ESTATE TAX

G.R. No. L-34937

March 13, 1933
CONCEPCION VIDAL DE ROCES and her husband, MARCOS ROCES, and ELVIRA
VIDAL DE RICHARDS, plaintiff-appellants,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellee.
Feria and La O for appellants.Attorney-General Jaranilla for appellee.
IMPERIAL, J.:
The plaintiffs herein brought this action to recover from the defendant, Collector of
Internal Revenue, certain sums of money paid by them under protest as inheritance tax.
They appealed from the judgment rendered by the Court of First Instance of Manila
dismissing the action, without costs.
On March 10 and 12, 1925, Esperanza Tuazon, by means of public documents, donated
certain parcels of land situated in Manila to the plaintiffs herein, who, with their
respective husbands, accepted them in the same public documents, which were duly
recorded in the registry of deeds. By virtue of said donations, the plaintiffs took
possession of the said lands, received the fruits thereof and obtained the corresponding
transfer certificates of title.
On January 5, 1926, the donor died in the City of Manila without leaving any forced heir
and her will which was admitted to probate, she bequeathed to each of the donees the
sum of P5,000. After the estate had been distributed among the instituted legatees and
before delivery of their respective shares, the appellee herein, as Collector of Internal
Revenue, ruled that the appellants, as donees and legatees, should pay as inheritance
tax the sums of P16,673 and P13,951.45, respectively. Of these sums P15,191.48 was
levied as tax on the donation to Concepcion Vidal de Roces and P1,481.52 on her
legacy, and, likewise, P12,388.95 was imposed upon the donation made to Elvira Vidal
de Richards and P1,462.50 on her legacy. At first the appellants refused to pay the
aforementioned taxes but, at the insistence of the appellee and in order not to delay the
adjudication of the legacies, they agreed at last, to pay them under protest.
The appellee filed a demurrer to the complaint on the ground that the facts alleged
therein were not sufficient to constitute a cause of action. After the legal questions raised
therein had been discussed, the court sustained the demurrer and ordered the
amendment of the complaint which the appellants failed to do, whereupon the trial court
dismissed the action on the ground that the afore- mentioned appellants did not really
have a right of action.
In their brief, the appellants assign only one alleged error, to wit: that the demurrer
interposed by the appellee was sustained without sufficient ground.

The judgment appealed from was based on the provisions of section 1540 Administrative
Code which reads as follows:
SEC. 1540. Additions of gifts and advances. After the aforementioned deductions
have been made, there shall be added to the resulting amount the value of all gifts or
advances made by the predecessor to any those who, after his death, shall prove to be
his heirs, devisees, legatees, or donees mortis causa.
The appellants contend that the above-mentioned legal provision does not include
donations inter vivos and if it does, it is unconstitutional, null and void for the following
reasons: first, because it violates section 3 of the Jones Law which provides that no law
should embrace more than one subject, and that subject should be expressed in the title
thereof; second that the Legislature has no authority to impose inheritance tax on
donations inter vivos; and third, because a legal provision of this character contravenes
the fundamental rule of uniformity of taxation. The appellee, in turn, contends that the
words "all gifts" refer clearly to donations inter vivos and, in support of his theory, cites
the doctrine laid in the case of Tuason and Tuason vs. Posadas (54 Phil., 289). After a
careful study of the law and the authorities applicable thereto, we are the opinion that
neither theory reflects the true spirit of the aforementioned provision. The gifts referred to
in section 1540 of the Revised Administration Code are, obviously, those donations inter
vivos that take effect immediately or during the lifetime of the donor but are made in
consideration or in contemplation of death. Gifts inter vivos, the transmission of which is
not made in contemplation of the donor's death should not be understood as included
within the said legal provision for the reason that it would amount to imposing a direct tax
on property and not on the transmission thereof, which act does not come within the
scope of the provisions contained in Article XI of Chapter 40 of the Administrative Code
which deals expressly with the tax on inheritances, legacies and other acquisitions
mortis causa.
Our interpretation of the law is not in conflict with the rule laid down in the case of
Tuason and Tuason vs. Posadas, supra. We said therein, as we say now, that the
expression "all gifts" refers to gifts inter vivos inasmuch as the law considers them as
advances on inheritance, in the sense that they are gifts inter vivos made in
contemplation or in consideration of death. In that case, it was not held that that kind of
gifts consisted in those made completely independent of death or without regard to it.
Said legal provision is not null and void on the alleged ground that the subject matter
thereof is not embraced in the title of the section under which it is enumerated. On the
contrary, its provisions are perfectly summarized in the heading, "Tax on Inheritance,
etc." which is the title of Article XI. Furthermore, the constitutional provision cited should
not be strictly construed as to make it necessary that the title contain a full index to all
the contents of the law. It is sufficient if the language used therein is expressed in such a
way that in case of doubt it would afford a means of determining the legislators intention.
(Lewis' Sutherland Statutory Construction, Vol. II, p. 651.) Lastly, the circumstance that

the Administrative Code was prepared and compiled strictly in accordance with the
provisions of the Jones Law on that matter should not be overlooked and that, in a
compilation of laws such as the Administrative Code, it is but natural and proper that
provisions referring to diverse matters should be found. (Ayson and Ignacio vs.
Provincial Board of Rizal and Municipal Council of Navotas, 39 Phil., 931.)
The appellants question the power of the Legislature to impose taxes on the
transmission of real estate that takes effect immediately and during the lifetime of the
donor, and allege as their reason that such tax partakes of the nature of the land tax
which the law has already created in another part of the Administrative Code. Without
making express pronouncement on this question, for it is unnecessary, we wish to state
that such is not the case in these instance. The tax collected by the appellee on the
properties donated in 1925 really constitutes an inheritance tax imposed on the
transmission of said properties in contemplation or in consideration of the donor's death
and under the circumstance that the donees were later instituted as the former's
legatees. For this reason, the law considers such transmissions in the form of gifts inter
vivos, as advances on inheritance and nothing therein violates any constitutional
provision, inasmuch as said legislation is within the power of the Legislature.
Property Subject to Inheritance Tax. The inheritance tax ordinarily applies to all
property within the power of the state to reach passing by will or the laws regulating
intestate succession or by gift inter vivos in the manner designated by statute, whether
such property be real or personal, tangible or intangible, corporeal or incorporeal. (26
R.C.L., p. 208, par. 177.)
In the case of Tuason and Tuason vs. Posadas, supra, it was also held that section 1540
of the Administrative Code did not violate the constitutional provision regarding
uniformity of taxation. It cannot be null and void on this ground because it equally
subjects to the same tax all of those donees who later become heirs, legatees or donees
mortis causa by the will of the donor. There would be a repugnant and arbitrary
exception if the provisions of the law were not applicable to all donees of the same kind.
In the case cited above, it was said: "At any rate the argument adduced against its
constitutionality, which is the lack of Uniformity, does not seem to be well founded. It was
said that under such an interpretation, while a donee inter vivos who, after the
predecessor's death proved to be an heir, a legatee, or a donee mortis causa, would
have to pay the tax, another donee inter vivos who did not prove to he an heir, a legatee,
or a donee mortis causa of the predecessor, would be exempt from such a tax. But as
these are two different cases, the principle of uniformity is inapplicable to them."
The last question of a procedural nature arising from the case at bar, which should be
passed upon, is whether the case, as it now stands, can be decided on the merits or
should be remanded to the court a quo for further proceedings. According to our view of
the case, it follows that, if the gifts received by the appellants would have the right to
recover the sums of money claimed by them. Hence the necessity of ascertaining
whether the complaint contains an allegation to that effect. We have examined said

