 Lorenzo v. Posadas, G.R. No.

L-43082 (64 Statt filed an amended estate and inheritance tax

PHIL 353) June 18, 1937 return claiming additional exemptions, one of which is
the estate and inheritance tax on the Mines’ shares of
Facts: Herein petitioner Lorenzo, in his capacity as stock pursuant to a reciprocity proviso in the NIRC,
trustee of the estate of a certain Thomas Hanley, hence, warranting a refund from what he initially paid.
deceased, brought an action against respondent The collector denied the claim. He then filed in the CFI
Posadas, Collector of Internal Revenue. Petitioner of Manila for the said amount.
alleges the respondent to have exceeded in its tax
collection, which, as assessed by the former, should CFI ruled that (a) the ½ share of Beatrice should be
only be in the amount of PhP1,434.24 instead of deducted from the net estate of Walter, (b) the
PhP2,052.74. Disregarding the allegation, respondent intangible personal property belonging to the estate of
filed a motion in the CFI of Zamboanga praying that Walter is exempt from inheritance tax pursuant to the
the trustee be made to pay such tax. The motion was reciprocity proviso in NIRC.
granted. Petitioner paid the amount in protest, however
notified the respondent that until a refund is prompted, ISSUE: WON the estate can avail itself of the
suit would be bought for its recovery. Respondent reciprocity proviso in the NIRC granting exemption
overruled the protest. Hence, the case at bar. from the payment of taxes for the Mines shares of
stock.
Issue/s
HELD:
1. Whether or not the provisions of Act No. 3606 (Tax
Law) which is favorable to the taxpayer be given No. Reciprocity must be total, that is, with respect to
retroactive effect? transfer or death taxes of any and every character, in
the case of the Philippine law, and to legacy,
Held and Reasoning: No. The respondent levied and succession, or death tax if any and every character, in
assessed the inheritance tax collected from the the case of the California law.
petitioner under the provisions of section 1544 of the
Revised Administrative Code as amended by Act No. If any of the two states collects or imposes or does not
3606. However, the latter only enacted in 1930 – not exempt any transfer, death, legacy or succession tax
the law in force when the testator died in 1922. Laws of any character, the reciprocity does not work. In the
cannot be applied retroactively. The Court states that it Philippines, upon the death of any citizen or resident,
is a well-settled principle that inheritance taxation is or non-resident with properties, there are imposed
governed by the statue in force at the time of the death upon his estate, both an estate and an inheritance tax.
of the decendent. The Court also emphasized that “a But, under the laws of California, only inheritance tax is
statute should be considered as prospective in its imposed. Also, although the Federal Internal Revenue
operation, unless the language of the statute clearly Code imposes an estate tax, it does not grant
demands or expresses that it shall have retroactive exemption on the basis of reciprocity.
effect…” Act No. 3606 does not contain any provisions Thus, a Filipino citizen shall always be at a
indicating a legislative intent to give it a retroactive disadvantage. This is not what the legislators
effect. Therefore, the provisions of Act No. 3606 intended.*Reference:
cannot be applied to the case at bar.
Section122 of the NIRC provides that
 CIR v. Fisher, 110 Phil 686, January 28,
1961 “No tax shall be collected under this Title in respect of
intangible personal property
FACTS:
(a) if the decedent at the time of his death was a
Walter G. Stevenson was born in the Philippines of resident of a foreign country which at the time of his
British parents, married in Manila to another British death did not impose a transfer of tax or death tax of
subject, Beatrice. He died in 1951 in California where any character in respect of intangible personal property
he and his wife moved to. of citizens of the Philippines not residing in that foreign
In his will, he instituted Beatrice as his sole heiress to country, or
certain real and personal properties, among which are (b) if the laws of the foreign country of which the
210,000 shares of stocks in Mindanao Mother Lode decedent was a resident at the time of his death allow
Mines (Mines). a similar exemption from transfer taxes or death taxes
Ian Murray Statt (Statt), the appointed ancillary of every character in respect of intangible personal
administrator of his estate filed an estate and property owned by citizens of the Philippines not
inheritance tax return. He made a preliminary residing in that foreign country "On the other hand,
return to secure the waiver of the CIR on the Section 13851 of the California Inheritance Tax Law
inheritance of the Mines shares of stock. provides that intangible personal property is exempt
from tax if the decedent at the time of his death
In 1952, Beatrice assigned all her rights and interests was a resident of a territory or another State of
in the estate to the spouses Fisher. the United States or of a foreign state or country
which then imposed a legacy, succession, or death Subsequently, she made another donation inter
tax in respect to intangible personal property of its own vivos to Alfonso Tuason, the other plaintiff.
residents, but either:
2. When she died, her judicial administratrix paid the
(a) Did not impose a legacy, succession, or death inheritance tax on these two bequests.
tax of any character in respect to intangible Furthermore, the defendant, Collector of Internal
personal property of residents of this State, or Revenue (CIR), collected sums from the plaintiffs
against their opposition and over their protest
(b) Had in its laws a reciprocal provision under which as inheritance tax upon the gifts inter vivos made to
intangible personal property of a non-resident was them.
exempt from legacy, succession, or death taxes of
every character if the Territory or other State of 3. Plaintiffs filed an action against the CIR for the
the United States or foreign state or country in which recovery of the amounts collected from them as
the nonresident resided allowed a similar exemption in inheritance tax. The judgment on appeal ordered
respect to intangible personal property of residents of the defendant to return the amountcollected.
the Territory or State of the United States or foreign The defendant contends that law authorizes
state or country of residence of the decedent." thecollection of these amounts as inheritance tax.

 Zapantavs. Posadas, 52 Phil. 557, December ISSUE: WON the donations should be subjected to
29, 1928 inheritance tax.

FACTS: Father Braulio Pineda instituted his sister HELD: Yes. Judgment appealed from is REVERSED.
Irene Pineda as his sole heiress. During his lifetime, he
donated some of his property to the six plaintiffs in this RATIO:
case with the condition to pay him a certain amount of When the law (sec. 1540, Administrative Code) says
rice, and others of money every year, and with the "all gifts,"it refers to gifts inter vivos and.not mortis
express provision that failure to fulfill this condition causa. Both the letter and the spirit of the law
would revoke the donations ipso facto. These plaintiffs, leave no room for any other construction. Such,
relatives of Fr. Pineda, filed an action against the clearly, is the tenor of the language, which refers to
Collector of Internal Revenue as they were made to donations that took effect before the donor's death,
pay inheritance taxes on the properties donated to and not to mortis causa donations, which can only be
them. They paid under protest and claimed that the made with the formalities of a will, and can only take
donation was inter vivos, thus not subject to effect after the donor's death
inheritance tax.

ISSUE:
 Dison v. Posadas, G.R. No. 36770 November 4,
Whether or not the deeds of donation executed by Fr. 1932
Pineda was inter vivos.
FACTS:
RULING: The Supreme Court ruled in the affirmative.
The court took notice of the fact that the nature of the Plaintiff Luis Dison filed a suit against CIR to recover
deeds of donation executed by Fr. Pineda were subject inheritance tax paid under protest amounting to
to certain conditions which were irrevocable. The fact P2,808.73. Felix Dison, plaintiff's father executed a
that these donations are revocable, give them the deed of gift which transferred 22 tracts of land,
character of donations mortis causa, inasmuch as the reserving to himself during his lifetime the usufruct of 3
revocation is not the failure to fulfill the condition tracts. The donation was formally accepted by
imposed. In relation to the donor's will alone, these plaintiff.The plaintiff (herein petitioner) alleged in his
donations are irrevocable. Furthermore, the donation complaint that the tax is illegal since he received the
was given effect through the acceptance of the donees property by a deed of gift inter vivos duly accepted and
during the lifetime of Fr. Pineda. The death of Fr. registered before the death of his father. He also
Pineda merely fixed the term within which the condition contended that Act 2601 being an inheritance tax
must be fulfilled. Thus, since the deeds of donation statute, does not tax gifts. The defendant
were inter vivos, the propertydonated to the plaintiffs answered in general denial with a
should not be subject to inheritance tax, which is only countermand. The court dismissed the
applied to donations mortis causa. countermand. Both sides appealed, but the CIR appeal
was dismissed.ISSUE:Whether or not the giftsinter
 TUASON and TUASON v. POSADASG.R. No. L- vivosare taxable (inheritance tax)
30885Jan. 23, 1930
RULING:
FACTS:
YES. Inheritance tax is imposed upon the gift inter
1. Esperanza Tuason made a donation inter vivosthat plaintiff received from his father as this was
vivos of certain property to plaintiff Mariano Tuason. really an advancement upon the inheritance to
which he would be entitled upon the death of the
latter. Sec. 1540 of the Administrative Code did not on its transmission.The phrase 'all gifts' as held in
tax gifts per sebut only those which are made to those Tuason v.Posadas refers to gifts inter vivosa s they
who shall prove to be heirs, devisees, legatees and are considered as advances in anticipation of
donees mortis causa of the donor. The term 'heirs' inheritance since they are made in consideration of
include those given the status of heirs irrespective of death.
the quantity of property they may receive as such.
Commissioner of Internal Revenue vs. Court of
 Vidal de Roces v. Posadas, G.R. No. 34937 Appeals and Pajonar (22 March 2000)
March13, 1933
Facts:
FACTS:
Pedro Pajonar, a member of the Philippine Scout,
 Sometime in 1925, plaintiffs Concepcion Vidal Bataan Contingent, during the second World War, was
de Roces and her husband, as well as one a part of the infamous Death March by reason of which
Elvira Richards, received as donation several he suffered shock and became insane.
parcels of land from Esperanza Tuazon. They
His sister Josefina Pajonar became the guardian over
took possession of the lands thereafter and
his person, while his property was placed under the
likewise obtained the respective transfer
guardianship of PNB.
certificates.
 The donor died a year after without leaving He died on January 10, 1988. He was survived by his
any forced heir. In her will, which was two brothers Isidro P. Pajonar and Gregorio Pajonar,
admitted to probate, she bequeathed to each of his sister Josefina Pajonar, nephews Concordio
the donees the sum of P5,000. After the Jandog and Mario Jandog and niece Conchita Jandog.
distribution of the estate but before the delivery
of their shares, the CIR (appellee) ruled that PNB filed an accounting of the decedent's property
plaintiffs as donees and legatees should pay under guardianship valued at P3,037,672.09.
inheritance taxes. The plaintiffs paid the taxes However, the PNB did not file an estate tax return,
under protest. instead it advised Pedro Pajonar's heirs to execute an
 CIR filed a demurrer on ground that the facts extrajudicial settlement and to pay the taxes on his
alleged were not sufficient to constitute a cause of estate.
action. The court sustained the demurrer and Pursuant to the assessment by the BIR, the estate of
ordered the amendment of the complaint but the Pedro Pajonar paid taxes in the amount of P2,557.
appellants failed to do so. Hence, the trial
court dismissed the action on ground that The trial court appointed Josefina as the regular
plaintiffs, herein appellants, did not really have a administratrix of Pedro Pajonar's estate.
right of action.
 Plaintiffs (appellant) contend that Sec. 1540 of Pursuant to a second assessment by the BIR for
the Administrative Code does not include deficiency estate tax, the estate of Pedro Pajonar paid
donation inter vivos and if it does, it is estate tax in the amount of P1,527,790.98.
unconstitutional, null and void for violating SEC. Josefina, in her capacity as administratrix and heir of
3 of the Jones Law (providing that no law Pedro Pajonar's estate, filed a protest with the BIR
shall embrace more than one subject and that praying that the estate tax payment in the amount of
the subject should be expressed in its titles; that P1,527,790.98, or at least some portion of it, be
the Legislature has no authority to tax returned to the heirs.
donationinter vivos; finally, that said provision
violates the rule on uniformity of taxation. However, without waiting for her protest to be resolved
 CIR however contends that the word 'all gifts' by the BIR, Josefina filed a petition for review with the
refer clearly to donation inter vivosand cited the Court of Tax Appeals praying for the refund of
doctrine in Tuason v.Posadas. P1,527,790.98, or in the alternative, P840,202.06, as
erroneously paid estate tax.
ISSUE:
CTA ordered the CIR to refund Josefina the amount of
Whether or not the donations should be subjected to P252,585.59, representing erroneously paid estate tax
inheritance tax for the year 1988.
RULING:

