G.R. No.

188497 February 19, 2014

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
PILIPINAS SHELL PETROLEUM CORPORATION, Respondent.

SEPARATE OPINION

BERSAMIN, J.:

In essence, the Resolution written for the Court by my esteemed colleague, Justice Martin S. Villarama, Jr.,
maintains that the exemption from payment of the excise tax under Section 135(a) of the National Internal
Revenue Code (NIRC) is conferred on the international carriers; and that, accordingly, and in fulfillment of
international agreement and practice to exempt aviation fuel from the excise tax and other impositions, Section
135(a) of the NIRC prohibits the passing of the excise tax to international carriers purchasing petroleum products
from local manufacturers/sellers. Hence, he finds merit in the Motion for Reconsideration filed by Pilipinas Shell
Petroleum Corporation (Pilipinas Shell), and rules that Pilipinas Shell, as the statutory taxpayer directly liable to
pay the excise tax on its petroleum products, is entitled to the refund or credit of the excise taxes it paid on the
petroleum products sold to international carriers, the latter having been granted exemption from the payment of
such taxes under Section 135(a) of the NIRC.

I CONCUR in the result.

I write this separate opinion only to explain that I hold a different view on the proper interpretation of the excise
tax exemption under Section 135(a) of the NIRC. I hold that the excise tax exemption under Section 135(a) of
the NIRC is conferred on the petroleum products on which the excise tax is levied in the first place in view of its
nature as a tax on property, the liability for the payment of which is statutorily imposed on the domestic
petroleum manufacturer.

I submit the following disquisition in support of this separate opinion.

The issue raised here was whether the manufacturer was entitled to claim the refund of the excise taxes paid on
the petroleum products sold to international carriers exempt under Section 135(a) of the NIRC.

We ruled in the negative, and held that the exemption from the excise tax under Section 135(a) of the NIRC was
conferred on the international carriers to whom the petroleum products were sold. In the decision promulgated
onn April 25, 2012, the Court granted the petition for review on certiorari filed by the Commissioner of Internal
1

Revenue (CIR), and disposed thusly:

WHEREFORE, the petition for review on certiorari is GRANTED. The Decision dated March 25, 2009 and
Resolution dated June 24, 2009 of the Court of Tax Appeals En Banc in CTA EB No. 415 are hereby
REVERSED and SET ASIDE. The claims for tax refund or credit filed by respondent Pilipinas Shell Petroleum
Corporation are DENIED for lack of basis.

No pronouncement as to costs.

SO ORDERED. 2

We thereby agreed with the position of the Solicitor General that Section 135(a) of the NIRC must be construed
only as a prohibition for the manufacturer-seller of the petroleum products from shifting the tax burden to the
international carriers by incorporating the previously-paid excise tax in the selling price. As a consequence, the
manufacturer-seller could not invoke the exemption from the excise tax granted to international carriers.
Concluding, we said: –

Respondent’s locally manufactured petroleum products are clearly subject to excise tax under Sec. 148. Hence,
its claim for tax refund may not be predicated on Sec. 229 of the NIRC allowing a refund of erroneous or excess
payment of tax. Respondent’s claim is premised on what it determined as a tax exemption "attaching to the
goods themselves," which must be based on a statute granting tax exemption, or "the result of legislative grace."
Such a claim is to be construed strictissimi juris against the taxpayer, meaning that the claim cannot be made to
rest on vague inference. Where the rule of strict interpretation against the taxpayer is applicable as the claim for
refund partakes of the nature of an exemption, the claimant must show that he clearly falls under the exempting
statute.
The exemption from excise tax payment on petroleum products under Sec. 135 (a) is conferred on international
carriers who purchased the same for their use or consumption outside the Philippines. The only condition set by
law is for these petroleum products to be stored in a bonded storage tank and may be disposed of only in
accordance with the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation
of the Commissioner. 3

xxxx

Because an excise tax is a tax on the manufacturer and not on the purchaser, and there being no express grant
under the NIRC of exemption from payment of excise tax to local manufacturers of petroleum products sold to
international carriers, and absent any provision in the Code authorizing the refund or crediting of such excise
taxes paid, the Court holds that Sec. 135 (a) should be construed as prohibiting the shifting of the burden of the
excise tax to the international carriers who buys petroleum products from the local manufacturers. Said provision
thus merely allows the international carriers to purchase petroleum products without the excise tax component
as an added cost in the price fixed by the manufacturers or distributors/sellers. Consequently, the oil companies
which sold such petroleum products to international carriers are not entitled to a refund of excise taxes
previously paid on the goods. 4

In its Motion for Reconsideration filed on May 23, 2012, Pilipinas Shell principally contends that the Court has
erred in its interpretation of Section 135(a) of the 1997 NIRC; that Section 135(a) of the NIRC categorically
exempts from the excise tax the petroleum products sold to international carriers of Philippine or foreign registry
for their use or consumption outside the Philippines; that no excise tax should be imposed on the petroleum
5

products, whether in the hands of the qualified international carriers or in the hands of the manufacturer-
seller; that although it is the manufacturer, producer or importer who is generally liable for the excise tax when
6

the goods or articles are subject to the excise tax, no tax should accordingly be collected from the manufacturer,
producer or importer in instances when the goods or articles themselves are not subject to the excise tax; and 7

that as a consequence any excise tax paid in advance on products that are exempt under the law should be
considered erroneously paid and subject of refund. 8

Pilipinas Shell further contends that the Court’s decision, which effectively prohibits petroleum manufacturers
from passing on the burden of the excise tax, defeats the rationale behind the grant of the exemption; and that
9

without the benefit of a refund or the ability to pass on the burden of the excise tax to the international carriers,
the excise tax will constitute an additional production cost that ultimately increases the selling price of the
petroleum products. 10

The CIR counters that the decision has clearly set forth that the excise tax exemption under Section 135(a) of
the NIRC does not attach to the products; that Pilipinas Shell’s reliance on the Silkair rulings is misplaced
considering that the Court made no pronouncement therein that the manufacturers selling petroleum products to
international carriers were exempt from paying the taxes; that the rulings that are more appropriate are those in
Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue and Maceda v. Macaraig, Jr., whereby the
11 12

Court confirmed the obvious intent of Section 135 of the NIRC to grant the excise tax exemption to the
international carriers or agencies as the buyers of petroleum products; and that this intention is further supported
by the requirement that the petroleum manufacturer must pay the excise tax in advance without regard to
whether or not the petroleum purchaser is qualified for exemption under Section 135 of the NIRC.

In its Supplemental Motion for Reconsideration, Pilipinas Shell reiterates that what is being exempted under
Section 135 of the NIRC is the petroleum product that is sold to international carriers; that the exemption is not
given to the producer or the buyer but to the product itself considering that the excise taxes, according to the
NIRC, are taxes applicable to certain specific goods or articles for domestic sale or consumption or for any other
disposition, whether manufactured in or imported into the Philippines; that the excise tax that is passed on to the
buyer is no longer in the nature of a tax but of an added cost to the purchase price of the product sold; that what
is contemplated under Section 135 of the NIRC is an exemption from the excise tax, not an exemption from the
burden to shoulder the tax; and that inasmuch as the exemption can refer only to the imposition of the tax on the
statutory seller, like Pilipinas Shell, a contrary interpretation renders Section 135 of the NIRC nugatory because
the NIRC does not impose the excise tax on subsequent holders of the product like the international carriers.

As I earlier said, I agree to GRANT Pilipinas Shell’s motions for reconsideration.

Excise tax is essentially a tax

on goods, products or articles
Taxes are classified, according to subject matter or object, into three groups, to wit: (1) personal, capitation or
poll taxes; (2) property taxes; and (3) excise or license taxes. Personal, capitation or poll taxes are fixed
amounts imposed upon residents or persons of a certain class without regard to their property or business, an
example of which is the basic community tax. Property taxes are assessed on property or things of a certain
13

class, whether real or personal, in proportion to their value or other reasonable method of apportionment, such
as the real estate tax. Excise or license taxes are imposed upon the performance of an act, the enjoyment of a
14

privilege, or the engaging in an occupation, profession or business. Income tax, value-added tax, estate and
15

donor’s tax fall under the third group.

Excise tax, as a classification of tax according to object, must not be confused with the excise tax under Title VI
of the NIRC. The term "excise tax" under Title VI of the 1997 NIRC derives its definition from the 1986
NIRC, and relates to taxes applied to goods manufactured or produced in the Philippines for domestic sale or
16

consumption or for any other disposition and to things imported. In contrast, an excise tax that is imposed
17

directly on certain specified goods – goods manufactured or produced in the Philippines, or things imported – is
undoubtedly a tax on property. 18

The payment of excise taxes is the direct

liability of the manufacturer or producer

The production, manufacture or importation of the goods belonging to any of the categories enumerated in Title
VI of the NIRC (i.e., alcohol products, tobacco products, petroleum products, automobiles and non-essential
goods, mineral products) are not the sole determinants for the proper levy of the excise tax. It is further required
that the goods be manufactured, produced or imported for domestic sale, consumption or any other
disposition. The accrual of the tax liability is, therefore, contingent on the production, manufacture or
19

importation of the taxable goods and the intention of the manufacturer, producer or importer to have the goods
locally sold or consumed or disposed in any other manner. This is the reason why the accrual and liability for the
payment of the excise tax are imposed directly on the manufacturer or producer of the taxable goods, and arise
20

before the removal of the goods from the place of their production. 21

The manufacturer’s or producer’s direct liability to pay the excise taxes similarly operates although the goods
produced or manufactured within the country are intended for export and are "actually exported without returning
to the Philippines, whether so exported in their original state or as ingredients or parts of any manufactured
goods or products." This is implied from the grant of a tax credit or refund to the manufacturer or producer by
Section 130(4)(D) of the NIRC, thereby presupposing that the excise tax corresponding to the goods exported
were previously paid. Section 130(4)(D) reads:

xxxx

(D) Credit for Excise Tax on Goods Actually Exported. - When goods locally produced or manufactured are
removed and actually exported without returning to the Philippines, whether so exported in their original state or
as ingredients or parts of any manufactured goods or products, any excise tax paid thereon shall be credited or
refunded upon submission of the proof of actual exportation and upon receipt of the corresponding foreign
exchange payment: Provided, That the excise tax on mineral products, except coal and coke, imposed under
Section 151 shall not be creditable or refundable even if the mineral products are actually exported. (Emphasis
supplied.)

Simply stated, the accrual and payment of the excise tax under Title VI of the NIRC materially rest on the fact of
actual production, manufacture or importation of the taxable goods in the Philippines and on their presumed or
intended domestic sale, consumption or disposition. Considering that the excise tax attaches to the goods upon
the accrual of the manufacturer’s direct liability for its payment, the subsequent sale, consumption or other
disposition of the goods becomes relevant only to determine whether any exemption or tax relief may be granted
thereafter.

The actual sale, consumption or disposition

of the taxable goods confirms the proper tax
treatment of goods previously subjected
to the excise tax

Conformably with the foregoing discussion, the accrual and payment of the excise tax on the goods enumerated
under Title VI of the NIRC prior to their removal from the place of production are absolute and admit of no
exception. As earlier mentioned, even locally manufactured goods intended for export cannot escape the
imposition and payment of the excise tax, subject to a future claim for tax credit or refund once proof of actual
exportation has been submitted to the Commissioner of Internal Revenue (CIR). Verily, it is the actual sale,
22

consumption or disposition of the taxable goods that confirms the proper tax treatment of goods previously
subjected to the excise tax. If any of the goods enumerated under Title VI of the NIRC are manufactured or
produced in the Philippines and eventually sold, consumed, or disposed of in any other manner domestically,
therefore, there can be no claim for any tax relief inasmuch as the excise tax was properly levied and collected
from the manufacturer-seller.

Here, the point of interest is the proper tax treatment of the petroleum products sold by Pilipinas Shell to various
international carriers. An international carrier is engaged in international transportation or contract of carriage
between places in different territorial jurisdictions.
23

Pertinent is Section 135(a) of the NIRC, which provides:

SEC. 135. Petroleum Products Sold to International Carriers and Exempt Entities or Agencies. - Petroleum
products sold to the following are exempt from excise tax:

(a) International carriers of Philippine or foreign registry on their use or consumption outside the Philippines:
Provided, That the petroleum products sold to these international carriers shall be stored in a bonded storage
tank and may be disposed of only in accordance with the rules and regulations to be prescribed by the Secretary
of Finance, upon recommendation of the Commissioner; x x x

xxxx

As the taxpayer statutorily and directly liable for the accrual and payment of the excise tax on the petroleum
products it manufactured and it intended for future domestic sale or consumption, Pilipinas Shell paid the
corresponding excise taxes prior to the removal of the goods from the place of production. However, upon the
sale of the petroleum products to the international carriers, the goods became exempt from the excise tax by the
express provision of Section 135(a) of the NIRC. In the latter instance, the fact of sale to the international
carriers of the petroleum products previously subjected to the excise tax confirms the proper tax treatment of the
goods as exempt from the excise tax.

It is worthy to note that Section 135(a) of the NIRC is a product of the 1944 Convention of International Civil
Aviation, otherwise known as the Chicago Convention, of which the Philippines is a Member State. Article 24(a)
of the Chicago Convention provides –

Article 24
Customs duty

(a) Aircraft on a flight to, from, or across the territory of another contracting State shall be admitted temporarily
free of duty, subject to the customs regulations of the State. Fuel, lubricating oils, spare parts, regular equipment
and aircraft stores on board an aircraft of a contracting State, on arrival in the territory of another contracting
State and retained on board on leaving the territory of that State shall be exempt from customs duty, inspection
fees or similar national or local duties and charges. This exemption shall not apply to any quantities or articles
unloaded, except in accordance with the customs regulations of the State, which may require that they shall be
kept under customs supervision. x x x (Bold emphasis supplied.)

This provision was extended by the ICAO Council in its 1999 Resolution, which stated that "fuel … taken on
board for consumption" by an aircraft from a contracting state in the territory of another contracting State
departing for the territory of any other State must be exempt from all customs or other duties. The Resolution
broadly interpreted the scope of the Article 24 prohibition to include "import, export, excise, sales, consumption
and internal duties and taxes of all kinds levied upon . . . fuel."
24

Given the nature of the excise tax on petroleum products as a tax on property, the tax exemption espoused by
Article 24(a) of the Chicago Convention, as now embodied in Section 135(a) of the NIRC, is clearly conferred on
the aviation fuel or petroleum product on-board international carriers. Consequently, the manufacturer’s or
producer’s sale of the petroleum products to international carriers for their use or consumption outside the
Philippines operates to bring the tax exemption of the petroleum products into full force and effect.

