MISAEL P. VERA vs.Hon. Judge PEDRO C.

NAVARRO

FACTS:

- Elsie M. Gaches died on March 9, 1966 without a child. The deceased left a last will and
testament in which she made the following disposition of her estate, to wit: +.wph!1

After payment of my just debts and funeral expenses I intact that the balance of my
property, both real and personal in the Philippines, he distributed as follows: +.w ph!1

a) to my driver, PACITO TROCIO Ten Thousand Pesos (P10,000.00);

b) to my lavandero, VICENTE JERODIAS One Thousand Pesos (P1,000.00);
c) to my gardener, CRISANTO SALIPOT, JR. Five Hundred Pesos (P500.00);
d) the balance of my estate in the Philippines shall then be divided in half; One-half (1/2) to
be given to CAMILO ERIBAL and the other half to MISS MAGDALENA ABANTO;
e) to MISS CONSUELO L. TAN My office table and chair now in the library of my house,
and one of the carpets in my house to be selected by her;'
All my property in the United States consisting of furs, jewelry and stocks I leave to my
sister BESS LAUER widow, and at present a resident of San Francisco, California.

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

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

On June 11, 1966, the herein respondent Atty. Delia P. Medina (hereinafter referred to as "Atty.
Medina"), representing herself as the attorney-in-fact of the herein respondents Camilo Eribal
and Magdalena Abanto, filed with the probate court a motion praying that the executor of the
estate be authority to give a monthly allowance to the voluntary heirs Abanto and Eribal from the
month of May, 1966 until "the receipt of the recommended advance of inheritance of
P100,000.00 each recommended by the Executor in his motion of June 6, 1966 and/or final
distribution has been made to said heirs of their respective shares in the estate." This prayer was
granted by the probate court in an order dated June 25, 1966 (subsequently clarified in an order
dated August 11, 1966).

On July 9, 1966, the Commissioner filed with the probate court a proof of claim for the sum "of
P192,364.00 as income tax for 1965 and 1% monthly interest due from the d Elsie M. Gaches."

On July 19, 1966, Judge Tan filed with the probate court a motion praying for authority to make
the following additional advance payments (1) To Abanto and Eribal, P150,000.00; (2) To
Bess Lauer, $75,000.00; (3) To Judge Tan as advance executor's fees, P50,000.00; and (4) To
Attys. Medina and Bienvenido Tan, Jr., P75,000.00 each as advance attomey's fees. In this
motion, Judge Tan claimed that the estate was very liquid and that "any claims whatsoever
against the Estate and the Government shall be amply protected since over P7,000,000.00 worth
of shares shall still remain to answer therefor (Sec. 1, Rule 90, Rules of Court)." The respondent
Judge granted Judge Tan's prayer in an order dated July 23, 1966,

In a letter, dated November 4, 1966, the Commissioner advised Judge Tan to Pay to the Bureau
of Internal Revenue the sum of P1,398,436.30 as estate tax and P7,140,060.69 as inheritance
tax, the investigation of his office having allegedly disclosed that the next value of the testate
estate was P10,212,899.20. 1 Judge Tan disputed the correctness of the assessment in a letter sent
to the Commissioner.
On November 26, 1966, the Commissioner filed with the probate court a proof of claim for the
death taxes stated in the assessment notice sent to Judge Tan. On the same date, the
Commissioner also submitted to the probate court for its resolution a motion praying: (1) for the
revocation of the court's orders dated June 25, July 6, July 23 and August 11, 1966 and all other
orders granting the payment of advance inheritance, allowances and fees; (2) for the
appointment of a co-administrator of the estate to represent the Government; and (3) for the non-
disbursement of funds of the estate without prior notice to the Commissioner. Although the
records do not disclose that the probate court specifically disposed of this motion, the said court,
from its subsequent actuations, may be considered to have impliedly denied the Commissioner's
prayers for the appointment of a co-administrator and the non-payment of advance allowances
and fees.

On January 19, 1967, the probate court authorized the conversion of the amount of P75,000.00
previously ruled to be paid to Atty. Medina as advance attomey's fees in its order of July 23,
1966 into allowances for Eribal and Abanto.

On April 14, 1967, with the Probate court's approval, Judge Tan paid to the Bureau of Internal
Revenue the amount of ?185,286.93 as estate tax and, on April 24, 1967, the amount of
P1,055,776.00 as inheritance tax. These payments were based on a tax return filed by Atty.
Medina on March 8, 1967 with the Bureau of Internal Revenue.

On June 3, 1967, Judge Tan submitted to the probate court for approval a final accounting and
project of partition of the testate estate. Acting thereon, the respondent Judge issued an order,
dated June 5, 1967, for the partial distribution of the estate as follows:
+.w ph!1

Submitted for resolution of this Court is the Amended Final Accounting and
Project of Partition dated May 27, 1967, presented by The executor.

Atty. Paredes manifested that he has no objection to the approval thereof

provided that certain items enumerated therein be corrected or modified, as
follows: the amount of shares in the Lepanto consolidated Mining Co. should be
6,105,429 instead of 6,015,429, as reported; the amount of P11,537.60 reported
as expenses made on January 30, 1967 should be cancelled or excluded . . . and
that the time appearing as expenses made on May 10, 1967 payable to Apolonio
manifastation illegal should be only P114,000.00 instead of P135,000.00 . . .
which manifestations were also adopted by Atty. Virgilio Saldajeno of the Bureau
of Internal Revenue, and in addition, he objected in principle to the Executor Fees
and to the Attorney's Fees as excessive but left the matter to the discretion of the
Court.

Considering, further, the manifestations of Atty. Saidajeno that him has no

objection to the partial distribution of the estate as long as it an he shown that the
rights and interests of the government can be full protected, and it appearing from
the subsequent manifestation of Atty. Paredes, counsel for the heirs, that
sufficient assets with a nutrient market value of at least P8,000,000.00 will be left
to the estate even if a partial distribution in the amount of P3,000,000.00 is made
for which reason the rights of the government to collect whatever deficiency,
taxes, if any may be asses it may be assessed in the future the heirs have
already paid in good faith even ahead of its due dates transfer taxes in the total
amount of P1,241,062.93, the Amended Final Accounting and Project of Partition
dated May 27, 1967 may be approved, subject Lo this following, terms and
conditions:

1. The Executor is hereby discharged from any and all responsibilities that lie has
pertaining to the estate;
 2. The voluntary heirs Magdalena Abanto and Camilo Eribal shill be responsible
for all taxes of any nature whatsoever which may be due the government arising
out of the transaction of the properties ol' the estate and the environment can, if it
so desires, register its tax lien in the remaining assets after a partial distribution of
the estate;

3. Bess Lauer, sister and heir of the deceased shall be fully for, all United States
taxes pertaining to her share in the estate.

WHEREFORE, subject to the above terms and conditions, entitled Final Accounting and Project
of Partition dated May 27, 1967 submitted by the Executor. as modified in the, manifestation of
Atty. Paredes and Saidajeno, is hereby approved.

1 . Pacita Trocio P10,000.00

2. To Vicente Jerodias 1,000.00

3. To Vicente Crisanto salipot, Jr. 500.00

4. To Magdalena Abanto and Camilo 2,330.00

Eribal, share and share alike thru their
attorney-in-fact Delia P. Medina, cash
in the amont of

5. To Judge Bienvenido A. Tan, Sr. 120,000.00

6. To Atty. Bienvenido A. Tan, Jr. 150,000.00

The aforesaid amount is hereby ordered to be taken from the funds of the estate
deposited with the Philippine National bank.

As to the other properties remaining after this partial distribution, consisting of the
following:

A. BANK DEPOSITS:

1 . Philippine 559,147.41
Banking
Corporation

2. Philippine 238,5000.00
National
Bank

3. Overseas 700,000.00
Bank of
Manila

4. Banco 581.00
Filipino
Savings &
Mortgage
Bank

5. Refund from 32,537.60

expenses
B. HOUSE AND LOT LOCATED AT NO. 50 TAMARIND ROAD, FORBES PARK,
MAKATI, RIZAL;

C. SHARES OF STOCK IN THE FOLLOWING:

1
. Lepanto Consolidated 1,105,429
Mining Co. shares

2. San Miguel Corp. 16,692

shares

(common)

3. San Miguel Corp. 500

shares

(preferred)

4. Central Azucarera del 17,755

Pilar shares

5. Manufacturas Textile 10,368

Industriales de Filipinas, Inc. shares

6. Consolidated Mines, Inc. 85,858

shares

7. Mayon Metal Corporation 5,000

shares

8. Soliangco & Co Inc. 25 shares

9. San Juan Heights 5 shares

10. Metropolitan Insurance 443

Co. shares

11. Realty Investment Inc. 652

shares

(10 shares, management & 642 common)

The same shall be turned over and delivered to the attorney-in-fact of the
voluntary heirs. Atty. Delia P. Medina, to be held by her to answer for whatever
deficiency estate and inheritance taxes may still be due from the estate and the
heirs in favor of the government.

SO ORDERED.

Pasig, Rizal, June 5,1967. +.wph!1

(Sg
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 NA
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On the same day (that is, June 5, 1967), the Commissioner, having been informed in advance
about the foregoing order by certain undisclosed sources, issued warrants of garnishment
against the funds of the estate deposited with the Philippine National Manial, the overseas Bank
of Manila, and the Philippine Banking Corporation, on the strength of sections 315-330 of the
National Internal Revenue Code.

On June 7, 1967, Atty. Medina filed in the probate court a petition for the discharge of the writs of
punishment issued by the commissioner. On June 8, 1967, the respondent Judge issued an
order lifting the wants in question.

On June 9, 1967, the Philippine National Bank filed a motion in the probate court praying that it
be authority to deposit with the said court the money in its hands in view of the conflicting claims
of the parties over the funds in dispute. On the same day (that is, June 9, 1967), the respondent
Judge issued an order denying the said motion and threatening the bank officials who refuse to
implement its orders of June 5 and 8, 1967 with contempt. Atty. Medina was consequently able
to withdraw the sum of P2,330,000.00 from the PNB. A copy of this order of June 9, 1967 as well
as the orders of June 5 and 8, 1967 were received by the Commissioner on June 13, 1967.

On June 16, 1967, the Commissioner filed a motion for reconsideration (supplemented on June
22, 1967) of the orders of the probate court dated June 5, 8 and 9, 1967. On July 6, 1967,
however, the Commissioner, on the belief that the probate court's resolution on its motion was
not legally necessary, filed with this Court the instant petition for certiorari, mandamus,
prohibition and injunction against the aforesaid orders of the respondent Judge. The petition at
bar is based on the following propositions:

(1) That the distributive shares of an heir can only be paid after full payment of the death taxes.
As this case subsequently progressed before this Court, the position of the Commissioner would
seem to be that the deficiency income taxes due and payable during the lifetime of the deceased
should also be paid first.

(2) While partial distribution of the estate of a deceased may allowed, a bond must be filed by the
distributees to secure the payment of the transfer taxes. Subsequently, however, the
Commissioner changed his position, stating that such distribute may be made so long as the
payment of the taxes due the government is "provided for," citing section 1, rule go of the Rules
of Court in relation to sections 95 (c), 97, 103, 106 and 107 (c) the National lnternal Revenue
Code.

(3) That the executor of an estate cannot be discharged without the payment of estate and
inheritance taxes. The Commissioner later modified his stand on this ProPosition in line with the
view that it is sufficient if the payment of the said taxes is "Provided for.,,

(4) That the delivery of properties of the estate to a stranger [that is, to the voluntary heirs herein]
is not sanctioned by law. Later, as the case at bar Progressed, and in view of a compromise offer
made by the respondents Abanto and Eribal to pay the taxes being claimed by the Bureau of
Internal Revenue, the Commissioner advanced the view that this proposition is already moot and
academic.

(5) That the respondent Judge has no authority to quash or dissolve writs of garnishment issued
by the Commissioner. Subsequently, however, the Commissioner reversed his stand on this
point and stated that the probate court may so dissolve said writs of punishment as the assets in
question were then in custodia legis, citing Collector vs. Vda. de Codeniera L-9675, Sept. 28,
1957.