complaint and found nothing of that nature. On the contrary, it be may be inferred from
the allegations contained in paragraphs 2 and 7 thereof that said donations inter vivos
were made in consideration of the donor's death. We refer to the allegations that such
transmissions were effected in the month of March, 1925, that the donor died in January,
1926, and that the donees were instituted legatees in the donor's will which was
admitted to probate. It is from these allegations, especially the last, that we infer a
presumption juris tantum that said donations were made mortis causa and, as such, are
subject to the payment of inheritance tax.
Wherefore, the demurrer interposed by the appellee was well-founded because it
appears that the complaint did not allege fact sufficient to constitute a cause of action.
When the appellants refused to amend the same, spite of the court's order to that effect,
they voluntarily waived the opportunity offered them and they are not now entitled to
have the case remanded for further proceedings, which would serve no purpose
altogether in view of the insufficiency of the complaint.
Wherefore, the judgment appealed from is hereby affirmed, with costs of this instance
against the appellants. So ordered.
Avancea, C.J., Villamor, Ostrand, Abad Santos, Hull, Vickers and Buttes, JJ., concur.

G.R. No. L-36770

November 4, 1932

LUIS W. DISON, plaintiff-appellant,

vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.
Marcelino Aguas for plaintiff-appellant.
Attorney-General Jaranilla for defendant-appellant.
BUTTE, J.:
This is an appeal from the decision of the Court of First Instance of Pampanga in favor of
the defendant Juan Posadas, Jr., Collector of Internal Revenue, in a suit filed by the
plaintiffs, Luis W. Dison, for the recovery of an inheritance tax in the sum of P2,808.73
paid under protest. The petitioner alleged in his complaint that the tax is illegal because
he received the property, which is the basis of the tax, from his father before his death by
a deed of gift inter vivos which was duly accepted and registered before the death of his
father. The defendant answered with a general denial and with a counterdemand for the
sum of P1,245.56 which it was alleged is a balance still due and unpaid on account of
said tax. The plaintiff replied to the counterdemand with a general denial. The court a
quo held that the cause of action set up in the counterdemand was not proven and
dismissed the same. Both sides appealed to this court, but the cross-complaint and
appeal of the Collector of Internal Revenue were dismissed by this court on March 17,
1932, on motion of the Attorney-General.1awphil.net
The only evidence introduced at the trial of this cause was the proof of payment of the
tax under protest, as stated, and the deed of gift executed by Felix Dison on April 9,
1928, in favor of his sons Luis W. Dison, the plaintiff-appellant. This deed of gift
transferred twenty-two tracts of land to the donee, reserving to the donor for his life the
usufruct of three tracts. This deed was acknowledged by the donor before a notary
public on April 16, 1928. Luis W. Dison, on April 17, 1928, formally accepted said gift by
an instrument in writing which he acknowledged before a notary public on April 20, 1928.
At the trial the parties agreed to and filed the following ingenious stipulation of fact:
1. That Don Felix Dison died on April 21, 1928;
2. That Don Felix Dison, before his death, made a gift inter vivos in favor of the plaintiff
Luis W. Dison of all his property according to a deed of gift (Exhibit D) which includes all
the property of Don Felix Dizon;
3. That the plaintiff did not receive property of any kind of Don Felix Dison upon the
death of the latter;
4. That Don Luis W. Dison was the legitimate and only child of Don Felix Dison.
It is inferred from Exhibit D that Felix Dison was a widower at the time of his death.
The theory of the plaintiff-appellant is that he received and holds the property mentioned
by a consummated gift and that Act No. 2601 (Chapter 40 of the Administrative Code)

being the inheritance tax statute, does not tax gifts. The provision directly here involved
is section 1540 of the Administrative Code which reads as follows:
Additions of Gifts and Advances. After the aforementioned deductions have been
made, there shall be added to the resulting amount the value of all gifts or advances
made by the predecessor to any of those who, after his death, shall prove to be his
heirs, devises, legatees, or donees mortis causa.
The question to be resolved may be stated thus: Does section 1540 of the Administrative
Code subject the plaintiff-appellant to the payment of an inheritance tax?
The appellant argues that there is no evidence in this case to support a finding that the
gift was simulated and that it was an artifice for evading the payment of the inheritance
tax, as is intimated in the decision of the court below and the brief of the AttorneyGeneral. We see no reason why the court may not go behind the language in which the
transaction is masked in order to ascertain its true character and purpose. In this case
the scanty facts before us may not warrant the inference that the conveyance,
acknowledged by the donor five days before his death and accepted by the donee one
day before the donor's death, was fraudulently made for the purpose of evading the
inheritance tax. But the facts, in our opinion, do warrant the inference that the transfer
was an advancement upon the inheritance which the donee, as the sole and forced heir
of the donor, would be entitled to receive upon the death of the donor.
The argument advanced by the appellant that he is not an heir of his deceased father
within the meaning of section 1540 of the Administrative Code because his father in his
lifetime had given the appellant all his property and left no property to be inherited, is so
fallacious that the urging of it here casts a suspicion upon the appellants reason for
completing the legal formalities of the transfer on the eve of the latter's death. We do not
know whether or not the father in this case left a will; in any event, this appellant could
not be deprived of his share of the inheritance because the Civil Code confers upon him
the status of a forced heir. We construe the expression in section 1540 "any of those
who, after his death, shall prove to be his heirs", to include those who, by our law, are
given the status and rights of heirs, regardless of the quantity of property they may
receive as such heirs. That the appellant in this case occupies the status of heir to his
deceased father cannot be questioned. Construing the conveyance here in question,
under the facts presented, as an advance made by Felix Dison to his only child, we hold
section 1540 to be applicable and the tax to have been properly assessed by the
Collector of Internal Revenue.
This appeal was originally assigned to a Division of five but referred to the court in banc
by reason of the appellant's attack upon the constitutionality of section 1540. This attack
is based on the sole ground that insofar as section 1540 levies a tax upon gifts inter
vivos, it violates that provision of section 3 of the organic Act of the Philippine Islands (39
Stat. L., 545) which reads as follows: "That no bill which may be enacted into law shall
embraced more than one subject, and that subject shall be expressed in the title of the
bill." Neither the title of Act No. 2601 nor chapter 40 of the Administrative Code makes
any reference to a tax on gifts. Perhaps it is enough to say of this contention that section
1540 plainly does not tax gifts per se but only when those gifts are made to those who
shall prove to be the heirs, devisees, legatees or donees mortis causa of the donor. This
court said in the case of Tuason and Tuason vs. Posadas 954 Phil., 289):lawphil.net

When the law says all gifts, it doubtless refers to gifts inter vivos, and not mortis causa.
Both the letter and the spirit of the law leave no room for any other interpretation. Such,
clearly, is the tenor of the language which refers to donations that took effect before the
donor's death, and not to mortis causa donations, which can only be made with the
formalities of a will, and can only take effect after the donor's death. Any other
construction would virtually change this provision into:
". . . there shall be added to the resulting amount the value of all gifts mortis causa . . .
made by the predecessor to those who, after his death, shall prove to be his . . . donees
mortis causa." We cannot give to the law an interpretation that would so vitiate its
language. The truth of the matter is that in this section (1540) the law presumes that
such gifts have been made in anticipation of inheritance, devise, bequest, or gift mortis
causa, when the donee, after the death of the donor proves to be his heir, devisee or
donee mortis causa, for the purpose of evading the tax, and it is to prevent this that it
provides that they shall be added to the resulting amount." However much appellant's
argument on this point may fit his preconceived notion that the transaction between him
and his father was a consummated gift with no relation to the inheritance, we hold that
there is not merit in this attack upon the constitutionality of section 1540 under our view
of the facts. No other constitutional questions were raised in this case.
The judgment below is affirmed with costs in this instance against the appellant. So
ordered.

