Taxation 2 Cases Batch 2

G.R. No. 123206 March 22, 2000

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
COURT OF APPEALS, COURT OF TAX APPEALS and JOSEFINA P. PAJONAR, as Administratrix of the
Estate of Pedro P. Pajonar, respondents.

RESOLUTION

GONZAGA-REYES, J.:

Assailed in this petition for review on certiorari is the December 21, 1995 Decision1 of the Court of
Appeals2 in CA-G.R. Sp. No. 34399 affirming the June 7, 1994 Resolution of the Court of Tax Appeals in
CTA Case No. 4381 granting private respondent Josefina P. Pajonar, as administratrix of the estate of
Pedro P. Pajonar, a tax refund in the amount of P76,502.42, representing erroneously paid estate taxes
for the year 1988.

Pedro Pajonar, a member of the Philippine Scout, Bataan Contingent, during the second World War,
was a part of the infamous Death March by reason of which he suffered shock and became insane. His
sister Josefina Pajonar became the guardian over his person, while his property was placed under the
guardianship of the Philippine National Bank (PNB) by the Regional Trial Court of Dumaguete City,
Branch 31, in Special Proceedings No. 1254. He died on January 10, 1988. He was survived by his two
brothers Isidro P. Pajonar and Gregorio Pajonar, his sister Josefina Pajonar, nephews Concordio Jandog
and Mario Jandog and niece Conchita Jandog.

On May 11, 1988, the PNB filed an accounting of the decedent's property under guardianship valued at
P3,037,672.09 in Special Proceedings No. 1254. However, the PNB did not file an estate tax return,
instead it advised Pedro Pajonar's heirs to execute an extrajudicial settlement and to pay the taxes on
his estate. On April 5, 1988, pursuant to the assessment by the Bureau of Internal Revenue (BIR), the
estate of Pedro Pajonar paid taxes in the amount of P2,557.

On May 19, 1988, Josefina Pajonar filed a petition with the Regional Trial Court of Dumaguete City for
the issuance in her favor of letters of administration of the estate of her brother. The case was
docketed as Special Proceedings No. 2399. On July 18, 1988, the trial court appointed Josefina Pajonar
as the regular administratrix of Pedro Pajonar's estate.

On December 19, 1988, pursuant to a second assessment by the BIR for deficiency estate tax, the
estate of Pedro Pajonar paid estate tax in the amount of P1,527,790.98. Josefina Pajonar, in her
capacity as administratrix and heir of Pedro Pajonar's estate, filed a protest on January 11, 1989 with
the BIR praying that the estate tax payment in the amount of P1,527,790.98, or at least some portion
of it, be returned to the heirs. 3

However, on August 15, 1989, without waiting for her protest to be resolved by the BIR, Josefina
Pajonar filed a petition for review with the Court of Tax Appeals (CTA), praying for the refund of
P1,527,790.98, or in the alternative, P840,202.06, as erroneously paid estate tax. 4 The case was
docketed as CTA Case No. 4381.

On May 6, 1993, the CTA ordered the Commissioner of Internal Revenue to refund Josefina Pajonar the
amount of P252,585.59, representing erroneously paid estate tax for the year 1988. 5 Among the
deductions from the gross estate allowed by the CTA were the amounts of P60,753 representing the

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notarial fee for the Extrajudicial Settlement and the amount of P50,000 as the attorney's fees in Special
Proceedings No. 1254 for guardianship.6

On June 15, 1993, the Commissioner of Internal Revenue filed a motion for reconsideration 7 of the
CTA's May 6, 1993 decision asserting, among others, that the notarial fee for the Extrajudicial
Settlement and the attorney's fees in the guardianship proceedings are not deductible expenses.

On June 7, 1994, the CTA issued the assailed Resolution8 ordering the Commissioner of Internal
Revenue to refund Josefina Pajonar, as administratrix of the estate of Pedro Pajonar, the amount of
P76,502.42 representing erroneously paid estate tax for the year 1988. Also, the CTA upheld the
validity of the deduction of the notarial fee for the Extrajudicial Settlement and the attorney's fees in
the guardianship proceedings.

On July 5, 1994, the Commissioner of Internal Revenue filed with the Court of Appeals a petition for
review of the CTA's May 6, 1993 Decision and its June 7, 1994 Resolution, questioning the validity of
the abovementioned deductions. On December 21, 1995, the Court of Appeals denied the
Commissioner's petition.9

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

The sole issue in this case involves the construction of section 79 10 of the National Internal Revenue
Code 11 (Tax Code) which provides for the allowable deductions from the gross estate of the decedent.
More particularly, the question is whether the notarial fee paid for the extrajudicial settlement in the
amount of P60,753 and the attorney's fees in the guardianship proceedings in the amount of P50,000
may be allowed as deductions from the gross estate of decedent in order to arrive at the value of the
net estate.

We answer this question in the affirmative, thereby upholding the decisions of the appellate courts.

In its May 6, 1993 Decision, the Court of Tax Appeals ruled thus:

Respondent maintains that only judicial expenses of the testamentary or intestate proceedings are
allowed as a deduction to the gross estate. The amount of P60,753.00 is quite extraordinary for a mere
notarial fee.

This Court adopts the view under American jurisprudence that expenses incurred in the extrajudicial
settlement of the estate should be allowed as a deduction from the gross estate. "There is no
requirement of formal administration. It is sufficient that the expense be a necessary contribution
toward the settlement of the case." [ 34 Am. Jur. 2d, p. 765; Nolledo, Bar Reviewer in Taxation, 10th
Ed. (1990), p. 481]

xxx xxx xxx

The attorney's fees of P50,000.00, which were already incurred but not yet paid, refers to the
guardianship proceeding filed by PNB, as guardian over the ward of Pedro Pajonar, docketed as Special
Proceeding No. 1254 in the RTC (Branch XXXI) of Dumaguete City. . . .

xxx xxx xxx

The guardianship proceeding had been terminated upon delivery of the residuary estate to the heirs
entitled thereto. Thereafter, PNB was discharged of any further responsibility.

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Attorney's fees in order to be deductible from the gross estate must be essential to the collection of
assets, payment of debts or the distribution of the property to the persons entitled to it. The services
for which the fees are charged must relate to the proper settlement of the estate. [34 Am. Jur. 2d 767.]
In this case, the guardianship proceeding was necessary for the distribution of the property of the late
Pedro Pajonar to his rightful heirs.

xxx xxx xxx

PNB was appointed as guardian over the assets of the late Pedro Pajonar, who, even at the time of his
death, was incompetent by reason of insanity. The expenses incurred in the guardianship proceeding
was but a necessary expense in the settlement of the decedent's estate. Therefore, the attorney's fee
incurred in the guardianship proceedings amounting to P50,000.00 is a reasonable and necessary
business expense deductible from the gross estate of the decedent. 12

Upon a motion for reconsideration filed by the Commissioner of Internal Revenue, the Court of Tax
Appeals modified its previous ruling by reducing the refundable amount to P76,502.43 since it found
that a deficiency interest should be imposed and the compromise penalty excluded. 13 However, the
tax court upheld its previous ruling regarding the legality of the deductions —

It is significant to note that the inclusion of the estate tax law in the codification of all our national
internal revenue laws with the enactment of the National Internal Revenue Code in 1939 were copied
from the Federal Law of the United States. [ UMALI, Reviewer in Taxation (1985), p. 285 ] The 1977 Tax
Code, promulgated by Presidential Decree No. 1158, effective June 3, 1977, reenacted substantially all
the provisions of the old law on estate and gift taxes, except the sections relating to the meaning of
gross estate and gift. [ Ibid, p. 286. ]

In the United States, [a]dministrative expenses, executor's commissions and attorney's fees are
considered allowable deductions from the Gross Estate. Administrative expenses are limited to such
expenses as are actually and necessarily incurred in the administration of a decedent's estate.
[PRENTICE-HALL, Federal Taxes Estate and Gift Taxes (1936), p. 120, 533.] Necessary expenses of
administration are such expenses as are entailed for the preservation and productivity of the estate
and for its management for purposes of liquidation, payment of debts and distribution of the residue
among the persons entitled thereto. [Lizarraga Hermanos vs. Abada, 40 Phil. 124.] They must be
incurred for the settlement of the estate as a whole. [34 Am. Jur. 2d, p. 765.] Thus, where there were
no substantial community debts and it was unnecessary to convert community property to cash, the
only practical purpose of administration being the payment of estate taxes, full deduction was allowed
for attorney's fees and miscellaneous expenses charged wholly to decedent's estate. [Ibid., citing
Estate of Helis, 26 T.C. 143 (A).]

Petitioner stated in her protest filed with the BIR that "upon the death of the ward, the PNB, which was
still the guardian of the estate, (Annex "Z"), did not file an estate tax return; however, it advised the
heirs to execute an extrajudicial settlement, to pay taxes and to post a bond equal to the value of the
estate, for which the state paid P59,341.40 for the premiums. (See Annex "K")." [p. 17, CTA record.]
Therefore, it would appear from the records of the case that the only practical purpose of settling the
estate by means of an extrajudicial settlement pursuant to Section 1 of Rule 74 of the Rules of Court
was for the payment of taxes and the distribution of the estate to the heirs. A fortiori, since our estate
tax laws are of American origin, the interpretation adopted by American Courts has some persuasive
effect on the interpretation of our own estate tax laws on the subject.

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 Taxation 2 Cases Batch 2

Anent the contention of respondent that the attorney's fees of P50,000.00 incurred in the guardianship
proceeding should not be deducted from the Gross Estate, We consider the same unmeritorious.
Attorneys' and guardians' fees incurred in a trustee's accounting of a taxable inter vivos trust
attributable to the usual issues involved in such an accounting was held to be proper deductions
because these are expenses incurred in terminating an inter vivos trust that was includible in the
decedent's estate. [Prentice Hall, Federal Taxes on Estate and Gift, p. 120, 861] Attorney's fees are
allowable deductions if incurred for the settlement of the estate. It is noteworthy to point that PNB
was appointed the guardian over the assets of the deceased. Necessarily the assets of the deceased
formed part of his gross estate. Accordingly, all expenses incurred in relation to the estate of the
deceased will be deductible for estate tax purposes provided these are necessary and ordinary
expenses for administration of the settlement of the estate. 14

In upholding the June 7, 1994 Resolution of the Court of Tax Appeals, the Court of Appeals held that:

2. Although the Tax Code specifies "judicial expenses of the testamentary or intestate proceedings,"
there is no reason why expenses incurred in the administration and settlement of an estate in
extrajudicial proceedings should not be allowed. However, deduction is limited to such administration
expenses as are actually and necessarily incurred in the collection of the assets of the estate, payment
of the debts, and distribution of the remainder among those entitled thereto. Such expenses may
include executor's or administrator's fees, attorney's fees, court fees and charges, appraiser's fees,
clerk hire, costs of preserving and distributing the estate and storing or maintaining it, brokerage fees
or commissions for selling or disposing of the estate, and the like. Deductible attorney's fees are those
incurred by the executor or administrator in the settlement of the estate or in defending or
prosecuting claims against or due the estate. (Estate and Gift Taxation in the Philippines, T. P. Matic,
Jr., 1981 Edition, p. 176).

xxx xxx xxx

It is clear then that the extrajudicial settlement was for the purpose of payment of taxes and the
distribution of the estate to the heirs. The execution of the extrajudicial settlement necessitated the
notarization of the same. Hence the Contract of Legal Services of March 28, 1988 entered into
between respondent Josefina Pajonar and counsel was presented in evidence for the purpose of
showing that the amount of P60,753.00 was for the notarization of the Extrajudicial Settlement. It
follows then that the notarial fee of P60,753.00 was incurred primarily to settle the estate of the
deceased Pedro Pajonar. Said amount should then be considered an administration expenses actually
and necessarily incurred in the collection of the assets of the estate, payment of debts and distribution
of the remainder among those entitled thereto. Thus, the notarial fee of P60,753 incurred for the
Extrajudicial Settlement should be allowed as a deduction from the gross estate.

3. Attorney's fees, on the other hand, in order to be deductible from the gross estate must be essential
to the settlement of the estate.

The amount of P50,000.00 was incurred as attorney's fees in the guardianship proceedings in Spec.
Proc. No. 1254. Petitioner contends that said amount are not expenses of the testamentary or
intestate proceedings as the guardianship proceeding was instituted during the lifetime of the
decedent when there was yet no estate to be settled.

Again, this contention must fail.

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The guardianship proceeding in this case was necessary for the distribution of the property of the
deceased Pedro Pajonar. As correctly pointed out by respondent CTA, the PNB was appointed guardian
over the assets of the deceased, and that necessarily the assets of the deceased formed part of his
gross estate. . . .

xxx xxx xxx

It is clear therefore that the attorney's fees incurred in the guardianship proceeding in Spec. Proc. No.
1254 were essential to the distribution of the property to the persons entitled thereto. Hence, the
attorney's fees incurred in the guardianship proceedings in the amount of P50,000.00 should be
allowed as a deduction from the gross estate of the decedent. 15

The deductions from the gross estate permitted under section 79 of the Tax Code basically reproduced
the deductions allowed under Commonwealth Act No. 466 (CA 466), otherwise known as the National
Internal Revenue Code of 1939, 16 and which was the first codification of Philippine tax laws. Section 89
(a) (1) (B) of CA 466 also provided for the deduction of the "judicial expenses of the testamentary or
intestate proceedings" for purposes of determining the value of the net estate. Philippine tax laws
were, in turn, based on the federal tax laws of the United States. 17 In accord with established rules of
statutory construction, the decisions of American courts construing the federal tax code are entitled to
great weight in the interpretation of our own tax laws. 18

Judicial expenses are expenses of administration. 19 Administration expenses, as an allowable

deduction from the gross estate of the decedent for purposes of arriving at the value of the net estate,
have been construed by the federal and state courts of the United States to include all expenses
"essential to the collection of the assets, payment of debts or the distribution of the property to the
persons entitled to it." 20 In other words, the expenses must be essential to the proper settlement of
the estate. Expenditures incurred for the individual benefit of the heirs, devisees or legatees are not
deductible. 21 This distinction has been carried over to our jurisdiction. Thus, in Lorenzo
v. Posadas 22 the Court construed the phrase "judicial expenses of the testamentary or intestate
proceedings" as not including the compensation paid to a trustee of the decedent's estate when it
appeared that such trustee was appointed for the purpose of managing the decedent's real estate for
the benefit of the testamentary heir. In another case, the Court disallowed the premiums paid on the
bond filed by the administrator as an expense of administration since the giving of a bond is in the
nature of a qualification for the office, and not necessary in the settlement of the estate. 23 Neither
may attorney's fees incident to litigation incurred by the heirs in asserting their respective rights be
claimed as a deduction from the gross estate. 24 1âwphi1

Coming to the case at bar, the notarial fee paid for the extrajudicial settlement is clearly a deductible
expense since such settlement effected a distribution of Pedro Pajonar's estate to his lawful heirs.
Similarly, the attorney's fees paid to PNB for acting as the guardian of Pedro Pajonar's property during
his lifetime should also be considered as a deductible administration expense. PNB provided a detailed
accounting of decedent's property and gave advice as to the proper settlement of the latter's estate,
acts which contributed towards the collection of decedent's assets and the subsequent settlement of
the estate.

We find that the Court of Appeals did not commit reversible error in affirming the questioned
resolution of the Court of Tax Appeals.

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 Taxation 2 Cases Batch 2

WHEREFORE, the December 21, 1995 Decision of the Court of Appeals is AFFIRMED. The notarial fee
for the extrajudicial settlement and the attorney's fees in the guardianship proceedings are allowable
deductions from the gross estate of Pedro Pajonar.1âwphi1.nêt

SO ORDERED.

G.R. No. L-29276 May 18, 1978

Testate Estate of the Late Felix J. de Guzman. VICTORINO G. DE GUZMAN, administrator-appellee,

vs.
CRISPINA DE GUZMAN-CARILLO, ARSENIO DE GUZMAN and HONORATA DE GUZMAN-
MENDIOLA, oppositors-appellants.

Emiliano Samson & R. Balderama-Samson for appellants.

Cezar Paralejo for appellee.

AQUINO, J.:

This case is about the propriety of allowing as administration expenses certain disbursements made by
the administrator of the testate estate of the late Felix J. de Guzman of Gapan, Nueva Ecija.

