[G.R. No. 120880.

June 5, 1997]

FERDINAND R. MARCOS II, petitioner, vs. COURT OF APPEALS, THE

COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE and
HERMINIA D. DE GUZMAN, respondents.
DECISION
TORRES, JR., J.:

In this Petition for Review on Certiorari, Government action is once again

assailed as precipitate and unfair, suffering the basic and oftly implored
requisites of due process of law. Specifically, the petition assails the
Decision of the Court of Appeals dated November 29, 1994 in CA-G.R. SP
No. 31363, where the said court held:
[1]

"In view of all the foregoing, we rule that the deficiency income tax assessments and
estate tax assessment, are already final and (u)nappealable -and- the subsequent levy
of real properties is a tax remedy resorted to by the government, sanctioned by
Section 213 and 218 of the National Internal Revenue Code. This summary tax
remedy is distinct and separate from the other tax remedies (such as Judicial Civil
actions and Criminal actions), and is not affected or precluded by the pendency of any
other tax remedies instituted by the government.
WHEREFORE, premises considered, judgment is hereby rendered DISMISSING the
petition for certiorari with prayer for Restraining Order and Injunction.
No pronouncements as to costs.
SO ORDERED."
More than seven years since the demise of the late Ferdinand E. Marcos,
the former President of the Republic of the Philippines, the matter of the
settlement of his estate, and its dues to the government in estate taxes, are
still unresolved, the latter issue being now before this Court for
resolution.Specifically, petitioner Ferdinand R. Marcos II, the eldest son of the
decedent, questions the actuations of the respondent Commissioner of
Internal Revenue in assessing, and collecting through the summary remedy of
Levy on Real Properties, estate and income tax delinquencies upon the estate

and properties of his father, despite the pendency of the proceedings on

probate of the will of the late president, which is docketed as Sp. Proc. No.
10279 in the Regional Trial Court of Pasig, Branch 156.
Petitioner had filed with the respondent Court of Appeals a Petition
for Certiorari and Prohibition with an application for writ of preliminary
injunction and/or temporary restraining order on June 28, 1993, seeking to I. Annul and set aside the Notices of Levy on real property dated February 22, 1993
and May 20, 1993, issued by respondent Commissioner of Internal Revenue;
II. Annul and set aside the Notices of Sale dated May 26, 1993;
III. Enjoin the Head Revenue Executive Assistant Director II (Collection Service),
from proceeding with the Auction of the real properties covered by Notices ofSale.
After the parties had pleaded their case, the Court of Appeals rendered its
Decision on November 29, 1994, ruling that the deficiency assessments for
estate and income tax made upon the petitioner and the estate of the
deceased President Marcos have already become final and unappealable,
and may thus be enforced by the summary remedy of levying upon the
properties of the late President, as was done by the respondent
Commissioner of Internal Revenue.
[2]

"WHEREFORE, premises considered judgment is hereby rendered DISMISSING the

petition for Certiorari with prayer for Restraining Order and Injunction.
No pronouncements as to cost.
SO ORDERED."
Unperturbed, petitioner is now before us assailing the validity of the
appellate court's decision, assigning the following as errors:
A. RESPONDENT COURT MANIFESTLY ERRED IN RULING THAT THE SUMMARY TAX
REMEDIES RESORTED TO BY THE GOVERNMENT ARE NOT AFFECTED AND
PRECLUDED BY THE PENDENCY OF THE SPECIAL PROCEEDING FOR THE ALLOWANCE
OF THE LATE PRESIDENT'S ALLEGED WILL.TO THE CONTRARY, THIS PROBATE
PROCEEDING PRECISELY PLACED ALL PROPERTIES WHICH FORM PART OF THE LATE
PRESIDENT'S ESTATE IN CUSTODIA LEGIS OF THE PROBATE COURT TO THE
EXCLUSION OF ALL OTHER COURTS AND ADMINISTRATIVE AGENCIES.
B. RESPONDENT COURT ARBITRARILY ERRED IN SWEEPINGLY DECIDING THAT
SINCE THE TAX ASSESSMENTS OF PETITIONER AND HIS PARENTS HAD ALREADY
BECOME FINAL AND UNAPPEALABLE, THERE WAS NO NEED TO GO INTO THE MERITS
OF THE GROUNDS CITED IN THE PETITION. INDEPENDENT OF WHETHER THE TAX

ASSESSMENTS HAD ALREADY BECOME FINAL, HOWEVER, PETITIONER HAS THE

RIGHT TO QUESTION THE UNLAWFUL MANNER AND METHOD IN WHICH TAX
COLLECTION IS SOUGHT TO BE ENFORCED BY RESPONDENTS COMMISSIONER AND
DE GUZMAN. THUS, RESPONDENT COURT SHOULD HAVE FAVORABLY CONSIDERED
THE MERITS OF THE FOLLOWING GROUNDS IN THE PETITION:

(1) The Notices of Levy on Real Property were issued beyond the period provided
in the Revenue Memorandum Circular No. 38-68.
(2) [a] The numerous pending court cases questioning the late President's
ownership or interests in several properties (both personal and real) make the total
value of his estate, and the consequent estate tax due, incapable of exact
pecuniary determination at this time. Thus, respondents assessment of the estate
tax and their issuance of the Notices of Levy and Sale are premature, confiscatory
and oppressive.
[b] Petitioner, as one of the late President's compulsory heirs, was never notified,
much less served with copies of the Notices of Levy, contrary to the mandate of
Section 213 of the NIRC. As such, petitioner was never given an opportunity to
contest the Notices in violation of his right to due process of law.
C. ON ACCOUNT OF THE CLEAR MERIT OF THE PETITION, RESPONDENT COURT
MANIFESTLY ERRED IN RULING THAT IT HAD NO POWER TO GRANT INJUNCTIVE
RELIEF TO PETITIONER. SECTION 219 OF THE NIRC NOTWITHSTANDING, COURTS
POSSESS THE POWER TO ISSUE A WRIT OF PRELIMINARY INJUNCTION TO RESTRAIN
RESPONDENTS COMMISSIONER'S AND DE GUZMAN'S ARBITRARY METHOD OF
COLLECTING THE ALLEGED DEFICIENCY ESTATE AND INCOME TAXES BY MEANS OF
LEVY.

The facts as found by the appellate court are undisputed, and are hereby
adopted:
"On September 29, 1989, former President Ferdinand Marcos died in Honolulu,
Hawaii, USA.
On June 27, 1990, a Special Tax Audit Team was created to conduct investigations
and examinations of the tax liabilities and obligations of the late president, as well as
that of his family, associates and "cronies". Said audit team concluded its investigation
with a Memorandum dated July 26, 1991. The investigation disclosed that the
Marcoses failed to file a written notice of the death of the decedent, an estate tax
returns [sic], as well as several income tax returns covering the years 1982 to 1986,
-all in violation of the National Internal Revenue Code (NIRC).
Subsequently, criminal charges were filed against Mrs. Imelda R. Marcos before the
Regional Trial of Quezon City for violations of Sections 82, 83 and 84 (has penalized

under Sections 253 and 254 in relation to Section 252- a & b) of the National Internal
Revenue Code (NIRC).
The Commissioner of Internal Revenue thereby caused the preparation and filing of
the Estate Tax Return for the estate of the late president, the Income Tax Returns of
the Spouses Marcos for the years 1985 to 1986, and the Income Tax Returns of
petitioner Ferdinand 'Bongbong' Marcos II for the years 1982 to 1985.
On July 26, 1991, the BIR issued the following: (1) Deficiency estate tax assessment
no. FAC-2-89-91-002464 (against the estate of the late president Ferdinand Marcos in
the amount of P23,293,607,638.00 Pesos); (2) Deficiency income tax assessment no.
FAC-1-85-91-002452 and Deficiency income tax assessment no. FAC-1-86-91002451 (against the Spouses Ferdinand and Imelda Marcos in the amounts of
P149,551.70 and P184,009,737.40 representing deficiency income tax for the years
1985 and 1986); (3) Deficiency income tax assessment nos. FAC-1-82-91-002460 to
FAC-1-85-91-002463 (against petitioner Ferdinand 'Bongbong' Marcos II in the
amounts of P258.70 pesos; P9,386.40 Pesos; P4,388.30 Pesos; and P6,376.60 Pesos
representing his deficiency income taxes for the years 1982 to 1985).
The Commissioner of Internal Revenue avers that copies of the deficiency estate and
income tax assessments were all personally and constructively served on August 26,
1991 and September 12, 1991 upon Mrs. Imelda Marcos (through her caretaker Mr.
Martinez) at her last known address at No. 204 Ortega St., San Juan, M.M. (Annexes
'D' and 'E' of the Petition). Likewise, copies of the deficiency tax assessments issued
against petitioner Ferdinand 'Bongbong' Marcos II were also personally and
constructively served upon him (through his caretaker) on September 12, 1991, at his
last known address at Don Mariano Marcos St. corner P. Guevarra St., San Juan,
M.M. (Annexes 'J' and 'J-1' of the Petition). Thereafter, Formal Assessment notices
were served on October 20, 1992, upon Mrs. Marcos c/o petitioner, at his office,
House of Representatives, Batasan Pambansa, Quezon City. Moreover, a notice to
Taxpayer inviting Mrs. Marcos (or her duly authorized representative or counsel), to a
conference, was furnished the counsel of Mrs. Marcos, Dean Antonio Coronel - but to
no avail.
The deficiency tax assessments were not protested administratively, by Mrs. Marcos
and the other heirs of the late president, within 30 days from service of said
assessments.
On February 22, 1993, the BIR Commissioner issued twenty-two notices of levy on
real property against certain parcels of land owned by the Marcoses - to satisfy the
alleged estate tax and deficiency income taxes of Spouses Marcos.

