SECOND DIVISION

the administrator's disbursements in the total sum

of P13,610.48, broken down as follows:

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

Testate Estate of the Late Felix J. de Guzman.
VICTORINO G. DE GUZMAN, administratorappellee,
vs.
CRISPINA DE GUZMAN-CARILLO, ARSENIO DE
GUZMAN and HONORATA DE GUZMANMENDIOLA,oppositors-appellants.

I. Expense for the improvement and renovation of

the decedent's residential house.
1. Construction of fence P3,082.07
2. Renovation of bathroom P1,389.52
3. Repair of terrace and

AQUINO, J.:

interior of house P5,928.00 P10,399.59

This case is about the propriety of allowing as

administration expenses certain disbursements
made by the administrator of the testate estate of
the late Felix J. de Guzman of Gapan, Nueva Ecija.

II. Living expenses of Librada de Guzman while

occupying the family home without paying rent:

The deceased testator was survived by eight

children named Victorino, Librada, Severino,
Margarita, Josefina, Honorata, Arsenio and
Crispina. His will was duly probated. Letters of
administration were issued to his son, Doctor
Victorino G. de Guzman, pursuant to the order
dated September 17, 1964 of the Court of First
Instance of Nueva Ecija in Special Proceeding No.
1431.

2. Light bills 227.41

One of the properties left by the dent was a

residential house located in the poblacion. In
conformity with his last will, that house and the lot
on which it stands were adjudicated to his eight
children, each being given a oneeighth proindiviso share in the project of partition
dated March 19, 1966, which was signed by the
eight heirs and which was approved in the lower
court's order of April 14, 1967 but without prejudice
to the final outcome of the accounting.

1. Lawyer's subsistence P 19.30

1. For house helper P1,170.00

3. Water bills 150.80

4. Gas oil, floor wax
and switch nail 54.90 P 1,603.11
III. Other expenses:

2. Gratuity pay in lieu

of medical fee 144.00
3. For stenographic notes 100.00
4. For food served on
decedent's first

The administrator submitted four accounting

reports for the period from June 16, 1964 to
September, 1967. Three heirs Crispina de
Guzmans-Carillo Honorata de Guzman-Mendiola
and Arsenio de Guzman interposed objections to

death anniversary 166.65

5. Cost of publication of
death anniversary

of decedent 102.00
6. Representation
expenses 26.25 P558.20
IV. Irrigation fee P1.049.58
TOTAL P13,610.48
It should be noted that the probate court in its order
of August 29, 1966 directed the administrator "to
refrain from spending the assets of the estate for
reconstructing and remodeling the house of the
deceased and to stop spending (sic) any asset of
the estate without first during authority of the court
to do so" (pp. 26-27, Record on Appeal).
The lower court in its order of April 29, 1968
allowed the d items as legitimate expenses of
administration. From that order, the three
oppositors appealed to this Court. Their contention
is that the probate court erred in approving the
utilization of the income of the estate (from rice
harvests) to defray those expenditures which
allegedly are not allowable under the Rules of
Court.
An executor or administrator is allowed the
necessary expenses in the care, management, and
settlement of the estate. He is entitled to possess
and manage the decedent's real and personal
estate as long as it is necessary for the payment of
the debts and the expenses of administration. He is
accountable for the whole decedent's estate which
has come into his possession, with all the interest,
profit, and income thereof, and with the proceeds of
so much of such estate as is sold by him, at the
price at which it was sold (Sec. 3, Rule 84; Secs. 1
and 7, Rule 85, Rules of Court).
One of the Conditions of the administrator's bond is
that he should render a true and just account of his
administration to the court. The court may examine
him upon oath With respect to every matter relating
to his accounting 't and shall so examine him as to

the correctness of his account before the same is

allowed, except when no objection is made to the
allowance of the account and its correctness is
satisfactorily established by competent proof. The
heirs, legatees, distributes, and creditors of the
estate shall have the same privilege as the
executor or administrator of being examined on
oath on any matter relating to an administration
account." (Sec. 1[c] Rule 81 and secs. 8 and 9,
Rule 85, Rules of Court).
A hearing is usually held before an administrator's
account is approved, especially if an interested
Party raises objections to certain items in the
accounting report (Sec. 10, Rule 85).
At that hearing, the practice is for the administrator
to take the witness stand, testify under oath on his
accounts and Identify the receipts, vouchers and
documents evidencing his disbursements which
are offered as exhibits. He may be interrogated by
the court and crossed by the oppositors's counsel.
The oppositors may present proofs to rebut the ad.
administrator's evidence in support of his accounts.
I. Expenses for the renovation and improvement of
the family residence P10,399.59. As already
shown above, these expenses consisted of
disbursements for the repair of the terrace and
interior of the family home, the renovation of the
bathroom, and the construction of a fence. The
probate court allowed those expenses because an
administrator has the duty to "maintain in
tenantable repair the houses and other structures
and fences belonging to the estate, and deliver the
same in such repair to the heirs or devises" when
directed to do so by the court (Sec. 2, Rule 84,
Rules of Court).
On the other hand, the oppositors-appellants
contend that the trial court erred in allowing those
expenses because the same did not come within
the category of necessary expenses of
administration which are understood to be the
reasonable and necessary expenses of caring for
the property and managing it until the debts are

paid and the estate is partitioned and distributed

among the heirs (Lizarraga Hermanos vs. Abada,
40 Phil. 124).
As clarified in the Lizarraga case, administration
expenses should be those which are necessary for
the management of the estate, for protecting it
against destruction or deterioration, and, possibly,
for the production of fruits. They are expenses
entailed for the preservation and productivity of the
estate and its management for purposes of
liquidation, payment of debts, and distribution of
the residue among the persons entitled thereto.
It should be noted that the family residence was
partitioned proindiviso among the decedent's eight
children. Each one of them was given a one-eighth
share in conformity with the testator's will. Five of
the eight co-owners consented to the use of the
funds of the estate for repair and improvement of
the family home. It is obvious that the expenses in
question were incurred to preserve the family home
and to maintain the family's social standing in the
community.
Obviously, those expenses redounded to the
benefit of an the co- owners. They were necessary
for the preservation and use of the family
residence. As a result of those expenses, the coowners, including the three oppositors, would be
able to use the family home in comfort,
convenience and security.
We hold that the probate court did not err in
approving the use of the income of the estate to
defray those ex
II. Expenses incurred by Librada de Guzman as
occupant of the family residence without paying
rent P1 603.11 The probate court allowed the
income of the estate to be used for those expenses
on the theory that the occupancy of the house by
one heir did not deprive the other seven heirs from
living in it. Those expenses consist of the salaries
of the house helper, light and water bills, and the
cost of gas, oil floor wax and switch nail