Taking stock of the Commissioner's complaint that the disputed orders Were issued without or in
excess of jurisdiction or with grave abuse of discretion, the herein respondents Atty. Medina and
Judge Tan put up a number of factual and legal arguments, the material ones of which may be
stated, in sum, as follows:

(1) The Commissioner's notice of assessment, dated November 10, 966, was based on wrong
premises and valuation of the assets in question; in fact, the Commissioner had agreed during
the pretrial conference in the probate court to reconsider certain items therein;

(2) The allowance granted to Abanto and Eribal were taken solely from the income of the estate,
a fact admitted by Atty. Saldajeno of the Bureau of Internal Revenue; it is claimed that in 1965
the estate had an income of P41 1,000.00 and over P750,000.00 in 1966, which could more than
cover the questioned allowances;

(3) Eribal and Abanto are willing and bound themselves to assume the responsibility for the
payment of the taxes due against the estate except for the properties located in the United States
which should be charged against Bess Lauer;

(4) The Commissioner does not object to the partition of the estate in question provided that
enough assets are left to pay the taxes against the estate;

(5) The estate has sufficient assets with which to pay the taxes being claimed by the
government;

(6) There was nothing unusual in the institution of Abanto and Eribal as residual heirs of the
deceased; Abanto was the testator's special nurse, companion, secretary and cook from 1945
until Elsie M. Gaches death in March, 1966; Eribal, on the other hand, was the deceased's cook,
caretaker, companion and driver since 1929;

(7) The grant of allowances was never contested below and cannot now be raised in the-instant
proceedings;

(8) Adequate safeguards were specified in the probate court's order of June 5, 1967 to cover the
tax claims; and

(9) There had been no full distribution of the estate in question without payment of the transfer
taxes since the said taxes are being disputed by the heirs.

In a reply filed on September 7, 1967, the Commissioner stated that he had issued a revised
assessment dated August 24, 1967 and that, furthermore, there were due from the estate
deficiency income taxes for the years 1961 to 1965 in the total sum of P1,182,296.16, for which
reason the estate should not be ordered distributed until the same is fully satisfied. In a rejoinder,
Judge Tan claimed that the August 24, 1967 assessment could still be reduced considerably.
The contents of the mentioned revised assessment which was addressed to Atty. Medina
are, inter alia, as follows:
+. wph!1
 Madam:

... I have the honor to advise that in a reinvestigation conducted by this Office, for
transfer tax purposes, it was ascertained that she left real and personal
properties in the sums of P377,912.50 and P5,963,822.31 respectively, or a
gross estate of P9,341,734.81. The amounts of P193,892.38, P462,022.83 and
Pl,226,783.53, representing accrued household and medical expenses, funeral
expenses and income taxes (1961-1965) payable, respectively, or a total of
P1,882,198.74, were allowed as deductions resulting in a net taxable estate
in,the sum of P7,459.536.07 subject to estate and inheritance taxes.

In view thereof, there are hereby further assessed the sums of P891,673.68 and P4,353,972.87
as deficiency estate and inheritance taxes and penalty still due on the transmission of the
decedent's estate, after, crediting the sums of P185,286.73 and P1,055,776.00, which were paid
on April 4, 1967 and April 24, 1967, details of which are shown hereunder:

Estate tax Pl,076.960.41

Less: Amount Paid 185,286.7

Total P891,673.69

Inheritance tax 5,448.87

Corporation CPA Certificate 300.00

Total P5,409,748.87

Less Amount Paid 1,055,776.00

Deficiency Inheritance Tax P4,353,972.87

& Penalty

xxx xxx xxx

The deadlines for the payment of the aforementioned transfer taxes without penalty were
December 9, 1967 for the estate tax and March 9, 1968 for the inherit tax.

On Sepember 9, 1967, Atty. Medina riled with this Court a pleading captioned "Compliance and
Offer of Compromise to Terminate this Case" in which she stated the following: +.w ph!1

xxx xxx xxx

4. Although respondents voluntary heirs intend to assail and question the

correctness of said assessment only insofar as the same has disallowed the
deductions claimed by them for personal services rendered by various persons in
the total sum of P366,800.00, foregoing thereby other possible objections to the
other items just so this case can be earlier disposed of, said repondents,
nevertheless, are willing to pay even before these due dates the entire amount-
specified in said assessment, but under protest insofar as the same has
disallowance is concerned, in order to already terminate and dispose of this case
before this Honorable Court.
To pay the taxes in question, Atty. Medina prayed in her offer of that she and Abanto and Eribal
be authorize to make use of the funds of the estate on deposit with the Philippine National
(P238,500.00), the Banking Corporation (P559,147.41), the Banco Filipino savings and Mortgage
Bank (P581.00), and the Bank of Manila (P700,000.00), and to gradually dispose of and sell the
shares of stock representing of the delegate with an estimated market value of P2,154,026.36.
Also included among the assets for which authority to sell was being procured in the said offer of
were 2,442,000 Lepanto Consolidated Co. which Abanto and Eribal with the probate court
niether this Court issued a pre injunction in the case at bar on july 10, 1967 ordering, among
others, Atty. Medina, Abanto and Eribal to restore to the court a quo the amount of
P2,330,000.00 withdrawn from the Philippine National Bank pursuant to the questioned orders of
the probate court, and every other money or property revived by them by of said questioned
orders. The mentioned Lepanto shares had then an estimated market value of P2,588,520.00. It
should bear mention, at this point, that the money withdrawn from the Philippine National Bank
was not returned by Atty. Medina, Abanto or Eribal to the probate court, these respondents
having prayed this Court that the deposit of the mentioned stocks be as full compliance by them
with the writ of pre injunction issued by this Court.

On September 19, 1967, this Court issued a resolution requiring the Commissioner to submit a
memorandum on how he arrived at his original assessment of more than ?8.83 million and the
revised assessment of only about ?6.48 million, showing a reduced difference of more than P2
million. The Commissioner submitted to this Court the required memorandum on May 25, 1968,
the important items and figures described in which may be summed up comparatively as
follows: + .w ph!1

ESTATE OF ELSIER GACHES

ASSETS ORIGINAL REVISED

ASSESSMENT ASSESSMENT

Cash in bank -

Philippine Pl,172.635.62 P1,172,635.62

Foreign (US$ P3.95) 559,335.00 559,335.00

Cars-

Lincoln Pl8,000.00

Volkswagen 7,000.00

(Vauxhalll) 25.000.00 12,000.00

Furnitures 30,000.00 30,000.00

Shares of stock 7,923,576.23 7,189,851.69

Forbes Park lot

(at P144.73/sq. in.) 383,202.35

(at P97.50/sq.m.) 258,862.50

House ------- P111,850.00

Swimming Pool 5,000.00

 Fence -------- 2,200.00 119,050.00 119,050.00

TOTAL ASSETS P10,212,899.20 P9,341,734.81

+. wph!1

LIABILITIES AND DEDUCTIONS

Estimated Income Tax

Payable (1965) P192,364.00

(1961-1965) P1,882,783.53

Aaccrued medical expenses 13,000.00)

Funeral expenses 73,320.00) 193,392.38

Judicial exercises 331,026.40 462,022.83

TOTAL LIABS. &

DEDUCTIONS P610,190.60 P1,882,198.74

TRANSFER TAXES PAYABLE

Gross Estate P10,212,899.20 P9,341,734.81

Less: Laibs. & Deductions 610,190.60 1,882,198.74

Net Taxable Estate P9,602,708.60 P7,459,536.07

Less Estate'tax Due P 1,398,436.30 Pl,076,960.41

Estate Subj. to Inh. Tax P 8,204,272.30 P6,382,575.66

Distribution of Hereditary

Estate

C. Salipot, Jr. P 500.00 P 500.00

V. Jerodias 1,000.00 1,000.00

P. Trocio 10,000.00 10,000.00

Bess Lauer 672,305.00 672,305.00

M. Abanto 3,760,233.65 2,849,385.33

C. Eribal 3,760,233.65 2,849,385.33

Inheritance Tax Due

C. Salipot, Jr. P10.00 P 10.00

 V. Jerodias 20.00 20.00

P. Trocio 600.00 600.00

Bess Lauer 192,186.75 192,186.75

M. Abanto 3,473,621.97 2,608,316.06

C. Eribal 3,473,621.97 2,698,316.06

Total inheritance Tax due P 7,140,060.69 P5,409,448.87

Add: Estate Tax Due P 1,398,436.30 Pl,076,960.41

TOTAL TRANSFER

TAXES DUE P8,538,496.99 P6,486,409.28

On November 17, 1967, this Court authorized the herein respondents Abanto, Eribal and Atty.
Medina to withdraw funds of the estate deposited with the Philippine Banking Corporation
(P191,673,68) and the Overseas Bank of Manila (P700,000.00) in the form of cashier's checks
payable to the Commissioner for the payment of the estate tax still unpaid under the terms of the
revised assessment.

On November 23, 1967, the Solicitor General filed with this court a manifestation expressing his
conformity, in behalf of the Commissioner, to the offer of compromise dated September 9, 1967
made by Atty. Medina, subject to certain conditions, such as, that the cash in the banks of the
estate as well as the proceeds to be realized from the sale of the shares of stock should be
turned over to the Commissioner for the payment of the taxes due against the estate and the
heirs thereof. This manifestation was first opposed by the Acting Commissioner of Internal
Revenue on the ground that the Commissioner (who was then abroad) had actually requested
the Solicitor General not to agree to the mentioned offer of compromise; however, the Solicitor
General subsequently said that the Commissioner's conformity was given to him orally.

On December 5, 1967, Atty. Medina filed with this Court a petition to declare the Overseas Bank
of Manila in contempt for allowing the renewal, without court authority, of the time deposit of
P700,000.00 with the said bank for another year. In a supplemental motion filed on December 8,
1967, Atty. Medina also prayed that the said bank and those responsible for extending the
maturity date of said time deposit be held liable for the payment of whatever surcharges, interest
and penalties may be imposed as a consequence of the late payment of the balance of the
estate tax assessed against the estate. It appears that the time deposit in question was held by
the said bank under two certificates, one for P100,000.00 to mature on May 12, 1967, and the
other, for P600,000.00 to mature on June 16, 1967. Judge Tan, however, extended the maturity
date of said time deposits to May 12, 1968. The certificates of time deposit covering the said
funds had been endorsed in favor of the Commissioner in payment of the unpaid balance of the
estate then December 7, 1967) amounted to P700,000.00.

Commmoner, however. mentioned the respondents End an Abanto through their counsel that his
Office -+. wph!1

... regrets that the same cannot be accepted as payment of the deficiency estate
tax in this case since they cannot, at present or on before December 9, 1967, be.
converted into cash. However, we are holding said certificates of time deposit for
possible application in payment of the unpaid balance of the deficiency estate tax
in this case as soon as said certificates can be converted into cash. It will be
understood in this connection that if the balance of the deficiency estate tax in
 this case is not paid on or before December 9, 1967, the same shall be subject to
the interest on deficiency, 5% surcharge and 1% monthly interest for deliquency.

According to Judge Tan, he caused the extension of the maturity date of the said deposit but that
in doing so he acted in good faith in that the testate estate then had ample funds and assets and
the said time deposit earned a higher interest than a savings deposit; that he needed no specific
court authority for the purpose; and that he had a gentleman's agreement with the officials of the
bank that said deposit could be withdrawn in advance, such being the custom in banking circles.
The Overseas Bank of Manila, on the other hand, in answer to Atty. Medina's mentioned petition,
claimed that the deposit in question was renewed before the bank received any letter demanding
its release. In view of this impasse and the fast approaching deadline for the payment of the
estate tax, Atty. Medina requested the Commissioner to credit P700,000.00 to the amount
previously paid as inheritance tax; but, apparently, this request was not honored by the
Commissioner.

