MISAEL P. VERA VS.HON. JUDGE PEDRO C.

NAVARRO

FACTS:

- Elsie M. Gaches died on March 9, 1966 without a child. The deceased left a last will and
testament in which she made the following disposition of her estate, to wit:

After payment of my just debts and funeral expenses I intact that the balance of my
property, both real and personal in the Philippines, he distributed as
follows: +.wph!1
a) to my driver, PACITO TROCIO Ten Thousand Pesos (P10,000.00);
b) to my lavandero, VICENTE JERODIAS One Thousand Pesos (P1,000.00);
c) to my gardener, CRISANTO SALIPOT, JR. Five Hundred Pesos (P500.00);
d) the balance of my estate in the Philippines shall then be divided in half; One-half
(1/2) to be given to CAMILO ERIBAL and the other half to MISS MAGDALENA
ABANTO;
e) to MISS CONSUELO L. TAN My office table and chair now in the library of my
house, and one of the carpets in my house to be selected by her;'
All my property in the United States consisting of furs, jewelry and stocks I leave to
my sister BESS LAUER widow, and at present a resident of San Francisco, California.

Judge Bienvenido Tan, Sr. filed with the CFI a petition for the probate of the aforesaid will
On Aped 21, Judge Tan was appointed as executor of the testate estate of Elsie M. Gaches
without a bond.

In a letter, dated June 3, 1966, Judge Tan informed the Commissioner that the testate estate
was worth about ten million (P10 million) pesos and that the estate and inheritance taxes
due thereon were about P9.5 million. The case ultimately came to the supremecourt

ISSUES:

(1) Should the herein respondent heirs be required to pay first the inheritance tax before
the probate court may authorize the delivery of the hereditary share pertaining to each of
them?

(2) Are the respondent heirs herein who are citizens and residents of the Philippines liable
for the payment of the Philippine inheritance tax corresponding to the hereditary share of
another heir who is a citizen and resident of the United States of America. said share of the
latter consisting of personal (cash deposits and, shares) properties located in the mentioned
court

(3) Does the assignment of a certificate of time deposit to the comissioner of Internal
Revenue for the purpose of paying thereby the estate tax constitute payment of such tax?

(4) Should the herein respondent heirs be held liable for the payment of surcharge and
interest on the amount (P700,000.00) representing the face value of time deposit
certificates assigned to the Commissioner which could not be converted into cash?
Aside from the foregoing, there are also other incidental questions which are raised in the
present recourse, viz.,

(5) What should be the liability of the respondents herein on the contempt charges
respectively lodged against them?

(6) What should be a reasonable fee for the counsel of the respondents Atty. Medina, Eribal
and Abanto for professional services rendered In connection with the settlement of the
estate of Elsie M. Gaches?

HELD:

1. On the matter of the authority of a probate court to allow distribution of an estate prior
to the complete Nuidation of the inheritance tax, the Tax Code apparently lacks any
provision substantially Identical to the mentioned Section 103 thereof. There are provisions
of the Tax Code, e.g., Section 104, which makes it the duty of registers of deeds not to
register the transfer to any new owner of a hereditary estate unless payment of the death
taxes sham be shown; Section 106, which imposes a similar obligation on business
establishments; and Section 107, which penalizes the executor who delivers to an heir or
devise, and the officers and employees of business establishments who transfer in their
books to any new owner, any property forming part of a hereditary estate without the
payment of the death taxes first being shown; but those provisions by themselves do not
clearly establish that the purchase and object of the statute is to make the payment of the
inheritance tax a pre-condition to an order for the distribution and delivery of the
decedent's estate to the lawful heirs there. The cloud of vagueness in the statute, however,
is not entirely unreachable. Section 1, Rule 90 of the Rules of Court erases this hiatus in the
statute by providing thus: +.wph!1

Section 1. When order for distribution of residue made. When the debts,
funeral charges, and expenses of administration, the allowance to the widow,
and inheritance tax, if any, chargeable to the estate in accordance with law,
have been paid, the court, on the application of the executor or
administrator, or of a person interested in the estate, and after hearing upon
notice, shall assign the residue of the estate to the persons entitled to the
same, naming them and the proportions, or parts, to which each is entitled,
and such persons may demand and recover their respective shares from the
executor or administrator, or any person having the same in his possession. If
there is a controversy before the court as to who are the lawful heirs of the
deceased person or as to the distributive shares to which each person is
entitled under the law, the controversy shall be beard and decided as in
ordinary cases.