We are of the opinion that those expenses were

personal expenses of Librada de Guzman, inuring
y to her benefit. Those expenses, not being
reasonable administration expenses incurred by
the administrator, should not be charged against
the income of the estate.
Librada de Guzman, as an heir, is entitled to share
in the net income of the estate. She occupied the
house without paying rent. She should use her
income for her living expenses while occupying the
family residence.
The trial court erred in approving those expenses in
the administrator's accounts. They should be, as
they are hereby, disallowed (See 33 C.J.S 123940).
III. Other expenses P558.20. Among these
expenses is the sum of P100 for stenographic
notes which, as admitted by the administrator on
page 24 of his brief, should be disallowed. Another
item, "representation expenses" in the sum of
P26.25 (2nd accounting), was not explained. it
should likewise be disallowed.
The probate court erred in allowing as expenses of
ad. administration the sum of P268.65 which was
incurred during the celebration of the first death
anniversary of the deceased. Those expenses are
disallowed because they have no connection with
the care, management and settlement of the
decedent's estate (Nicolas vs. Nicolas 63 Phil 332).
The other expenses, namely, P19.30 for the
lawyer's subsistence and P144 as the cost of the
gift to the physician who attended to the testator
during his last s are allowable expenses.
IV. Irrigation fee P1,049.58. The appellants
question the deductibility of that expense on the
ground that it seems to be a duplication of the item
of P1,320 as irrigation fee for the same 1966-67
crop-year.

The administrator in his comment filed on February

28, 1978 explained that the item of P1,320
represented the "allotments" for irrigation fees to
eight tenants who cultivated the Intan crop, which
allotments were treated as "assumed expenses"
deducted as farming expenses from the value of
the net harvests.
The explanation is not quite clear but it was not
disputed by the appellants. The fact is that the said
sum of P1,049.58 was paid by the administrator to
the Penaranda Irrigation System as shown in
Official Receipt No. 3596378 dated April 28, 1967.
It was included in his accounting as part of the
farming expenses. The amount was properly
allowed as a legitimate expense of administration.
WHEREFORE, the lower court's order of April 29,
1968 is affirmed with the modifications that the sum
of (a) P1,603.11 as the living expenses of Librada
de Guzman. (b) P100 for stenographic notes, (c)
P26.25 as representation expenses, and (d)
P268.65 as expenses for the celebration of the first
anniversary of the decedent's death are disallowed
in the administrator's accounts. No costs.
SO ORDERED.
FIRST DIVISION
G.R. No. 155541

January 27, 2004

ESTATE OF THE LATE JULIANA DIEZ VDA. DE

GABRIEL, petitioner,
vs.
COMMISSIONER OF INTERNAL
REVENUE, respondent.
DECISION
YNARES-SANTIAGO, J.:
This petition for review on certiorari assails the
decision of the Court of Appeals in CA-G.R. CV No.
09107, dated September 30, 2002,1 which reversed
the November 19, 1995 Order of Regional Trial

Court of Manila, Branch XXXVIII, in Sp. Proc. No.

R-82-6994, entitled "Testate Estate of Juliana Diez
Vda. De Gabriel". The petition was filed by the
Estate of the Late Juliana Diez Vda. De Gabriel,
represented by Prudential Bank as its duly
appointed and qualified Administrator.
As correctly summarized by the Court of Appeals,
the relevant facts are as follows:
During the lifetime of the decedent, Juliana
Vda. De Gabriel, her business affairs were
managed by the Philippine Trust Company
(Philtrust). The decedent died on April 3,
1979. Two days after her death, Philtrust,
through its Trust Officer, Atty. Antonio M.
Nuyles, filed her Income Tax Return for
1978. The return did not indicate that the
decedent had died.
On May 22, 1979, Philtrust also filed a verified
petition for appointment as Special Administrator
with the Regional Trial Court of Manila, Branch
XXXVIII, docketed as Sp. Proc. No. R-82-6994.
The court a quo appointed one of the heirs as
Special Administrator. Philtrusts motion for
reconsideration was denied by the probate court.
On January 26, 1981, the court a quo issued an
Order relieving Mr. Diez of his appointment, and
appointed Antonio Lantin to take over as Special
Administrator. Subsequently, on July 30, 1981, Mr.
Lantin was also relieved of his appointment, and
Atty. Vicente Onosa was appointed in his stead.
In the meantime, the Bureau of Internal Revenue
conducted an administrative investigation on the
decedents tax liability and found a deficiency
income tax for the year 1977 in the amount of
P318,233.93. Thus, on November 18, 1982, the
BIR sent by registered mail a demand letter and
Assessment Notice No. NARD-78-82-00501
addressed to the decedent "c/o Philippine Trust
Company, Sta. Cruz, Manila" which was the
address stated in her 1978 Income Tax Return. No
response was made by Philtrust. The BIR was not

informed that the decedent had actually passed

away.
In an Order dated September 5, 1983, the court a
quo appointed Antonio Ambrosio as the
Commissioner and Auditor Tax Consultant of the
Estate of the decedent.
On June 18, 1984, respondent Commissioner of
Internal Revenue issued warrants of distraint and
levy to enforce collection of the decedents
deficiency income tax liability, which were served
upon her heir, Francisco Gabriel. On November 22,
1984, respondent filed a "Motion for Allowance of
Claim and for an Order of Payment of Taxes" with
the court a quo. On January 7, 1985, Mr. Ambrosio
filed a letter of protest with the Litigation Division of
the BIR, which was not acted upon because the
assessment notice had allegedly become final,
executory and incontestable.
On May 16, 1985, petitioner, the Estate of the
decedent, through Mr. Ambrosio, filed a formal
opposition to the BIRs Motion for Allowance of
Claim based on the ground that there was no
proper service of the assessment and that the filing
of the aforesaid claim had already prescribed. The
BIR filed its Reply, contending that service to
Philippine Trust Company was sufficient service,
and that the filing of the claim against the Estate on
November 22, 1984 was within the five-year
prescriptive period for assessment and collection of
taxes under Section 318 of the 1977 National
Internal Revenue Code (NIRC).
On November 19, 1985, the court a quo issued an
Order denying respondents claim against the
Estate,2 after finding that there was no notice of its
tax assessment on the proper party.3
On July 2, 1986, respondent filed an appeal with
the Court of Appeals, docketed as CA-G.R. CV No.
09107,4assailing the Order of the probate court
dated November 19, 1985. It was claimed that
Philtrust, in filing the decedents 1978 income tax
return on April 5, 1979, two days after the

