the estate.
The government has two ways of collecting the tax 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; and
second, by subjecting said property of the estate which is in the hands of an heir or transferee to the
payment of the tax due. This second remedy is the very avenue the Government took in this case to
collect the tax. The Bureau of Internal Revenue should be give, in instances like in the case at bar, the
necessary discretion to avail itself of the most expeditious way to collect the tax as it may be envisioned
in the particular provision of the Tax Code, because taxes are the lifeblood of the government and their
prompt and certain availability is an imperious need.
GONZALES V. COURT OF TAX APPEALS (1.20)
FACTS:
On April 18, 1990, petitioner filed before the Court of Tax Appeals a petition for review the assessment
of respondent Commissioner of Internal Revenue of the estate and inheritance taxes of the estate of the
late Matias Yusay on the ground of prescription. After hearing, respondent Court of Tax Appeals
rendered judgment holding that the assessment had prescribed, and reversing the decision of the
respondent Commissioner whereupon respondent Commissioner appealed to the Supreme Court. In a
decision dated November 24, 1966, the Supreme Court upheld the Commissioner of Internal Revenue
and reversed the respondent Court of Tax Appeals in G.R. No. L-19495. Petitioner filed a motion for
reconsideration paying that the decision be amended so that the liability for the estate and inheritance
taxes to be paid be allotted as 1/3 to petitioner and 2/3 to administratrix Florencia Vda. De Yusay, she
risked being ordered to pay the whole assessment should the assessment be sustained. Petitioner was
estopped from denying liability for the whole tax. As administratrix, petitioner is liable for the entire
inheritance tax although her liability would not exceed the amount of her share in the estate. The entire
inheritance tax which amounts to P39, 178.12 excluding penalties is obviously much less than her
distributive share. After the decision rendered in G.R. No. L-19495 became final, respondent
Commissioner filed a motion for execution before respondent Court of Tax Appeals. Petitioner opposed
the motion contending that it should be the Court of First Instance of Iloilo before which the special
proceeding was pending that should enforce the decision and not the Court of Tax Appeals. Respondent
Court of Tax Appeals granted the writ of execution. Petitioner’s motion for reconsideration was denied
by the Court of Tax Appeals.
ISSUE:
Whether respondent CTA committed a grave abuse of discretion tantamount to lack of jurisdiction in
issuing the order of execution of the decision of the Supreme Court in G.R. No. L-19495
RULING:
What is ordered executed by respondent Court in its controverted resolution is the judgment in G.R. No.
L-19495. It is but proper that when the record of CTA Case No. 777 was returned to the respondent CTA,
it must in a ministerial manner enforce the judgment as rendered by the Supreme Court in G.R. No. L19495. To rule that the proper procedure would be for the decision of the Supreme Court in G.R. No. L19495 to be filed in Special Proceedings No. 459 of the Court of First Instance of Iloilo as a money claim
is not only too late, but also impractical, circuitous, and a cumbersome procedure that would lead to
further delay in the enforcement of the judgment in this case which is for tax liability. Respondent Court
of Tax Appeals did not commit an error, much less abuse of discretion, in ordering the execution of the
decision of the Supreme Court in G.R. No. L-19495. The petition was thus dismissed for lack of merit.
COMMISSIONER OF INTERNAL REVENUE V. COURT OF TAX APPEALS (1.21)
FACTS:
Pedro Pajonar, a member of the Philippine Scout, Bataan Contingent, during the World War II, 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 by the Regional Trial Court of Dumaguete City. He died on
January 10, 1988. He was survived by his two brothers Isidro Pajonar and Gregorio Pajonar, his sister
Josefina Pajonar, nephews Concordio Jandog and niece Conchita Jandog. The PNB filed an accounting of
the decedent’s property under guardianship valued at P3, 037,672.09. 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. Pursuant to the assessment by the BIR, the estate of Pedro Pajonar paid
taxes in the amount of P2, 557. The trial court appointed Josefina as the regular administratrix of Pedro
Pajonar’s estate. 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, as administratrix and heir, filed
a protest 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. Without waiting for the protest to be resolved, Josefina filed a petition for
review with the Court of Tax Appeals, praying for the refund of P1, 527, 790.98, or in the alternative,
P840, 202.06, as erroneously paid estate tax. The CTA ordered the CIR to refund Josefina the amount of
P252, 585.59, representing the erroneously paid tax for the year 1988. The CIR moved for
reconsideration. The CTA issued a resolution ordering the CIR to refund Josefina, the amount of P76,
502.42 and upheld the validity of the deduction of the notarial fee for the Extrajudicial Settlement and
the attorney’s fees in the guardianship proceedings. The CIR filed with the CA a petition for review the
decision and resolution of the CTA, questioning the validity of the deductions. The CA denied the
petition.
ISSUE:
Whether the notarial fee and attorney’s fees may be allowed as deductions from the gross estate of the
decedent in order to arrive at the net value of the net estate
RULING:
The Supreme Court held that “judicial expenses are expenses of administration. 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 estate, payment of debts or the distribution of the
property to the persons entitled to it.” 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. Hence, the decision of the Court of Appeals was 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.
DIZON V. COURT OF TAX APPEALS (1.22)
FACTS:
Jose P. Fernandez died in November 7, 1987. Thereafter, a petition for the probate of will was filed. The
probate court appointed Atty. Rafael Arsenio P. Dizon as administrator of the estate of Jose Fernandez.