G.R. No. L-29276 May 18, 1978

Testate Estate of the Late Felix J. de Guzman. VICTORINO G. DE GUZMAN,
administrator-appellee,
vs.
CRISPINA DE GUZMAN-CARILLO, ARSENIO DE GUZMAN and HONORATA DE
GUZMAN-MENDIOLA, oppositors-appellants.
Emiliano Samson & R. Balderama-Samson for appellants.
Cezar Paralejo for appellee.
AQUINO, J.:
This case is about the propriety of allowing as administration expenses certain
disbursements made by the administrator of the testate estate of the late Felix J. de
Guzman of Gapan, Nueva Ecija.
The deceased testator was survived by eight children named Victorino, Librada,
Severino, Margarita, Josefina, Honorata, Arsenio and Crispina. His will was duly
probated. Letters of administration were issued to his son, Doctor Victorino G. de
Guzman, pursuant to the order dated September 17, 1964 of the Court of First Instance
of Nueva Ecija in Special Proceeding No. 1431.
One of the properties left by the dent was a residential house located in the poblacion. In
conformity with his last will, that house and the lot on which it stands were adjudicated to
his eight children, each being given a one-eighth proindiviso share in the project of
partition dated March 19, 1966, which was signed by the eight heirs and which was
approved in the lower court's order of April 14, 1967 but without prejudice to the final
outcome of the accounting.
The administrator submitted four accounting reports for the period from June 16, 1964 to
September, 1967. Three heirs Crispina de Guzmans-Carillo Honorata de GuzmanMendiola and Arsenio de Guzman interposed objections to the administrator's
disbursements in the total sum of P13,610.48, broken down as follows:
I. Expense for the improvement and renovation of the decedent's residential house.
1. Construction of fence P3,082.07
2. Renovation of bathroom P1,389.52
3. Repair of terrace and
interior of house P5,928.00 P10,399.59
II. Living expenses of Librada de Guzman while occupying the family home without
paying rent:
1. For house helper P1,170.00
2. Light bills 227.41
3. Water bills 150.80
4. Gas oil, floor wax
and switch nail 54.90 P 1,603.11
III. Other expenses:
1. Lawyer's subsistence P 19.30
2. Gratuity pay in lieu
of medical fee 144.00
3. For stenographic notes 100.00
4. For food served on
decedent's first
death anniversary 166.65
5. Cost of publication of

death anniversary
of decedent 102.00
6. Representation
expenses 26.25 P558.20
IV. Irrigation fee P1.049.58
TOTAL P13,610.48
It should be noted that the probate court in its order of August 29, 1966 directed the
administrator "to refrain from spending the assets of the estate for reconstructing and
remodeling the house of the deceased and to stop spending (sic) any asset of the estate
without first during authority of the court to do so" (pp. 26-27, Record on Appeal).
The lower court in its order of April 29, 1968 allowed the d items as legitimate expenses
of administration. From that order, the three oppositors appealed to this Court. Their
contention is that the probate court erred in approving the utilization of the income of the
estate (from rice harvests) to defray those expenditures which allegedly are not
allowable under the Rules of Court.
An executor or administrator is allowed the necessary expenses in the care,
management, and settlement of the estate. He is entitled to possess and manage the
decedent's real and personal estate as long as it is necessary for the payment of the
debts and the expenses of administration. He is accountable for the whole decedent's
estate which has come into his possession, with all the interest, profit, and income
thereof, and with the proceeds of so much of such estate as is sold by him, at the price
at which it was sold (Sec. 3, Rule 84; Secs. 1 and 7, Rule 85, Rules of Court).
One of the Conditions of the administrator's bond is that he should render a true and just
account of his administration to the court. The court may examine him upon oath With
respect to every matter relating to his accounting 't and shall so examine him as to the
correctness of his account before the same is allowed, except when no objection is
made to the allowance of the account and its correctness is satisfactorily established by
competent proof. The heirs, legatees, distributes, and creditors of the estate shall have
the same privilege as the executor or administrator of being examined on oath on any
matter relating to an administration account." (Sec. 1[c] Rule 81 and secs. 8 and 9, Rule
85, Rules of Court).
A hearing is usually held before an administrator's account is approved, especially if an
interested Party raises objections to certain items in the accounting report (Sec. 10, Rule
85).
At that hearing, the practice is for the administrator to take the witness stand, testify
under oath on his accounts and Identify the receipts, vouchers and documents
evidencing his disbursements which are offered as exhibits. He may be interrogated by
the court and crossed by the oppositors's counsel. The oppositors may present proofs to
rebut the ad. administrator's evidence in support of his accounts.
I. Expenses for the renovation and improvement of the family residence P10,399.59.
As already shown above, these expenses consisted of disbursements for the repair of
the terrace and interior of the family home, the renovation of the bathroom, and the
construction of a fence. The probate court allowed those expenses because an
administrator has the duty to "maintain in tenantable repair the houses and other

structures and fences belonging to the estate, and deliver the same in such repair to the
heirs or devises" when directed to do so by the court (Sec. 2, Rule 84, Rules of Court).
On the other hand, the oppositors-appellants contend that the trial court erred in allowing
those expenses because the same did not come within the category of necessary
expenses of administration which are understood to be the reasonable and necessary
expenses of caring for the property and managing it until the debts are paid and the
estate is partitioned and distributed among the heirs (Lizarraga Hermanos vs. Abada, 40
Phil. 124).
As clarified in the Lizarraga case, administration expenses should be those which are
necessary for the management of the estate, for protecting it against destruction or
deterioration, and, possibly, for the production of fruits. They are expenses entailed for
the preservation and productivity of the estate and its management for purposes of
liquidation, payment of debts, and distribution of the residue among the persons entitled
thereto.
It should be noted that the family residence was partitioned proindiviso among the
decedent's eight children. Each one of them was given a one-eighth share in conformity
with the testator's will. Five of the eight co-owners consented to the use of the funds of
the estate for repair and improvement of the family home. It is obvious that the expenses
in question were incurred to preserve the family home and to maintain the family's social
standing in the community.
Obviously, those expenses redounded to the benefit of an the co- owners. They were
necessary for the preservation and use of the family residence. As a result of those
expenses, the co-owners, including the three oppositors, would be able to use the family
home in comfort, convenience and security.
We hold that the probate court did not err in approving the use of the income of the
estate to defray those ex
II. Expenses incurred by Librada de Guzman as occupant of the family residence
without paying rent P1 603.11 The probate court allowed the income of the estate
to be used for those expenses on the theory that the occupancy of the house by one heir
did not deprive the other seven heirs from living in it. Those expenses consist of the
salaries of the house helper, light and water bills, and the cost of gas, oil floor wax and
switch nail
We are of the opinion that those expenses were personal expenses of Librada de
Guzman, inuring y to her benefit. Those expenses, not being reasonable administration
expenses incurred by the administrator, should not be charged against the income of the
estate.
Librada de Guzman, as an heir, is entitled to share in the net income of the estate. She
occupied the house without paying rent. She should use her income for her living
expenses while occupying the family residence.
The trial court erred in approving those expenses in the administrator's accounts. They
should be, as they are hereby, disallowed (See 33 C.J.S 1239-40).
III. Other expenses P558.20. Among these expenses is the sum of P100 for
stenographic notes which, as admitted by the administrator on page 24 of his brief,
should be disallowed. Another item, "representation expenses" in the sum of P26.25