Pilipinas Shell, the statutory taxpayer, is

the proper party to claim the refund of
the excise taxes paid on petroleum
products sold to international carriers
The excise taxes are of the nature of indirect taxes, the liability for the payment of which may fall on a person
other than whoever actually bears the burden of the tax. 25

In Commissioner of Internal Revenue v. Philippine Long Distance Telephone Company, the Court has
26

discussed the nature of indirect taxes in the following manner:

[I]ndirect taxes are those that are demanded, in the first instance, from, or are paid by, one person in the
expectation and intention that he can shift the burden to someone else. Stated elsewise, indirect taxes are taxes
wherein the liability for the payment of the tax falls on one person but the burden thereof can be shifted or
passed on to another person, such as when the tax is imposed upon goods before reaching the consumer who
ultimately pays for it. When the seller passes on the tax to his buyer, he, in effect, shifts the tax burden, not the
liability to pay it, to the purchaser, as part of the price of goods sold or services rendered. 27

In another ruling, the Court has observed:

Accordingly, the party liable for the tax can shift the burden to another, as part of the purchase price of the goods
or services. Although the manufacturer/seller is the one who is statutorily liable for the tax, it is the buyer who
actually shoulders or bears the burden of the tax, albeit not in the nature of a tax, but part of the purchase price
or the cost of the goods or services sold. 28

Accordingly, the option of shifting the burden to pay the excise tax rests on the statutory taxpayer, which is the
manufacturer or producer in the case of the excise taxes imposed on the petroleum products. Regardless of who
shoulders the burden of tax payment, however, the Court has ruled as early as in the 1960s that the proper party
to question or to seek a refund of an indirect tax is the statutory taxpayer, the person on whom the tax is
imposed by law and who paid the same, even if he shifts the burden thereof to another. The Court has
29

explained:

In Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue, the Court held that the sales tax is
imposed on the manufacturer or producer and not on the purchaser, "except probably in a very remote and
inconsequential sense." Discussing the "passing on" of the sales tax to the purchaser, the Court therein cited
Justice Oliver Wendell Holmes’ opinion in Lash’s Products v. United States wherein he said:

"The phrase ‘passed the tax on’ is inaccurate, as obviously the tax is laid and remains on the manufacturer and
on him alone. The purchaser does not really pay the tax. He pays or may pay

the seller more for the goods because of the seller’s obligation, but that is all. x x x The price is the sum total
paid for the goods. The amount added because of the tax is paid to get the goods and for nothing else.
Therefore it is part of the price x x x."

Proceeding from this discussion, the Court went on to state:

It may indeed be that the economic burden of the tax finally falls on the purchaser; when it does the tax becomes
a part of the price which the purchaser must pay. It does not matter that an additional amount is billed as tax to
the purchaser. x x x The effect is still the same, namely, that the purchaser does not pay the tax. He pays or may
pay the seller more for the goods because of the seller’s obligation, but that is all and the amount added
because of the tax is paid to get the goods and for nothing else.

But the tax burden may not even be shifted to the purchaser at all. A decision to absorb the burden of the tax is
largely a matter of economics. Then it can no longer be contended that a sales tax is a tax on the purchaser. 30

The Silkair rulings involving the excise taxes on the petroleum products sold to international carriers firmly hold
that the proper party to claim the refund of excise taxes paid is the manufacturer-seller.

In the February 2008 Silkair ruling, the Court declared:

31

The proper party to question, or seek a refund of, an indirect tax is the statutory taxpayer, the person on whom
the tax is imposed by law and who paid the same even if he shifts the burden thereof to another. Section 130 (A)
(2) of the NIRC provides that "[u]nless otherwise specifically allowed, the return shall be filed and the excise tax
paid by the manufacturer or producer before removal of domestic products from place of production." Thus,
Petron Corporation, not Silkair, is the statutory taxpayer which is entitled to claim a refund based on Section 135
of the NIRC of 1997 and Article 4(2) of the Air Transport Agreement between RP and Singapore.
Even if Petron Corporation passed on to Silkair the burden of the tax, the additional amount billed to Silkair for
jet fuel is not a tax but part of the price which Silkair had to pay as a purchaser

In the November 2008 Silkair ruling, the Court reiterated:

32

Section 129 of the NIRC provides that excise taxes refer to taxes imposed on specified goods manufactured or
produced in the Philippines for domestic sale or consumption or for any other disposition and to things imported.
The excise taxes are collected from manufacturers or producers before removal of the domestic products from
the place of production. Although excise taxes can be considered as taxes on production, they are really taxes
on property as they are imposed on certain specified goods.

Section 148(g) of the NIRC provides that there shall be collected on aviation jet fuel an excise tax of ₱3.67 per
liter of volume capacity. Since the tax imposed is based on volume capacity, the tax is referred to as "specific
tax." However, excise tax, whether classified as specific or ad valorem tax, is basically an indirect tax imposed
on the consumption of a specified list of goods or products. The tax is directly levied on the manufacturer upon
removal of the taxable goods from the place of production but in reality, the tax is passed on to the end
consumer as part of the selling price of the goods sold

xxxx

When Petron removes its petroleum products from its refinery in Limay, Bataan, it pays the excise tax due on the
petroleum products thus removed. Petron, as manufacturer or producer, is the person liable for the payment of
the excise tax as shown in the Excise Tax Returns filed with the BIR. Stated otherwise, Petron is the taxpayer
that is primarily, directly and legally liable for the payment of the excise taxes. However, since an excise tax is an
indirect tax, Petron can transfer to its customers the amount of the excise tax paid by treating it as part of the
cost of the goods and tacking it on to the selling price.

As correctly observed by the CTA, this Court held in Philippine Acetylene Co., Inc. v. Commissioner of Internal
Revenue:

It may indeed be that the economic burden of the tax finally falls on the purchaser; when it does the tax becomes
part of the price which the purchaser must pay.

Even if the consumers or purchasers ultimately pay for the tax, they are not considered the taxpayers. The fact
that Petron, on whom the excise tax is imposed, can shift the tax burden to its purchasers does not make the
latter the taxpayers and the former the withholding agent.

Petitioner, as the purchaser and end-consumer, ultimately bears the tax burden, but this does not transform
petitioner's status into a statutory taxpayer.

In the refund of indirect taxes, the statutory taxpayer is the proper party who can claim the refund.

Section 204(c) of the NIRC provides:

Sec. 204. Authority of the Commissioner to Compromise, Abate, and Refund or Credit Taxes. The Commissioner
may –

xxxx

(b) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the
value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his
discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon
proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing
with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty:
Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit
or refund. (Emphasis and underscoring supplied)

The person entitled to claim a tax refund is the statutory taxpayer. Section 22(N) of the NIRC defines a taxpayer
as "any person subject to tax." In Commissioner of Internal Revenue v. Procter and Gamble Phil. Mfg. Corp., the
Court ruled that:
A "person liable for tax" has been held to be a "person subject to tax" and properly considered a "taxpayer." The
terms "liable for tax" and "subject to tax" both connote a legal obligation or duty to pay a tax.

The excise tax is due from the manufacturers of the petroleum products and is paid upon removal of the
products from their refineries. Even before the aviation jet fuel is purchased from Petron, the excise tax is
already paid by Petron. Petron, being the manufacturer, is the "person subject to tax." In this case, Petron, which
paid the excise tax upon removal of the products from its Bataan refinery, is the "person liable for tax." Petitioner
is neither a "person liable for tax" nor "a person subject to tax." There is also no legal duty on the part of
petitioner to pay the excise tax; hence, petitioner cannot be considered the taxpayer.

Even if the tax is shifted by Petron to its customers and even if the tax is billed as a separate item in the aviation
delivery receipts and invoices issued to its customers, Petron remains the taxpayer because the excise tax is
imposed directly on Petron as the manufacturer. Hence, Petron, as the statutory taxpayer, is the proper party
that can claim the refund of the excise taxes paid to the BIR. 33

It is noteworthy that the foregoing pronouncements were applied in two more Silkair cases involving the same
34

parties and the same cause of action but pertaining to different periods of taxation.

The shifting of the tax burden by manufacturers-sellers is a business prerogative resulting from the collective
impact of market forces. Such forces include government impositions like the excise tax. Hence, the additional
amount billed to the purchaser as part of the price the purchaser pays for the goods acquired cannot be solely
attributed to the effect of the tax liability imposed on the manufacture-seller. It is erroneous to construe Section
135(a) only as a prohibition against the shifting by the manufacturers-sellers of petroleum products of the tax
burden to international carriers, for such construction will deprive the manufacturers-sellers of their business
prerogative to determine the prices at which they can sell their products.

Section 135(a) of the NIRC cannot be further construed as granting the excise tax exemption to the international
carrier to whom the petroleum products are sold considering that the international carrier has not been subjected
to excise tax at the outset. To reiterate, the excise tax is levied on the petroleum products because it is a tax on
property. Levy is the act of imposition by the Legislature such as by its enactment of a law. The law enacted
35

here is the NIRC whereby the excise tax is imposed on the petroleum products, the liability for the payment of
which is further statutorily imposed on the domestic petroleum manufacturer. Accordingly, the exemption must be
allowed to the petroleum products because it is on them that the tax is imposed. The tax status of an
international carrier to whom the petroleum products are sold is not based on exemption; rather, it is based on
the absence of a law imposing the excise tax on it. This further supports the position that the burden passed on
by the domestic petroleum manufacturer is not anymore in the nature of a tax – although resulting from the
previously-paid excise tax – but as an additional cost component in the selling price. Consequently, the
purchaser of the petroleum products to whom the burden of the excise tax has been shifted, not being the
statutory taxpayer, cannot claim a refund of the excise tax paid by the manufacturer or producer.

Applying the foregoing, the Court concludes that: (1) the exemption under Section 135(a) of the NIRC is
conferred on the petroleum products on which the excise tax was levied in the first place; (2) Pilipinas Shell,
being the manufacturer or producer of petroleum products, was the statutory taxpayer of the excise tax imposed
on the petroleum products; (3) as the statutory taxpayer, Pilipinas Shell’s liability to pay the excise tax accrued
as soon as the petroleum products came into existence, and Pilipinas Shell accordingly paid its excise tax
liability prior to its sale or disposition of the taxable goods to third parties, a fact not disputed by the CIR; and (3)
Pilipinas Shell’s sale of the petroleum products to international carriers for their use or consumption outside the
Philippines confirmed the proper tax treatment of the subject goods as exempt from the excise tax. 1âwphi1

Under the circumstances, therefore, Pilipinas Shell erroneously paid the excise taxes on its petroleum products
sold to international carriers, and was entitled to claim the refund of the excise taxes paid in accordance with
prevailing jurisprudence and Section 204(C) of the NIRC, viz:

Section 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. – The
Commissioner may – x x x

xxxx

(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the
value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his
discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon
proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing
with the Commissioner a claim for credit or refund within two (2) years after payment of the tax or penalty:
Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit
or refund.

IN VIEW OF THE FOREGOING, I VOTE TO GRANT the Motion for Reconsideration and Supplemental Motion
for Reconsideration of Pilipinas Shell Petroleum Corporation and, accordingly:

(a) TO AFFIRM the decision dated March 25, 2009 and resolution dated June 24, 2009 of the Court of
Tax Appeals En Banc in CTA EB No. 415; and

(b) TO DIRECT petitioner Commissioner of Internal Revenue to refund or to issue a tax credit certificate
to Pilipinas Shell Petroleum Corporation in the amount of ₱95,014,283.00 representing the excise taxes
it paid on the petroleum products sold to international carriers in the period from October 2001 to June
2002.

LUCAS P. BERSAMIN
Associate Justice
G.R. No. L-13250 October 29, 1971

THE COLLECTOR OF INTERNAL REVENUE, petitioner,

vs.
ANTONIO CAMPOS RUEDA, respondent..

Assistant Solicitor General Jose P. Alejandro and Special Attorney Jose G. Azurin, (O.S.G.) for petitioner.

Ramirez and Ortigas for respondent.

FERNANDO, J.:

The basic issue posed by petitioner Collector of Internal Revenue in this appeal from a decision of the Court of
Tax Appeals as to whether or not the requisites of statehood, or at least so much thereof as may be necessary
for the acquisition of an international personality, must be satisfied for a "foreign country" to fall within the
exemption of Section 122 of the National Internal Revenue Code is now ripe for adjudication. The Court of Tax
1

Appeals answered the question in the negative, and thus reversed the action taken by petitioner Collector, who
would hold respondent Antonio Campos Rueda, as administrator of the estate of the late Estrella Soriano Vda.
de Cerdeira, liable for the sum of P161,874.95 as deficiency estate and inheritance taxes for the transfer of
intangible personal properties in the Philippines, the deceased, a Spanish national having been a resident of
Tangier, Morocco from 1931 up to the time of her death in 1955. In an earlier resolution promulgated May 30,
1962, this Court on the assumption that the need for resolving the principal question would be obviated, referred
the matter back to the Court of Tax Appeals to determine whether the alleged law of Tangier did grant the
reciprocal tax exemption required by the aforesaid Section 122. Then came an order from the Court of Tax
Appeals submitting copies of legislation of Tangier that would manifest that the element of reciprocity was not
lacking. It was not until July 29, 1969 that the case was deemed submitted for decision. When the petition for
review was filed on January 2, 1958, the basic issue raised was impressed with an element of novelty. Four days
thereafter, however, on January 6, 1958, it was held by this Court that the aforesaid provision does not require
that the "foreign country" possess an international personality to come within its terms. Accordingly, we have to
2

affirm.