No distribution shall be allowed until the payment of the obligations above

mentioned has been made or provided for, unless the distributees, or any of
them, give a bond, in a sum to be fixed by the court, conditioned for the
payment of said obligations within such time as the court directs.
Under the provisions Of the aforequoted Rule, the distribution of a decedent's assets may
only be ordered under any of the following three circumstances, namely, (1) when the
inheritance tax, among others, is paid; (2) who bond a suffered bond is given to meet the
payment of the tax and all the other options of the nature enumerated in the above-cited
provision; or (3) when the payment of the said tax and at the other obligations mentioned in
the said Rule has been provided for one of these thru camar as the satisfaction of the when
tax due from the festate is were present when the question orders were issued in the case
at bar. Although the respondent Judo did make a condition in its order of June 5, 1967 that
the distribution of the estate of Elsie M. Gaches (except the cash deposits of more than P2
million) shall be trusted to Atty. Medina for the payment of whatever taxes may be due to
the government from the estate and the heirs them to, this Court cannot subscribe to the
proposition that the payment of the tax due was thereby adequately provided for. In the
first place, the order of June 5, l967 was, for all intents and , a complete distribution of the
estate to the heirs for, the executor who is supposed to take care of the estate was
absolutely discharged the attorney's fees for the of a lawyer who presumably acted as legal
counsel for the estate in the court below were ordered paid as were also the fees for the
executor's the cash funds of the estate were red paid to the cash and the non-cash (real
property and shares of stock) properties were likewise ordered delivered to Atty. Medina
whose participation in the said proceedings was in the capacity of an attorney-in-fact of the
herein respondent Eribal and Abanto. In short, the probate court virtually withdrew its
custodial jurisdiction over the estate which is the subject of settlement before it. In the
second place the respondent Judge, in the distribution of the properties of the estate in
question, relief solely upon the mere mandestation of the counsel for the heirs Eribal and
Abanto that them were affiant of the estate with which to pay the taxes due to the
government. There is no evidence on record that would show that the probate court ever
made a serious attempt to de what the values of the different assets the correctness of that
such properties shall be preserved for the satisfaction of those case In the third place that
main of pesos taxes were being called by the Bureau of Inc. Revenue, the least reasonable
thing that the probate court should have done was to require the heirs to deposit the
amount of inheritance tax being claimed in a suitable institution or to authorize the sale of
non-cash assets under the court's control and supervision.

The record is likewise bereft of any evidence to show that sufficient bond has been filed to
meet this particular outstanding obligation.

2. The liability of the herein respondents Eribal and Abanto to pay the inheritance tax
corresponding to the share of Bess Lauer in the inheritance must be negated, The
inheritance tax is an imposition created by law on the privilege to receive
property. 4 Consequently, the scope and subjects of this tax and other related matters in
which it is involved must be traced and sought in the law itself. An analysis of our tax
statutes supplies no sufficient indication that the inheritance tax, as a rule, was meant to be
the joint and solidary liability of the heirs of a decedent. Section 95(c) of the Tax Code, in
fact, indicates that the general presumption must be otherwise. The said subsection reads
thus: +.wph!1

(c) xxx xxx xxx

 The inheritance tax imposed by Section 86 shall, in the absence of contrary
disposition by the predecessor, be charged to the account of each
beneficiary, in proportion to the value of the benefit received, and in
accordance with the scale fixed for the class or group to which is
pertains: Provided, That in cases where the heirs divide extrajudicially the
property left to them by their predecessor or otherwise convey, sell, transfer,
mortgage, or encumber the same without being the estate or inheritance
taxes within the period prescribed in the preceding subsections (a) and (b),
they shall be solidarity liable for the payment of the said taxes to the extent
of the estate they have received.

The statute's enumeration of the specific cases when the heirs may be held solidarity liable
for the payment of the inheritance tax is, in the opinion of this Court, a clear indication that
beyond those cases, the payment of the inheritance tax should be taken as'the individual
responsibility, to the extent of the benefits received, of each heir.

3. And the effect of the indorsement of the time deposit certificates to the Commissioner,
the same cannot be held to have extinguished the estate's liability for the estate tax. In the
first place,in accepting the indorsement and delivery of the said certificates, the
Commissioner expressly gave notice that his Office +.wph!1

... Regrets that the same cannot be accepted as payment of the deficiency
estate tax in this case may they cannot, at present or on or therefore
December 9, 1967, be converted into cash. However, we are holding said
certificates of time deposit for possible application in payment of the unpaid
balance of the deficiency estate tax in this case ,is soon as said certificates
can be converted into cash. ...

In the second place, a time deposit certificate is a mercantile document and is essentially a
promissory note. 5 By the express terms of Article 1249 of the Civil Code of the Philippines,
the use of this medium to clear an obligation will "produce the effect of payment only when
they have been cashed, or when through the fault of the creditor they have been impaired."
From the records of the case at bar, the Commissioner as well as the herein respondents
Atty. Medina, Eribal and Abanto spared no time trying to collect the value of said certificates
from the Overseas Bank of Manila but all to no avail. Consequently, the value of the said
certificates (P700,000.00) should still be considered outstanding.