(2nd accounting), was not explained. it should likewise be disallowed.

The probate court erred in allowing as expenses of ad. administration the sum of
P268.65 which was incurred during the celebration of the first death anniversary of the
deceased. Those expenses are disallowed because they have no connection with the
care, management and settlement of the decedent's estate (Nicolas vs. Nicolas 63 Phil
332).
The other expenses, namely, P19.30 for the lawyer's subsistence and P144 as the cost
of the gift to the physician who attended to the testator during his last s are allowable
expenses.
IV. Irrigation fee P1,049.58. The appellants question the deductibility of that
expense on the ground that it seems to be a duplication of the item of P1,320 as
irrigation fee for the same 1966-67 crop-year.
The administrator in his comment filed on February 28, 1978 explained that the item of
P1,320 represented the "allotments" for irrigation fees to eight tenants who cultivated the
Intan crop, which allotments were treated as "assumed expenses" deducted as farming
expenses from the value of the net harvests.
The explanation is not quite clear but it was not disputed by the appellants. The fact is
that the said sum of P1,049.58 was paid by the administrator to the Penaranda Irrigation
System as shown in Official Receipt No. 3596378 dated April 28, 1967. It was included
in his accounting as part of the farming expenses. The amount was properly allowed as
a legitimate expense of administration.
WHEREFORE, the lower court's order of April 29, 1968 is affirmed with the modifications
that the sum of (a) P1,603.11 as the living expenses of Librada de Guzman. (b) P100 for
stenographic notes, (c) P26.25 as representation expenses, and (d) P268.65 as
expenses for the celebration of the first anniversary of the decedent's death are
disallowed in the administrator's accounts. No costs.
SO ORDERED.

G.R. No. L-31364 March 30, 1979

MISAEL P. VERA, et al vs. HON. JOSE F. FERNANDEZ, Judge of the Court of First Instance
and FRANCIS A. TONGOY, Administrator of the Estate of the late LUIS D. TONGOY
Facts of the Case:

On June 3, 1969 a Motion for Allowance of Claim and for Payment of Taxes was filed against
the estate of the late Luis Tongoy. The claim represents the indebtedness to the Government
of the late Luis D. Tongoy for deficiency income taxes in the total sum of P3,254.80.

The Administrator opposed the motion solely on the ground that the claim was barred under
Section 5, Rule 86 of the Rules of Court which provides:
All claims for money against the decedent, arising from contracts, express or implied, whether the
same be due, not due, or contingent, all claims for funeral expenses and expenses for the last
sickness of the decedent, and judgment for money against the decedent, must be filed within the
time limited in the notice; otherwise they are barred forever xxx

Relying on Secs. 2 and 5 of Rule 86, the respondent Judge dismissed the motion for
allowance of claim filed by herein petitioner. A motion for reconsideration was filed, but the
same was denied. Hence, this appeal.

Issue: Whether or not the lower court erred in holding that the claim for taxes by the government
against the estate of Luis D. Tongoy was already barred by Sections 2 and 5, Rule 86 of
the Rules of Court.

Held:
As to Section 5, Rule 86
The aforequoted provisions shows that it makes no mention of claims for monetary
obligation of the decedent created by law, such as taxes which is entirely of different
character from the claims expressly enumerated therein. Under the familiar rule of statutory
construction of expressio unius est exclusio alterius, the mention of one thing implies the
exclusion of another thing not mentioned.
As to Section 2, Rule 86
Section 2. Time within which claims shall be filed. - In the notice provided in the preceding section,
the court shall state the time for the filing of claims against the estate, which shall not be more than
twelve (12) nor less than six (6) months after the date of the first publication of the notice. However,
at any time before an order of distribution is entered, on application of a creditor who has failed to
file his claim within the time previously limited the court may, for cause shown and on such terms
as are equitable, allow such claim to be flied within a time not exceeding one (1) month.

In the instant case, petitioners filed the Motion for Allowance of Claim and for an Order of
Payment of Taxes before an order of the distribution is entered. The same should have been

granted by the respondent court, in the absence of any valid ground especially considering that it
a claim for taxes which in effect represents a claim of the people at large.
Principle
The assessment, collection and recovery of taxes, as well as the matter of prescription thereof are governed
by the provisions of the National Internal revenue Code, particularly Sections 331 and 332 thereof, and not
by other provisions of law. Payment of income tax shall be a lien in favor of the Government of the
Philippines from the time the assessment was made by the Commissioner of Internal Revenue until paid. By
virtue of such lien, the property of the estate already in the hands of an heir or transferee may be subject to
the payment of the tax due the estate. The reason for the more liberal treatment of claims for taxes against a
decedent's estate in the form of exception from the application of the statute of non-claims, is not hard to
find. Taxes are the lifeblood of the Government and their prompt and certain availability are imperious need.

PABLO LORENZO, as trustee of the estate of Thomas Hanley, deceased,

plaintiff-appellant,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.
Pablo Lorenzo and Delfin Joven for plaintiff-appellant.
Office of the Solicitor-General Hilado for defendant-appellant.
LAUREL, J.:
On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as trustee of the
estate of Thomas Hanley, deceased, brought this action in the Court of First
Instance of Zamboanga against the defendant, Juan Posadas, Jr., then the
Collector of Internal Revenue, for the refund of the amount of P2,052.74, paid by
the plaintiff as inheritance tax on the estate of the deceased, and for the
collection of interst thereon at the rate of 6 per cent per annum, computed from
September 15, 1932, the date when the aforesaid tax was [paid under protest.
The defendant set up a counterclaim for P1,191.27 alleged to be interest due on
the tax in question and which was not included in the original assessment. From
the decision of the Court of First Instance of Zamboanga dismissing both the
plaintiff's complaint and the defendant's counterclaim, both parties appealed to
this court.
It appears that on May 27, 1922, one Thomas Hanley died in Zamboanga,
Zamboanga, leaving a will (Exhibit 5) and considerable amount of real and
personal properties. On june 14, 1922, proceedings for the probate of his will and
the settlement and distribution of his estate were begun in the Court of First
Instance of Zamboanga. The will was admitted to probate. Said will provides,
among other things, as follows:
4. I direct that any money left by me be given to my nephew Matthew Hanley.
5. I direct that all real estate owned by me at the time of my death be not sold or
otherwise disposed of for a period of ten (10) years after my death, and that the
same be handled and managed by the executors, and proceeds thereof to be
given to my nephew, Matthew Hanley, at Castlemore, Ballaghaderine, County of
Rosecommon, Ireland, and that he be directed that the same be used only for the
education of my brother's children and their descendants.