On May 20, 1993, four more Notices of Levy on real property were issued for the
purpose of satisfying the deficiency income taxes.
On May 26, 1993, additional four (4) notices of Levy on real property were again
issued. The foregoing tax remedies were resorted to pursuant to Sections 205 and 213
of the National Internal Revenue Code (NIRC).
In response to a letter dated March 12, 1993 sent by Atty. Loreto Ata (counsel of
herein petitioner) calling the attention of the BIR and requesting that they be duly
notified of any action taken by the BIR affecting the interest of their client Ferdinand
'Bongbong Marcos II, as well as the interest of the late president - copies of the
aforesaid notices were served on April 7, 1993 and on June 10, 1993, upon Mrs.
Imelda Marcos, the petitioner, and their counsel of record, 'De Borja, Medialdea, Ata,
Bello, Guevarra and Serapio Law Office'.
Notices of sale at public auction were posted on May 26, 1993, at the lobby of the
City Hall of Tacloban City. The public auction for the sale of the eleven (11) parcels
of land took place on July 5, 1993. There being no bidder, the lots were declared
forfeited in favor of the government.
On June 25, 1993, petitioner Ferdinand 'Bongbong' Marcos II filed the instant petition
for certiorari and prohibition under Rule 65 of the Rules of Court, with prayer for
temporary restraining order and/or writ of preliminary injunction."
It has been repeatedly observed, and not without merit, that the
enforcement of tax laws and the collection of taxes, is of paramount
importance for the sustenance of government. Taxes are the lifeblood of the
government
and
should
be
collected
without
unnecessary
hindrance. However, such collection should be made in accordance with law
as any arbitrariness will negate the very reason for government itself. It is
therefore necessary to reconcile the apparently conflicting interests of the
authorities and the taxpayers so that the real purpose of taxation, which is the
promotion of the common good, may be achieved."
[3]

Whether or not the proper avenues of assessment and collection of the

said tax obligations were taken by the respondent Bureau is now the subject
of the Court's inquiry.
Petitioner posits that notices of levy, notices of sale, and subsequent sale
of properties of the late President Marcos effected by the BIR are null and
void for disregarding the established procedure for the enforcement of taxes
due upon the estate of the deceased. The case of Domingo vs. Garlitos is
specifically cited to bolster the argument that "the ordinary procedure by which
[4]

to settle claims of indebtedness against the estate of a deceased, person, as

in an inheritance (estate) tax, is for the claimant to present a claim before the
probate court so that said court may order the administrator to pay the amount
therefor." This remedy is allegedly, exclusive, and cannot be effected through
any other means.
Petitioner goes further, submitting that the probate court is not precluded
from denying a request by the government for the immediate payment of
taxes, and should order the payment of the same only within the period fixed
by the probate court for the payment of all the debts of the decedent. In this
regard, petitioner cites the case of Collector of Internal Revenue vs. The
Administratrix of the Estate of Echarri (67 Phil 502), where it was held that:
"The case of Pineda vs. Court of First Instance of Tayabas and Collector of Internal
Revenue (52 Phil 803), relied upon by the petitioner-appellant is good authority on the
proposition that the court having control over the administration proceedings has
jurisdiction to entertain the claim presented by the government for taxes due and to
order the administrator to pay the tax should it find that the assessment was proper,
and that the tax was legal, due and collectible. And the rule laid down in that case
must be understood in relation to the case of Collector of Customs vs. Haygood,
supra., as to the procedure to be followed in a given case by the government to
effectuate the collection of the tax. Categorically stated, where during the pendency of
judicial administration over the estate of a deceased person a claim for taxes is
presented by the government, the court has the authority to order payment by the
administrator; but, in the same way that it has authority to order payment or
satisfaction, it also has the negative authority to deny the same. While there are cases
where courts are required to perform certain duties mandatory and ministerial in
character, the function of the court in a case of the present character is not one of
them; and here, the court cannot be an organism endowed withlatitude of judgment in
one direction, and converted into a mere mechanical contrivance in another direction."
On the other hand, it is argued by the BIR, that the state's authority to
collect internal revenue taxes is paramount. Thus, the pendency of probate
proceedings over the estate of the deceased does not preclude the
assessment and collection, through summary remedies, of estate taxes over
the same. According to the respondent, claims for payment of estate and
income taxes due and assessed after the death of the decedent need not be
presented in the form of a claim against the estate. These can and should be
paid immediately. The probate court is not the government agency to decide
whether an estate is liable for payment of estate of income taxes. Well-settled
is the rule that the probate court is a court with special and limited jurisdiction.