An estate tax return was filed later on which showed zero estate tax liability. The Bureau of Internal
Revenue thereafter issued a deficiency estate tax assessment, demanding payment of P66.97 million as
deficiency estate tax. This was subsequently reduced by the Court of Tax Appeals to P37.42 million. The
Court of Appeals affirmed the ruling of the CTA. Thus, petitioner filed the instant petition, alleging that
inasmuch as the valid claims of creditors against the estate are in excess of the gross estate, no estate
tax was due. On the other hand, respondents argued that since the claims of the estate’s creditors have
been condoned, such claims may no longer be deducted from the gross estate of the decedent.
ISSUE:
Whether the actual claims of creditors may be fully allowed as deductions from the gross estate of Jose
Fernandez despite the fact that the said claims were reduced or condoned through compromise
agreements entered into by the estate with its creditors
RULING:
The Supreme Court answered in the affirmative. Following the US Supreme Court’s ruling in Ithaca Trust
Co. v. US, the court held that post-death developments are not material in determining the amount of
deduction. This is because estate tax 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, that is, the instance of
death, the net value of the property transferred should be ascertained, ass nearly as possible, as of that
time. This is the date-of-death valuation rule. The Court, in adopting the date-of-death valuation rule
explained that: “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, beyond what the statute expressly and clearly imports, tax statutes being construed
strictly against the government. 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. Therefore,
the claims existing at the time of death are significant to, and should be made the basis of the
determination of allowable deductions.
PIROVANO V. COMMISSIONER OF INTERNAL REVENUE (2.1)
FACTS:
De la Rama Steamship Company insured the life of Enrico Pirovano who was then its President and
General Manager. The company initially designated itself as the beneficiary of the policies but, after
Pirovano’s death, it renounced all its rights, title and interest therein, in favor of Pirovano’s heirs. The
Commissioner of Internal Revenue subjected the donation to a gift tax. Pirovano’s heirs contended that
the grant was not subject to such donee’s tax because it was not a simple donation, as it was made for a
full and adequate compensation for the valuable services by the late Pirovano. In other words, it was a
remuneratory donation.
ISSUE:
Whether or not the donation is remuneratory and therefore not subject to donee’s tax but rather
taxable as part of gross income
RULING:
The Supreme Court ruled in the negative. The donation is not remuneratory. There is nothing on record
to show that when the late Enrico Pirovano rendered services as President and General Manager of the
De la Rama Steamship Company and was “largely responsible for the rapid and very successful
development of the activities of the company,” he was not fully compensated for such services. The fact
that his services contributed in a large measure to the success of the company to his heirs remain a gift
or a donation. The company’s gratitude was the true consideration for the donation, and not the
services themselves. “A donation made by a corporation to the heirs of a deceased officer out of
gratitude for his past services is subject to the donee’s gift tax. A donation made out of gratitude for
past services is not subject to deduction for the value of said services which do not constitute a
recoverable debt. Gratitude has no economic value and is not “consideration” in the sense that the
word is used under Section 111 of the Tax Code. On the collection of interest and surcharge for delay in
payment of tax, Section 119, par. (b) (1) and (c) of the Tax Code does not confer on the Commissioner of
Internal Revenue or on the courts any power and discretion not to impose the 1% monthly interest and
the 5% surcharge for delay in payment of the gift tax already assessed. Hence, the decision of the Court
of Tax Appeals was affirmed.
LLADOC V. COMMISSIONER OF INTERNAL REVENUE (2.2)
FACTS:
Sometime in 1957, M.B. Estate Inc., Bacolod City, donated P10,000.00 in cash to Fr. Crispin Ruiz, the
parish priest of Victorias, Negros Occidental, and predecessor of Fr. Lladoc, for the construction of a new
Catholic Church in the locality. The donated amount was spent for such purpose. On March 3, 1958, the
donor M.B. Estate filed the donor’s gift tax return. Under date of April 29, 1960, the Commissioner of
Internal Revenue issued an assessment for the donee’s gift tax against the Catholic Parish of Victorias of
which petitioner was the parish priest.
ISSUE:
Whether or not the imposition of gift tax despite the fact that Fr. Lladoc was not the parish priest at the
time of donation, Catholic Parish priest of Victorias did not have juridical personality as the
constitutional exemption for religious purpose is valid
RULING:
The Supreme Court answered in the affirmative. The imposition of the gift tax was valid, under Section
22 (3), Article VI of the Constitution contemplates exemption only from the payment of taxes assessed
on such properties as property taxes contradistinguished from excise taxes. The imposition of the gift
tax on the property used for religious purpose is not a violation of the Constitution. A gift tax is not a
property tax but an excise tax. The head of the Diocese and not the parish priest is the real party in
interest in the imposition of the donee’s tax on the property donated to the church for religious
purpose. The phrase “exempt from taxtation,” as employed in the Constitution should not be
interpreted to mean exemption from all kinds of taxes. And there being no clear, positive or express
grant of such privilege by law, in favor of petitioner, the exemption herein must be denied. The
exemption is only from the payment of taxes assessed on such properties as property taxes if taken to
mean as the exemption under Article VI of the Constitution. A donee’s gift tax is imposed on the transfer
of property by way of gift inter vivos. It does not rest upon general ownership, but an excise upon the
use made of the properties. The imposition of such excise tax on property used for religious purpose
does not constitute an impairment of the Constitution. The tax exemption of the parish, therefore, does
not extend to excise taxes. Thus, insofar as tax liability is concerned, the decision appealed from should
be affirmed and it is modified, in the sense that petitioner is not personally liable for the said gift tax,
and that the head of the Diocese should pay, as he is presently ordered to pay the said gift tax.