taxpayers death, had "constituted itself as the

administrator of the estate of the deceased at least
insofar as said return is concerned."5 Citing Basilan
Estate Inc. v. Commissioner of Internal
Revenue,6 respondent argued that the legal
requirement of notice with respect to tax
assessments7 requires merely that the
Commissioner of Internal Revenue release, mail
and send the notice of the assessment to the
taxpayer at the address stated in the return filed,
but not that the taxpayer actually receive said
assessment within the five-year prescriptive
period.8 Claiming that Philtrust had been remiss in
not notifying respondent of the decedents death,
respondent therefore argued that the deficiency tax
assessment had already become final, executory
and incontestable, and that petitioner Estate was
liable therefor.
On September 30, 2002, the Court of Appeals
rendered a decision in favor of the respondent.
Although acknowledging that the bond of agency
between Philtrust and the decedent was severed
upon the latters death, it was ruled that the
administrator of the Estate had failed in its legal
duty to inform respondent of the decedents death,
pursuant to Section 104 of the National Internal
Revenue Code of 1977. Consequently, the BIRs
service to Philtrust of the demand letter and Notice
of Assessment was binding upon the Estate, and,
upon the lapse of the statutory thirty-day period to
question this claim, the assessment became final,
executory and incontestable. The dispositive
portion of said decision reads:
WHEREFORE, finding merit in the appeal,
the appealed decision is REVERSED AND
SET ASIDE. Another one is entered
ordering the Administrator of the Estate to
pay the Commissioner of Internal Revenue
the following:
a. The amount of P318,223.93,
representing the deficiency income
tax liability for the year 1978, plus
20% interest per annum from

November 2, 1982 up to November

2, 1985 and in addition thereto 10%
surcharge on the basic tax of
P169,155.34 pursuant to Section
51(e)(2) and (3) of the Tax Code as
amended by PD 69 and 1705; and
b. The costs of the suit.
SO ORDERED.9
Hence, the instant petition, raising the following
issues:
1. Whether or not the Court of Appeals
erred in holding that the service of
deficiency tax assessment against Juliana
Diez Vda. de Gabriel through the Philippine
Trust Company was a valid service in order
to bind the Estate;
2. Whether or not the Court of Appeals
erred in holding that the deficiency tax
assessment and final demand was already
final, executory and incontestable.
Petitioner Estate denies that Philtrust had any legal
personality to represent the decedent after her
death. As such, petitioner argues that there was no
proper notice of the assessment which,
therefore, never became final, executory and
incontestable.10 Petitioner further contends that
respondents failure to file its claim against the
Estate within the proper period prescribed by the
Rules of Court is a fatal error, which forever bars its
claim against the Estate.11
Respondent, on the other hand, claims that
because Philtrust filed the decedents income tax
return subsequent to her death, Philtrust was the
de facto administrator of her
Estate.12 Consequently, when the Assessment
Notice and demand letter dated November 18,
1982 were sent to Philtrust, there was proper
service on the Estate.13Respondent further asserts
that Philtrust had the legal obligation to inform

petitioner of the decedents death, which

requirement is found in Section 104 of the NIRC of
1977.14 Since Philtrust did not, respondent
contends that petitioner Estate should not be
allowed to profit from this omission.15 Respondent
further argues that Philtrusts failure to protest the
aforementioned assessment within the 30-day
period provided in Section 319-A of the NIRC of
1977 meant that the assessment had already
become final, executory and incontestable.16
The resolution of this case hinges on the legal
relationship between Philtrust and the decedent,
and, by extension, between Philtrust and petitioner
Estate. Subsumed under this primary issue is the
sub-issue of whether or not service on Philtrust of
the demand letter and Assessment Notice No.
NARD-78-82-00501 was valid service on petitioner,
and the issue of whether Philtrusts inaction
thereon could bind petitioner. If both sub-issues are
answered in the affirmative, respondents
contention as to the finality of Assessment Notice
No. NARD-78-82-00501 must be answered in the
affirmative. This is because Section 319-A of the
NIRC of 1977 provides a clear 30-day period within
which to protest an assessment. Failure to file such
a protest within said period means that the
assessment ipso jure becomes final and
unappealable, as a consequence of which legal
proceedings may then be initiated for collection
thereof.
We find in favor of the petitioner.
The first point to be considered is that the
relationship between the decedent and Philtrust
was one of agency, which is a personal relationship
between agent and principal. Under Article 1919 (3)
of the Civil Code, death of the agent or principal
automatically terminates the agency. In this
instance, the death of the decedent on April 3,
1979 automatically severed the legal relationship
between her and Philtrust, and such could not be
revived by the mere fact that Philtrust continued to
act as her agent when, on April 5, 1979, it filed her
Income Tax Return for the year 1978.

Since the relationship between Philtrust and the

decedent was automatically severed at the moment
of the Taxpayers death, none of Philtrusts acts or
omissions could bind the estate of the Taxpayer.
Service on Philtrust of the demand letter and
Assessment Notice No. NARD-78-82-00501 was
improperly done.
It must be noted that Philtrust was never
appointed as the administrator of the Estate of the
decedent, and, indeed, that the court a quo twice
rejected Philtrusts motion to be thus appointed. As
of November 18, 1982, the date of the demand
letter and Assessment Notice, the legal relationship
between the decedent and Philtrust had already
been non-existent for three years.
Respondent claims that Section 104 of the National
Internal Revenue Code of 1977 imposed the legal
obligation on Philtrust to inform respondent of the
decedents death. The said Section reads:
SEC. 104. Notice of death to be filed. In
all cases of transfers subject to tax or
where, though exempt from tax, the gross
value of the estate exceeds three thousand
pesos, the executor, administrator, or any
of the legal heirs, as the case may be,
within two months after the decedents
death, or within a like period after qualifying
as such executor or administrator, shall
give written notice thereof to the
Commissioner of Internal Revenue.
The foregoing provision falls in Title III,
Chapter I of the National Internal Revenue
Code of 1977, or the chapter on Estate Tax,
and pertains to "all cases of transfers
subject to tax" or where the "gross value of
the estate exceeds three thousand pesos".
It has absolutely no applicability to a case
for deficiency income tax, such as the case
at bar. It further lacks applicability since
Philtrust was never the executor,
administrator of the decedents estate, and,
as such, never had the legal obligation,

