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

vs.
JUAN POSADAS, JR., Collector of Internal Revenue,
G.R. No. L-43082 June 18, 1937
FACTS:

Thomas Hanley died in Zamboanga, leaving a will and considerable amount of real
and personal properties. Hanley’s will provides the following: his money will be
given to his nephew, Matthew Hanley, as well as the real estate owned by him. The
CFI for the best interests of the estate appointed a trustee to administer the real
properties which, under the will, were to pass to nephew Matthew ten years after
the two executors named in the will was appointed trustee.

Moore acted as trustee until he resigned and the plaintiff Lorenzo herein was
appointed in his stead. Juan Posadas, Collector of Internal Revenue, assessed
inheritance tax against the estate amounting to P2,057.74 which includes penalty
and surcharge. He filed a motion in the testamentary proceedings so that Lorenzo
will be ordered to pay the amount due. Lorenzo paid the amount in protest after CFI
granted Posadas’ motion. He claimed that the inheritance tax should have been
assessed after 10 years.Lorenzo asked for a refund but Posadas declined.

ISSUE:
when should the tax be assessed?

RULING:
The Supreme Court ruled that transmission by inheritance is taxable at the time of
the predecessor's death, notwithstanding the postponement of the actual
possession or enjoyment of the estate by the beneficiary, and the tax measured by
the value of the property transmitted at that time regardless of its appreciation or
depreciation. Additionally, the obligation to pay taxes rests not upon the privileges
enjoyed by, or the protection afforded to, a citizen by the government but upon the
necessity of money for the support of the state. For this reason, no one is allowed to
object to or resist the payment of taxes solely because no personal benefit to him
can be pointed out. While courts will not enlarge, by construction, the government's
power of taxation, they also will not place upon tax laws so loose a construction as
to permit evasions on merely fanciful and insubstantial distinctions.
THE COLLECTOR OF INTERNAL REVENUE VS ANTONIO CAMPOS RUEDA G.R.
NO.L-13250 October 29, 1971

FACTS:

Respondent Antonio Campos Rueda is an administrator of the estate of the late Estrella
Soriano Vda. De Cerdeira by reason of her marriage to a Spanish citizen and was a
resident of Tangier, Morocco from 1931 up to her death on January 2, 1955. At the time
of her demise she left, among others, intangible personal properties in the Philippines. 



Respondent Campos Rueda file a provisional estate and inheritance tax return on all
the properties of the late Maria Cerdeira. On the same date, respondent, pending
investigation, issued an assessment for estate and inheritance taxes in the respective
amounts of P111,592.48 and P157,791.48, or a total of P369,383.96 which tax liabilities
were paid by petitioner. Rueda filed an amended return stating that intangible personal
properties worth P396,308.90 should be exempted from taxes. The CIR denied the
request on the ground that the law of Tangier is not reciprocal to Section 122 of the
National Internal Revenue Code.The matter was then elevated to the Court of Tax
Appeals which ruled in favor of the respondent. The principal question as noted dealt
with the reciprocity aspect as well as the insistence by the Collector of Internal Revenue
that Tangier was not a foreign country within the meaning of Section 122.



ISSUE: Whether or not Tangier is a state.



HELD:



YES. A foreign country is to be identified with a state, it is required in line with Pound’s
formulation that it be a politically organized sovereign community independent of
outside control bound by ties of nationhood, legally supreme within its territory, acting
through a government functioning under a regime of law. It is thus a sovereign person
with the people composing it viewed as an organized corporate society under a
government with the legal competence to exact obedience its commands. It has been
referred to as a body-politic organized by common consent for mutual defense and
mutual safety and to promote the general welfare



Further, the Supreme Court noted that there is already an existing jurisprudence
(Collector vs De Lara) which provides that even a tiny principality, that of Liechtenstein,
hardly an international personality in the sense, did fall under the exempt category
provided for in Section 22 of the Tax Code. Thus, recognition is not necessary. Hence,
since it was proven that Tangier provides such exemption to personal properties of
Filipinos found therein so must the Philippines honor the exemption as provided for by
our tax law with respect to the doctrine of reciprocity.
 Pajonar vs Commissioner

328 SCRA 666 [GR No. 123206 March 22, 2006]

Facts: Pedro Pajonar, a member of the Philippine Scout of Bataan during the second
world war, was a part of the infamous death march by reason of which he suffered
shock and became insane. His sister Josefina Pajonar became the guardian over his
person, while his property was placed under the guardianship of the Philippine National
Bank by the Regional Trial Court (RTC) of Dumaguete City Branch 31 in special
proceedings no. 1254. He died on January 10, 1988. He was survived by his two
brothers Isidro Pajonar and Gregorio Pajonar, his sister Josefina, nephews Concordio
Jandog and Marco Jandog and niece Conchita Jandog. On May 11, 1988, PNB filed an
accounting of the decedent’s property under guardianship but did not file an estate tax
return, it advised Pedro Pajonar’s heirs to execute an extrajudicial settlement and to pay
the taxes on his estate. On April 5, 1988, pursuant to the assessment by the Bureau of
Internal Revenue (BIR), the estate of Pedro Pajonar paid taxes in the amount of
Php2,557. On December 19, 1988, pursuant to a second assessment by the BIR for
defeciency estate tax, the estate of Pedro Pajonar paid estate tax in the amount of
Php1,527,790.98. Josefina Pajonar, in her capacity as administatrix and heir of Pedro
Pajonar’s estate filed a protest on January 11, 1989 with the BIR praying that the estate
tax payment in the amount of Php1,527,790.98, or at least some portion of it be
returned to the heirs for the alleged erroneously paid taxes.

Issue: Whether or not the notarial fee paid for the extrajudicial settlement in the amount
of Php60,753 and the attorney’s fees in the guardianship proceedings in the amount of
Php 50,000 may be allowed as deductions from the gross estate of decedent in order to
arrive at the value of net estate.

Held: Yes. The notarial fee for the extrajudicial settlement and the attorney’s fees in the
guardianship proceedings are allowable deductions from the gross estate of Pedro
Pajonar.

Although the tax code specifies “judicial expenses of the testamentary or intestate
proceedings” there is no reason why expenses incurred in the administration and
settlement of an estate in extrajudicial proceedings should not be allowed. However,
deduction is limited to such administration expenses as are actually and necessarily
incurred in the collection of assets of the estate, payment of debts, and distribution of
the remainder among those entitled thereto. Such expenses may include executor’s or
administrator’s fees, attorney’s fees, court fees and charges, appraiser’s fees, clerk hire,
cost of preserving and distributing the estate and storing or maintaining it, brokerage
fees or commissions for selling or disposing of the estate and the like. Deductible
attorney’s fees are those incurred by the executor or administrator in the settlement of
the estate or in defending or prosecuting claims against or due the estate.

Attorney’s fees on the other hand, in order to be deductible from the gross estate must
be essential to the settlement of the estate.