4. The estate of Elsie M. Gaches is likewise liable for the payment of the interest and
surcharges on the said amount of P700.000.00 imposed under Section 101 (a) (1) and (c),
respectively, of the Tax Code. 6

The Interest charge for 1% per month imposed under Section 101 (a) (1) of the Tax Code is
essentially a commotion to the State for delay in the payment of the tax due thereto 7 As for
the accountant use by the tax payer of funds that nightday shall be in the government's
funds. 8 As the indorsement and delivery of the mentioned time deposit certificates to the
did not result in the payment of the estate tax (for which it was in the respondents estate is
fluently liable for the interest charge imposed in the Tax Code.
The estate cannot likewise be exempted from the payment of the 5% surcharge imposed by
Section 101 (c) of the Tax Code. While there are cases in this jurisdiction holding that a
surcharge shall not be visited upon a taxpayer whose failure to pay the tax on time is in
good faith, 9 this element does not appear to be present in the case at bar. The
Commissioner, as aforesaid, fully informed the respondents Atty. Medina, Eribal and Abanto
of the condition to this acceptance of the said time deposit certificates. The Commissioner,
in fact, advised them in the same letter that "It will be understood in this connection that if
the balance of the deficiency estate tax in this case is not paid on or before December 9,
1967, the name shall be subject to the interest on deficiency, 5% surcharge and 1% monthly
interest for deficiency." Moreover, Judge Tan himself, as executor of the estate of Elsie M.
Gaches, specifically admitted that he was the one who caused the extension (and
consolidation) of the maturity dates of the two time deposit certificates in question (one for
P100,000.00 to mature on May 12, 1967 and the other for P600,000.00 to mature on June
16, 1967) to May 12, 1968,

It will be worthwhile to mention also, in this connection, that when Atty. Medina applied to
this Court for authorize to the amount of P700,000.00 from the Overseas Bank of Manila on
September 9, 1967, the resolution of this Court dated November 17, 1967, approve her
request authorized her to withdraw the said amount in the form of cashier's checks payable
to the Commissioner. Apparently, because the Overseas Bank of Manila refused to issue
such checks or to allow her to withdraw said amount in view of the extension of the nuturity
date of the deposit in question, Atty. Medina thought that by simply assigning the time
deposit certificates to the Commissioner, she would be deemed to have paid the estate's
obligation in its corresponding amount. However, as aforesaid the Commissioner was also
unable to convert said amount to cash and he gave announce to that effect to Atty. Medina.
Since the refusal of the Overseas Bank of Manila to snow the withdrawal of the said deposit
was then well-known to the parties, it saw to reas that the tentatives of the estate who
stand to be benefited. therefrom, such as the respondents Eribal and Abanto, should have
forthwith asked for authority to pay the from other funds of the estate. Atty. Medina was, in
fact, given the authority by this Court to sell assets of the estate for the payment of the
taxes due to the State, but she never tried to pay the equivalent amount of P700,000.00 in
question from the proceeds of the Wm she made afterwards. Moreover, it will also be
noted that the respondents EAbal and Abanto, during the pendency of this case, had in their
actual ion at least P2.3 million (the amount they were able to withdraw from the Philippine
National Bank on account of the questioned orders) which they could have very well used
for the payment of the estate tax. They, however, opted to put the same to other uses.

5. We now consider the several petitions for contempt riled in the case at bar, namely, (a)
against the Philippine National Bank on account for allowing Atty. Medina to withdraw
P2,330,000.00 in contravention of the writ of punishment issued by the Commissioner; (b)
against the officer of the Overseas Bank of Manila for allowing the extension of the maturity
date of the mentioned time deposit of P700,000.00 and for refusing to pay the same after
the extended term expired; (c) against Judge Tan who renewed the maturity date of the said
time deposits; (d) against the Lepanto Consolidated Mining Co. for refusing to turn over
dividends payable to the estate of Elsie M. Gaches unless the Commissioner first lifted his
punishment order; and (e) against the herein respondents Atty. Medina, Eribal and Abonto
for citing shares of stock with the probate court instead of the cash amount of
P2,330,000.00 which they withdrew from the renewed National Bank on account of the
questioned orders of the probate court, contrary to the resolutions of this Court dated July
10 and 17, 1967.

(a) The contempt charge against the officials of the Philippine National Bank is without
merit, it appearing to the satisfaction of this Court that they excited reasonable efforts not
to disobey the writ of garnishing issued by the Commissioner. Indeed, said officials merely
acted in obedience to the order of the probate court which threatened them with contempt
of court after they moved to be allowed to deposit with the said probate court the money of
the of Elsie Gaches deposited with the said bank. The commssioner himself, through the
Solicitor General, admitted later that its writ of garnishment cannot be superior to that of
the probate court,s order as the estate in Question was then in custodia legis.

(b) The contempt charges against the officials of the Overseas Bank of Manila likewise merit
dismissal. In the case of the renewal of the term of the time deposits in question, the said
extension was made by no less than the executor of the estate himself- The renewal of said
term may be considered as purely an act of administration for the enhancement (due to the
higher interest rates) of the value of the estate, and the officials of the bank cannot
consequently be blamed or acting favorably on the executor's application. Judge Tan himself
explained that he did what he did honest the belief that it would redound to the benefit of
the estate on the account of the higher interest rate on time deposits.