On January 26, 1968, Atty. Medina filed with this Court a manifestation in which she alleged that
even as the proposed joint manifestation between the parties which was supposed to describe
the matters agreed upon between them and the Commissioner during a conference hearing held
on January 24, 1968 had not yet been shown to her, she already wished to express her
principals, conformity to pay, but under protest, the deficiency estate tax of P700,000.00 plus
surcharges, interest and penalties due thereon and the inheritance tax in the amount of
P4,161,986.12 appearing, to Atty. Medina, in the mentioned assessment notice dated August 24,
1967; that she was likewise agreeable to pay, under protest however, the income taxes for 1961
to 1965 against the estate in the demand letter of the Commissioner dated August 29, 1967 in
the amount of P1,175,974.51 plus whatever interest, surcharges and penalties were due'thereon;
and that she was also agreeable to being authority to sell such properties of the estate as may
be necessary for the mentioned -

On the following day, however, that is, January 27, 1968, the herein respondents Eribal, Abanto
and Atty. Medina, on the one hand, and the Commissioner and the Solicitor General, on the
other, filed with this Court a joint manifestation which, inter alia, reads as follows:
+.w ph!1

l. That the respondent taxpayers will pay the estate, inheritance and deficiency
income taxes covered by existing assessments; which are due and collectible
from the estate of Elsie M. Gaches, including the delinquency penaltiesthereon,
but without prejudice to any right of the taxpayer to contest or protest the said
assessments at the proper time and in the proper court;

2. That the respondents Delia P. Medina, Magdalena Abanto and Camilo Eribal
shall submit to this Honorable Court an inventory of all the properties and assets
of the estate ... ;

3. That is order to generate the necessary funds for the purpose of paying the
said taxes and delinquency penalties, so much of the assets of the estate ... shall
be sold ...

4. That respondent Delia P. Medina, . and. Mr. Rodolfo U. Arrano Supervising

Revenue Examiner of the Bureau of Internal Revenue, ... are hereby proposed to
be constituted as the authorized agents of the parties herein to effect the sale ...;

5. That the said agents shall be direct to sell the assets of the estate ... ;

6. That all negotiations and transactions for the sale of the assets of the estate
shall be made jointly by the authorized agents ... ;
 7. That no disposition of any property or assets of the estate shall be effected
except for the foregoing purpose;

8. That this case shall not be terminated until ... the above mentioned ... taxes
and delinquency penalties are fully paid; and liquidated;

9. That the parties pray for the approval of the foregoing propositions.

On February 6, 1968, this Court, acting on the abovement manifestation of Atty. Medina and the
at manifestation of the Parties, issued a resolution authorizing Atty. Medina to pay, amt, under at,
the transfer and in taxes collectible from the estate, including the accopanying delinquency
penalties. A Medina was given the necessary authority to collect and receive funds payable to
the estate in question and to sell such a thereof as may be necessary.

On February 10, 1968, a motion to declare in contempt Lepanto Consolidated Mining Co. was
filed by Atty. Medina on t ground that the said corporation refused to tum over to dividends
payable to the testate estate unless the Commissioner first lifted his garnishment order on said
dividends.

On February 16, 1968, this Court issued a resolution suspendi the writs to preliminary junction
issued by this Court on July and 17, 1967 and all warrants of garnishment issued by the
Commissioner relative to the estate of Elsie M. Gaches, said suspension to be effective until
such time that Atty. Medina, End and Abanto shall save fully paid the transfer and income tax
including the penalties thereon, covered by existing assessment Atty. Medina thereafter
submitted to this Court performance reports on her activities relative to the authority given her.

On March 9, 1968, Atty. Medina filed with this Court manifestation stating that she received a
demand letter dated March 9, 1968 from the Commissioner for the payment of the following
1'756 900- 00 as estate tax, including penalties; (2) P192,186.75 as inheritance tax
corresponding to the share of Bess Lauer; and (3) P451.435.91 as balance of the income tax for
the years 1961 to 1965 Atty. Medina claimed the said demands to be erroneous for the following
reasons' (1) as to the estate tax, the time deposit in the Overseas Bank of Manila of P700,000.00
plus interest earned of P60,000.00 as of March 9, 1968 would more than cover the said tax and
the certificates of time deposits were already endorsed to the Cmmissioner on December 6,
1967; (2) as to the inheritance tax, she (that is. he principals Abanto and Eribal) was not
responsible therefore, as the resolution of this Court dated February 6, 1968 required her "to pay
only the estate, inheritance and in income taxes, under protest covered by existing assessments,
against the Estate, and against the heirs Magdalena Abanto and Camilo Eribal;" in a
supplemental motion, Atty. medina further argued that Bess Lauer alone was solely responsible
for the payment of the inheritance tax on her share and not the decedent's estate in the
Philippines, and that the properties of the testate estate in the United States of America which
consisted of shares of stock and deposits in banks, being personal properties, were to be
excluded from the computation of the gross estate of the deceased in the Philippines and the
computation of the Philippine estate and inheritance taxes because, under philippine law, the
sites of those properties is the place where they are located, citing Article 16 of the new Civil
Code which she she argued, abandoned the doctrine of mobilia sequuntur personal embodied in
Article 19 of the old Civil Code; and (3) as to tile deficiency income tax for 1961-1965, she had
paid the same in the total amount of P1,182,296.16 as of March 9, 1968, which was the amount
stated in the assessment letter of the Commissioner cited August 9, 1967. According to Atty.
Medina, the payment of the taxes was made in the following manner: on February 27, she paid a
total of ?838,518.62 as follows: the income tax (P715,619.46) in full; interest (P106,855.29) in
full, compromise penalty (P5.,000.00) in full and surcharges P1,052.07) in. part only; and, on
March 8, 1968. the amount of P343,773.54 as payment of the remaining surcharges,
Consequently, she argued the the surcharges and interest, if any were still due, could legally,
accrue only from September 29, 1967 up to February 27, 1968 and only on the tax proper.
On April 16, 1968, a counter-manifestation was filed with this court by the Commissiorner to the
above-metioned manifestation according to the Commissioner, (that is under existing
assessments that is under the letter of demand of August 24 and 29, 1967)

Estate tax (Balance- P700,000.00 (x)

Inheritance tax 4,353,927.87 (xx)

Total Estate and

Inheritance taxes P5,053,927.87

Deficiency income taxes

for 1961 to 1965 P1,175,974.51 (xxx)

Delinquency penalties for late filing

of income tax return and late

payment of

income tax for 1965 per return filed- 6,321.65 (xxxx)

Total deficiency income taxes for

1961 to 1965 and the delinquency

penalties of income tax 1965 per

return P1,182,296.16

GRAND TOTAL P6,236,269.03

+. wph!1

(x) pIus 5% surcharge and 1% monthly interest thereon from December 9, 1967
until full payment thereof; (xx) plus 5% surcharge and 1%, monthly interest
thereon, if the same is not paid in full on or before March 9, 1968; (xxx) plus 5%
surcharge and 1% monthly interest thereon from August 29, 1967 until full
payment thereof; and (xxxx) pIus additional 1% monthly interest from September
29, 1967 until full payment thereof.

Further, the Commissioner alleged that after taking into consideration the payments made by
Atty. Medina, the balances as of March 9, 1968 of the death and income taxes still compatible
were as follows:

Estate Tax

Balance of the estate tax P700,000.00

5%, surcharge 35,000.00

1% monthly interest from

12/9/67 to 3/9/68 21,000.00

Total P 756,000.00
 plus additional 1% monthly interest

from March 9, 1968 until full payment

thereof.

Inheritance Tax

Inheritance tax due and collectible

per letter of demand dated August 24,

1967 (Annex "A") P4,353,972.87

Less: Payments of inheritance Tax

on March 1 and March 6, 1968 per O.R.

2519938 and 2520026, respectively 4,161,986.12

Inheritance taxs due and collectible P191,986.75

plus 5% surcharge and 1% monthly

interest thereon from March 8, 1968

until full payment.

Deficiency Income Taxes

Deficiency income taxes from 1961

to 1965 per letter of demand dated

August 29, 1967 plus 5% surcharge and

1% monthly interest up to March 1968 P1,289,818.17

Less: Payments made on February

27, 1968 and March 8, 1968 under O.R.

207001 and 207002 P1,182,296.16

Deficiency income taxes still due

and collectivele P107,522.01

plus additional 1% monthly interest

thereon from March 8, 1968 until full

payment.

The Commissioner also explained that the i taxes paid by Atty. Medina in the total amount of
P1,182,296.16 "included only the 1/2% monthly interest On deficiency with respect to the
deficiency income taxes for 1961 to 1965 and the 1% monthly Interest for delinquency up to
September 29, 1967 with respect to the income tax for 1965 which was paid per return, Out did
not include the 5% surcharge and 1% monthly interest for delinquency from August 29, 1967 until
full Payment with respect to the income tax for the 1965 return." The Commissioner
consequently prayed that Atty. Medina be ordered to pay: +.w ph!1

(1) The amount of P756,000.00 as balance of the estate tax, 5% surcharge and
1% monthly interest from December 9, 1967 to March 9, 1968, plus additional 1%
monthly interest from March 9, 1968 until full payment;

(2) The amount of P191,986.75 as balance of the inheritance tax, plus 5%

surcharge and 1% monthly interest thereon from March 9, 1968 until full
payment; and

(3) The amount of P107,522.01 as balance of the deficiency income taxes, 5%

surcharge and 1% monthly interest for delinquency up to M arch 8, 1968, plus
additional 1% monthly interest thereon from March 8, 1968 until full payment ... ;

On August 23, 1968, Atty. Medina filed a manifestation with this Court adverting to the refusal of
the Overseas Bank of Manila to permit the withdrawal of the time deposit of the testate estate in
the said bank in spite of the fact that the extended maturity date of said deposit had may expired.
Atty. Medina payed that the bank Ida as one boss able the deposit of the funds of is well as the
who made i of the estate of Elsie M. Gaches with the said bank be declared in contempt. on
September 18, 1968, the Central Bank Of the Philippines filed with this Court a comment on the
urgent manifestation of Atty. Medina concerning the deposit in question. The Central Bank, which
according to the Overseas Bank of Manila had restrained it from paying its time deposits to the
bank's depositors, averred that this Court's resolution of November 17, 1967 merely authorized
Atty. Medina to withdraw the deposit from the said bank and did not order the bank to pay the
time deposit in question. Moreover, according to the Central Bank, the nonpayment of the said
deposit was not wilful as the Overseas Bank of Manila was in a state of insolvency. A comment
was filed on October 11 1968 by the Overseas Bank of Manila stating that the majority
stockholders of the bank filed a petition against the Central Bank for certiorari. prohibition and
mandamus in this Court in L-29352 entitled "Emerito M. Ramos, et at. vs. Central Bank;" 2 that
the time deposit in question was an unrecorded transaction; and that the Central Bank prohibited the
bank to do business due to its distressed financial condition, for which reason it could not give
preference of the payment of the said deposit as it might prejudice other creditors of the bank.

On November 11, 19681, Atty. Medina filed with this Court a M. motion ,- reiterating a previous
one to allow the payment of the announced of P6.000.00 to Atty. Manuel M. Paredes whom she
and tile other herein respondent herein Abanto and Eribal hired as counsel in collection
with the settlement proceedings of Elsie M. Gaches estate. On March 29, 1969. pursuant to a
resolution of this Court, Atty. Paredes ssubmitted knitted a memorandum on the nature and
extent for the legal services he had rendered to tile herein respondents Atty. Medina Eribal and
Abanto.

On June 26, 1971, Abanto and Eribal Jointly wrote the Chief Justice, expressing willingness and
agreement to pay the amount due tile government as taxes against the estate and the heirs
thereof, however, the two respondents herein subsequently retracted their statement in the said
letter, claiming they signed and sent the same without knowing and understanding its effect and
consequences.

A perusal in depth of the facts of the instant case discloses quite plainly that the respondent
Judge committed a grave abuse of discretion amounting to lack of jurisdiction in issuing its orders
of June 5, 8 and 9, 1967. Section 103 of the National Internal Revenue Code (hereinafter
referred to as "Tax Code") unequivocally provides that "No judge shall authorize the executor or
judicial administrator to deliver a distributive share to any party interested in the estate unless it
shall appear that the estate tax has been paid." 3 The aforesaid orders of the respondent Judge are
clearly in diametric opposition to the mentioned Section 103 of the Tax Code and, consequently, the
same cannot merit approval of this Court.

While this Court thus holds that the questioned orders are not in accordance with statutory
requirements, the fundamental question raised herein regarding the objectionable character of
the probate court's mentioned orders has opened other issues which, not alone their importance
to jurisprudence, but the indispensability of forestalling needless delays when those issues are
raised anew, have, perforce, persuaded this Court that their complete and final adjudication here
and now is properly called for. Said issues may be specificaly framed as follows:

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

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

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

(4) Should the herein respondent heirs be held liable for the payment of surcharge and interest
on the amount (P700,000.00) representing the face value of time deposit certificates assigned to
the Commissioner which could not be converted into cash?

Aside from the foregoing, there are also other incidental questions which are raised in the
present recourse, viz.,

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

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

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

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

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

mentioned has been made or provided for, unless the distributees, or any of
them, give a bond, in a sum to be fixed by the court, conditioned for the payment
of said obligations within such time as the court directs.