The deceased testator was survived by eight children named Victorino, Librada, Severino, Margarita,
Josefina, Honorata, Arsenio and Crispina. His will was duly probated. Letters of administration were
issued to his son, Doctor Victorino G. de Guzman, pursuant to the order dated September 17, 1964 of
the Court of First Instance of Nueva Ecija in Special Proceeding No. 1431.

One of the properties left by the dent was a residential house located in the poblacion. In conformity
with his last will, that house and the lot on which it stands were adjudicated to his eight children, each
being given a one-eighth proindiviso share in the project of partition dated March 19, 1966, which was
signed by the eight heirs and which was approved in the lower court's order of April 14, 1967 but
without prejudice to the final outcome of the accounting.

The administrator submitted four accounting reports for the period from June 16, 1964 to September,
1967. Three heirs Crispina de Guzmans-Carillo Honorata de Guzman-Mendiola and Arsenio de Guzman
interposed objections to the administrator's disbursements in the total sum of P13,610.48, broken
down as follows:

I. Expense for the improvement and renovation of the decedent's residential house.

1. Construction of fence — P3,082.07

2. Renovation of bathroom — P1,389.52

3. Repair of terrace and

interior of house — P5,928.00 — P10,399.59

II. Living expenses of Librada de Guzman while occupying the family home without paying rent:

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 Taxation 2 Cases Batch 2

1. For house helper — P1,170.00

2. Light bills — 227.41

3. Water bills — 150.80

4. Gas oil, floor wax

and switch nail — 54.90 — P 1,603.11

III. Other expenses:

1. Lawyer's subsistence — P 19.30

2. Gratuity pay in lieu

of medical fee — 144.00

3. For stenographic notes — 100.00

4. For food served on

decedent's first

death anniversary — 166.65

5. Cost of publication of

death anniversary

of decedent — 102.00

6. Representation

expenses — 26.25 — P558.20

IV. Irrigation fee P1.049.58

TOTAL P13,610.48

It should be noted that the probate court in its order of August 29, 1966 directed the administrator "to
refrain from spending the assets of the estate for reconstructing and remodeling the house of the
deceased and to stop spending (sic) any asset of the estate without first during authority of the court
to do so" (pp. 26-27, Record on Appeal).

The lower court in its order of April 29, 1968 allowed the d items as legitimate expenses of
administration. From that order, the three oppositors appealed to this Court. Their contention is that
the probate court erred in approving the utilization of the income of the estate (from rice harvests) to
defray those expenditures which allegedly are not allowable under the Rules of Court.

An executor or administrator is allowed the necessary expenses in the care, management, and
settlement of the estate. He is entitled to possess and manage the decedent's real and personal estate
as long as it is necessary for the payment of the debts and the expenses of administration. He is
accountable for the whole decedent's estate which has come into his possession, with all the interest,
profit, and income thereof, and with the proceeds of so much of such estate as is sold by him, at the
price at which it was sold (Sec. 3, Rule 84; Secs. 1 and 7, Rule 85, Rules of Court).

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 Taxation 2 Cases Batch 2

One of the Conditions of the administrator's bond is that he should render a true and just account of
his administration to the court. The court may examine him upon oath With respect to every matter
relating to his accounting 't and shall so examine him as to the correctness of his account before the
same is allowed, except when no objection is made to the allowance of the account and its correctness
is satisfactorily established by competent proof. The heirs, legatees, distributes, and creditors of the
estate shall have the same privilege as the executor or administrator of being examined on oath on any
matter relating to an administration account." (Sec. 1[c] Rule 81 and secs. 8 and 9, Rule 85, Rules of
Court).

A hearing is usually held before an administrator's account is approved, especially if an interested Party
raises objections to certain items in the accounting report (Sec. 10, Rule 85).

At that hearing, the practice is for the administrator to take the witness stand, testify under oath on his
accounts and Identify the receipts, vouchers and documents evidencing his disbursements which are
offered as exhibits. He may be interrogated by the court and crossed by the oppositors's counsel. The
oppositors may present proofs to rebut the ad. administrator's evidence in support of his accounts.

I. Expenses for the renovation and improvement of the family residence — P10,399.59. — As already
shown above, these expenses consisted of disbursements for the repair of the terrace and interior of
the family home, the renovation of the bathroom, and the construction of a fence. The probate court
allowed those expenses because an administrator has the duty to "maintain in tenantable repair the
houses and other structures and fences belonging to the estate, and deliver the same in such repair to
the heirs or devises" when directed to do so by the court (Sec. 2, Rule 84, Rules of Court).

On the other hand, the oppositors-appellants contend that the trial court erred in allowing those
expenses because the same did not come within the category of necessary expenses of administration
which are understood to be the reasonable and necessary expenses of caring for the property and
managing it until the debts are paid and the estate is partitioned and distributed among the heirs
(Lizarraga Hermanos vs. Abada, 40 Phil. 124).

As clarified in the Lizarraga case, administration expenses should be those which are necessary for the
management of the estate, for protecting it against destruction or deterioration, and, possibly, for the
production of fruits. They are expenses entailed for the preservation and productivity of the estate and
its management for purposes of liquidation, payment of debts, and distribution of the residue among
the persons entitled thereto.

It should be noted that the family residence was partitioned proindiviso among the decedent's eight
children. Each one of them was given a one-eighth share in conformity with the testator's will. Five of
the eight co-owners consented to the use of the funds of the estate for repair and improvement of the
family home. It is obvious that the expenses in question were incurred to preserve the family home
and to maintain the family's social standing in the community.

Obviously, those expenses redounded to the benefit of an the co- owners. They were necessary for the
preservation and use of the family residence. As a result of those expenses, the co-owners, including
the three oppositors, would be able to use the family home in comfort, convenience and security.

We hold that the probate court did not err in approving the use of the income of the estate to defray
those ex

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 Taxation 2 Cases Batch 2

II. Expenses incurred by Librada de Guzman as occupant of the family residence without paying rent —
P1 603.11 — The probate court allowed the income of the estate to be used for those expenses on the
theory that the occupancy of the house by one heir did not deprive the other seven heirs from living in
it. Those expenses consist of the salaries of the house helper, light and water bills, and the cost of gas,
oil floor wax and switch nail

We are of the opinion that those expenses were personal expenses of Librada de Guzman, inuring y to
her benefit. Those expenses, not being reasonable administration expenses incurred by the
administrator, should not be charged against the income of the estate.

Librada de Guzman, as an heir, is entitled to share in the net income of the estate. She occupied the
house without paying rent. She should use her income for her living expenses while occupying the
family residence.

The trial court erred in approving those expenses in the administrator's accounts. They should be, as
they are hereby, disallowed (See 33 C.J.S 1239-40).

III. Other expenses — P558.20. — Among these expenses is the sum of P100 for stenographic notes
which, as admitted by the administrator on page 24 of his brief, should be disallowed. Another item,
"representation expenses" in the sum of P26.25 (2nd accounting), was not explained. it should likewise
be disallowed.

The probate court erred in allowing as expenses of ad. administration the sum of P268.65 which was
incurred during the celebration of the first death anniversary of the deceased. Those expenses are
disallowed because they have no connection with the care, management and settlement of the
decedent's estate (Nicolas vs. Nicolas 63 Phil 332).

The other expenses, namely, P19.30 for the lawyer's subsistence and P144 as the cost of the gift to the
physician who attended to the testator during his last s are allowable expenses.

IV. Irrigation fee — P1,049.58. —The appellants question the deductibility of that expense on the
ground that it seems to be a duplication of the item of P1,320 as irrigation fee for the same 1966-67
crop-year.

The administrator in his comment filed on February 28, 1978 explained that the item of P1,320
represented the "allotments" for irrigation fees to eight tenants who cultivated the Intan crop, which
allotments were treated as "assumed expenses" deducted as farming expenses from the value of the
net harvests.

The explanation is not quite clear but it was not disputed by the appellants. The fact is that the said
sum of P1,049.58 was paid by the administrator to the Penaranda Irrigation System as shown in Official
Receipt No. 3596378 dated April 28, 1967. It was included in his accounting as part of the farming
expenses. The amount was properly allowed as a legitimate expense of administration.

WHEREFORE, the lower court's order of April 29, 1968 is affirmed with the modifications that the sum
of (a) P1,603.11 as the living expenses of Librada de Guzman. (b) P100 for stenographic notes, (c)
P26.25 as representation expenses, and (d) P268.65 as expenses for the celebration of the first
anniversary of the decedent's death are disallowed in the administrator's accounts. No costs.

SO ORDERED.

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 Taxation 2 Cases Batch 2

G.R. No. 140944 April 30, 2008

RAFAEL ARSENIO S. DIZON, in his capacity as the Judicial Administrator of the Estate of the deceased
JOSE P. FERNANDEZ, petitioner,
vs.
COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents.

DECISION

NACHURA, J.:

Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Civil Procedure
seeking the reversal of the Court of Appeals (CA) Decision2 dated April 30, 1999 which affirmed the
Decision3 of the Court of Tax Appeals (CTA) dated June 17, 1997.4

The Facts

On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition for the probate of his
will5 was filed with Branch 51 of the Regional Trial Court (RTC) of Manila (probate court).[6] The probate
court then appointed retired Supreme Court Justice Arsenio P. Dizon (Justice Dizon) and petitioner,
Atty. Rafael Arsenio P. Dizon (petitioner) as Special and Assistant Special Administrator, respectively, of
the Estate of Jose (Estate). In a letter7dated October 13, 1988, Justice Dizon informed respondent
Commissioner of the Bureau of Internal Revenue (BIR) of the special proceedings for the Estate.

Petitioner alleged that several requests for extension of the period to file the required estate tax return
were granted by the BIR since the assets of the estate, as well as the claims against it, had yet to be
collated, determined and identified. Thus, in a letter 8 dated March 14, 1990, Justice Dizon authorized
Atty. Jesus M. Gonzales (Atty. Gonzales) to sign and file on behalf of the Estate the required estate tax
return and to represent the same in securing a Certificate of Tax Clearance. Eventually, on April 17,
1990, Atty. Gonzales wrote a letter9 addressed to the BIR Regional Director for San Pablo City and filed
the estate tax return10 with the same BIR Regional Office, showing therein a NIL estate tax liability,
computed as follows:

COMPUTATION OF TAX

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

Conjugal Personal Property (Sch.2) 3,460,591.34

Taxable Transfer (Sch. 3)

Gross Conjugal Estate 14,315,611.34

Less: Deductions (Sch. 4) 187,822,576.06

Net Conjugal Estate NIL

Less: Share of Surviving Spouse NIL.

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 Taxation 2 Cases Batch 2

Net Share in Conjugal Estate NIL

xxx

Net Taxable Estate NIL.

Estate Tax Due NIL.11

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

Petitioner requested the probate court's authority to sell several properties forming part of the Estate,
for the purpose of paying its creditors, namely: Equitable Banking Corporation (P19,756,428.31),
Banque de L'Indochine et. de Suez (US$4,828,905.90 as of January 31, 1988), Manila Banking
Corporation (P84,199,160.46 as of February 28, 1989) and State Investment House, Inc.
(P6,280,006.21). Petitioner manifested that Manila Bank, a major creditor of the Estate was not
included, as it did not file a claim with the probate court since it had security over several real estate
properties forming part of the Estate.16

However, on November 26, 1991, the Assistant Commissioner for Collection of the BIR, Themistocles
Montalban, issued Estate Tax Assessment Notice No. FAS-E-87-91-003269,17 demanding the payment
of P66,973,985.40 as deficiency estate tax, itemized as follows:

Deficiency Estate Tax- 1987

Estate tax P31,868,414.48

25% surcharge- late filing 7,967,103.62

late payment 7,967,103.62

Interest 19,121,048.68

Compromise-non filing 25,000.00

non payment 25,000.00

no notice of death 15.00

no CPA Certificate 300.00

Total amount due & collectible P66,973,985.4018

In his letter19 dated December 12, 1991, Atty. Gonzales moved for the reconsideration of the said
estate tax assessment. However, in her letter20 dated April 12, 1994, the BIR Commissioner denied the
request and reiterated that the estate is liable for the payment of P66,973,985.40 as deficiency estate

Page 11
 Taxation 2 Cases Batch 2

tax. On May 3, 1994, petitioner received the letter of denial. On June 2, 1994, petitioner filed a petition
for review21 before respondent CTA. Trial on the merits ensued.

As found by the CTA, the respective parties presented the following pieces of evidence, to wit:

In the hearings conducted, petitioner did not present testimonial evidence but merely documentary
evidence consisting of the following:

Nature of Document (sic) Exhibits

1. Letter dated October 13, 1988 from Arsenio P. Dizon "A"

addressed to the Commissioner of Internal Revenue
informing the latter of the special proceedings for the
settlement of the estate (p. 126, BIR records);

2. Petition for the probate of the will and issuance of "B" & "B-1"
letter of administration filed with the Regional Trial
Court (RTC) of Manila, docketed as Sp. Proc. No. 87-
42980 (pp. 107-108, BIR records);

3. Pleading entitled "Compliance" filed with the probate "C"

Court submitting the final inventory of all the
properties of the deceased (p. 106, BIR records);

4. Attachment to Exh. "C" which is the detailed and "C-1" to "C-17"

complete listing of the properties of the deceased (pp.
89-105, BIR rec.);

5. Claims against the estate filed by Equitable Banking "D" to "D-24"

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

6. Claim filed by Banque de L' Indochine et de Suez with "E" to "E-3"

the probate Court in the amount of US $4,828,905.90
as of January 31, 1988 (pp. 262-265, BIR records);

7. Claim of the Manila Banking Corporation (MBC) which "F" to "F-3"

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

8. Demand letter of Manila Banking Corporation "G" & "G-1"

prepared by Asedillo, Ramos and Associates Law
Offices addressed to Fernandez Hermanos, Inc.,
represented by Jose P. Fernandez, as mortgagors, in
the total amount of P240,479,693.17 as of February

Page 12
 Taxation 2 Cases Batch 2

28, 1989 (pp. 186-187, BIR records);

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

10. Letter dated March 14, 1990 of Arsenio P. Dizon "I"

addressed to Atty. Jesus M. Gonzales, (p. 184, BIR
records);

11. Letter dated April 17, 1990 from J.M. Gonzales "J"
addressed to the Regional Director of BIR in San Pablo
City (p. 183, BIR records);

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

13. Certified true copy of the Letter of Administration "L"

issued by RTC Manila, Branch 51, in Sp. Proc. No. 87-
42980 appointing Atty. Rafael S. Dizon as Judicial
Administrator of the estate of Jose P. Fernandez; (p.
102, CTA records) and

14. Certification of Payment of estate taxes Nos. 2052 and "M" to "M-5"
2053, both dated April 27, 1990, issued by the Office of
the Regional Director, Revenue Region No. 4-C, San
Pablo City, with attachments (pp. 103-104, CTA
records.).

Respondent's [BIR] counsel presented on June 26, 1995 one witness in the person of Alberto
Enriquez, who was one of the revenue examiners who conducted the investigation on the estate tax
case of the late Jose P. Fernandez. In the course of the direct examination of the witness, he
identified the following:

Documents/Signatures BIR Record

1. Estate Tax Return prepared by the BIR; p. 138

2. Signatures of Ma. Anabella Abuloc and Alberto -do-

Enriquez, Jr. appearing at the lower Portion of Exh. "1";

3. Memorandum for the Commissioner, dated July 19, pp. 143-144

1991, prepared by revenue examiners, Ma. Anabella A.

