G.R. No.
155541             January 27, 2004 In the meantime, the Bureau of Internal Revenue conducted an administrative
investigation on the decedent’s tax liability and found a deficiency income tax for the
ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL, petitioner,
year 1977 in the amount of P318,233.93. Thus, on November 18, 1982, the BIR sent by
vs.
registered mail a demand letter and Assessment Notice No. NARD-78-82-00501
COMMISSIONER OF INTERNAL REVENUE, respondent.
addressed to the decedent "c/o Philippine Trust Company, Sta. Cruz, Manila" which was
DECISION the address stated in her 1978 Income Tax Return. No response was made by Philtrust.
The BIR was not informed that the decedent had actually passed away.
YNARES-SANTIAGO, J.:
In an Order dated September 5, 1983, the court a quo appointed Antonio Ambrosio as
This petition for review on certiorari assails the decision of the Court of Appeals in CA- the Commissioner and Auditor Tax Consultant of the Estate of the decedent.
G.R. CV No. 09107, dated September 30, 2002,1 which reversed the November 19, 1995
Order of Regional Trial Court of Manila, Branch XXXVIII, in Sp. Proc. No. R-82-6994, On June 18, 1984, respondent Commissioner of Internal Revenue issued warrants of
entitled "Testate Estate of Juliana Diez Vda. De Gabriel". The petition was filed by the distraint and levy to enforce collection of the decedent’s deficiency income tax liability,
Estate of the Late Juliana Diez Vda. De Gabriel, represented by Prudential Bank as its duly which were served upon her heir, Francisco Gabriel. On November 22, 1984, respondent
appointed and qualified Administrator. filed a "Motion for Allowance of Claim and for an Order of Payment of Taxes" with the
court a quo. On January 7, 1985, Mr. Ambrosio filed a letter of protest with the Litigation
As correctly summarized by the Court of Appeals, the relevant facts are as follows: Division of the BIR, which was not acted upon because the assessment notice had
During the lifetime of the decedent, Juliana Vda. De Gabriel, her business affairs were allegedly become final, executory and incontestable.
managed by the Philippine Trust Company (Philtrust). The decedent died on April 3, On May 16, 1985, petitioner, the Estate of the decedent, through Mr. Ambrosio, filed a
1979. Two days after her death, Philtrust, through its Trust Officer, Atty. Antonio M. formal opposition to the BIR’s Motion for Allowance of Claim based on the ground that
Nuyles, filed her Income Tax Return for 1978. The return did not indicate that the there was no proper service of the assessment and that the filing of the aforesaid claim
decedent had died. had already prescribed. The BIR filed its Reply, contending that service to Philippine Trust
On May 22, 1979, Philtrust also filed a verified petition for appointment as Special Company was sufficient service, and that the filing of the claim against the Estate on
Administrator with the Regional Trial Court of Manila, Branch XXXVIII, docketed as Sp. November 22, 1984 was within the five-year prescriptive period for assessment and
Proc. No. R-82-6994. The court a quo appointed one of the heirs as Special collection of taxes under Section 318 of the 1977 National Internal Revenue Code (NIRC).
Administrator. Philtrust’s motion for reconsideration was denied by the probate court. On November 19, 1985, the court a quo issued an Order denying respondent’s claim
On January 26, 1981, the court a quo issued an Order relieving Mr. Diez of his against the Estate,2 after finding that there was no notice of its tax assessment on the
appointment, and appointed Antonio Lantin to take over as Special Administrator. proper party.3
Subsequently, on July 30, 1981, Mr. Lantin was also relieved of his appointment, and On July 2, 1986, respondent filed an appeal with the Court of Appeals, docketed as CA-
Atty. Vicente Onosa was appointed in his stead. G.R. CV No. 09107,4 assailing the Order of the probate court dated November 19, 1985. It
was claimed that Philtrust, in filing the decedent’s 1978 income tax return on April 5,
1979, two days after the taxpayer’s death, had "constituted itself as the administrator of Hence, the instant petition, raising the following issues:
the estate of the deceased at least insofar as said return is concerned."5 Citing Basilan
1. Whether or not the Court of Appeals erred in holding that the service of deficiency tax
Estate Inc. v. Commissioner of Internal Revenue,6 respondent argued that the legal
assessment against Juliana Diez Vda. de Gabriel through the Philippine Trust Company
requirement of notice with respect to tax assessments7 requires merely that the
was a valid service in order to bind the Estate;
Commissioner of Internal Revenue release, mail and send the notice of the assessment
to the taxpayer at the address stated in the return filed, but not that the taxpayer 2. Whether or not the Court of Appeals erred in holding that the deficiency tax
actually receive said assessment within the five-year prescriptive period.8 Claiming that assessment and final demand was already final, executory and incontestable.