With reference, to the refuse of the bank's officials to allow the witldrawal of time deposit
in question after the extended term expired on May 12, 1968, this Court takes notice of the
fact, as stated in our decision in Ramos vs. Central Bank (L-293250, Oct. 4, 1971; 41 SCRA
565), that as early as November 20, 1967 the Central Bank required the Overseas Bank of
Manila, in view of its distressed financial condition, to execute a voting trust agreement in
order to bail it out through a change of management and the promise of fresh funds to
replenish the bank's financial portfolio. The Overseas Bank of Manila was not able to
normalize its operations in spite of the voting trust agreement for, on July 31, 1968, it
was excluded by the Central Bank from inter-bank clearing; on August 1, 1968, its
operations were suspended; and on August 13, 1968, it was completely forbidden by the
Central Bank to do business preparatory to its forcible liquidation. Under the circumstances,
this Court is satisfied with the explanation that to allow Atty. Medina to withdraw the said
time deposits after the extended term would have worked an undue prejudice to the other
depositors and creditors of the bank.

(c) The contempt charge against Judge Tan is also not meritorious. There is no sufficient and
convincing evidence to show that he renewed the maturity date of the time deposits in
question maliciously or to the prejudice of the interest of the estate.

(d) The Lepanto Consolidated Mining Company is likewise entitled to exoneration from the
contempt charge lodged against it. It is refusing to turn over to Atty. Medina stock dividends
payable to the estate of Elsie M. Gaches, it is evident that the said corporation acted in good
faith in view of the writ of garnishment issued to it by the Commissioner. Moreover, on
February 16, 1968, this Court passed a resolution suspending temporarily the warrants of
punishment issued by the Commissioner, and it does not appear that thereafter the
turnover of the stock dividends to the estate was refused.

(e) With reference to the charge for contempt against the respondents Atty. Medina, Eribal
and Abanto, although admittedly the resolutions of this Court dated July 10 and 17, 1967
were not strictly complied with by the said respondents, it appears clearly that they
immediately deposited with the probate court shares of stock with a fairly stable liquidity
value of P2,588,520.00. In any case, the main objective of the instant petition is to assure
the State that the assessed tax obligations shall be paid and, from the records, more than P2
million had already been paid to the State during the pendency of the instant proceeding, in
this Court.

6. With reference to the attorney's fees to be paid to Atty. Manuel M. Paredes, this court is
of the opinion, after a careful study of the statement of services rendered by said counsel to
the respondents Eribal and Abanto which was submitted to this Court, that the amount of
Fifty Thousand Pesos (P50,000.00) is fair and reasonable. The payment of this amount,
however, is the personal liability of the said respondents Eribal and Abanto. and not that of
the estate of Elsie M. Gaches, as the said counsel was hired by the said respondents to give
legal aid to them in connection with the settlement of the various claims preferred in the
probate court and in this Court.

7. The Court's intended adjudication of the main issue has been rendered academic by
supervening events which dictate that the court refrain from issuing any further order
relating thereto. On July 18, 1977 a "Manifestation and Compliance" was filed by the,
respondent Delia P. Medina which states that a compromise payment of P700,000 as all
estate tax, evidence by an official receipt (annex A of the Manifestation), was accepted and
duly approved by Acting Commissioner of Internal Revenue Efren I. Plana (annex B of the
same Manifestation), and that "with the said compromise payment of P700,000, all estate,
inheritance and deficiency income taxes . . . including pertinent delinquency penalties
thereof have been fully paid and liquidated, aggregating to P7,929,498.55 ..." No objection
thereto was interpored by any of this parties concerned despite due notice thereof. This
was further supplemented by a communication, dated July 19, 1977, of Deputy
Commissioner Conrado P. Diaz, informing the Register of Deeds of Pasig, Metro Manila, that
the Gaches estate has already paid all the estate and inheritance taxes assessed against it,
and that, consequently, the notice of tax then inscribed on the property and property rights
of the estate can now be considered cancelled. With the full settlement of the tax claims,
the requirements of the law have been fully met, and it has unnecessary for the Court to
issue orders relative to the main issue.