YES. Sec. 1540 of the Administrative Code clearly Among the deductions from the gross estate allowed
refers to those donation inter vivos that take effect by the CTA were the amounts of P60,753 representing
immediately or during the lifetime of the donor, but the notarial fee for the Extrajudicial Settlement and the
made in consideration of the death of the decedent. amount of P50,000 as the attorney's fees in Special
Those donations not made in contemplation of the
decedent's death are not included as it would be Proceedings No. 1254 for guardianship
equivalent to imposing a direct tax on property and not
 of the estate. In this case, the guardianship proceeding
was necessary for the distribution of the property of the
Commissioner of Internal Revenue filed a motion for late Pedro Pajonar to his rightful heirs.
reconsideration of the CTA's decision asserting,
among others, that the notarial fee for the Extrajudicial
Settlement and the attorney's fees in the guardianship
proceedings are not deductible expenses. PNB was appointed as guardian over the assets of the
late Pedro Pajonar, who, even at the time of his death,
was incompetent by reason of insanity. The expenses
incurred in the guardianship proceeding was but a
CTA issued the assailed Resolution ordering the necessary expense in the settlement of the decedent's
Commissioner of Internal Revenue to refund Josefina, estate. Therefore, the attorney's fee incurred in the
as administratrix of the estate of Pedro Pajonar, the guardianship proceedings amounting to P50,000.00 is
amount of P76,502.42 representing erroneously paid a reasonable and necessary business expense
estate tax for the year 1988. deductible from the gross estate of the decedent.
Also, the CTA upheld the validity of the deduction of
the notarial fee for the Extrajudicial Settlement and the
attorney's fees in the guardianship proceedings Attorney's fees are allowable deductions if incurred for
the settlement of the estate. It is noteworthy to point
that PNB was appointed the guardian over the assets
Commissioner of Internal Revenue filed with the Court of the deceased. Necessarily the assets of the
of Appeals a petition for review questioning the validity deceased formed part of his gross estate. Accordingly,
of the abovementioned deductions. all expenses incurred in relation to the estate of the
deceased will be deductible for estate tax purposes
provided these are necessary and ordinary expenses
for administration of the settlement of the estate.
Issue:

whether the notarial fee paid for the extrajudicial

settlement in the amount of P60,753 and the attorney's Although the Tax Code specifies "judicial expenses of
fees in the guardianship proceedings in the amount of the testamentary or intestate proceedings," there is no
P50,000 may be allowed as deductions from the gross reason why expenses incurred in the administration
estate of decedent in order to arrive at the value of the and settlement of an estate in extrajudicial proceedings
net estate. should not be allowed. However, deduction is limited to
such administration expenses as are actually and
necessarily incurred in the collection of the assets of
Ruling: the estate, payment of the debts, and distribution of the
remainder among those entitled thereto
YES

It is clear then that the extrajudicial settlement was for

Respondent maintains that only judicial expenses of the purpose of payment of taxes and the distribution of
the testamentary or intestate proceedings are allowed the estate to the heirs.
as a deduction to the gross estate. The amount of
P60,753.00 is quite extraordinary for a mere notarial The execution of the extrajudicial settlement
fee. necessitated the notarization of the same. Hence the
Contract of Legal Services of March 28, 1988 entered
into between respondent Josefina Pajonar and counsel
was presented in evidence for the purpose of showing
This Court adopts the view under American
that the amount of P60,753.00 was for the notarization
jurisprudence that expenses incurred in the
of the Extrajudicial Settlement. It follows then that the
extrajudicial settlement of the estate should be allowed
notarial fee of P60,753.00 was incurred primarily to
as a deduction from the gross estate. "There is no
settle the estate of the deceased Pedro Pajonar. Said
requirement of formal administration. It is sufficient that
amount should then be considered an administration
the expense be a necessary contribution toward the
expenses actually and necessarily incurred in the
settlement of the case."
collection of the assets of the estate, payment of debts
and distribution of the remainder among those entitled
thereto. Thus, the notarial fee of P60,753 incurred for
Attorney's fees in order to be deductible from the gross the Extrajudicial Settlement should be allowed as a
estate must be essential to the collection of assets, deduction from the gross estate.
payment of debts or the distribution of the property to
the persons entitled to it. The services for which the
fees are charged must relate to the proper settlement
Thus, in Lorenzo v. Posadas the Court construed the ISSUE: W/N they were allowable administration
phrase "judicial expenses of the testamentary or expenses
intestate proceedings" as not including the
compensation paid to a trustee of the decedent's
estate when it appeared that such trustee was Held: Some yes and some no. Affirmed with
appointed for the purpose of managing the decedent's modification.
real estate for the benefit of the testamentary heir.
An executor or administrator is allowed the necessary
expenses in the care, management, and settlement of
Coming to the case at bar, the notarial fee paid for the the estate. He is entitled to possess and manage the
extrajudicial settlement is clearly a deductible expense decedent's real and personal estate as long as it is
since such settlement effected a distribution of Pedro necessary for the payment of the debts and the
Pajonar's estate to his lawful heirs. Similarly, the expenses of administration. He is accountable for the
attorney's fees paid to PNB for acting as the guardian whole decedent's estate which has come into his
of Pedro Pajonar's property during his lifetime should possession, with all the interest, profit, and income
also be considered as a deductible administration thereof, and with the proceeds of so much of such
expense. PNB provided a detailed accounting of estate as is sold by him, at the price at which it was
decedent's property and gave advice as to the proper sold (Sec. 3, Rule 84; Secs. 1 and 7, Rule 85, Rules of
settlement of the latter's estate, acts which contributed Court).
towards the collection of decedent's assets and the One of the Conditions of the administrator's bond is
subsequent settlement of the estate. that he should render a true and just account of his
administration to the court

Testate Estate of the late Felix de Guzman vs. de A hearing is usually held before an administrator's
Guzman-Carillo (18 May 1978 account is approved, especially if an interested Party
raises objections to certain items in the accounting
Laws Applicable: Sec. 3, Rule 84, Secs. 1 and 7, Rule report
85, Rules of Court
ALLOWable Expenses:
Lessons Applicable: allowable administration
expenses  Expense for the improvement and renovation
of the decedent's residential house – allowable

5 out of 8 co-owners consented to the use of the funds

FACTS: of the estate for repair and improvement of the family
home. It is obvious that the expenses in question were
The late Felix J. de Guzman was survived by 8
incurred to preserve the family home and to maintain
children. Letters of administration were issued to his
the family's social standing in the community.
son, Doctor Victorino G. de Guzman.
 Lawyer's subsistence – allowable
One of the properties left by the decedent was a
residential house located in the poblacion of which 8 Gratuity pay in lieu of medical fee – allowable
children were given a 1/8 proindiviso share in the
project of partition. Irrigation fee – allowable since unquestioned though
duplicate.
3 heirs Crispina de Guzmans-Carillo Honorata de
Guzman-Mendiola and Arsenio de Guzman interposed 
objections to the administrator's disbursements in the
Disallowed Expenses:
total sum of P13,610.48.
 Living expenses of Librada de Guzman while
o Expense for the improvement and renovation of the
occupying the family home without paying
decedent's residential house
rent – disallowed
o Living expenses of Librada de Guzman while  stenographic notes – disallowed
occupying the family home without paying rent  decedent's first death anniversary –
disallowed
o Other expenses: Lawyer's subsistence, Gratuity
 representation expenses - unexplained =
pay in lieu of medical fee, stenographic notes,
disallowed
decedent's first death anniversary, representation
expenses

o Irrigation fee Dizon in his capacity as Administrator of deceased

Fernandez vs. CIR (30 April 2008)
Lower court: allowed the expenses
FACTS: general rule in Section 34 of Rule 132 of the Rules of
Court should prevail.
Decedent Jose P. Fernandez's estate was
administered by Arsenio P. Dizon and petitioner Rafael A common fact threads through Vda. de Oate and
Dizon (petitioner) as Special and Assistant Special Ramos that does not exist at all in the instant case. In
Administrator, respectively. Petitioner filed a request the aforementioned cases, the exhibits were marked at
for extension with the BIR to determine and collate the the pre-trial proceedings to warrant the pronouncement
assets and claims of the estate, which the BIR granted. that the same were duly incorporated in the records of
Jesus Gonzales, an agent of Arsenio filed the estate the case. 
tax return with the same BIR Regional Office, showing
therein a NIL estate tax liability. YES. The specific question is whether the actual
claims of the aforementioned creditors may be fully
The BIR then issued Certifications allowing decedent's allowed as deductions from the gross estate of Jose
properties may be transferred to his heirs. despite the fact that the said claims were reduced or
condoned through compromise agreements entered
Petitioner requested the probate court's authority to into by the Estate with its creditors.
sell several properties forming part of the Estate, for
the purpose of paying its creditors. Petitioner The Court agreed with an American ruling relating to
manifested that Manila Bank, a major creditor of the the date-of-death valuation, a tax imposed on the act
Estate was not included, as it did not file a claim with of transferring property by will or intestacy and,
the probate court since it had security over several real because the act on which the tax is levied occurs at a
estate properties forming part of the Estate. However, discrete time, i.e., the instance of death, the net value
the BIR issued an Estate Tax Assessment Notice of the property transferred should be ascertained, as
demanding the payment of P66,973,985.40 as nearly as possible, as of that time, to be followed. Also
deficiency estate tax. Gonzales moved for the the Court, emphasized the definition of claims which
reconsideration but was denied. are debts or demands of a pecuniary nature which
could have been enforced against the deceased in his
The CTA and CA who affirmed, ruled that the evidence lifetime, or liability contracted by the deceased before
introduced by the BIR were admissible. his death. Therefore, the claims existing at the time of
death are significant to, and should be made the basis
ISSUES:  of, the determination of allowable deductions.