Philtrust had been remiss in not notifying respondent of the decedent’s death,
respondent therefore argued that the deficiency tax assessment had already become Petitioner Estate denies that Philtrust had any legal personality to represent the
final, executory and incontestable, and that petitioner Estate was liable therefor. decedent after her death. As such, petitioner argues that there was no proper notice of
the assessment which, therefore, never became final, executory and
On September 30, 2002, the Court of Appeals rendered a decision in favor of the incontestable.10 Petitioner further contends that respondent’s failure to file its claim
respondent. Although acknowledging that the bond of agency between Philtrust and the against the Estate within the proper period prescribed by the Rules of Court is a fatal
decedent was severed upon the latter’s death, it was ruled that the administrator of the error, which forever bars its claim against the Estate.11
Estate had failed in its legal duty to inform respondent of the decedent’s death, pursuant
to Section 104 of the National Internal Revenue Code of 1977. Consequently, the BIR’s Respondent, on the other hand, claims that because Philtrust filed the decedent’s
service to Philtrust of the demand letter and Notice of Assessment was binding upon the income tax return subsequent to her death, Philtrust was the de facto administrator of
Estate, and, upon the lapse of the statutory thirty-day period to question this claim, the her Estate.12 Consequently, when the Assessment Notice and demand letter dated
assessment became final, executory and incontestable. The dispositive portion of said November 18, 1982 were sent to Philtrust, there was proper service on the
decision reads: Estate.13 Respondent further asserts that Philtrust had the legal obligation to inform
petitioner of the decedent’s death, which requirement is found in Section 104 of the
WHEREFORE, finding merit in the appeal, the appealed decision is REVERSED AND SET NIRC of 1977.14 Since Philtrust did not, respondent contends that petitioner Estate should
ASIDE. Another one is entered ordering the Administrator of the Estate to pay the not be allowed to profit from this omission.15 Respondent further argues that Philtrust’s
Commissioner of Internal Revenue the following: failure to protest the aforementioned assessment within the 30-day period provided in
Section 319-A of the NIRC of 1977 meant that the assessment had already become final,
a. The amount of P318,223.93, representing the deficiency income tax liability for the
executory and incontestable.16
year 1978, plus 20% interest per annum from November 2, 1982 up to November 2, 1985
and in addition thereto 10% surcharge on the basic tax of P169,155.34 pursuant to The resolution of this case hinges on the legal relationship between Philtrust and the
Section 51(e)(2) and (3) of the Tax Code as amended by PD 69 and 1705; and decedent, and, by extension, between Philtrust and petitioner Estate. Subsumed under
this primary issue is the sub-issue of whether or not service on Philtrust of the demand
b. The costs of the suit.
letter and Assessment Notice No. NARD-78-82-00501 was valid service on petitioner, and
SO ORDERED.9 the issue of whether Philtrust’s inaction thereon could bind petitioner. If both sub-issues
are answered in the affirmative, respondent’s contention as to the finality of Assessment
Notice No. NARD-78-82-00501 must be answered in the affirmative. This is because after the decedent’s death, or within a like period after qualifying as such executor or
Section 319-A of the NIRC of 1977 provides a clear 30-day period within which to protest administrator, shall give written notice thereof to the Commissioner of Internal Revenue.
an assessment. Failure to file such a protest within said period means that the
The foregoing provision falls in Title III, Chapter I of the National Internal Revenue Code
assessment ipso jure becomes final and unappealable, as a consequence of which legal
of 1977, or the chapter on Estate Tax, and pertains to "all cases of transfers subject to
proceedings may then be initiated for collection thereof.
tax" or where the "gross value of the estate exceeds three thousand pesos". It has
We find in favor of the petitioner. absolutely no applicability to a case for deficiency income tax, such as the case at bar. It
further lacks applicability since Philtrust was never the executor, administrator of the
The first point to be considered is that the relationship between the decedent and
decedent’s estate, and, as such, never had the legal obligation, based on the above
Philtrust was one of agency, which is a personal relationship between agent and
provision, to inform respondent of her death.
principal. Under Article 1919 (3) of the Civil Code, death of the agent or principal
automatically terminates the agency. In this instance, the death of the decedent on April Although the administrator of the estate may have been remiss in his legal obligation to
3, 1979 automatically severed the legal relationship between her and Philtrust, and inform respondent of the decedent’s death, the consequences thereof, as provided in
such could not be revived by the mere fact that Philtrust continued to act as her agent Section 119 of the National Internal Revenue Code of 1977, merely refer to the
when, on April 5, 1979, it filed her Income Tax Return for the year 1978. imposition of certain penal sanctions on the administrator. These do not include the
indefinite tolling of the prescriptive period for making deficiency tax assessments, or the
Since the relationship between Philtrust and the decedent was automatically severed at
waiver of the notice requirement for such assessments.