based on the above provision, to inform

respondent of her death.
Although the administrator of the estate
may have been remiss in his legal
obligation to inform respondent of the
decedents death, the consequences
thereof, as provided in Section 119 of the
National Internal Revenue Code of 1977,
merely refer to the imposition of certain
penal sanctions on the administrator. These
do not include the indefinite tolling of the
prescriptive period for making deficiency
tax assessments, or the waiver of the
notice requirement for such assessments.
Thus, as of November 18, 1982, the date of
the demand letter and Assessment Notice
No. NARD-78-82-00501, there
was absolutely no legal obligation on the
part of Philtrust to either (1) respond to the
demand letter and assessment notice, (2)
inform respondent of the decedents death,
or (3) inform petitioner that it had received
said demand letter and assessment notice.
This lack of legal obligation was implicitly
recognized by the Court of Appeals, which,
in fact, rendered its assailed decision on
grounds of "equity".17
Since there was never any valid notice of this
assessment, it could not have become final,
executory and incontestable, and, for failure to
make the assessment within the five-year period
provided in Section 318 of the National Internal
Revenue Code of 1977, respondents claim against
the petitioner Estate is barred. Said Section 18
reads:
SEC. 318. Period of limitation upon
assessment and collection. Except as
provided in the succeeding section, internal
revenue taxes shall be assessed within five
years after the return was filed, and no
proceeding in court without assessment for
the collection of such taxes shall be begun

after the expiration of such period. For the

purpose of this section, a return filed before
the last day prescribed by law for the filing
thereof shall be considered as filed on such
last day: Provided, That this limitation shall
not apply to cases already investigated
prior to the approval of this Code.
Respondent argues that an assessment is deemed
made for the purpose of giving effect to such
assessment when the notice is released, mailed or
sent to the taxpayer to effectuate the assessment,
and there is no legal requirement that the taxpayer
actually receive said notice within the five-year
period.18 It must be noted, however, that the
foregoing rule requires that the notice be sent to
the taxpayer, and not merely to a disinterested
party. Although there is no specific requirement that
the taxpayer should receive the notice within the
said period, due process requires at the very least
that such notice actually be received. In
Commissioner of Internal Revenue v. Pascor
Realty and Development Corporation,19 we had
occasion to say:
An assessment contains not only a
computation of tax liabilities, but also a
demand for payment within a prescribed
period. It also signals the time when
penalties and interests begin to accrue
against the taxpayer. To enable the
taxpayer to determine his remedies
thereon, due process requires that it must
be served on and received by the taxpayer.
In Republic v. De le Rama,20 we clarified that, when
an estate is under administration, notice must be
sent to the administrator of the estate, since it is
the said administrator, as representative of the
estate, who has the legal obligation to pay and
discharge all debts of the estate and to perform all
orders of the court. In that case, legal notice of the
assessment was sent to two heirs, neither one of
whom had any authority to represent the estate.
We said:

The notice was not sent to the taxpayer for

the purpose of giving effect to the
assessment, and said notice could not
produce any effect. In the case of Bautista
and Corrales Tan v. Collector of Internal
Revenue this Court had occasion to
state that "the assessment is deemed
made when the notice to this effect is
released, mailed or sent to the taxpayer for
the purpose of giving effect to said
assessment." It appearing that the person
liable for the payment of the tax did not
receive the assessment, the assessment
could not become final and
executory. (Citations omitted, emphasis
supplied.)
In this case, the assessment was served not even
on an heir of the Estate, but on a completely
disinterested third party. This improper service was
clearly not binding on the petitioner.
By arguing that (1) the demand letter and
assessment notice were served on Philtrust, (2)
Philtrust was remiss in its obligation to respond to
the demand letter and assessment notice, (3)
Philtrust was remiss in its obligation to inform
respondent of the decedents death, and (4) the
assessment notice is therefore binding on the
Estate, respondent is arguing in circles. The most
crucial point to be remembered is that Philtrust had
absolutely no legal relationship to the deceased, or
to her Estate. There was therefore no assessment
served on the Estate as to the alleged
underpayment of tax. Absent this assessment, no
proceedings could be initiated in court for the
collection of said tax,21 and respondents claim for
collection, filed with the probate court only on
November 22, 1984, was barred for having been
made beyond the five-year prescriptive period set
by law.
WHEREFORE, the petition is GRANTED. The
Decision of the Court of Appeals in CA-G.R. CV
No. 09107, dated September 30, 2002, is
REVERSED and SET ASIDE. The Order of the

Regional Trial Court of Manila, Branch XXXVIII, in

Sp. Proc. No. R-82-6994, dated November 19,
1985, which denied the claim of the Bureau of
Internal Revenue against the Estate of Juliana Diez
Vda. De Gabriel for the deficiency income tax of
the decedent for the year 1977 in the amount of
P318,223.93, is AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
EN BANC

G.R. No. L-13250 October 29, 1971

THE COLLECTOR OF INTERNAL
REVENUE, petitioner,
vs.
ANTONIO CAMPOS RUEDA, respondent..
FERNANDO, J.:
The basic issue posed by petitioner Collector of
Internal Revenue in this appeal from a decision of
the Court of Tax Appeals as to whether or not the
requisites of statehood, or at least so much thereof
as may be necessary for the acquisition of an
international personality, must be satisfied for a
"foreign country" to fall within the exemption of
Section 122 of the National Internal Revenue
Code 1 is now ripe for adjudication. The Court of Tax
Appeals answered the question in the negative, and
thus reversed the action taken by petitioner Collector,
who would hold respondent Antonio Campos Rueda,
as administrator of the estate of the late Estrella
Soriano Vda. de Cerdeira, liable for the sum of
P161,874.95 as deficiency estate and inheritance
taxes for the transfer of intangible personal properties
in the Philippines, the deceased, a Spanish national
having been a resident of Tangier, Morocco from 1931
up to the time of her death in 1955. In an earlier
resolution promulgated May 30, 1962, this Court on
the assumption that the need for resolving the
principal question would be obviated, referred the

matter back to the Court of Tax Appeals to determine

whether the alleged law of Tangier did grant the
reciprocal tax exemption required by the aforesaid
Section 122. Then came an order from the Court of
Tax Appeals submitting copies of legislation of Tangier
that would manifest that the element of reciprocity
was not lacking. It was not until July 29, 1969 that the
case was deemed submitted for decision. When the
petition for review was filed on January 2, 1958, the
basic issue raised was impressed with an element of
novelty. Four days thereafter, however, on January 6,
1958, it was held by this Court that the aforesaid
provision does not require that the "foreign country"
possess an international personality to come within its
terms. 2 Accordingly, we have to affirm.

