Gamboa, Katrina Marie Jhoan A.

Atty Jonathan Ibe

Facts:

After the death of Jose P. Fernandez (Jose), a petition for the probate of his will was filed
with Branch 51 of the Regional Trial Court (RTC) of Manila (probate court). 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).
Justice Dizon authorized Atty. Jesus M. Gonzales (Atty. Gonzales) to sign and file on
behalf of the Estate the required estate tax return and to represent the same in securing a
Certificate of Tax Clearance. Eventually, on April 17, 1990, Atty. Gonzales wrote a letter
addressed to the BIR Regional Director for San Pablo City and filed the estate tax return with
the same.
Petitioner requested the probate court's authority to sell several properties forming part
of the Estate, for the purpose of paying its creditors. However, the Assistant Commissioner for
Collection of the BIR, issued Estate Tax Assessment Notice demanding the payment of
P66,973,985.40 as deficiency estate tax.
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.
CTA denied Petition For Review citing this Court's ruling in Vda. de Oñate v. Court of
Appeals, the CTA opined that the aforementioned pieces of evidence introduced by the BIR
were admissible in evidence.

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

Held:
The claims existing at the time of death are significant to, and should be made the basis
of, the determination of allowable deductions. Also, as held in Propstra v. U.S., 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. This is called the date-of-death
valuation rule.
 Marcos II vs. CA
G.R. No. 120880, June 5, 1997

Facts:
Following the death of former President Marcos in 1989, a Special Tax Audit Team was
created on June 27, 1990 to conduct investigations and examinations of tax liabilities of the late
president, his family, associates and cronies. The investigation disclosed that the Marcoses
failed to file a written notice of death of the decedent estate tax return and income tax returns for
the years 1982 to 1986, all in violation of the Tax Code. Criminal charges were field against Mrs.
Marcos for violation of Secs. 82, 83 and 84, NIRC.
On July 26, 1991, the BIR issued deficiency estate tax assessments and the
corresponding deficiency income tax assessments. Copies of deficiency estate and income tax
assessments were served personally and constructively on August 26, 1991 and September 12,
1991 upon Mrs. Marcos.
Petitioner filed a petition for certiorari and prohibition with an application for TRO before
the CA to annul and set aside the notices of levy as well as the notice of sale and to enjoin the
BIR from proceeding with the auction. The CA dismissed the petition ruling that the deficiency
assessments for the estate and income taxes have already become final and unappealable and
may thus be enforced by summary remedy of levying upon the real property.

Issue:
Whether or not the proper avenue of assessment and collection was taken by the
respondent bureau.

Held:
Apart from failing to file the required estate tax return within the time required for filing
the same, petitioner and other Marcos heirs never questioned the assessment served upon
them, allowing the same to lapse into finality, and prompting the BIR to collect said taxes by
levying upon the properties left by the late President Marcos.

The Notice of Levy upon real property were issued within the prescriptive period and in
accordance with Sec. 222 of the Tax Code. The deficiency tax assessment, having become
final, executory and demandable, the same can now be collected through the summary remedy
of distraint and levy pursuant to Sec. 205 of the Tax Code.
 CIR vs. CA
G.R. No. 123206, March 22, 2000

Facts:
Pedro Pajonar was a member of the Philippine Scout, Bataan Contingent, during the
second World War.After he became insane due to being part of the Death March, his sister
Josefina Pajonar became the guardian over his person, while his property was placed under the
guardianship of PNB.
Upon his death, PNB filed an accounting of the decedent's property under guardianship
valued at P3,037,672.09. However, the PNB did not file an estate tax return, instead it advised
Pedro Pajonar's heirs to execute an extrajudicial settlement and to pay the taxes on his estate.
Pursuant to the assessment by the BIR, the estate of Pedro Pajonar paid taxes in the amount of
P2,557 and the trial court appointed Josefina as the regular administratrix of Pedro Pajonar's
estate.
Pursuant to a second assessment by the BIR for deficiency estate tax, the estate of
Pedro Pajonar paid estate tax in the amount of P1,527,790.98.
Josefina, in her capacity as administratrix and heir of Pedro Pajonar's estate, filed a
protest 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.
However, without waiting for her protest to be resolved by the BIR, Josefina filed a
petition for review with the Court of Tax Appeals praying for the refund of P1,527,790.98, or in
the alternative, P840,202.06, as erroneously paid estate tax. CTA ordered the CIR to refund
Josefina the amount of P252,585.59, representing erroneously paid estate tax for the year
1988.
Commissioner of Internal Revenue filed a motion for reconsideration of the CTA's
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.
CTA issued the assailed Resolution ordering the Commissioner of Internal Revenue to
refund Josefina, 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
Commissioner of Internal Revenue filed with the Court of Appeals a petition for review
questioning the validity of the abovementioned deductions.