Concededly, the authority of the Regional Trial Court, sitting, albeit with
limited jurisdiction, as a probate court over estate of deceased individual, is
not a trifling thing. The court's jurisdiction, once invoked, and made effective,
cannot be treated with indifference nor should it be ignored with impunity by
the very parties invoking its authority.
In testament to this, it has been held that it is within the jurisdiction of the
probate court to approve the sale of properties of a deceased person by his
prospective heirs before final adjudication; to determine who are the heirs of
the decedent; the recognition of a natural child; the status of a woman
claiming to be the legal wife of the decedent; the legality of disinheritance of
an heir by the testator; and to pass upon the validity of a waiver of hereditary
rights.
[5]

[6]

[7]

[8]

[9]

[10]

The pivotal question the court is tasked to resolve refers to the authority of
the Bureau of Internal Revenue to collect by the summary remedy of levying
upon, and sale of real properties of the decedent, estate tax deficiencies,
without the cognition and authority of the court sitting in probate over the
supposed will of the deceased.
The nature of the process of estate tax collection has been described as
follows:
"Strictly speaking, the assessment of an inheritance tax does not directly involve the
administration of a decedent's estate, although it may be viewed as an incident to the
complete settlement of an estate, and, under some statutes, it is made the duty of the
probate court to make the amount of the inheritance tax a part of the final decree of
distribution of the estate. It is not against the property of decedent, nor is it a claim
against the estate as such, but it is against the interest or property right which the heir,
legatee, devisee, etc., has in the property formerly held by decedent. Further, under
some statutes, it has been held that it is not a suit or controversy between the parties,
nor is it an adversary proceeding between the state and the person who owes the tax
on the inheritance. However, under other statutes it has been held that the hearing and
determination of the cash value of the assets and the determination of the tax are
adversary proceedings. The proceeding has been held to be necessarily a proceeding
in rem.
[11]

In the Philippine experience, the enforcement and collection of estate tax,

is executive in character, as the legislature has seen it fit to ascribe this task to
the Bureau of Internal Revenue. Section 3 of the National Internal Revenue
Code attests to this:

"Sec. 3. Powers and duties of the Bureau.-The powers and duties of the Bureau of
Internal Revenue shall comprehend the assessment and collection of all national
internal revenue taxes, fees, and charges, and the enforcement of all forfeitures,
penalties, and fines connected therewith, including the execution of judgments in all
cases decided in its favor by the Court of Tax Appeals and the ordinary courts. Said
Bureau shall also give effect to and administer the supervisory and police
powerconferred to it by this Code or other laws."
Thus, it was in Vera vs. Fernandez that the court recognized the liberal
treatment of claims for taxes charged against the estate of the decedent. Such
taxes, we said, were exempted from the application of the statute of nonclaims, and this is justified by the necessity of government funding,
immortalized in the maxim that taxes are the lifeblood of the
government. Vectigalia nervi sunt rei publicae - taxes are the sinews of the
state.
[12]

"Taxes assessed against the estate of a deceased person, after administration is opened,
need not be submitted to the committee on claims in the ordinary course of
administration. In the exercise of its control over the administrator, the court may
direct the payment of such taxes upon motion showing that the taxes have been
assessed against the estate."
Such liberal treatment of internal revenue taxes in the probate
proceedings extends so far, even to allowing the enforcement of tax
obligations against the heirs of the decedent, even after distribution of the
estate's properties.
"Claims for taxes, whether assessed before or after the death of the deceased, can be
collected from the heirs even after the distribution of the properties of the
decedent. They are exempted from the application of the statute of non-claims. The
heirs shall be liable therefor, in proportion to their share in the inheritance."
[13]

"Thus, the Government has two ways of collecting the taxes 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. Another remedy, pursuant to the lien created
by Section 315 of the Tax Code upon all property and rights to property belong 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.
(Commissioner of Internal Revenue vs. Pineda, 21 SCRA 105, September 15, 1967.)
From the foregoing, it is discernible that the approval of the court, sitting in
probate, or as a settlement tribunal over the deceased is not a mandatory