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 Taxation 2 Cases Batch 2

Abuloc, Alberto S. Enriquez and Raymund S. Gallardo;

Reviewed by Maximino V. Tagle

4. Signature of Alberto S. Enriquez appearing at the lower -do-

portion on p. 2 of Exh. "2";

5. Signature of Ma. Anabella A. Abuloc appearing at the -do-

lower portion on p. 2 of Exh. "2";

6. Signature of Raymund S. Gallardo appearing at the -do-

Lower portion on p. 2 of Exh. "2";

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

of Exh. "2";

8. Summary of revenue Enforcement Officers Audit p. 139

Report, dated July 19, 1991;

9. Signature of Alberto Enriquez at the lower portion of -do-

Exh. "3";

10. Signature of Ma. Anabella A. Abuloc at the lower -do-

portion of Exh. "3";

11. Signature of Raymond S. Gallardo at the lower portion -do-

of Exh. "3";

12. Signature of Maximino V. Tagle at the lower portion of -do-

Exh. "3";

13. Demand letter (FAS-E-87-91-00), signed by the Asst. p. 169

Commissioner for Collection for the Commissioner of
Internal Revenue, demanding payment of the amount
of P66,973,985.40; and

14. Assessment Notice FAS-E-87-91-00 pp. 169-17022

The CTA's Ruling

On June 17, 1997, the CTA denied the said petition for review. Citing this Court's ruling in Vda. de
Oñate v. Court of Appeals,23 the CTA opined that the aforementioned pieces of evidence introduced by
the BIR were admissible in evidence. The CTA ratiocinated:

Although the above-mentioned documents were not formally offered as evidence for respondent,
considering that respondent has been declared to have waived the presentation thereof during the
hearing on March 20, 1996, still they could be considered as evidence for respondent since they were
properly identified during the presentation of respondent's witness, whose testimony was duly
recorded as part of the records of this case. Besides, the documents marked as respondent's exhibits
formed part of the BIR records of the case.24

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 Taxation 2 Cases Batch 2

Nevertheless, the CTA did not fully adopt the assessment made by the BIR and it came up with its own
computation of the deficiency estate tax, to wit:

Conjugal Real Property P 5,062,016.00

Conjugal Personal Prop. 33,021,999.93

Gross Conjugal Estate 38,084,015.93

Less: Deductions 26,250,000.00

Net Conjugal Estate P 11,834,015.93

Less: Share of Surviving Spouse 5,917,007.96

Net Share in Conjugal Estate P 5,917,007.96

Add: Capital/Paraphernal

Properties – P44,652,813.66

Less: Capital/Paraphernal 44,652,813.66

Deductions

Net Taxable Estate P 50,569,821.62

============

Estate Tax Due P 29,935,342.97

Add: 25% Surcharge for Late Filing 7,483,835.74

Add: Penalties for-No notice of death 15.00

No CPA certificate 300.00

Total deficiency estate tax P 37,419,493.71

============

exclusive of 20% interest from due date of its payment until full payment thereof

[Sec. 283 (b), Tax Code of 1987].25

Thus, the CTA disposed of the case in this wise:

WHEREFORE, viewed from all the foregoing, the Court finds the petition unmeritorious and denies the
same. Petitioner and/or the heirs of Jose P. Fernandez are hereby ordered to pay to respondent the
amount of P37,419,493.71 plus 20% interest from the due date of its payment until full payment
thereof as estate tax liability of the estate of Jose P. Fernandez who died on November 7, 1987.

SO ORDERED.26

Page 15
 Taxation 2 Cases Batch 2

Aggrieved, petitioner, on March 2, 1998, went to the CA via a petition for review.27

The CA's Ruling

On April 30, 1999, the CA affirmed the CTA's ruling. Adopting in full the CTA's findings, the CA ruled
that the petitioner's act of filing an estate tax return with the BIR and the issuance of BIR Certification
Nos. 2052 and 2053 did not deprive the BIR Commissioner of her authority to re-examine or re-assess
the said return filed on behalf of the Estate.28

On May 31, 1999, petitioner filed a Motion for Reconsideration 29 which the CA denied in its
Resolution30 dated November 3, 1999.

Hence, the instant Petition raising the following issues:

1. Whether or not the admission of evidence which were not formally offered by the respondent BIR
by the Court of Tax Appeals which was subsequently upheld by the Court of Appeals is contrary to the
Rules of Court and rulings of this Honorable Court;

2. Whether or not the Court of Tax Appeals and the Court of Appeals erred in recognizing/considering
the estate tax return prepared and filed by respondent BIR knowing that the probate court appointed
administrator of the estate of Jose P. Fernandez had previously filed one as in fact, BIR Certification
Clearance Nos. 2052 and 2053 had been issued in the estate's favor;

3. Whether or not the Court of Tax Appeals and the Court of Appeals erred in disallowing the valid and
enforceable claims of creditors against the estate, as lawful deductions despite clear and convincing
evidence thereof; and

4. Whether or not the Court of Tax Appeals and the Court of Appeals erred in validating erroneous
double imputation of values on the very same estate properties in the estate tax return it prepared and
filed which effectively bloated the estate's assets.31

The petitioner claims that in as much as the valid claims of creditors against the Estate are in excess of
the gross estate, no estate tax was due; that the lack of a formal offer of evidence is fatal to BIR's
cause; that the doctrine laid down in Vda. de Oñate has already been abandoned in a long line of cases
in which the Court held that evidence not formally offered is without any weight or value; that Section
34 of Rule 132 of the Rules on Evidence requiring a formal offer of evidence is mandatory in character;
that, while BIR's witness Alberto Enriquez (Alberto) in his testimony before the CTA identified the
pieces of evidence aforementioned such that the same were marked, BIR's failure to formally offer said
pieces of evidence and depriving petitioner the opportunity to cross-examine Alberto, render the same
inadmissible in evidence; that assuming arguendo that the ruling in Vda. de Oñate is still applicable, BIR
failed to comply with the doctrine's requisites because the documents herein remained simply part of
the BIR records and were not duly incorporated in the court records; that the BIR failed to consider
that although the actual payments made to the Estate creditors were lower than their respective
claims, such were compromise agreements reached long after the Estate's liability had been settled by
the filing of its estate tax return and the issuance of BIR Certification Nos. 2052 and 2053; and that the
reckoning date of the claims against the Estate and the settlement of the estate tax due should be at
the time the estate tax return was filed by the judicial administrator and the issuance of said BIR
Certifications and not at the time the aforementioned Compromise Agreements were entered into
with the Estate's creditors.32

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 Taxation 2 Cases Batch 2

On the other hand, respondent counters that the documents, being part of the records of the case and
duly identified in a duly recorded testimony are considered evidence even if the same were not
formally offered; that the filing of the estate tax return by the Estate and the issuance of BIR
Certification Nos. 2052 and 2053 did not deprive the BIR of its authority to examine the return and
assess the estate tax; and that the factual findings of the CTA as affirmed by the CA may no longer be
reviewed by this Court via a petition for review.33

The Issues

There are two ultimate issues which require resolution in this case:

First. Whether or not the CTA and the CA gravely erred in allowing the admission of the pieces of
evidence which were not formally offered by the BIR; and

Second. Whether or not the CA erred in affirming the CTA in the latter's determination of the
deficiency estate tax imposed against the Estate.

The Court’s Ruling

The Petition is impressed with merit.

Under Section 8 of RA 1125, the CTA is categorically described as a court of record. As cases filed
before it are litigated de novo, party-litigants shall prove every minute aspect of their cases.
Indubitably, no evidentiary value can be given the pieces of evidence submitted by the BIR, as the rules
on documentary evidence require that these documents must be formally offered before the
CTA.34 Pertinent is Section 34, Rule 132 of the Revised Rules on Evidence which reads:

SEC. 34. Offer of evidence. — The court shall consider no evidence which has not been formally
offered. The purpose for which the evidence is offered must be specified.

The CTA and the CA rely solely on the case of Vda. de Oñate, which reiterated this Court's previous
rulings in People v. Napat-a35 and People v. Mate36 on the admission and consideration of exhibits
which were not formally offered during the trial. Although in a long line of cases many of which were
decided after Vda. de Oñate, we held that courts cannot consider evidence which has not been
formally offered,37 nevertheless, petitioner cannot validly assume that the doctrine laid down in Vda.
de Oñate has already been abandoned. Recently, in Ramos v. Dizon,38this Court, applying the said
doctrine, ruled that the trial court judge therein committed no error when he admitted and considered
the respondents' exhibits in the resolution of the case, notwithstanding the fact that the same were
not formally offered. Likewise, in Far East Bank & Trust Company v. Commissioner of Internal
Revenue,39 the Court made reference to said doctrine in resolving the issues therein. Indubitably, the
doctrine laid down in Vda. De Oñate still subsists in this jurisdiction. In Vda. de Oñate, we held that:

From the foregoing provision, it is clear that for evidence to be considered, the same must be formally
offered. Corollarily, the mere fact that a particular document is identified and marked as an exhibit
does not mean that it has already been offered as part of the evidence of a party. In Interpacific
Transit, Inc. v. Aviles [186 SCRA 385], we had the occasion to make a distinction between identification
of documentary evidence and its formal offer as an exhibit. We said that the first is done in the course
of the trial and is accompanied by the marking of the evidence as an exhibit while the second is done
only when the party rests its case and not before. A party, therefore, may opt to formally offer his
evidence if he believes that it will advance his cause or not to do so at all. In the event he chooses to do
the latter, the trial court is not authorized by the Rules to consider the same.

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 Taxation 2 Cases Batch 2

However, in People v. Napat-a [179 SCRA 403] citing People v. Mate [103 SCRA 484], we relaxed the
foregoing rule and allowed evidence not formally offered to be admitted and considered by the trial
court provided the following requirements are present, viz.: first, the same must have been duly
identified by testimony duly recorded and, second, the same must have been incorporated in the
records of the case.40

From the foregoing declaration, however, it is clear that Vda. de Oñate is merely an exception to the
general rule. Being an exception, it may be applied only when there is strict compliance with the
requisites mentioned therein; otherwise, the general rule in Section 34 of Rule 132 of the Rules of
Court should prevail.

In this case, we find that these requirements have not been satisfied. The assailed pieces of evidence
were presented and marked during the trial particularly when Alberto took the witness stand. Alberto
identified these pieces of evidence in his direct testimony.41 He was also subjected to cross-
examination and re-cross examination by petitioner.42 But Alberto’s account and the exchanges
between Alberto and petitioner did not sufficiently describe the contents of the said pieces of evidence
presented by the BIR. In fact, petitioner sought that the lead examiner, one Ma. Anabella A. Abuloc, be
summoned to testify, inasmuch as Alberto was incompetent to answer questions relative to the
working papers.43 The lead examiner never testified. Moreover, while Alberto's testimony identifying
the BIR's evidence was duly recorded, the BIR documents themselves were not incorporated in the
records of the case.

A common fact threads through Vda. de Oñate and Ramos that does not exist at all in the instant case.
In the aforementioned cases, the exhibits were marked at the pre-trial proceedings to warrant the
pronouncement that the same were duly incorporated in the records of the case. Thus, we held
in Ramos:

In this case, we find and so rule that these requirements have been satisfied. The exhibits in question
were presented and marked during the pre-trial of the case thus, they have been incorporated into
the records. Further, Elpidio himself explained the contents of these exhibits when he was
interrogated by respondents' counsel...

xxxx

But what further defeats petitioner's cause on this issue is that respondents' exhibits were marked and
admitted during the pre-trial stage as shown by the Pre-Trial Order quoted earlier.44

While the CTA is not governed strictly by technical rules of evidence,45 as rules of procedure are not
ends in themselves and are primarily intended as tools in the administration of justice, the
presentation of the BIR's evidence is not a mere procedural technicality which may be disregarded
considering that it is the only means by which the CTA may ascertain and verify the truth of BIR's claims
against the Estate.46 The BIR's failure to formally offer these pieces of evidence, despite CTA's
directives, is fatal to its cause.47 Such failure is aggravated by the fact that not even a single reason was
advanced by the BIR to justify such fatal omission. This, we take against the BIR.

Per the records of this case, the BIR was directed to present its evidence 48 in the hearing of February
21, 1996, but BIR's counsel failed to appear.49 The CTA denied petitioner's motion to consider BIR's
presentation of evidence as waived, with a warning to BIR that such presentation would be considered
waived if BIR's evidence would not be presented at the next hearing. Again, in the hearing of March 20,
1996, BIR's counsel failed to appear.50 Thus, in its Resolution51 dated March 21, 1996, the CTA

Page 18
 Taxation 2 Cases Batch 2

considered the BIR to have waived presentation of its evidence. In the same Resolution, the parties
were directed to file their respective memorandum. Petitioner complied but BIR failed to do so. 52 In all
of these proceedings, BIR was duly notified. Hence, in this case, we are constrained to apply our ruling
in Heirs of Pedro Pasag v. Parocha:53

A formal offer is necessary because judges are mandated to rest their findings of facts and their
judgment only and strictly upon the evidence offered by the parties at the trial. Its function is to enable
the trial judge to know the purpose or purposes for which the proponent is presenting the evidence.
On the other hand, this allows opposing parties to examine the evidence and object to its admissibility.
Moreover, it facilitates review as the appellate court will not be required to review documents not
previously scrutinized by the trial court.

Strict adherence to the said rule is not a trivial matter. The Court in Constantino v. Court of
Appeals ruled that the formal offer of one's evidence is deemed waived after failing to submit it
within a considerable period of time. It explained that the court cannot admit an offer of evidence
made after a lapse of three (3) months because to do so would "condone an inexcusable laxity if not
non-compliance with a court order which, in effect, would encourage needless delays and derail the
speedy administration of justice."

Applying the aforementioned principle in this case, we find that the trial court had reasonable ground
to consider that petitioners had waived their right to make a formal offer of documentary or object
evidence. Despite several extensions of time to make their formal offer, petitioners failed to comply
with their commitment and allowed almost five months to lapse before finally submitting
it. Petitioners' failure to comply with the rule on admissibility of evidence is anathema to the
efficient, effective, and expeditious dispensation of justice.

Having disposed of the foregoing procedural issue, we proceed to discuss the merits of the case.

Ordinarily, the CTA's findings, as affirmed by the CA, are entitled to the highest respect and will not be
disturbed on appeal unless it is shown that the lower courts committed gross error in the appreciation
of facts.54 In this case, however, we find the decision of the CA affirming that of the CTA tainted with
palpable error.

It is admitted that the claims of the Estate's aforementioned creditors have been condoned. As a mode
of extinguishing an obligation,55 condonation or remission of debt56 is defined as:

an act of liberality, by virtue of which, without receiving any equivalent, the creditor renounces the
enforcement of the obligation, which is extinguished in its entirety or in that part or aspect of the same
to which the remission refers. It is an essential characteristic of remission that it be gratuitous, that
there is no equivalent received for the benefit given; once such equivalent exists, the nature of the act
changes. It may become dation in payment when the creditor receives a thing different from that
stipulated; or novation, when the object or principal conditions of the obligation should be changed; or
compromise, when the matter renounced is in litigation or dispute and in exchange of some
concession which the creditor receives.57

Verily, the second issue in this case involves the construction of Section 79 58 of the National Internal
Revenue Code59 (Tax Code) which provides for the allowable deductions from the gross estate of the
decedent. The specific question is whether the actual claims of the aforementioned creditors may be
fully allowed as deductions from the gross estate of Jose despite the fact that the said claims were
reduced or condoned through compromise agreements entered into by the Estate with its creditors.

Page 19
 Taxation 2 Cases Batch 2

"Claims against the estate," as allowable deductions from the gross estate under Section 79 of the Tax
Code, are basically a reproduction of the deductions allowed under Section 89 (a) (1) (C) and (E) of
Commonwealth Act No. 466 (CA 466), otherwise known as the National Internal Revenue Code of
1939, and which was the first codification of Philippine tax laws. Philippine tax laws were, in turn,
based on the federal tax laws of the United States. Thus, pursuant to established rules of statutory
construction, the decisions of American courts construing the federal tax code are entitled to great
weight in the interpretation of our own tax laws.60

It is noteworthy that even in the United States, there is some dispute as to whether the deductible
amount for a claim against the estate is fixed as of the decedent's death which is the general rule, or
the same should be adjusted to reflect post-death developments, such as where a settlement between
the parties results in the reduction of the amount actually paid. 61 On one hand, the U.S. court ruled
that the appropriate deduction is the "value" that the claim had at the date of the decedent's
death.62 Also, as held in Propstra v. U.S., 63 where a lien claimed against the estate was certain and
enforceable on the date of the decedent's death, the fact that the claimant subsequently settled for
lesser amount did not preclude the estate from deducting the entire amount of the claim for estate tax
purposes. These pronouncements essentially confirm the general principle that post-death
developments are not material in determining the amount of the deduction.