Issue:
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.
Held:
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."
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.
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.
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.
 Lorenzo vs. Posadas
64 Phil. 353

Facts:
On 27 May 1922, Thomas Hanley died in Zamboanga, leaving a will and considerable
amount of real and personal properties. Hanley’s will provides the following: his money will be
given to his nephew, Matthew Hanley, as well as the real estate owned by him. It further
provided that the property will only be given ten years after Thomas Hanley’s death. Thus, in the
testamentary proceedings, the Court of First Instance of Zamboanga appointed P.J.M. Moore as
trustee of the estate.
When Moore resigned in Feb. 29, 1932, Pablo Lorenzo was appointed in his stead. Juan
Posadas, Collector of Internal Revenue, assessed inheritance tax against the estate amounting
to P2,057.74 which includes penalty and surcharge. He filed a motion in the testamentary
proceedings so that Lorenzo will be ordered to pay the amount due.
Lorenzo paid the amount in protest after CFI granted Posadas’ motion. He claimed that
the inheritance tax should have been assessed after 10 years. He asked for a refund but
Posadas declined to do so. The latter counterclaimed for the additional amount of P1,191.27
which represents interest due on the tax and which was not included in the original assessment.
However, CFI dismissed this counterclaim. It also denied Lorenzo’s claim for refund against
Posadas. Hence, both appealed.

Issue:
Whether the estate was delinquent in paying the inheritance tax and therefore liable for
the P1,191.27 that Posadas is asking for?

Held:
It was delinquent because according to Sec. 1544 (b) of the Revised Administrative
Code, payment of the inheritance tax shall be made before delivering to each beneficiary his
share. This payment should have been made before March 10, 1924, the date when P.J.M.
Moore formally assumed the function of trustee.
Although the property was only to be given after 10 years from the death of Hanley, the court
considered that delivery to the trustee is delivery to cestui que trust, the beneficiary within the
meaning of Sec. 1544 (b).
 Dizon vs. Posadas
57 Phil. 465

Facts:
Don Felix Dizon died on April 21, 1928. Before his death, he made a gift inter vivos in
favor of the plaintiff Luis W. Dizon, his legitimate and only son, of all his property according to a
deed of a gift of which includes all the property of the former.
The plaintiff did not receive the property of any kind of Don Felix upon the death of the
latter.The defendant, Collector of Internal Revenue assessed an inheritance tax of Php2,808.73
which Don Luis paid under protest and later filed an action to recover the sum of money thus
paid.
Plaintiff alleged that the inheritance tax is illegal because he received the property, which
is the basis of the tax from his father before his death by a deed of gift inter vivos which was
duly accepted and registered before the death of his father.

Issue:
Whether or not the gift inter vivos is subject to inheritance tax.

Held:
Section 1540 of the administrative code plainly does not tax gifts per se but only when
those gifts are made to those who shall prove to be the heirs, devisees, legatees or donees
mortis cause of the donor.
In this case, the scanty facts before us may not warrant the inference that the
conveyance, acknowledged by the donor 5 days before his death and accepted by the donee
one day before the donor’s death, was fraudulently made for the purpose of evading the
inheritance tax. But the facts, in our opinion, do not warrant the inference that the transfer was
an advancement upon the inheritance which the donee as the sole and forced heir of the donor,
would be entitled to receive upon the death of the donor.
 Villa de Roces vs. Posadas
58 Phil. 108

Facts:
Sometime in 1925, plaintiffs Concepcion Vidal de Roces and her husband, as well as
one Elvira Richards, received as donation several parcels of land from Esperanza Tuazon. By
virtue of said donations, the plaintiffs took possession of the said lands, received the fruits
thereof and obtained the corresponding transfer certificate of title.
On January 25, 1926, the donor died in the city of Manila leaving the forced heir and her
will which was admitted to probate, she bequeathed to each of the donees the sum of
Php5,000. After the estate had been distributed among the instituted legatees and before the
delivery of their respective shares, the appellee herein, as collector of internal revenue, ruled
that the appellant as donees and legatees should pay as inheritance taxes the sums of
Php16,673 and Php13,951.45 respectively.
At first, the appellants refused to pay the aforementioned taxes but, at the insistence of
the appellee in order not to delay the adjudication of the legacies, they agreed at last to pay
them under protest. Hence, plaintiff-appellants filed an action to recover the taxes paid under
protest.

Issue:
Whether or not inheritance tax should be imposed on donations inter vivos.

Held:
The tax collected by the appellee on the properties donated in 1925 really constitutes an
inheritance tax imposed on the transmission of said properties in contemplation or in
consideration of the donor’s death and under circumstance that the donees were later instituted
as the former’s legatees. For this reason, the law considers such transmission in the form of
gifts inter vivos, as advances on the inheritance and nothing therein violates any constitutional
provision, in as much as said legislation is within the power of the legislature.
While a donee inter vivos, who after the predecessor’s death proved to be an heir,
legatee or donee mortis causa, would have to pay the tax, another donee inter vivos who did not
prove to be an heir, a legatee or a donee mortis causa of the predecessor, would be exempt
from such tax.
It may be inferred from the allegations contained in par 2 and 7 thereof that said
donations inter vivos were made in consideration of the donor’s death. We refer to the
allegations that such transmissions were effected in the month of March 1925, that the donor
died in January 1926, and that the donees were instituted legatees in the donor’s will which was
admitted in probate. It is from these allegations, especially the last, that we infer a presumption
juris tantum that said donations were made mortis causa and, as such are subject to payment of
inheritance tax.
 Collector vs. Fisher, L-11621
January 28, 1961