COMMISSIONER OF INTERNAL REVENUE vs. MANUEL B. PINEDA, as one of the heirs of

deceased ATANASIO PINEDA

FACTS:
 On May 23, 1945 Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and
15 children, the eldest of whom is Manuel B. Pineda, a lawyer. Estate proceedings
were had in the Court of First Instance of Manila (Case No. 71129) wherein the
surviving widow was appointed administratrix. The estate was divided among and
awarded to the heirs and the proceedings terminated on June 8, 1948. Manuel B.
Pineda's share amounted to about P2,500.00.
After the estate proceedings were closed, the Bureau of Internal Revenue
investigated the income tax liability of the estate for the years 1945, 1946, 1947 and
1948 and it found that the corresponding income tax returns were not filed.
This resulted to a PHP 760.28 deficiency income tax for 1945 and 1946 and real
estate dealers fixed tax for the 4th quarter of 1946 and the whole year of 1947.
Manuel B. Pineda, who received the assessment, contested the same. Subsequently,
he appealed to the Court of Tax Appeals alleging that he was appealing "only that
proportionate part or portion pertaining to him as one of the heirs."
Court of Tax Appeals rendered judgment reversing the decision of the Commissioner
on the ground that his right to assess and collect the tax has prescribed.
The Commissioner appealed and this Court affirmed the findings of the Tax Court in
respect to the assessment for income tax for the year 1947 but held that the right to
assess and collect the taxes for 1945 and 1946 has not prescribed. For 1945 and
1946 the returns were filed on August 24, 1953; assessments for both taxable years
were made within five years therefrom or on October 19, 1953; and the action to
collect the tax was filed within five years from the latter date, on August 7, 1957. For
taxable year 1947, however, the return was filed on March 1, 1948; the assessment
was made on October 19, 1953, more than five years from the date the return was
filed; hence, the right to assess income tax for 1947 had prescribed. Accordingly, We
remanded the case to the Tax Court for further appropriate proceedings.1
The Commissioner of Internal Revenue has appealed to Us and has proposed to hold
Manuel B. Pineda liable for the payment of all the taxes found by the Tax Court to be
due from the estate in the total amount of P760.28 instead of only for the amount of
taxes corresponding to his share in the estate.
Manuel B. Pineda opposes the proposition on the ground that as an heir he is liable
for unpaid income tax due the estate only up to the extent of and in proportion to
any share he received.

ISSUE: WON the Government can require Manuel Pineda to pay the full amount of the tax
assessed

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

Pineda is liable for the assessment as an heir and as a holder-transferee of property

belonging to the estate/taxpayer. As an heir he is individually answerable for the part of the
tax proportionate to the share he received from the inheritance. His liability, however,
cannot exceed the amount of his share.

As a holder of property belonging to the estate, Pineda is liable for he tax up to the amount
of the property in his possession. The reason is that the Government has a lien on the
P2,500.00 received by him from the estate as his share in the inheritance, for unpaid income
taxes4a for which said estate is liable, pursuant to the last paragraph of Section 315 of the
Tax Code, which we quote hereunder:

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

association, or insurance company liable to pay the income tax, neglects or refuses
to pay the same after demand, the amount shall be a lien in favor of the
Government of the Philippines from the time when the assessment was made by the
Commissioner of Internal Revenue until paid with interest, penalties, and costs that
may accrue in addition thereto upon all property and rights to property belonging to
the taxpayer: . . .

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

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

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

WHEREFORE, the decision appealed from is modified. Manuel B. Pineda is hereby ordered
to pay to the Commissioner of Internal Revenue the sum of P760.28 as deficiency income
tax for 1945 and 1946, and real estate dealer's fixed tax for the fourth quarter of 1946 and
for the whole year 1947, without prejudice to his right of contribution for his co-heirs. No
costs. So ordered.
FERDINAND R. MARCOS II, vs. COURT OF APPEALS, THE COMMISSIONER OF THE BUREAU
OF INTERNAL REVENUE and HERMINIA D. DE GUZMAN
FACTS:
Bongbong Marcos sought for the reversal of the ruling of the Court of Appeals to
grant CIR's petition to levy the properties of the late Pres. Marcos to cover the
payment of his tax delinquencies during the period of his exile in the US.
Following the death of former President Marcos in 1989, a Special Tax Audit Team
was created on June 27, 1990 to conduct investigations and examinations of tax
liabilities of the late president, his family, associates and cronies.
The investigation disclosed that the Marcoses failed to file a written notice of death
of the decedent estate tax return and income tax returns for the years 1982 to 1986,
all in violation of the Tax Code.
Criminal charges were field against Mrs. Marcos for violation of Secs. 82, 83 and 84,
NIRC.
The CIR thereby caused the preparation of the estate tax return for the estate of the
late president, the income returns of the Marcos spouses for 1985 and 1986 and the
income tax returns of petitioner Marcos II for 1982 to 1985. On July 26, 1991, the
BIR issued deficiency estate tax assessments and the corresponding deficiency
income tax assessments. Copies of deficiency estate and income tax assessments
were served personally and constructively on August 26, 1991 and September 12,
1991 upon Mrs. Marcos. Likewise, copies of the deficiency income tax assessments
against petitioner Marcos were personally and constructively served. Formal
assessment notices were served upon Mrs. Marcos on October 20, 1992.
The deficiency tax assessments were not administratively protested by the Marcoses
within 30 days from service thereof. Subsequently, the CIRissued a total of
30 notices to levy on real property against certain parcels of land and other real
property owned by Marcoses.
Notices of sale at public auction were duly posted at the Tacloban City Hall and the
public auction for the sale of 11 parcels of land took place on July 5, 1993. There
being no bidder, the lots were declared forfeited in favor of the government.
Petitioner filed a petition for certiorari and prohibition with an applicationfor TRO
before the CA to annul and set aside the notices of levy as well as the notice of sale
and to enjoin the BIR from proceeding with the auction. The CA dismissed the
petition ruling that the deficiency assessments for the estate and income taxes have
already become final and unappealable and may thus be enforced
by summary remedy of levying upon the real property.
ISSUE: Whether or not the proper avenue of assessment and collection was taken by
respondent bureau.