The decision of the Court of Tax Appeals, now under review, sets forth the background facts as follows: "This is
an appeal interposed by petitioner Antonio Campos Rueda as administrator of the estate of the deceased Doña
Maria de la Estrella Soriano Vda. de Cerdeira, from the decision of the respondent Collector of Internal
Revenue, assessing against and demanding from the former the sum P161,874.95 as deficiency estate and
inheritance taxes, including interest and penalties, on the transfer of intangible personal properties situated in
the Philippines and belonging to said Maria de la Estrella Soriano Vda. de Cerdeira. Maria de la Estrella Soriano
Vda. de Cerdeira (Maria Cerdeira for short) is a Spanish national, by reason of her marriage to a Spanish citizen
and was a resident of Tangier, Morocco from 1931 up to her death on January 2, 1955. At the time of her demise
she left, among others, intangible personal properties in the Philippines." Then came this portion: "On
3

September 29, 1955, petitioner filed a provisional estate and inheritance tax return on all the properties of the
late Maria Cerdeira. On the same date, respondent, pending investigation, issued an assessment for state and
inheritance taxes in the respective amounts of P111,592.48 and P157,791.48, or a total of P369,383.96 which
tax liabilities were paid by petitioner ... . On November 17, 1955, an amended return was filed ... wherein
intangible personal properties with the value of P396,308.90 were claimed as exempted from taxes. On
November 23, 1955, respondent, pending investigation, issued another assessment for estate and inheritance
taxes in the amounts of P202,262.40 and P267,402.84, respectively, or a total of P469,665.24 ... . In a letter
dated January 11, 1956, respondent denied the request for exemption on the ground that the law of Tangier is
not reciprocal to Section 122 of the National Internal Revenue Code. Hence, respondent demanded the payment
of the sums of P239,439.49 representing deficiency estate and inheritance taxes including ad valorem penalties,
surcharges, interests and compromise penalties ... . In a letter dated February 8, 1956, and received by
respondent on the following day, petitioner requested for the reconsideration of the decision denying the claim
for tax exemption of the intangible personal properties and the imposition of the 25% and 5% ad
valorem penalties ... . However, respondent denied request, in his letter dated May 5, 1956 ... and received by
petitioner on May 21, 1956. Respondent premised the denial on the grounds that there was no reciprocity [with
Tangier, which was moreover] a mere principality, not a foreign country. Consequently, respondent demanded
the payment of the sums of P73,851.21 and P88,023.74 respectively, or a total of P161,874.95 as deficiency
estate and inheritance taxes including surcharges, interests and compromise penalties." 4
The matter was then elevated to the Court of Tax Appeals. As there was no dispute between the parties
regarding the values of the properties and the mathematical correctness of the deficiency assessments, the
principal question as noted dealt with the reciprocity aspect as well as the insisting by the Collector of Internal
Revenue that Tangier was not a foreign country within the meaning of Section 122. In ruling against the
contention of the Collector of Internal Revenue, the appealed decision states: "In fine, we believe, and so hold,
that the expression "foreign country", used in the last proviso of Section 122 of the National Internal Revenue
Code, refers to a government of that foreign power which, although not an international person in the sense of
international law, does not impose transfer or death upon intangible person properties of our citizens not residing
therein, or whose law allows a similar exemption from such taxes. It is, therefore, not necessary that Tangier
should have been recognized by our Government order to entitle the petitioner to the exemption benefits of the
proviso of Section 122 of our Tax. Code." 5

Hence appeal to this court by petitioner. The respective briefs of the parties duly submitted, but as above
indicated, instead of ruling definitely on the question, this Court, on May 30, 1962, resolve to inquire further into
the question of reciprocity and sent back the case to the Court of Tax Appeals for the motion of evidence
thereon. The dispositive portion of such resolution reads as follows: "While section 122 of the Philippine Tax
Code aforequoted speaks of 'intangible personal property' in both subdivisions (a) and (b); the alleged laws of
Tangier refer to 'bienes muebles situados en Tanger', 'bienes muebles radicantes en Tanger', 'movables' and
'movable property'. In order that this Court may be able to determine whether the alleged laws of Tangier grant
the reciprocal tax exemptions required by Section 122 of the Tax Code, and without, for the time being, going
into the merits of the issues raised by the petitioner-appellant, the case is [remanded] to the Court of Tax
Appeals for the reception of evidence or proof on whether or not the words `bienes muebles', 'movables' and
'movable properties as used in the Tangier laws, include or embrace 'intangible person property', as used in the
Tax Code." In line with the above resolution, the Court of Tax Appeals admitted evidence submitted by the
6

administrator petitioner Antonio Campos Rueda, consisting of exhibits of laws of Tangier to the effect that "the
transfers by reason of death of movable properties, corporeal or incorporeal, including furniture and personal
effects as well as of securities, bonds, shares, ..., were not subject, on that date and in said zone, to the
payment of any death tax, whatever might have been the nationality of the deceased or his heirs and legatees."
It was further noted in an order of such Court referring the matter back to us that such were duly admitted in
evidence during the hearing of the case on September 9, 1963. Respondent presented no evidence." 7

The controlling legal provision as noted is a proviso in Section 122 of the National Internal Revenue Code. It
reads thus: "That no tax shall be collected under this Title in respect of intangible personal property (a) if the
decedent at the time of his death was a resident of a foreign country which at the time of his death did not
impose a transfer tax or death tax of any character in respect of intangible person property of the Philippines not
residing in that foreign country, or (b) if the laws of the foreign country of which the decedent was a resident at
the time of his death allow a similar exemption from transfer taxes or death taxes of every character in respect of
intangible personal property owned by citizens of the Philippines not residing in that foreign country." The only
8

obstacle therefore to a definitive ruling is whether or not as vigorously insisted upon by petitioner the acquisition
of internal personality is a condition sine qua non to Tangier being considered a "foreign country". Deference to
the De Lara ruling, as was made clear in the opening paragraph of this opinion, calls for an affirmance of the
decision of the Court of Tax Appeals.

It does not admit of doubt that if a foreign country is to be identified with a state, it is required in line with Pound's
formulation that it be a politically organized sovereign community independent of outside control bound by
penalties of nationhood, legally supreme within its territory, acting through a government functioning under a
regime of
law. It is thus a sovereign person with the people composing it viewed as an organized corporate society under
9

a government with the legal competence to exact obedience to its commands. It has been referred to as a
10

body-politic organized by common consent for mutual defense and mutual safety and to promote the general
welfare. Correctly has it been described by Esmein as "the juridical personification of the nation." This is to
11 12

view it in the light of its historical development. The stress is on its being a nation, its people occupying a definite
territory, politically organized, exercising by means of its government its sovereign will over the individuals within
it and maintaining its separate international personality. Laski could speak of it then as a territorial society
divided into government and subjects, claiming within its allotted area a supremacy over all other
institutions. McIver similarly would point to the power entrusted to its government to maintain within its territory
13

the conditions of a legal order and to enter into international relations. With the latter requisite satisfied,
14

international law do not exact independence as a condition of statehood. So Hyde did opine. 15

Even on the assumption then that Tangier is bereft of international personality, petitioner has not successfully
made out a case. It bears repeating that four days after the filing of this petition on January 6, 1958 in Collector
of Internal Revenue v. De Lara, it was specifically held by us: "Considering the State of California as a foreign
16

country in relation to section 122 of our Tax Code we believe and hold, as did the Tax Court, that the Ancilliary
Administrator is entitled the exemption from the inheritance tax on the intangible personal property found in the
Philippines." There can be no doubt that California as a state in the American Union was in the alleged
17

requisite of international personality. Nonetheless, it was held to be a foreign country within the meaning of
Section 122 of the National Internal Revenue Code. 18

What is undeniable is that even prior to the De Lara ruling, this Court did commit itself to the doctrine that even a
tiny principality, that of Liechtenstein, hardly an international personality in the sense, did fall under this exempt
category. So it appears in an opinion of the Court by the then Acting Chief Justicem Bengson who thereafter
assumed that position in a permanent capacity, in Kiene v. Collector of Internal Revenue. As was therein noted:
19

'The Board found from the documents submitted to it — proof of the laws of Liechtenstein — that said country
does not impose estate, inheritance and gift taxes on intangible property of Filipino citizens not residing in that
country. Wherefore, the Board declared that pursuant to the exemption above established, no estate or
inheritance taxes were collectible, Ludwig Kiene being a resident of Liechtestein when he passed away." Then 20

came this definitive ruling: "The Collector — hereafter named the respondent — cites decisions of the United
States Supreme Court and of this Court, holding that intangible personal property in the Philippines belonging to
a non-resident foreigner, who died outside of this country is subject to the estate tax, in disregard of the principle
'mobilia sequuntur personam'. Such property is admittedly taxable here. Without the proviso above quoted, the
shares of stock owned here by the Ludwig Kiene would be concededly subject to estate and inheritance taxes.
Nevertheless our Congress chose to make an exemption where conditions are such that demand reciprocity —
as in this case. And the exemption must be honored." 21

WHEREFORE, the decision of the respondent Court of Tax Appeals of October 30, 1957 is affirmed. Without
pronouncement as to costs.
G.R. No. L-11622 January 28, 1961

THE COLLECTOR OF INTERNAL REVENUE, petitioner,

vs.
DOUGLAS FISHER AND BETTINA FISHER, and the COURT OF TAX APPEALS, respondents.

x---------------------------------------------------------x

G.R. No. L-11668 January 28, 1961.

DOUGLAS FISHER AND BETTINA FISHER, petitioner,

vs.
THE COLLECTOR OF INTERNAL REVENUE, and the COURT OF TAX APPEALS, respondents.

BARRERA, J.:

This case relates to the determination and settlement of the hereditary estate left by the deceased Walter G.
Stevenson, and the laws applicable thereto. Walter G. Stevenson (born in the Philippines on August 9, 1874 of
British parents and married in the City of Manila on January 23, 1909 to Beatrice Mauricia Stevenson another
British subject) died on February 22, 1951 in San Francisco, California, U.S.A. whereto he and his wife moved
and established their permanent residence since May 10, 1945. In his will executed in San Francisco on May 22,
1947, and which was duly probated in the Superior Court of California on April 11, 1951, Stevenson instituted his
wife Beatrice as his sole heiress to the following real and personal properties acquired by the spouses while
residing in the Philippines, described and preliminary assessed as follows:

Gross Estate
Real Property — 2 parcels of land in
Baguio, covered by T.C.T. Nos. 378 and
379 P43,500.00
Personal Property
(1) 177 shares of stock of Canacao Estate
at P10.00 each 1,770.00
(2) 210,000 shares of stock of Mindanao
Mother Lode Mines, Inc. at P0.38 per
share 79,800.00
(3) Cash credit with Canacao Estate Inc. 4,870.88
(4) Cash, with the Chartered Bank of India,
Australia & China 851.97
Total Gross Assets P130,792.85

On May 22, 1951, ancillary administration proceedings were instituted in the Court of First Instance of Manila for
the settlement of the estate in the Philippines. In due time Stevenson's will was duly admitted to probate by our
court and Ian Murray Statt was appointed ancillary administrator of the estate, who on July 11, 1951, filed a
preliminary estate and inheritance tax return with the reservation of having the properties declared therein finally
appraised at their values six months after the death of Stevenson. Preliminary return was made by the ancillary
administrator in order to secure the waiver of the Collector of Internal Revenue on the inheritance tax due on the
210,000 shares of stock in the Mindanao Mother Lode Mines Inc. which the estate then desired to dispose in the
United States. Acting upon said return, the Collector of Internal Revenue accepted the valuation of the personal
properties declared therein, but increased the appraisal of the two parcels of land located in Baguio City by fixing
their fair market value in the amount of P52.200.00, instead of P43,500.00. After allowing the deductions claimed
by the ancillary administrator for funeral expenses in the amount of P2,000.00 and for judicial and administration
expenses in the sum of P5,500.00, the Collector assessed the state the amount of P5,147.98 for estate tax and
P10,875,26 or inheritance tax, or a total of P16,023.23. Both of these assessments were paid by the estate on
June 6, 1952.
On September 27, 1952, the ancillary administrator filed in amended estate and inheritance tax return in
pursuance f his reservation made at the time of filing of the preliminary return and for the purpose of availing of
the right granted by section 91 of the National Internal Revenue Code.

In this amended return the valuation of the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc.
was reduced from 0.38 per share, as originally declared, to P0.20 per share, or from a total valuation of
P79,800.00 to P42,000.00. This change in price per share of stock was based by the ancillary administrator on
the market notation of the stock obtaining at the San Francisco California) Stock Exchange six months from the
death of Stevenson, that is, As of August 22, 1931. In addition, the ancillary administrator made claim for the
following deductions:

Funeral expenses ($1,04326) P2,086.52

Judicial Expenses:
(a) Administrator's Fee P1,204.34
(b) Attorney's Fee 6.000.00
(c) Judicial and Administration
expenses as of August 9, 1952 1,400.05
8,604.39
Real Estate Tax for 1951 on Baguio
real properties (O.R. No. B-1
686836) 652.50
Claims against the estate:
($5,000.00) P10,000.00 P10,000.00
Plus: 4% int. p.a. from Feb. 2 to 22,
1951 22.47 10,022.47
Sub-Total P21,365.88

In the meantime, on December 1, 1952, Beatrice Mauricia Stevenson assigned all her rights and interests in the
estate to the spouses, Douglas and Bettina Fisher, respondents herein.

On September 7, 1953, the ancillary administrator filed a second amended estate and inheritance tax return
(Exh. "M-N"). This return declared the same assets of the estate stated in the amended return of September 22,
1952, except that it contained new claims for additional exemption and deduction to wit: (1) deduction in the
amount of P4,000.00 from the gross estate of the decedent as provided for in Section 861 (4) of the U.S. Federal
Internal Revenue Code which the ancillary administrator averred was allowable by way of the reciprocity granted
by Section 122 of the National Internal Revenue Code, as then held by the Board of Tax Appeals in case No. 71
entitled "Housman vs. Collector," August 14, 1952; and (2) exemption from the imposition of estate and
inheritance taxes on the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc. also pursuant to the
reciprocity proviso of Section 122 of the National Internal Revenue Code. In this last return, the estate claimed
that it was liable only for the amount of P525.34 for estate tax and P238.06 for inheritance tax and that, as a
consequence, it had overpaid the government. The refund of the amount of P15,259.83, allegedly overpaid, was
accordingly requested by the estate. The Collector denied the claim. For this reason, action was commenced in
the Court of First Instance of Manila by respondents, as assignees of Beatrice Mauricia Stevenson, for the
recovery of said amount. Pursuant to Republic Act No. 1125, the case was forwarded to the Court of Tax Appeals
which court, after hearing, rendered decision the dispositive portion of which reads as follows:

In fine, we are of the opinion and so hold that: (a) the one-half (½) share of the surviving spouse in the
conjugal partnership property as diminished by the obligations properly chargeable to such property
should be deducted from the net estate of the deceased Walter G. Stevenson, pursuant to Section 89-C
of the National Internal Revenue Code; (b) the intangible personal property belonging to the estate of
said Stevenson is exempt from inheritance tax, pursuant to the provision of section 122 of the National
Internal Revenue Code in relation to the California Inheritance Tax Law but decedent's estate is not
entitled to an exemption of P4,000.00 in the computation of the estate tax; (c) for purposes of estate and
inheritance taxation the Baguio real estate of the spouses should be valued at P52,200.00, and 210,000
shares of stock in the Mindanao Mother Lode Mines, Inc. should be appraised at P0.38 per share; and
(d) the estate shall be entitled to a deduction of P2,000.00 for funeral expenses and judicial expenses of
P8,604.39.

From this decision, both parties appealed.