Facts:
Walter G. Stevenson was born in the Philippines of British parents, married inManila to
another British subject, Beatrice. He died in 1951 in Californiawhere he and his wife moved to.
In his will, he instituted Beatrice as his sole heiress to certain real and personal
properties, among which are 210,000 shares of stocks in MindanaoMother Lode Mines (Mines).
Ian Murray Statt (Statt), the appointed ancillary administrator of his estate filed an estate
and inheritance tax return. He made a preliminary return to secure the waiver of the CIR on the
inheritance of the Mines shares of stock.
In 1952, Beatrice assigned all her rights and interests in the estate to the spouses
Fisher. Statt filed an amended estate and inheritance tax return claiming
ADDITIONAL EXEMPTIONS, one of which is the estate and inheritance tax on the Mines’
shares of stock pursuant to a reciprocity proviso in the NIRC,hence, warranting a refund from
what he initially paid. The collector denied the claim. He then filed in the CFI of Manila for the
said amount.
CFI ruled that (a) the ½ share of Beatrice should be deducted from the netestate of
Walter, (b) the intangible personal property belonging to the estate of Walter is exempt from
inheritance tax pursuant to the reciprocity provision NIRC.

Issue:
Whether or not the estate can avail itself of the reciprocity proviso in theNIRC granting
exemption from the payment of taxes for the Mines shares of stock.

Held:
Reciprocity must be total. If any of the two states collects or imposes or does not exempt
any transfer, death, legacy or succession tax of any character,the reciprocity does not work.
In the Philippines, upon the death of any citizen or resident, or non-resident with
properties, there are imposed upon his estate, bothan estate and an inheritance tax.
But, under the laws of California, only inheritance tax is imposed.Also, although the
Federal Internal Revenue Code imposes an estate tax, it does not grant exemption on the basis
of reciprocity. Thus, a Filipino citizen shall always be at a disadvantage. This is not what the
legislators intended.
Section122 of the NIRC provides that “No tax shall be collected under this Title in
respect of intangible personal property
(a) if the decedent at the time of his death was a resident of a foreigncountry
which at the time of his death did not impose a transfer of taxor death tax of any
character in respect of intangible personal property of citizens of the Philippines not
residing in that foreigncountry, or
(b) if the laws of the foreign country of which the decedent was a resident at the
time of his death allow a similar exemption from transfer taxes or death taxes of every
character in respect of intangible personal property owned by citizens of the Philippines
not residing in that foreign country.”
 On the other hand, Section 13851 of the California Inheritance Tax Law Provides that
intangible personal property is exempt from tax if the decedent at the time of his death was a
resident of a territory or another State of theUnited States or of a foreign state or country which
then imposed a legacy,succession, or death tax in respect to intangible personal property of its
own residents, but either:
a) Did not impose a legacy, succession, or death tax of any character in respect to
intangible personal property of residents of this State, or
b) Had in its laws a reciprocal provision under which intangible
personal property of a non-resident was exempt from legacy, succession, or
death taxes of every character if the Territory or other State of the United States
orforeign state or country in which the nonresident resided allowed a similar
exemption in respect to intangible personal property of residents of theTerritory
or State of the United States or foreign state or country of residence of the
decedent."
 Wells Fargo vs. Collector
70 Phil. 505

Facts:
Birdie Lillian Eye died on September 16, 1932 at Los Angeles, California, the place of
her alleged last residence and domicile. Among the properties she left was her 1⁄2 conjugal
shares of stock in the Benguet Consolidated Mining Co., an anonymous partnership, organized
under the laws of the Philippines. She left a will duly admitted to probate in California where her
estate was administered and settled. Wells Fargo was the duly appointed trustee.
The Federal and California State’s inheritance taxes due thereon have been duly paid.
The Collector of Internal Revenue in the Philippines, however, sought to subject the shares of
stock to inheritance tax, to which Wells Fargo objected.