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

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

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

(c) xxx xxx xxx

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

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

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

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

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

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

The Interest charge for 1% per month imposed under Section 101 (a) (1) of the Tax Code is
essentially a commotion to the State for delay in the payment of the tax due thereto 7 As for the
accountant use by the tax payer of funds that nightday shall be in the government's funds. 8 As the
indorsement and delivery of the mentioned time deposit certificates to the did not result in the
payment of the estate tax (for which it was in the respondents estate is fluently liable for the interest
charge imposed in the Tax Code.

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

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

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

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

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

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

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

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

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

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

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

(1) The amount of FIFTY THOUSAND (P50,000.00) PESOS is hereby awarded to Manuel M.
Paredes as legal fee for his services,

the same to be Paid by the respondent End will the estate of Abanto, now

(2) The contempt charges against the officials of the Philippine National Bank and the Overseas
Bank of Manila, Judge Bienvenido Tan, Sr., and Lepanto Consolidated Co. are hereby ordered
dismissed;

(3) The authority given to the respondent Delia P. Medina in the resolution of the court dated
February 6, 1968, to pay the death and income taxes, including delinquency penalties, claimed
by the State and, for that, to withdraw all cash deposits in various banks and sell such properties
of the estate as my be necessary, is hereby terminated; and

(4) The writs of preliminary injunction issued by the Court pursuant to its resolutions dated July
10 and 17, 1967 are hereby dissolved.

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

COMMISSIONER OF INTERNAL REVENUE, petitioner,

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

Office of the Solicitor General for petitioner.

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

BENGZON, J.P., J.:

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

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

1. Deficiency income tax

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

Total amount due P2,707.44

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

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

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

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

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

Deficiency income tax

P135.8
1945
3
1946 436.95
Real estate dealer's
fixed tax 4th quarter
of 1946 and whole
year of 1947 P187.50

The Commissioner of Internal Revenue has appealed to Us and has proposed to hold Manuel B.
Pineda liable for the payment of all the taxes found by the Tax Court to be due from the estate in
the total amount of P760.28 instead of only for the amount of taxes corresponding to his share in
the estate. 1aw phl.nt
Manuel B. Pineda opposes the proposition on the ground that as an heir he is liable for unpaid
income tax due the estate only up to the extent of and in proportion to any share he received. He
relies on Government of the Philippine Islands v. Pamintuan2 where We held that "after the
partition of an estate, heirs and distributees are liable individually for the payment of all lawful
outstanding claims against the estate in proportion to the amount or value of the property they
have respectively received from the estate."

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

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

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

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

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

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

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

Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all property
and rights to property belonging to the taxpayer for unpaid income tax, is by subjecting said
property of the estate which is in the hands of an heir or transferee to the payment of the tax due,
the estate. This second remedy is the very avenue the Government took in this case to collect
the tax. The Bureau of Internal Revenue should be given, in instances like the case at bar, the
necessary discretion to avail itself of the most expeditious way to collect the tax as may be
envisioned in the particular provision of the Tax Code above quoted, because taxes are the
lifeblood of government and their prompt and certain availability is an imperious need.7 And as
afore-stated in this case the suit seeks to achieve only one objective: payment of the tax. The
adjustment of the respective shares due to the heirs from the inheritance, as lessened by the tax,
is left to await the suit for contribution by the heir from whom the Government recovered said tax.
WHEREFORE, the decision appealed from is modified. Manuel B. Pineda is hereby ordered to
pay to the Commissioner of Internal Revenue the sum of P760.28 as deficiency income tax for
1945 and 1946, and real estate dealer's fixed tax for the fourth quarter of 1946 and for the whole
year 1947, without prejudice to his right of contribution for his co-heirs. No costs. So ordered.

[G.R. No. 120880. June 5, 1997]

FERDINAND R. MARCOS II, petitioner, vs. COURT OF APPEALS,

THE COMMISSIONER OF THE BUREAU OF INTERNAL
REVENUE and HERMINIA D. DE GUZMAN, respondents.

DECISION
TORRES, JR., J.:

In this Petition for Review on Certiorari, Government action is once again

assailed as precipitate and unfair, suffering the basic and oftly implored
requisites of due process of law. Specifically, the petition assails the
Decision of the Court of Appeals dated November 29, 1994 in CA-G.R. SP
[1]

No. 31363, where the said court held:

"In view of all the foregoing, we rule that the deficiency income tax assessments
and estate tax assessment, are already final and (u)nappealable -and- the
subsequent levy of real properties is a tax remedy resorted to by the government,
sanctioned by Section 213 and 218 of the National Internal Revenue Code. This
summary tax remedy is distinct and separate from the other tax remedies (such as
Judicial Civil actions and Criminal actions), and is not affected or precluded by the
pendency of any other tax remedies instituted by the government.

WHEREFORE, premises considered, judgment is hereby rendered DISMISSING

the petition for certiorari with prayer for Restraining Order and Injunction.

No pronouncements as to costs.

SO ORDERED."

More than seven years since the demise of the late Ferdinand E. Marcos,
the former President of the Republic of the Philippines, the matter of the
settlement of his estate, and its dues to the government in estate taxes, are
still unresolved, the latter issue being now before this Court for
resolution. Specifically, petitioner Ferdinand R. Marcos II, the eldest son of
the decedent, questions the actuations of the respondent Commissioner of
Internal Revenue in assessing, and collecting through the summary remedy
of Levy on Real Properties, estate and income tax delinquencies upon the
estate and properties of his father, despite the pendency of the proceedings
on probate of the will of the late president, which is docketed as Sp. Proc.
No. 10279 in the Regional Trial Court of Pasig, Branch 156.
Petitioner had filed with the respondent Court of Appeals a Petition
for Certiorari and Prohibition with an application for writ of preliminary
injunction and/or temporary restraining order on June 28, 1993, seeking to -

I. Annul and set aside the Notices of Levy on real property dated February 22,
1993 and May 20, 1993, issued by respondent Commissioner of Internal Revenue;

II. Annul and set aside the Notices of Sale dated May 26, 1993;

III. Enjoin the Head Revenue Executive Assistant Director II (Collection Service),
from proceeding with the Auction of the real properties covered by Notices
of Sale.

After the parties had pleaded their case, the Court of Appeals rendered
its Decision on November 29, 1994, ruling that the deficiency assessments
[2]

for estate and income tax made upon the petitioner and the estate of the
deceased President Marcos have already become final and unappealable,
and may thus be enforced by the summary remedy of levying upon the
properties of the late President, as was done by the respondent
Commissioner of Internal Revenue.

"WHEREFORE, premises considered judgment is hereby rendered DISMISSING

the petition for Certiorari with prayer for Restraining Order and Injunction.

No pronouncements as to cost.

SO ORDERED."

Unperturbed, petitioner is now before us assailing the validity of the

appellate court's decision, assigning the following as errors:
A. RESPONDENT COURT MANIFESTLY ERRED IN RULING THAT THE SUMMARY
TAX REMEDIES RESORTED TO BY THE GOVERNMENT ARE NOT AFFECTED AND
PRECLUDED BY THE PENDENCY OF THE SPECIAL PROCEEDING FOR THE
ALLOWANCE OF THE LATE PRESIDENT'S ALLEGED WILL. TO THE CONTRARY, THIS
PROBATE PROCEEDING PRECISELY PLACED ALL PROPERTIES WHICH FORM PART
OF THE LATE PRESIDENT'S ESTATE IN CUSTODIA LEGIS OF THE PROBATE COURT
TO THE EXCLUSION OF ALL OTHER COURTS AND ADMINISTRATIVE AGENCIES.
B. RESPONDENT COURT ARBITRARILY ERRED IN SWEEPINGLY DECIDING THAT
SINCE THE TAX ASSESSMENTS OF PETITIONER AND HIS PARENTS HAD ALREADY
BECOME FINAL AND UNAPPEALABLE, THERE WAS NO NEED TO GO INTO THE MERITS
OF THE GROUNDS CITED IN THE PETITION. INDEPENDENT OF WHETHER THE TAX
ASSESSMENTS HAD ALREADY BECOME FINAL, HOWEVER, PETITIONER HAS THE
RIGHT TO QUESTION THE UNLAWFUL MANNER AND METHOD IN WHICH TAX
COLLECTION IS SOUGHT TO BE ENFORCED BY RESPONDENTS COMMISSIONER AND
DE GUZMAN. THUS, RESPONDENT COURT SHOULD HAVE FAVORABLY CONSIDERED
THE MERITS OF THE FOLLOWING GROUNDS IN THE PETITION:

(1) The Notices of Levy on Real Property were issued beyond the period
provided in the Revenue Memorandum Circular No. 38-68.

(2) [a] The numerous pending court cases questioning the late President's
ownership or interests in several properties (both personal and real) make the
total value of his estate, and the consequent estate tax due, incapable of exact
pecuniary determination at this time. Thus, respondents assessment of the
estate tax and their issuance of the Notices of Levy and Sale are premature,
confiscatory and oppressive.

[b] Petitioner, as one of the late President's compulsory heirs, was never
notified, much less served with copies of the Notices of Levy, contrary to the
mandate of Section 213 of the NIRC. As such, petitioner was never given an
opportunity to contest the Notices in violation of his right to due process of
law.

C. ON ACCOUNT OF THE CLEAR MERIT OF THE PETITION, RESPONDENT COURT

MANIFESTLY ERRED IN RULING THAT IT HAD NO POWER TO GRANT INJUNCTIVE
RELIEF TO PETITIONER. SECTION 219 OF THE NIRC NOTWITHSTANDING, COURTS
POSSESS THE POWER TO ISSUE A WRIT OF PRELIMINARY INJUNCTION TO
RESTRAIN RESPONDENTS COMMISSIONER'S AND DE GUZMAN'S ARBITRARY
METHOD OF COLLECTING THE ALLEGED DEFICIENCY ESTATE AND INCOME TAXES
BY MEANS OF LEVY.

The facts as found by the appellate court are undisputed, and are hereby
adopted:

"On September 29, 1989, former President Ferdinand Marcos died in Honolulu,
Hawaii, USA.

On June 27, 1990, a Special Tax Audit Team was created to conduct investigations
and examinations of the tax liabilities and obligations of the late president, as well
as that of his family, associates and "cronies". Said audit team concluded its
investigation with a Memorandum dated July 26, 1991. The investigation disclosed
that the Marcoses failed to file a written notice of the death of the decedent, an
estate tax returns [sic], as well as several income tax returns covering the years
1982 to 1986, -all in violation of the National Internal Revenue Code (NIRC).

Subsequently, criminal charges were filed against Mrs. Imelda R. Marcos before
the Regional Trial of Quezon City for violations of Sections 82, 83 and 84 (has
penalized under Sections 253 and 254 in relation to Section 252- a & b) of the
National Internal Revenue Code (NIRC).
The Commissioner of Internal Revenue thereby caused the preparation and filing
of the Estate Tax Return for the estate of the late president, the Income Tax
Returns of the Spouses Marcos for the years 1985 to 1986, and the Income Tax
Returns of petitioner Ferdinand 'Bongbong' Marcos II for the years 1982 to 1985.

On July 26, 1991, the BIR issued the following: (1) Deficiency estate tax
assessment no. FAC-2-89-91-002464 (against the estate of the late president
Ferdinand Marcos in the amount of P23,293,607,638.00 Pesos); (2) Deficiency
income tax assessment no. FAC-1-85-91-002452 and Deficiency income tax
assessment no. FAC-1-86-91-002451 (against the Spouses Ferdinand and Imelda
Marcos in the amounts of P149,551.70 and P184,009,737.40 representing
deficiency income tax for the years 1985 and 1986); (3) Deficiency income tax
assessment nos. FAC-1-82-91-002460 to FAC-1-85-91-002463 (against petitioner
Ferdinand 'Bongbong' Marcos II in the amounts of P258.70 pesos; P9,386.40
Pesos; P4,388.30 Pesos; and P6,376.60 Pesos representing his deficiency income
taxes for the years 1982 to 1985).