6. I direct that ten (10) years after my death my property be given to the above
mentioned Matthew Hanley to be disposed of in the way he thinks most
advantageous.
xxx

xxx

xxx

8. I state at this time I have one brother living, named Malachi Hanley, and that
my nephew, Matthew Hanley, is a son of my said brother, Malachi Hanley.
The Court of First Instance of Zamboanga considered it proper for the best
interests of ther estate to appoint a trustee to administer the real properties
which, under the will, were to pass to Matthew Hanley ten years after the two
executors named in the will, was, on March 8, 1924, appointed trustee. Moore
took his oath of office and gave bond on March 10, 1924. He acted as trustee
until February 29, 1932, when he resigned and the plaintiff herein was appointed
in his stead.
During the incumbency of the plaintiff as trustee, the defendant Collector of
Internal Revenue, alleging that the estate left by the deceased at the time of his
death consisted of realty valued at P27,920 and personalty valued at P1,465,
and allowing a deduction of P480.81, assessed against the estate an inheritance
tax in the amount of P1,434.24 which, together with the penalties for deliquency
in payment consisting of a 1 per cent monthly interest from July 1, 1931 to the
date of payment and a surcharge of 25 per cent on the tax, amounted to
P2,052.74. On March 15, 1932, the defendant filed a motion in the testamentary
proceedings pending before the Court of First Instance of Zamboanga (Special
proceedings No. 302) praying that the trustee, plaintiff herein, be ordered to pay
to the Government the said sum of P2,052.74. The motion was granted. On
September 15, 1932, the plaintiff paid said amount under protest, notifying the
defendant at the same time that unless the amount was promptly refunded suit
would be brought for its recovery. The defendant overruled the plaintiff's protest
and refused to refund the said amount hausted, plaintiff went to court with the
result herein above indicated.
In his appeal, plaintiff contends that the lower court erred:
I. In holding that the real property of Thomas Hanley, deceased, passed to his
instituted heir, Matthew Hanley, from the moment of the death of the former, and
that from the time, the latter became the owner thereof.
II. In holding, in effect, that there was deliquency in the payment of inheritance
tax due on the estate of said deceased.
III. In holding that the inheritance tax in question be based upon the value of the
estate upon the death of the testator, and not, as it should have been held, upon
the value thereof at the expiration of the period of ten years after which,

according to the testator's will, the property could be and was to be delivered to
the instituted heir.
IV. In not allowing as lawful deductions, in the determination of the net amount of
the estate subject to said tax, the amounts allowed by the court as compensation
to the "trustees" and paid to them from the decedent's estate.
V. In not rendering judgment in favor of the plaintiff and in denying his motion for
new trial.
The defendant-appellant contradicts the theories of the plaintiff and assigns the
following error besides:
The lower court erred in not ordering the plaintiff to pay to the defendant the sum
of P1,191.27, representing part of the interest at the rate of 1 per cent per month
from April 10, 1924, to June 30, 1931, which the plaintiff had failed to pay on the
inheritance tax assessed by the defendant against the estate of Thomas Hanley.
The following are the principal questions to be decided by this court in this
appeal: (a) When does the inheritance tax accrue and when must it be satisfied?
(b) Should the inheritance tax be computed on the basis of the value of the
estate at the time of the testator's death, or on its value ten years later? (c) In
determining the net value of the estate subject to tax, is it proper to deduct the
compensation due to trustees? (d) What law governs the case at bar? Should the
provisions of Act No. 3606 favorable to the tax-payer be given retroactive effect?
(e) Has there been deliquency in the payment of the inheritance tax? If so,
should the additional interest claimed by the defendant in his appeal be paid by
the estate? Other points of incidental importance, raised by the parties in their
briefs, will be touched upon in the course of this opinion.
(a) The accrual of the inheritance tax is distinct from the obligation to pay the
same. Section 1536 as amended, of the Administrative Code, imposes the tax
upon "every transmission by virtue of inheritance, devise, bequest, gift mortis
causa, or advance in anticipation of inheritance,devise, or bequest." The tax
therefore is upon transmission or the transfer or devolution of property of a
decedent, made effective by his death. (61 C. J., p. 1592.) It is in reality an
excise or privilege tax imposed on the right to succeed to, receive, or take
property by or under a will or the intestacy law, or deed, grant, or gift to become
operative at or after death. Acording to article 657 of the Civil Code, "the rights to
the succession of a person are transmitted from the moment of his death." "In
other words", said Arellano, C. J., ". . . the heirs succeed immediately to all of the
property of the deceased ancestor. The property belongs to the heirs at the
moment of the death of the ancestor as completely as if the ancestor had
executed and delivered to them a deed for the same before his death." (Bondad
vs. Bondad, 34 Phil., 232. See also, Mijares vs. Nery, 3 Phil., 195; Suilong &
Co., vs. Chio-Taysan, 12 Phil., 13; Lubrico vs. Arbado, 12 Phil., 391; Innocencio

vs. Gat-Pandan, 14 Phil., 491; Aliasas vs.Alcantara, 16 Phil., 489; Ilustre vs.
Alaras Frondosa, 17 Phil., 321; Malahacan vs. Ignacio, 19 Phil., 434; Bowa vs.
Briones, 38 Phil., 27; Osario vs. Osario & Yuchausti Steamship Co., 41 Phil.,
531; Fule vs. Fule, 46 Phil., 317; Dais vs. Court of First Instance of Capiz, 51
Phil., 396; Baun vs. Heirs of Baun, 53 Phil., 654.) Plaintiff, however, asserts that
while article 657 of the Civil Code is applicable to testate as well as intestate
succession, it operates only in so far as forced heirs are concerned. But the
language of article 657 of the Civil Code is broad and makes no distinction
between different classes of heirs. That article does not speak of forced heirs; it
does not even use the word "heir". It speaks of the rights of succession and the
transmission thereof from the moment of death. The provision of section 625 of
the Code of Civil Procedure regarding the authentication and probate of a will as
a necessary condition to effect transmission of property does not affect the
general rule laid down in article 657 of the Civil Code. The authentication of a will
implies its due execution but once probated and allowed the transmission is
effective as of the death of the testator in accordance with article 657 of the Civil
Code. Whatever may be the time when actual transmission of the inheritance
takes place, succession takes place in any event at the moment of the
decedent's death. The time when the heirs legally succeed to the inheritance
may differ from the time when the heirs actually receive such inheritance. "Poco
importa", says Manresa commenting on article 657 of the Civil Code, "que
desde el falleimiento del causante, hasta que el heredero o legatario
entre en posesion de los bienes de la herencia o del legado, transcurra
mucho o poco tiempo, pues la adquisicion ha de retrotraerse al
momento de la muerte, y asi lo ordena el articulo 989, que debe
considerarse como complemento del presente." (5 Manresa, 305; see also,
art. 440, par. 1, Civil Code.) Thomas Hanley having died on May 27, 1922, the
inheritance tax accrued as of the date.
From the fact, however, that Thomas Hanley died on May 27, 1922, it does not
follow that the obligation to pay the tax arose as of the date. The time for the
payment on inheritance tax is clearly fixed by section 1544 of the Revised
Administrative Code as amended by Act No. 3031, in relation to section 1543 of
the same Code. The two sections follow:
SEC. 1543. Exemption of certain acquisitions and transmissions. The
following shall not be taxed:
(a) The merger of the usufruct in the owner of the naked title.
(b) The transmission or delivery of the inheritance or legacy by the fiduciary heir
or legatee to the trustees.
(c) The transmission from the first heir, legatee, or donee in favor of another
beneficiary, in accordance with the desire of the predecessor.