Issue:
Whether the shares of stock are subject to Philippine inheritance tax

Held:
Originally, the settled law in the United States is that intangibles have only one situs for
the purpose of inheritance tax, and such situs is in the domicile of the decedent at the time of
his or her death. But the rule has been relaxed.
The maxim “mobilia sequuntur personam” up which the rule rests, has been decried as a
mere fiction of law having its origin in considerations of general convenience and public policy
and cannot be applied to limit or control the right of the state to tax properly within its jurisdiction
and must yield to established fact of legal ownership, actual presence and control elsewhere,
and cannot be applied if to do so would result in inescapable and patent injustice.
This rests on either of two fundamental considerations:
(1) Upon the recognition of the inherent power of each government to tax
persons, properties and rights within its jurisdiction
and enjoying, thus, the protect of its laws; and
(2) Upon the principle that as to intangibles, a single location in space is hardly
possible, considering the multiple, distinct relationships which may be entered
into with respect thereto.
Herein, the actual situs of the shares of stock is in the Philippines, the corporation being
domiciled therein. Accordingly the jurisdiction of the Philippine government to tax must be
upheld.
 Velilla vs. Posadas
62 Phil. 624

Facts:
On May 27, 1992, Thomas Hanley died leaving a will and considerable amount of real
and personal properties. Under the will, the real properties were to pass to Thomas’ nephew
Matthew ten years after the two executors named in the will was appointed trustee.
During petitioner Lorenzo’s incumbency as trustee, the defendant Collector of Internal
Revenue assessed against the estate an inheritance tax in the amount of P1,434.24 which,
together with the penalties for delinquency in payment, amounted to P2,052.74. Lorenzo paid
the said amount under protest, notifying defendant Posadas that unless the amount was
promptly refunded suit would be brought for its recovery.
Posadas overruled Lorenzo’s protest and refused to refund the said amount. Lorenzo
went to the CFI but the latter dismissed his complaint and Posadas’ counterclaim.

Issue:
When does the inheritance tax accrue and when must it be satisfied?

Held:
The accrual of the inheritance tax is distinct from the obligation to pay the same. Section
1536 as amended, of the Administrative Code, imposes the tax upon "every transmission by
virtue of inheritance, devise, bequest, gift mortis causa, or advance in anticipation of
inheritance, devise, or bequest." The tax therefore is upon transmission or the transfer or
devolution of property of a decedent, made effective by his death.
From the fact, however, that Thomas Hanley died on May 27, 1922, it does not follow
that the obligation to pay the tax arose as of the date. The time for the payment on inheritance
tax is clearly fixed by section 1544 of the Revised Administrative Code as amended by Act No.
3031, in relation to section 1543 of the same Code. The two sections follow:
SEC. 1543.Exemption of certain acquisitions and transmissions. —The following shall
not be taxed:
(a) The merger of the usufruct in the owner of the naked title.
(b) The transmission or delivery of the inheritance or legacy by the fiduciary heir
or legatee to the trustees.
(c) The transmission from the first heir, legatee, or donee in favor of another
beneficiary, in accordance with the desire of the predecessor.

SEC. 1544.When tax to be paid. —The tax fixed in this article shall be paid:
(a) In the second and third cases of the next preceding section, before entrance
into possession of the property.
(b) In other cases, within the six months subsequent to the death of the
predecessor; but if judicial testamentary or intestate proceedings shall be instituted prior
to the expiration of said period, the payment shall be made by the executor or
administrator before delivering to each beneficiary his share.
 The instant case does fall under subsection (a), but under subsection (b), of section
1544 above-quoted, as there is here no fiduciary heirs, first heirs, legatee or donee. Under the
subsection, the tax should have been paid before the delivery of the properties in question to P.
J. M. Moore as trustee on March 10, 1924.
 Delpher vs. IAC
157 SCRA 349

Facts:
In 1974, Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of 27,169
square meters of real estate in the Municipality of Polo (now Valenzuela), Province of Bulacan
(now Metro Manila) The said co-owners leased to Construction Components International Inc.
the same property and providing that during the existence or after the term of this lease the
lessor should he decide to sell the property leased shall first offer the same to the lessee and
the letter has the priority to buy under similar conditions.
On August 3, 1974, lessee Construction Components International, Inc. assigned its
rights and obligations under the contract of lease in favor of Hydro Pipes Philippines, Inc. with
the signed conformity and consent of lessors Delfin Pacheco and Pelagia Pacheco.
On January 3, 1976, a deed of exchange was executed between lessors Delfin and
Pelagia Pacheco and defendant Delpher Trades Corporation whereby the former conveyed to
the latter the leased property together with another parcel of land also located in Malinta Estate,
Valenzuela, Metro Manila for 2,500 shares of stock of defendant corporation with a total value of
P1,500,000.00.
On the ground that it was not given the first option to buy the leased property pursuant to
the proviso in the lease agreement, respondent Hydro Pipes Philippines, Inc., filed an amended
complaint for reconveyance of Lot. No. 1095 in its favor under conditions similar to those
whereby Delpher Trades Corporation acquired the property from Pelagia Pacheco and Delphin
Pacheco.
After trial, the Court of First Instance of Bulacan ruled in favor of the plaintiff. The lower
court's decision was affirmed on appeal by the Intermediate Appellate Court.

Issue:
Whether or not the "Deed of Exchange" of the properties executed by the Pachecos on
the one hand and the Delpher Trades Corporation on the other was meant to be a contract of
sale which, in effect, prejudiced the private respondent's right of first refusal over the leased
property included in the "deed of exchange."