requirement in the collection of estate taxes. It cannot therefore be argued

that the Tax Bureau erred in proceeding with the levying and sale of the
properties allegedly owned by the late President, on the ground that it was
required to seek first the probate court's sanction. There is nothing in the Tax
Code, and in the pertinent remedial laws that implies the necessity of the
probate or estate settlement court's approval of the state's claim for estate
taxes, before the same can be enforced and collected.
On the contrary, under Section 87 of the NIRC, it is the probate or
settlement court which is bidden not to authorize the executor or judicial
administrator of the decedent's estate to deliver any distributive share to any
party interested in the estate, unless it is shown a Certification by the
Commissioner of Internal Revenue that the estate taxes have been paid. This
provision disproves the petitioner's contention that it is the probate court which
approves the assessment and collection of the estate tax.
If there is any issue as to the validity of the BIR's decision to assess the
estate taxes, this should have been pursued through the proper administrative
and judicial avenues provided for by law.
Section 229 of the NIRC tells us how:
"Sec. 229. Protesting of assessment.-When the Commissioner of Internal Revenue or
his duly authorized representative finds that proper taxes should be assessed, he shall
first notify the taxpayer of his findings. Within a period to be prescribed by
implementing regulations, the taxpayer shall be required to respond to said notice. If
the taxpayer fails to respond, the Commissioner shall issue an assessment based on his
findings.
Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation in such form and manner as may be prescribed by
implementing regulations within (30) days from receipt of the assessment; otherwise,
the assessment shall become final and unappealable.
If the protest is denied in whole or in part, the individual, association or corporation
adversely affected by the decision on the protest may appeal to the Court of Tax
Appeals within thirty (30) days from receipt of said decision; otherwise, the decision
shall become final, executory and demandable. (As inserted by P.D. 1773)"
Apart from failing to file the required estate tax return within the time
required for the filing of the same, petitioner, and the other heirs never
questioned the assessments served upon them, allowing the same to lapse

into finality, and prompting the BIR to collect the said taxes by levying upon
the properties left by President Marcos.
Petitioner submits, however, that "while the assessment of taxes may have
been validly undertaken by the Government, collection thereof may have been
done in violation of the law. Thus, the manner and method in which the latter
is enforced may be questioned separately, and irrespective of the finality of
the former, because the Government does not have the unbridled discretion to
enforce collection without regard to the clear provision of law."
[14]

Petitioner specifically points out that applying Memorandum Circular No.

38-68, implementing Sections 318 and 324 of the old tax code (Republic Act
5203), the BIR's Notices of Levy on the Marcos properties, were issued
beyond the allowed period, and are therefore null and void:
"...the Notices of Levy on Real Property (Annexes 0 to NN of Annex C of this
Petition) in satisfaction of said assessments were still issued by respondents well
beyond the period mandated in Revenue Memorandum Circular No. 38-68. These
Notices of Levy were issued only on 22 February 1993 and 20 May 1993 when at
least seventeen (17) months had already lapsed from the last service of tax assessment
on 12 September 1991. As no notices of distraint of personal property were first
issued by respondents, the latter should have complied with Revenue Memorandum
Circular No. 38-68 and issued these Notices of Levy not earlier than three (3) months
nor later than six (6) months from 12 September 1991. In accordance with the
Circular, respondents only had until 12 March 1992 (the last day of the sixth month)
within which to issue these Notices of Levy. The Notices of Levy, having been issued
beyond the period allowed by law, are thus void and of no effect."
[15]

We hold otherwise. The Notices of Levy upon real property were issued
within the prescriptive period and in accordance with the provisions of the
present Tax Code. The deficiency tax assessment, having already become
final, executory, and demandable, the same can now be collected through the
summary remedy of distraint or levy pursuant to Section 205 of the NIRC.
The applicable provision in regard to the prescriptive period for the
assessment and collection of tax deficiency in this instance is Article 223 of
the NIRC, which pertinently provides:
"Sec. 223. Exceptions as to a 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 (10)
years after the discovery of the falsity, fraud, or omission: Provided, That, in a fraud

assessment which has become final and executory, the fact of fraud shall be judicially
taken cognizance of in the civil or criminal action for the collection thereof.
xxx
(c) Any internal revenue tax which has been assessed within the period of limitation
above prescribed, may be collected by distraint or levy or by a proceeding in court
within three years following the assessment of the tax.
xxx
The omission to file an estate tax return, and the subsequent failure to
contest or appeal the assessment made by the BIR is fatal to the petitioner's
cause, as under the above-cited provision, in case of failure to file a return,
the tax may be assessed at any time within ten years after the omission, and
any tax so assessed may be collected by levy upon real property within three
years following the assessment of the tax. Since the estate tax assessment
had become final and unappealable by the petitioner's default as regards
protesting the validity of the said assessment, there is now no reason why the
BIR cannot continue with the collection of the said tax. Any objection against
the assessment should have been pursued following the avenue paved in
Section 229 of the NIRC on protests on assessments of internal revenue
taxes.
Petitioner further argues that "the numerous pending court cases
questioning the late president's ownership or interests in several properties
(both real and personal) make the total value of his estate, and the
consequent estate tax due, incapable of exact pecuniary determination at this
time.Thus, respondents' assessment of the estate tax and their issuance of
the Notices of Levy and sale are premature and oppressive." He points out the
pendency of Sandiganbayan Civil Case Nos. 0001-0034 and 0141, which
were filed by the government to question the ownership and interests of the
late President in real and personal properties located within and outside the
Philippines. Petitioner, however, omits to allege whether the properties levied
upon by the BIR in the collection of estate taxes upon the decedent's estate
were among those involved in the said cases pending in the
Sandiganbayan. Indeed, the court is at a loss as to how these cases are
relevant to the matter at issue. The mere fact that the decedent has pending
cases involving ill-gotten wealth does not affect the enforcement of tax
assessments over the properties indubitably included in his estate.
Petitioner also expresses his reservation as to the propriety of the BIR's
total assessment of P23,292,607,638.00, stating that this amount deviates