On the other hand, the Internal Revenue Service (Service) opines that post-death settlement should be
taken into consideration and the claim should be allowed as a deduction only to the extent of the
amount actually paid.64Recognizing the dispute, the Service released Proposed Regulations in 2007
mandating that the deduction would be limited to the actual amount paid.65

In announcing its agreement with Propstra,66 the U.S. 5th Circuit Court of Appeals held:

We are persuaded that the Ninth Circuit's decision...in Propstra correctly apply the Ithaca Trust date-
of-death valuation principle to enforceable claims against the estate. As we interpret Ithaca Trust,
when the Supreme Court announced the date-of-death valuation principle, it was making a judgment
about the nature of the federal estate tax specifically, that it is a tax imposed on the act of transferring
property by will or intestacy and, because the act on which the tax is levied occurs at a discrete
time, i.e., the instance of death, the net value of the property transferred should be ascertained, as
nearly as possible, as of that time. This analysis supports broad application of the date-of-death
valuation rule.67

We express our agreement with the date-of-death valuation rule, made pursuant to the ruling of the
U.S. Supreme Court in Ithaca Trust Co. v. United States.68 First. There is no law, nor do we discern any
legislative intent in our tax laws, which disregards the date-of-death valuation principle and particularly
provides that post-death developments must be considered in determining the net value of the estate.
It bears emphasis that tax burdens are not to be imposed, nor presumed to be imposed, beyond what
the statute expressly and clearly imports, tax statutes being construed strictissimi juris against the
government.69 Any doubt on whether a person, article or activity is taxable is generally resolved
against taxation.70 Second. Such construction finds relevance and consistency in our Rules on Special
Proceedings wherein the term "claims" required to be presented against a decedent's estate is
generally construed to mean debts or demands of a pecuniary nature which could have been enforced
against the deceased in his lifetime, or liability contracted by the deceased before his
death.71 Therefore, the claims existing at the time of death are significant to, and should be made the
basis of, the determination of allowable deductions.

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 Taxation 2 Cases Batch 2

WHEREFORE, the instant Petition is GRANTED. Accordingly, the assailed Decision dated April 30, 1999
and the Resolution dated November 3, 1999 of the Court of Appeals in CA-G.R. S.P. No. 46947
are REVERSED and SET ASIDE. The Bureau of Internal Revenue's deficiency estate tax assessment
against the Estate of Jose P. Fernandez is hereby NULLIFIED. No costs.

SO ORDERED.

G.R. No. L-33139 October 11, 1930

THE GOVERNMENT OF THE PHILIPPINE ISLANDS, plaintiff-appellants,

vs.
JOSE MA. PAMINTUAN, ET AL., defendants-appellees.

Attorney-General Jaranilla for appellant.

Jose [Link] for appellees.

VILLA-REAL, J.:

This is an appeal taken by the Government of the Philippine Islands from the judgment of the Court of
First Instance of Manila dismissing its complaint and absolving the defendants, without costs. In
support of the appeal the following alleged errors have been assigned to the court below in its
judgment:

1. The lower court erred in holding that the failure of the plaintiff to file its claim with the committee
on claims and appraisals barred it from collecting the tax in questions in this action.

2. The lower court erred in holding that this case is governed by the principle laid down in the case of
the Government of the Philippine Islands vs. Inchausti & Co. (24 Phil., 315).

3. The lower court erred in absolving the defendants from the complaint and in denying the plaintiff's
motion for new trial.

The present case was submitted to the court below upon the following agreed statement of facts:

I. That on February 27, 1920, Florentino Pamintuan, represented by J. V. Ramirez or his attorney-in-fact
charged with the administration of his property, filed income-tax return for the year 1919, paying the
amount of P 672.99 on the basis of said return, and the additional sum of P151.01 as a result of a
subsequent assessment received from the Collector of Internal Revenue.

II. That on April 24, 1925, Florentino Pamintuan died in Washington, D. C., U. S. A., leaving the
defendants herein as his heirs.

III. That on April 24, 1925, intestate proceedings were instituted in the Court of First Instance of Manila
in civil case No. 27948, intestate of the late Florentino Pamintuan.

IV. That on April 28,1925, the Court of First Instance of Manila appointed Maximo de la Paz and
Candido Ilagan commissioners of appraisal of the property left by the deceased Pamintuan, the said

Page 21
 Taxation 2 Cases Batch 2

appointees taking their oaths of office on May 4 and May 9, 1925, respectively, and letters of
appointment to the committee on claims and appraisals were made on May 9,1925. 1awph![Link]

V. That the said committee on claims and appraisals after the publications of the notices required by
law held the necessary sessions in accordance with said notices for the presentation and determination
of all claims and credits against the estate of the deceased Pamintuan.

VI. That on December 1, 1925, the above-mentioned committee rendered its report which was duly
approved by the court, and in which report it appears that he only claims presented and that were
approved were those of Tomasa Centeno, Jose, Paz, Caridad, and Natividad Pamintuan and Cavanna,
Aboitiz and Agan.

VII. That on June 12, 1926, Jose V. Ramirez, the duly appointed judicial administrator of the estate of
the deceased Florentino Pamintuan presented a proposed partition of the decedent's estate which
proposed partition was approved by the court on July 6,1926, the court ordering the delivery to the
heirs, the defendants herein, of their respective shares of the inheritance after paying the
corresponding inheritance taxes which were duly paid on September 2, 1926, in the amount of
P25,047.19 as appears on the official receipt No. 4421361.

VIII. That the defendants herein inherited from the deceased Florentino Pamintuan in the following
proportions: Tomasa Pamintuan inherited 0.0571 per cent of the decedent's estate and the other
defendants 0.0784 per cent each according to the partition approved by the court in civil case No.
27948.

IX. That during the pendency of the intestate proceedings, the administrator filed income-tax returns
for the estate of the deceased corresponding to the years 1925 and 1926.

X. That the intestate proceedings in civil case No. 27948 were definitely closed on October 27, 1926, by
order of the court of the same date.

XI. That subsequent to the distribution of the decedent's estate to the defendants herein, that is, on
February 16, 1927, the plaintiff discovered the fact that the deceased Florentino Pamintuan has not
paid the amount of four hundred and sixty-two pesos (P462) as additional income tax and surcharge
for the calendar year 1919, on account of the sale made by him on November 14, 1919, of his house
and lot located at 922 M. H. del Pilar, Manila, from which sale he realized a net profit or income of
P11,000, which was not included in his income-tax return filed for said year 1919.

XII. That the defendants cannot disprove that the deceased Florentino Pamintuan made a profit of
P11,000 in the sale of the house referred to in paragraph Xl hereof because they have destroyed the
voluminous records and evidences regarding the sale in question and other similar transactions which
might show repairs on the house, commissions, and other expenses tending to reduce the profit
obtained as mentioned above.

XIII. That demand for the payment of the income tax referred to herein was made on February 24,
1927, on the defendants but they refused and still refuse to pay the same either in full or in part.

With regard to the first assignment of error, this court held in Pineda vs. Court of First Instance of
Tayabas and Collector of Internal Revenue (52 Phil., 803):

To reply to these contentions in turn , we observe that, while there are a few courts that have
expressed themselves to the effect that a claim for taxes due to the Government should be presented

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 Taxation 2 Cases Batch 2

like other claims to the committee appointed for the purpose of passing upon claims, the clear weight
of judicial authority is to the effect that claims for taxes and assessments, whether assessed before or
after the death of the decedent, are not required to be presented to the committee. (24 C. J., 325;
People vs. Olvera, 43 Cal., 492; Hancock [Link], 50 Cal., 522; Findley vs. Taylor, 97 Iowa, 420;
Bogue [Link],149 Wis., 271; 40 L. R. A. [N.S.], 927; Ann. Cas.1913 C.,p.1367.)

See also In re Estate of Frank [Link] (G. R. No. 32361, 1 decided on September 22,1930.)

The administration proceedings of the late Florentino Pamintuan having been closed, and his estate
distributed among his heirs, the defendants herein, the latter are responsible for the payment of the
income tax here in question in proportion to the share of each in said estate, in accordance with
section 731 of the Code of Civil Procedure, and the doctrine of this court laid down in Lopez vs.
Enriquez (16 Phil.,336) as follows:

ESTATE; LIABILITY OF HEIRS AND DISTRIBUTEES. — Heirs are not required to respond with their own
property for the debts of their deceased ancestors. But even after the partition of an estate, heirs and
distributees are liable individually for the payment of all lawful outstanding claims against the estate in
proportion to the amount or value of the property they have respectively received from the estate. The
hereditary property consists only of that part which remains after the settlement of all lawful claims
against the estate, for the settlement of which the entire estate is first liable. The heirs cannot, by any
act of their own or by agreement among themselves, reduce the creditors' security for the payment of
their claims. (Pavia vs. De la Rosa, 8 Phil.,70; secs. 731, 749, Code of Civil Procedure; art,1257, Civil
Code.)

For the reasons stated, we are of opinion and so hold that claims for income taxes need not be filed
with the committee on claims and appraisals appointed in the course of testate proceedings and may
be collected even after the distribution of the decedent's estate among his heirs, who shall be liable
therefor in proportion to their share in the inheritance.

Wherefore, let the defendants pay the plaintiff the sum of P462, with 1 per centum monthly interest
from August 19, 1927 until fully paid, as follows: Tomasa Centeno 0.0571 per cent, and each one of the
other defendants 0.0784 per cent, with costs against the appellees. So ordered.

G.R. No. L-22734 September 15, 1967

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
MANUEL B. PINEDA, as one of the heirs of deceased ATANASIO PINEDA, respondent.

Office of the Solicitor General for petitioner.

Manuel B. Pineda for and in his own behalf as respondent.

BENGZON, J.P., J.:

On May 23, 1945 Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15 children, the
eldest of whom is Manuel B. Pineda, a lawyer. Estate proceedings were had in the Court of First

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 Taxation 2 Cases Batch 2

Instance of Manila (Case No. 71129) wherein the surviving widow was appointed administratrix. The
estate was divided among and awarded to the heirs and the proceedings terminated on June 8, 1948.
Manuel B. Pineda's share amounted to about P2,500.00.

After the estate proceedings were closed, the Bureau of Internal Revenue 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 on the basis of information and data obtained from the aforesaid
estate proceedings and issued an assessment for the following:

1. Deficiency income tax

1945 P135.83

1946 436.95

1947 1,206.91 P1,779.69

Add: 5% surcharge 88.98

1% monthly interest
from November 30,
1953 to April 15, 1957 720.77

Compromise for late

filing 80.00

Compromise for late

payment 40.00

Total amount due P2,707.44

===========

Additional residence tax for P14.50

2.
1945 ===========

3. Real Estate dealer's tax for

the fourth quarter of 1946 P207.50
and the whole year of 1947 ===========

Manuel B. Pineda, who received the assessment, contested the same. Subsequently, he appealed to
the Court of Tax Appeals alleging that he was appealing "only that proportionate part or portion
pertaining to him as one of the heirs."

After hearing the parties, the Court of Tax Appeals rendered judgment reversing the decision of the
Commissioner on the ground that his right to assess and collect the tax has prescribed. The
Commissioner appealed and this Court affirmed the findings of the Tax Court in respect to the
assessment for income tax for the year 1947 but held that the right to assess and collect the taxes for
1945 and 1946 has not prescribed. For 1945 and 1946 the returns were filed on August 24, 1953;

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 Taxation 2 Cases Batch 2

assessments for both taxable years were made within five years therefrom or on October 19, 1953;
and the action to collect the tax was filed within five years from the latter date, on August 7, 1957. For
taxable year 1947, however, the return was filed on March 1, 1948; the assessment was made on
October 19, 1953, more than five years from the date the return was filed; hence, the right to assess
income tax for 1947 had prescribed. Accordingly, We remanded the case to the Tax Court for further
appropriate proceedings.1

In the Tax Court, the parties submitted the case for decision without additional evidence.

On November 29, 1963 the Court of Tax Appeals rendered judgment holding Manuel B. Pineda liable
for the payment corresponding to his share of the following taxes:

Deficiency income tax

P135.8
1945
3

1946 436.95

Real estate dealer's

fixed tax 4th
quarter of 1946 and
whole year of 1947 P187.50

The Commissioner of Internal Revenue has appealed to Us and has proposed to hold Manuel B. Pineda
liable for the payment of all the taxes found by the Tax Court to be due from the estate in the total
amount of P760.28 instead of only for the amount of taxes corresponding to his share in the
estate.1awphîl.nèt

Manuel B. Pineda opposes the proposition on the ground that as an heir he is liable for unpaid income
tax due the estate only up to the extent of and in proportion to any share he received. He relies
on Government of the Philippine Islands v. Pamintuan2 where We held that "after the partition of an
estate, heirs and distributees are liable individually for the payment of all lawful outstanding claims
against the estate in proportion to the amount or value of the property they have respectively received
from the estate."

We hold that the Government can require Manuel B. Pineda to pay the full amount of the taxes
assessed.

Pineda is liable for the assessment as an heir and as a holder-transferee of property belonging to the
estate/taxpayer. As an heir he is individually answerable for the part of the tax proportionate to the
share he received from the inheritance.3 His liability, however, cannot exceed the amount of his share.4

As a holder of property belonging to the estate, Pineda is liable for he tax up to the amount of the
property in his possession. 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 4a for which said estate is
liable, pursuant to the last paragraph of Section 315 of the Tax Code, which we quote hereunder:

If any person, corporation, partnership, joint-account (cuenta en participacion), association, or

insurance company liable to pay the income tax, neglects or refuses to pay the same after demand, the
amount shall be a lien in favor of the Government of the Philippines from the time when the

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 Taxation 2 Cases Batch 2

assessment was made by the Commissioner of Internal Revenue until paid with interest, penalties, and
costs that may accrue in addition thereto upon all property and rights to property belonging to the
taxpayer: . . .

By virtue of such lien, the Government has the right to subject the property in Pineda's possession, i.e.,
the P2,500.00, to satisfy the income tax assessment in the sum of P760.28. After such payment, Pineda
will have a right of contribution from his co-heirs,5 to achieve an adjustment of the proper share of
each heir in the distributable estate.

All told, 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.
This remedy was adopted in Government of the Philippine Islands v. Pamintuan, supra. In said case, the
Government filed an action against all the heirs for the collection of the tax. This action rests on the
concept that hereditary property consists only of that part which remains after the settlement of all
lawful claims against the estate, for the settlement of which the entire estate is first liable.6 The reason
why in case suit is filed against all the heirs the tax due from the estate is levied proportionately
against them is to achieve thereby two results: first, payment of the tax; and second, adjustment of the
shares of each heir in the distributed estate as lessened by the tax.

Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all property and
rights to property belonging to the taxpayer for unpaid income tax, is by subjecting said property of the
estate which is in the hands of an heir or transferee to the payment of the tax due, the estate. This
second remedy is the very avenue the Government took in this case to collect the tax. The Bureau of
Internal Revenue should be given, in instances like the case at bar, the necessary discretion to avail
itself of the most expeditious way to collect the tax as may be envisioned in the particular provision of
the Tax Code above quoted, because taxes are the lifeblood of government and their prompt and
certain availability is an imperious need.7 And as afore-stated in this case the suit seeks to achieve only
one objective: payment of the tax. The adjustment of the respective shares due to the heirs from the
inheritance, as lessened by the tax, is left to await the suit for contribution by the heir from whom the
Government recovered said tax.

WHEREFORE, the decision appealed from is modified. Manuel B. Pineda is hereby ordered to pay to the
Commissioner of Internal Revenue the sum of P760.28 as deficiency income tax for 1945 and 1946, and
real estate dealer's fixed tax for the fourth quarter of 1946 and for the whole year 1947, without
prejudice to his right of contribution for his co-heirs. No costs. So ordered.

G.R. No. L-19495 November 24, 1966

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
LILIA YUSAY GONZALES and THE COURT OF TAX APPEALS, respondents.

Office of the Solicitor General for the petitioner.

Ramon A. Gonzales for respondent Lilia Yusay Gonzales.

BENGZON, J.P., J.:

Matias Yusay, a resident of Pototan, Iloilo, died intestate on May 13, 1948, leaving two heirs, namely,
Jose S. Yusay, a legitimate child, and Lilia Yusay Gonzales, an acknowledged natural child. Intestate

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 Taxation 2 Cases Batch 2

proceedings for the settlement of his estate were instituted in the Court of First Instance of Iloilo
(Special Proceedings No. 459). Jose S. Yusay was therein appointed administrator.