Held:
In the case at bar, in exchange for their properties, the Pachecos acquired 2,500 original
unissued no par value shares of stocks of the Delpher Trades Corporation. Consequently, the
Pachecos became stockholders of the corporation by subscription. “The essence of the stock
subscription is an agreement to take and pay for original unissued shares of a corporation,
formed or to be formed.”
In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. What
they really did was to invest their properties and change the nature of their ownership from
unincorporated to incorporated form by organizing Delpher Trades Corporation to take control of
their properties and at the same time save on inheritance taxes.
The records do not point to anything wrong or objectionable about this “estate planning”
scheme resorted to by the Pachecos. “The legal right of a taxpayer to decrease the amount of
what otherwise could be his taxes or altogether avoid them, by means which the law permits,
cannot be doubted.”
The "Deed of Exchange" of property between the Pachecos and Delpher Trades
Corporation cannot be considered a contract of sale. There was no transfer of actual ownership
interests by the Pachecos to a third party. The Pacheco family merely changed their ownership
from one form to another. The ownership remained in the same hands. Hence, the private
respondent has no basis for its claim of a light of first refusal under the lease contract.
 Gallardo vs. Morales
107 Phil. 903

Facts:
In accordance with a compromise agreement, a decision was rendered therein by the
Court of First Instance of Manila, on February 3, 1956, sentencing defendant Morales to pay to
plaintiff Gallardo P7,000.00.
In due course, the corresponding writ of execution was issued and delivered to the
Sheriff of Manila, who, on August 8, 1956, garnished and levied execution on the sum of
P7,000.00, out of the P30,000.00 due from the Capital Insurance & Surety Co., Inc., to said
defendant, as beneficiary under a personal accident policy issued by said company to
defendant’s husband, Luis Morales, who died, on August 26, 1950, by assassination.
Defendant asked the sheriff to quash and lift said garnishment or levy on execution.

Issue:
Whether a personal accident insurance which "insures for injuries and/or death as a
result of murder or assault or attempt thereat" is a life insurance, within the purview of Rule 39,
section 12, subdivision (k), of the Rules of Court, exempting from execution.

Held:
"All moneys, benefits, privileges, or annuities accruing or in any manner growing out of
any life insurance, if the annual premiums paid do not exceed five hundred pesos, and if they
exceed that sum a like exemption shall exist which shall bear the same proportion to the
moneys, benefits, privileges, and annuities so accruing or growing out of such insurance that
said five hundred pesos bears to the whole annual premiums paid."
"Insurance policy including a death benefit and a health or accident disability benefit
constituted a ‘life insurance policy’ within meaning of laws 1926, c. 118, S. 134, imposing
privilege tax on insurance companies with different rates as between life insurance companies
and other companies, in view of provisions of Code 1906, ss 2576, 2598, and Law 1924, c. 191,
s I; it being immaterial that in some policy forms the health and disability feature was more
valuable absent a showing that death provision was inserted to avoid the higher tax.
The exemption there established applies to ordinary life insurance contracts, as well as
to those which, although intended primarily to indemnify for risks arising from accident, likewise,
insure against loss of life due, either to accidental causes, or to the willful and criminal act of
another, which, as such, is not strictly accidental in nature.
Indeed, it has been held that statutes of this nature seek to enable the head of the family
to secure his widow and children from becoming a burden upon the community and,
accordingly, should merit a liberal interpretation.exemption statutes or rules should be liberally
construed with a view to giving effect to their beneficent and humane purpose.
To this end, every reasonable doubt as to whether a given property is or is not exempt
should be resolved in favor of exemption.
 Balboa vs. Fanales
51 Phil. 498

Facts:
Sometime in the year 1913, the plaintiff Buenaventura Balboa filled with the Bureau of
Lands an application for homestead, No. 10619, under the provisions of Act No. 926, covering a
tract of land in Culis, Hermosa, Bataan. On July 1, 1919, said Act No. 926 was repealed by Act
No. 2874.
On August 11, 1924, said Buenaventura Balboa, for and in consideration of the sum of
P950, sold said land to the defendant Cecilio L. Farrales.
On March 6, 1926, the plaintiff commenced the present action for the purpose of having
said sale declared null and void on the ground of lack of consent on his part and fraud on the
part of the defendant, and on the further ground that said sale was contrary to, and in violation
of the provisions of section 116 of Act No. 2874.
The trial judge rendered a judgment in favor of the plaintiff and against the defendant,
ordering the latter to return to the plaintiff the land.

Issue:
Whether 926 or 2874 shall be applied in determining whether the sale in question is valid
or not.

Held:
Act 926 applies and the sale is valid.
The moment the plaintiff had received a certificate from the Government and had done
all that was necessary under the law to secure his patent, his right had become vested before
the patent was issued. His right had already vested prior to the issuance of the patent, and his
rights to the land cannot be affected by a subsequent law or by a subsequent grant by the
Government to any other person.
It follows, therefore, that the sale of the land in question by the plaintiff Buenventura
Balboa to the defendant Cecilio L. Farrales does not infringe said prohibition, and consequently
said sale is valid and binding, and should be given full force and effect.
 Vera vs. Navarro
79 SCRA 408

Facts:
Elsie M. Gaches died on March 9, 1966 without a child. The deceased, however, left a
last will and testament giving properties to several persons. Judge Tan was appointed as
executor of the testate estate of Elsie M. Gaches without a bond.
In a letter, dated June 3, 1966, Judge Tan informed the Commissioner that the testate
estate was worth about ten million (P10 million) pesos and that the estate and inheritance taxes
due thereon were about P9.5 million.
After several reassessments, the case ultimately came to the Supreme Court.