from the findings of the Department of Justice's Panel of Prosecutors as per

its resolution of 20 September 1991. Allegedly, this is clear evidence of the
uncertainty on the part of the Government as to the total value of the estate of
the late President.
This is, to our mind, the petitioner's last ditch effort to assail the
assessment of estate tax which had already become final and unappealable.
It is not the Department of Justice which is the government agency tasked
to determine the amount of taxes due upon the subject estate, but the Bureau
of Internal Revenue whose determinations and assessments are presumed
correct and made in good faith. The taxpayer has the duty of proving
otherwise. In the absence of proof of any irregularities in the performance of
official duties, an assessment will not be disturbed. Even an assessment
based on estimates is prima facie valid and lawful where it does not appear to
have been arrived at arbitrarily or capriciously. The burden of proof is upon the
complaining party to show clearly that the assessment is erroneous. Failure to
present proof of error in the assessment will justify the judicial affirmance of
said assessment. In this instance, petitioner has not pointed out one single
provision in the Memorandum of the Special Audit Team which gave rise to
the questioned assessment, which bears a trace of falsity. Indeed, the
petitioner's attack on the assessment bears mainly on the alleged improbable
and unconscionable amount of the taxes charged. But mere rhetoric cannot
supply the basis for the charge of impropriety of the assessments made.
[16]

[17]

[18]

Moreover, these objections to the assessments should have been raised,

considering the ample remedies afforded the taxpayer by the Tax Code,with
the Bureau of Internal Revenue and the Court of Tax Appeals, as described
earlier, and cannot be raised now via Petition for Certiorari, under the pretext
of grave abuse of discretion. The course of action taken by the petitioner
reflects his disregard or even repugnance of the established institutions for
governance in the scheme of a well-ordered society. The subject tax
assessments having become final, executory and enforceable, the same can
no longer be contested by means of a disguised protest. In the
main, Certiorari may not be used as a substitute for a lost appeal or remedy.
This judicial policy becomes more pronounced in view of the absence of
sufficient attack against the actuations of government.
[19]

On the matter of sufficiency of service of Notices of Assessment to the

petitioner, we find the respondent appellate court's pronouncements sound
and resilient to petitioner's attacks.

"Anent grounds 3(b) and (B) - both alleging/claiming lack of notice - We find, after
considering the facts and circumstances, as well as evidences, that there was
sufficient, constructive and/or actual notice of assessments, levy and sale, sent to
herein petitioner Ferdinand "Bongbong" Marcos as well as to his mother Mrs. Imelda
Marcos.
Even if we are to rule out the notices of assessments personally given to the caretaker
of Mrs. Marcos at the latter's last known address, on August 26, 1991 and September
12, 1991, as well as the notices of assessment personally given to the caretaker of
petitioner also at his last known address on September 12, 1991 - the subsequent
notices given thereafter could no longer be ignored as they were sent at a time when
petitioner was already here in the Philippines, and at a place where said notices would
surely be called to petitioner's attention, and received by responsible persons of
sufficient age and discretion.
Thus, on October 20, 1992, formal assessment notices were served upon Mrs. Marcos
c/o the petitioner, at his office, House of Representatives, Batasan Pambansa, Q.C.
(Annexes "A", "A-1", "A-2", "A-3"; pp. 207-210, Comment/Memorandum of
OSG). Moreover, a notice to taxpayer dated October 8, 1992 inviting Mrs. Marcos to
a conference relative to her tax liabilities, was furnished the counsel of Mrs. Marcos Dean Antonio Coronel (Annex "B", p. 211, ibid). Thereafter, copies of Notices were
also served upon Mrs. Imelda Marcos, the petitioner and their counsel "De Borja,
Medialdea, Ata, Bello, Guevarra and Serapio Law Office", on April 7, 1993 and June
10, 1993. Despite all of these Notices, petitioner never lifted a finger to protest the
assessments, (upon which the Levy and sale of properties were based), nor appealed
the same to the Court of Tax Appeals.
There being sufficient service of Notices to herein petitioner (and his mother) and it
appearing that petitioner continuously ignored said Notices despite several
opportunities given him to file a protest and to thereafter appeal to the Court of Tax
Appeals, - the tax assessments subject of this case, upon which the levy and sale of
properties were based, could no longer be contested (directly or indirectly) via this
instant petition for certiorari."
[20]