On May 11, 1949 Jose S. Yusay filed with the Bureau of Internal Revenue an estate and inheritance tax
return declaring therein the following properties:

Personal properties

Palay P6,444.00
Carabaos 1,000.00 P7,444.00

Real properties:
Capital, 74 parcels )

assessed
Conjugal 19 parcels) at P179,760.00

Total gross estate P187,204.00

The return mentioned no heir.

Upon investigation however the Bureau of Internal Revenue found the following properties:

Personal properties:

Palay P6,444.00
Carabaos 1,500.00
Packard Automobile 2,000.00
2 Aparadors 500.00 P10,444.00

Real properties:
Capital, 25 parcels assessed at P87,715.32

1/2 of Conjugal, 130 parcels

assessed at P121,425.00 P209,140.32

Total P219,584.32

The fair market value of the real properties was computed by increasing the assessed value by forty
percent.

Based on the above findings, the Bureau of Internal Revenue assessed on October 29, 1953 estate and
inheritance taxes in the sums of P6,849.78 and P16,970.63, respectively.

On January 25, 1955 the Bureau of Internal Revenue increased the assessment to P8,225.89 as estate
tax and P22,117.10 as inheritance tax plus delinquency interest and demanded payment thereof on or

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 Taxation 2 Cases Batch 2

before February 28, 1955. Meanwhile, on February 16, 1955, the Court of First Instance of Iloilo
required Jose S. Yusay to show proof of payment of said estate and inheritance taxes.

On March 3, 1955 Jose S. Yusay requested an extension of time within which to pay the tax. He posted
a surety bond to guarantee payment of the taxes in question within one year. The Commissioner of
Internal Revenue however denied the request. Then he issued a warrant of distraint and levy which he
transmitted to the Municipal Treasurer of Pototan for execution. This warrant was not enforced
because all the personal properties subject to distraint were located in Iloilo City.

On May 20, 1955 the Provincial Treasurer of Iloilo requested the BIR Provincial Revenue Officer to
furnish him copies of the assessment notices to support a motion for payment of taxes which the
Provincial Fiscal would file in Special Proceedings No. 459 before the Court of First Instance of Iloilo.
The papers requested were sent by the Commissioner of Internal Revenue to the Provincial Revenue
Officer of Iloilo to be transmitted to the Provincial Treasurer. The records do not however show
whether the Provincial Fiscal filed a claim with the Court of First Instance for the taxes due.

On May 30, 1956 the commissioner appointed by the Court of First Instance for the purpose,
submitted a reamended project of partition which listed the following properties:

Personal properties:

Buick Sedan P8,100.00

Packard car 2,000.00
Aparadors 500.00
Cash in Bank (PNB) 8,858.46
Palay 6,444.00
Carabaos 1,500.00 P27,402.46

Real properties:

Land, 174 parcels

assessed at P324,797.21
Buildings 4,500.00 P329,297.21

Total P356,699.67

More than a year later, particularly on July 12, 1957, an agent of the Bureau of Internal Revenue
apprised the Commissioner of Internal Revenue of the existence of said reamended project of
partition. Whereupon, the Internal Revenue Commissioner caused the estate of Matias Yusay to be
reinvestigated for estate and inheritance tax liability. Accordingly, on February 13, 1958 he issued the
following assessment:

Estate tax P16,246.04

5% surcharge 411.29

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 Taxation 2 Cases Batch 2

Delinquency interest 11,868.90

Compromise
No notice of death P15.00
Late payment 40.00 55.00

Total P28,581.23

Inheritance Tax P38,178.12

5% surcharge 1,105.86

Delinquency interest 28,808.75

Compromise for late payment 50.00

Total P69,142.73

Total estate and inheritance taxes P97,723.96

Like in previous assessments, the fair market value of the real properties was arrived at by adding 40%
to the assessed value.

In view of the demise of Jose S. Yusay, said assessment was sent to his widow, Mrs. Florencia Piccio
Vda. de Yusay, who succeeded him in the administration of the estate of Matias Yusay.

No payment having been made despite repeated demands, the Commissioner of Internal Revenue filed
a proof of claim for the estate and inheritance taxes due and a motion for its allowance with the
settlement court in voting priority of lien pursuant to Section 315 of the Tax Code.

On June 1, 1959, Lilia Yusay, through her counsel, Ramon Gonzales, filed an answer to the proof of
claim alleging non-receipt of the assessment of February 13, 1958, the existence of two administrators,
namely Florencia Piccio Vda. de Yusay who administered two-thirds of the estate, and Lilia Yusay, who
administered the remaining one-third, and her willingness to pay the taxes corresponding to her share,
and praying for deferment of the resolution on the motion for the payment of taxes until after a new
assessment corresponding to her share was issued.

On November 17, 1959 Lilia Yusay disputed the legality of the assessment dated February 13, 1958.
She claimed that the right to make the same had prescribed inasmuch as more than five years had
elapsed since the filing of the estate and inheritance tax return on May 11, 1949. She therefore
requested that the assessment be declared invalid and without force and effect. This request was
rejected by the Commissioner in his letter dates January 20, 1960, received by Lilia Yusay on March 14,
1960, for the reasons, namely, (1) that the right to assess the taxes in question has not been lost by
prescription since the return which did not name the heirs cannot be considered a true and complete
return sufficient to start the running of the period of limitations of five years under Section 331 of the
Tax Code and pursuant to Section 332 of the same Code he has ten years within which to make the

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 Taxation 2 Cases Batch 2

assessment counted from the discovery on September 24, 1953 of the identity of the heirs; and (2) that
the estate's administrator waived the defense of prescription when he filed a surety bond on March 3,
1955 to guarantee payment of the taxes in question and when he requested postponement of the
payment of the taxes pending determination of who the heirs are by the settlement court.

On April 13, 1960 Lilia Yusay filed a petition for review in the Court of Tax Appeals assailing the legality
of the assessment dated February 13, 1958. After hearing the parties, said Court declared the right of
the Commissioner of Internal Revenue to assess the estate and inheritance taxes in question to have
prescribed and rendered the following judgment:

WHEREFORE, the decision of respondent assessing against the estate of the late Matias Yusay estate
and inheritance taxes is hereby reversed. No costs.

The Commissioner of Internal Revenue appealed to this Court and raises the following issues:

1. Was the petition for review in the Court of Tax Appeals within the 30-day period provided for in
Section 11 of Republic Act 1125?

2. Could the Court of Tax Appeals take cognizance of Lilia Yusay's appeal despite the pendency of the
"Proof of Claim" and "Motion for Allowance of Claim and for an Order of Payment of Taxes" filed by
the Commissioner of Internal Revenue in Special Proceedings No. 459 before the Court of First Instance
of Iloilo?

3. Has the right of the Commissioner of Internal Revenue to assess the estate and inheritance taxes in
question prescribed?

On November 17, 1959 Lilia Yusay disputed the legality of the assessment of February 13, 1958. On
March 14, 1960 she received the decision of the Commissioner of Internal Revenue on the disputed
assessment. On April 13, 1960 she filed her petition for review in the Court of Tax Appeals. Said Court
correctly held that the appeal was seasonably interposed pursuant to Section 11 of Republic Act 1125.
We already ruled in St. Stephen's Association v. Collector of Internal Revenue,1 that the counting of the
thirty days within which to institute an appeal in the Court of Tax Appeals should commence from the
date of receipt of the decision of the Commissioner on the disputed assessment, not from the date the
assessment was issued.

Accordingly, the thirty-day period should begin running from March 14, 1960, the date Lilia Yusay
received the appealable decision. From said date to April 13, 1960, when she filed her appeal in the
Court of Tax Appeals, is exactly thirty days. Hence, the appeal was timely.

Next, the Commissioner attacks the jurisdiction of the Court of Tax Appeals to take cognizance of Lilia
Yusay's appeal on the ground of lis pendens. He maintains that the pendency of his motion for
allowance of claim and for order of payment of taxes in the Court of First Instance of Iloilo would
preclude the Court of Tax Appeals from acquiring jurisdiction over Lilia Yusay's appeal. This contention
lacks merit.

Lilia Yusay's cause seeks to resist the legality of the assessment in question. Should she maintain it in
the settlement court or should she elevate her cause to the Court of Tax Appeals? We say, she acted
correctly by appealing to the latter court. An action involving a disputed assessment for internal
revenue taxes falls within the exclusive jurisdiction of the Court of Tax Appeals.2 It is in that forum, to
the exclusion of the Court of First Instance,3where she could ventilate her defenses against the
assessment.

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 Taxation 2 Cases Batch 2

Moreover, the settlement court, where the Commissioner would wish Lilia Yusay to contest the
assessment, is of limited jurisdiction. And under the Rules,4 its authority relates only to matters having
to do with the settlement of estates and probate of wills of deceased persons. 5 Said court has no
jurisdiction to adjudicate the contentions in question, which — assuming they do not come exclusively
under the Tax Court's cognizance — must be submitted to the Court of First Instance in the exercise of
its general jurisdiction.6

We now come to the issue of prescription. Lilia Yusay claims that since the latest assessment was
issued only on February 13, 1958 or eight years, nine months and two days from the filing of the estate
and inheritance tax return, the Commissioner's right to make it has expired. She would rest her stand
on Section 331 of the Tax Code which limits the right of the Commissioner to assess the tax within five
years from the filing of the return.

The Commissioner claims that fraud attended the filing of the return; that this being so, Section 332(a)
of the Tax Code would apply.7 It may be well to note that the assessment letter itself (Exhibit 22) did
not impute fraud in the return with intent to evade payment of tax. Precisely, no surcharge for fraud
was imposed. In his answer to the petition for review filed by Lilia Yusay in the Court of Tax Appeals,
the Commissioner alleged no fraud. Instead, he broached the insufficiency of the return as barring the
commencement of the running of the statute of limitations. He raised the point of fraud for the first
time in the proceedings, only in his memorandum filed with the Tax Court subsequent to resting his
case. Said Court rejected the plea of fraud for lack of allegation and proof, and ruled that the return,
although not accurate, was sufficient to start the period of prescription.

Fraud is a question of fact.8 The circumstances constituting it must be alleged and proved in the court
below.9 And the finding of said court as to its existence and non-existence is final unless clearly shown
to be erroneous.10 As the court a quo found that no fraud was alleged and proved therein, We see no
reason to entertain the Commissioner's assertion that the return was fraudulent.

The conclusion, however, that the return filed by Jose S. Yusay was sufficient to commence the running
of the prescriptive period under Section 331 of the Tax Code rests on no solid ground.

Paragraph (a) of Section 93 of the Tax Code lists the requirements of a valid return. It states:

(a) Requirements.—In all cases of inheritance or transfers subject to either the estate tax or the
inheritance tax, or both, or where, though exempt from both taxes, the gross value of the estate
exceeds three thousand pesos, the executor, administrator, or anyone of the heirs, as the case may be,
shall file a return under oath in duplicate, setting forth (1) the value of the gross estate of the decedent
at the time of his death, or, in case of a nonresident not a citizen of the Philippines ; (2) the deductions
allowed from gross estate in determining net estate as defined in section eighty-nine; (3) such part of
such information as may at the time be ascertainable and such supplemental data as may be necessary
to establish the correct taxes.

A return need not be complete in all particulars. It is sufficient if it complies substantially with the law.
There is substantial compliance (1) when the return is made in good faith and is not false or fraudulent;
(2) when it covers the entire period involved; and (3) when it contains information as to the various
items of income, deduction and credit with such definiteness as to permit the computation and
assessment of the tax.11

There is no question that the state and inheritance tax return filed by Jose S. Yusay was substantially
defective.

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 Taxation 2 Cases Batch 2

First, it was incomplete. It declared only ninety-three parcels of land representing about 400 hectares
and left out ninety-two parcels covering 503 hectares. Said huge under declaration could not have
been the result of an over-sight or mistake. As found in L-11378, supra note 7, Jose S. Yusay very well
knew of the existence of the ommited properties. Perhaps his motive in under declaring the inventory
of properties attached to the return was to deprive Lilia Yusay from inheriting her legal share in the
hereditary estate, but certainly not because he honestly believed that they did not form part of the
gross estate.

Second, the return mentioned no heir. Thus, no inheritance tax could be assessed. As a matter of law,
on the basis of the return, there would be no occasion for the imposition of estate and inheritance
taxes. When there is no heir - the return showed none - the intestate estate is escheated to the
State.12 The State taxes not itself.

In a case where the return was made on the wrong form, the Supreme Court of the United States held
that the filing thereof did not start the running of the period of limitations. 13 The reason is that the
return submitted did not contain the necessary information required in the correct form. In this
jurisdiction, however, the Supreme Court refrained from applying the said ruling of the United States
Supreme Court in Collector of Internal Revenue v. Central Azucarera de Tarlac, L-11760-61, July 31,
1958, on the ground that the return was complete in itself although inaccurate. To our mind, it would
not make much difference where a return is made on the correct form prescribed by the Bureau of
Internal Revenue if the data therein required are not supplied by the taxpayer. Just the same, the
necessary information for the assessment of the tax would be missing.

The return filed in this case was so deficient that it prevented the Commissioner from computing the
taxes due on the estate. It was as though no return was made. The Commissioner had to determine
and assess the taxes on data obtained, not from the return, but from other sources. We therefore hold
the view that the return in question was no return at all as required in Section 93 of the Tax Code.

The law imposes upon the taxpayer the burden of supplying by the return the information upon which
an assessment would be based.14 His duty complied with, the taxpayer is not bound to do anything
more than to wait for the Commissioner to assess the tax. However, he is not required to wait forever.
Section 331 of the Tax Code gives the Commissioner five years within which to make his
assessment.15 Except, of course, if the taxpayer failed to observe the law, in which case Section 332 of
the same Code grants the Commissioner a longer period. Non-observance consists in filing a false or
fraudulent return with intent to evade the tax or in filing no return at all.

Accordingly, for purposes of determining whether or not the Commissioner's assessment of February
13, 1958 is barred by prescription, Section 332(a) which is an exception to Section 331 of the Tax Code
finds application.16 We quote Section 332(a):

SEC. 332. Exceptions as to period of limitation of assessment and collection of taxes.— (a) In the case of
a false or fraudulent return with intent to evade tax or of a failure to file a return, the tax may be
assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at
any time within ten years after the discovery of the falsity, fraud or omission.

As stated, the Commissioner came to know of the identity of the heirs on September 24, 1953 and the
huge underdeclaration in the gross estate on July 12, 1957. From the latter date, Section 94 of the Tax
Code obligated him to make a return or amend one already filed based on his own knowledge and
information obtained through testimony or otherwise, and subsequently to assess thereon the taxes

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 Taxation 2 Cases Batch 2

due. The running of the period of limitations under Section 332(a) of the Tax Code should therefore be
reckoned from said date for, as aforesaid, it is from that time that the Commissioner was expected by
law to make his return and assess the tax due thereon. From July 12, 1957 to February 13, 1958, the
date of the assessment now in dispute, less than ten years have elapsed. Hence, prescription did not
abate the Commissioner's right to issue said assessment.

Anent the Commissioner's contention that Lilia Yusay is estopped from raising the defense of
prescription because she failed to raise the same in her answer to the motion for allowance of claim
and for the payment of taxes filed in the settlement court (Court of First Instance of Iloilo), suffice it to
state that it would be unjust to the taxpayer if We were to sustain such a view. The Court of First
Instance acting as a settlement court is not the proper tribunal to pass upon such defense, therefore it
would be but futile to raise it therein. Moreover, the Tax Code does not bar the right to contest the
legality of the tax after a taxpayer pays it. Under Section 306 thereof, he can pay the tax and claim a
refund therefor. A fortiori his willingness to pay the tax is no waiver to raise defenses against the tax's
legality.

WHEREFORE, the judgment appealed from is set aside and another entered affirming the assessment
of the Commissioner of Internal Revenue dated February 13, 1958. Lilia Yusay Gonzales, as
administratrix of the intestate estate of Matias Yusay, is hereby ordered to pay the sums of P16,246.04
and P39,178.12 as estate and inheritance taxes, respectively, plus interest and surcharge for
delinquency in accordance with Section 101 of the National Internal Revenue Code, without prejudice
to reimbursement from her co-administratrix, Florencia Piccio Vda. de Yusay for the latter's
corresponding tax liability. No costs. So ordered.

Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Regala, Makalintal, Sanchez and Castro, JJ., concur.
Zaldivar, J., took no part.

RESOLUTION

April 24, 1967

BENGZON, J.P., J.:

Respondent Lilia Yusay Gonzales seeks reconsideration of our decision holding her liable for the
payment of P97,723.96 as estate and inheritance taxes plus delinquency penalties as administratrix of
the intestate estate of Matias Yusay. The grounds raised by her deserve this extended resolution.

Firstly, movant maintains that the issue of whether or not the estate and inheritance tax return filed by
Jose Yusay on May 13, 1949 was sufficient to start the running of the statute of limitations on
assessment, was neither raised in the Court of Tax Appeals nor assigned as error before this Court. The
records in the Court of Tax Appeals however show the contrary. Paragraph 2 of the answer filed by the
Commissioner of Internal Revenue states:

2. That he likewise admits, as alleged in paragraph 1 thereof having received the letter of the petitioner
dated November 27, 1959 (Annex "A" of the Petition for Review), contesting the assessment of estate
and inheritance taxes levied against the Intestate Estate of the late Matias Yusay, Special Proceedings
No. 459, Court of First Instance of Iloilo, on the ground that the said assessment has already
prescribed, but specifically denies the allegation that the assessment have already prescribed, the

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truth of the matter being that the returns filed on May 11, 1949 cannot be considered as a true, and
complete return sufficient to start the running of the period of five (5) years prescribed in Sec. 331 of
the Tax Code;

This point was discussed in the memorandum of the Commissioner of Internal Revenue, thus:

In the estate and inheritance tax return filed by Jose S. Yusay (Exhibits B & 1, pp. 14-20, B.I.R. records)
the net value of the estate of the deceased was claimed to be P203,354.00 and no inheritance tax was
shown as the heirs were not indicated. In the final computation of the estate by an examiner of the
respondent, the net estate was found to be worth P410,518.38 (p. 105, B.I.R. records) or about more
than twice the original amount declared in the return. In the subsequent investigation of this case, it
was also determined that the heirs of the deceased were Jose S. Yusay, a legitimate son, and Lilia
Yusay, an acknowledged natural child, (petitioner herein).

Under the circumstances, we believe the return filed on May 11, 1949 was false or fraudulent in the
sense that the value of the properties were underdeclared and that the said return was also
incomplete as the heirs to the estate were not specified. Inasmuch as the respondent was not
furnished adequate data upon which to base an assessment, the said return cannot be considered a
true and complete return sufficient to start the running of the period of limitations of five (5) years
prescribed in Section 331 of the Tax Code.

In the lower court the defense of the Commissioner of Internal Revenue against Lilia Yusay Gonzales'
plea of prescription, centered on the insufficiency and fraudulence or falsity of the return filed by Jose
Yusay. The Court of Tax Appeals overruled the Commissioner of Internal Revenue. Said the Tax Code:

The provision of Section 332(a) of the Tax Code cannot be invoked in this case as it was neither alleged
in respondent's answer, nor proved during the hearing that the return was false or fraudulent with
intent to evade the payment of tax. Moreover, the failure of respondent to charge fraud and impose
the penalty thereof in the assessments made in 1953, 1955 and 1956 is an eloquent demonstration
that the filing of petitioner's transfer tax return was not attended by falsity or fraud with intent to
evade tax.

xxx xxx xxx

But respondent urges upon us that the filing of the return did not start the running of the five (5) year
period for the reason that the return did not disclose the heirs of the deceased Matias Yusay, and
contained inadequate data regarding the value of the estate. We believe that these mere omissions do
not require additional returns for the same. Altho incomplete for being deficient on these matters, the
return cannot be regarded as a case of failure to file a return where want of good faith and intent to
evade the tax on the part of petitioner are not charged. It served as a sufficient notice to the
Commissioner of Internal Revenue to make his assessment and start the running, of the period of
limitation. In this connection, it must be borne in mind that the Commissioner is not confined to the
taxpayer's return in making assessment of the tax, and for this purpose he may secure additional
information from other sources. As was done in the case at bar, he sends investigators to examine the
taxpayer's records and other pertinent data. His assessment is based upon the facts uncovered by the
investigation (Collector vs. Central Azucarera de Tarlac, G.R. Nos. L-11760 and L-11761, July 31, 1958).

Furthermore, the failure to state the heirs in the return can be attributed to the then unsettled conflict
raging before the probate court as to who are the heirs of the estate. Such failure could not have been
a deliberate attempt to mislead the government in the assessment of the correct taxes.

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 Taxation 2 Cases Batch 2

In his appeal, the Commissioner of Internal Revenue assigned as third error of the Court of Tax Appeals
the finding that the assessment in question was "made beyond the five-year statutory period provided
in Section 332 (a) of the Tax Code," and that the right of the Commissioner of Internal Revenue to
assess the estate and inheritance taxes has already prescribed. To sustain his side, the Commissioner
ventilated in his brief, fraud in the filing of the return, absence of certain data from the return which
prevented him from assessing thereon the tax due and the pendency in this Court of L-11374 entitled
"Intestate Estate of the late Matias Yusay, Jose C. Yusay, Administrator vs. Lilia Yusay Gonzales" which
allegedly had the effect of suspending the running of the period of limitations on assessment.

Clearly, therefore, it would be incorrect to say that the question of whether or not the return filed by
Jose Yusay was sufficient to start the running of the statute of limitations to assess the corresponding
tax, was not raised by the Commissioner in the Court of Tax Appeals and in this Court.

Second. Movant contend that contrary to Our ruling, the return filed by Jose Yusay was sufficient to
start the statute of limitations on assessment. Inasmuch as this question was amply discussed in Our
decision sought to be reconsidered, and no new argument was advanced, We deem it unnecessary to
pass upon the same. There is no reason for any change on Our stand on this point.

Third. Movant insists that since she administers only one-third of the estate of Matias Yusay, she
should not be liable for the whole tax. And she suggests that We hold the intestate estate of Matias
Yusay liable for said taxes, one-third to be paid by Lilia Yusay Gonzales and two-thirds to be paid by
Florencia P. Vda. de Yusay.

The foregoing suggestion to require payment of two-thirds of the total taxes by Florencia P. Vda. de
Yusay is not acceptable, for she (Florencia P. Vda. de Yusay) is not a party in this case.

It should be pointed out that Lilia Yusay Gonzales appealed the whole assessment to the Court of Tax
Appeals. Thereupon, the Commissioner of Internal Revenue questioned her legal capacity to institute
the appeal on the ground that she administered only one-third of the estate of Matias Yusay. In
opposition, she espoused the view, which was sustained by the Tax Court, that in co-administration,
the administratrices are regarded as one person and the acts of one of them in relation to the regular
administration of the estate are deemed to be the acts of all; hence, each administratrix can represent
the whole estate. In advancing such proposition, Lilia Yusay Gonzales represented the whole estate and
hoped to benefit from the favorable outcome of the case. For the same reason that she represented
her co-administratrix and the whole estate of Matias Yusay, she risked being ordered to pay the whole
assessment, should the assessment be sustained.

Her change of stand adopted in the motion for reconsideration to the effect that she should be made
liable for only one-third of the total tax, would negate her aforesaid proposition before the Court of
Tax Appeals. She is now estopped from denying liability for the whole tax.

At any rate, estate and inheritance taxes are satisfied from the estate and are to be paid by the
executor or administrator.1 Where there are two or more executors, all of them are severally liable for
the payment of the estate tax.2 The inheritance tax, although charged against the account of each
beneficiary, should be paid by the executor or administrator.3 Failure to pay the estate and inheritance
taxes before distribution of the estate would subject the executor or administrator to criminal liability
under Section 107(c) of the Tax Code.

It is immaterial therefore that Lilia Yusay Gonzales administers only one-third of the estate and will
receive as her share only said portion, for her right to the estate comes after taxes. 4 As an

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 Taxation 2 Cases Batch 2

administratrix, she is liable for the entire estate tax. As an heir, she is liable for the entire inheritance
tax although her liability would not exceed the amount of her share in the estate.5 The entire
inheritance tax which amounts to P39,178.12 excluding penalties is obviously much less than her
distributive share.

Motion for reconsideration denied.

G.R. No. 210987 November 24, 2014

THE PHILIPPINE AMERICAN LIFE AND GENERAL INSURANCE COMPANY, Petitioner,

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

DECISION

VELASCO, JR., J.:

Nature of the Case

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

The Facts

Petitioner The Philippine American Life and General Insurance Company (Philamlife) used to own
498,590 Class A shares in Philam Care Health Systems, Inc. (PhilamCare), representing 49.89% of the
latter's outstanding capital stock. In 2009, petitioner, in a bid to divest itself of its interests in the
health maintenance organization industry, offered to sell its shareholdings in PhilamCare through
competitive bidding. Thus, on September 24, 2009, petitioner's Class A shares were sold for USD
2,190,000, or PhP 104,259,330 based on the prevailing exchange rate at the time of the sale, to STI
Investments, Inc., who emerged as the highest bidder.3

After the sale was completed and the necessary documentary stamp and capital gains taxes were paid,
Philamlife filed an application for a certificate authorizing registration/tax clearance with the Bureau of
Internal Revenue (BIR) Large Taxpayers Service Division to facilitate the transfer of the shares. Months
later, petitioner was informed that it needed to secure a BIR ruling in connection with its application
due to potential donor’s tax liability. In compliance, petitioner, on January 4, 2012, requested a
ruling4 to confirm that the sale was not subject to donor’s tax, pointing out, in its request, the
following: that the transaction cannot attract donor’s tax liability since there was no donative intent
and,ergo, no taxable donation, citing BIR Ruling [DA-(DT-065) 715-09] dated November 27, 2009;5 that
the shares were sold at their actual fair market value and at arm’s length; that as long as the
transaction conducted is at arm’s length––such that a bona fide business arrangement of the dealings
is done inthe ordinary course of business––a sale for less than an adequate consideration is not subject
to donor’s tax; and that donor’s tax does not apply to saleof shares sold in an open bidding process.

On January 4, 2012, however, respondent Commissioner on Internal Revenue (Commissioner) denied

Philamlife’s request through BIR Ruling No. 015-12. As determined by the Commissioner, the selling

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 Taxation 2 Cases Batch 2

price of the shares thus sold was lower than their book value based on the financial statements of
PhilamCare as of the end of 2008.6 As such, the Commisioner held, donor’s tax became imposable on
the price difference pursuant to Sec. 100 of the National Internal Revenue Code (NIRC), viz:

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

The afore-quoted provision, the Commissioner added, is implemented by Revenue Regulation 6-2008
(RR 6-2008), which provides:

SEC. 7. SALE, BARTER OR EXCHANGE OF SHARES OF STOCK NOT TRADED THROUGH A LOCAL STOCK
EXCHANGE PURSUANT TO SECS. 24(C), 25(A)(3), 25(B), 27(D)(2), 28(A)(7)(c), 28(B)(5)(c) OF THE TAX
CODE, AS AMENDED. —

xxxx

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

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

xxxx

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

xxxx

(c.2) Definition of ‘fair market value’of Shares of Stock. – For purposes of this Section, ‘fair market
value’ of the share of stock sold shall be:

xxxx

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

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

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

Ruling of the Court of Appeals

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 Taxation 2 Cases Batch 2

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

A.

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

B.

The Honorable Secretary of Finance gravely erred in finding that Section 100 of the Tax Code is
applicable tothe sale of the Sale of Shares.

1.

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

2.

The sale of the Sale Shares is a bona fide business transaction without any donative intent and is
therefore beyond the ambit of Section 100 of the Tax Code.

3.

It is superfluous for the BIR to require an express provision for the exemption of the sale of the Sale
Shares from donor’s tax since Section 100 of the Tax Code does not explicitly subject the transaction to
donor’s tax.

C.

The Honorable Secretary of Finance gravely erred in failing to find that in the absence of any of the
grounds mentioned in Section 246 of the Tax Code, rules and regulations, rulings or circulars – such as
RMC 25-11 – cannot be given retroactive application to the prejudice of Philamlife.

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

WHEREFORE, the Petition for Review dated January 9, 2013 is DISMISSED for lack of jurisdiction.

SO ORDERED.

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

Philamlife eventually sought reconsideration but the CA, in its equally assailed January 21, 2014
Resolution, maintained its earlier position. Hence, the instant recourse.

Issues

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 Taxation 2 Cases Batch 2

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

1. Whether or not the CA erred in dismissing the CA Petition for lack of jurisdiction; and

2. Whether or not the price difference in petitioner’s adverted sale of shares in PhilamCare attracts
donor’s tax.

Procedural Arguments

a. Petitioner’s contentions

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

SECTION 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. – The power to
interpret the provisions of this Code and other tax laws shall be under the exclusive and original
jurisdiction of the Commissioner, subject to review by the Secretary of Finance.

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

This distinction, petitioner argues, is readily made apparent by Department Order No. 7-02,12 as
circularized by RMC No. 40-A-02.

Philamlife further averred that Sec.7 of RA 1125, as amended, does not find application in the case at
bar since it only governs appeals from the Commissioner’s rulings under the second paragraph and
does not encompass rulings from the Secretary of Finance in the exercise of his power of review under
the first, as what was elevated to the CA. It added that under RA 1125, as amended, the only decisions
of the Secretary appealable to the CTA are those rendered in customs cases elevated to him
automatically under Section 2315 of the Tariff and Customs Code.13

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

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

b. Respondents’ contentions

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 Taxation 2 Cases Batch 2

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

To further reinforce their argument, respondents cite the President’s power of review emanating from
his power of control as enshrined under Sec. 17 of Article VII of the Constitution, which reads:

Section [Link] President shall have control of all the executive departments, bureaus, and offices. He
shall ensure that the laws be faithfully executed.

The nature and extent of the President’s constitutionally granted power of control have beendefined in
a plethora of cases, most recently in Elma v. Jacobi,16 wherein it was held that:

x x x This power of control, which even Congress cannot limit, let alone withdraw, means the power of
the Chief Executive to review, alter, modify, nullify, or set aside what a subordinate, e.g., members of
the Cabinet and heads of line agencies, had done in the performance of their duties and to substitute
the judgment of the former for that of the latter.

In their Comment on the instant petition, however, respondents asseverate that the CA did not err in
its holding respecting the CTA’s jurisdiction over the controversy.

The Court’s Ruling

The petition is unmeritorious.

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

To recapitulate, three different, if not conflicting, positions as indicated below have been advanced by
the parties and by the CA as the proper remedy open for assailing respondents’ rulings:

1. Petitioners: The ruling of the Commissioner is subject to review by the Secretary under Sec. 4 of the
NIRC, and that of the Secretary to the CA via Rule 43;

2. Respondents: The ruling of the Commissioner is subject to review by the Secretary under Sec. 4 of
the NIRC, and that of the Secretary to the Office of the President before appealing to the CA via a Rule
43 petition; and

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

We now resolve.

Preliminarily, it bears stressing that there is no dispute that what is involved herein is the respondent
Commissioner’s exercise of power under the first paragraph of Sec. 4 of the NIRC––the power to
interpret tax laws. This, in fact, was recognized by the appellate court itself, but erroneously held that
her action in the exercise of such power is appealable directly to the CTA. As correctly pointed out by
petitioner, Sec. 4 of the NIRC readily provides that the Commissioner’s power to interpret the
provisions of this Code and other tax laws is subject to review by the Secretary of Finance. The issue

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 Taxation 2 Cases Batch 2

that now arises is this––where does one seek immediate recourse from the adverse ruling of the
Secretary of Finance in its exercise of its power of review under Sec. 4?

Admittedly, there is no provision in law that expressly provides where exactly the ruling of the
Secretary of Finance under the adverted NIRC provision is appealable to. However, We find that Sec.
7(a)(1) of RA 1125, as amended, addresses the seeming gap in the law as it vests the CTA, albeit
impliedly, with jurisdiction over the CA petition as "other matters" arising under the NIRC or other laws
administered by the BIR. As stated:

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

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

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

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

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

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

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

xxxx

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 Taxation 2 Cases Batch 2

x x x Republic Act No. 1125 is a complete law by itself and expressly enumerates the matters which the
Court of Tax Appeals may consider; such enumeration excludes all others by implication. Expressio
unius est exclusio alterius.