Issues:
(1) Whether the herein respondent heirs should be required to pay first the inheritance
tax before the probate court may authorize the delivery of the hereditary share pertaining to
each of them.
(2) Whether the respondent heirs herein who are citizens and residents of the
Philippines are liable for the payment of the Philippine inheritance tax corresponding to the
hereditary share of another heir who is a citizen and resident of the United States of America.
(3) Whether the assignment of a certificate of time deposit to the Commissioner of
Internal Revenue for the purpose of paying hereby the estate tax constitutes payment of such
tax.
(4) Whether the herein respondent heirs should be held liable for the payment of
surcharge and interest on the amount (P700,000.00) representing the face value of time deposit
certificates assigned to the Commissioner which could not be converted into cash.

Held:
(1) The distribution of a decedent's assets may only be ordered under any of the
following three circumstances, namely,
(a) when the inheritance tax, among others, is paid;
(b) who bonds a suffered bond is given to meet the payment of the tax
and all the other options of the nature enumerated in the above-cited provision;
etc.
This was not complied with.
(2) An analysis of our tax statutes supplies no sufficient indication that the inheritance
tax, as a rule, was meant to be the joint and solidary liability of the heirs of a decedent. the
payment of the inheritance tax should be taken as the individual responsibility, to the extent of
the benefits received, of each heir.
(3) A time deposit certificate is a mercantile document and is essentially a promissory
note. By the express terms of Article 1249 of the Civil Code of the Philippines, the use of this
medium to clear an obligation will "produce the effect of payment only when they have been
cashed, or when through the fault of the creditor they have been impaired." Consequently, the
value of the said certificates (P700,000.00) should still be considered outstanding.
 (4) The Interest charge for 1% per month imposed under Section 101 (a) (1) of the Tax
Code is essentially a commotion to the State for delay in the payment of the tax due thereto.
The estate cannot likewise be exempted from the payment of the 5% surcharge imposed
by Section 101 (c) of the Tax Code.
 Ozaeta vs. Palanca
101 Phil. 976

Facts:
On May 5, 1955, the special administrator filed a petition in court for authority to pay the
accounting firm of Sycip, Gorres, Velayo & Co. the sum of P3,650, for services rendered in
taking inventory of assets in 1950, tax consultations in 1950 to 1954, and preparation of income
tax returns for 1953 and 1954.
The court below denied this motion, on the ground that the services covered by the fees
of the accounting firm were rendered to the former special administrator Philippine Trust
Company. Upon being notified of the denial of the special administrator's petition to pay it, the
accounting firm appeared in court and asked for the reconsideration of the order of denial.
Opposition to this motion for reconsideration was filed by heirs on the following grounds:
as to the fees for services in the taking of the inventory in 1950, Mr. Ozaeta, who asked for said
services, was not yet the special administrator when said services were rendered; the tax
consultations from 1950 to 1954 cover years in which Mr. Ozaeta was not yet the special
administrator, and as the same was rendered during the incumbency of the Philippine Trust, the
fees should be paid for by Mr. Ozaeta himself.
After various arguments, the court refused to grant the reconsideration of its original
order denying the petition, and so appeal therefrom was taken to this Court.

Issue:
Whether the services rendered to the special administrator named in the will, previous to
his actual appointment as such and at his instance, are chargeable against the estate.

Held:
There is no question that the services rendered were for the benefit of the estate. The
Rules require that the administrator should submit an inventory of the properties of the estate
within three months from his appointment (Sec. 1, Rule 84, Rules of Court). As Mr. Ozaeta
expected to be appointed administrator of the estate immediately, in view of his designation as
executor of the will of the decedent, it was proper, necessary and expedient for him, even
before his actual appointment, to employ the services of accountants in order that they can
prepare the accounts or the inventory in due time and within the period prescribed by the Rules.
The general rule is that acts done by an executor in the interest of his trust, prior to his
qualification as such, become binding on the estate upon his qualification.
The services rendered in the years 1953-1954 were also as useful to the estate as those
rendered in connection with the preparation of the inventory. Whoever may have contracted the
services of the accountants, whether it was Mr. Ozaeta before his appointment or the Philippine
Trust, such services were for the benefit of the estate and have redounded to the estate's
benefit.
 Sison vs. Teodoro
100 Phil. 1056

Facts:
The CFI of Manila which had jurisdiction over the estate of Margarita David, issued an
order appointing appellantCarlos Moran Sison as judicial administrator without compensation
after filing a bond. After entering into his duties as administrator, he filed an accounting of his
administration which included items as an expense of administration the premiums he paid on
his bond.
One of the heirs, herein appellee Narcisa Teodoro, objected to the approval of the items.
The court approved the report but disallowed the items objected to on the ground that these
cannot be considered as expenses of administration. Moran Sison filed a motion for
reconsideration but was denied hence this appeal.