The decision of the Court of Tax Appeals, now

under review, sets forth the background facts as
follows: "This is an appeal interposed by petitioner
Antonio Campos Rueda as administrator of the
estate of the deceased Doa Maria de la Estrella
Soriano Vda. de Cerdeira, from the decision of the
respondent Collector of Internal Revenue,
assessing against and demanding from the former
the sum P161,874.95 as deficiency estate and
inheritance taxes, including interest and penalties,
on the transfer of intangible personal properties
situated in the Philippines and belonging to said
Maria de la Estrella Soriano Vda. de Cerdeira.
Maria de la Estrella Soriano Vda. de Cerdeira
(Maria Cerdeira for short) is a Spanish national, by
reason of her marriage to a Spanish citizen and
was a resident of Tangier, Morocco from 1931 up to
her death on January 2, 1955. At the time of her
demise she left, among others, intangible personal
properties in the Philippines." 3 Then came this
portion: "On September 29, 1955, petitioner filed a
provisional estate and inheritance tax return on all the
properties of the late Maria Cerdeira. On the same
date, respondent, pending investigation, issued an
assessment for state and inheritance taxes in the
respective amounts of P111,592.48 and P157,791.48,
or a total of P369,383.96 which tax liabilities were
paid by petitioner ... . On November 17, 1955, an
amended return was filed ... wherein intangible
personal properties with the value of P396,308.90
were claimed as exempted from taxes. On November
23, 1955, respondent, pending investigation, issued

another assessment for estate and inheritance taxes

in the amounts of P202,262.40 and P267,402.84,
respectively, or a total of P469,665.24 ... . In a letter
dated January 11, 1956, respondent denied the
request for exemption on the ground that the law of
Tangier is not reciprocal to Section 122 of the
National Internal Revenue Code. Hence, respondent
demanded the payment of the sums of P239,439.49
representing deficiency estate and inheritance taxes
including ad valorem penalties, surcharges, interests
and compromise penalties ... . In a letter dated
February 8, 1956, and received by respondent on the
following day, petitioner requested for the
reconsideration of the decision denying the claim for
tax exemption of the intangible personal properties
and the imposition of the 25% and 5% ad
valorem penalties ... . However, respondent denied
request, in his letter dated May 5, 1956 ... and
received by petitioner on May 21, 1956. Respondent
premised the denial on the grounds that there was no
reciprocity [with Tangier, which was moreover] a mere
principality, not a foreign country. Consequently,
respondent demanded the payment of the sums of
P73,851.21 and P88,023.74 respectively, or a total of
P161,874.95 as deficiency estate and inheritance
taxes including surcharges, interests and compromise
penalties." 4

The matter was then elevated to the Court of Tax

Appeals. As there was no dispute between the
parties regarding the values of the properties and
the mathematical correctness of the deficiency
assessments, the principal question as noted dealt
with the reciprocity aspect as well as the insisting
by the Collector of Internal Revenue that Tangier
was not a foreign country within the meaning of
Section 122. In ruling against the contention of the
Collector of Internal Revenue, the appealed
decision states: "In fine, we believe, and so hold,
that the expression "foreign country", used in the
last proviso of Section 122 of the National Internal
Revenue Code, refers to a government of that
foreign power which, although not an international
person in the sense of international law, does not
impose transfer or death upon intangible person
properties of our citizens not residing therein, or
whose law allows a similar exemption from such
taxes. It is, therefore, not necessary that Tangier

should have been recognized by our Government

order to entitle the petitioner to the exemption
benefits of the proviso of Section 122 of our Tax.
Code." 5
Hence appeal to this court by petitioner. The
respective briefs of the parties duly submitted, but
as above indicated, instead of ruling definitely on
the question, this Court, on May 30, 1962, resolve
to inquire further into the question of reciprocity and
sent back the case to the Court of Tax Appeals for
the motion of evidence thereon. The dispositive
portion of such resolution reads as follows: "While
section 122 of the Philippine Tax Code aforequoted
speaks of 'intangible personal property' in both
subdivisions (a) and (b); the alleged laws of Tangier
refer to 'bienes muebles situados en Tanger',
'bienes muebles radicantes en Tanger', 'movables'
and 'movable property'. In order that this Court may
be able to determine whether the alleged laws of
Tangier grant the reciprocal tax exemptions
required by Section 122 of the Tax Code, and
without, for the time being, going into the merits of
the issues raised by the petitioner-appellant, the
case is [remanded] to the Court of Tax Appeals for
the reception of evidence or proof on whether or
not the words `bienes muebles', 'movables' and
'movable properties as used in the Tangier laws,
include or embrace 'intangible person property', as
used in the Tax Code." 6 In line with the above
resolution, the Court of Tax Appeals admitted
evidence submitted by the administrator petitioner
Antonio Campos Rueda, consisting of exhibits of laws
of Tangier to the effect that "the transfers by reason of
death of movable properties, corporeal or incorporeal,
including furniture and personal effects as well as of
securities, bonds, shares, ..., were not subject, on that
date and in said zone, to the payment of any death
tax, whatever might have been the nationality of the
deceased or his heirs and legatees." It was further
noted in an order of such Court referring the matter
back to us that such were duly admitted in evidence
during the hearing of the case on September 9, 1963.
Respondent presented no evidence." 7
The controlling legal provision as noted is a proviso
in Section 122 of the National Internal Revenue

10

Code. It reads thus: "That no tax shall be collected

under this Title in respect of intangible personal
property (a) if the decedent at the time of his death
was a resident of a foreign country which at the
time of his death did not impose a transfer tax or
death tax of any character in respect of intangible
person property of the Philippines not residing in
that foreign country, or (b) if the laws of the foreign
country of which the decedent was a resident at the
time of his death allow a similar exemption from
transfer taxes or death taxes of every character in
respect of intangible personal property owned by
citizens of the Philippines not residing in that
foreign country." 8 The only obstacle therefore to a
definitive ruling is whether or not as vigorously
insisted upon by petitioner the acquisition of internal
personality is a condition sine qua non to Tangier
being considered a "foreign country". Deference to
the De Lara ruling, as was made clear in the opening
paragraph of this opinion, calls for an affirmance of
the decision of the Court of Tax Appeals.

its territory the conditions of a legal order and to enter

into international relations. 14 With the latter requisite
satisfied, international law do not exact independence
as a condition of statehood. So Hyde did opine. 15

It does not admit of doubt that if a foreign country is

to be identified with a state, it is required in line with
Pound's formulation that it be a politically organized
sovereign community independent of outside
control bound by penalties of nationhood, legally
supreme within its territory, acting through a
government functioning under a regime of
law. 9 It is thus a sovereign person with the people
composing it viewed as an organized corporate
society under a government with the legal
competence to exact obedience to its commands. 10 It
has been referred to as a body-politic organized by
common consent for mutual defense and mutual
safety and to promote the general welfare. 11 Correctly
has it been described by Esmein as "the juridical
personification of the nation." 12 This is to view it in the
light of its historical development. The stress is on its
being a nation, its people occupying a definite
territory, politically organized, exercising by means of
its government its sovereign will over the individuals
within it and maintaining its separate international
personality. Laski could speak of it then as a territorial
society divided into government and subjects,
claiming within its allotted area a supremacy over all
other institutions. 13 McIver similarly would point to the
power entrusted to its government to maintain within