The Commissioner of Internal Revenue avers that copies of the deficiency estate
and income tax assessments were all personally and constructively served on
August 26, 1991 and September 12, 1991 upon Mrs. Imelda Marcos (through her
caretaker Mr. Martinez) at her last known address at No. 204 Ortega St., San Juan,
M.M. (Annexes 'D' and 'E' of the Petition). Likewise, copies of the deficiency tax
assessments issued against petitioner Ferdinand 'Bongbong' Marcos II were also
personally and constructively served upon him (through his caretaker) on
September 12, 1991, at his last known address at Don Mariano Marcos St. corner
P. Guevarra St., San Juan, M.M. (Annexes 'J' and 'J-1' of the Petition). Thereafter,
Formal Assessment notices were served on October 20, 1992, upon Mrs. Marcos
c/o petitioner, at his office, House of Representatives, Batasan Pambansa, Quezon
City. Moreover, a notice to Taxpayer inviting Mrs. Marcos (or her duly authorized
representative or counsel), to a conference, was furnished the counsel of Mrs.
Marcos, Dean Antonio Coronel - but to no avail.

The deficiency tax assessments were not protested administratively, by Mrs.

Marcos and the other heirs of the late president, within 30 days from service of
said assessments.

On February 22, 1993, the BIR Commissioner issued twenty-two notices of levy
on real property against certain parcels of land owned by the Marcoses - to satisfy
the alleged estate tax and deficiency income taxes of Spouses Marcos.

On May 20, 1993, four more Notices of Levy on real property were issued for the
purpose of satisfying the deficiency income taxes.
On May 26, 1993, additional four (4) notices of Levy on real property were again
issued. The foregoing tax remedies were resorted to pursuant to Sections 205 and
213 of the National Internal Revenue Code (NIRC).

In response to a letter dated March 12, 1993 sent by Atty. Loreto Ata (counsel of
herein petitioner) calling the attention of the BIR and requesting that they be duly
notified of any action taken by the BIR affecting the interest of their client
Ferdinand 'Bongbong Marcos II, as well as the interest of the late president - copies
of the aforesaid notices were served on April 7, 1993 and on June 10, 1993, upon
Mrs. Imelda Marcos, the petitioner, and their counsel of record, 'De Borja,
Medialdea, Ata, Bello, Guevarra and Serapio Law Office'.

Notices of sale at public auction were posted on May 26, 1993, at the lobby of the
City Hall of Tacloban City. The public auction for the sale of the eleven (11)
parcels of land took place on July 5, 1993. There being no bidder, the lots were
declared forfeited in favor of the government.

On June 25, 1993, petitioner Ferdinand 'Bongbong' Marcos II filed the instant
petition for certiorari and prohibition under Rule 65 of the Rules of Court, with
prayer for temporary restraining order and/or writ of preliminary injunction."

It has been repeatedly observed, and not without merit, that the
enforcement of tax laws and the collection of taxes, is of paramount
importance for the sustenance of government. Taxes are the lifeblood of the
government and should be collected without unnecessary
hindrance. However, such collection should be made in accordance with law
as any arbitrariness will negate the very reason for government itself. It is
therefore necessary to reconcile the apparently conflicting interests of the
authorities and the taxpayers so that the real purpose of taxation, which is
the promotion of the common good, may be achieved." [3]

Whether or not the proper avenues of assessment and collection of the

said tax obligations were taken by the respondent Bureau is now the subject
of the Court's inquiry.
Petitioner posits that notices of levy, notices of sale, and subsequent sale
of properties of the late President Marcos effected by the BIR are null and
void for disregarding the established procedure for the enforcement of taxes
due upon the estate of the deceased.The case of Domingo vs. Garlitos is [4]

specifically cited to bolster the argument that "the ordinary procedure by

which to settle claims of indebtedness against the estate of a deceased,
person, as in an inheritance (estate) tax, is for the claimant to present a claim
before the probate court so that said court may order the administrator to pay
the amount therefor." This remedy is allegedly, exclusive, and cannot be
effected through any other means.
 Petitioner goes further, submitting that the probate court is not precluded
from denying a request by the government for the immediate payment of
taxes, and should order the payment of the same only within the period fixed
by the probate court for the payment of all the debts of the decedent. In this
regard, petitioner cites the case of Collector of Internal Revenue vs. The
Administratrix of the Estate of Echarri (67 Phil 502), where it was held that:

"The case of Pineda vs. Court of First Instance of Tayabas and Collector of Internal
Revenue (52 Phil 803), relied upon by the petitioner-appellant is good authority on
the proposition that the court having control over the administration proceedings
has jurisdiction to entertain the claim presented by the government for taxes due
and to order the administrator to pay the tax should it find that the assessment was
proper, and that the tax was legal, due and collectible. And the rule laid down in
that case must be understood in relation to the case of Collector of Customs vs.
Haygood, supra., as to the procedure to be followed in a given case by the
government to effectuate the collection of the tax. Categorically stated, where
during the pendency of judicial administration over the estate of a deceased person
a claim for taxes is presented by the government, the court has the authority to
order payment by the administrator; but, in the same way that it has authority to
order payment or satisfaction, it also has the negative authority to deny the
same. While there are cases where courts are required to perform certain duties
mandatory and ministerial in character, the function of the court in a case of the
present character is not one of them; and here, the court cannot be an organism
endowed with latitude of judgment in one direction, and converted into a mere
mechanical contrivance in another direction."

On the other hand, it is argued by the BIR, that the state's authority to
collect internal revenue taxes is paramount. Thus, the pendency of probate
proceedings over the estate of the deceased does not preclude the
assessment and collection, through summary remedies, of estate taxes over
the same. According to the respondent, claims for payment of estate and
income taxes due and assessed after the death of the decedent need not be
presented in the form of a claim against the estate. These can and should
be paid immediately. The probate court is not the government agency to
decide whether an estate is liable for payment of estate of income
taxes. Well-settled is the rule that the probate court is a court with special
and limited jurisdiction.
Concededly, the authority of the Regional Trial Court, sitting, albeit with
limited jurisdiction, as a probate court over estate of deceased individual, is
not a trifling thing. The court's jurisdiction, once invoked, and made effective,
cannot be treated with indifference nor should it be ignored with impunity by
the very parties invoking its authority.
In testament to this, it has been held that it is within the jurisdiction of the
probate court to approve the sale of properties of a deceased person by his
prospective heirs before final adjudication; to determine who are the heirs
[5]

of the decedent; the recognition of a natural child; the status of a woman

[6] [7]

claiming to be the legal wife of the decedent; the legality of disinheritance

[8]

of an heir by the testator; and to pass upon the validity of a waiver of

[9]

hereditary rights. [10]

The pivotal question the court is tasked to resolve refers to the authority
of the Bureau of Internal Revenue to collect by the summary remedy of
levying upon, and sale of real properties of the decedent, estate tax
deficiencies, without the cognition and authority of the court sitting in probate
over the supposed will of the deceased.
The nature of the process of estate tax collection has been described as
follows:

"Strictly speaking, the assessment of an inheritance tax does not directly involve
the administration of a decedent's estate, although it may be viewed as an incident
to the complete settlement of an estate, and, under some statutes, it is made the
duty of the probate court to make the amount of the inheritance tax a part of the
final decree of distribution of the estate. It is not against the property of decedent,
nor is it a claim against the estate as such, but it is against the interest or property
right which the heir, legatee, devisee, etc., has in the property formerly held by
decedent. Further, under some statutes, it has been held that it is not a suit or
controversy between the parties, nor is it an adversary proceeding between the state
and the person who owes the tax on the inheritance. However, under other statutes
it has been held that the hearing and determination of the cash value of the assets
and the determination of the tax are adversary proceedings. The proceeding has
been held to be necessarily a proceeding in rem. [11]

In the Philippine experience, the enforcement and collection of estate tax,

is executive in character, as the legislature has seen it fit to ascribe this task
to the Bureau of Internal Revenue. Section 3 of the National Internal
Revenue Code attests to this:

"Sec. 3. Powers and duties of the Bureau.-The powers and duties of the Bureau of
Internal Revenue shall comprehend the assessment and collection of all national
internal revenue taxes, fees, and charges, and the enforcement of all forfeitures,
penalties, and fines connected therewith, including the execution of judgments in
all cases decided in its favor by the Court of Tax Appeals and the ordinary
courts. Said Bureau shall also give effect to and administer the supervisory and
police power conferred to it by this Code or other laws."

Thus, it was in Vera vs. Fernandez that the court recognized the liberal
[12]

treatment of claims for taxes charged against the estate of the

decedent. Such taxes, we said, were exempted from the application of the
statute of non-claims, and this is justified by the necessity of government
funding, immortalized in the maxim that taxes are the lifeblood of the
government. Vectigalia nervi sunt rei publicae - taxes are the sinews of the
state.

"Taxes assessed against the estate of a deceased person, after administration is

opened, need not be submitted to the committee on claims in the ordinary course of
administration. In the exercise of its control over the administrator, the court may
direct the payment of such taxes upon motion showing that the taxes have been
assessed against the estate."

Such liberal treatment of internal revenue taxes in the probate

proceedings extends so far, even to allowing the enforcement of tax
obligations against the heirs of the decedent, even after distribution of the
estate's properties.

"Claims for taxes, whether assessed before or after the death of the deceased, can
be collected from the heirs even after the distribution of the properties of the
decedent. They are exempted from the application of the statute of non-claims. The
heirs shall be liable therefor, in proportion to their share in the inheritance."
[13]

"Thus, the Government has two ways of collecting the taxes in question. One, by
going after all the heirs and collecting from each one of them the amount of the tax
proportionate to the inheritance received. Another remedy, pursuant to the lien
created by Section 315 of the Tax Code upon all property and rights to property
belong to the taxpayer for unpaid income tax, is by subjecting said property of the
estate which is in the hands of an heir or transferee to the payment of the tax due
the estate. (Commissioner of Internal Revenue vs. Pineda, 21 SCRA 105,
September 15, 1967.)

From the foregoing, it is discernible that the approval of the court, sitting
in probate, or as a settlement tribunal over the deceased is not a mandatory
requirement in the collection of estate taxes. It cannot therefore be argued
that the Tax Bureau erred in proceeding with the levying and sale of the
properties allegedly owned by the late President, on the ground that it was
required to seek first the probate court's sanction. There is nothing in the Tax
Code, and in the pertinent remedial laws that implies the necessity of the
probate or estate settlement court's approval of the state's claim for estate
taxes, before the same can be enforced and collected.
On the contrary, under Section 87 of the NIRC, it is the probate or
settlement court which is bidden not to authorize the executor or judicial
administrator of the decedent's estate to deliver any distributive share to any
party interested in the estate, unless it is shown a Certification by the
Commissioner of Internal Revenue that the estate taxes have been
paid. This provision disproves the petitioner's contention that it is the probate
court which approves the assessment and collection of the estate tax.
If there is any issue as to the validity of the BIR's decision to assess the
estate taxes, this should have been pursued through the proper
administrative and judicial avenues provided for by law.
Section 229 of the NIRC tells us how:

"Sec. 229. Protesting of assessment.-When the Commissioner of Internal Revenue

or his duly authorized representative finds that proper taxes should be assessed, he
shall first notify the taxpayer of his findings. Within a period to be prescribed by
implementing regulations, the taxpayer shall be required to respond to said
notice. If the taxpayer fails to respond, the Commissioner shall issue an assessment
based on his findings.

Such assessment may be protested administratively by filing a request for

reconsideration or reinvestigation in such form and manner as may be prescribed
by implementing regulations within (30) days from receipt of the assessment;
otherwise, the assessment shall become final and unappealable.

If the protest is denied in whole or in part, the individual, association or

corporation adversely affected by the decision on the protest may appeal to the
Court of Tax Appeals within thirty (30) days from receipt of said decision;
otherwise, the decision shall become final, executory and demandable. (As inserted
by P.D. 1773)"

Apart from failing to file the required estate tax return within the time
required for the filing of the same, petitioner, and the other heirs never
questioned the assessments served upon them, allowing the same to lapse
into finality, and prompting the BIR to collect the said taxes by levying upon
the properties left by President Marcos.
Petitioner submits, however, that "while the assessment of taxes may
have been validly undertaken by the Government, collection thereof may
have been done in violation of the law. Thus, the manner and method in
which the latter is enforced may be questioned separately, and irrespective
of the finality of the former, because the Government does not have the
unbridled discretion to enforce collection without regard to the clear provision
of law."[14]

Petitioner specifically points out that applying Memorandum Circular No.