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

The Contention of Marcos is not correct. The deficiency income tax assessments and estate
tax assessment are already final and unappealable -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.

The Notice of Levy upon real property were issued within the prescriptive period and in
accordance with Sec. 222 of the Tax Code. The deficiency tax assessment, having become
final, executory and demandable, the same can now be collected through
the summary remedy of distraint and levy pursuant to Sec. 205 of the Tax Code.

NB: The nature of the process of estate tax collection

the inheritance tax does not directly involve the administration of the decedents 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 it is a claim against the estate as much, but it is against the
interest or property right, which the heir has in the property formerly held by decedent it, is
a proceeding in rem.

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

CRISPINA DE GUZMAN-CARILLO, ARSENIO DE GUZMAN and HONORATA DE GUZMAN-
MENDIOLA

FACTS:

The deceased testator was survived by eight children named Victorino, Librada,
Severino, Margarita, Josefina, Honorata, Arsenio and Crispina. His will was duly
probated. Letters of administration were issued to his son, Doctor Victorino G. de
Guzman, pursuant to the order dated September 17, 1964 of the Court of First
Instance of Nueva Ecija in Special Proceeding No. 1431.
One of the properties left by the dent was a residential house located in the
poblacion. In conformity with his last will, that house and the lot on which it stands
were adjudicated to his eight children, each being given a one-
eighth proindiviso share in the project of partition dated March 19, 1966, which was
signed by the eight heirs and which was approved in the lower court's order of April
14, 1967 but without prejudice to the final outcome of the accounting.
The administrator submitted four accounting reports for the period from June 16,
1964 to September, 1967. Three heirs Crispina de Guzmans-Carillo Honorata de
 Guzman-Mendiola and Arsenio de Guzman interposed objections to the
administrator's disbursements in the total sum of P13,610.48.
The lower court in its order of April 29, 1968 allowed the items as legitimate
expenses of administration. From that order, the three oppositors appealed to this
Court. Their contention is that the probate court erred in approving the utilization of
the income of the estate (from rice harvests) to defray those expenditures which
allegedly are not allowable under the Rules of Court.

ISSUE: WON the expenses incurred by the administrator necessary expenses?

HELD:

An executor or administrator is allowed the necessary expenses in the care, management,

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

One of the Conditions of the administrator's bond is that he should render a true and just
account of his administration to the court. The court may examine him upon oath with
respect to every matter relating to his accounting and shall so examine him as to the
correctness of his account before the same is allowed, except when no objection is made to
the allowance of the account and its correctness is satisfactorily established by competent
proof. The heirs, legatees, distributes, and creditors of the estate shall have the same
privilege as the executor or administrator of being examined on oath on any matter relating
to an administration account." (Sec. 1[c] Rule 81 and secs. 8 and 9, Rule 85, Rules of Court).

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

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

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

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

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

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

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

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

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

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

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

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

The other expenses, namely, P19.30 for the lawyer's subsistence and P144 as the cost of
the gift to the physician who attended to the testator are allowable expenses.
IV. Irrigation fee P1,049.58. The appellants question the deductibility of that expense
on the ground that it seems to be a duplication of the item of P1,320 as irrigation fee for the
same 1966-67 crop-year.

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

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

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

MARIA CARLA PIROVANO vs. THE COMMISSIONER OF INTERNAL REVENUE

Enrico Pirovano was the father of the herein petitioners-appellants. In 1941, De la