The Collector of Internal Revenue, hereinafter called petitioner assigned four errors allegedly committed by the
trial court, while the assignees, Douglas and Bettina Fisher hereinafter called respondents, made six
assignments of error. Together, the assigned errors raise the following main issues for resolution by this Court:

(1) Whether or not, in determining the taxable net estate of the decedent, one-half (½) of the net estate should
be deducted therefrom as the share of tile surviving spouse in accordance with our law on conjugal partnership
and in relation to section 89 (c) of the National Internal revenue Code;

(2) Whether or not the estate can avail itself of the reciprocity proviso embodied in Section 122 of the National
Internal Revenue Code granting exemption from the payment of estate and inheritance taxes on the 210,000
shares of stock in the Mindanao Mother Lode Mines Inc.;

(3) Whether or not the estate is entitled to the deduction of P4,000.00 allowed by Section 861, U.S. Internal
Revenue Code in relation to section 122 of the National Internal Revenue Code;

(4) Whether or not the real estate properties of the decedent located in Baguio City and the 210,000 shares of
stock in the Mindanao Mother Lode Mines, Inc., were correctly appraised by the lower court;

(5) Whether or not the estate is entitled to the following deductions: P8,604.39 for judicial and administration
expenses; P2,086.52 for funeral expenses; P652.50 for real estate taxes; and P10,0,22.47 representing the
amount of indebtedness allegedly incurred by the decedent during his lifetime; and

(6) Whether or not the estate is entitled to the payment of interest on the amount it claims to have overpaid the
government and to be refundable to it.

In deciding the first issue, the lower court applied a well-known doctrine in our civil law that in the absence of any
ante-nuptial agreement, the contracting parties are presumed to have adopted the system of conjugal
partnership as to the properties acquired during their marriage. The application of this doctrine to the instant
case is being disputed, however, by petitioner Collector of Internal Revenue, who contends that pursuant to
Article 124 of the New Civil Code, the property relation of the spouses Stevensons ought not to be determined
by the Philippine law, but by the national law of the decedent husband, in this case, the law of England. It is
alleged by petitioner that English laws do not recognize legal partnership between spouses, and that what
obtains in that jurisdiction is another regime of property relation, wherein all properties acquired during the
marriage pertain and belong Exclusively to the husband. In further support of his stand, petitioner cites Article 16
of the New Civil Code (Art. 10 of the old) to the effect that in testate and intestate proceedings, the amount of
successional rights, among others, is to be determined by the national law of the decedent.

In this connection, let it be noted that since the mariage of the Stevensons in the Philippines took place in 1909,
the applicable law is Article 1325 of the old Civil Code and not Article 124 of the New Civil Code which became
effective only in 1950. It is true that both articles adhere to the so-called nationality theory of determining the
property relation of spouses where one of them is a foreigner and they have made no prior agreement as to the
administration disposition, and ownership of their conjugal properties. In such a case, the national law of the
husband becomes the dominant law in determining the property relation of the spouses. There is, however, a
difference between the two articles in that Article 1241 of the new Civil Code expressly provides that it shall be
applicable regardless of whether the marriage was celebrated in the Philippines or abroad while Article 1325 2 of
the old Civil Code is limited to marriages contracted in a foreign land.

It must be noted, however, that what has just been said refers to mixed marriages between a Filipino citizen and
a foreigner. In the instant case, both spouses are foreigners who married in the Philippines. Manresa, 3 in his
Commentaries, has this to say on this point:

La regla establecida en el art. 1.315, se refiere a las capitulaciones otorgadas en Espana y entre
espanoles. El 1.325, a las celebradas en el extranjero cuando alguno de los conyuges es espanol. En
cuanto a la regla procedente cuando dos extranjeros se casan en Espana, o dos espanoles en el
extranjero hay que atender en el primer caso a la legislacion de pais a que aquellos pertenezean, y en el
segundo, a las reglas generales consignadas en los articulos 9 y 10 de nuestro Codigo. (Emphasis
supplied.)

If we adopt the view of Manresa, the law determinative of the property relation of the Stevensons, married in
1909, would be the English law even if the marriage was celebrated in the Philippines, both of them being
foreigners. But, as correctly observed by the Tax Court, the pertinent English law that allegedly vests in the
decedent husband full ownership of the properties acquired during the marriage has not been proven by
petitioner. Except for a mere allegation in his answer, which is not sufficient, the record is bereft of any evidence
as to what English law says on the matter. In the absence of proof, the Court is justified, therefore, in indulging in
what Wharton calls "processual presumption," in presuming that the law of England on this matter is the same
as our law.4

Nor do we believe petitioner can make use of Article 16 of the New Civil Code (art. 10, old Civil Code) to bolster
his stand. A reading of Article 10 of the old Civil Code, which incidentally is the one applicable, shows that it does
not encompass or contemplate to govern the question of property relation between spouses. Said article
distinctly speaks of amount of successional rights and this term, in speaks in our opinion, properly refers to the
extent or amount of property that each heir is legally entitled to inherit from the estate available for distribution. It
needs to be pointed out that the property relation of spouses, as distinguished from their successional rights, is
governed differently by the specific and express provisions of Title VI, Chapter I of our new Civil Code (Title III,
Chapter I of the old Civil Code.) We, therefore, find that the lower court correctly deducted the half of the
conjugal property in determining the hereditary estate left by the deceased Stevenson.

On the second issue, petitioner disputes the action of the Tax Court in the exempting the respondents from
paying inheritance tax on the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc. in virtue of the
reciprocity proviso of Section 122 of the National Internal Revenue Code, in relation to Section 13851 of the
California Revenue and Taxation Code, on the ground that: (1) the said proviso of the California Revenue and
Taxation Code has not been duly proven by the respondents; (2) the reciprocity exemptions granted by section
122 of the National Internal Revenue Code can only be availed of by residents of foreign countries and not of
residents of a state in the United States; and (3) there is no "total" reciprocity between the Philippines and the
state of California in that while the former exempts payment of both estate and inheritance taxes on intangible
personal properties, the latter only exempts the payment of inheritance tax..

To prove the pertinent California law, Attorney Allison Gibbs, counsel for herein respondents, testified that as an
active member of the California Bar since 1931, he is familiar with the revenue and taxation laws of the State of
California. When asked by the lower court to state the pertinent California law as regards exemption of intangible
personal properties, the witness cited article 4, section 13851 (a) and (b) of the California Internal and Revenue
Code as published in Derring's California Code, a publication of the Bancroft-Whitney Company inc. And as part
of his testimony, a full quotation of the cited section was offered in evidence as Exhibits "V-2" by the
respondents.

It is well-settled that foreign laws do not prove themselves in our jurisdiction and our courts are not authorized to
take judicial notice of them.5 Like any other fact, they must be alleged and proved. 6

Section 41, Rule 123 of our Rules of Court prescribes the manner of proving foreign laws before our tribunals.
However, although we believe it desirable that these laws be proved in accordance with said rule, we held in the
case of Willamette Iron and Steel Works v. Muzzal, 61 Phil. 471, that "a reading of sections 300 and 301 of our
Code of Civil Procedure (now section 41, Rule 123) will convince one that these sections do not exclude the
presentation of other competent evidence to prove the existence of a foreign law." In that case, we considered
the testimony of an attorney-at-law of San Francisco, California who quoted verbatim a section of California Civil
Code and who stated that the same was in force at the time the obligations were contracted, as sufficient
evidence to establish the existence of said law. In line with this view, we find no error, therefore, on the part of
the Tax Court in considering the pertinent California law as proved by respondents' witness.

We now take up the question of reciprocity in exemption from transfer or death taxes, between the State of
California and the Philippines.F

Section 122 of our National Internal Revenue Code, in pertinent part, provides:

... And, provided, further, That no tax shall be collected under this Title in respect of intangible personal
property (a) if the decedent at the time of his death was a resident of a foreign country which at the time
of his death did not impose a transfer of tax or death tax of any character in respect of intangible
personal property of citizens of the Philippines not residing in that foreign country, or (b) if the laws of the
foreign country of which the decedent was a resident at the time of his death allow a similar exemption
from transfer taxes or death taxes of every character in respect of intangible personal property owned by
citizens of the Philippines not residing in that foreign country." (Emphasis supplied).

On the other hand, Section 13851 of the California Inheritance Tax Law, insofar as pertinent, reads:.
 "SEC. 13851, Intangibles of nonresident: Conditions. Intangible personal property is exempt from the tax
imposed by this part if the decedent at the time of his death was a resident of a territory or another State
of the United States or of a foreign state or country which then imposed a legacy, succession, or death
tax in respect to intangible personal property of its own residents, but either:.

(a) Did not impose a legacy, succession, or death tax of any character in respect to intangible personal
property of residents of this State, or

(b) Had in its laws a reciprocal provision under which intangible personal property of a non-resident was
exempt from legacy, succession, or death taxes of every character if the Territory or other State of the
United States or foreign state or country in which the nonresident resided allowed a similar exemption in
respect to intangible personal property of residents of the Territory or State of the United States or
foreign state or country of residence of the decedent." (Id.)

It is clear from both these quoted provisions that the reciprocity must be total, that is, with respect to transfer or
death taxes of any and every character, in the case of the Philippine law, and to legacy, succession, or death
taxes of any and every character, in the case of the California law. Therefore, if any of the two states collects or
imposes and does not exempt any transfer, death, legacy, or succession tax of any character, the reciprocity
does not work. This is the underlying principle of the reciprocity clauses in both laws.

In the Philippines, upon the death of any citizen or resident, or non-resident with properties therein, there are
imposed upon his estate and its settlement, both an estate and an inheritance tax. Under the laws of California,
only inheritance tax is imposed. On the other hand, the Federal Internal Revenue Code imposes an estate tax
on non-residents not citizens of the United States, 7 but does not provide for any exemption on the basis of
reciprocity. Applying these laws in the manner the Court of Tax Appeals did in the instant case, we will have a
situation where a Californian, who is non-resident in the Philippines but has intangible personal properties here,
will the subject to the payment of an estate tax, although exempt from the payment of the inheritance tax. This
being the case, will a Filipino, non-resident of California, but with intangible personal properties there, be entitled
to the exemption clause of the California law, since the Californian has not been exempted from every character
of legacy, succession, or death tax because he is, under our law, under obligation to pay an estate tax? Upon
the other hand, if we exempt the Californian from paying the estate tax, we do not thereby entitle a Filipino to be
exempt from a similar estate tax in California because under the Federal Law, which is equally enforceable in
California he is bound to pay the same, there being no reciprocity recognized in respect thereto. In both
instances, the Filipino citizen is always at a disadvantage. We do not believe that our legislature has intended
such an unfair situation to the detriment of our own government and people. We, therefore, find and declare that
the lower court erred in exempting the estate in question from payment of the inheritance tax.

We are not unaware of our ruling in the case of Collector of Internal Revenue vs. Lara (G.R. Nos. L-9456 & L-
9481, prom. January 6, 1958, 54 O.G. 2881) exempting the estate of the deceased Hugo H. Miller from payment
of the inheritance tax imposed by the Collector of Internal Revenue. It will be noted, however, that the issue of
reciprocity between the pertinent provisions of our tax law and that of the State of California was not there
squarely raised, and the ruling therein cannot control the determination of the case at bar. Be that as it may, we
now declare that in view of the express provisions of both the Philippine and California laws that the exemption
would apply only if the law of the other grants an exemption from legacy, succession, or death taxes of every
character, there could not be partial reciprocity. It would have to be total or none at all.

With respect to the question of deduction or reduction in the amount of P4,000.00 based on the U.S. Federal
Estate Tax Law which is also being claimed by respondents, we uphold and adhere to our ruling in the Lara case
(supra) that the amount of $2,000.00 allowed under the Federal Estate Tax Law is in the nature of a deduction
and not of an exemption regarding which reciprocity cannot be claimed under the provision of Section 122 of our
National Internal Revenue Code. Nor is reciprocity authorized under the Federal Law. .

On the issue of the correctness of the appraisal of the two parcels of land situated in Baguio City, it is contended
that their assessed values, as appearing in the tax rolls 6 months after the death of Stevenson, ought to have
been considered by petitioner as their fair market value, pursuant to section 91 of the National Internal Revenue
Code. It should be pointed out, however, that in accordance with said proviso the properties are required to be
appraised at their fair market value and the assessed value thereof shall be considered as the fair market value
only when evidence to the contrary has not been shown. After all review of the record, we are satisfied that such
evidence exists to justify the valuation made by petitioner which was sustained by the tax court, for as the tax
court aptly observed:

"The two parcels of land containing 36,264 square meters were valued by the administrator of the estate
in the Estate and Inheritance tax returns filed by him at P43,500.00 which is the assessed value of said
 properties. On the other hand, defendant appraised the same at P52,200.00. It is of common knowledge,
and this Court can take judicial notice of it, that assessments for real estate taxation purposes are very
much lower than the true and fair market value of the properties at a given time and place. In fact one
year after decedent's death or in 1952 the said properties were sold for a price of P72,000.00 and there
is no showing that special or extraordinary circumstances caused the sudden increase from the price of
P43,500.00, if we were to accept this value as a fair and reasonable one as of 1951. Even more, the
counsel for plaintiffs himself admitted in open court that he was willing to purchase the said properties at
P2.00 per square meter. In the light of these facts we believe and therefore hold that the valuation of
P52,200.00 of the real estate in Baguio made by defendant is fair, reasonable and justified in the
premises." (Decision, p. 19).

In respect to the valuation of the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc., (a domestic
corporation), respondents contend that their value should be fixed on the basis of the market quotation obtaining
at the San Francisco (California) Stock Exchange, on the theory that the certificates of stocks were then held in
that place and registered with the said stock exchange. We cannot agree with respondents' argument. The situs
of the shares of stock, for purposes of taxation, being located here in the Philippines, as respondents
themselves concede and considering that they are sought to be taxed in this jurisdiction, consistent with the
exercise of our government's taxing authority, their fair market value should be taxed on the basis of the price
prevailing in our country.

Upon the other hand, we find merit in respondents' other contention that the said shares of stock commanded a
lesser value at the Manila Stock Exchange six months after the death of Stevenson. Through Atty. Allison Gibbs,
respondents have shown that at that time a share of said stock was bid for at only P.325 (p. 103, t.s.n.).
Significantly, the testimony of Atty. Gibbs in this respect has never been questioned nor refuted by petitioner
either before this court or in the court below. In the absence of evidence to the contrary, we are, therefore,
constrained to reverse the Tax Court on this point and to hold that the value of a share in the said mining
company on August 22, 1951 in the Philippine market was P.325 as claimed by respondents..

It should be noted that the petitioner and the Tax Court valued each share of stock of P.38 on the basis of the
declaration made by the estate in its preliminary return. Patently, this should not have been the case, in view of
the fact that the ancillary administrator had reserved and availed of his legal right to have the properties of the
estate declared at their fair market value as of six months from the time the decedent died..