38-68, implementing Sections 318 and 324 of the old tax code (Republic Act
5203), the BIR's Notices of Levy on the Marcos properties, were issued
beyond the allowed period, and are therefore null and void:
"...the Notices of Levy on Real Property (Annexes 0 to NN of Annex C of this
Petition) in satisfaction of said assessments were still issued by respondents well
beyond the period mandated in Revenue Memorandum Circular No. 38-68. These
Notices of Levy were issued only on 22 February 1993 and 20 May 1993 when at
least seventeen (17) months had already lapsed from the last service of tax
assessment on 12 September 1991. As no notices of distraint of personal property
were first issued by respondents, the latter should have complied with Revenue
Memorandum Circular No. 38-68 and issued these Notices of Levy not earlier than
three (3) months nor later than six (6) months from 12 September 1991. In
accordance with the Circular, respondents only had until 12 March 1992 (the last
day of the sixth month) within which to issue these Notices of Levy. The Notices
of Levy, having been issued beyond the period allowed by law, are thus void and
of no effect."
[15]

We hold otherwise. The Notices of Levy upon real property were issued
within the prescriptive period and in accordance with the provisions of the
present Tax Code. The deficiency tax assessment, having already become
final, executory, and demandable, the same can now be collected through
the summary remedy of distraint or levy pursuant to Section 205 of the NIRC.
The applicable provision in regard to the prescriptive period for the
assessment and collection of tax deficiency in this instance is Article 223 of
the NIRC, which pertinently provides:

"Sec. 223. Exceptions as to a period of limitation of assessment and collection of

taxes.- (a) In the case of a false or fraudulent return with intent to evade tax or of a
failure to file a return, the tax may be assessed, or a proceeding in court for the
collection of such tax may be begun without assessment, at any time within ten
(10) years after the discovery of the falsity, fraud, or omission: Provided, That, in a
fraud assessment which has become final and executory, the fact of fraud shall be
judicially taken cognizance of in the civil or criminal action for the collection
thereof.

xxx

(c) Any internal revenue tax which has been assessed within the period of
limitation above prescribed, may be collected by distraint or levy or by a
proceeding in court within three years following the assessment of the tax.

xxx
The omission to file an estate tax return, and the subsequent failure to
contest or appeal the assessment made by the BIR is fatal to the petitioner's
cause, as under the above-cited provision, in case of failure to file a return,
the tax may be assessed at any time within ten years after the omission, and
any tax so assessed may be collected by levy upon real property within three
years following the assessment of the tax. Since the estate tax assessment
had become final and unappealable by the petitioner's default as regards
protesting the validity of the said assessment, there is now no reason why
the BIR cannot continue with the collection of the said tax. Any objection
against the assessment should have been pursued following the avenue
paved in Section 229 of the NIRC on protests on assessments of internal
revenue taxes.
Petitioner further argues that "the numerous pending court cases
questioning the late president's ownership or interests in several properties
(both real and personal) make the total value of his estate, and the
consequent estate tax due, incapable of exact pecuniary determination at
this time. Thus, respondents' assessment of the estate tax and their
issuance of the Notices of Levy and sale are premature and oppressive." He
points out the pendency of Sandiganbayan Civil Case Nos. 0001-0034 and
0141, which were filed by the government to question the ownership and
interests of the late President in real and personal properties located within
and outside the Philippines. Petitioner, however, omits to allege whether the
properties levied upon by the BIR in the collection of estate taxes upon the
decedent's estate were among those involved in the said cases pending in
the Sandiganbayan. Indeed, the court is at a loss as to how these cases are
relevant to the matter at issue. The mere fact that the decedent has pending
cases involving ill-gotten wealth does not affect the enforcement of tax
assessments over the properties indubitably included in his estate.
Petitioner also expresses his reservation as to the propriety of the BIR's
total assessment of P23,292,607,638.00, stating that this amount deviates
from the findings of the Department of Justice's Panel of Prosecutors as per
its resolution of 20 September 1991.Allegedly, this is clear evidence of the
uncertainty on the part of the Government as to the total value of the estate
of the late President.
This is, to our mind, the petitioner's last ditch effort to assail the
assessment of estate tax which had already become final and unappealable.
It is not the Department of Justice which is the government agency
tasked to determine the amount of taxes due upon the subject estate, but
the Bureau of Internal Revenue whose determinations and assessments
[16]

are presumed correct and made in good faith. The taxpayer has the duty of
[17]

proving otherwise. In the absence of proof of any irregularities in the

performance of official duties, an assessment will not be disturbed. Even an
assessment based on estimates is prima facie valid and lawful where it does
not appear to have been arrived at arbitrarily or capriciously. The burden of
proof is upon the complaining party to show clearly that the assessment is
erroneous. Failure to present proof of error in the assessment will justify the
judicial affirmance of said assessment. In this instance, petitioner has not
[18]

pointed out one single provision in the Memorandum of the Special Audit
Team which gave rise to the questioned assessment, which bears a trace of
falsity. Indeed, the petitioner's attack on the assessment bears mainly on the
alleged improbable and unconscionable amount of the taxes charged. But
mere rhetoric cannot supply the basis for the charge of impropriety of the
assessments made.
Moreover, these objections to the assessments should have been raised,
considering the ample remedies afforded the taxpayer by the Tax Code, with
the Bureau of Internal Revenue and the Court of Tax Appeals, as described
earlier, and cannot be raised now via Petition for Certiorari, under the pretext
of grave abuse of discretion. The course of action taken by the petitioner
reflects his disregard or even repugnance of the established institutions for
governance in the scheme of a well-ordered society. The subject tax
assessments having become final, executory and enforceable, the same can
no longer be contested by means of a disguised protest. In the
main, Certiorari may not be used as a substitute for a lost appeal or
remedy. This judicial policy becomes more pronounced in view of the
[19]

absence of sufficient attack against the actuations of government.

On the matter of sufficiency of service of Notices of Assessment to the
petitioner, we find the respondent appellate court's pronouncements sound
and resilient to petitioner's attacks.

"Anent grounds 3(b) and (B) - both alleging/claiming lack of notice - We find,
after considering the facts and circumstances, as well as evidences, that there was
sufficient, constructive and/or actual notice of assessments, levy and sale, sent to
herein petitioner Ferdinand "Bongbong" Marcos as well as to his mother Mrs.
Imelda Marcos.

Even if we are to rule out the notices of assessments personally given to the
caretaker of Mrs. Marcos at the latter's last known address, on August 26, 1991 and
September 12, 1991, as well as the notices of assessment personally given to the
caretaker of petitioner also at his last known address on September 12, 1991 - the
subsequent notices given thereafter could no longer be ignored as they were sent at
a time when petitioner was already here in the Philippines, and at a place where
said notices would surely be called to petitioner's attention, and received by
responsible persons of sufficient age and discretion.

Thus, on October 20, 1992, formal assessment notices were served upon Mrs.
Marcos c/o the petitioner, at his office, House of Representatives, Batasan
Pambansa, Q.C. (Annexes "A", "A-1", "A-2", "A-3"; pp. 207-210,
Comment/Memorandum of OSG). Moreover, a notice to taxpayer dated October 8,
1992 inviting Mrs. Marcos to a conference relative to her tax liabilities, was
furnished the counsel of Mrs. Marcos - Dean Antonio Coronel (Annex "B", p. 211,
ibid). Thereafter, copies of Notices were also served upon Mrs. Imelda Marcos, the
petitioner and their counsel "De Borja, Medialdea, Ata, Bello, Guevarra and
Serapio Law Office", on April 7, 1993 and June 10, 1993. Despite all of these
Notices, petitioner never lifted a finger to protest the assessments, (upon which the
Levy and sale of properties were based), nor appealed the same to the Court of Tax
Appeals.

There being sufficient service of Notices to herein petitioner (and his mother) and
it appearing that petitioner continuously ignored said Notices despite several
opportunities given him to file a protest and to thereafter appeal to the Court of Tax
Appeals, - the tax assessments subject of this case, upon which the levy and sale of
properties were based, could no longer be contested (directly or indirectly) via this
instant petition for certiorari."
[20]

Petitioner argues that all the questioned Notices of Levy, however, must
be nullified for having been issued without validly serving copies thereof to
the petitioner. As a mandatory heir of the decedent, petitioner avers that he
has an interest in the subject estate, and notices of levy upon its properties
should have been served upon him.
We do not agree. In the case of notices of levy issued to satisfy the
delinquent estate tax, the delinquent taxpayer is the Estate of the decedent,
and not necessarily, and exclusively, the petitioner as heir of the
deceased. In the same vein, in the matter of income tax delinquency of the
late president and his spouse, petitioner is not the taxpayer liable. Thus, it
follows that service of notices of levy in satisfaction of these tax
delinquencies upon the petitioner is not required by law, as under Section
213 of the NIRC, which pertinently states:
"xxx

...Levy shall be effected by writing upon said certificate a description of the

property upon which levy is made. At the same time, written notice of the levy
shall be mailed to or served upon the Register of Deeds of the province or city
where the property is located and upon the delinquent taxpayer, or if he be absent
from the Philippines, to his agent or the manager of the business in respect to
which the liability arose, or if there be none, to the occupant of the property in
question.

xxx"
The foregoing notwithstanding, the record shows that notices of warrants
of distraint and levy of sale were furnished the counsel of petitioner on April
7, 1993, and June 10, 1993, and the petitioner himself on April 12, 1993 at
his office at the Batasang Pambansa. We cannot therefore, countenance
[21]

petitioner's insistence that he was denied due process. Where there was an
opportunity to raise objections to government action, and such opportunity
was disregarded, for no justifiable reason, the party claiming oppression then
becomes the oppressor of the orderly functions of government. He who
comes to court must come with clean hands. Otherwise, he not only taints
his name, but ridicules the very structure of established authority.
IN VIEW WHEREOF, the Court RESOLVED to DENY the present
petition. The Decision of the Court of Appeals dated November 29, 1994 is
hereby AFFIRMED in all respects.
SO ORDERED.
G.R. No. L-29276 May 18, 1978

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

appellee,
vs.
CRISPINA DE GUZMAN-CARILLO, ARSENIO DE GUZMAN and HONORATA DE GUZMAN-
MENDIOLA, oppositors-appellants.

Emiliano Samson & R. Balderama-Samson for appellants.

Cezar Paralejo for appellee.

AQUINO, J.:

This case is about the propriety of allowing as administration expenses certain disbursements
made by the administrator of the testate estate of the late Felix J. de Guzman of Gapan, Nueva
Ecija.

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

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

The administrator submitted four accounting reports for the period from June 16, 1964 to
September, 1967. Three heirs Crispina de Guzmans-Carillo Honorata de Guzman-Mendiola and
Arsenio de Guzman interposed objections to the administrator's disbursements in the total sum
of P13,610.48, broken down as follows:

I. Expense for the improvement and renovation of the decedent's residential house.

1. Construction of fence P3,082.07

2. Renovation of bathroom P1,389.52

3. Repair of terrace and

interior of house P5,928.00 P10,399.59

II. Living expenses of Librada de Guzman while occupying the family home without paying rent:

1. For house helper P1,170.00

2. Light bills 227.41

3. Water bills 150.80

4. Gas oil, floor wax

and switch nail 54.90 P 1,603.11

III. Other expenses:

1. Lawyer's subsistence P 19.30

2. Gratuity pay in lieu

of medical fee 144.00

3. For stenographic notes 100.00

4. For food served on

decedent's first

death anniversary 166.65

5. Cost of publication of

death anniversary

of decedent 102.00

6. Representation

expenses 26.25 P558.20

IV. Irrigation fee P1.049.58

TOTAL P13,610.48

It should be noted that the probate court in its order of August 29, 1966 directed the administrator
"to refrain from spending the assets of the estate for reconstructing and remodeling the house of
the deceased and to stop spending (sic) any asset of the estate without first during authority of
the court to do so" (pp. 26-27, Record on Appeal).

The lower court in its order of April 29, 1968 allowed the d items as legitimate expenses of
administration. From that order, the three oppositors appealed to this Court. Their contention is
that the probate court erred in approving the utilization of the income of the estate (from rice
harvests) to defray those expenditures which allegedly are not allowable under the Rules of
Court.
An executor or administrator is allowed the necessary expenses in the care, management, and
settlement of the estate. He is entitled to possess and manage the decedent's real and personal
estate as long as it is necessary for the payment of the debts and the expenses of administration.
He is accountable for the whole decedent's estate which has come into his possession, with all
the interest, profit, and income thereof, and with the proceeds of so much of such estate as is
sold by him, at the price at which it was sold (Sec. 3, Rule 84; Secs. 1 and 7, Rule 85, Rules of
Court).