Issue:
Whether a judicial administrator, serving without compensation, is entitled to charge as
an expense of administration the premiums aid on his bond.

Held:
The premiums paid by an executor or administrator serving without compensation for his
bond cannot be charged against the estate. Further Sec. 7 of Rule 86 of the Rules of Court
does not authorize the executor or administrator to charge the estate the money spent for the
bond. As held in the case of Sulit v. Santos (56 Phil 626), the position of an executor or
administrator is one of trust. The law safeguards the estates of deceased persons by making as
a requirement for qualification the ability to give a suitable bond. The execution of said bond is
therefore a condition precedent to acceptance of the responsibilities of the trust.
Further, the giving of the bond is not a necessary expense in the care, management,
and settlement of the estate within the meaning of Sec. 680 of the Civil Code of Procedure,
since such are the requirements after the executor or administrator has already qualified for the
office and has entered the performance of his duties.
Vera vs. Fernandez, 89 SCRA 199

Facts:
The BIR filed on July 29, 1969 a motion for allowance of claim and for payment of taxes
representing the estate's tax deficiencies in 1963 to 1964 in the intestate proceedings of Luis
Tongoy.
The administrator opposed arguing that the claim was already barred by the statute of
limitation, Section 2 and Section 5 of Rule 86 of the Rules of Court which provides that all
claims for money against the decedent, arising from contracts, express or implied, whether the
same be due, not due, or contingent, all claims for funeral expenses and expenses for the last
sickness of the decedent, and judgment for money against the decedent, must be filed within
the time limited in the notice; otherwise they are barred forever.

Issue:
Does the statute of non-claims of the Rules of Court bar the claim of the government for
unpaid taxes?

Held:
The reason for the more liberal treatment of claims for taxes against a decedent's estate
in the form of exception from the application of the statute of non-claims, is not hard to find.
Taxes are the lifeblood of the Government and their prompt and certain availability are
an imperious need. (CIR vs. Pineda, 21 SCRA 105). Upon taxation depends the Government
ability to serve the people for whose benefit taxes are collected.
To safeguard such interest, neglect or omission of government officials entrusted with
the collection of taxes should not be allowed to bring harm or detriment to the people, in the
same manner as private persons may be made to suffer individually on account of his own
negligence, the presumption being that they take good care of their personal affairs.
This should not hold true to government officials with respect to matters not of their own
personal concern. This is the philosophy behind the government's exception, as a general rule,
from the operation of the principle of estoppel.
 Estate of Hilario Ruiz vs. CA
252 SCRA 541

Facts:
Hilario M. Ruiz executed a holographic will naming as his heirs his only son, Edmond
Ruiz, his adopted daughter, private respondent Maria Pilar Ruiz Montes, and his three
granddaughters.
When Ruiz died, the cash was distributed among Edmond and private respondents
according to the will. One of the properties of the estate–a house and lot at Valle Verde IV,which
the testator bequeathed to the granddaughters, - was leased out by Edmond to third persons.
The court ordered Edmond to deposit the rental payments totalling P540K as
one-yearlease of the property. In compliance, Edmond turned over the cash but
only P348,583.Eventually, the court approved Edmond’s motion for the release of P50K to pay
the real estate taxes of the estate. Edmond filed another Motion for Release of Funds.Montes
opposed. She prayed for the release of the rent payments to the granddaughters
and for the distribution of the Valle Verde property and the Blue Ridge
apartments in accordance with the will.
The court granted Montes' motion. The court, however, delayed the release of
thetitles. Edmond was ordered to submit an accounting of the expenses for
administration including provisions for the support of the granddaughters.Petitioners appealed to
the CA. CA sustained the court order.

Issue:
Whether the probate court, after admitting the will to probate but before payment of the estate’s
debts and obligations, has the authority: (1) to grant an allowance from the funds of the estate
for the support of the testator’s grandchildren; (2) to order the release of the titles to certain
heirs; and (3) to grant possession of all properties of the estate to the executor of the will.

Held:
Petitioner cannot correctly claim that the assailed order deprive him of his right to take
possession of all real and personal properties of the estate. The right of an executor or
administrator to the possession and management of the real and personal properties of the
deceased is not absolute and can only be exercised “so long as it is necessary for the
payment of the debts and expenses of administration,’.Petitioner must be reminded that his right
of ownership over the properties of his father
When petitioner moved for further release of the funds deposited with the clerk of court,
he had been previously granted by the probate court certain amounts for repair and
maintenance expenses on the properties of the estate, and payment of the real estate taxes
thereon. But petitioner moved again for the release of additional funds for the same reasons he
previously cited. It was correct for the probate court to require him to submit an accounting of
the necessary expenses for administration before releasing any further money in his favor.
Petitioner must be reminded that his right of ownership over the properties of his father is
merely inchoate as long as the estate has not been fully settled and partitioned.
 As executor, he is a mere trustee of his father’s estate.The funds of the estate in his
hands are trust funds and he is held liable to the duties and responsibilities of a trustee of the
highest order. He cannot unilaterally assign to himself and possess all his parents’ properties
and the fruits thereof without first submitting an inventory and appraisal of all real and personal
properties of the deceased, rendering a true account of his administration, the expenses of
administration, the amount of the obligations and estate tax, all of which are subject to
determination by the court as to their veracity, properties and justness.
 Elegado vs. CTA
173 SCRA 285