In the last two cases, if the scale of taxation appropriate to the new beneficiary is
greater than that paid by the first, the former must pay the difference.
SEC. 1544. When tax to be paid. The tax fixed in this article shall be paid:
(a) In the second and third cases of the next preceding section, before entrance
into possession of the property.
(b) In other cases, within the six months subsequent to the death of the
predecessor; but if judicial testamentary or intestate proceedings shall be
instituted prior to the expiration of said period, the payment shall be made by the
executor or administrator before delivering to each beneficiary his share.
If the tax is not paid within the time hereinbefore prescribed, interest at the rate of
twelve per centum per annum shall be added as part of the tax; and to the tax
and interest due and unpaid within ten days after the date of notice and demand
thereof by the collector, there shall be further added a surcharge of twenty-five
per centum.
A certified of all letters testamentary or of admisitration shall be furnished the
Collector of Internal Revenue by the Clerk of Court within thirty days after their
issuance.
It should be observed in passing that the word "trustee", appearing in subsection
(b) of section 1543, should read "fideicommissary" or "cestui que trust". There
was an obvious mistake in translation from the Spanish to the English version.
The instant case does fall under subsection (a), but under subsection (b), of
section 1544 above-quoted, as there is here no fiduciary heirs, first heirs, legatee
or donee. Under the subsection, the tax should have been paid before the
delivery of the properties in question to P. J. M. Moore as trustee on March 10,
1924.
(b) The plaintiff contends that the estate of Thomas Hanley, in so far as the real
properties are concerned, did not and could not legally pass to the instituted heir,
Matthew Hanley, until after the expiration of ten years from the death of the
testator on May 27, 1922 and, that the inheritance tax should be based on the
value of the estate in 1932, or ten years after the testator's death. The plaintiff
introduced evidence tending to show that in 1932 the real properties in question
had a reasonable value of only P5,787. This amount added to the value of the
personal property left by the deceased, which the plaintiff admits is P1,465,
would generate an inheritance tax which, excluding deductions, interest and
surcharge, would amount only to about P169.52.
If death is the generating source from which the power of the estate to impose
inheritance taxes takes its being and if, upon the death of the decedent,

succession takes place and the right of the estate to tax vests instantly, the tax
should be measured by the vlaue of the estate as it stood at the time of the
decedent's death, regardless of any subsequent contingency value of any
subsequent increase or decrease in value. (61 C. J., pp. 1692, 1693; 26 R. C. L.,
p. 232; Blakemore and Bancroft, Inheritance Taxes, p. 137. See also Knowlton
vs. Moore, 178 U.S., 41; 20 Sup. Ct. Rep., 747; 44 Law. ed., 969.) "The right of
the state to an inheritance tax accrues at the moment of death, and hence is
ordinarily measured as to any beneficiary by the value at that time of such
property as passes to him. Subsequent appreciation or depriciation is
immaterial." (Ross, Inheritance Taxation, p. 72.)
Our attention is directed to the statement of the rule in Cyclopedia of Law of and
Procedure (vol. 37, pp. 1574, 1575) that, in the case of contingent remainders,
taxation is postponed until the estate vests in possession or the contingency is
settled. This rule was formerly followed in New York and has been adopted in
Illinois, Minnesota, Massachusetts, Ohio, Pennsylvania and Wisconsin. This rule,
horever, is by no means entirely satisfactory either to the estate or to those
interested in the property (26 R. C. L., p. 231.). Realizing, perhaps, the defects of
its anterior system, we find upon examination of cases and authorities that New
York has varied and now requires the immediate appraisal of the postponed
estate at its clear market value and the payment forthwith of the tax on its out of
the corpus of the estate transferred. (In re Vanderbilt, 172 N. Y., 69; 69 N. E.,
782; In re Huber, 86 N. Y. App. Div., 458; 83 N. Y. Supp., 769; Estate of Tracy,
179 N. Y., 501; 72 N. Y., 519; Estate of Brez, 172 N. Y., 609; 64 N. E., 958; Estate
of Post, 85 App. Div., 611; 82 N. Y. Supp., 1079. Vide also, Saltoun vs. Lord
Advocate, 1 Peter. Sc. App., 970; 3 Macq. H. L., 659; 23 Eng. Rul. Cas., 888.)
California adheres to this new rule (Stats. 1905, sec. 5, p. 343).
But whatever may be the rule in other jurisdictions, we hold that a transmission
by inheritance is taxable at the time of the predecessor's death, notwithstanding
the postponement of the actual possession or enjoyment of the estate by the
beneficiary, and the tax measured by the value of the property transmitted at that
time regardless of its appreciation or depreciation.
(c) Certain items are required by law to be deducted from the appraised gross in
arriving at the net value of the estate on which the inheritance tax is to be
computed (sec. 1539, Revised Administrative Code). In the case at bar, the
defendant and the trial court allowed a deduction of only P480.81. This sum
represents the expenses and disbursements of the executors until March 10,
1924, among which were their fees and the proven debts of the deceased. The
plaintiff contends that the compensation and fees of the trustees, which
aggregate P1,187.28 (Exhibits C, AA, EE, PP, HH, JJ, LL, NN, OO), should also
be deducted under section 1539 of the Revised Administrative Code which
provides, in part, as follows: "In order to determine the net sum which must bear
the tax, when an inheritance is concerned, there shall be deducted, in case of a