Whether or not the CTA and the CA gravely erred in

allowing the admission of the pieces of evidence which Government of the Philippines vs. Pamintuan (11
were not formally offered by the BIR. October 1930);

Whether the CA erred in affirming the CTA in the

latter's determination of the deficiency estate tax This is an appeal taken by the Government of the
imposed against the Estate. Philippine Islands from the judgment of the Court of
First Instance of Manila dismissing its complaint and
RULING:  absolving the defendants, without costs.

YES. The CTA is categorically described as a court of In support of the appeal the following alleged errors
record. As cases filed before it are litigated de novo, have been assigned to the court below in its
party-litigants shall prove every minute aspect of their judgment:jgc:chanrobles.com.ph
cases. As such, those evidence submitted by the BIR
has no evidentiary weight, as the rules on "1. The lower court erred in holding that the failure of
documentary evidence require that these documents the plaintiff to file its claim with the committee on
must be formally offered before the CTA. The Revised claims and appraisals barred it from collecting the tax
Rules on Evidence which reads: in question in this action.

SEC. 34. Offer of evidence. The court shall consider "2. The lower court erred in holding that this case is
no evidence which has not been formally offered. The governed by the principle laid down in the case of the
purpose for which the evidence is offered must be Government of the Philippine Islands v. Inchausti &
specified. Co. (24 Phil., 315).

The CTA and the CA rely solely on the case of Vda. de "3. The lower court erred in absolving the defendants
Oate, which reiterated this Court's previous rulings in from the complaint and in denying the plaintiff’s motion
People v. Napat-a and People v. Mate on the for new trial."cralaw virtua1aw library
admission and consideration of exhibits which were not
formally offered during the trial. The present case was submitted to the court below
upon the following agreed statement of
The Court reiterates that Vda. de Oate is merely an facts:jgc:chanrobles.com.ph
exception to the general rule. Being an exception, it
may be applied only when there is strict compliance "I. That on February 27, 1920, Florentino Pamintuan,
with the requisites mentioned therein; otherwise, the represented by J. V. Ramirez or his attorney-in-fact
charged with the administration of his property, filed
income-tax return for the year 1919, paying the amount
of P672.99 on the basis of said return, and the "XI. That subsequent to the distribution of the
additional sum of P151.01 as a result of a subsequent decedent’s estate to the defendants herein, that is, on
assessment received from the Collector of Internal February 16, 1927, the plaintiff discovered the fact that
Revenue. the deceased Florentino Pamintuan has not paid the
amount of four hundred and sixty-two pesos (P462) as
"II. That on April 13, 1925, Florentino Pamintuan died additional income tax and surcharge for the calendar
in Washington, D.C., U.S.A., leaving the defendants year 1919, on account of the sale made by him on
herein as his heirs. November 14, 1919, of his house and lot located at
922 M. H. del Pilar, Manila, from which sale he realized
"III. That on April 24, 1925, intestate proceedings were a net profit or income of P11,000, which was not
instituted in the Court of First Instance of Manila in civil included in his income-tax return filed for said year
case No. 27948, intestate of the late Florentino 1919.
Pamintuan.
"XII. That the defendants cannot disprove that the
"IV. That on April 28, 1925, the Court of First Instance deceased Florentino Pamintuan made a profit of
of Manila appointed Maximo de la Paz and Candido P11,000 in the sale of the house referred to in
Ilagan commissioners of appraisal of the property left paragraph XI hereof because they have destroyed the
by the deceased Pamintuan, the said appointees voluminous records and evidences regarding the sale
taking their oaths of office on May 4 and May 9, 1925, in question and other similar transactions which might
respectively, and letters of appointment to the show repairs on the house, commission, and other
committee on claims and appraisals were made on expenses tending to reduce the profit obtained as
May 9, 1925. mentioned above.

"V. That the said committee on claims and appraisals "XIII. That demand for the payment of the income tax
after the publications of the notices required by law referred to herein was made on February 24, 1927, on
held the necessary sessions in accordance with said the defendants but they refused and still refuse to pay
notices for the presentation and determination of all the same either in full or in part."cralaw virtua1aw
claims and credits against the estate of the deceased library
Pamintuan.
With regard to the first assignment of error, this court
"VI. That on December 1, 1925, the above-mentioned held in Pineda v. Court of First Instance of Tayabas
committee rendered its report which was duly and Collector of Internal Revenue (52 Phil.,
approved by the court, and in which report it appears 803):jgc:chanrobles.com.ph
that the only claims presented and that were approved
were those of Tomasa Centeno, Jose, Paz, Caridad, "To reply to these contentions in turn, we observe that,
and Natividad Pamintuan and Cavanna, Aboitiz and while there are a few courts that have expressed
Agan. themselves to the effect that a claim for taxes due to
the Government should be presented like other claims
"VII. That on June 12, 1926, Jose V. Ramirez, the duly to the committee appointed for the purpose of passing
appointed judicial administrator of the estate of the upon claims, the clear weight of judicial authority is to
deceased Florentino Pamintuan presented a proposed the effect that claims for taxes and assessments,
partition of the decedent’s estate which proposed whether assessed before or after the death of the
partition was approved by the court on July 6, 1926, decedent, are not required to be presented to the
the court ordering the delivery to the heirs, the committee. (24 C. J., 325; People v. Olvera, 43 Cal.,
defendants herein, of their respective shares of the 492; Hancock v. Whittemore, 50 Cal., 522; Findley v.
inheritance after paying the corresponding inheritance Taylor, 97 Iowa, 420; Bogue v. Laughlin, 149 Wis.,
taxes which were duly paid on September 2, 1926, in 271; 40 L. R. A. [N.S. ], 927; Ann. Cas. 1913 C., p.
the amount of P25,047.19 as appears on the official 1367.)"
receipt No. 4421361.
See also In re Estate of Frank H. Goulette (G. R. No.
"VIII. That the defendants herein inherited from the 32361, 1 decide on September 22, 1930.
deceased Florentino Pamintuan in the following
proportions: Tomasa Pamintuan inherited 0.0571 per The administration proceedings of the late Florentino
cent of the decedent’s estate and the other defendants Pamintuan having been closed, and his estate
0.0784 per cent each according to the partition distributed among his heirs, the defendants herein, the
approved by the court in civil case No. 27948. latter are responsible for the payment of the income
tax here in question in proportion to the share of each
"IX. That during the pendency of the intestate in said estate, in accordance with section 731 of the
proceedings, the administrator filed income-tax returns Code of Civil Procedure, and the doctrine of this court
or the estate of the deceased corresponding to the laid down in Lopez v. Enriquez (16 Phil., 336), as
years 1925 and 1926. follows:jgc:chanrobles.com.ph

"X. That the intestate proceedings in civil case NO. "ESTATE; LIABILITY OF HEIRS AND
27948 were definitely closed on October 27, 1926, by DISTRIBUTEES. — Heirs are not required to respond
order of the court of the same date. with their own property for the debts of their deceased
ancestors. But even after the partition of an estate, share in the inheritance, for unpaid income taxes for
heirs and distributees are liable individually for the which said estate is liable. By virtue of such lien, the
payment of all lawful outstanding claims against the Government has the right to subject the property in
estate in proportion to the amount or value of the Pineda's possession to satisfy the income tax
property they have respectively received from the assessment. After such payment, Pineda will have a
estate. The hereditary property consists only of that right of contribution from his co-heirs, to achieve an
part which remains after the settlement of all lawful
adjustment of the proper share of each heir in the
claims against the estate, for the settlement of which
distributable estate.
the entire estate is first liable. The heirs cannot, by any
act of their own or by agreement among themselves, All told, the Government has two ways of collecting
reduce the creditors’ security for the payment of their the tax in question. One, by going after all the heirs
claims. (Pavia v. De la Rosa, 8 Phil., 70; secs. 731,
and collecting from each one of them the amount of
749, Code of Civil Procedure; art. 1257, Civil Code.)"
the tax proportionate to the inheritance received; and
For the reasons stated, we are of opinion and so hold second, is by subjecting said property of the estate
that claims for income taxes need not be filed with the which is in the hands of an heir or transferee to the
committee on claims and appraisals appointed in the payment of the tax due. This second remedy is the
course of testate proceedings and may be collected very avenue the Government took in this case to
even after the distribution of the decedent’s estate collect the tax. The Bureau of Internal Revenue should
among his heirs, who shall be liable therefor in be given, in instances like the case at bar, the
proportion to their share in the inheritance. necessary discretion to avail itself of the most
expeditious way to collect the tax as may be
Wherefore let the defendants pay the plaintiff the sum envisioned in the particular provision of the Tax Code
of P462, with 1 per centum monthly interest from above quoted, because taxes are the lifeblood of
August 19, 1927 until fully paid, as follows: Tomasa government and their prompt and certain availability is
Centeno 0.0571 per cent, and each of the other
an imperious need.
defendants 0.0784 per cent, with costs against the
appellees. So ordered.
CIR vs Gonzales GR L-19495