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

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

The appellate power of the CTA includes certiorari

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

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

Vis-a-vis British American Tobacco, it bears to stress what appears to be a contrasting ruling in Asia
International Auctioneers, Inc. v. Parayno, Jr., to wit:

Similarly, in CIR v. Leal, pursuant to Section 116 of Presidential Decree No. 1158 (The National Internal
Revenue Code, as amended) which states that "[d]ealers in securities shall pay a tax equivalent to six
(6%) per centum of their gross income. Lending investors shall pay a tax equivalent to five (5%) per
cent, of their gross income," the CIR issued Revenue Memorandum Order (RMO) No. 15-91 imposing
5% lending investor’s tax on pawnshops based on their gross income and requiring all investigating

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 Taxation 2 Cases Batch 2

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

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

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

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

xxxx

Petitioner essentially questions the CIR’s ruling that Petitioner’s sale of shares is a taxable donation
under Sec. 100 of the NIRC. The validity of Sec. 100 of the NIRC, Sec. 7 (C.2.2) and RMC 25-11 is merely
questioned incidentally since it was used by the CIR as bases for its unfavourable opinion. Clearly, the
Petition involves an issue on the taxability of the transaction rather than a direct attack on the

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 Taxation 2 Cases Batch 2

constitutionality of Sec. 100, Sec.7 (c.2.2.) of RR 06-08 and RMC 25-11. Thus, the instant Petition
properly pertains to the CTA under Sec. 7 of RA 9282.

As a result of the seemingly conflicting pronouncements, petitioner submits that taxpayers are now at
a quandary on what mode of appeal should be taken, to which court or agency it should be filed, and
which case law should be followed.

Petitioner’s above submission is specious.

In the recent case of City of Manila v. Grecia-Cuerdo,25 the Court en banc has ruled that the CTA now
has the power of certiorari in cases within its appellate jurisdiction. To elucidate:

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

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

The foregoing notwithstanding, while there is no express grant of such power, with respect to the CTA,
Section 1, Article VIII of the 1987 Constitution provides, nonetheless, that judicial power shall be
vested in one Supreme Court and in such lower courts as may be established by law and that judicial
power includes the duty of the courts of justice to settle actual controversies involving rights which are
legally demandable and enforceable, and to determine whether or not there has been a grave abuse of
discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of
the Government.

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

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

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 Taxation 2 Cases Batch 2

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

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

The price difference is subject to donor's tax

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

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

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

WHEREFORE, the petition is hereby DISMISSED. The Resolutions of the Court of Appeals in CA-G.R. SP
No. 127984 dated May 23, 2013 and January 21, 2014 are hereby AFFIRMED.

SO ORDERED.

G.R. No. 111904 October 5, 2000

SPS. AGRIPINO GESTOPA and ISABEL SILARIO GESTOPA, petitioners,

vs.
COURT OF APPEALS and MERCEDES DANLAG y PILAPIL, respondents.

DECISION

QUISUMBING, J.:

This petition for review,1 under Rule 45 of the Rules of Court, assails the decision2 of the Court of
Appeals dated August 31, 1993, in CA-G.R. CV No. 38266, which reversed the judgment3 of the Regional
Trial Court of Cebu City, Branch 5.

The facts, as culled from the records, are as follows:

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 Taxation 2 Cases Batch 2

Spouses Diego and Catalina Danlag were the owners of six parcels of unregistered lands. They executed
three deeds of donation mortis causa, two of which are dated March 4, 1965 and another dated
October 13, 1966, in favor of private respondent Mercedes Danlag-Pilapil.4 The first deed pertained to
parcels 1 & 2 with Tax Declaration Nos. 11345 and 11347, respectively. The second deed pertained to
parcel 3, with TD No. 018613. The last deed pertained to parcel 4 with TD No. 016821. All deeds
contained the reservation of the rights of the donors (1) to amend, cancel or revoke the donation
during their lifetime, and (2) to sell, mortgage, or encumber the properties donated during the donors'
lifetime, if deemed necessary.

On January 16, 1973, Diego Danlag, with the consent of his wife, Catalina Danlag, executed a deed of
donation inter vivos5 covering the aforementioned parcels of land plus two other parcels with TD Nos.
11351 and 11343, respectively, again in favor of private respondent Mercedes. This contained two
conditions, that (1) the Danlag spouses shall continue to enjoy the fruits of the land during their
lifetime, and that (2) the donee can not sell or dispose of the land during the lifetime of the said
spouses, without their prior consent and approval. Mercedes caused the transfer of the parcels' tax
declaration to her name and paid the taxes on them.

On June 28, 1979 and August 21, 1979, Diego and Catalina Danlag sold parcels 3 and 4 to herein
petitioners, Mr. and Mrs. Agripino Gestopa. On September 29, 1979, the Danlags executed a deed of
revocation6 recovering the six parcels of land subject of the aforecited deed of donation inter vivos.

On March 1, 1983, Mercedes Pilapil (herein private respondent) filed with the RTC a petition against
the Gestopas and the Danlags, for quieting of title 7 over the above parcels of land. She alleged that she
was an illegitimate daughter of Diego Danlag; that she lived and rendered incalculable beneficial
services to Diego and his mother, Maura Danlag, when the latter was still alive. In recognition of the
services she rendered, Diego executed a Deed of Donation on March 20, 1973, conveying to her the six
(6) parcels of land. She accepted the donation in the same instrument, openly and publicly exercised
rights of ownership over the donated properties, and caused the transfer of the tax declarations to her
name. Through machination, intimidation and undue influence, Diego persuaded the husband of
Mercedes, Eulalio Pilapil, to buy two of the six parcels covered by the deed of donation. Said
donation inter vivos was coupled with conditions and, according to Mercedes, since its perfection, she
had complied with all of them; that she had not been guilty of any act of ingratitude; and that
respondent Diego had no legal basis in revoking the subject donation and then in selling the two
parcels of land to the Gestopas.

In their opposition, the Gestopas and the Danlags averred that the deed of donation dated January 16,
1973 was null and void because it was obtained by Mercedes through machinations and undue
influence. Even assuming it was validly executed, the intention was for the donation to take effect
upon the death of the donor. Further, the donation was void for it left the donor, Diego Danlag,
without any property at all.

On December 27, 1991, the trial court rendered its decision, thus:

"WHEREFORE, the foregoing considered, the Court hereby renders judgment in favor of the defendants
and against the plaintiff:

1. Declaring the Donations Mortis Causa and Inter Vivos as revoked, and, therefore, has (sic) no legal
effect and force of law.

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 Taxation 2 Cases Batch 2

2. Declaring Diego Danlag the absolute and exclusive owner of the six (6) parcels of land mentioned in
the Deed of revocation (Exh. P-plaintiff, Exh. 6-defendant Diego Danlag).

3. Declaring the Deeds of Sale executed by Diego Danlag in favor of spouses Agripino Gestopa and
Isabel Gestopa dated June 28, 1979 (Exh. S-plaintiff; Exh. 18-defendant); Deed of Sale dated December
18, 1979 (Exh. T plaintiff; Exh. 9-defendant); Deed of Sale dated September 14, 1979 (Exh. 8); Deed of
Sale dated June 30, 1975 (Exh. U); Deed of Sale dated March 13, 1978 (Exh. X) as valid and enforceable
duly executed in accordance with the formalities required by law.

4. Ordering all tax declaration issued in the name of Mercedes Danlag Y Pilapil covering the parcel of
land donated cancelled and further restoring all the tax declarations previously cancelled, except
parcels nos. 1 and 5 described, in the Deed of Donation Inter Vivos (Exh. "1") and Deed of Sale (Exh.
"2") executed by defendant in favor of plaintiff and her husband.

[5.] With respect to the contract of sale of abovestated parcels of land, vendor Diego Danlag and
spouse or their estate have the alternative remedies of demanding the balance of the agreed price
with legal interest, or rescission of the contract of sale.

SO ORDERED."8

In rendering the above decision, the trial court found that the reservation clause in all the deeds of
donation indicated that Diego Danlag did not make any donation; that the purchase by Mercedes of
the two parcels of land covered by the Deed of Donation Inter Vivos bolstered this conclusion; that
Mercedes failed to rebut the allegations of ingratitude she committed against Diego Danlag; and that
Mercedes committed fraud and machination in preparing all the deeds of donation without explaining
to Diego Danlag their contents.

Mercedes appealed to the Court of Appeals and argued that the trial court erred in (1) declaring the
donation dated January 16, 1973 as mortis causa and that the same was already revoked on the
ground of ingratitude; (2) finding that Mercedes purchased from Diego Danlag the two parcels of land
already covered by the above donation and that she was only able to pay three thousand pesos, out of
the total amount of twenty thousand pesos; (3) failing to declare that Mercedes was an acknowledged
natural child of Diego Danlag.

On August 31, 1993, the appellate court reversed the trial court. It ruled:

"PREMISES CONSIDERED, the decision appealed from is REVERSED and a new judgment is hereby
rendered as follows:

1. Declaring the deed of donation inter vivos dated January 16, 1973 as not having been revoked and
consequently the same remains in full force and effect;

2. Declaring the Revocation of Donation dated June 4, 1979 to be null and void and therefore of no
force and effect;

3. Declaring Mercedes Danlag Pilapil as the absolute and exclusive owner of the six (6) parcels of land
specified in the above-cited deed of donation inter vivos;

4. Declaring the Deed of Sale executed by Diego Danlag in favor of spouses Agripino and Isabel Gestopa
dated June 28, 1979 (Exhibits S and 18), Deed of Sale dated December 18, 1979 (Exhibits T and 19),
Deed of Sale dated September 14, 1979 (Exhibit 8), Deed of Sale dated June 30, 1975 (Exhibit U), Deed

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 Taxation 2 Cases Batch 2

of Sale dated March 13, 1978 (Exhibit X) as well as the Deed of Sale in favor of Eulalio Danlag dated
December 27, 1978 (Exhibit 2) not to have been validly executed;

5. Declaring the above-mentioned deeds of sale to be null and void and therefore of no force and
effect;

6. Ordering spouses Agripino Gestopa and Isabel Silerio Gestopa to reconvey within thirty (30) days
from the finality of the instant judgment to Mercedes Danlag Pilapil the parcels of land above-
specified, regarding which titles have been subsequently fraudulently secured, namely those covered
by O.C.T. T-17836 and O.C.T. No. 17523.

7. Failing to do so, ordering the Branch Clerk of Court of the Regional Trial Court (Branch V) at Cebu
City to effect such reconveyance of the parcels of land covered by O.C.T. T-17836 and 17523.

SO ORDERED."9

The Court of Appeals held that the reservation by the donor of lifetime usufruct indicated that he
transferred to Mercedes the ownership over the donated properties; that the right to sell belonged to
the donee, and the donor's right referred to that of merely giving consent; that the donor changed his
intention by donating inter vivos properties already donated mortis causa; that the transfer to
Mercedes' name of the tax declarations pertaining to the donated properties implied that the donation
was inter vivos; and that Mercedes did not purchase two of the six parcels of land donated to her.

Hence, this instant petition for review filed by the Gestopa spouses, asserting that:

"THE HONORABLE COURT OF APPEALS, TWELFTH DIVISION, HAS GRAVELY ERRED IN REVERSING THE
DECISION OF THE COURT A QUO."10

Before us, petitioners allege that the appellate court overlooked the fact that the donor did not only
reserve the right to enjoy the fruits of the properties, but also prohibited the donee from selling or
disposing the land without the consent and approval of the Danlag spouses. This implied that the
donor still had control and ownership over the donated properties. Hence, the donation was post
mortem.

Crucial in resolving whether the donation was inter vivos or mortis causa is the determination of
whether the donor intended to transfer the ownership over the properties upon the execution of the
deed.11

In ascertaining the intention of the donor, all of the deed's provisions must be read together. 12 The
deed of donation dated January 16, 1973, in favor of Mercedes contained the following:

"That for and in consideration of the love and affection which the Donor inspires in the Donee and as
an act of liberality and generosity, the Donor hereby gives, donates, transfer and conveys by way of
donation unto the herein Donee, her heirs, assigns and successors, the above-described parcels of
land;

That it is the condition of this donation that the Donor shall continue to enjoy all the fruits of the land
during his lifetime and that of his spouse and that the donee cannot sell or otherwise, dispose of the
lands without the prior consent and approval by the Donor and her spouse during their lifetime.

xxx

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 Taxation 2 Cases Batch 2

That for the same purpose as hereinbefore stated, the Donor further states that he has reserved for
himself sufficient properties in full ownership or in usufruct enough for his maintenance of a decent
livelihood in consonance with his standing in society.

That the Donee hereby accepts the donation and expresses her thanks and gratitude for the kindness
and generosity of the Donor."13

Note first that the granting clause shows that Diego donated the properties out of love and affection
for the donee. This is a mark of a donation inter vivos.14 Second, the reservation of lifetime usufruct
indicates that the donor intended to transfer the naked ownership over the properties. As correctly
posed by the Court of Appeals, what was the need for such reservation if the donor and his spouse
remained the owners of the properties? Third, the donor reserved sufficient properties for his
maintenance in accordance with his standing in society, indicating that the donor intended to part with
the six parcels of land.15 Lastly, the donee accepted the donation. In the case of Alejandro vs. Geraldez,
78 SCRA 245 (1977), we said that an acceptance clause is a mark that the donation is inter vivos.
Acceptance is a requirement for donations inter vivos. Donations mortis causa, being in the form of a
will, are not required to be accepted by the donees during the donors' lifetime.

Consequently, the Court of Appeals did not err in concluding that the right to dispose of the properties
belonged to the donee. The donor's right to give consent was merely intended to protect his
usufructuary interests. In Alejandro, we ruled that a limitation on the right to sell during the donors'
lifetime implied that ownership had passed to the donees and donation was already effective during
the donors' lifetime.

The attending circumstances in the execution of the subject donation also demonstrated the real
intent of the donor to transfer the ownership over the subject properties upon its execution. 16 Prior to
the execution of donation inter vivos, the Danlag spouses already executed three donations mortis
causa. As correctly observed by the Court of Appeals, the Danlag spouses were aware of the difference
between the two donations. If they did not intend to donate inter vivos, they would not again donate
the four lots already donated mortis causa. Petitioners' counter argument that this proposition was
erroneous because six years after, the spouses changed their intention with the deed of revocation, is
not only disingenious but also fallacious. Petitioners cannot use the deed of revocation to show the
spouses' intent because its validity is one of the issues in this case.

Petitioners aver that Mercedes' tax declarations in her name can not be a basis in determining the
donor's intent. They claim that it is easy to get tax declarations from the government offices such that
tax declarations are not considered proofs of ownership. However, unless proven otherwise, there is a
presumption of regularity in the performance of official duties.17 We find that petitioners did not
overcome this presumption of regularity in the issuance of the tax declarations. We also note that the
Court of Appeals did not refer to the tax declarations as proofs of ownership but only as evidence of
the intent by the donor to transfer ownership.

Petitioners assert that since private respondent purchased two of the six parcels of land from the
donor, she herself did not believe the donation was inter vivos. As aptly noted by the Court of Appeals,
however, it was private respondent's husband who purchased the two parcels of land.

As a rule, a finding of fact by the appellate court, especially when it is supported by evidence on record,
is binding on us.18 On the alleged purchase by her husband of two parcels, it is reasonable to infer that
the purchase was without private respondent's consent. Purchase by her husband would make the

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 Taxation 2 Cases Batch 2

properties conjugal to her own disadvantage. That the purchase is against her self-interest, weighs
strongly in her favor and gives credence to her claim that her husband was manipulated and unduly
influenced to make the purchase, in the first place.1âwphi1

Was the revocation valid? A valid donation, once accepted, becomes irrevocable, except on account of
officiousness, failure by the donee to comply with the charges imposed in the donation, or
ingratitude.19 The donor-spouses did not invoke any of these reasons in the deed of revocation. The
deed merely stated:

"WHEREAS, while the said donation was a donation Inter Vivos, our intention thereof is that of Mortis
Causa so as we could be sure that in case of our death, the above-described properties will be
inherited and/or succeeded by Mercedes Danlag de Pilapil; and that said intention is clearly shown in
paragraph 3 of said donation to the effect that the Donee cannot dispose and/or sell the properties
donated during our life-time, and that we are the one enjoying all the fruits thereof."20

Petitioners cited Mercedes' vehemence in prohibiting the donor to gather coconut trees and her filing
of instant petition for quieting of title. There is nothing on record, however, showing that private
respondent prohibited the donors from gathering coconuts. Even assuming that Mercedes prevented
the donor from gathering coconuts, this could hardly be considered an act covered by Article 765 of
the Civil Code.21 Nor does this Article cover respondent's filing of the petition for quieting of title,
where she merely asserted what she believed was her right under the law.