One of the Conditions of the administrator's bond is that he should render a true and just account
of his administration to the court. The court may examine him upon oath With respect to every
matter relating to his accounting 't and shall so examine him as to the correctness of his account
before the same is allowed, except when no objection is made to the allowance of the account
and its correctness is satisfactorily established by competent proof. The heirs, legatees,
distributes, and creditors of the estate shall have the same privilege as the executor or
administrator of being examined on oath on any matter relating to an administration account."
(Sec. 1[c] Rule 81 and secs. 8 and 9, Rule 85, Rules of Court).

A hearing is usually held before an administrator's account is approved, especially if an

interested Party raises objections to certain items in the accounting report (Sec. 10, Rule 85).

At that hearing, the practice is for the administrator to take the witness stand, testify under oath
on his accounts and Identify the receipts, vouchers and documents evidencing his disbursements
which are offered as exhibits. He may be interrogated by the court and crossed by the
oppositors's counsel. The oppositors may present proofs to rebut the ad. administrator's
evidence in support of his accounts.

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

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

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

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

Obviously, those expenses redounded to the benefit of an the co- owners. They were necessary
for the preservation and use of the family residence. As a result of those expenses, the co-
owners, including the three oppositors, would be able to use the family home in comfort,
convenience and security.
We hold that the probate court did not err in approving the use of the income of the estate to
defray those ex

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

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

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

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

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

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

The other expenses, namely, P19.30 for the lawyer's subsistence and P144 as the cost of the gift
to the physician who attended to the testator during his last s are allowable expenses.

IV. Irrigation fee P1,049.58. The appellants question the deductibility of that expense on the
ground that it seems to be a duplication of the item of P1,320 as irrigation fee for the same 1966-
67 crop-year.

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

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

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

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

MARIA CARLA PIROVANO, etc., et al., petitioners-appellants,

vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent-appellee.

Angel S. Gamboa for petitioners-appellants.

Office of the Solicitor General for respondent-appellee.

REYES, J.B.L., J.:

This case is a sequel to the case of Pirovano vs. De la Rama Steamship Co., 96 Phil. 335.

Briefly, the facts of the aforestated case may be stated as follows:

Enrico Pirovano was the father of the herein petitioners-appellants. Sometime in the early part of
1941, De la Rama Steamship Co. insured the life of said Enrico Pirovano, who was then its
President and General Manager until the time of his death, with various Philippine and American
insurance companies for a total sum of one million pesos, designating itself as the beneficiary of
the policies, obtained by it. Due to the Japanese occupation of the Philippines during the second
World War, the Company was unable to pay the premiums on the policies issued by its Philippine
insurers and these policies lapsed, while the policies issued by its American insurers were kept
effective and subsisting, the New York office of the Company having continued paying its
premiums from year to year.

During the Japanese occupation , or more particularly in the latter part of 1944, said Enrico
Pirovano died.

After the liberation of the Philippines from the Japanese forces, the Board of Directors of De la
Rama Steamship Co. adopted a resolution dated July 10, 1946 granting and setting aside, out of
the proceeds expected to be collected on the insurance policies taken on the life of said Enrico
Pirovano, the sum of P400,000.00 for equal division among the four (4) minor children of the
deceased, said sum of money to be convertible into 4,000 shares of stock of the Company, at
par, or 1,000 shares for each child. Shortly thereafter, the Company received the total sum of
P643,000.00 as proceeds of the said life insurance policies obtained from American insurers.

Upon receipt of the last stated sum of money, the Board of Directors of the Company modified,
on January 6, 1947, the above-mentioned resolution by renouncing all its rights title, and interest
to the said amount of P643,000.00 in favor of the minor children of the deceased, subject to the
express condition that said amount should be retained by the Company in the nature of a loan to
it, drawing interest at the rate of five per centum (5%) per annum, and payable to the Pirovano
children after the Company shall have first settled in full the balance of its present remaining
bonded indebtedness in the sum of approximately P5,000,000.00. This latter resolution was
carried out in a Memorandum Agreement on January 10, 1947 and June 17, 1947., respectively,
executed by the Company and Mrs. Estefania R. Pirovano, the latter acting in her capacity as
guardian of her children (petitioners-appellants herein) find pursuant to an express authority
granted her by the court.

On June 24, 1947, the Board of Directors of the Company further modified the last mentioned
resolution providing therein that the Company shall pay the proceeds of said life insurance
policies to the heirs of the said Enrico Pirovano after the Company shall have settled in full the
balance of its present remaining bonded indebtedness, but the annual interests accruing on the
principal shall be paid to the heirs of the said Enrico Pirovano, or their duly appointed
representative, whenever the Company is in a position to meet said obligation.
On February 26, 1948, Mrs. Estefania R. Pirovano, in behalf of her children, executed a public
document formally accepting the donation; and, on the same date, the Company through its
Board of Directors, took official notice of this formal acceptance.

On September 13, 1949, the stockholders of the Company formally ratified the various
resolutions hereinabove mentioned with certain clarifying modifications that the payment of the
donation shall not be effected until such time as the Company shall have first duly liquidated its
present bonded indebtedness in the amount of P3,260,855.77 with the National Development
Company, or fully redeemed the preferred shares of stock in the amount which shall be issued to
the National Development Company in lieu thereof; and that any and all taxes, legal fees, and
expenses in any way connected with the above transaction shall be chargeable and deducted
from the proceeds of the life insurance policies mentioned in the resolutions of the Board of
Directors.

On March 8, 1951, however, the majority stockholders of the Company voted to revoke the
resolution approving the donation in favor of the Pirovano children.

As a consequence of this revocation and refusal of the Company to pay the balance of the
donation amounting to P564,980.90 despite demands therefor, the herein petitioners-appellants
represented by their natural guardian, Mrs. Estefania R. Pirovano, brought an action for the
recovery of said amount, plus interest and damages against De la Rama Steamship Co., in the
Court of First Instance of Rizal, which case ultimately culminated to an appeal to this Court. On
December 29, 1954, this court rendered its decision in the appealed case (96 Phil. 335) holding
that the donation was valid and remunerative in nature, the dispositive part of which reads:

Wherefore, the decision appealed from should be modified as follows: (a) that the
donation in favor of the children of the late Enrico Pirovano of the proceeds of the
insurance policies taken on his life is valid and binding on the defendant corporation; (b)
that said donation, which amounts to a total of P583,813.59, including interest, as it
appears in the books of the corporation as of August 31, 1951, plus interest thereon at
the rate of 5 per cent per annum from the filing of the complaint, should be paid to the
plaintiffs after the defendant corporation shall have fully redeemed the preferred shares
issued to the National Development Company under the terms and conditions stared in
the resolutions of the Board of Directors of January 6, 1947 and June 24, 1947, as
amended by the resolution of the stockholders adopted on September 13, 1949; and (c)
defendant shall pay to plaintiffs an additional amount equivalent to 10 per cent of said
amount of P583,813.59 as damages by way of attorney's fees, and to pay the costs of
action. (Pirovano et al. vs. De la Rama Steamship Co., 96 Phil. 367-368)

The above decision became final and executory. In compliance therewith, De la Rama
Steamship Co. made, on April 6, 1955, a partial payment on the amount of the judgment and
paid the balance thereof on May 12, 1955.

On March 6, 1955, respondent Commissioner of Internal Revenue assessed the amount of

P60,869.67 as donees' gift tax, inclusive of surcharges, interests and other penalties, against
each of the petitioners-appellants, or for the total sum of P243,478.68; and, on April 23, 1955, a
donor's gift tax in the total amount of P34,371.76 was also assessed against De la Rama
Steamship Co., which the latter paid.

Petitioners-appellants herein contested respondent Commissioner's assessment and imposition

of the donees' gift taxes and donor's gift tax and also made a claim for refund of the donor's gift
tax so collected. Respondent Commissioner overruled petitioners' claims; hence, the latter
presented two (2) petitions for review against respondent's rulings before the Court of Tax
Appeals, said petitions having been docketed as CTA Cases Nos. 347 and 375. CTA Case No.
347 relates to the petition disputing the legality of the assessment of donees' gift taxes and
donor's gift tax while CTA Case No. 375 refers to the claim for refund of the donor's gift tax
already paid.

After the filing of respondent's usual answers to the petitions, the two cases, being interrelated to
each other, were tried jointly and terminated.

On January 31, 1962, the Court of Tax Appeals rendered its decision in the two cases, the
dispositive part of which reads:

In resume, we are of the opinion, that (1) the donor's gift tax in the sum of P34,371.76
was erroneously assessed and collected, hence, petitioners are entitled to the refund
thereof; (2) the donees' gift taxes were correctly assessed; (3) the imposition of the
surcharge of 25% is not proper; (4) the surcharge of 5% is legally due; and (5) the
interest of 1% per month on the deficiency donees' gift taxes is due from petitioners from
March 8, 1955 until the taxes are paid.

IN LINE WITH THE FOREGOING OPINION, petitioners are hereby ordered to pay the
donees' gift taxes as assessed by respondent, plus 5% surcharge and interest at the rate
of 1% per month from March 8, 1955 to the date of payment of said donees' gift taxes.
Respondent is ordered to apply the sum of P34,371.76 which is refundable to petitioners,
against the amount due from petitioners. With costs against petitioners in Case No. 347.

Petitioners-appellants herein filed a motion to reconsider the above decision, which the lower
court denied. Hence, this appeal before us.

In the instant appeal, petitioners-appellants herein question only that portion of the decision of
the lower court ordering the payment of donees' gift taxes as assessed by respondent as well as
the imposition of surcharge and interest on the amount of donees' gift taxes.

In their brief and memorandum, they dispute the factual finding of the lower court that De la
Rama Steamship Company's renunciation of its rights, title, and interest over the proceeds of
said life insurance policies in favor of the Pirovano children "was motivated solely and exclusively
by its sense of gratitude, an act of pure liberality, and not to pay additional compensation for
services inadequately paid for." Petitioners now contend that the lower court's finding was
erroneous in seemingly considering the disputed grant as a simple donation, since our previous
decision (96 Phil. 335) had already declared that the transfer to the Pirovano children was a
remuneratory donation. Petitioners further contend that the same was made not for an
insufficient or inadequate consideration but rather it a was made for a full and adequate
compensation for the valuable services rendered by the late Enrico Pirovano to the De la Rama
Steamship Co.; hence, the donation does not constitute a taxable gift under the provisions of
Section 108 of the National Internal Revenue Code.

The argument for petitioners-appellants fails to take into account the fact that neither in Spanish
nor in Anglo-American law was it considered that past services, rendered without relying on a
coetaneous promise, express or implied, that such services would be paid for in the future,
constituted cause or consideration that would make a conveyance of property anything else but a
gift or donation. This conclusion flows from the text of Article 619 of the Code of 1889 (identical
with Article 726 of the present Civil Code of the Philippines):

When a person gives to another a thing ... on account of the latter's merits or of the
services rendered by him to the donor, provided they do not constitute a demandable
debt, ..., there is also a donation. ... .

There is nothing on record to show that when the late Enrico Pirovano rendered services as
President and General Manager of the De la Rama Steamship Co. he was not fully compensated
for such services, or that, because they were "largely responsible for the rapid and very
successful development of the activities of the company" (Res. of July 10, 1946). Pirovano
expected or was promised further compensation over and in addition to his regular emoluments
as President and General Manager. The fact that his services contributed in a large measure to
the success of the company did not give rise to a recoverable debt, and the conveyances made
by the company to his heirs remain a gift or donation. This is emphasized by the directors'
Resolution of January 6, 1947, that "out of gratitude" the company decided to renounce in favor
of Pirovano's heirs the proceeds of the life insurance policies in question. The true consideration
for the donation was, therefore, the company's gratitude for his services, and not the services
themselves.

That the tax court regarded the conveyance as a simple donation, instead of a remuneratory one
as it was declared to be in our previous decision, is but an innocuous error; whether
remuneratory or simple, the conveyance remained a gift, taxable under Chapter 2, Title III of the
Internal Revenue Code.