What is undeniable is that even prior to the De Lara

ruling, this Court did commit itself to the doctrine
that even a tiny principality, that of Liechtenstein,
hardly an international personality in the sense, did
fall under this exempt category. So it appears in an
opinion of the Court by the then Acting Chief
Justicem Bengson who thereafter assumed that
position in a permanent capacity, in Kiene v.
Collector of Internal Revenue. 19 As was therein
noted: 'The Board found from the documents
submitted to it proof of the laws of Liechtenstein
that said country does not impose estate, inheritance
and gift taxes on intangible property of Filipino
citizens not residing in that country. Wherefore, the
Board declared that pursuant to the exemption above
established, no estate or inheritance taxes were
collectible, Ludwig Kiene being a resident of
Liechtestein when he passed away." 20 Then came
this definitive ruling: "The Collector hereafter
named the respondent cites decisions of the
United States Supreme Court and of this Court,
holding that intangible personal property in the
Philippines belonging to a non-resident foreigner, who
died outside of this country is subject to the estate
tax, in disregard of the principle 'mobilia sequuntur
personam'. Such property is admittedly taxable here.

Even on the assumption then that Tangier is bereft

of international personality, petitioner has not
successfully made out a case. It bears repeating
that four days after the filing of this petition on
January 6, 1958 in Collector of Internal Revenue v.
De Lara, 16 it was specifically held by us: "Considering
the State of California as a foreign country in relation
to section 122 of our Tax Code we believe and hold,
as did the Tax Court, that the Ancilliary Administrator
is entitled the exemption from the inheritance tax on
the intangible personal property found in the
Philippines." 17 There can be no doubt that California
as a state in the American Union was in the alleged
requisite of international personality. Nonetheless, it
was held to be a foreign country within the meaning of
Section 122 of the National Internal Revenue Code. 18

11

Without the proviso above quoted, the shares of stock

owned here by the Ludwig Kiene would be
concededly subject to estate and inheritance taxes.
Nevertheless our Congress chose to make an
exemption where conditions are such that demand
reciprocity as in this case. And the exemption must
be honored." 21

WHEREFORE, the decision of the respondent

Court of Tax Appeals of October 30, 1957 is
affirmed. Without pronouncement as to costs.
EN BANC
G.R. No. L-34937

March 13, 1933

CONCEPCION VIDAL DE ROCES and her

husband,
MARCOS ROCES, and ELVIRA VIDAL DE
RICHARDS, plaintiff-appellants,
vs.
JUAN POSADAS, JR., Collector of Internal
Revenue, defendant-appellee.
IMPERIAL, J.:
The plaintiffs herein brought this action to recover
from the defendant, Collector of Internal Revenue,
certain sums of money paid by them under protest
as inheritance tax. They appealed from the
judgment rendered by the Court of First Instance of
Manila dismissing the action, without costs.
On March 10 and 12, 1925, Esperanza Tuazon, by
means of public documents, donated certain
parcels of land situated in Manila to the plaintiffs
herein, who, with their respective husbands,
accepted them in the same public documents,
which were duly recorded in the registry of deeds.
By virtue of said donations, the plaintiffs took
possession of the said lands, received the fruits
thereof and obtained the corresponding transfer
certificates of title.
On January 5, 1926, the donor died in the City of
Manila without leaving any forced heir and her will
which was admitted to probate, she bequeathed to
each of the donees the sum of P5,000. After the
estate had been distributed among the instituted
legatees and before delivery of their respective
shares, the appellee herein, as Collector of Internal

Revenue, ruled that the appellants, as donees and

legatees, should pay as inheritance tax the sums of
P16,673 and P13,951.45, respectively. Of these
sums P15,191.48 was levied as tax on the
donation to Concepcion Vidal de Roces and
P1,481.52 on her legacy, and, likewise, P12,388.95
was imposed upon the donation made to Elvira
Vidal de Richards and P1,462.50 on her legacy. At
first the appellants refused to pay the
aforementioned taxes but, at the insistence of the
appellee and in order not to delay the adjudication
of the legacies, they agreed at last, to pay them
under protest.
The appellee filed a demurrer to the complaint on
the ground that the facts alleged therein were not
sufficient to constitute a cause of action. After the
legal questions raised therein had been discussed,
the court sustained the demurrer and ordered the
amendment of the complaint which the appellants
failed to do, whereupon the trial court dismissed
the action on the ground that the afore- mentioned
appellants did not really have a right of action.
In their brief, the appellants assign only one alleged
error, to wit: that the demurrer interposed by the
appellee was sustained without sufficient ground.
The judgment appealed from was based on the
provisions of section 1540 Administrative Code
which reads as follows:
SEC. 1540. Additions of gifts and
advances. After the aforementioned
deductions have been made, there shall be
added to the resulting amount the value of
all gifts or advances made by the
predecessor to any those who, after his
death, shall prove to be his heirs, devisees,
legatees, or donees mortis causa.
The appellants contend that the above-mentioned
legal provision does not include donations inter
vivos and if it does, it is unconstitutional, null and
void for the following reasons: first, because it
violates section 3 of the Jones Law which provides
that no law should embrace more than one subject,
and that subject should be expressed in the title
thereof; second that the Legislature has no
authority to impose inheritance tax on
donations inter vivos; and third, because a legal
provision of this character contravenes the

12

fundamental rule of uniformity of taxation. The

appellee, in turn, contends that the words "all gifts"
refer clearly to donations inter vivos and, in support
of his theory, cites the doctrine laid in the case
of Tuason and Tuason vs. Posadas (54 Phil., 289).
After a careful study of the law and the authorities
applicable thereto, we are the opinion that neither
theory reflects the true spirit of the aforementioned
provision. The gifts referred to in section 1540 of
the Revised Administration Code are, obviously,
those donations inter vivos that take effect
immediately or during the lifetime of the donor but
are made in consideration or in contemplation of
death. Gifts inter vivos, the transmission of which is
not made in contemplation of the donor's death
should not be understood as included within the
said legal provision for the reason that it would
amount to imposing a direct tax on property and
not on the transmission thereof, which act does not
come within the scope of the provisions contained
in Article XI of Chapter 40 of the Administrative
Code which deals expressly with the tax on
inheritances, legacies and other acquisitions mortis
causa.
Our interpretation of the law is not in conflict with
the rule laid down in the case of Tuason and
Tuason vs. Posadas, supra. We said therein, as we
say now, that the expression "all gifts" refers to
gifts inter vivos inasmuch as the law considers
them as advances on inheritance, in the sense that
they are gifts inter vivos made in contemplation or
in consideration of death. In that case, it was not
held that that kind of gifts consisted in those made
completely independent of death or without regard
to it.
Said legal provision is not null and void on the
alleged ground that the subject matter thereof is
not embraced in the title of the section under which
it is enumerated. On the contrary, its provisions are
perfectly summarized in the heading, "Tax on
Inheritance, etc." which is the title of Article XI.
Furthermore, the constitutional provision cited
should not be strictly construed as to make it
necessary that the title contain a full index to all the
contents of the law. It is sufficient if the language
used therein is expressed in such a way that in
case of doubt it would afford a means of
determining the legislators intention. (Lewis'
Sutherland Statutory Construction, Vol. II, p. 651.)
Lastly, the circumstance that the Administrative
Code was prepared and compiled strictly in