On the fifth issue, we shall consider the various deductions, from the allowance or disallowance of which by the
Tax Court, both petitioner and respondents have appealed..

Petitioner, in this regard, contends that no evidence of record exists to support the allowance of the sum of
P8,604.39 for the following expenses:.

1) Administrator's fee P1,204.34

2) Attorney's fee 6,000.00
3) Judicial and Administrative expenses 2,052.55
Total Deductions P8,604.39

An examination of the record discloses, however, that the foregoing items were considered deductible by the Tax
Court on the basis of their approval by the probate court to which said expenses, we may presume, had also
been presented for consideration. It is to be supposed that the probate court would not have approved said
items were they not supported by evidence presented by the estate. In allowing the items in question, the Tax
Court had before it the pertinent order of the probate court which was submitted in evidence by respondents.
(Exh. "AA-2", p. 100, record). As the Tax Court said, it found no basis for departing from the findings of the
probate court, as it must have been satisfied that those expenses were actually incurred. Under the
circumstances, we see no ground to reverse this finding of fact which, under Republic Act of California National
Association, which it would appear, that while still living, Walter G. Stevenson obtained we are not inclined to
pass upon the claim of respondents in respect to the additional amount of P86.52 for funeral expenses which
was disapproved by the court a quo for lack of evidence.

In connection with the deduction of P652.50 representing the amount of realty taxes paid in 1951 on the
decedent's two parcels of land in Baguio City, which respondents claim was disallowed by the Tax Court, we find
that this claim has in fact been allowed. What happened here, which a careful review of the record will reveal,
was that the Tax Court, in itemizing the liabilities of the estate, viz:
 1) Administrator's fee P1,204.34
2) Attorney's fee 6,000.00
3) Judicial and Administration expenses as of August
9, 1952 2,052.55
Total P9,256.89

added the P652.50 for realty taxes as a liability of the estate, to the P1,400.05 for judicial and administration
expenses approved by the court, making a total of P2,052.55, exactly the same figure which was arrived at by
the Tax Court for judicial and administration expenses. Hence, the difference between the total of P9,256.98
allowed by the Tax Court as deductions, and the P8,604.39 as found by the probate court, which is P652.50, the
same amount allowed for realty taxes. An evident oversight has involuntarily been made in omitting the
P2,000.00 for funeral expenses in the final computation. This amount has been expressly allowed by the lower
court and there is no reason why it should not be. .

We come now to the other claim of respondents that pursuant to section 89(b) (1) in relation to section 89(a) (1)
(E) and section 89(d), National Internal Revenue Code, the amount of P10,022.47 should have been allowed the
estate as a deduction, because it represented an indebtedness of the decedent incurred during his lifetime. In
support thereof, they offered in evidence a duly certified claim, presented to the probate court in California by the
Bank of California National Association, which it would appear, that while still living, Walter G. Stevenson
obtained a loan of $5,000.00 secured by pledge on 140,000 of his shares of stock in the Mindanao Mother Lode
Mines, Inc. (Exhs. "Q-Q4", pp. 53-59, record). The Tax Court disallowed this item on the ground that the local
probate court had not approved the same as a valid claim against the estate and because it constituted an
indebtedness in respect to intangible personal property which the Tax Court held to be exempt from inheritance
tax.

For two reasons, we uphold the action of the lower court in disallowing the deduction.

Firstly, we believe that the approval of the Philippine probate court of this particular indebtedness of the
decedent is necessary. This is so although the same, it is averred has been already admitted and approved by
the corresponding probate court in California, situs of the principal or domiciliary administration. It is true that we
have here in the Philippines only an ancillary administration in this case, but, it has been held, the distinction
between domiciliary or principal administration and ancillary administration serves only to distinguish one
administration from the other, for the two proceedings are separate and independent. 8 The reason for the
ancillary administration is that, a grant of administration does not ex proprio vigore, have any effect beyond the
limits of the country in which it was granted. Hence, we have the requirement that before a will duly probated
outside of the Philippines can have effect here, it must first be proved and allowed before our courts, in much the
same manner as wills originally presented for allowance therein. 9 And the estate shall be administered under
letters testamentary, or letters of administration granted by the court, and disposed of according to the will as
probated, after payment of just debts and expenses of administration. 10 In other words, there is a regular
administration under the control of the court, where claims must be presented and approved, and expenses of
administration allowed before deductions from the estate can be authorized. Otherwise, we would have the
actuations of our own probate court, in the settlement and distribution of the estate situated here, subject to the
proceedings before the foreign court over which our courts have no control. We do not believe such a procedure
is countenanced or contemplated in the Rules of Court.

Another reason for the disallowance of this indebtedness as a deduction, springs from the provisions of Section
89, letter (d), number (1), of the National Internal Revenue Code which reads:

(d) Miscellaneous provisions — (1) No deductions shall be allowed in the case of a non-resident not a
citizen of the Philippines unless the executor, administrator or anyone of the heirs, as the case may be,
includes in the return required to be filed under section ninety-three the value at the time of his death of
that part of the gross estate of the non-resident not situated in the Philippines."

In the case at bar, no such statement of the gross estate of the non-resident Stevenson not situated in the
Philippines appears in the three returns submitted to the court or to the office of the petitioner Collector of
Internal Revenue. The purpose of this requirement is to enable the revenue officer to determine how much of the
indebtedness may be allowed to be deducted, pursuant to (b), number (1) of the same section 89 of the Internal
Revenue Code which provides:
 (b) Deductions allowed to non-resident estates. — In the case of a non-resident not a citizen of the
Philippines, by deducting from the value of that part of his gross estate which at the time of his death is
situated in the Philippines —

(1) Expenses, losses, indebtedness, and taxes. — That proportion of the deductions specified in
paragraph (1) of subjection (a) of this section11 which the value of such part bears the value of his entire
gross estate wherever situated;"

In other words, the allowable deduction is only to the extent of the portion of the indebtedness which is
equivalent to the proportion that the estate in the Philippines bears to the total estate wherever situated. Stated
differently, if the properties in the Philippines constitute but 1/5 of the entire assets wherever situated, then only
1/5 of the indebtedness may be deducted. But since, as heretofore adverted to, there is no statement of the
value of the estate situated outside the Philippines, no part of the indebtedness can be allowed to be deducted,
pursuant to Section 89, letter (d), number (1) of the Internal Revenue Code.

For the reasons thus stated, we affirm the ruling of the lower court disallowing the deduction of the alleged
indebtedness in the sum of P10,022.47.

In recapitulation, we hold and declare that:

(a) only the one-half (1/2) share of the decedent Stevenson in the conjugal partnership property
constitutes his hereditary estate subject to the estate and inheritance taxes;

(b) the intangible personal property is not exempt from inheritance tax, there existing no complete total
reciprocity as required in section 122 of the National Internal Revenue Code, nor is the decedent's estate
entitled to an exemption of P4,000.00 in the computation of the estate tax;

(c) for the purpose of the estate and inheritance taxes, the 210,000 shares of stock in the Mindanao
Mother Lode Mines, Inc. are to be appraised at P0.325 per share; and

(d) the P2,000.00 for funeral expenses should be deducted in the determination of the net asset of the
deceased Stevenson.

In all other respects, the decision of the Court of Tax Appeals is affirmed.

Respondent's claim for interest on the amount allegedly overpaid, if any actually results after a recomputation on
the basis of this decision is hereby denied in line with our recent decision in Collector of Internal Revenue v. St.
Paul's Hospital (G.R. No. L-12127, May 29, 1959) wherein we held that, "in the absence of a statutory provision
clearly or expressly directing or authorizing such payment, and none has been cited by respondents, the
National Government cannot be required to pay interest."

WHEREFORE, as modified in the manner heretofore indicated, the judgment of the lower court is hereby
affirmed in all other respects not inconsistent herewith. No costs. So ordered.
G.R. No. 140944 April 30, 2008

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

DECISION

NACHURA, J.:

Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Civil Procedure seeking the
reversal of the Court of Appeals (CA) Decision2 dated April 30, 1999 which affirmed the Decision3 of the Court of
Tax Appeals (CTA) dated June 17, 1997. 4

The Facts

On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition for the probate of his 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
letter7dated October 13, 1988, Justice Dizon informed respondent Commissioner of the Bureau of Internal
Revenue (BIR) of the special proceedings for the Estate.

Petitioner alleged that several requests for extension of the period to file the required estate tax return were
granted by the BIR since the assets of the estate, as well as the claims against it, had yet to be collated,
determined and identified. Thus, in a letter8 dated March 14, 1990, Justice Dizon authorized Atty. Jesus M.
Gonzales (Atty. Gonzales) to sign and file on behalf of the Estate the required estate tax return and to represent
the same in securing a Certificate of Tax Clearance. Eventually, on April 17, 1990, Atty. Gonzales wrote a
letter9 addressed to the BIR Regional Director for San Pablo City and filed the estate tax 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 P66,973,985.4018

In his letter19 dated December 12, 1991, Atty. Gonzales moved for the reconsideration of the said estate tax
assessment. However, in her letter20 dated April 12, 1994, the BIR Commissioner denied the request and
reiterated that the estate is liable for the payment of P66,973,985.40 as deficiency estate 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 "A"
addressed to the Commissioner of Internal Revenue
informing the latter of the special proceedings for the
settlement of the estate (p. 126, BIR records);
2. Petition for the probate of the will and issuance of letter of "B" & "B-1"
administration filed with the Regional Trial Court (RTC) of
Manila, docketed as Sp. Proc. No. 87-42980 (pp. 107-
108, BIR records);
3. Pleading entitled "Compliance" filed with the probate "C"
Court submitting the final inventory of all the properties of
the deceased (p. 106, BIR records);
4. Attachment to Exh. "C" which is the detailed and "C-1" to "C-17"
complete listing of the properties of the deceased (pp. 89-
105, BIR rec.);
5. Claims against the estate filed by Equitable Banking "D" to "D-24"
Corp. with the probate Court in the amount
of P19,756,428.31 as of March 31, 1988, together with
the Annexes to the claim (pp. 64-88, BIR records);
6. Claim filed by Banque de L' Indochine et de Suez with the "E" to "E-3"
probate Court in the amount of US $4,828,905.90 as of
January 31, 1988 (pp. 262-265, BIR records);
7. Claim of the Manila Banking Corporation (MBC) which as "F" to "F-3"
of November 7, 1987 amounts to P65,158,023.54, but
recomputed as of February 28, 1989 at a total amount
of P84,199,160.46; together with the demand letter from
MBC's lawyer (pp. 194-197, BIR records);
8. Demand letter of Manila Banking Corporation prepared by "G" & "G-1"
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);
9. Claim of State Investment House, Inc. filed with the RTC, "H" to "H-16"
Branch VII of Manila, docketed as Civil Case No. 86-
38599 entitled "State Investment House, Inc., Plaintiff,
versus Maritime Company Overseas, Inc. and/or Jose P.
Fernandez, Defendants," (pp. 200-215, BIR records);
10. Letter dated March 14, 1990 of Arsenio P. Dizon "I"
addressed to Atty. Jesus M. Gonzales, (p. 184, BIR
records);
11. Letter dated April 17, 1990 from J.M. Gonzales addressed "J"
to the Regional Director of BIR in San Pablo City (p. 183,
BIR records);
12. Estate Tax Return filed by the estate of the late Jose P. "K" to "K-5"
Fernandez through its authorized representative, Atty.
Jesus M. Gonzales, for Arsenio P. Dizon, with
attachments (pp. 177-182, BIR records);
13. Certified true copy of the Letter of Administration issued "L"
by RTC Manila, Branch 51, in Sp. Proc. No. 87-42980
appointing Atty. Rafael S. Dizon as Judicial Administrator
of the estate of Jose P. Fernandez; (p. 102, CTA records)
and
14. Certification of Payment of estate taxes Nos. 2052 and "M" to "M-5"
2053, both dated April 27, 1990, issued by the Office of
the Regional Director, Revenue Region No. 4-C, San
Pablo City, with attachments (pp. 103-104, CTA records.).

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

Documents/Signatures BIR Record

1. Estate Tax Return prepared by the BIR; p. 138
2. Signatures of Ma. Anabella Abuloc and Alberto Enriquez, -do-
Jr. appearing at the lower Portion of Exh. "1";
3. Memorandum for the Commissioner, dated July 19, 1991, pp. 143-144
prepared by revenue examiners, Ma. Anabella A. Abuloc,
Alberto S. Enriquez and Raymund S. Gallardo; Reviewed
by Maximino V. Tagle
4. Signature of Alberto S. Enriquez appearing at the lower -do-
portion on p. 2 of Exh. "2";
5. Signature of Ma. Anabella A. Abuloc appearing at the -do-
lower portion on p. 2 of Exh. "2";
6. Signature of Raymund S. Gallardo appearing at the -do-
Lower portion on p. 2 of Exh. "2";
7. Signature of Maximino V. Tagle also appearing on p. 2 of -do-
Exh. "2";
8. Summary of revenue Enforcement Officers Audit Report, p. 139
dated July 19, 1991;
9. Signature of Alberto Enriquez at the lower portion of Exh. -do-
"3";
10. Signature of Ma. Anabella A. Abuloc at the lower portion -do-
of Exh. "3";
11. Signature of Raymond S. Gallardo at the lower portion of -do-
 Exh. "3";
12. Signature of Maximino V. Tagle at the lower portion of -do-
Exh. "3";
13. Demand letter (FAS-E-87-91-00), signed by the Asst. p. 169
Commissioner for Collection for the Commissioner of
Internal Revenue, demanding payment of the amount
of P66,973,985.40; and
14. Assessment Notice FAS-E-87-91-00 pp. 169-17022

The CTA's Ruling

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

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

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

Conjugal Real Property P 5,062,016.00

Conjugal Personal Prop. 33,021,999.93
Gross Conjugal Estate 38,084,015.93
Less: Deductions 26,250,000.00
Net Conjugal Estate P 11,834,015.93
Less: Share of Surviving Spouse 5,917,007.96
Net Share in Conjugal Estate P 5,917,007.96
Add: Capital/Paraphernal
Properties – P44,652,813.66
Less: Capital/Paraphernal 44,652,813.66
Deductions
Net Taxable Estate P 50,569,821.62
============

Estate Tax Due P 29,935,342.97

Add: 25% Surcharge for Late Filing 7,483,835.74
Add: Penalties for-No notice of death 15.00
No CPA certificate 300.00
Total deficiency estate tax P 37,419,493.71
============

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

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

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

WHEREFORE, viewed from all the foregoing, the Court finds the petition unmeritorious and denies the
same. Petitioner and/or the heirs of Jose P. Fernandez are hereby ordered to pay to respondent the
amount of P37,419,493.71 plus 20% interest from the due date of its payment until full payment thereof
as estate tax liability of the estate of Jose P. Fernandez who died on November 7, 1987.
 SO ORDERED.26

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

The CA's Ruling

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

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

Hence, the instant Petition raising the following issues:

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

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

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

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

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

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

The Issues

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

First. Whether or not the CTA and the CA gravely erred in allowing the admission of the pieces of evidence
which were not formally offered by the BIR; and
Second. Whether or not the CA erred in affirming the CTA in the latter's determination of the deficiency estate tax
imposed against the Estate.