But then appellants contend, the entire property or right donated should not be considered as a
gift for taxation purposes; only that portion of the value of the property or right transferred, if any,
which is in excess of the value of the services rendered should be considered as a taxable gift.
They cite in support Section 111 of the Tax Code which provides that

Where property is transferred for less, than an adequate and full consideration in money
or money's worth, then the amount by which the value of the property exceeded the value
of the consideration shall, for the purpose of the tax imposed by this Chapter, be deemed
a gift, ... .

The flaw in this argument lies in the fact that, as copied from American law, the term
consideration used in this section refers to the technical "consideration" defined by the American
Law Institute (Restatement of Contracts) as "anything that is bargained for by the promisor and
given by the promisee in exchange for the promise" (Also, Corbin on Contracts, Vol. I, p. 359).
But, as we have seen, Pirovano's successful activities as officer of the De la Rama Steamship
Co. cannot be deemed such consideration for the gift to his heirs, since the services were
rendered long before the Company ceded the value of the life policies to said heirs; cession and
services were not the result of one bargain or of a mutual exchange of promises.

And the Anglo-American law treats a subsequent promise to pay for past services (like one to
pay for improvements already made without prior request from the promisor) to be a nudum
pactum (Roscorla vs. Thomas, 3 Q.B. 234; Peters vs. Poro, 25 ALR 615; Carson vs. Clark, 25
Am. Dec. 79; Boston vs. Dodge, 12 Am. Dec. 206), i.e., one that is unenforceable in view of the
common law rule that consideration must consist in a legal benefit to the promisee or some legal
detriment to the promisor.

What is more, the actual consideration for the cession of the policies, as previously shown, was
the Company's gratitude to Pirovano; so that under section 111 of the Code there is no
consideration the value of which can be deducted from that of the property transferred as a gift.
Like "love and affection," gratitude has no economic value and is not "consideration" in the sense
that the word is used in this section of the Tax Code.

As stated by Chief Justice Griffith of the Supreme Court of Mississippi in his well-known book,
"Outlines of the Law" (p. 204)

Love and affection are not considerations of value they are not estimable in terms of value.
Nor are sentiments of gratitude for gratuitous part favors or kindnesses; nor are obligations which
are merely moral. It has been well said that if a moral obligation were alone sufficient it would
remove the necessity for any consideration at all, since the fact of making a promise impose, the
moral obligation to perform it."
It is of course perfectly possible that a donation or gift should at the same time impose a burden
or condition on the donee involving some economic liability for him. A, for example, may donate a
parcel of land to B on condition that the latter assume a mortgage existing on the donated land.
In this case the donee may rightfully insist that the gift tax be computed only on the value of the
land less the value of the mortgage. This, in fact, is contemplated by Article 619 of the Civil Code
of 1889 (Art. 726 of the Tax Code) when it provides that there is also a donation "when the gift
imposes upon the donee a burden which is less than the value of the thing given." Section 111 of
the Tax Code has in view situations of this kind, since it also prescribes that "the amount by
which the value of the property exceeded the value of the consideration" shall be deemed a gift
for the purpose of the tax. .

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

It is well to note, and it is not disputed, that petitioners-donees have failed to file any gift tax
return and that they also failed to pay the amount of the assessment made against them by
respondent in 1955. This situation is covered by Section 119(b) (1) and (c) and Section 120 of
the Tax Code:

(b) Deficiency.

(1) Payment not extended. Where a deficiency, or any interest assessed in connection
therewith, or any addition to the taxes provided for in section one hundred twenty is not
paid in full within thirty days from the date of the notice and demand from the
Commissioner, there shall be collected as a part of the taxes, interest upon the unpaid
amount at the rate of one per centum a month from the date of such notice and demand
until it is paid. (section 119)

(c) Surcharge. If any amount of the taxes included in the notice and demand from the
Commissioner of Internal Revenue is not paid in full within thirty days after such notice
and demand, there shall be collected in addition to the interest prescribed above as a
part of the taxes a surcharge of five per centum of the unpaid amount. (sec. 119)

The failure to file a return was found by the lower court to be due to reasonable cause and not to
willful neglect. On this score, the elimination by the lower court of the 25% surcharge is ad
valorem penalty which respondent Commissioner had imposed pursuant to Section 120 of the
Tax Code was proper, since said Section 120 vests in the Commissioner of Internal Revenue or
in the tax court power and authority to impose or not to impose such penalty depending upon
whether or not reasonable cause has been shown in the non-filing of such return.

On the other hand, unlike said Section 120, Section 119, paragraphs (b) (1) and (c) of the Tax
Code, does not confer on the Commissioner of Internal Revenue or on the courts any power and
discretion not to impose such interest and surcharge. It is likewise provided for by law that an
appeal to the Court of Tax Appeals from a decision of the Commissioner of Internal Revenue
shall not suspend the payment or collection of the tax liability of the taxpayer unless a motion to
that effect shall have been presented to the court and granted by it on the ground that such
collection will jeopardize the interest of the taxpayer (Sec. 11, Republic Act No. 1125; Rule 12,
Rules of the Court of Tax Appeals). It should further be noted that
 It has been the uniform holding of this Court that no suit for enjoining the collection of a
tax, disputed or undisputed, can be brought, the remedy being to pay the tax first,
formerly under protest and now without need of protect, file the claim with the Collector,
and if he denies it, bring an action for recovery against him. (David v. Ramos, et al., 90
Phil. 351)

Section 306 of the National Internal Revenue Code ... lays down the procedure to be
followed in those cases wherein a taxpayer entertains some doubt about the correctness
of a tax sought to be collected. Said section provides that the tax, should first be paid and
the taxpayer should sue for its recovery afterwards. The purpose of the law obviously is
to prevent delay in the collection of taxes, upon which the Government depends for its
existence. To allow a taxpayer to first secure a ruling as regards the validity of the tax
before paying it would be to defeat this purpose. (National Dental Supply Co. vs. Meer,
90 Phil. 265)

Petitioners did not file in the lower court any motion for the suspension of payment or collection
of the amount of assessment made against them.

On the basis of the above-stated provisions of law and applicable authorities, it is evident that the
imposition of 1% interest monthly and 5% surcharge is justified and legal. As succinctly stated by
the court below, said imposition is "mandatory and may not be waived by the Commissioner of
Internal Revenue or by the courts" (Resolution on petitioners' motion for reconsideration, Annex
XIV, petition). Hence, said imposition of interest and surcharge by the lower court should be
upheld.

WHEREFORE, the decision of the Court of Tax Appeals is affirmed. Costs against petitioners
Pirovano.

G.R. No. L-19201 June 16, 1965

REV. FR. CASIMIRO LLADOC, petitioner,

vs.
The COMMISSIONER OF INTERNAL REVENUE and The COURT of TAX
APPEALS, respondents.

Hilado and Hilado for petitioner.

Office of the Solicitor General for respondents.

PAREDES, J.:

Sometime in 1957, the M.B. Estate, Inc., of Bacolod City, donated P10,000.00 in cash to Rev. Fr.
Crispin Ruiz, then parish priest of Victorias, Negros Occidental, and predecessor of herein
petitioner, for the construction of a new Catholic Church in the locality. The total amount was
actually spent for the purpose intended.

On March 3, 1958, the donor M.B. Estate, Inc., filed the donor's gift tax return. Under date of
April 29, 1960, the respondent Commissioner of Internal Revenue issued an assessment for
donee's gift tax against the Catholic Parish of Victorias, Negros Occidental, of which petitioner
was the priest. The tax amounted to P1,370.00 including surcharges, interests of 1% monthly
from May 15, 1958 to June 15, 1960, and the compromise for the late filing of the return.

Petitioner lodged a protest to the assessment and requested the withdrawal thereof. The protest
and the motion for reconsideration presented to the Commissioner of Internal Revenue were
denied. The petitioner appealed to the Court of Tax Appeals on November 2, 1960. In the petition
for review, the Rev. Fr. Casimiro Lladoc claimed, among others, that at the time of the donation,
he was not the parish priest in Victorias; that there is no legal entity or juridical person known as
the "Catholic Parish Priest of Victorias," and, therefore, he should not be liable for the donee's gift
tax. It was also asserted that the assessment of the gift tax, even against the Roman Catholic
Church, would not be valid, for such would be a clear violation of the provisions of the
Constitution.

After hearing, the CTA rendered judgment, the pertinent portions of which are quoted below:

... . Parish priests of the Roman Catholic Church under canon laws are similarly situated
as its Archbishops and Bishops with respect to the properties of the church within their
parish. They are the guardians, superintendents or administrators of these properties,
with the right of succession and may sue and be sued.

xxx xxx xxx

The petitioner impugns the, fairness of the assessment with the argument that he should
not be held liable for gift taxes on donation which he did not receive personally since he
was not yet the parish priest of Victorias in the year 1957 when said donation was given.
It is intimated that if someone has to pay at all, it should be petitioner's predecessor, the
Rev. Fr. Crispin Ruiz, who received the donation in behalf of the Catholic parish of
Victorias or the Roman Catholic Church. Following petitioner's line of thinking, we should
be equally unfair to hold that the assessment now in question should have been
addressed to, and collected from, the Rev. Fr. Crispin Ruiz to be paid from income
derived from his present parish where ever it may be. It does not seem right to indirectly
burden the present parishioners of Rev. Fr. Ruiz for donee's gift tax on a donation to
which they were not benefited.

xxx xxx xxx

We saw no legal basis then as we see none now, to include within the Constitutional
exemption, taxes which partake of the nature of an excise upon the use made of the
properties or upon the exercise of the privilege of receiving the properties. (Phipps vs.
Commissioner of Internal Revenue, 91 F [2d] 627; 1938, 302 U.S. 742.)

It is a cardinal rule in taxation that exemptions from payment thereof are highly
disfavored by law, and the party claiming exemption must justify his claim by a clear,
positive, or express grant of such privilege by law. (Collector vs. Manila Jockey Club,
G.R. No. L-8755, March 23, 1956; 53 O.G. 3762.)

The phrase "exempt from taxation" as employed in Section 22(3), Article VI of the
Constitution of the Philippines, should not be interpreted to mean exemption from all
kinds of taxes. Statutes exempting charitable and religious property from taxation should
be construed fairly though strictly and in such manner as to give effect to the main intent
of the lawmakers. (Roman Catholic Church vs. Hastrings 5 Phil. 701.)

xxx xxx xxx

WHEREFORE, in view of the foregoing considerations, the decision of the respondent

Commissioner of Internal Revenue appealed from, is hereby affirmed except with regard
to the imposition of the compromise penalty in the amount of P20.00 (Collector of Internal
Revenue v. U.S.T., G.R. No. L-11274, Nov. 28, 1958); ..., and the petitioner, the Rev. Fr.
Casimiro Lladoc is hereby ordered to pay to the respondent the amount of P900.00 as
donee's gift tax, plus the surcharge of five per centum (5%) as ad valorem penalty under
Section 119 (c) of the Tax Code, and one per centum (1%) monthly interest from May 15,
1958 to the date of actual payment. The surcharge of 25% provided in Section 120 for
failure to file a return may not be imposed as the failure to file a return was not due to
willful neglect.( ... ) No costs.
The above judgment is now before us on appeal, petitioner assigning two (2) errors allegedly
committed by the Tax Court, all of which converge on the singular issue of whether or not
petitioner should be liable for the assessed donee's gift tax on the P10,000.00 donated for the
construction of the Victorias Parish Church.

Section 22 (3), Art. VI of the Constitution of the Philippines, exempts from taxation
cemeteries, churches and parsonages or convents, appurtenant thereto, and all lands, buildings,
and improvements used exclusively for religious purposes. The exemption is only from the
payment of taxes assessed on such properties enumerated, as property taxes, as contra
distinguished from excise taxes. In the present case, what the Collector assessed was a donee's
gift tax; the assessment was not on the properties themselves. It did not rest upon general
ownership; it was an excise upon the use made of the properties, upon the exercise of the
privilege of receiving the properties (Phipps vs. Com. of Int. Rec. 91 F 2d 627). Manifestly, gift
tax is not within the exempting provisions of the section just mentioned. A gift tax is not a
property tax, but an excise tax imposed on the transfer of property by way of gift inter vivos, the
imposition of which on property used exclusively for religious purposes, does not constitute an
impairment of the Constitution. As well observed by the learned respondent Court, the phrase
"exempt from taxation," as employed in the Constitution (supra) should not be interpreted to
mean exemption from all kinds of taxes. And there being no clear, positive or express grant of
such privilege by law, in favor of petitioner, the exemption herein must be denied.

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

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

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

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