the moment of the Taxpayer’s death, none of Philtrust’s acts or omissions could bind the
estate of the Taxpayer. Service on Philtrust of the demand letter and Assessment Notice Thus, as of November 18, 1982, the date of the demand letter and Assessment Notice
No. NARD-78-82-00501 was improperly done. No. NARD-78-82-00501, there was absolutely no legal obligation on the part of Philtrust
to either (1) respond to the demand letter and assessment notice, (2) inform respondent
It must be noted that Philtrust was never appointed as the administrator of the Estate of
of the decedent’s death, or (3) inform petitioner that it had received said demand letter
the decedent, and, indeed, that the court a quo twice rejected Philtrust’s motion to be
and assessment notice. This lack of legal obligation was implicitly recognized by the Court
thus appointed. As of November 18, 1982, the date of the demand letter and Assessment
of Appeals, which, in fact, rendered its assailed decision on grounds of "equity".17
Notice, the legal relationship between the decedent and Philtrust had already been non-
existent for three years. Since there was never any valid notice of this assessment, it could not have become final,
executory and incontestable, and, for failure to make the assessment within the five-year
Respondent claims that Section 104 of the National Internal Revenue Code of 1977
period provided in Section 318 of the National Internal Revenue Code of 1977,
imposed the legal obligation on Philtrust to inform respondent of the decedent’s death.
respondent’s claim against the petitioner Estate is barred. Said Section 18 reads:
The said Section reads:
SEC. 318. Period of limitation upon assessment and collection. - Except as provided in the
SEC. 104. Notice of death to be filed. - In all cases of transfers subject to tax or where,
succeeding section, internal revenue taxes shall be assessed within five years after the
though exempt from tax, the gross value of the estate exceeds three thousand pesos, the
return was filed, and no proceeding in court without assessment for the collection of
executor, administrator, or any of the legal heirs, as the case may be, within two months
such taxes shall be begun after the expiration of such period. For the purpose of this
section, a return filed before the last day prescribed by law for the filing thereof shall be In this case, the assessment was served not even on an heir of the Estate, but on a
considered as filed on such last day: Provided, That this limitation shall not apply to cases completely disinterested third party. This improper service was clearly not binding on the
already investigated prior to the approval of this Code. petitioner.
Respondent argues that an assessment is deemed made for the purpose of giving effect By arguing that (1) the demand letter and assessment notice were served on Philtrust, (2)
to such assessment when the notice is released, mailed or sent to the taxpayer to Philtrust was remiss in its obligation to respond to the demand letter and assessment
effectuate the assessment, and there is no legal requirement that the taxpayer actually notice, (3) Philtrust was remiss in its obligation to inform respondent of the decedent’s
receive said notice within the five-year period.18 It must be noted, however, that the death, and (4) the assessment notice is therefore binding on the Estate, respondent is
foregoing rule requires that the notice be sent to the taxpayer, and not merely to a arguing in circles. The most crucial point to be remembered is that Philtrust had
disinterested party. Although there is no specific requirement that the taxpayer should absolutely no legal relationship to the deceased, or to her Estate. There was therefore no
receive the notice within the said period, due process requires at the very least that such assessment served on the Estate as to the alleged underpayment of tax. Absent this
notice actually be received. In Commissioner of Internal Revenue v. Pascor Realty and assessment, no proceedings could be initiated in court for the collection of said tax,21 and
Development Corporation,19 we had occasion to say: respondent’s claim for collection, filed with the probate court only on November 22,
1984, was barred for having been made beyond the five-year prescriptive period set by
An assessment contains not only a computation of tax liabilities, but also a demand for
law.
payment within a prescribed period. It also signals the time when penalties and interests
begin to accrue against the taxpayer. To enable the taxpayer to determine his remedies WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R.
thereon, due process requires that it must be served on and received by the taxpayer. CV No. 09107, dated September 30, 2002, is REVERSED and SET ASIDE. The Order of the
Regional Trial Court of Manila, Branch XXXVIII, in Sp. Proc. No. R-82-6994, dated
In Republic v. De le Rama,20 we clarified that, when an estate is under administration,
November 19, 1985, which denied the claim of the Bureau of Internal Revenue against
notice must be sent to the administrator of the estate, since it is the said administrator,
the Estate of Juliana Diez Vda. De Gabriel for the deficiency income tax of the decedent
as representative of the estate, who has the legal obligation to pay and discharge all
for the year 1977 in the amount of P318,223.93, is AFFIRMED.
debts of the estate and to perform all orders of the court. In that case, legal notice of the
assessment was sent to two heirs, neither one of whom had any authority to represent No pronouncement as to costs.
the estate. We said:
SO ORDERED.
The notice was not sent to the taxpayer for the purpose of giving effect to the
assessment, and said notice could not produce any effect. In the case of Bautista and
Corrales Tan v. Collector of Internal Revenue … this Court had occasion to state that "the
assessment is deemed made when the notice to this effect is released, mailed or sent to
the taxpayer for the purpose of giving effect to said assessment." It appearing that the
person liable for the payment of the tax did not receive the assessment, the assessment
could not become final and executory. (Citations omitted, emphasis supplied.)