resident, . . . the judicial expenses of the testamentary or intestate

proceedings, . . . ."
A trustee, no doubt, is entitled to receive a fair compensation for his services
(Barney vs. Saunders, 16 How., 535; 14 Law. ed., 1047). But from this it does not
follow that the compensation due him may lawfully be deducted in arriving at the
net value of the estate subject to tax. There is no statute in the Philippines which
requires trustees' commissions to be deducted in determining the net value of the
estate subject to inheritance tax (61 C. J., p. 1705). Furthermore, though a
testamentary trust has been created, it does not appear that the testator intended
that the duties of his executors and trustees should be separated. (Ibid.; In re
Vanneck's Estate, 161 N. Y. Supp., 893; 175 App. Div., 363; In re Collard's
Estate, 161 N. Y. Supp., 455.) On the contrary, in paragraph 5 of his will, the
testator expressed the desire that his real estate be handled and managed by his
executors until the expiration of the period of ten years therein provided. Judicial
expenses are expenses of administration (61 C. J., p. 1705) but, in State vs.
Hennepin County Probate Court (112 N. W., 878; 101 Minn., 485), it was said: ". .
. The compensation of a trustee, earned, not in the administration of the estate,
but in the management thereof for the benefit of the legatees or devises, does
not come properly within the class or reason for exempting administration
expenses. . . . Service rendered in that behalf have no reference to closing the
estate for the purpose of a distribution thereof to those entitled to it, and are not
required or essential to the perfection of the rights of the heirs or legatees. . . .
Trusts . . . of the character of that here before the court, are created for the the
benefit of those to whom the property ultimately passes, are of voluntary
creation, and intended for the preservation of the estate. No sound reason is
given to support the contention that such expenses should be taken into
consideration in fixing the value of the estate for the purpose of this tax."
(d) The defendant levied and assessed the inheritance tax due from the estate of
Thomas Hanley under the provisions of section 1544 of the Revised
Administrative Code, as amended by section 3 of Act No. 3606. But Act No. 3606
went into effect on January 1, 1930. It, therefore, was not the law in force when
the testator died on May 27, 1922. The law at the time was section 1544 abovementioned, as amended by Act No. 3031, which took effect on March 9, 1922.
It is well-settled that inheritance taxation is governed by the statute in force at the
time of the death of the decedent (26 R. C. L., p. 206; 4 Cooley on Taxation, 4th
ed., p. 3461). The taxpayer can not foresee and ought not to be required to
guess the outcome of pending measures. Of course, a tax statute may be made
retroactive in its operation. Liability for taxes under retroactive legislation has
been "one of the incidents of social life." (Seattle vs. Kelleher, 195 U. S., 360; 49
Law. ed., 232 Sup. Ct. Rep., 44.) But legislative intent that a tax statute should
operate retroactively should be perfectly clear. (Scwab vs. Doyle, 42 Sup. Ct.
Rep., 491; Smietanka vs. First Trust & Savings Bank, 257 U. S., 602; Stockdale
vs. Insurance Co., 20 Wall., 323; Lunch vs. Turrish, 247 U. S., 221.) "A statute

should be considered as prospective in its operation, whether it enacts, amends,

or repeals an inheritance tax, unless the language of the statute clearly demands
or expresses that it shall have a retroactive effect, . . . ." (61 C. J., P. 1602.)
Though the last paragraph of section 5 of Regulations No. 65 of the Department
of Finance makes section 3 of Act No. 3606, amending section 1544 of the
Revised Administrative Code, applicable to all estates the inheritance taxes due
from which have not been paid, Act No. 3606 itself contains no provisions
indicating legislative intent to give it retroactive effect. No such effect can begiven
the statute by this court.
The defendant Collector of Internal Revenue maintains, however, that certain
provisions of Act No. 3606 are more favorable to the taxpayer than those of Act
No. 3031, that said provisions are penal in nature and, therefore, should operate
retroactively in conformity with the provisions of article 22 of the Revised Penal
Code. This is the reason why he applied Act No. 3606 instead of Act No. 3031.
Indeed, under Act No. 3606, (1) the surcharge of 25 per cent is based on the tax
only, instead of on both the tax and the interest, as provided for in Act No. 3031,
and (2) the taxpayer is allowed twenty days from notice and demand by rthe
Collector of Internal Revenue within which to pay the tax, instead of ten days only
as required by the old law.
Properly speaking, a statute is penal when it imposes punishment for an offense
committed against the state which, under the Constitution, the Executive has the
power to pardon. In common use, however, this sense has been enlarged to
include within the term "penal statutes" all status which command or prohibit
certain acts, and establish penalties for their violation, and even those which,
without expressly prohibiting certain acts, impose a penalty upon their
commission (59 C. J., p. 1110). Revenue laws, generally, which impose taxes
collected by the means ordinarily resorted to for the collection of taxes are not
classed as penal laws, although there are authorities to the contrary. (See
Sutherland, Statutory Construction, 361; Twine Co. vs. Worthington, 141 U. S.,
468; 12 Sup. Ct., 55; Rice vs. U. S., 4 C. C. A., 104; 53 Fed., 910; Com. vs.
Standard Oil Co., 101 Pa. St., 150; State vs. Wheeler, 44 P., 430; 25 Nev. 143.)
Article 22 of the Revised Penal Code is not applicable to the case at bar, and in
the absence of clear legislative intent, we cannot give Act No. 3606 a retroactive
effect.
(e) The plaintiff correctly states that the liability to pay a tax may arise at a certain
time and the tax may be paid within another given time. As stated by this court,
"the mere failure to pay one's tax does not render one delinqent until and unless
the entire period has eplased within which the taxpayer is authorized by law to
make such payment without being subjected to the payment of penalties for
fasilure to pay his taxes within the prescribed period." (U. S. vs. Labadan, 26
Phil., 239.)

The defendant maintains that it was the duty of the executor to pay the
inheritance tax before the delivery of the decedent's property to the trustee.
Stated otherwise, the defendant contends that delivery to the trustee was
delivery to the cestui que trust, the beneficiery in this case, within the meaning of
the first paragraph of subsection (b) of section 1544 of the Revised
Administrative Code. This contention is well taken and is sustained. The
appointment of P. J. M. Moore as trustee was made by the trial court in
conformity with the wishes of the testator as expressed in his will. It is true that
the word "trust" is not mentioned or used in the will but the intention to create one
is clear. No particular or technical words are required to create a testamentary
trust (69 C. J., p. 711). The words "trust" and "trustee", though apt for the
purpose, are not necessary. In fact, the use of these two words is not conclusive
on the question that a trust is created (69 C. J., p. 714). "To create a trust by will
the testator must indicate in the will his intention so to do by using language
sufficient to separate the legal from the equitable estate, and with sufficient
certainty designate the beneficiaries, their interest in the ttrust, the purpose or
object of the trust, and the property or subject matter thereof. Stated otherwise,
to constitute a valid testamentary trust there must be a concurrence of three
circumstances: (1) Sufficient words to raise a trust; (2) a definite subject; (3) a
certain or ascertain object; statutes in some jurisdictions expressly or in effect so
providing." (69 C. J., pp. 705,706.) There is no doubt that the testator intended to
create a trust. He ordered in his will that certain of his properties be kept together
undisposed during a fixed period, for a stated purpose. The probate court
certainly exercised sound judgment in appointment a trustee to carry into effect
the provisions of the will (see sec. 582, Code of Civil Procedure).
P. J. M. Moore became trustee on March 10, 1924. On that date trust estate
vested in him (sec. 582 in relation to sec. 590, Code of Civil Procedure). The
mere fact that the estate of the deceased was placed in trust did not remove it
from the operation of our inheritance tax laws or exempt it from the payment of
the inheritance tax. The corresponding inheritance tax should have been paid on
or before March 10, 1924, to escape the penalties of the laws. This is so for the
reason already stated that the delivery of the estate to the trustee was in esse
delivery of the same estate to the cestui que trust, the beneficiary in this case. A
trustee is but an instrument or agent for the cestui que trust (Shelton vs. King,
299 U. S., 90; 33 Sup. Ct. Rep., 689; 57 Law. ed., 1086). When Moore accepted
the trust and took possesson of the trust estate he thereby admitted that the
estate belonged not to him but to his cestui que trust (Tolentino vs. Vitug, 39
Phil.,126, cited in 65 C. J., p. 692, n. 63). He did not acquire any beneficial
interest in the estate. He took such legal estate only as the proper execution of
the trust required (65 C. J., p. 528) and, his estate ceased upon the fulfillment of
the testator's wishes. The estate then vested absolutely in the beneficiary (65 C.
J., p. 542).
The highest considerations of public policy also justify the conclusion we have
reached. Were we to hold that the payment of the tax could be postponed or