Finally, the records do not show that the donor-spouses instituted any action to revoke the donation in
accordance with Article 769 of the Civil Code.22 Consequently, the supposed revocation on September
29, 1979, had no legal effect.

WHEREFORE, the instant petition for review is DENIED. The assailed decision of the Court of Appeals
dated August 31, 1993, is AFFIRMED.

Costs against petitioners.

SO ORDERED.

TANG HO, WILLIAM LEE, HENRI LEE, SOFIA LEE TEEHANKEE, THOMAS LEE, ANTHONY LEE, JULIA LEE
KAW, CHARLES LEE, VALERIANA LEE YU, VICTOR LEE, SILVINO LEE, MARY LEE, JOHN LEE, and PETER LEE,
for themselves and as heirs of LI SENG GIAP, deceased, v. THE BOARD OF TAX APPEALS and THE
COLLECTOR OF INTERNAL REVENUE. G.R. No. L-5949. November 19, 1955. 97 PH 889

FACTS:

The BIR found that petitioners had an investment in shares issued to them from their family
corporation. The CIR regarded these transfers as undeclared gifts made in the respective years, and
assessed against petitioners. After paying the basic tax, petitioners asked for the reassessment stating
that each of them received by way of gift inter vivos, that those who got married were given additional
money as propter nuptias and those who did not received it by inter vivos. Petitioners also contend
that the cash donated came from conjugal funds, claiming for exemption.

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 Taxation 2 Cases Batch 2

The CIR refused to revise his original assessment. Upon petition to the CTA, the CTA still upheld the
CIR's assessment.

ISSUE: Whether petitioners are liable for tax. Whether petitioners can claim tax exemptions twice from
the conjugal funds.

RULING:

YES. As petitioners failed to pay taxes for the past ten years they are now scarcely in a position to
complain if their contentions are not accepted as truthful without satisfactory corroboration. Any
other view would leave the collection of taxes at the mercy of explanations concocted ex post facto by
evading taxpayers, drafted to suit any facts disclosed upon investigation, and safe from contradiction
because the passing years have erased all

trace of the truth.

NO. The Court took a look at the Spanish Civil Code of 1889, which was the governing law in this case.
The provisions state that the donations of property "by the husband" from the "donations by both
spouses by common consent" differs. The lawful donations by the husband to the common children
are valid and are chargeable to the community property, irrespective of whether the wife agrees or
objects thereof. To be a donation by both spouses, taxable to both, the wife must expressly join the
husband in making the gift; her participation therein cannot be implied.

A donation by the husband alone does not become in law a donation by both spouses merely because
it involves property of the conjugal partnership.

A donation of property belonging to the conjugal partnership, made during its existence, by the
husband alone in favor of the common children, is taxable to him exclusively as sole donor.

G.R. No. L-17406 November 29, 1965

FINLEY J. GIBBS and DIANE P. GIBBS, petitioners,

vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.

Ozaeta, Gibbs & Ozaeta for petitioners.

Office of the Solicitor General for respondents.

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 Taxation 2 Cases Batch 2

REGALA, J.:

This is a petition for review of two resolutions of the Court of Tax Appeals dated June 18, 1960 and
August 23, 1960 in CTA Case No. 584, dismissing for lack of jurisdiction the petitioners' claims for
refund and tax credit against the respondent Commissioner of Internal Revenue.

The facts upon which the respondent court entered the aforementioned resolutions are:

On February 6, 1965, the respondent Commissioner of Internal Revenue issued against the petitioners,
"Finley J. Gibbs and Diane P. Gibbs, c/o Francisco Collantes, Rm. 301, Cepoc Bldg., Dasmariñas, Manila"
Deficiency Income Tax Assessment Notice No. AR-5416-55/50 for P16,873.00 for the tax year 1950 with
the demand that the said amount should be paid on or before March 15, 1956. On March 14, 1956,
Allison J. Gibbs, signing as attorney-in-fact for Finley J. Gibbs, his brother, acknowledged receipt of the
above assessment notice and notified the respondent Commissioner that Finley J. Gibbs was then living
in Atherton, California, with office at 200 Bush Street, San Francisco 4 and that the latter was notified
by him of the said deficiency assessment. In the same letter, Allison J. Gibbs questioned the
disallowance of the items which gave rise to the deficiency assessment and requested for a correction
of it. On August 26, 1956, however, the respondent Commissioner denied the request.

As regards the tax liability of your brother, Mr. Finley J. Gibbs, in the sum of P16,873.00, exclusive of
surcharge and interest for the year 1951, please be informed that inasmuch as the facts obtaining in
his case are similar in all fours with that of your case, the arguments above are applicable to the case of
your said brother.

In view of the foregoing, you are hereby requested for the last time to pay the said amount of
P12,284.00 exclusive of surcharge and interest, to the City Treasurer, Manila, within ten (10) days from
your receipt hereof in order that this case may be closed. You are further requested to urge your
brother to pay the abovementioned amount immediately upon your receipt hereof in order that his
case may also be closed.

Having deemed the above reply of August 28, 1956, as the "final decision" of the respondent
Commissioner on the matter, Allison J. Gibbs wrote on October 3, 1956, the following correspondence
to the latter:

I consider your final decision, dated August 28, 1956, to be contrary to law but to demonstrate my
good faith I herewith send you my Check No. 213082 drawn on the Chartered Bank of India, Australia &
China payable to you in the sum of P16,873.00 in full payment of your original deficiency assessment
No. AR-5416-55-50. Kindly acknowledge receipt.

At the same time, Allison J. Gibbs, demanded refund of the above payment:

I demand the immediate refund of this payment for the reasons heretofore given you. Unless refunded
on or before the fourth of October I will file a Petition for Review with the Court of Tax Appeals and
charge you with my damages of six percent (6%) interest per annum plus attorney's fees of twenty five
percent (25%) of the amount involved. (Emphasis supplied, Letter of October 3, 1956.)

On October 26, 1956, the respondent Commissioner denied the above demand for refund.

With reference to your letters both dated October 3, 1956, requesting the refund of the sums of
P12,284.00 and P16,873.00, as alleged erroneous payments of your income tax liability and that of
your brother, Finley J. Gibbs, respectively, both for the year 1950, I regret to have to inform you that

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 Taxation 2 Cases Batch 2

for reasons stated in our letter dated August 28, 1956, this Office finds no justifiable basis to grant your
said request.

The above letter of October 26, 1956, denying the petitioners' claim for refund was admittedly
received by the office of Allison J. Gibbs on November 14, 1956.

On September 29, 1958, Allison J. Gibbs, signing as counsel for Finley J. Gibbs, wrote another letter
addressed to the respondent Commissioner to "reiterate our client's demand for refund of the
P16,873.00 he paid on October 3, 1956 on the ground that your deficiency Assessment No. AR-5416-
55/50 was illegal ... ." This letter also opined that the previous letter of October 26, 1956, of the
respondent Commissioner was not "a ruling on our client's claim for refund of P16,873.00." Finally, this
letter likewise asserted certain claims for tax credits arising allegedly from some previous overpayment
made by the petitioner to the respondent Commissioner of Internal Revenue. The correspondence
closed with the notice that should the demand for refund be uneffected on or before October 1, 1958,
a petition for that purpose would be filed with the Court of Tax Appeals. The respondent Commissioner
never replied to this letter of September 29, 1958.

On October 1, 1958, the petitioners filed with the respondent court a "Petition for Review and Refund
of Income Tax with Motion for Suspension of Collection of Additional Taxes," alleging, in the main, its
claims for refund and tax credit discussed above. To this petition, the respondent Commissioner filed
an Answer on November 10, 1956 to claim, among others, the following special and affirmative
defenses:

A. That this Honorable Court has no jurisdiction to take judicial cognizance of the petition for review on
the ground that the petition for review was filed beyond thirty (30) days from the date of receipt of
respondent's decision, dated October 26, 1956, denying the claim for refund as prescribed by Section
11 of Republic Act No. 1125;

B. That this Honorable Court has no jurisdiction over the cause of action with respect to the credit of
the amounts stated in the petition for review for the reason that the request for credit and the petition
for review praying for the credit of said amounts have been filed beyond two (2) years from the dates
of payment of the amounts sought to be credited in the petition for review.

Acting on a motion dated November 17, 1958 filed by the respondent Commissioner for a preliminary
hearing on the question of the lower court's jurisdiction as above contested, the respondent court,
after due hearing and reception of evidence, sustained the above objection to its jurisdiction and
upheld the respondent Commissioner's claim that the two causes of action asserted by the petitioner
were barred by prescription. To this end, the respondent court promulgated two orders: the
Resolution of June 18, 1960 dismissing CTA Case No. 584 for lack of jurisdiction and the Resolution of
August 23, 1960 dismissing for lack of merit the petitioners' motion for reconsideration filed therefor.
These are the two orders sought to be reviewed in the instant petition for review.

The petitioners contend that the respondent court erred in ruling that their petition for review was
filed outside the 30-day period prescribed by Section 8 of Republic Act No. 1125 because (a) there is
neither evidence nor record that the petitioners received a copy of the letter of October 26, 1956
denying their claim for refund, and (b) the aforesaid letter of October 26, 1956 is not a denial of their
claim for refund.

Anent the insistence of the petitioners that they never received a copy of the letter of October 26,
1956 denying their claim for refund, suffice it to say that while they themselves personally might not

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have received a copy of it, Allison J. Gibbs, as their attorney-in-fact and actually as their counsel,
received a copy of the same.

Of course, the petitioners maintain that Allison J. Gibbs, at least until September 30, 1957, acted
merely as agent or attorney-in-fact of the petitioners and never as their legal counsel. In support of
this, it is argued that prior to October 26, 1956, Allison J. Gibbs had explicitly qualified his signature to
all his correspondences regarding the disputed assessment as "attorney-in-fact." Furthermore, it is
urged that as might be seen on the face of the assessment notice itself, the real legal counsel of the
petitioners in the matter of the said assessment was Atty. Francisco Collantes.

That Allison J. Gibbs was not merely the agent of the petitioners in the matter under litigation, contrary
to all that is alleged above, is demonstrated, however, by the following circumstances obtaining in this
case:

1. Allison J. Gibbs acknowledged for the petitioners receipt of the deficiency income tax assessment,
formally protested the same in writing, paid the assessment and likewise formally demanded in writing
its refund.

2. As far back as 1952, Allison J. Gibbs' Law office had been representing the petitioners as the latter's
counsel.

3. Atty. Francisco Collantes, to whom the assessment notice was admittedly addressed, at the time of
the said assessment, was a staff lawyer in the firm of Gibbs and Chuidian, of which Allison J. Gibbs was
a principal partner.

We find all the above as ample evidence of the lawyer-client-relationship of the petitioners herein and
Allison J, Gibbs. Besides, it should be recalled that among the charges which Allison J. Gibbs claimed he
would collect if his demand for refund for the petitioners were not effected by the respondent
Commissioner was "attorney's fees of twenty five percent (25%) of the amount involved." (Letter of
October 3, 1956.) How, then, may this statement be reconciled with the present denial that Allison was
indeed the petitioners' counsel when he wrote the said letter of October 3, 1956?

There can be no question, therefore, that the receipt of the October 26, 1956 letter-decision of the
respondent Commissioner by Allison J. Gibbs was receipt of the same by the petitioners, the former
being then the latter's legal counsel. In the premises, the respondent court cannot be considered to
have erred, therefore, in computing the 30-day prescriptive period in question from the date the said
letter was received by Allison J. Gibbs.

On the other hand, the petitioners' claim that the letter of October 26, 1956 was not a denial of their
claim for refund is patently unmeritorious. The letter in question clearly stated that "for reasons stated
in our letter dated August 28, 1956, this Office finds no justifiable basis to grant your said request."
Considering that even Allison J. Gibbs deemed the August 28, 1956 correspondence as the
Commissioner's "final decision" on the controversy, it is difficult to see how the petitioners can now
argue that the said letter of October 26, 1956, was not a denial of their claim for refund.

Parenthetically, it may be observed, that in view of our finding that the respondent court had no
jurisdiction over the petition for review because it was filed beyond the 30-day period, hence, there is
no need for extensive discussion of the second issue, namely: Whether the withholding tax credits
amount to payment for the purpose of determining the two-year period as provided for by Section 306
of the Internal Revenue Code.

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The petitioners maintain that the respondent court erred in ruling that their claim for tax credit had
already expired since it pertained to tax payments made in 1951 and the protest and claim for demand
therefor was made only in 1958. The petitioners insist that they could not be deemed to have paid
their 1951 tax obligation until February 19, 1957, because they merely contributed to the withholding
tax system in 1951 and claimed certain refunds against their contribution at the end of the said tax
year and they received notice of the resolution on their claim for such refund only on February 19,
1957. In other words, the petitioners' thesis is to the effect that income tax assessments against which
claims for refund have been lodged and which are covered by taxes withheld at the source shall be
considered paid, not at the time such tax obligations fall due, but, only when the claims for refund
against the assessments are finally resolved by the authorities. By the petitioners' own formulation of
their argument —

Petitioners also respectfully contend that the statute of limitation of two years prescribed in Section
306 of the NIRC does not start to run until respondent Commissioner has acted on the claim for refund
or credit by the non-resident taxpayer and so notified the taxpayer because until then the withholding
tax cannot be treated as a payment by the alien-resident taxpayer; until then it is a mere deposit held
by respondent Commissioner for the account of the non-resident alien taxpayer.

This Court cannot subscribe to the petitioners' view.

Payment is a mode of extinguishing obligations (Art. 1231, Civil Code) and it means not only the
delivery of money but also the performance, in any other manner, of an obligation (id., Art. 1231). A
taxpayer, resident or non-resident, who contributes to the withholding tax system, does so not really
to deposit an amount to the Commissioner of Internal Revenue, but, in truth, to perform and
extinguish his tax obligation for the year concerned. In other words, he is paying his tax liabilities for
that year. Consequently, a taxpayer whose income is withheld at the source will be deemed to have
paid his tax liability when the same falls due at the end of the tax year. It is from this latter date then,
or when the tax liability falls due, that the two-year prescriptive period under Section 306 of the
Revenue Code starts to run with respect to payments effected through the withholding tax system. It is
of no consequence whatever that a claim for refund or credit against the amount withheld at the
source may have been presented and may have remained unresolved since, as this Court has
previously explained in the case of Gibbs vs. Collector of Internal Revenue, G.R. No. L-13453, February
29, 1960 —

... Section 306 of the National Internal Revenue Code should be construed together with Section 11 of
Republic Act No. 1125. In fine, a taxpayer who has paid the tax, whether under protest or not, and who
is claiming a refund of the same, must comply with the requirement of both sections, that is, he must
file a claim for refund with the Collector of Internal Revenue within 2 years from the date of his
payment of the tax, as required by Section 306 of the National Internal Revenue Code, and appeal to
the Court of Tax Appeals within 30 days from receipt of the Collector's decision or ruling denying his
claim for refund, as required by Section 11 of Republic Act No. 1125. If, however, the Collector takes
time in deciding the claim, and the period of two years is about to end, the suit or proceeding must be
started in the Court of Tax Appeals before the end of the two-year period without awaiting the decision
of the Collector. This is so because of the positive requirement of Section 306 and the doctrine that
delay of the Collector in rendering decision does not extend the peremptory period fixed by the
statute. (U.S. v. Michel 282 U.S. 656, 51 S. Ct. 284; P. J. Kiener & Co., Ltd., v. David, L-5163, April 22,
1953; College of Oral and Dental Surgery vs. CTA, G.R. No. L-10446, Jan. 28, 1958. Emphasis supplied).

WHEREFORE, the instant petition for review is hereby dismissed, with costs against the petitioners.

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