Rama Steamship Co. insured the life of said Enrico Pirovano, who was then its
President and General Manager until the time of his death, with various Philippine
and American insurance companies for a total sum of one million pesos, designating
itself as the beneficiary of the policies, obtained by it.
In the latter part of 1944, said Enrico Pirovano died.
BOD of De la Rama Steamship Co. adopted a resolution dated July 10, 1946 granting
and setting aside, out of the proceeds expected to be collected on the insurance
policies taken on the life of said Enrico Pirovano, the sum of P400,000.00 for equal
division among the four (4) minor children of the deceased, said sum of money to be
convertible into 4,000 shares of stock of the Company, at par, or 1,000 shares for
each child. Shortly thereafter, the Company received the total sum of P643,000.00 as
proceeds of the said life insurance policies obtained from American insurers.
Various modifications were instituted by the companys Board of Directors on the
aforesaid resolution until finally on June 24, 1947, the Board of Directors of the
Company providing therein that the Company shall pay the proceeds of said life
insurance policies to the heirs of the said Enrico Pirovano after the Company shall
have settled in full the balance of its present remaining bonded indebtedness, but
the annual interests accruing on the principal shall be paid to the heirs of the said
Enrico Pirovano, or their duly appointed representative, whenever the Company is in
a position to meet said obligation.
On September 13, 1949, the stockholders of the Company formally ratified the
various resolutions hereinabove mentioned with certain clarifying modifications that
the payment of the donation shall not be effected until such time as the Company
 shall have first duly liquidated its present bonded indebtedness in the amount of
P3,260,855.77 with the National Development Company, or fully redeemed the
preferred shares of stock in the amount which shall be issued to the National
Development Company in lieu thereof; and that any and all taxes, legal fees, and
expenses in any way connected with the above transaction shall be chargeable and
deducted from the proceeds of the life insurance policies mentioned in the
resolutions of the Board of Directors.
On March 8, 1951, however, the majority stockholders of the Company voted to
revoke the resolution approving the donation in favor of the Pirovano children.
As a consequence of this revocation and refusal of the Company to pay the balance
of the donation amounting to P564,980.90 despite demands therefor, the herein
petitioners-appellants represented by their natural guardian, Mrs. Estefania R.
Pirovano, brought an action for the recovery of said amount, plus interest and
damages against De la Rama Steamship Co., in the Court of First Instance of Rizal,
which case ultimately culminated to an appeal to this Court. On December 29, 1954,
this court rendered its decision in the appealed case (96 Phil. 335) holding that the
donation was valid and remunerative in nature
The above decision became final and executory. In compliance therewith, De la
Rama Steamship Co. made, on April 6, 1955, a partial payment on the amount of the
judgment and paid the balance thereof on May 12, 1955.
On March 6, 1955, respondent Commissioner of Internal Revenue assessed the
amount of P60,869.67 as donees' gift tax, inclusive of surcharges, interests and other
penalties, against each of the petitioners-appellants, or for the total sum of
P243,478.68; and, on April 23, 1955, a donor's gift tax in the total amount of
P34,371.76 was also assessed against De la Rama Steamship Co., which the latter
paid.
Petitioners-appellants herein contested respondent Commissioner's assessment and
imposition of the donees' gift taxes and donor's gift tax and also made a claim for
refund of the donor's gift tax so collected. Respondent Commissioner overruled
petitioners' claims; hence, the latter presented two (2) petitions for review against
respondent's rulings before the Court of Tax Appeals, said petitions having been
docketed as CTA Cases Nos. 347 and 375. CTA Case No. 347 relates to the petition
disputing the legality of the assessment of donees' gift taxes and donor's gift tax
while CTA Case No. 375 refers to the claim for refund of the donor's gift tax already
paid.
The two cases, being interrelated to each other, were tried jointly and terminated.
On January 31, 1962, the Court of Tax Appeals rendered its decision in the two cases
wherein the petitioners were ordered to pay the donees' gift taxes as assessed by
respondent, plus 5% surcharge and interest at the rate of 1% per month from March
8, 1955 to the date of payment of said donees' gift taxes. Respondent is ordered to
apply the sum of P34,371.76 which is refundable to petitioners, against the amount
due from petitioners. With costs against petitioners in Case No. 347.
Petitioners-appellants herein filed a motion to reconsider the above decision, which
the lower court denied. Hence, this appeal.

ISSUE:
Whether or not Pirovano should pay the donees' gift tax
HELD: YES. Pirovano contends that the Court itself declared that the donation was
renumenatory and not simple and it was made for a full and adequate compensation for
the valuable services by decedent to the Company; hence, the donation does not constitute
a taxable gift under the provisions of Section 108 of the National Internal Revenue Code (old
law).

The Court states that it is a donation; that the consideration for the donation was,
therefore, the company's gratitude for his services, and not the services themselves and
whether the donation was simple or renumenatory, it was still a gift taxable under the law.

Love and affection are not considerations of value they are not estimable in terms of value.
Nor are sentiments of gratitude for gratuitous part favors or kindnesses; nor are obligations
which are merely moral. It has been well said that if a moral obligation were alone sufficient
it would remove the necessity for any consideration at all, since the fact of making a
promise impose, the moral obligation to perform it."

It is of course perfectly possible that a donation or gift should at the same time impose a
burden or condition on the donee involving some economic liability for him. Art. 726 of the
Tax Code provides that there is also a donation "when the gift imposes upon the donee a
burden which is less than the value of the thing given." Section 111 of the Tax Code has in
view situations of this kind, since it also prescribes that "the amount by which the value of
the property exceeded the value of the consideration" shall be deemed a gift for the
purpose of the tax. .

Petitioners finally contend that, even assuming that the donation in question is subject to
donees' gift taxes, the imposition of the surcharge of 5% and interest of 1% per month from
March 8, 1955 was not justified because the proceeds of the life insurance policies were
actually received on April 6, 1955 and May 12, 1955 only and in accordance with Section
115(c) of the Tax Code; the filing of the returns of such tax became due on March 1, 1956
and the tax became payable on May 15, 1956, as provided for in Section 116(a) of the same
Code. In other words, petitioners maintain that the assessment and demand for donees' gift
taxes was prematurely made and of no legal effect; hence, they should not be held liable for
such surcharge and interest.