The Court’s Ruling

The Petition is impressed with merit.

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

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

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

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

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

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

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

A common fact threads through Vda. de Oñate and Ramos that does not exist at all in the instant case. In the
aforementioned cases, the exhibits were marked at the pre-trial proceedings to warrant the pronouncement that
the same were duly incorporated in the records of the case. Thus, we held in Ramos:
 In this case, we find and so rule that these requirements have been satisfied. The exhibits in question
were presented and marked during the pre-trial of the case thus, they have been incorporated
into the records. Further, Elpidio himself explained the contents of these exhibits when he was
interrogated by respondents' counsel...

xxxx

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

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

Per the records of this case, the BIR was directed to present its evidence 48 in the hearing of February 21, 1996,
but BIR's counsel failed to appear. 49 The CTA denied petitioner's motion to consider BIR's presentation of
evidence as waived, with a warning to BIR that such presentation would be considered waived if BIR's evidence
would not be presented at the next hearing. Again, in the hearing of March 20, 1996, BIR's counsel failed to
appear.50 Thus, in its Resolution51 dated March 21, 1996, the CTA considered the BIR to have waived
presentation of its evidence. In the same Resolution, the parties were directed to file their respective
memorandum. Petitioner complied but BIR failed to do so.52 In all of these proceedings, BIR was duly notified.
Hence, in this case, we are constrained to apply our ruling in Heirs of Pedro Pasag v. Parocha:53

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SO ORDERED.
G.R. No. 155541 January 27, 2004

ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL, petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.

DECISION

YNARES-SANTIAGO, J.:

This petition for review on certiorari assails the decision of the Court of Appeals in CA-G.R. CV No. 09107, dated
September 30, 2002,1 which reversed the November 19, 1995 Order of Regional Trial Court of Manila, Branch
XXXVIII, in Sp. Proc. No. R-82-6994, entitled "Testate Estate of Juliana Diez Vda. De Gabriel". The petition was
filed by the Estate of the Late Juliana Diez Vda. De Gabriel, represented by Prudential Bank as its duly
appointed and qualified Administrator.

As correctly summarized by the Court of Appeals, the relevant facts are as follows:

During the lifetime of the decedent, Juliana Vda. De Gabriel, her business affairs were managed by the
Philippine Trust Company (Philtrust). The decedent died on April 3, 1979. Two days after her death,
Philtrust, through its Trust Officer, Atty. Antonio M. Nuyles, filed her Income Tax Return for 1978. The
return did not indicate that the decedent had died.

On May 22, 1979, Philtrust also filed a verified petition for appointment as Special Administrator with the
Regional Trial Court of Manila, Branch XXXVIII, docketed as Sp. Proc. No. R-82-6994. The court a quo
appointed one of the heirs as Special Administrator. Philtrust’s motion for reconsideration was denied by the
probate court.

On January 26, 1981, the court a quo issued an Order relieving Mr. Diez of his appointment, and appointed
Antonio Lantin to take over as Special Administrator. Subsequently, on July 30, 1981, Mr. Lantin was also
relieved of his appointment, and Atty. Vicente Onosa was appointed in his stead.

In the meantime, the Bureau of Internal Revenue conducted an administrative investigation on the decedent’s
tax liability and found a deficiency income tax for the year 1977 in the amount of P318,233.93. Thus, on
November 18, 1982, the BIR sent by registered mail a demand letter and Assessment Notice No. NARD-78-82-
00501 addressed to the decedent "c/o Philippine Trust Company, Sta. Cruz, Manila" which was the address
stated in her 1978 Income Tax Return. No response was made by Philtrust. The BIR was not informed that the
decedent had actually passed away.

In an Order dated September 5, 1983, the court a quo appointed Antonio Ambrosio as the Commissioner and
Auditor Tax Consultant of the Estate of the decedent.

On June 18, 1984, respondent Commissioner of Internal Revenue issued warrants of distraint and levy to
enforce collection of the decedent’s deficiency income tax liability, which were served upon her heir, Francisco
Gabriel. On November 22, 1984, respondent filed a "Motion for Allowance of Claim and for an Order of Payment
of Taxes" with the court a quo. On January 7, 1985, Mr. Ambrosio filed a letter of protest with the Litigation
Division of the BIR, which was not acted upon because the assessment notice had allegedly become final,
executory and incontestable.

On May 16, 1985, petitioner, the Estate of the decedent, through Mr. Ambrosio, filed a formal opposition to the
BIR’s Motion for Allowance of Claim based on the ground that there was no proper service of the assessment
and that the filing of the aforesaid claim had already prescribed. The BIR filed its Reply, contending that service
to Philippine Trust Company was sufficient service, and that the filing of the claim against the Estate on
November 22, 1984 was within the five-year prescriptive period for assessment and collection of taxes under
Section 318 of the 1977 National Internal Revenue Code (NIRC).

On November 19, 1985, the court a quo issued an Order denying respondent’s claim against the Estate, 2 after
finding that there was no notice of its tax assessment on the proper party. 3
On July 2, 1986, respondent filed an appeal with the Court of Appeals, docketed as CA-G.R. CV No.
09107,4assailing the Order of the probate court dated November 19, 1985. It was claimed that Philtrust, in filing
the decedent’s 1978 income tax return on April 5, 1979, two days after the taxpayer’s death, had "constituted
itself as the administrator of the estate of the deceased at least insofar as said return is concerned." 5 Citing
Basilan Estate Inc. v. Commissioner of Internal Revenue, 6 respondent argued that the legal requirement of
notice with respect to tax assessments7 requires merely that the Commissioner of Internal Revenue release, mail
and send the notice of the assessment to the taxpayer at the address stated in the return filed, but not that the
taxpayer actually receive said assessment within the five-year prescriptive period. 8 Claiming that Philtrust had
been remiss in not notifying respondent of the decedent’s death, respondent therefore argued that the deficiency
tax assessment had already become final, executory and incontestable, and that petitioner Estate was liable
therefor.

On September 30, 2002, the Court of Appeals rendered a decision in favor of the respondent. Although
acknowledging that the bond of agency between Philtrust and the decedent was severed upon the latter’s death,
it was ruled that the administrator of the Estate had failed in its legal duty to inform respondent of the decedent’s
death, pursuant to Section 104 of the National Internal Revenue Code of 1977. Consequently, the BIR’s service
to Philtrust of the demand letter and Notice of Assessment was binding upon the Estate, and, upon the lapse of
the statutory thirty-day period to question this claim, the assessment became final, executory and incontestable.
The dispositive portion of said decision reads:

WHEREFORE, finding merit in the appeal, the appealed decision is REVERSED AND SET ASIDE.
Another one is entered ordering the Administrator of the Estate to pay the Commissioner of Internal
Revenue the following:

a. The amount of P318,223.93, representing the deficiency income tax liability for the year 1978,
plus 20% interest per annum from November 2, 1982 up to November 2, 1985 and in addition
thereto 10% surcharge on the basic tax of P169,155.34 pursuant to Section 51(e)(2) and (3) of
the Tax Code as amended by PD 69 and 1705; and

b. The costs of the suit.

SO ORDERED.9

Hence, the instant petition, raising the following issues:

1. Whether or not the Court of Appeals erred in holding that the service of deficiency tax assessment
against Juliana Diez Vda. de Gabriel through the Philippine Trust Company was a valid service in order
to bind the Estate;

2. Whether or not the Court of Appeals erred in holding that the deficiency tax assessment and final
demand was already final, executory and incontestable.

Petitioner Estate denies that Philtrust had any legal personality to represent the decedent after her death. As
such, petitioner argues that there was no proper notice of the assessment which, therefore, never became final,
executory and incontestable.10 Petitioner further contends that respondent’s failure to file its claim against the
Estate within the proper period prescribed by the Rules of Court is a fatal error, which forever bars its claim
against the Estate.11

Respondent, on the other hand, claims that because Philtrust filed the decedent’s income tax return subsequent
to her death, Philtrust was the de facto administrator of her Estate. 12 Consequently, when the Assessment Notice
and demand letter dated November 18, 1982 were sent to Philtrust, there was proper service on the
Estate.13Respondent further asserts that Philtrust had the legal obligation to inform petitioner of the decedent’s
death, which requirement is found in Section 104 of the NIRC of 1977. 14 Since Philtrust did not, respondent
contends that petitioner Estate should not be allowed to profit from this omission. 15 Respondent further argues
that Philtrust’s failure to protest the aforementioned assessment within the 30-day period provided in Section
319-A of the NIRC of 1977 meant that the assessment had already become final, executory and incontestable. 16

The resolution of this case hinges on the legal relationship between Philtrust and the decedent, and, by
extension, between Philtrust and petitioner Estate. Subsumed under this primary issue is the sub-issue of
whether or not service on Philtrust of the demand letter and Assessment Notice No. NARD-78-82-00501 was
valid service on petitioner, and the issue of whether Philtrust’s inaction thereon could bind petitioner. If both sub-
issues are answered in the affirmative, respondent’s contention as to the finality of Assessment Notice No.
NARD-78-82-00501 must be answered in the affirmative. This is because Section 319-A of the NIRC of 1977
provides a clear 30-day period within which to protest an assessment. Failure to file such a protest within said
period means that the assessment ipso jure becomes final and unappealable, as a consequence of which legal
proceedings may then be initiated for collection thereof.

We find in favor of the petitioner.

The first point to be considered is that the relationship between the decedent and Philtrust was one of agency,
which is a personal relationship between agent and principal. Under Article 1919 (3) of the Civil Code, death of
the agent or principal automatically terminates the agency. In this instance, the death of the decedent on April 3,
1979 automatically severed the legal relationship between her and Philtrust, and such could not be revived by
the mere fact that Philtrust continued to act as her agent when, on April 5, 1979, it filed her Income Tax Return
for the year 1978.

Since the relationship between Philtrust and the decedent was automatically severed at the moment of the
Taxpayer’s death, none of Philtrust’s acts or omissions could bind the estate of the Taxpayer. Service on Philtrust
of the demand letter and Assessment Notice No. NARD-78-82-00501 was improperly done.

It must be noted that Philtrust was never appointed as the administrator of the Estate of the decedent, and,
indeed, that the court a quo twice rejected Philtrust’s motion to be thus appointed. As of November 18, 1982, the
date of the demand letter and Assessment Notice, the legal relationship between the decedent and Philtrust had
already been non-existent for three years.

Respondent claims that Section 104 of the National Internal Revenue Code of 1977 imposed the legal obligation
on Philtrust to inform respondent of the decedent’s death. The said Section reads:

SEC. 104. Notice of death to be filed. – In all cases of transfers subject to tax or where, though exempt
from tax, the gross value of the estate exceeds three thousand pesos, the executor, administrator, or any
of the legal heirs, as the case may be, within two months after the decedent’s death, or within a like
period after qualifying as such executor or administrator, shall give written notice thereof to the
Commissioner of Internal Revenue.

The foregoing provision falls in Title III, Chapter I of the National Internal Revenue Code of 1977, or the
chapter on Estate Tax, and pertains to "all cases of transfers subject to tax" or where the "gross value of
the estate exceeds three thousand pesos". It has absolutely no applicability to a case for
deficiency income tax, such as the case at bar. It further lacks applicability since Philtrust was never the
executor, administrator of the decedent’s estate, and, as such, never had the legal obligation, based on
the above provision, to inform respondent of her death.

Although the administrator of the estate may have been remiss in his legal obligation to inform
respondent of the decedent’s death, the consequences thereof, as provided in Section 119 of the
National Internal Revenue Code of 1977, merely refer to the imposition of certain penal sanctions on the
administrator. These do not include the indefinite tolling of the prescriptive period for making deficiency
tax assessments, or the waiver of the notice requirement for such assessments.

Thus, as of November 18, 1982, the date of the demand letter and Assessment Notice No. NARD-78-82-
00501, there was absolutely no legal obligation on the part of Philtrust to either (1) respond to the
demand letter and assessment notice, (2) inform respondent of the decedent’s death, or (3) inform
petitioner that it had received said demand letter and assessment notice. This lack of legal obligation
was implicitly recognized by the Court of Appeals, which, in fact, rendered its assailed decision on
grounds of "equity".17

Since there was never any valid notice of this assessment, it could not have become final, executory and
incontestable, and, for failure to make the assessment within the five-year period provided in Section 318 of the
National Internal Revenue Code of 1977, respondent’s claim against the petitioner Estate is barred. Said Section
18 reads:

SEC. 318. Period of limitation upon assessment and collection. – Except as provided in the succeeding
section, internal revenue taxes shall be assessed within five years after the return was filed, and no
proceeding in court without assessment for the collection of such taxes shall be begun after the
expiration of such period. For the purpose of this section, a return filed before the last day prescribed by
 law for the filing thereof shall be considered as filed on such last day: Provided, That this limitation shall
not apply to cases already investigated prior to the approval of this Code.

Respondent argues that an assessment is deemed made for the purpose of giving effect to such assessment
when the notice is released, mailed or sent to the taxpayer to effectuate the assessment, and there is no legal
requirement that the taxpayer actually receive said notice within the five-year period. 18 It must be noted, however,
that the foregoing rule requires that the notice be sent to the taxpayer, and not merely to a disinterested party.
Although there is no specific requirement that the taxpayer should receive the notice within the said period, due
process requires at the very least that such notice actually be received. In Commissioner of Internal Revenue v.
Pascor Realty and Development Corporation, 19 we had occasion to say:

An assessment contains not only a computation of tax liabilities, but also a demand for payment within a
prescribed period. It also signals the time when penalties and interests begin to accrue against the
taxpayer. To enable the taxpayer to determine his remedies thereon, due process requires that it must be
served on and received by the taxpayer.

In Republic v. De le Rama,20 we clarified that, when an estate is under administration, notice must be sent to the
administrator of the estate, since it is the said administrator, as representative of the estate, who has the legal
obligation to pay and discharge all debts of the estate and to perform all orders of the court. In that case, legal
notice of the assessment was sent to two heirs, neither one of whom had any authority to represent the estate.
We said:

The notice was not sent to the taxpayer for the purpose of giving effect to the assessment, and said
notice could not produce any effect. In the case of Bautista and Corrales Tan v. Collector of Internal
Revenue … this Court had occasion to state that "the assessment is deemed made when the notice to
this effect is released, mailed or sent to the taxpayer for the purpose of giving effect to said
assessment." It appearing that the person liable for the payment of the tax did not receive the
assessment, the assessment could not become final and executory. (Citations omitted, emphasis
supplied.)