Facts:
CIR v. PINEDA
In 1948, Matias Yusay died leaving behind two heirs,
GR No. L-22734, September 15, 1967 namely, Jose Yusay and Lilia Yusay Gonzales. Jose
was appointed as administrator. He filed an estate and
21 SCRA 105 inheritance tax return in 1949. The Bureau of Internal
Revenue (BIR) conducted a tax audit and the BIR
found that there was an under-declaration in the return
filed. In 1953 however, a project of partition between
FACTS: Atanasio Pineda died, survived by his wife, the two heirs was submitted to the BIR. The estate was
Felicisima Bagtas, and 15 children, the eldest of whom to be divided as follows: 1/3 for Gonzales and 2/3 for
is Atty. Manuel Pineda. Estate proceedings were had Jose. The BIR then conducted another investigation in
in Court so that the estate was divided among and July 1957 with the same result – there was a huge
awarded to the heirs. Atty Pineda's share amounted to under-declaration. In February 1958, the
about P2,500.00. After the estate proceedings were Commissioner of Internal Revenue issued a final
closed, the BIR investigated the income tax liability of assessment notice (FAN) against the entire estate. In
the estate for the years 1945, 1946, 1947 and 1948 November 1959, Gonzales questioned the validity of
and it found that the corresponding income tax returns the FAN issued in 1958. She averred that it was issued
were not filed. Thereupon, the representative of the way beyond the prescriptive period of 5 years (under
Collector of Internal Revenue filed said returns for the the old tax code). The return was filed by Jose in 1949
and so the CIR’s right to make an assessment has
estate issued an assessment and charged the full
already prescribed in 1958.
amount to the inheritance due to Atty. Pineda who
argued that he is liable only to extent of his Issue:
proportional share in the inheritance. Whether or not Gonzales is correct

Ruling:
ISSUE: Can BIR collect the full amount of estate taxes No. It was found that Jose filed a return which was so
from an heir's inheritance. defective that the CIR cannot make a correct
computation on the taxes due. When a tax return is so
defective, it is as if there is no return filed, hence, it is
considered that the taxpayer omitted to file a return. As
HELD: Yes. The Government can require Atty. Pineda such, the five year prescriptive period to make an
to pay the full amount of the taxes assessed. assessment (NOTE: Under the National Internal
Revenue Code of 1997, prescriptive period for normal
The reason is that the Government has a lien on the assessment is 3 years) is extended to 10 years. And
P2,500.00 received by him from the estate as his
the counting of the prescriptive period shall run from and that donor’s tax does not apply to sale of shares
the discovery of the omission (or fraud or falsity in sold in an open bidding process.
appropriate cases). In the case at bar, the omission
was deemed to be discovered in the re-investigation On January 4, 2012, however, respondent
conducted in July 1957. Hence, the FAN issued in Commissioner on Internal Revenue (Commissioner)
February 1958 was well within the ten year prescriptive denied Philamlife’s request through BIR Ruling No.
period. Gonzales was adjudged to pay the deficiency
015-12. As determined by the Commissioner, the
tax in the FAN, without prejudice to her right to ask
selling price of the shares thus sold was lower than
reimbursement from Jose’s estate (Jose already died). 
their book value based on the financial statements of
THE PHILIPPINE AMERICAN LIFE AND GENERAL Philam Care as of the end of 2008.
INSURANCE COMPANY, PETITIONER, VS. THE
SECRETARY OF FINANCE AND THE As such,the Commisioner held, donor’s tax became
COMMISSIONER OF INTERNAL REVENUE, imposable on the price difference pursuant to Sec. 100
RESPONDENTS. of the National Internal Revenue Code (NIRC), viz:

SEC. 100. Transfer for Less Than Adequate and full

Before the Court is a Petition for Review on Certiorari Consideration. - Where property, other than real
under Rule 45 of the Rules of Court assailing and property referred to in Section 24(D), is transferred for
seeking the reversal of the Resolutions of the Court of less than an adequate and full consideration in money
Appeals (CA) in CA-G.R. SP No. 127984, dated May or money’s worth, then the amount by which the fair
23, 2013 and January 21, 2014, which dismissed market value of the property exceeded the value of the
outright the petitioner’s appeal from the Secretary of consideration shall, for the purpose of the tax imposed
Finance’s review of BIR Ruling No. 015-12 for lack of by this Chapter, be deemed a gift, and shall be
jurisdiction. included in computing the amount of gifts made during
the calendar year.
The Facts
The afore-quoted provision, the Commissioner added,
Petitioner The Philippine American Life and General is implemented by Revenue Regulation 6-2008 (RR 6-
Insurance Company (Philamlife) used to own 498,590 2008), which provides:
Class A shares in Philam Care Health Systems, Inc.
(PhilamCare), representing 49.89% of the latter’s SEC. 7. SALE, BARTER OR EXCHANGE OF
outstanding capital stock. In 2009, petitioner, in a bid to SHARES OF STOCK NOT TRADED THROUGH A
divest itself of its interests in the health maintenance LOCAL STOCK EXCHANGE PURSUANT TO SECS.
organization industry, offered to sell its shareholdings 24(C), 25(A)(3), 25(B), 27(D)(2), 28(A)(7)(c), 28(B)(5)
in Philam Care through competitive bidding.Thus, on (c) OF THE TAX CODE, AS AMENDED. —
September 24, 2009,petitioner’s Class A shares were
sold for USD 2,190,000, or PhP 104,259,330 based on (c) Determination of Amount and Recognition of Gain
the prevailing exchange rate at the time of the sale, to or Loss (c.1) In the case of cash sale, the selling price
STI Investments, Inc., who emerged as the highest shall be the consideration per deed of sale.
bidder.[3]
(c.1.4) In case the fair market value of the shares of
After the sale was completed and the necessary stock sold, bartered, or exchanged is greater than the
documentary stamp and capital gains taxes were paid, amount of money and/or fair market value of the
Philamlife filed an application for a certificate property received, the excess of the fair market value
authorizing registration/tax clearance with the Bureau of the shares of stock sold, bartered or exchanged
of Internal Revenue (BIR) Large Taxpayers Service over the amount of money and the fair market value of
Division to facilitate the transfer of the shares. Months the property, if any, received as consideration shall be
later, petitioner was informed that it needed to secure a deemed a gift subject to the donor’s tax under Section
BIR ruling in connection with its application due to 100 of the Tax Code, as amended.
potential donor’s tax liability. In compliance, petitioner,
on January 4, 2012,requested a ruling [4] to confirm that (c.2) Definition of ‘fair market value’ of Shares of Stock.
the sale was not subject to donor’s tax, pointing out, in – For purposes of this Section, ‘fair market value’ of
its request, the following: that the transaction cannot the share of stock sold shall be:
attract donor’s tax liability since there was no donative
intent and, ergo, no taxable donation, citing BIR Ruling (c.2.2) In the case of shares of stock not listed and
[DA-(DT-065) 715-09] dated November 27, 2009;[5] that traded in the local stock exchanges, the book value of
the shares were sold at their actual fair market value the shares of stock as shown in the financial
and at arm’s length; that as long as the transaction statements duly certified by an independent certified
conducted is at arm’s length––such that a bonafide public accountant nearest to the date of sale shall be
business arrangement of the dealings is done in the the fair market value.
ordinary course of business––a sale for less than an
adequate consideration is not subject to donor’s tax; In view of the foregoing, the Commissioner ruled that
the difference between the book value and the selling cannot be given retroactive application to the prejudice
price in the sales transaction is taxable donation of Philamlife.
subject toa 30% donor’s tax under Section 99(B) of the
NIRC.[7] Respondent Commissioner likewise held that
BIR Ruling [DA-(DT-065) 715-09], on which petitioner On May 23, 2013, the CA issued the assailed
anchored its claim,has already been revoked by Resolution dismissing the CA Petition, thusly:
Revenue Memorandum Circular (RMC) No. 25-2011. [8]
WHEREFORE, the Petition for Review dated January
Aggrieved, petitioner requested respondent Secretary 9, 2013 is DISMISSED for lack of jurisdiction.
of Finance (Secretary) to review BIR Ruling No. 015-
12, but to no avail.For on November 26, 2012, SO ORDERED.
respondent Secretary affirmed the Commissioner’s
assailed ruling in its entirety.[9] In disposing of the CA petition, the appellate court
ratiocinated that it is the Court of Tax Appeals (CTA),
Ruling of the Court of Appeals pursuant to Sec. 7(a)(1) of Republic Act No. 1125 (RA
1125),[11] as amended,which has jurisdiction over the
Not contented with the adverse results, petitioner issues raised. The outright dismissal, so the CA held,
elevated the case to the CA via a petition for review is predicated on the postulate that BIR Ruling No. 015-
under Rule 43, assigning the following errors:[10] 12was issued in the exercise of the Commissioner’s
power to interpret the NIRC and other tax laws.
A. Consequently,requesting for its review can be
categorized as “other matters arising under the NIRC
The Honorable Secretary of Finance gravely erred in or other laws administered by the BIR,”which is under
not finding that the application of Section 7(c.2.2) of the jurisdiction of the CTA, not the CA.
RR 06-08 in the Assailed Ruling and RMC 25-11 is
void insofar as it alters the meaning and scope of Philamlife eventually sought reconsideration but the
Section 100 of the Tax Code. CA, in its equally assailed January 21, 2014
Resolution, maintained its earlier position.Hence, the
B. instant recourse.