Facts:
In March 1976, Warren Graham, an American national and a former resident of the
Philippines, died in Oregon, USA. As certain shares of stock are left in the Philippines, his son
Ward Graham filed an estate tax return. On the basis of such return, the Commission of Internal
Revenue (CIR) assessed the descendant’s estate in the amount of P96,509.35. The
assessment was protested by the law firm of Bump, Yang, and Walker on behalf of the estate
which was denied by the CIR.
Meanwhile, Ildefonso Elegado was the appointed administrator for the properties left by
Graham in the Philippines. Pending the resolution by the CIR on the protest filed by the
American law firm, he filed a second estate tax return which was provisionally assessed by the
CIR the amount of P72,948.87.
Meanwhile still, in the probate proceedings filed in the Philippines for the properties of
Warren Graham, the CIR filed a motion for the allowance of the original estate tax assessed at
P96,509.35. The CIR said that this liability had not yet been paid although the assessment had
long become final and executory. Elegado contends that the first assessment is not binding on
him because it was based on a return filed for by foreign lawyers who do not have knowledge of
our tax laws.

Issue:
Whether or not Elegado is correct.

Held:
The Supreme Court held that Elegado’s contention is flimsy. Elegado cannot be serious
when he argues that the first assessment was invalid because the foreign lawyers who filed the
return on which it was based were not familiar with our tax laws and procedure. Our lawyers and
taxpayers cannot avoid paying tax assessments by simply saying that they do not know our tax
laws. If our own lawyers and taxpayers cannot claim similar preferences, it follows that
foreigners cannot be any less bound by laws in our country.
 Commissioner vs. Pineda
21 SCRA 104

Facts:
Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15 children, the
eldest of whom is Atty. Manuel Pineda. Estate proceedings were had in Court so that the estate
was divided among and awarded to the heirs. Atty Pineda's share amounted to about
P2,500.00.
After the estate proceedings were closed, the BIR investigated the income tax liability of
the estate for the years 1945, 1946, 1947 and 1948 and it found that the corresponding income
tax returns were not filed. Thereupon, the representative of the Collector of Internal Revenue
filed said returns for the estate issued an assessment and charged the full amount to the
inheritance due to Atty. Pineda who argued that he is liable only to extent of his proportional
share in the inheritance.

Issue:
Can BIR collect the full amount of estate taxes from an heir's inheritance.

Held:
The Government can require Atty. Pineda to pay the full amount of the taxes assessed.
The reason is that the Government has a lien on the P2,500.00 received by him from the
estate as his share in the inheritance, for unpaid income taxes for which said estate is liable. By
virtue of such lien, the Government has the right to subject the property in Pineda's possession
to satisfy the income tax assessment. After such payment, Pineda will have a right of
contribution from his co-heirs, to achieve an adjustment of the proper share of each heir in the
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; and second, 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. 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.
 Gonzales vs. CTA
101 SCRA 633

Facts:
Both petitioners Jose and Juana Gonzales are co-heirs and co-owners, (one-sixth each)
of a tract of land of 871 square meters which they, along with four other co-heirs, inherited from
their mother. So on November 15, 1956, Jose Leon Gonzales and Juana F. Gonzales submitted
to the Court of Tax Appeals a joint petition seeking a refund, this time of the amount of
P86,166.00 for each of the two petitioners.

Issues:
(1) Whether or not petitioners' claim for refund of the total of P86,166.00 may be properly
entertained; and
(2) Whether or not the sum of P89,309.61 which each of the petitioners received as
interest on the value of the land expropriated is taxable as ordinary income, and not as capital
gain.

RULING:
1. The requirement of prior timely claim for refund of the sum of P86,166.00 had not
been met in this case. The demand for refund must precede the suit, and this requirement is
mandatory; so much so that non-compliance therewith bars the action
2. It is ordinary income."the acquisition by the Government of private properties through
the exercise of the power of eminent domain, said properties being justly compensated, is
embraced within the meaning of the term 'sale' or 'disposition of property'" and the definition of
gross income laid down by Section 29 of the Tax Code of the Philippines. We also adhered to
the view that the transfer of property through condemnation proceedings is a sale or exchange
and that profit from the transaction constitutes capital gain.

In fact, the authorities support the conclusion that for income tax purposes, interest does
not form part of the price paid by the Government in condemnation proceedings; and may not
be treated as part of the capital gain.