In this case, the assessment was served not even on an heir of the Estate, but on a completely disinterested
third party. This improper service was clearly not binding on the petitioner.

By arguing that (1) the demand letter and assessment notice were served on Philtrust, (2) Philtrust was remiss in
its obligation to respond to the demand letter and assessment notice, (3) Philtrust was remiss in its obligation to
inform respondent of the decedent’s death, and (4) the assessment notice is therefore binding on the Estate,
respondent is arguing in circles. The most crucial point to be remembered is that Philtrust had absolutely no
legal relationship to the deceased, or to her Estate. There was therefore no assessment served on the Estate as
to the alleged underpayment of tax. Absent this assessment, no proceedings could be initiated in court for the
collection of said tax,21 and respondent’s claim for collection, filed with the probate court only on November 22,
1984, was barred for having been made beyond the five-year prescriptive period set by law.

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. CV No. 09107, dated
September 30, 2002, is REVERSED and SET ASIDE. The Order of the Regional Trial Court of Manila, Branch
XXXVIII, in Sp. Proc. No. R-82-6994, dated November 19, 1985, which denied the claim of the Bureau of
Internal Revenue against the Estate of Juliana Diez Vda. De Gabriel for the deficiency income tax of the
decedent for the year 1977 in the amount of P318,223.93, is AFFIRMED.

No pronouncement as to costs.

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

COMMISSIONER OF INTERNAL REVENUE, petitioner,

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

Office of the Solicitor General for petitioner.

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

BENGZON, J.P., J.:

On May 23, 1945 Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15 children, the eldest of
whom is Manuel B. Pineda, a lawyer. Estate proceedings were had in the Court of First Instance of Manila (Case
No. 71129) wherein the surviving widow was appointed administratrix. The estate was divided among and
awarded to the heirs and the proceedings terminated on June 8, 1948. Manuel B. Pineda's share amounted to
about P2,500.00.

After the estate proceedings were closed, the Bureau of Internal Revenue investigated the income tax liability of
the estate for the years 1945, 1946, 1947 and 1948 and it found that the corresponding income tax returns were
not filed. Thereupon, the representative of the Collector of Internal Revenue filed said returns for the estate on
the basis of information and data obtained from the aforesaid estate proceedings and issued an assessment for
the following:

1. Deficiency income tax

1945 P135.83
1946 436.95
1947 1,206.91 P1,779.69
Add: 5% surcharge 88.98
1% monthly interest
from November 30,
1953 to April 15, 1957 720.77
Compromise for late
filing 80.00
Compromise for late
payment 40.00

Total amount due P2,707.44

===========
Additional residence tax for P14.50
2.
1945 ===========
3. Real Estate dealer's tax for
the fourth quarter of 1946 and P207.50
the whole year of 1947 ===========

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

After hearing the parties, the Court of Tax Appeals rendered judgment reversing the decision of the
Commissioner on the ground that his right to assess and collect the tax has prescribed. The Commissioner
appealed and this Court affirmed the findings of the Tax Court in respect to the assessment for income tax for
the year 1947 but held that the right to assess and collect the taxes for 1945 and 1946 has not prescribed. For
1945 and 1946 the returns were filed on August 24, 1953; assessments for both taxable years were made within
five years therefrom or on October 19, 1953; and the action to collect the tax was filed within five years from the
latter date, on August 7, 1957. For taxable year 1947, however, the return was filed on March 1, 1948; the
assessment was made on October 19, 1953, more than five years from the date the return was filed; hence, the
right to assess income tax for 1947 had prescribed. Accordingly, We remanded the case to the Tax Court for
further appropriate proceedings.1

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

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

Deficiency income tax

1945 P135.83
1946 436.95
Real estate dealer's
fixed tax 4th quarter
of 1946 and whole
year of 1947 P187.50

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

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

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

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

As a holder of property belonging to the estate, Pineda is liable for he tax up to the amount of the property in his
possession. The reason is that the Government has a lien on the P2,500.00 received by him from the estate as
his share in the inheritance, for unpaid income 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.
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.

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
1

held:

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 of Sale.

After the parties had pleaded their case, the Court of Appeals rendered its Decision on November 29, 1994,
2

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.

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-1-86-91-002451 (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
4

argument that "the ordinary procedure by which 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 with latitude 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
5

heirs of the decedent; the recognition of a natural child; the status of a woman claiming to be the legal wife of
6 7

the decedent; the legality of disinheritance of an heir by the testator; and to pass upon the validity of a waiver
8 9

of hereditary rights. 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 power conferred 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
12

against the estate of the decedent. Such taxes, we said, were exempted from the application of the statute of
non-claims, 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.

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 O 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 xxx 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 xxx 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
16

presumed correct and made in good faith. The taxpayer has the duty of proving otherwise. In the absence of
17

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
18

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.

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
19

becomes more pronounced in view of the absence of sufficient attack against the actuations of government.

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 xxx 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 xxx 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
21

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.

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.
G.R. No. 208293

PHILIPPINE NATIONAL BANK, Petitioner

vs.
CARMELITA S. SANTOS, REYME L. SANTOS, ANGEL L. SANTOS, NONENG S. DIANCO, ET AL.,
Respondent

x-----------------------x

G.R. No. 208295

LINA B. AGUILAR, Petitioner

vs.
CARMELITA S. SANTOS, REYME L. SANTOS, ANGEL L. SANTOS, BUENVENIDO L. SANTOS, ET
AL.,Respondents.

DECISION

LEONEN, J.:

The standard of diligence required of banks is higher than the degree of diligence of a good father of a family.
Respondents are children of Angel C. Santos who died on March 21, 1991. 1

Sometime in May 1996, respondents discovered that their father maintained a premium savings account with
Philippine National Bank (PNB), Sta. Elena-Marikina City Branch. As of July 14, 1996, the deposit amounted to
2

1,759,082.63. Later, respondents would discover that their father also had a time deposit of 1,000,000.00 with
3

PNB. 4

Respondents went to PNB to withdraw their father’s deposit. 5

Lina B. Aguilar, the Branch Manager of PNB-Sta. Elena-Marikina City Branch, required them to submit the
following: "(1) original or certified true copy of the Death Certificate of Angel C. Santos; (2) certificate of payment
of, or exemption from, estate tax issued by the Bureau of Internal Revenue (BIR); (3) Deed of Extrajudicial
Settlement; (4) Publisher’s Affidavit of publication of the Deed of Extrajudicial Settlement; and (5) Surety bond
effective for two (2) years and in an amount equal to the balance of the deposit to be withdrawn." 6

By April 26, 1998, respondents had already obtained the necessary documents. They tried to withdraw the
7

deposit. However, Aguilar informed them that the deposit had already "been released to a certain Bernardito
8

Manimbo (Manimbo) on April 1, 1997." An amount of 1,882,002.05 was released upon presentation of: (a) an
9

affidavit of selfadjudication purportedly executed by one of the respondents, Reyme L. Santos; (b) a certificate of
time deposit dated December 14, 1989 amounting to 1,000,000.00; and (c) the death certificate of Angel C.
Santos, among others. A special power of attorney was purportedly executed by Reyme L. Santos in favor of
10

Manimbo and a certain Angel P. Santos for purposes of withdrawing and receiving the proceeds of the certificate
of time deposit. 11

On May 20, 1998, respondents filed before the Regional Trial Court of Marikina City a complaint for sum of
money and damages against PNB, Lina B. Aguilar, and a John Doe. Respondents questioned the release of the
12

deposit amount to Manimbo who had no authority from them to withdraw their father’s deposit and who failed to
present to PNB all the requirements for such withdrawal. Respondents prayed that they be paid: (a) the
13

premium deposit amount; (b) the certificate of time deposit amount; and (c) moral and exemplary damages,
attorney’s fees, and costs of suit.14

PNB and Aguilar denied that Angel C. Santos had two separate accounts (premium deposit account and time
deposit account) with PNB. They alleged that Angel C. Santos’ deposit account was originally a time deposit
15

account that was subsequently converted into a premium savings account. They also alleged that Aguilar did
16

not know about Angel C. Santos’ death in 1991 because she only assumed office in 1996. Manimbo was able to
17

submit an affidavit of self-adjudication and the required surety bond. He also submitted a certificate of payment
18

of estate tax dated March 31, 1997. All documents he submitted appeared to be regular.
19 20
PNB and Aguilar filed a third-party complaint against Manimbo, Angel P. Santos, and Capital Insurance and
Surety Co., Inc. 21

Angel P. Santos denied having anything to do with the special power of attorney and affidavit of self-adjudication
presented by Manimbo. He also alleged that Manimbo presented the certificate of time deposit without his
22

knowledge and consent. 23

Capital Insurance and Surety Co., Inc. alleged that its undertaking was to pay claims only when persons who
were unduly deprived of their lawful participation in the estate filed an action in court for their claims. It did not
24

undertake to pay claims resulting from PNB’s negligence. 25

In the decision dated February 22, 2011, the trial court held that PNB and Aguilar were jointly and severally
26

liable to pay respondents the amount of 1,882,002.05 with an interest rate of 6% starting May 20, 1998. PNB 27

and Aguilar were also declared jointly and severally liable for moral and exemplary damages, attorney’s fees,
and costs of suit. Manimbo, Angel P. Santos, and Capital Insurance and Surety Co., Inc. were held jointly and
28

severally liable to pay PNB 1,877,438.83 pursuant to the heir’s bond and 50,000.00 as attorney’s fees and the
costs of suit. The dispositive portion of the trial court’s decision reads:
29

WHEREFORE, foregoing premises considered, judgment is hereby rendered as follows:

1. ordering the defendants PNB and LINA B. AGUILAR jointly and severally liable to pay the plaintiffs the amount
of P1,882,002.05, representing the face value of PNB Manager’s Check No. AF-974686B as balance of the total
deposits of decedent Angel C. Santos at the time of its issue, with interest thereon at the rate of 6% starting on
May 20, 1998, the date when the complaint was filed, until fully paid;

2. ordering both defendants jointly and severally liable to pay plaintiffs the amount of Php 100,000.00 as moral
damages, another Php100,000.00 as exemplary damages and Php 50,000.00 as attorney’s fees and the costs
of suit;

On the Third party complaint:

3. Ordering the third party defendants Bernardito P. Manimbo, Angel P. Santos and Capital Insurance & Surety
Co., Inc., jointly and severally liable to pay third party plaintiff PNB, the amount of Php 1,877,438.83 pursuant to
the Heir’s Bond and the amount of Php 50,000.00 as attorney’s fees and the costs of suit.

SO ORDERED. 30

The trial court found that Angel C. Santos had only one account with PNB. The account was originally a time
31

deposit, which was converted into a premium savings account when it was not renewed on maturity. The trial 32

court took judicial notice that in 1989, automatic rollover of time deposit was not yet prevailing. 33

On the liability of PNB and Aguilar, the trial court held that they were both negligent in releasing the deposit to
Manimbo. The trial court noted PNB’s failure to notify the depositor about the maturity of the time deposit and
34

the conversion of the time deposit into a premium savings account. The trial court also noted PNB’s failure to
35

cancel the certificate of time deposit despite conversion. PNB and Aguilar also failed to require the production
36

of birth certificates to prove claimants’ relationship to the depositor. Further, they relied on the affidavit of self-
37

adjudication when several persons claiming to be heirs had already approached them previously. 38

Aguilar filed a motion for reconsideration of the February 22, 2011 Regional Trial Court decision. This was
39

denied in the June 21, 2011 Regional Trial Court order. 40

PNB and Aguilar appealed before the Court of Appeals. 41

Aguilar contended that she was not negligent and should not have been made jointly and severally liable with
PNB. She merely implemented PNB’s Legal Department’s directive to release the deposit to Manimbo.
42 43

PNB argued that it was not negligent. The release of the deposit to Manimbo was pursuant to an existing
44

policy. Moreover, the documents submitted by Manimbo were more substantial than those submitted by
45

respondents. Respondents could have avoided the incident "had they accomplished the required documents
46

immediately." 47
In the decision promulgated on July 25, 2013, the Court of Appeals sustained the trial court’s finding that there
48

was only one account. Angel C. Santos could not have possibly opened the premium savings account in 1994
49

since he already died in 1991. The Court of Appeals also held that PNB and Aguilar were negligent in handling
50

the deposit. The deposit amount was released to Manimbo who did not present all the requirements,
51

particularly the Bureau of Internal Revenue (BIR) certification that estate taxes had already been paid. They 52

should also not have honored the

affidavit of self-adjudication. 53

The Court of Appeals ruled that Aguilar could not escape liability by pointing her finger at PNB’s Legal
Department. As the Bank Manager, she should have given the Legal Department all the necessary information
54

that must be known in order to protect both the depositors’ and the bank’s interests. 55

The Court of Appeals removed the award of exemplary damages, upon finding that there was no malice or bad
faith.
56

The Court of Appeals considered the deposit as an ordinary loan by the bank from Angel C. Santos or his
heirs. Therefore, the deposit was a forbearance which should earn an interest of 12% per annum. The
57 58

dispositive portion of the Court of Appeals’ decision reads:

WHEREFORE, premises considered, the assailed decision of the court a quo dated February 22, 2011
is AFFIRMED with the MODIFICATIONS in that the rate of interest shall be twelve percent (12%) per
annum computed from the filing of the case until fully satisfied. The interest due shall further earn an interest of
12% per annum to be computed from the date of the filing of the complaint until fully paid. Meanwhile, the award
of exemplary damages is DELETED.

SO ORDERED. 59

PNB and Aguilar filed their separate petitions for review of the Court of Appeals’ July 25, 2013 decision. 60

We resolve the following issues:

I. Whether Philippine National Bank was negligent in releasing the deposit to Bernardito Manimbo;

II. Whether Lina B. Aguilar is jointly and severally liable with Philippine National Bank for the release of the
deposit to Bernardito Manimbo; and

III. Whether respondents were properly awarded damages.

Petitioner Aguilar argued that the Court of Appeals had already found no malice or bad faith on her
part. Moreover, as a mere officer of the bank, she cannot be made personally liable for acts that she was
61

authorized to do. These acts were mere directives to her by her superiors. Hence, she should not be held
62 63

solidarily liable with PNB. 64

Petitioner PNB argued that it was the presumptuousness and cavalier attitude of respondents that gave rise to
the controversy and not its judgment call. Respondents were lacking in sufficient documentation. Petitioner
65 66

PNB also argued that respondents failed to show any justification for the award of moral damages. No bad faith
67

can be attributed to Aguilar. 68

In their separate comments to the petitions, respondents argued that the trial court and the Court of Appeals did
not err in finding that petitioners PNB and Aguilar were negligent in handling their father’s deposit. The
69

acceptance of invalid and incomplete documents to support the deposit’s release to Manimbo was a violation of
the bank’s fiduciary duty to its clients. These acts constituted gross negligence on the part of petitioners PNB
70

and Aguilar. 71

However, according to respondents, the Court of Appeals erred in deleting the award for exemplary damages
because the acts in violation of the bank’s fiduciary were done in bad faith. 72

We rule for the respondents.