The Honorable Secretary of Finance gravely erred in Issues

finding that Section 100 of the Tax Code is applicable
to the sale of the Sale of Shares. Stripped to the essentials, the petition raises the
following issues in both procedure and substance:
1.
1. Whether or not the CA erred in dismissing
The Sale of Shares were sold at their fair market value the CA Petition for lack of jurisdiction; and
and for fair and full consideration in money or money’s
2. Whether or not the price difference in
worth.
petitioner’s adverted sale of shares in
PhilamCare attracts donor’s tax.
2.
Procedural Arguments
The sale of the Sale Shares is a bona fide business
transaction without any donative intent and is therefore a. Petitioner’s contentions
beyond the ambit of Section 100 of the Tax Code.
Insisting on the propriety of the interposed CA petition,
3. Philamlife, while conceding that respondent
Commissioner issued BIR Ruling No. 015-12in
It is superfluous for the BIR to require an express accordance with her authority to interpret tax laws,
provision for the exemption of the sale of the Sale argued nonetheless that such ruling is subject to
Shares from donor’s tax since Section 100 of the Tax review by the Secretary of Finance under Sec. 4 of the
Code does not explicitly subject the transaction to NIRC, to wit:
donor’s tax.
SECTION 4. Power of the Commissioner to Interpret
Tax Laws and to Decide Tax Cases. – The power to
interpret the provisions of this Code and other tax laws
C.
shall be under the exclusive and original jurisdiction of
the Commissioner, subject to review by the
The Honorable Secretary of Finance gravely erred in Secretary of Finance.
failing to find that in the absence of any of the grounds
mentioned in Section 246 of the Tax Code, rules and The power to decide disputed assessments, refunds of
regulations, rulings or circulars – such as RMC 25-11 – internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising so respondents pointed out.
under this Code or other laws or portions thereof
administered by the Bureau of Internal Revenue is To further reinforce their argument, respondents cite
vested in the Commissioner, subject to the exclusive the President’s power of review emanating from his
appellate jurisdiction of the Court of Tax Appeals. power of control as enshrined under Sec. 17 of Article
VII of the Constitution, which reads:
Petitioner postulates that there is a need to
differentiate the rulings promulgated by the respondent Section 17. The President shall have control of all the
Commissioner relating to those rendered under the executive departments, bureaus, and offices. He shall
first paragraph of Sec. 4 of the NIRC, which are ensure that the laws be faithfully executed.
appealable to the Secretary of Finance, from those
rendered under the second paragraph of Sec. 4 of the The nature and extent of the President’s
NIRC, which are subject to review on appeal with the constitutionally granted power of control have been
CTA. This distinction, petitioner argues, is readily defined in a plethora of cases, most recently in Elma v.
made apparent by Department Order No. 7-02,[12] as Jacobi,[16] wherein it was held that:
circularized by RMC No. 40-A-02.
x x x This power of control, which even Congress
Philamlife further averred that Sec. 7 of RA 1125, as cannot limit, let alone withdraw, means the power of
amended, does not find application in the case at bar the Chief Executive to review, alter, modify, nullify, or
since it only governs appeals from the Commissioner’s set aside what a subordinate, e.g., members of the
rulings under the second paragraph and does not Cabinet and heads of line agencies, had done in the
encompass rulings from the Secretary of Finance in performance of their duties and to substitute the
the exercise of his power of review under the first,as judgment of the former for that of the latter.
what was elevated to the CA. It added that under RA
1125, as amended, the only decisions of the Secretary In their Comment on the instant petition, however,
appealable to the CTA are those rendered in customs respondents asseverate that the CA did not err in its
cases elevated to him automatically under Section holding respecting the CTA’s jurisdiction over the
2315 of the Tariff and Customs Code. [13] controversy.

There is, thus, a gap in the law when the NIRC, as The Court’s Ruling
couched, and RA 1125, as amended, failed to supply
where the rulings of the Secretary in its exercise of its The petition is unmeritorious.
power of review under Sec. 4 of the NIRC are
appealable to. This gap, petitioner submits, was Reviews by the Secretary of
remedied by Bristish American Tabacco v. Finance pursuant to Sec. 4 of the
Camacho[14] wherein the Court ruled that where what is NIRC are appealable to the CTA
assailed is the validity or constitutionality of a law, or a
rule or regulation issued by the administrative agency, To recapitulate, three different, if not conflicting,
the regular courts have jurisdiction to pass upon the positions as indicated below have been advanced by
same. the parties and by the CA as the proper remedy open
for assailing respondents’ rulings:
In sum, appeals questioning the decisions of the
Secretary of Finance in the exercise of its power of 1. Petitioners: The ruling of the Commissioner
review under Sec. 4 of the NIRC are not within the is subject to review by the Secretary under
CTA’s limited special jurisdiction and, according to Sec. 4 of the NIRC, and that of the
petitioner, are appealable to the CA via a Rule 43 Secretary to the CA via Rule 43;
2. Respondents: The ruling of the
petition for review.
Commissioner is subject to review by the
Secretary under Sec. 4 of the NIRC, and
b. Respondents’ contentions that of the Secretary to the Office of the
President before appealing to the CA via a
Before the CA, respondents countered petitioner’s Rule 43 petition; and
procedural arguments by claiming that even assuming 3. CA: The ruling of the Commissioner is
arguendo that the CTA does not have jurisdiction over subject to review by the CTA.
the case, Philamlife, nevertheless, committed a fatal
error when it failed to appeal the Secretary of We now resolve.
Finance’s ruling to the Office of the President (OP).  As
made apparent by the rules, the Department of Preliminarily,it bears stressing that there is no dispute
Finance is not among the agencies and quasi-judicial that what is involved herein is the respondent
bodies enumerated under Sec. 1, Rule 43 of the Rules Commissioner’s exercise of power under the first
of Court whose decisions and rulings are appealable paragraph of Sec. 4 of the NIRC––the power to
through a petition for review. [15] This is in stark contrast interpret tax laws. This, in fact, was recognized by the
to the OP’s specific mention under the same provision, appellate court itself, but erroneously held that her
action in the exercise of such power is appealable As the specialized quasi-judicial agency mandated to
directly to the CTA. As correctly pointed out by adjudicate tax, customs, and assessment cases, there
petitioner, Sec. 4 of the NIRC readily provides that the can be no other court of appellate jurisdiction that can
Commissioner’s power to interpret the provisions of decide the issues raised in the CA petition, which
this Code and other tax laws is subject to review by involves the tax treatment of the shares of stocks sold.
the Secretary of Finance. The issue that now arises
is this––where does one seek immediate recourse Petitioner, though, next invites attention to the ruling
from the adverse ruling of the Secretary of Finance in Ursal v. Court of Tax Appeals[20] to argue against
in its exercise of its power of review under Sec. 4? granting the CTA jurisdiction by implication, viz:

Admittedly, there is no provision in law that expressly Republic Act No. 1125 creating the Court of Tax
provides where exactly the ruling of the Secretary of Appeals did not grant it blanket authority to decide any
Finance under the adverted NIRC provision is and all tax disputes. Defining such special court’s
appealable to. However,We find that Sec. 7(a)(1) of jurisdiction, the Act necessarily limited its authority to
RA 1125, as amended, addresses the seeming gap in those matters enumerated therein. In line with this idea
the law as it vests the CTA, albeit impliedly, with we recently approved said court’s order rejecting an
jurisdiction over the CA petition as “other appeal to it by Lopez & Sons from the decision of the
matters”arising under the NIRC or other laws Collector of Customs, because in our opinion its
administered by the BIR. As stated: jurisdiction extended only to a review of the decisions
of the Commissioner of Customs, as provided by the
Sec. 7. Jurisdiction. - The CTA shall exercise: statute — and not to decisions of the Collector of
a. Exclusive appellate jurisdiction to review by Customs. (Lopez & Sons vs. The Court of Tax
appeal, as herein provided: Appeals, 100 Phil., 850, 53 Off. Gaz., [10] 3065).