Petitioner argues that all the questioned Notices of Levy, however, must be
nullified for having been issued without validly serving copies thereof to the
petitioner. As a mandatory heir of the decedent, petitioner avers that he has
an interest in the subject estate, and notices of levy upon its properties should
have been served upon him.
We do not agree. In the case of notices of levy issued to satisfy the
delinquent estate tax, the delinquent taxpayer is the Estate of the decedent,

and not necessarily, and exclusively, the petitioner as heir of the deceased. In
the same vein, in the matter of income tax delinquency of the late president
and his spouse, petitioner is not the taxpayer liable. Thus, it follows that
service of notices of levy in satisfaction of these tax delinquencies upon the
petitioner is not required by law, as under Section 213 of the NIRC, which
pertinently states:
"xxx
...Levy shall be effected by writing upon said certificate a description of the property
upon which levy is made. At the same time, written notice of the levy shall be mailed
to or served upon the Register of Deeds of the province or city where the property is
located and upon the delinquent taxpayer, or if he be absent from the Philippines, to
his agent or the manager of the business in respect to which the liability arose, or if
there be none, to the occupant of the property in question.
xxx"
The foregoing notwithstanding, the record shows that notices of warrants
of distraint and levy of sale were furnished the counsel of petitioner on April 7,
1993, and June 10, 1993, and the petitioner himself on April 12, 1993 at his
office at the Batasang Pambansa. We cannot therefore, countenance
petitioner's insistence that he was denied due process. Where there was an
opportunity to raise objections to government action, and such opportunity
was disregarded, for no justifiable reason, the party claiming oppression then
becomes the oppressor of the orderly functions of government. He who
comes to court must come with clean hands. Otherwise, he not only taints his
name, but ridicules the very structure of established authority.
[21]

IN VIEW WHEREOF, the Court RESOLVED to DENY the present

petition. The Decision of the Court of Appeals dated November 29, 1994 is
hereby AFFIRMED in all respects.
SO ORDERED.
Regalado, (Chairman), R

THIRD DIVISION
[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.: Supr-ema
Assailed in this petition for review on certiorari is the December 21, 1995
Decision of the Court of Appeals 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.
[1]

[2]

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. Jur-is
[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. The case was docketed as CTA
Case No. 4381.
[4]

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

On June 15, 1993, the Commissioner of Internal Revenue filed a motion for
reconsideration 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.
[7]

On June 7, 1994, the CTA issued the assailed Resolution 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
[8]

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 of the
National Internal Revenue Code (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.
[10]

[11]

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

the appellate courts. J-jlex
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. x x x
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.
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. Sc-juris
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. However, the tax
court upheld its previous ruling regarding the legality of the deductions [13]

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. ] Nc-mmis
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 estate 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.
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: Newmiso
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.Acctmis
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.
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. x x x
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, 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. 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. Scc-alr
[16]

[17]

[18]

Judicial expenses are expenses of administration. Administration expenses,

as an allowable deduction from the gross estate of the decedent for purposes
of arriving at the value of the net estate, have been construed by the federal
and state courts of the United States to include all expenses "essential to the
collection of the assets, payment of debts or the distribution of the property to
the persons entitled to it." In other words, the expenses must be essential to
the proper settlement of the estate. Expenditures incurred for the individual
benefit of the heirs, devisees or legatees are not deductible. This distinction
has been carried over to our jurisdiction. Thus, in Lorenzo v. Posadas 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. 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.
[19]

[20]

[21]

[22]

[23]

[24]

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.

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.
SO ORDERED.

THIRD DIVISION
RAFAEL ARSENIO S. DIZON, in his
capacity as the Judicial Administrator of
the Estate of the deceased JOSE P.
FERNANDEZ,
Petitioner,
- versus -

G.R. No. 140944

Present:
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

COURT OF TAX APPEALS

Promulgated:
andCOMMISSIONER OF INTERNAL
REVENUE,
April 30, 2008
Respondents.
x------------------------------------------------------------------------------------x
DECISION
NACHURA, J.:
Before this Court is a Petition for Review on Certiorari[1] under Rule 45 of the
Rules of Civil Procedure seeking the reversal of the Court of Appeals (CA)
Decision[2] dated April 30, 1999 which affirmed the Decision[3] 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 will[5] 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 letter [7] dated 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 letter [9] addressed
to the BIR Regional Director for San Pablo City and filed the estate tax
return[10] 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 .
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 P66,973,985.40[18]