delayed by the creation of a trust of the type at hand, the result would be plainly
disastrous. Testators may provide, as Thomas Hanley has provided, that their
estates be not delivered to their beneficiaries until after the lapse of a certain
period of time. In the case at bar, the period is ten years. In other cases, the trust
may last for fifty years, or for a longer period which does not offend the rule
against petuities. The collection of the tax would then be left to the will of a
private individual. The mere suggestion of this result is a sufficient warning
against the accpetance of the essential to the very exeistence of government.
(Dobbins vs. Erie Country, 16 Pet., 435; 10 Law. ed., 1022; Kirkland vs.
Hotchkiss, 100 U. S., 491; 25 Law. ed., 558; Lane County vs. Oregon, 7 Wall.,
71; 19 Law. ed., 101; Union Refrigerator Transit Co. vs. Kentucky, 199 U. S., 194;
26 Sup. Ct. Rep., 36; 50 Law. ed., 150; Charles River Bridge vs. Warren Bridge,
11 Pet., 420; 9 Law. ed., 773.) The obligation to pay taxes rests not upon the
privileges enjoyed by, or the protection afforded to, a citizen by the government
but upon the necessity of money for the support of the state (Dobbins vs. Erie
Country, supra). For this reason, no one is allowed to object to or resist the
payment of taxes solely because no personal benefit to him can be pointed out.
(Thomas vs. Gay, 169 U. S., 264; 18 Sup. Ct. Rep., 340; 43 Law. ed., 740.) While
courts will not enlarge, by construction, the government's power of taxation
(Bromley vs. McCaughn, 280 U. S., 124; 74 Law. ed., 226; 50 Sup. Ct. Rep., 46)
they also will not place upon tax laws so loose a construction as to permit
evasions on merely fanciful and insubstantial distictions. (U. S. vs. Watts, 1
Bond., 580; Fed. Cas. No. 16,653; U. S. vs. Wigglesirth, 2 Story, 369; Fed. Cas.
No. 16,690, followed in Froelich & Kuttner vs. Collector of Customs, 18 Phil., 461,
481; Castle Bros., Wolf & Sons vs. McCoy, 21 Phil., 300; Muoz & Co. vs. Hord,
12 Phil., 624; Hongkong & Shanghai Banking Corporation vs. Rafferty, 39 Phil.,
145; Luzon Stevedoring Co. vs. Trinidad, 43 Phil., 803.) When proper, a tax
statute should be construed to avoid the possibilities of tax evasion. Construed
this way, the statute, without resulting in injustice to the taxpayer, becomes fair to
the government.
That taxes must be collected promptly is a policy deeply intrenched in our tax
system. Thus, no court is allowed to grant injunction to restrain the collection of
any internal revenue tax ( sec. 1578, Revised Administrative Code; Sarasola vs.
Trinidad, 40 Phil., 252). In the case of Lim Co Chui vs. Posadas (47 Phil., 461),
this court had occassion to demonstrate trenchment adherence to this policy of
the law. It held that "the fact that on account of riots directed against the Chinese
on October 18, 19, and 20, 1924, they were prevented from praying their internal
revenue taxes on time and by mutual agreement closed their homes and stores
and remained therein, does not authorize the Collector of Internal Revenue to
extend the time prescribed for the payment of the taxes or to accept them without
the additional penalty of twenty five per cent." (Syllabus, No. 3.)
". . . It is of the utmost importance," said the Supreme Court of the United States,
". . . that the modes adopted to enforce the taxes levied should be interfered with
as little as possible. Any delay in the proceedings of the officers, upon whom the

duty is developed of collecting the taxes, may derange the operations of

government, and thereby, cause serious detriment to the public." (Dows vs.
Chicago, 11 Wall., 108; 20 Law. ed., 65, 66; Churchill and Tait vs. Rafferty, 32
Phil., 580.)
It results that the estate which plaintiff represents has been delinquent in the
payment of inheritance tax and, therefore, liable for the payment of interest and
surcharge provided by law in such cases.
The delinquency in payment occurred on March 10, 1924, the date when Moore
became trustee. The interest due should be computed from that date and it is
error on the part of the defendant to compute it one month later. The provisions
cases is mandatory (see and cf. Lim Co Chui vs. Posadas, supra), and neither
the Collector of Internal Revenuen or this court may remit or decrease such
interest, no matter how heavily it may burden the taxpayer.
To the tax and interest due and unpaid within ten days after the date of notice
and demand thereof by the Collector of Internal Revenue, a surcharge of twentyfive per centum should be added (sec. 1544, subsec. (b), par. 2, Revised
Administrative Code). Demand was made by the Deputy Collector of Internal
Revenue upon Moore in a communiction dated October 16, 1931 (Exhibit 29).
The date fixed for the payment of the tax and interest was November 30, 1931.
November 30 being an official holiday, the tenth day fell on December 1, 1931.
As the tax and interest due were not paid on that date, the estate became liable
for the payment of the surcharge.
In view of the foregoing, it becomes unnecessary for us to discuss the fifth error
assigned by the plaintiff in his brief.
We shall now compute the tax, together with the interest and surcharge due from
the estate of Thomas Hanley inaccordance with the conclusions we have
reached.
At the time of his death, the deceased left real properties valued at P27,920 and
personal properties worth P1,465, or a total of P29,385. Deducting from this
amount the sum of P480.81, representing allowable deductions under secftion
1539 of the Revised Administrative Code, we have P28,904.19 as the net value
of the estate subject to inheritance tax.
The primary tax, according to section 1536, subsection (c), of the Revised
Administrative Code, should be imposed at the rate of one per centum upon the
first ten thousand pesos and two per centum upon the amount by which the
share exceed thirty thousand pesos, plus an additional two hundred per centum.
One per centum of ten thousand pesos is P100. Two per centum of P18,904.19
is P378.08. Adding to these two sums an additional two hundred per centum, or

P965.16, we have as primary tax, correctly computed by the defendant, the sum
of P1,434.24.
To the primary tax thus computed should be added the sums collectible under
section 1544 of the Revised Administrative Code. First should be added
P1,465.31 which stands for interest at the rate of twelve per centum per annum
from March 10, 1924, the date of delinquency, to September 15, 1932, the date
of payment under protest, a period covering 8 years, 6 months and 5 days. To
the tax and interest thus computed should be added the sum of P724.88,
representing a surhcarge of 25 per cent on both the tax and interest, and also
P10, the compromise sum fixed by the defendant (Exh. 29), giving a grand total
of P3,634.43.
As the plaintiff has already paid the sum of P2,052.74, only the sums of
P1,581.69 is legally due from the estate. This last sum is P390.42 more than the
amount demanded by the defendant in his counterclaim. But, as we cannot give
the defendant more than what he claims, we must hold that the plaintiff is liable
only in the sum of P1,191.27 the amount stated in the counterclaim.
The judgment of the lower court is accordingly modified, with costs against the
plaintiff in both instances. So ordered.

LAST CASE KULANG