1. Decisions of the Commissioner of x x x x

Internal Revenue in cases involving
disputed assessments, refunds of internal x x x  Republic Act No. 1125 is a complete law by itself
revenue taxes, fees or other charges,
and expressly enumerates the matters which the Court
penalties in relation thereto, or other
of Tax Appeals may consider; such enumeration
matters arising under the National Internal
Revenue or other laws administered by the excludes all others by implication. Expressio unius est
Bureau of Internal Revenue. (emphasis exclusio alterius.
supplied)
Petitioner’s contention is untenable. Lest the ruling in
Even though the provision suggests that it only covers Ursal be taken out of context, but worse as a
rulings of the Commissioner, We hold that it is, precedent, it must be noted that the primary reason for
nonetheless, sufficient enough to include appeals from the dismissal of the said case was that the petitioner
the Secretary’s review under Sec. 4 of the NIRC. therein lacked the personality to file the suit with the
CTA because he was not adversely affected by a
It is axiomatic that laws should be given a reasonable decision or ruling of the Collector of Internal Revenue,
interpretation which does not defeat the very purpose as was required under Sec. 11 of RA 1125.[21] As held:
for which they were passed.[17] Courts should not follow
the letter of a statute when to do so would depart from We share the view that the assessor had no
the true intent of the legislature or would otherwise personality to resort to the Court of Tax Appeals. The
yield conclusions inconsistent with the purpose of the rulings of the Board of Assessment Appeals did not
act.[18] This Court has, in many cases involving the “adversely affect” him. At most it was the City of Cebu
construction of statutes, cautioned against narrowly that had been adversely affected in the sense that it
interpreting a statute as to defeat the purpose of the could not thereafter collect higher realty taxes from the
legislator, and rejected the literal interpretation of abovementioned property owners. His opinion, it is true
statutes if to do so would lead to unjust or absurd had been overruled; but the overruling inflicted no
results.[19] material damage upon him or his office. And the Court
of Tax Appeals was not created to decide mere
Indeed, to leave undetermined the mode of appeal conflicts of opinion between administrative officers or
from the Secretary of Finance would be an injustice to agencies. Imagine an income tax examiner resorting to
taxpayers prejudiced by his adverse rulings. To the Court of Tax Appeals whenever the Collector of
remedy this situation, We imply from the purpose of Internal Revenue modifies, or lower his assessment on
RA 1125 and its amendatory laws that the CTA is the the return of a tax payer![22]
proper forum with which to institute the appeal. This is
not, and should not, in any way, be taken as a The appellate power of the
derogation of the power of the Office of President but CTA includes certiorari
merely as recognition that matters calling for technical
knowledge should be handled by the agency or quasi- Petitioner is quick to point out, however, that the
judicial body with specialization over the controversy. grounds raised in its CA petition included the nullity of
Section 7(c.2.2) of RR 06-08 and RMC 25-11. In an the OSG, filed a motion to dismiss on the ground of
attempt to divest the CTA jurisdiction over the lack of jurisdiction. The RTC denied the motion.
controversy, petitioner then cites British American Petitioner filed a petition for certiorari and prohibition
Tobacco, wherein this Court has expounded on the with the CA which dismissed the petition “for lack of
limited jurisdiction of the CTA in the following wise: basis.” In reversing the CA, dissolving the Writ of
Preliminary Injunction issued by the trial court and
While the above statute confers on the CTA ordering the dismissal of the case before the trial court,
jurisdiction to resolve tax disputes in general, this the Supreme Court held that “[t]he questioned RMO
does not include cases where the constitutionality No. 15-91 and RMC No. 43-91 are actually rulings
of a law or rule is challenged. Where what is or opinions of the Commissioner implementing the
assailed is the validity or constitutionality of a law, Tax Code on the taxability of pawnshops.” They
or a rule or regulation issued by the administrative were issued pursuant to the CIR’s power under
agency in the performance of its quasi-legislative Section 245 of the Tax Code “to make rulings or
function, the regular courts have jurisdiction to opinions in connection with the implementation of
pass upon the same. The determination of whether a the provisions of internal revenue laws, including
specific rule or set of rules issued by an administrative ruling on the classification of articles of sales and
agency contravenes the law or the constitution is within similar purposes.” The Court held that under R.A.
the jurisdiction of the regular courts. Indeed, the No. 1125 (An Act Creating the Court of Tax Appeals),
Constitution vests the power of judicial review or the as amended, such rulings of the CIR are appealable
power to declare a law, treaty, international or to the CTA.
executive agreement, presidential decree, order,
instruction, ordinance, or regulation in the courts, In the case at bar, the assailed revenue regulations
including the regional trial courts. This is within the and revenue memorandum circulars are actually
scope of judicial power, which includes the authority of rulings or opinions of the CIR on the tax treatment
the courts to determine in an appropriate action the of motor vehicles sold at public auction within the
validity of the acts of the political departments. Judicial SSEZ to implement Section 12 of R.A. No.
power includes the duty of the courts of justice to settle 7227 which provides that “exportation or removal of
actual controversies involving rights which are legally goods from the territory of the [SSEZ] to the other parts
demandable and enforceable, and to determine of the Philippine territory shall be subject to customs
whether or not there has been a grave abuse of duties and taxes under the Customs and Tariff Code
discretion amounting to lack or excess of jurisdiction and other relevant tax laws of the Philippines.” They
on the part of any branch or instrumentality of the were issued pursuant to the power of the CIR
Government.[23] under Section 4 of the National Internal Revenue
Code x x x.[24] (emphasis added)
Vis-a-vis British American Tobacco, it bears to stress
what appears to be a contrasting ruling in Asia The respective teachings in British American
International Auctioneers, Inc. v. Parayno, Jr., to wit: Tobacco and Asia International Auctioneers, at first
blush, appear to bear no conflict––that when the
Similarly, in CIR v. Leal, pursuant to Section 116 of validity or constitutionality of an administrative rule or
Presidential Decree No. 1158 (The National Internal regulation is assailed, the regular courts have
Revenue Code, as amended) which states that jurisdiction; and if what is assailed are rulings or
“[d]ealers in securities shall pay a tax equivalent to six opinions of the Commissioner on tax treatments,
(6%) per centum of their gross income. Lending jurisdiction over the controversy is lodged with the
investors shall pay a tax equivalent to five (5%) per CTA.The problem with the above postulates, however,
cent, of their gross income,” the CIR issued Revenue is that they failed to take into consideration one crucial
Memorandum Order (RMO) No. 15-91 imposing 5% point––a taxpayer can raise both issues
lending investor’s tax on pawnshops based on their simultaneously.
gross income and requiring all investigating units of the
BIR to investigate and assess the lending investor’s Petitioner avers that there is now a trend wherein both
tax due from them. The issuance of RMO No. 15-91 the CTA and the CA disclaim jurisdiction over tax
was an offshoot of the CIR’s finding that the pawnshop cases: on the one hand, mere prayer for the
business is akin to that of “lending investors” as declaration of a tax measure’s unconstitutionality or
defined in Section 157(u) of the Tax Code. invalidity before the CTA can result in a petition’s
Subsequently, the CIR issued RMC No. 43-91 outright dismissal, and on the other hand, the CA will
subjecting pawn tickets to documentary stamp tax. likewise dismiss the same petition should it find that
Respondent therein, Josefina Leal, owner and operator the primary issue is not the tax measure’s validity but
of Josefina’s Pawnshop, asked for a reconsideration of the assessment or taxability of the transaction or
both RMO No. 15-91 and RMC No. 43-91, but the subject involved.To illustrate this point, petitioner cites
same was denied by petitioner CIR. Leal then filed a the assailed Resolution, thusly:
petition for prohibition with the RTC of San Mateo,
Rizal, seeking to prohibit petitioner CIR from Admittedly, in British American Tobacco vs. Camacho,
implementing the revenue orders. The CIR, through the Supreme Court has ruled that the determination of
whether a specific rule or set of rules issued by an The foregoing notwithstanding, while there is no
administrative agency contravenes the law or the express grant of such power, with respect to the CTA,
constitution is within the jurisdiction of the regular Section 1, Article VIII of the 1987 Constitution
courts, not the CTA. provides, nonetheless, that judicial power shall be
vested in one Supreme Court and in such lower courts
as may be established by law and that judicial power
Petitioner essentially questions the CIR’s ruling that includes the duty of the courts of justice to settle actual
Petitioner’s sale of shares is a taxable donation under controversies involving rights which are legally
Sec. 100 of the NIRC. The validity of Sec. 100 of the demandable and enforceable, and to determine
NIRC, Sec. 7 (C.2.2) and RMC 25-11 is merely whether or not there has been a grave abuse of
questioned incidentally since it was used by the CIR as discretion amounting to lack or excess of jurisdiction
bases for its unfavourable opinion. Clearly, the Petition on the part of any branch or instrumentality of the
involves an issue on the taxability of the transaction Government.
rather than a direct attack on the constitutionality of
Sec. 100, Sec.7 (c.2.2.) of RR 06-08 and RMC 25-11. On the strength of the above constitutional provisions,
Thus, the instant Petition properly pertains to the CTA it can be fairly interpreted that the power of the CTA
under Sec. 7 of RA 9282. includes that of determining whether or not there
has been grave abuse of discretion amounting to
As a result of the seemingly conflicting lack or excess of jurisdiction on the part of the
pronouncements, petitioner submits that taxpayers are RTC in issuing an interlocutory order in cases
now at a quandary on what mode of appeal should be falling within the exclusive appellate jurisdiction of
taken, to which court or agency it should be filed, and the tax court. It, thus, follows that the CTA, by
which case law should be followed. constitutional mandate, is vested with jurisdiction
to issue writs of certiorari in these cases.
Petitioner’s above submission is specious.
Indeed, in order for any appellate court to effectively
In the recent case of City of Manila v. Grecia-Cuerdo, exercise its appellate jurisdiction, it must have the
[25]
 the Court en banc  has ruled that the CTA now has authority to issue, among others, a writ of certiorari. In
the power of certiorari in cases within its appellate transferring exclusive jurisdiction over appealed tax
jurisdiction. To elucidate: cases to the CTA, it can reasonably be assumed that
the law intended to transfer also such power as is
The prevailing doctrine is that the authority to issue deemed necessary, if not indispensable, in aid of such
writs of certiorari involves the exercise of original appellate jurisdiction. There is no perceivable reason
jurisdiction which must be expressly conferred by the why the transfer should only be considered as partial,
Constitution or by law and cannot be implied from the not total. (emphasis added)
mere existence of appellate jurisdiction. Thus, xxx this
Court has ruled against the jurisdiction of courts or Evidently, City of Manila can be considered as a
tribunals over petitions for certiorari on the ground that departure from Ursal in that in spite of there being no
there is no law which expressly gives these tribunals express grant in law, the CTA is deemed granted with
such power. It must be observed, however, that xxx powers of certiorari by implication. Moreover, City of
these rulings pertain not to regular courts but to Manila diametrically opposes British American
tribunals exercising quasi-judicial powers. With respect Tobacco to the effect that it is now within the power of
to the Sandiganbayan, Republic Act No. 8249 now the CTA, through its power of certiorari, to rule on the
provides that the special criminal court has exclusive validity of a particular administrative rule or regulation
original jurisdiction over petitions for the issuance of so long as it is within its appellate jurisdiction. Hence,
the writs of mandamus, prohibition, certiorari, habeas it can now rule not only on the propriety of an
corpus, injunctions, and other ancillary writs and assessment or tax treatment of a certain
processes in aid of its appellate jurisdiction. transaction, but also on the validity of the revenue
regulation or revenue memorandum circular on
In the same manner, Section 5 (1), Article VIII of the which the said assessment is based.
1987 Constitution grants power to the Supreme Court,
in the exercise of its original jurisdiction, to issue writs Guided by the doctrinal teaching in resolving the case
of certiorari, prohibition and mandamus. With respect at bar, the fact that the CA petition not only contested
to the Court of Appeals, Section 9 (1) of Batas the applicability of Sec. 100 of the NIRC over the sales
Pambansa Blg. 129 (BP 129) gives the appellate court, transaction but likewise questioned the validity of Sec.
also in the exercise of its original jurisdiction, the power 7(c.2.2) of RR 06-08 and RMC 25-11 does not divest
to issue, among others, a writ of certiorari, whether or the CTA of its jurisdiction over the controversy,
not in aid of its appellate jurisdiction. As to Regional contrary to petitioner’s arguments.
Trial Courts, the power to issue a writ of certiorari, in
the exercise of their original jurisdiction, is provided The price difference is
under Section 21 of BP 129. subject to donor’s tax
Petitioner’s substantive argumentsare unavailing. The
absence of donative intent, if that be the case, does The CIR confirmed that the sales transaction over the
not exempt the sales of stock transaction from donor’s BLC shares between petitioner as seller and CHI as
tax since Sec. 100 of the NIRC categorically states that buyer is not subject to donor's tax because it is an
the amount by which the fair market value of the ordinary commercial transaction negotiated in
property exceeded the value of the consideration shall good faith between unrelated parties and
be deemed a gift. Thus, even if there is no actual motivated by legitimate business reasons.
donation, the difference in price is considered a
donation by fiction of law. Later, petitioner received a Notice for Informal
Conference (Notice) from respondent BIR LTS-
Moreover, Sec. 7(c.2.2) of RR 06-08 does not alter Regular, informing petitioner that the subject
Sec. 100 of the NIRC but merely sets the parameters transaction is actually subject to donor's tax.
for determining the “fair market value” of a sale of
stocks. Such issuance was made pursuant to the In response, petitioner wrote respondent requesting for
Commissioner’s power to interpret tax laws and to the re-evaluation of the factual information presented
promulgate rules and regulations for their by petitioner and for the cancellation of the tax
implementation. assessment shown in the Notice, which was received
by respondent through the BIR LTS-Regular.
Lastly, petitioner is mistaken in stating that RMC 25- Petitioner received BIR LTSRegular a Final
11, having been issued after the sale, was being Assessment Notice (FAN), details of discrepancy and
applied retroactively in contravention to Sec. 246 of the Audit Result/ Assessment Notice, reiterating its
NIRC.[26] Instead, it merely called for the strict demand for payment of deficiency donor's tax.
application of Sec. 100, which was already in force the
moment the NIRC was enacted. Petitioner filed its formal protest, however, the same
was denied by the respondent.
WHEREFORE, the petition is hereby DISMISSED. The
Resolutions of the Court of Appeals in CA-G.R. SP No. Thus, the petitioner filed the instant Petition for review.
127984 dated May 23, 2013 and January 21, 2014 are
hereby AFFIRMED. ISSUE:

 Metro Pacific Corporation vs. CIR Whether or not MPC is liable for the deficiency donor's
CTA Case No. 8318, June 11 2014 tax assessment.