The trial court and the Court of Appeals correctly found that petitioners PNB and Aguilar were negligent in
handling the deposit of Angel C. Santos.

The contractual relationship between banks and their depositors is governed by the Civil Code provisions on
simple loan. Once a person makes a deposit of his or her money to the bank, he or she is considered to have
73

lent the bank that money. The bank becomes his or her debtor, and he or she becomes the creditor of the bank,
74

which is obligated to pay him or her on demand. 75

The default standard of diligence in the performance of obligations is "diligence of a good father of a family."
Thus, the Civil Code provides:

ART. 1163. Every person obliged to give something is also obliged to take care of it with the proper diligence of a
good father of a family, unless the law or the stipulation of the parties requires another standard of care.

....

ART. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by
the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place.
When negligence shows bad faith, the provisions of articles 1171 and 2201, paragraph 2, shall apply.

If the law or contract does not state the diligence which is to be observed in the performance, that which is
expected of a good father of a family shall be required. (Emphasis supplied)

"Diligence of a good father of a family" is the standard of diligence expected of, among others,

usufructuaries, passengers of common carriers, agents, depositaries, pledgees, officious managers, and
76 77 78 79 80 81

persons deemed by law as responsible for the acts of others. "The diligence of a good father of a family
82

requires only that diligence which an ordinary prudent man would exercise with regard to his own property. 83

Other industries, because of their nature, are bound by law to observe higher standards of diligence. Common
carriers, for example, must observe "extraordinary diligence in the vigilance over the goods and for the safety of
[their] passengers" because it is considered a business affected with public interest. "Extraordinary diligence"
84

with respect to passenger safety is further qualified as "carry[ing] the passengers safely as far as human care
and foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all the
circumstances." 85

Similar to common carriers, banking is a business that is impressed with public interest. It affects economies and
plays a significant role in businesses and commerce. The public reposes its faith and confidence upon banks,
86

such that "even the humble wage-earner has not hesitated to entrust his life’s savings to the bank of his choice,
knowing that they will be safe in its custody and will even earn some interest for him." This is why we have
87

recognized the fiduciary nature of the banks’ functions, and attached a special standard of diligence for the
exercise of their functions.

In Simex International (Manila), Inc. v. Court of Appeals, this court described the nature of banks’ functions and
88

the attitude expected of banks in handling their depositors’ accounts, thus:

In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account
consists only of a few hundred pesos or of millions. . . .

The point is that as a business affected with public interest and because of the nature of its functions, the bank is
under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary
nature of their relationship. (Emphasis supplied)
89

The fiduciary nature of banking is affirmed in Republic Act No. 8791 or The General Banking Law, thus:

SEC. 2. Declaration of Policy.—The State recognizes the vital role of banks in providing an environment
conducive to the sustained development of the national economy and the fiduciary nature of banking that
requires high standards of integrity and performance. In furtherance thereof, the State shall promote and
maintain a stable and efficient banking and financial system that is globally competitive, dynamic and responsive
to the demands of a developing economy. (Emphasis supplied)
In The Consolidated Bank and Trust Corporation v. Court of Appeals, this court explained the meaning of
90

fiduciary relationship and the standard of diligence assumed by banks:

This fiduciary relationship means that the bank’s obligation to observe "high standards of integrity and
performance" is deemed written into every deposit agreement between a bank and its depositor. The fiduciary
nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family.
Article 1172 of the Civil Code states that the degree of diligence required of an obligor is that prescribed by law
or contract, and absent such stipulation then the diligence of a good father of a family. (Emphasis supplied,
91

citation omitted)

Petitioners PNB and Aguilar’s treatment of Angel C. Santos’ account is inconsistent with the high standard of
diligence required of banks. They accepted Manimbo’s representations despite knowledge of the existence of
circumstances that should have raised doubts on such representations. As a result, Angel C. Santos’ deposit
was given to a person stranger to him.

Petitioner PNB pointed out that since petitioner Aguilar assumed office as PNB-Sta. Elena-Marikina City Branch
Manager only five (5) years from Angel C. Santos’ death, she was not in the position to know that respondents
were the heirs of Angel C. Santos. She could not have accepted the unsigned and unnotarized extrajudicial
92

settlement deed that respondents had first showed her. She was not competent to make a conclusion whether
93

that deed was genuine. Neither could petitioners PNB and Aguilar pass judgment on a letter from respondents’
94

lawyer stating that respondents were the nine heirs of Angel C. Santos. Petitioners PNB and Aguilar’s
95

negligence is not based on their failure to accept respondents’ documents as evidence of their right to claim
Angel C. Santos’ deposit. Rather, it is based on their failure to exercise the diligence required of banks when
they accepted the fraudulent representations of Manimbo. Petitioners PNB and Aguilar disregarded their own
requirements for the release of the deposit to persons claiming to be heirs of a deceased depositor. When
respondents asked for the release of Angel C. Santos’ deposit, they were required to present the following: "(1)
original or certified true copy of the Death Certificate of Angel C. Santos; (2) certificate of payment of, or
exemption from, estate tax issued by the Bureau of Internal Revenue (BIR); (3) Deed of Extrajudicial Settlement;
(4) Publisher’s Affidavit of publication of the Deed of Extrajudicial Settlement; and (5) Surety bond effective for
two (2) years and in an amount equal to the balance of the deposit to be withdrawn." 96

Petitioners PNB and Aguilar, however, accepted Manimbo’s representations, and they released Angel C. Santos’
deposit based on only the following documents:

1. Death certificate of Angel C. Santos;

2. Birth certificate of Reyme L. Santos;

3. Affidavit of self-adjudication of Reyme L. Santos;

4. Affidavit of publication;

5. Special power of attorney that Reyme L. Santos executed in favor of Bernardito Manimbo and Angel P.
Santos;

6. Personal items of Angel C. Santos, such as photocopies or originals of passport, residence certificate for year
1990, SSS I.D., etc.;

7. Surety good for two (2) years; and

8. Certificate of Time Deposit No. 341306. 97

Based on these enumerations, petitioners PNB and Aguilar either have no fixed standards for the release of their
deceased clients’ deposits or they have standards that they disregard for convenience, favor, or upon exercise of
discretion. Both are inconsistent with the required diligence of banks. These threaten the safety of the
depositors’ accounts as they provide avenues for fraudulent practices by third persons or by bank officers
themselves.

In this case, petitioners PNB and Aguilar released Angel C. Santos’ deposit to Manimbo without having been
presented the BIR-issued certificate of payment of, or exception from, estate tax. This is a legal requirement
before the deposit of a decedent is released. Presidential Decree No. 1158,98 the tax code applicable when
Angel C. Santos died in 1991, provides:
SEC. 118. Payment of tax antecedent to the transfer of shares, bonds, or rights. — There shall not be
transferred to any new owner in the books of any corporation, sociedad anonima, partnership, business, or
industry organized or established in the Philippines, any shares, obligations, bonds or rights by way of gift inter
vivos or mortis causa, legacy, or inheritance unless a certification from the Commissioner that the taxes fixed in
this Title and due thereon have been paid is shown.

If a bank has knowledge of the death of a person who maintained a bank deposit account alone, or jointly with
another, it shall not allow any withdrawal from the said deposit account, unless the Commissioner has certified
that the taxes imposed thereon by this Title have been paid; Provided, however, That the administrator of the
estate or any one of the heirs of the decedent may upon authorization by the Commissioner of Internal Revenue,
withdraw an amount not exceeding 10,000 without the said certification. For this purpose, all withdrawal slips
shall contain a statement to the effect that all of the joint depositors are still living at the time of withdrawal by
any one of the joint depositors and such statement shall be under oath by the said depositors. (Emphasis 99

supplied)

This provision was reproduced in Section 97 of the 1997 National Internal Revenue Code, thus:

SEC. 97. Payment of Tax Antecedent to the Transfer of Shares, Bonds or Rights. - There shall not be
transferred to any new owner in the books of any corporation, sociedad anonima, partnership, business, or
industry organized or established in the Philippines any share, obligation, bond or right by way of gift inter vivos
or mortis causa, legacy or inheritance, unless a certification from the Commissioner that the taxes fixed in this
Title and due thereon have been paid is shown.

If a bank has knowledge of the death of a person, who maintained a bank deposit account alone, or jointly with
another, it shall not allow any withdrawal from the said deposit account, unless the Commissioner has certified
that the taxes imposed thereon by this Title have been paid: Provided, however, That the administrator of the
estate or any one (1) of the heirs of the decedent may, upon authorization by the Commissioner, withdraw an
amount not exceeding Twenty thousand pesos (20,000) without the said certification. For this purpose, all
withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at the time of
withdrawal by any one of the joint depositors and such statement shall be under oath by the said depositors.
(Emphasis supplied)

Taxes are created primarily to generate revenues for the maintenance of the government. However, this
particular tax may also serve as guard against the release of deposits to persons who have no sufficient and
valid claim over the deposits. Based on the assumption that only those with sufficient and valid claim to the
deposit will pay the taxes for it, requiring the certificate from the BIR increases the chance that the deposit will be
released only to them.

In their compulsory counterclaim, petitioners PNB and Aguilar claimed that Manimbo presented a certificate of
100

payment of estate tax. During trial, however, it turned out that this certificate was instead an authority to accept
101

payment, which is not the certificate required for the release of bank deposits. It appears that Manimbo was not
102

even required to submit the BIR certificate. He, thus, failed to present such certificate. Petitioners PNB and
103

Aguilar provided no satisfactory explanation why Angel C. Santos’ deposit was released without it.

Petitioners PNB and Aguilar’s negligence is also clear when they accepted as bases for the release of the
deposit to Manimbo: (a) a mere photocopy of Angel C. Santos’ death certificate; (b) the falsified affidavit of self-
104

adjudication and special power of attorney purportedly executed by Reyme L. Santos; and (c) the certificate of
105

time deposit. 106

Petitioner Aguilar was aware that there were other claimants to Angel C. Santos’ deposit. Respondents had
already communicated with petitioner Aguilar regarding Angel C. Santos’ account before Manimbo appeared.
Petitioner Aguilar even gave respondents the updated passbook of Angel C. Santos’ account. Yet, petitioners 107

PNB and Aguilar did not think twice before they released the deposit to Manimbo. They did not doubt why no
original death certificate could be submitted. They did not doubt why Reyme L. Santos would execute an affidavit
of self-adjudication when he, together with others, had previously asked for the release of Angel C. Santos’
deposit. They also relied on the certificate of time deposit and on Manimbo’s representation that the passbook
was lost when the passbook had just been previously presented to Aguilar for updating. 108

During the trial, petitioner PNB’s counsel only reasoned that the photocopy of the death certificate was also
submitted with other documents, which led him to no other conclusion than that Angel C. Santos was already
dead. On petitioners PNB and Aguilar’s reliance special power of attorney allegedly executed by Reyme L.
109
Santos, Aguilar admitted that she did not contact Reyme L. Santos for verification. Her reason was that Reyme
L. Santos was their client. Therefore, they had no obligation to do so. 110

Given the circumstances, "diligence of a good father of a family" would have required petitioners PNB and
Aguilar to verify. A prudent man would have inquired why Reyme L. Santos would issue an affidavit of
selfadjudication when others had also claimed to be heirs of Angel C. Santos. Contrary to petitioner Aguilar’s
reasoning, the fact that Reyme L. Santos was not petitioner PNB’s client should have moved her to take
measures to ensure the veracity of Manimbo’s documents and representations. This is because she had no
previous knowledge of Reyme L. Santos his representatives, and his signature.

Petitioner PNB is a bank from which a degree of diligence higher than that of a good father of a family is
expected. Petitioner PNB and its manager, petitioner Aguilar, failed to meet even the standard of diligence of a
good father of a family. Their actions and inactions constitute gross negligence. It is for this reason that we
sustain the trial court’s and the Court of Appeals’ rulings that petitioners PNB and Aguilar are solidarily liable with
each other. 111

For the same reason, we sustain the award for moral damages. Petitioners PNB and Aguilar’s gross negligence
deprived Angel C. Santos’ heirs what is rightfully theirs. Respondents also testified that they experienced anger
and embarrassment when petitioners PNB and Aguilar refused to release Angel C. Santos’ deposit. "The 112

bank’s negligence was the result of lack of due care and caution required of managers and employees of a firm
engaged in so sensitive and demanding business as banking." 113

Exemplary damages should also be awarded. "The law allows the grant of exemplary damages by way of
example for the public good. The public relies on the banks’ sworn profession of diligence and meticulousness in
giving irreproachable service. The level of meticulousness must be maintained at all times by the banking
sector." 114

Since exemplary damages are awarded and since respondents were compelled to litigate to protect their
interests, the award of attorney’s fees is also proper.
115

The Court of Appeals' award of interest should be modified to 12% from demand on April 26, 1998 until June 30,
2013, and 6% from July I, 2013 until fully paid. In Nacar v. Gallery Frames: 116

Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that would govern the
parties, the rate of legal interest for loans or forbearance of any money. . . s.hall no longer be twelve percent
(12%) per annum ... but will now be six percent (6%) per annum effective July 1, 2013. It should be noted,
nonetheless, that. .. the twelve percent (12%) per annum legal interest shall apply only until June 30, 2013.
Come July 1, 2013 the new rate of six percent (6%) per annum shall be the prevailing rate of interest when
applicable.

....

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance
of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest
due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of
interest shall be 6% per annum to be computed from default, i.e., from judicial or extrajudicial demand ...

....

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annumfrom such
finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of
credit.117

WHEREFORE, the Court of Appeals' decision dated July 25, 2013 is AFFIRMED with the MODIFICATIONS in
that petitioners Philippine National Bank and Lina B. Aguilar are ordered solidarily liable to pay respondents Pl
00,000.00 as exemplary damages. Further, the interest rate for the amount of Pl,882,002.05, representing the
face value of PNB Manager's Check No. AF-974686B is modified to 12% from April 26, 1998 until June 30,
2013, and 6% from July 1, 2013 until satisfaction. All monetary awards shall then earn interest at the rate of
6% per annum from finality of the decision until full satisfaction.

SO ORDERED.