REV. FR. CASIMIRO LLADOC vs COMMISSIONER OF INTERNAL REVENUE and The COURT of
TAX APPEALS

FACTS:

Sometime in 1957, the M.B. Estate, Inc., of Bacolod City, donated P10,000.00 in cash
to Rev. Fr. Crispin Ruiz, then parish priest of Victorias, Negros Occidental, and
 predecessor of herein petitioner, for the construction of a new Catholic Church in
the locality. The total amount was actually spent for the purpose intended.
On March 3, 1958, the donor M.B. Estate, Inc., filed the donor's gift tax return. Under
date of April 29, 1960, the respondent Commissioner of Internal Revenue issued an
assessment for donee's gift tax against the Catholic Parish of Victorias, Negros
Occidental, of which petitioner was the priest. The tax amounted to P1,370.00
including surcharges, interests of 1% monthly from May 15, 1958 to June 15, 1960,
and the compromise for the late filing of the return.
Petitioner lodged a protest to the assessment and requested the withdrawal thereof.
The protest and the motion for reconsideration presented to the Commissioner of
Internal Revenue were denied. The petitioner appealed to the Court of Tax Appeals
on November 2, 1960.
In the petition for review, the Rev. Fr. Casimiro Lladoc claimed, among others, that at
the time of the donation, he was not the parish priest in Victorias; that there is no
legal entity or juridical person known as the "Catholic Parish Priest of Victorias," and,
therefore, he should not be liable for the donee's gift tax. It was also asserted that
the assessment of the gift tax, even against the Roman Catholic Church, would not
be valid, for such would be a clear violation of the provisions of the Constitution.

ISSUE: whether or not petitioner should be liable for the assessed donee's gift tax on the
P10,000.00 donated for the construction of the Victorias Parish Church.

HELD: Yes. Section 22 (3), Art. VI of the Constitution of the Philippines, exempts from
taxation cemeteries, churches and parsonages or convents, appurtenant thereto, and
all lands, buildings, and improvements used exclusively for religious purposes. The
exemption is only from the payment of taxes assessed on such properties enumerated, as
property taxes, as contra distinguished from excise taxes.

In the present case, what the Collector assessed was a donee's gift tax; the assessment was
not on the properties themselves. It did not rest upon general ownership; it was an excise
upon the use made of the properties, upon the exercise of the privilege of receiving the
properties (Phipps vs. Com. of Int. Rec. 91 F 2d 627). Manifestly, gift tax is not within the
exempting provisions of the section just mentioned. A gift tax is not a property tax, but an
excise tax imposed on the transfer of property by way of gift inter vivos, the imposition of
which on property used exclusively for religious purposes, does not constitute an
impairment of the Constitution. As well observed by the learned respcondent Court, the
phrase "exempt from taxation," as employed in the Constitution (supra) should not be
interpreted to mean exemption from all kinds of taxes. And there being no clear, positive or
express grant of such privilege by law, in favor of petitioner, the exemption herein must be
denied.

Petitioner postulates that he should not be liable, because at the time of the donation he
was not the priest of Victorias. We note the merit of the above claim, and in order to put
things in their proper light, this Court, in its Resolution of March 15, 1965, ordered the
parties to show cause why the Head of the Diocese to which the parish of Victorias pertains,
should not be substituted in lieu of petitioner Rev. Fr. Casimiro Lladoc it appearing that the
Head of such Diocese is the real party in interest. The Solicitor General, in representation of
the Commissioner of Internal Revenue, interposed no objection to such a substitution.
Counsel for the petitioner did not also offer objection thereto.

On April 30, 1965, in a resolution, We ordered the Head of the Diocese to present whatever
legal issues and/or defenses he might wish to raise, to which resolution counsel for
petitioner, who also appeared as counsel for the Head of the Diocese, the Roman Catholic
Bishop of Bacolod, manifested that it was submitting itself to the jurisdiction and orders of
this Court and that it was presenting, by reference, the brief of petitioner Rev. Fr. Casimiro
Lladoc as its own and for all purposes.

In view here of and considering that as heretofore stated, the assessment at bar had been
properly made and the imposition of the tax is not a violation of the constitutional provision
exempting churches, parsonages or convents, etc. (Art VI, sec. 22 [3], Constitution), the
Head of the Diocese, to which the parish Victorias Pertains, is liable for the payment
thereof.

The decision appealed from should be, as it is hereby affirmed insofar as tax liability is
concerned; it is modified, in the sense that petitioner herein is not personally liable for the
said gift tax, and that the Head of the Diocese, herein substitute petitioner, should pay, as
he is presently ordered to pay, the said gift tax, without special, pronouncement as to costs.