DOCTRINE: HELD:

In case where property is transferred for less than an YES. Petitioners claim for donor’s tax exemption has
adequate and full consideration in money or money's no legal basis.
worth, then the amount by which the fair market value
(FMV) of the property exceeded the value of the Section 100 of the 1997 NIRC, as amended, is clear
consideration shall be deemed a gift, and shall be that in case where property is transferred for less than
included in computing the amount of gifts made during an adequate and full consideration in money or
the calendar year. money's worth, then the amount by which the fair
market value (FMV) of the property exceeded the
FACTS: value of the consideration shall be deemed a gift, and
shall be included in computing the amount of gifts
Petitioner MPC sold to Colmbus Holdings, Inc. (CHI) made during the calendar year. It is thus, important to
2,597,197 common shares in Bonifacio Land determine the "fair market value" (FMV) of the property
Corporation (BLC). sold or transferred, and whether it exceeded the value
of the consideration.
Further, petitioner, through Atty. Tagao, requested
respondent for "confirmation that the sale of Bonifacio Petitioner alleges, on the assumption that the subject
Land Corporation (BLC) shares of stocks owned by shares were sold for less than their "fair market value",
MPC to Columbus Holdings, Inc. (CHI) is not subject to that the subject transaction was an ordinary business
donor's tax as provided in Section 100 of the Internal transaction negotiated in good faith by unrelated
Revenue Code] as it is an ordinary business parties for legitimate purposes operate to exclude the
transaction negotiated in good faith by unrelated subject transaction from the coverage of Section 100
parties for legitimate business purposes. of the NIRC, the same being a transfer which is bona
fide, at arm's length.
Petitioner, as seller, filed CGT Return with the BIR
LTS-Regular and the DST. The said CGT return After a careful reading of the bases cited by petitioner,
showed that there was no tax due or paid for the the court find that the alleged exemption/exception
transaction.
from the donor's tax under the said provision of law She accepted the donation in the same
was not clearly established therein. instrument, openly and publicly exercised rights
of ownership over the donated properties, and
SPS. AGRIPINO GESTOPA AND ISABEL caused the transfer of the tax declarations to
SILARIO GESTOPA v. CA, GR No. 111904, her name.
2000-10-05 In their opposition, the Gestopas and the
Facts: Danlags averred that the deed of donation...
was null and void because it was obtained by
Spouses Diego and Catalina Danlag were the Mercedes through machinations and undue
owners of six parcels of unregistered lands. influence.
They executed three deeds of donation mortis Even assuming it was validly executed, the
causa,... in favor of private respondent intention was for the donation to... take effect
Mercedes upon the death of the donor. Further, the
donation was void for it left the donor, Diego
Danlag-Pilapil. Danlag, without any property at all.
All deeds contained... the reservation of the the trial court rendered its decision... judgment
rights of the donors (1) to amend, cancel or in favor of the defendants and against the
revoke the donation during their lifetime, and plaintiff
(2) to sell, mortgage, or encumber the
properties donated during the donors' lifetime, if Declaring the Donations Mortis Causa and Inter
deemed necessary. Vivos as revoked, and, therefore, has (sic) no
legal effect and force of law.
Diego Danlag, with the consent of his wife,
Catalina Danlag, executed a deed of donation Declaring the Deeds of Sale executed by Diego
inter vivos[5] covering the aforementioned Danlag in favor of spouses Agripino Gestopa...
parcels of land plus two other parcels... as valid and enforceable duly executed
respectively, again in favor... of private
respondent Mercedes. Mercedes appealed to the Court of Appeals...
the appellate court reversed the trial court.
This contained two conditions, that (1) the
Danlag spouses shall continue to enjoy the Declaring the deed of donation inter vivos... as
fruits of the land during their lifetime, and that not having been revoked and consequently the
(2) the donee can not sell or dispose of the land same remains in full force and effect;
during the lifetime of the said spouses, without Declaring the Revocation of Donation... to be
their... prior consent and approval. null and void
Diego and Catalina Danlag sold parcels 3 and 4 Declaring Mercedes Danlag Pilapil as the
to herein petitioners, Mr. and Mrs. Agripino absolute and exclusive owner of the six (6)
Gestopa. parcels of land specified in the above-cited
the Danlags executed a deed of revocation[6] deed of donation inter vivos;
recovering the six parcels of land subject of Declaring the Deed of Sale executed by Diego
the... aforecited deed of donation inter vivos. Danlag in favor of spouses Agripino and Isabel
Mercedes Pilapil (herein private respondent) Gestopa... not to have been validly executed
filed with the RTC a petition against the Declaring the above-mentioned deeds of sale
Gestopas and the Danlags, for quieting of to be null and void
title[7] over the above parcels of land.
Issues:
She alleged that she was an illegitimate
daughter of Diego Danlag;... that she lived and whether the donation was inter vivos or mortis
rendered incalculable beneficial services to causa is the determination of whether the donor
Diego and his mother, Maura Danlag, when the intended to transfer the ownership over the
latter was still alive. In recognition of the properties upon the execution of the deed.
services she rendered, Diego executed a Deed Ruling:
of Donation... conveying to her the six (6)
parcels of land. the granting clause shows that Diego donated
the properties out of love and affection for the
donee. This is a mark of a donation inter vivos.
Second, the reservation of lifetime usufruct Tang Ho vs. the Board of Tax Appeals (19 November
indicates that the donor intended to... transfer 1955)
the naked ownership over the properties.
FACTS:
Third, the donor reserved sufficient properties
for his maintenance in... accordance with his
standing in society, indicating that the donor The BIR found that petitioners had an investment in
intended to part with the six parcels of land. shares issued to them from their family corporation.
The CIR regarded these transfers as undeclared gifts
Lastly, the donee accepted the donation. made in the respective years, and assessed against
an acceptance... clause is a mark that the petitioners. After paying the basic tax, petitioners
donation is inter vivos. asked for the reassessment stating that each of them
received by way of gift inter vivos, that those who got
Acceptance is a requirement for donations inter married were given additional money as propter
vivos. Donations mortis causa, being in the nuptias and those who did not received it by inter
form of a will, are not required to be accepted vivos. Petitioners also contend that the cash donated
by the donees during the donors' lifetime. came from conjugal funds, claiming for exemption.

Consequently, the Court of Appeals did not err

in concluding that the right to dispose of the The CIR refused to revise his original assessment.
properties belonged to the donee. Upon petition to the CTA, the CTA still upheld the
CIR's assessment.
The donor's right to give consent was merely
intended to protect his usufructuary interests.
a limitation on the... right to sell during the ISSUE: Whether petitioners are liable for tax. Whether
donors' lifetime implied that ownership had petitioners can claim tax exemptions twice from the
passed to the donees and donation was conjugal funds.
already effective during the donors' lifetime.
Prior to the execution of donation inter vivos, RULING:
the
Danlag spouses already executed three
donations mortis causa. YES. As petitioners failed to pay taxes for the past ten
years they are now scarcely in a position to complain if
We also note that the Court of Appeals did... their contentions are not accepted as truthful without
not refer to the tax declarations as proofs of satisfactory corroboration. Any other view would leave
ownership but only as evidence of the intent by the collection of taxes at the mercy of explanations
the donor to transfer ownership. concocted ex post facto by evading taxpayers, drafted
to suit any facts disclosed upon investigation, and safe
Was the revocation valid? from contradiction because the passing years have
erased all
A valid donation, once accepted, becomes
irrevocable, except on account of officiousness, trace of the truth.
failure by the donee to comply with the charges
imposed in the donation, or ingratitude.
NO. The Court took a look at the Spanish Civil Code of
The donor-spouses did not invoke any of
1889, which was the governing law in this case. The
these... reasons in the deed of revocation. provisions state that the donations of property "by the
Finally, the records do not show that the donor- husband" from the "donations by both spouses by
spouses instituted any action to revoke the common consent" differs. The lawful donations by the
husband to the common children are valid and are
donation in accordance with Article 769 of the
chargeable to the community property, irrespective of
Civil Code.[22] Consequently, the supposed
whether the wife agrees or objects thereof. To be a
revocation... had no legal effect. donation by both spouses, taxable to both, the wife
WHEREFORE, the instant petition for review is must expressly join the husband in making the gift; her
DENIED. The assailed decision of the Court of participation therein cannot be implied.
Appeals... is AFFIRMED.
A donation by the husband alone does not become in received by the office of Allison J. Gibbs on
law a donation by both spouses merely because it November 14, 1956.
involves property of the conjugal partnership.
On October 1, 1958, the petitioner filed with the
respondent court a Petition for Review and
Refund of Income Tax... the... respondent
Commissioner
A donation of property belonging to the conjugal
partnership, made during its existence, by the husband That this
alone in favor of the common children, is taxable to
him exclusively as sole donor.
Court has no jurisdiction... on the ground that
the petition for review was filed beyond thirty
(30) days from the date of receipt of
respondent's decision, dated October 26, 1966,
FINLEY J. GIBBS v. CIR, GR No. L-17406, denying... the; claim for refund... with respect to
1965-11-29 the credit of the amounts... the request for
Facts: credit... have been filed... beyond two (2) years
from the dates of payment of the amounts... the
of the respondent Court... upheld the respondent
Court of Tax Appeals... dismissing for lack of Commissioner's claim that the two causes of
jurisdiction the petitioners' claims for refund and action asserted by the petitioner were barred by
tax credit... the respondent Commissioner of prescription... petitioners contend that the
internal Revenue issued against the petitioners, respondent Court erred in ruling that their
Finley J. Gibbs and Diane P. Gibbs petition for review was filed outside the 30-day
period... because (a) there is neither evidence
Deficiency Income Tax Assessment Notice... nor record that the petitioners received a copy
for... the tax year 1960 with the demand... that of the... letter of October 26, 1956 denying their
the said amount should be paid claim for refund
On March 14, 1956, Allison J. Gibbs, signing as Petitioners also respectfully contend that the
attorney-in-fact for Finley J. Gibbs, his brother, statute of limitation of two years prescribed in
acknowledged receipt of the above assessment Section 306 of the NIRC does hot start to run
notice and notified respondent until respondent Commissioner has acted on
the claim for refund or credit by the non-
Commissioner that Finley J. Gibbs resident taxpayer and so notified the... taxpayer
California... and that the latter was notified by because until then the withholding tax cannot
him of the said deficiency assessment. be treated as a payment by the alien non-
resident taxpayer; until then it is a mere deposit
In the same letter, Alison J. Gibbs questioned held by respondent Commissioner for the
the disallowance of the items... which gave rise account of the non-resident alien taxpayer
to the deficiency assessment and requested for
a correction of it Issues:

On August 26, 1956, however, the respondent Whether the... withholding tax credits amount to
Commissioner denied the request. payment for the purpose of determining the
two-years period
Having deemed the above reply of August 28,
1956, as the "final decision" of the respondent Ruling:
Commissioner on the matter A taxpayer, resident or non-resident, who
Allison J. Gibbs contributes to the withholding... tax system
does so not really to deposit an amount to the
At the same time, Allison J. Gibbs, demanded Commission of Internal Revenue, but, in truth,
refund of the above payment: to perform and extinguish his tax obligation for
On October 26,1956, the respondent the year concerned. In other words, he is
Commissioner denied the above demand for paying his tax liabilities for that year.
refund. Consequently, a taxpayer whose income is...
withheld at the source will be deemed to have
he above letter of October 26, 1956, denying paid his tax liability when the same falls due at
the petitioner's claim for refund was admittedly the end of the tax year. It is from this latter date
then, or when the tax liability falls due, that the
two-year-prescriptive period under Section 306
of the Revenue code starts to... run with
respect to payments effected trough the
stockholders of
withholding tax system.
It is no consequence whatever that a claim for
the Company
refund or credit against the amount withheld at
the source may have been presented and may
have remained unresolved since... delay of the
formally ratified
collector in rendering decision does not extend
the... peremptory period fixed by the statute
the various
resolutions
PIROVANO, etc., et al., petitioners-appellants,
vs.THE COMMISSIONER OF INTERNAL REVENUE,
hereinabove
respondent-appellee

.G.R. No. L-19865, July 31,1965

mentioned with
FACTS:

Enrico Pirovano was the father of the herein

certain clarifying
petitioners-appellants. In 1941, De la Rama
Steamship Co. insured the life of said Enrico Pirovano, modifications that
the payment of the
who was then its President and General Manager until
the time of his death, with various Philippine and
American insurance companies for a total sum of one
million pesos, designating itself as the beneficiary of
the policies, obtainedby it. In the latter part of 1944,
said Enrico Pirovano died.
donation shall not
The Board of Directors of De la Rama Steamship Co.
adopted a resolution dated July 10, 1946 granting and
be effected until
setting aside, out of the proceeds expected to be
collected on the insurance policiestaken on the life of
said Enrico Pirovano, the sum of P400,000.00 for
such time as the
equal division among thefour (4) minor children of the
deceased, said sum of money to be convertible into
4,000 shares ofstock of the Company, at par, or 1,000
Company shall
shares for each child. Shortly thereafter, the
Companyreceived the total sum of P643,000.00 as have first duly
proceeds of the said life insurance policies
obtainedfrom American insurers.Various modifications
were instituted by the company’s Board of
liquidated its
present bonded
Directors on the aforesaidresolution until finally on
June 24, 1947, the Board of Directors of the Company
providing thereinthat the Company shall pay the
proceeds of said life insurance policies to the heirs of
the saidEnrico Pirovano after the Company shall have
settled in full the balance of its present
indebtedness in the
remainingbonded indebtedness, but the annual
interests accruing on the principal shall be paid to the
heirsof the said Enrico Pirovano, or their duly
amount of
appointed representative, whenever the Company is
ina position to meet said obligation P3,260,855.77 with
n September 13, the National
1949, the Development
Company, or fully in the resolutions of
redeemed the the Board of
preferred shares of Directors.
stock in the amount On March 8,
which shall be 1951, however, the
issued to majority
the National stockholders of the
Development Company voted to
Company in lieu revoke the
thereof; and that resolution
any and all taxes, approving the
legal fees, and donation in favor of
expenses in any the Pirovano
way connected with children.
the above As a consequence
transaction shall be of this revocation
chargeable and and refusal of the
deducted Company to pay the
from the proceeds balance of the
of the life insurance donation amounting
policies mentioned to P564,980.90
despite demands
therefor, the herein December 29, 1954,
petitioners- this court rendered
appellants its decision in the
represented by appealed case (96
their natural Phil. 335) holding
guardian, Mrs. that the donation
Estefania R. was valid and
Pirovano, brought remunerative in
an action for the nature
recovery of said The above
amount, plus decision became
interest and final and
damages against De executory. In
la Rama Steamship compliance
Co., in the therewith, De la
Court of First Rama
Instance of Rizal, Steamship Co.
which case made, on April 6,
ultimately 1955, a partial
culminated to an payment on the
appeal to this Court. amount of the
On judgment and
 amounting to P564,980.90 despite demands therefor,
paid the balance the herein petitioners-appellantsrepresented by their
natural guardian, Mrs. Estefania R. Pirovano, brought

thereof on May 12,

an action for therecovery of said amount, plus interest
and damages against De la Rama Steamship Co., in
theCourt of First Instance of Rizal, which case

1955. ultimately culminated to an appeal to this Court.

OnDecember 29, 1954, this court rendered its decision
in the appealed case (96 Phil. 335) holdingthat the

On March 6, 1955, donation was valid and remunerative in natureThe

above decision became final and executory. In
compliance therewith, De la RamaSteamship Co.

respondent made, on April 6, 1955, a partial payment on the

amount of the judgment andpaid the balance thereof
on May 12, 1955.On March 6, 1955, respondent
Commissioner of Commissioner of Internal Revenue assessed the
amount ofP60,869.67 as donees' gift tax, inclusive of

Internal Revenue
surcharges, interests and other penalties, against.

Each of the petitioners-appellants, or for the total sum

assessed the
of P243,478.68; and, on April 23, 1955, adonor's gift
tax in the total amount of P34,371.76 was also
assessed against De la RamaSteamship Co., which

amount of the latter paid.Petitioners-appellants herein contested

respondent Commissioner's assessment and
impositionof the donees' gift taxes and donor's gift tax

P60,869.67 as and also made a claim for refund of the donor's gifttax
so
overruled
collected. Respondent
petitioners' claims;
Commissioner
hence, the

donees' gift tax, latterpresented two (2) petitions for review against
respondent's rulings before the Court of
TaxAppeals, said petitions having been docketed as
inclusive of CTA Cases Nos. 347 and 375. CTA Case No.347
relates to the petition disputing the legality of the

surcharges, interests
assessment of donees' gift taxes anddonor's gift tax
while CTA Case No. 375 refers to the claim for refund
of the donor's gift taxalready paid.The two cases,

and other penalties, being interrelated to each other, were tried jointly and
terminated.On January 31, 1962, the Court of Tax
Appeals rendered its decision in the two cases

agains whereinthe petitioners were ordered to pay the donees'

gift taxes as assessed by respondent, plus
5%surcharge and interest at the rate of 1% per month
On September 13, 1949, the stockholders of
the Company formally ratified the from March 8, 1955 to the date of payment ofsaid
variousresolutions hereinabove mentioned with certain donees' gift taxes. Respondent is ordered to
clarifying modifications that the payment of thedonation apply the sum of P34,371.76 which is
shall not be effected until such time as the Company refundable to petitioners, against the amount due from
shall have first duly liquidated itspresent bonded petitioners. With costs against petitioners in Case No.
indebtedness in the amount of P3,260,855.77 with the 347.Petitioners-appellants herein filed a motion to
National DevelopmentCompany, or fully redeemed the reconsider the above decision, which the lowercourt
preferred shares of stock in the amount which shall be denied. Hence, this appeal
issued tothe National Development Company in lieu
.ISSUE:
thereof; and that any and all taxes, legal fees,
andexpenses in any way connected with the above Whether or not the lower court erred in ordering the
transaction shall be chargeable and deductedfrom the petitioners-appellants to pay the donees' gifttaxes as
proceeds of the life insurance policies mentioned in the assessed by respondent as well as the imposition of
resolutions of the Board ofDirectors.On March 8, surcharge and interest on theamount of donees' gift
1951, however, the majority stockholders of the taxes.
Company voted to revoke theresolution approving
the donation in favor of the Pirovano children.As a HELD:
consequence of this revocation and refusal of the
Company to pay the balance of thedonation
Love and affection are not considerations of value
they are not estimable in terms of value. Nor are
sentiments of gratitude for gratuitous part favors or
kindnesses; nor are obligations which aremerely moral.
It has been well said that if a moral obligation were
alone sufficient it would removethe necessity for any
consideration at all, since the fact of making a promise
impose, the moralobligation to perform it."It is of
course perfectly possible that a donation or gift should
at the same time impose a burdenor condition on the
donee involving some economic liability for him. Art.
726 of the Tax Codeprovides that there is also a
donation "when the gift imposes upon the donee a
burden which isless than the value of the thing given."
Section 111 of the Tax Code has in view situations of
thiskind, since it also prescribes that "the amount by
which the value of the property exceeded thevalue of
the consideration" shall be deemed a gift for the
purpose of the tax. .Petitioners finally contend that,
even assuming that the donation in question is subject
to donees'gift taxes, the imposition of the surcharge of
5% and interest of 1% per month from March 8,1955
was not justified because the proceeds of the life
insurance policies were actually receivedon April 6,
1955 and May 12, 1955 only and in accordance with
Section 115(c) of the Tax Code;the filing of the returns
of such tax became due on March 1, 1956 and the tax
became payableon May 15, 1956, as provided for in
Section 116(a) of the same Code. In other words,
petitionersmaintain that the assessment and demand
for donees' gift taxes was prematurely made and ofno
legal effect; hence, they should not be held liable for
such surcharge and interest