In his letter[19] dated December 12, 1991, Atty. Gonzales moved for the
reconsideration of the said estate tax assessment. However, in her
letter[20] dated April 12, 1994, the BIR Commissioner denied the request and
reiterated that the estate is liable for the payment ofP66,973,985.40 as deficiency
estate tax. On May 3, 1994, petitioner received the letter of denial. On June 2,
1994, petitioner filed a petition for review [21] 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 addressed
to the Commissioner of Internal
Revenue informing the latter of
the special proceedings for the
settlement of the estate (p. 126,
BIR records); "A"
2. Petition for the probate of the
will and issuance of letter of
administration filed with the
Regional Trial Court (RTC) of
Manila, docketed as Sp. Proc.
No. 87-42980 (pp. 107-108, BIR
records); "B" & "B-1
3. Pleading entitled "Compliance"
filed with the probate Court
submitting the final inventory
of all the properties of the

deceased (p. 106, BIR records); "C"

4. Attachment to Exh. "C" which
is the detailed and complete
listing of the properties of
the deceased (pp. 89-105, BIR rec.); "C-1" to "C-17"
5. Claims against the estate filed
by Equitable Banking 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); "D" to "D-24"
6. Claim filed by Banque de L'
Indochine et de Suez with the
probate Court in the amount of
US $4,828,905.90 as of January 31,
1988 (pp. 262-265, BIR records); "E" to "E-3"
7. Claim of the Manila Banking
Corporation (MBC) which 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); "F" to "F-3"
8. Demand letter of Manila Banking
Corporation 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 28, 1989
(pp. 186-187, BIR records); "G" & "G-1"
9. Claim of State Investment

House, Inc. filed with the

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); "H" to "H-16"
10. Letter dated March 14, 1990
of Arsenio P. Dizon addressed
to Atty. Jesus M. Gonzales,
(p. 184, BIR records); "I"
11. Letter dated April 17, 1990
from J.M. Gonzales addressed
to the Regional Director of
BIR in San Pablo City
(p. 183, BIR records); "J"
12. Estate Tax Return filed by
the estate of the late Jose P.
Fernandez through its authorized
representative, Atty. Jesus M.
Gonzales, for Arsenio P. Dizon,
with attachments (pp. 177-182,
BIR records); "K" to "K-5"
13. Certified true copy of the
Letter of Administration
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 "L"
14. Certification of Payment of
estate taxes Nos. 2052 and

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.). "M" to "M-5"
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 Enriquez,
Jr. appearing at the lower
Portion of Exh. "1"; -do3. Memorandum for the Commissioner,
dated July 19, 1991, prepared by
revenue examiners, Ma. Anabella A.
Abuloc, Alberto S. Enriquez and
Raymund S. Gallardo; Reviewed by
Maximino V. Tagle pp. 143-144
4. Signature of Alberto S.
Enriquez appearing at the
lower portion on p. 2 of Exh. "2"; -do5. Signature of Ma. Anabella A.
Abuloc appearing at the
lower portion on p. 2 of Exh. "2"; -do6. Signature of Raymund S.
Gallardo appearing at the

Lower portion on p. 2 of Exh. "2"; -do7. Signature of Maximino V.

Tagle also appearing on
p. 2 of Exh. "2"; -do8. Summary of revenue
Enforcement Officers Audit
Report, dated July 19, 1991; p. 139
9. Signature of Alberto
Enriquez at the lower
portion of Exh. "3"; -do10. Signature of Ma. Anabella A.
Abuloc at the lower
portion of Exh. "3"; -do11. Signature of Raymond S.
Gallardo at the lower
portion of Exh. "3"; -do12. Signature of Maximino
V. Tagle at the lower
portion of Exh. "3"; -do13. Demand letter (FAS-E-87-91-00),
signed by the Asst. Commissioner
for Collection for the Commissioner
of Internal Revenue, demanding
payment of the amount of
P66,973,985.40; and p. 169
14. Assessment Notice FAS-E-87-91-00 pp. 169-170[22]

The CTA's Ruling

On June 17, 1997, the CTA denied the said petition for review. Citing this Court's
ruling in Vda. de Oate 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]

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
Deductions 44,652,813.66
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]

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 Resolution[30] 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 Oate 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 Oate 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]

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 Courts 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 Oate, which
reiterated this Court's previous rulings in People v. Napat-a[35]and People v.
Mate[36] 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 Oate, 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 Oate has already been abandoned. Recently,
in Ramos v. Dizon,[38] this 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
Oate still subsists in this jurisdiction. In Vda. de Oate, 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.
InInterpacific 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.
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 Oate 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 Albertos 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 Oate 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 Resolution[51] dated
March 21, 1996, the CTA 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
debt[56] 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 Code[59] (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.
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 postdeath settlement should be taken into consideration and the claim should be
allowed as a deduction only to the extent of the amount actually paid.

[64]

Recognizing 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.

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.