accordance with the provisions of the Jones Law

on that matter should not be overlooked and that,
in a compilation of laws such as the Administrative
Code, it is but natural and proper that provisions
referring to diverse matters should be found.
(Ayson and Ignacio vs. Provincial Board of Rizal
and Municipal Council of Navotas, 39 Phil., 931.)
The appellants question the power of the
Legislature to impose taxes on the transmission of
real estate that takes effect immediately and during
the lifetime of the donor, and allege as their reason
that such tax partakes of the nature of the land tax
which the law has already created in another part
of the Administrative Code. Without making
express pronouncement on this question, for it is
unnecessary, we wish to state that such is not the
case in these instance. The tax collected by the
appellee on the properties donated in 1925 really
constitutes an inheritance tax imposed on the
transmission of said properties in contemplation or
in consideration of the donor's death and under the
circumstance that the donees were later instituted
as the former's legatees. For this reason, the law
considers such transmissions in the form of
gifts inter vivos, as advances on inheritance and
nothing therein violates any constitutional
provision, inasmuch as said legislation is within the
power of the Legislature.
Property Subject to Inheritance Tax. The
inheritance tax ordinarily applies to all
property within the power of the state to
reach passing by will or the laws regulating
intestate succession or by gift inter vivos in
the manner designated by statute, whether
such property be real or personal, tangible
or intangible, corporeal or incorporeal. (26
R.C.L., p. 208, par. 177.)
In the case of Tuason and Tuason vs.
Posadas, supra, it was also held that section 1540
of the Administrative Code did not violate the
constitutional provision regarding uniformity of
taxation. It cannot be null and void on this ground
because it equally subjects to the same tax all of
those donees who later become heirs, legatees or
donees mortis causa by the will of the donor. There
would be a repugnant and arbitrary exception if the
provisions of the law were not applicable to all
donees of the same kind. In the case cited above, it
was said: "At any rate the argument adduced
against its constitutionality, which is the lack of

13

Uniformity, does not seem to be well founded. It

was said that under such an interpretation, while a
donee inter vivos who, after the predecessor's
death proved to be an heir, a legatee, or a
donee mortis causa, would have to pay the tax,
another donee inter vivos who did not prove to he
an heir, a legatee, or a donee mortis causa of the
predecessor, would be exempt from such a tax. But
as these are two different cases, the principle of
uniformity is inapplicable to them."
The last question of a procedural nature arising
from the case at bar, which should be passed
upon, is whether the case, as it now stands, can be
decided on the merits or should be remanded to
the court a quo for further proceedings. According
to our view of the case, it follows that, if the gifts
received by the appellants would have the right to
recover the sums of money claimed by them.
Hence the necessity of ascertaining whether the
complaint contains an allegation to that effect. We
have examined said complaint and found nothing
of that nature. On the contrary, it be may be
inferred from the allegations contained in
paragraphs 2 and 7 thereof that said
donations inter vivos were made in consideration of
the donor's death. We refer to the allegations that
such transmissions were effected in the month of
March, 1925, that the donor died in January, 1926,
and that the donees were instituted legatees in the
donor's will which was admitted to probate. It is
from these allegations, especially the last, that we
infer a presumption juris tantum that said donations
were made mortis causa and, as such, are subject
to the payment of inheritance tax.
Wherefore, the demurrer interposed by the
appellee was well-founded because it appears that
the complaint did not allege fact sufficient to
constitute a cause of action. When the appellants
refused to amend the same, spite of the court's
order to that effect, they voluntarily waived the
opportunity offered them and they are not now
entitled to have the case remanded for further
proceedings, which would serve no purpose
altogether in view of the insufficiency of the
complaint.
Wherefore, the judgment appealed from is hereby
affirmed, with costs of this instance against the
appellants. So ordered.

Separate Opinions
VILLA-REAL, J., dissenting:
I sustain my concurrence in Justice Street's
dissenting opinion in the case of Tuason and
Tuason vs. Posadas (54 Phil., 289).
The majority opinion to distinguish the present case
from above-mentioned case of Tuason and Tuason
vs. Posadas, by interpreting section 1540 of the
Administrative Code in the sense that it establishes
the legal presumption juris tantum that all gifts inter
vivos made to persons who are not forced heirs but
who are instituted legatees in the donor's will, have
been made in contemplation of the donor's death.
Presumptions are of two kinds: One determined by
law which is also called presumption of law or of
right; and another which is formed by the judge
from circumstances antecedent to, coincident with
or subsequent to the principal fact under
investigation, which is also called presumption of
man (presuncion de hombre). (Escriche, Vol. IV, p.
662.) The Civil Code as well as the code of Civil
Procedure establishes presumptions juris et de
jure and juris tantum which the courts should take
into account in deciding questions of law submitted
to them for decision. The presumption which
majority opinion wishes to draw from said section
1540 of the Administrative Code can neither be
found in this Code nor in any of the aforementioned
Civil Code and Code of Civil Procedure. Therefore,
said presumption cannot be called legal or of law.
Neither can it be called a presumption of
man (presuncion de hombre) inasmuch as the
majority opinion did not infer it from circumstances
antecedent to, coincident with or subsequent to the
principal fact with is the donation itself. In view of
the nature, mode of making and effects of
donations inter vivos, the contrary presumption
would be more reasonable and logical; in other
words, donations inter vivos made to persons who
are not forced heirs, but who are instituted legatees
in the donor's will, should be presumed as not
made mortis causa, unless the contrary is proven.
In the case under consideration, the burden of the
proof rests with the person who contends that the
donation inter vivos has been made mortis causa.
It is therefore, the undersigned's humble opinion
that the order appealed from should be reversed

14

and the demurrer overruled, and the defendant

ordered to file his answer to the complaint.
Street, J., concurs.
EN BANC
G.R. No. L-36770

November 4, 1932

LUIS W. DISON, plaintiff-appellant,

vs.
JUAN POSADAS, JR., Collector of Internal
Revenue, defendant-appellant.
BUTTE, J.:
This is an appeal from the decision of the Court of
First Instance of Pampanga in favor of the
defendant Juan Posadas, Jr., Collector of Internal
Revenue, in a suit filed by the plaintiffs, Luis W.
Dison, for the recovery of an inheritance tax in the
sum of P2,808.73 paid under protest. The
petitioner alleged in his complaint that the tax is
illegal because he received the property, which is
the basis of the tax, from his father before his death
by a deed of gift inter vivos which was duly
accepted and registered before the death of his
father. The defendant answered with a general
denial and with a counterdemand for the sum of
P1,245.56 which it was alleged is a balance still
due and unpaid on account of said tax. The plaintiff
replied to the counterdemand with a general denial.
The court a quo held that the cause of action set up
in the counterdemand was not proven and
dismissed the same. Both sides appealed to this
court, but the cross-complaint and appeal of the
Collector of Internal Revenue were dismissed by
this court on March 17, 1932, on motion of the
Attorney-General.

donee, reserving to the donor for his life the

usufruct of three tracts. This deed was
acknowledged by the donor before a notary public
on April 16, 1928. Luis W. Dison, on April 17, 1928,
formally accepted said gift by an instrument in
writing which he acknowledged before a notary
public on April 20, 1928.
At the trial the parties agreed to and filed the
following ingenious stipulation of fact:
1. That Don Felix Dison died on April 21,
1928;
2. That Don Felix Dison, before his death,
made a gift inter vivos in favor of the
plaintiff Luis W. Dison of all his property
according to a deed of gift (Exhibit D) which
includes all the property of Don Felix Dizon;
3. That the plaintiff did not receive property
of any kind of Don Felix Dison upon the
death of the latter;
4. That Don Luis W. Dison was the
legitimate and only child of Don Felix
Dison.
It is inferred from Exhibit D that Felix Dison was a
widower at the time of his death.
The theory of the plaintiff-appellant is that he
received and holds the property mentioned by a
consummated gift and that Act No. 2601 (Chapter
40 of the Administrative Code) being the
inheritance tax statute, does not tax gifts. The
provision directly here involved is section 1540 of
the Administrative Code which reads as follows:

1awphil.net

The only evidence introduced at the trial of this

cause was the proof of payment of the tax under
protest, as stated, and the deed of gift executed by
Felix Dison on April 9, 1928, in favor of his sons
Luis W. Dison, the plaintiff-appellant. This deed of
gift transferred twenty-two tracts of land to the

Additions of Gifts and Advances. After

the aforementioned deductions have been
made, there shall be added to the resulting
amount the value of all gifts or advances
made by the predecessor to any of those
who, after his death, shall prove to be his

15

heirs, devises, legatees, or donees mortis

causa.
The question to be resolved may be stated thus:
Does section 1540 of the Administrative Code
subject the plaintiff-appellant to the payment of an
inheritance tax?
The appellant argues that there is no evidence in
this case to support a finding that the gift was
simulated and that it was an artifice for evading the
payment of the inheritance tax, as is intimated in
the decision of the court below and the brief of the
Attorney-General. We see no reason why the court
may not go behind the language in which the
transaction is masked in order to ascertain its true
character and purpose. In this case the scanty
facts before us may not warrant the inference that
the conveyance, acknowledged by the donor five
days before his death and accepted by the donee
one day before the donor's death, was fraudulently
made for the purpose of evading the inheritance
tax. But the facts, in our opinion, do warrant the
inference that the transfer was an advancement
upon the inheritance which the donee, as the sole
and forced heir of the donor, would be entitled to
receive upon the death of the donor.
The argument advanced by the appellant that he is
not an heir of his deceased father within the
meaning of section 1540 of the Administrative
Code because his father in his lifetime had given
the appellant all his property and left no property to
be inherited, is so fallacious that the urging of it
here casts a suspicion upon the appellants reason
for completing the legal formalities of the transfer
on the eve of the latter's death. We do not know
whether or not the father in this case left a will; in
any event, this appellant could not be deprived of
his share of the inheritance because the Civil Code
confers upon him the status of a forced heir. We
construe the expression in section 1540 "any of
those who, after his death, shall prove to be his
heirs", to include those who, by our law, are given
the status and rights of heirs, regardless of the
quantity of property they may receive as such

heirs. That the appellant in this case occupies the

status of heir to his deceased father cannot be
questioned. Construing the conveyance here in
question, under the facts presented, as an advance
made by Felix Dison to his only child, we hold
section 1540 to be applicable and the tax to have
been properly assessed by the Collector of Internal
Revenue.
This appeal was originally assigned to a Division of
five but referred to the court in banc by reason of
the appellant's attack upon the constitutionality of
section 1540. This attack is based on the sole
ground that insofar as section 1540 levies a tax
upon gifts inter vivos, it violates that provision of
section 3 of the organic Act of the Philippine
Islands (39 Stat. L., 545) which reads as follows:
"That no bill which may be enacted into law shall
embraced more than one subject, and that subject
shall be expressed in the title of the bill." Neither
the title of Act No. 2601 nor chapter 40 of the
Administrative Code makes any reference to a tax
on gifts. Perhaps it is enough to say of this
contention that section 1540 plainly does not tax
gifts per se but only when those gifts are made to
those who shall prove to be the heirs, devisees,
legatees or donees mortis causa of the donor. This
court said in the case of Tuason and
Tuason vs. Posadas 954 Phil., 289):
lawphil.net

When the law says all gifts, it doubtless

refers to gifts inter vivos, and not mortis
causa. Both the letter and the spirit of the
law leave no room for any other
interpretation. Such, clearly, is the tenor of
the language which refers to donations that
took effect before the donor's death, and
not to mortis causa donations, which can
only be made with the formalities of a will,
and can only take effect after the donor's
death. Any other construction would
virtually change this provision into:
". . . there shall be added to the resulting amount
the value of all gifts mortis causa . . . made by the
predecessor to those who, after his death, shall

16

prove to be his . . . donees mortis causa." We

cannot give to the law an interpretation that would
so vitiate its language. The truth of the matter is
that in this section (1540) the law presumes that
such gifts have been made in anticipation of
inheritance, devise, bequest, or gift mortis causa,
when the donee, after the death of the donor
proves to be his heir, devisee or donee mortis
causa, for the purpose of evading the tax, and it is
to prevent this that it provides that they shall be
added to the resulting amount." However much
appellant's argument on this point may fit his

preconceived notion that the transaction between

him and his father was a consummated gift with no
relation to the inheritance, we hold that there is not
merit in this attack upon the constitutionality of
section 1540 under our view of the facts. No other
constitutional questions were raised in this case.
The judgment below is affirmed with costs in this
instance against the appellant. So ordered.

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